================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20594
----------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-11011
For the Fiscal Year Ended December 31, 1999
THE FINOVA GROUP INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 86-0695381
- -------------------------------------------- -------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
4800 North Scottsdale Road
Scottsdale, AZ 85251-7623
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code - 480-636-4800
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
------------------- -------------------
Common Stock, $0.01 par value New York Stock Exchange
Junior Participating Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Registration S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [ ]
As of March 3, 2000, approximately 61,197,000 shares of Common Stock ($0.01 par
value) were outstanding, and the aggregate market value of the Common Stock
(based on its closing price per share on that date of $27.75), held by
nonaffiliates was approximately $1,665,825,000.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement relating to 2000 Annual Meeting of Shareowners of The FINOVA
Group Inc. (but excluding information contained in that document furnished
pursuant to items 402(k) and (I) of SEC Regulation S-K) are incorporated by
reference into Part III of this report.
Website address is www.finova.com
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<PAGE>
TABLE OF CONTENTS
Name of Item
------------
Part I
Item 1. Business: .......................................................... 1
Introduction ............................................................. 1
General ................................................................ 1
Business Groups ........................................................ 1
Portfolio Composition .................................................. 3
Investment In Financing Transactions ................................... 3
Cost And Use Of Borrowed Funds ......................................... 11
Matched Funding Policy ................................................. 11
Credit Ratings ......................................................... 11
Residual Realization Experience ........................................ 12
Business Development And Competition ................................... 13
Credit Quality ......................................................... 13
Risk Management ........................................................ 13
Portfolio Management ................................................... 14
Delinquencies And Workouts ............................................. 14
Governmental Regulation ................................................ 14
Employees .............................................................. 15
Special Note Regarding Forward-Looking Statements ...................... 15
Item 2. Properties ......................................................... 16
Item 3. Legal Proceedings .................................................. 16
Item 4. Submission Of Matters To A Vote Of Security Holders ................ 16
Optional Executive Officers Of Registrant .................................. 17
Part II
Item 5. Market Price of and Dividends on the Registrant's Common
Equity & Related Shareowner Matters ................................ 18
Item 6. Selected Financial Data ............................................ 19
Item 7. Management's Discussion and Analysis of Financial Condition
an Results of Operations ........................................... 20
Item 7A Quantitative and Qualitative Disclosures About Market Risk ......... 20
Item 8. Financial Statements & Supplemental Data ........................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting
& Financial Disclosure ............................................. 20
Part III
Item 10. Directors & Executive Officers of the Registrant .................. 21
Item 11. Executive Compensation ............................................ 21
Item 12. Security Ownership of Certain Beneficial Owners & Management ...... 21
Item 13. Certain Relationships & Related Transactions ...................... 21
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K. ...................................................... 21
<PAGE>
PART I
ITEM 1. BUSINESS.
INTRODUCTION
THE FOLLOWING DISCUSSION RELATES TO THE FINOVA GROUP INC. AND ITS
SUBSIDIARIES (COLLECTIVELY "FINOVA" OR THE "COMPANY"), INCLUDING FINOVA CAPITAL
CORPORATION AND ITS SUBSIDIARIES ("FINOVA CAPITAL").
GENERAL
The FINOVA Group Inc. is a financial services holding company. Through its
principal subsidiary, FINOVA Capital, the Company provides a broad range of
financing and capital market products. FINOVA concentrates on lending to
mid-size businesses. FINOVA Capital has been in operation since 1954.
FINOVA extends revolving credit facilities, term loans and equipment and
real estate financing primarily to "middle-market" businesses with financing
needs falling generally between $100,000 and $35 million.
FINOVA operates in 20 specific industry or market niches under three market
groups. FINOVA selected these niches because its expertise in evaluating the
creditworthiness of prospective customers and its ability to provide value-added
services enables the Company to differentiate itself from its competitors. That
expertise and ability also enable FINOVA to command pricing that provides a
satisfactory spread over its borrowing costs.
FINOVA seeks to maintain a high quality portfolio and to minimize
non-earning assets and write-offs. FINOVA uses defined underwriting criteria and
stringent portfolio management techniques. The Company diversifies its lending
activities geographically and among a range of industries, customers and loan
products.
Due to the diversity of FINOVA's portfolio, the Company believes it is
better able to manage competitive changes in its markets and to withstand the
impact of deteriorating economic conditions on a regional or national basis.
There can be no assurance, however, that competitive changes, borrowers'
performance, economic conditions or other factors will not result in an adverse
impact on FINOVA's results of operations or financial condition.
FINOVA generates interest, lease rentals, fees and other income through
charges assessed on outstanding loans, loan servicing, leasing, brokerage and
other activities. FINOVA's primary expenses are the costs of funding the loan
and lease business, including interest paid on debt, provisions for credit
losses, marketing expenses, salaries and employee benefits, servicing and other
operating expenses and income taxes.
FINOVA's principal executive offices are located at 4800 North Scottsdale
Road, Scottsdale, Arizona 85251, telephone (480) 636-4800. FINOVA also has
business development offices throughout the U.S. and in London, U.K. and
Toronto, Canada.
BUSINESS GROUPS
FINOVA operates the following principal lines of business under three
market groups:
COMMERCIAL FINANCE
* BUSINESS CREDIT offers collateral-oriented revolving credit facilities
and term loans for manufacturers, retailers, distributors, wholesalers
and service companies. Typical transaction sizes range from $1 million
to $5 million. Fremont Capital Corporation, acquired in December 1999,
was added to this line of business.
1
<PAGE>
* COMMERCIAL SERVICES offers full service factoring and accounts
receivable management services for entrepreneurial and larger firms,
primarily in the textile and apparel industries. The annual factored
volume of these companies is generally between $2 million and $100
million. This line provides accounts receivable and inventory
financing in addition to loans secured by equipment and real estate.
* CORPORATE FINANCE provides a full range of cash flow-oriented and
asset-based term and revolving loan products for manufacturers,
wholesalers, distributors, specialty retailers and commercial and
consumer service businesses. Typical transaction sizes range from $2
million to $35 million.
* DISTRIBUTION & CHANNEL FINANCE provides inbound and outbound inventory
financing, combined inventory/accounts receivable lines of credit and
purchase order financing for equipment distributors, value-added
resellers and dealers nationwide. Transaction sizes generally range
from $500,000 to $30 million.
* GROWTH FINANCE provides collateral-based working capital financing
primarily secured by accounts receivable for manufacturers, wholesale
distributors, service companies and importers. Typical transaction
sizes range from $100,000 to $1 million and are made to small and
midsize businesses with annual sales under $10 million.
* REDISCOUNT FINANCE offers revolving credit facilities to the
independent consumer finance industry including direct loan,
automobile, mortgage and premium finance companies. Typical
transaction sizes range from $1 million to $35 million.
SPECIALTY FINANCE
* COMMERCIAL EQUIPMENT FINANCE offers equipment leases and loans to a
broad range of midsize companies. Specialty markets include emerging
growth technology industries (primarily biotechnology), electronics,
telecommunications, corporate aircraft, supermarket/specialty
retailers and most heavy industries. Typical transaction sizes range
from $1 million to $20 million.
* COMMUNICATIONS FINANCE specializes in term financing to advertising
and subscriber-supported businesses, including radio and television
broadcasting, cable television, paging, outdoor advertising,
publishing and emerging technologies such as internet service
providers and competitive local exchange carriers. Typical transaction
sizes range from $3 million to $40 million.
* FRANCHISE FINANCE offers equipment, real estate and acquisition
financing for operators of established franchise concepts. Typical
transaction sizes generally range from $500,000 to $40 million.
* HEALTHCARE FINANCE offers a full range of working capital, equipment
and real estate financing products for the U.S. healthcare industry.
Transaction sizes typically range from $500,000 to $35 million.
* PORTFOLIO SERVICES provides customized receivable servicing and
collections for resort timeshare developers and other holders of
consumer receivables.
* PUBLIC FINANCE provides tax-exempt term financing to non-profit
corporations, manufacturers and state and local governments. Typical
transaction sizes range from $2 million to $15 million.
* RESORT FINANCE focuses on construction, acquisition and receivables
financing for timeshare resorts, second home communities and
fractional interest resorts. Typical transaction sizes ranges from $5
million to $35 million.
* SPECIALTY REAL ESTATE FINANCE provides senior term acquisition and
bridge/interim loans from $5 million to $30 million or more for hotel
and resort properties in the U.S., Canada and the Caribbean. Through
this division, FINOVA also provides equity investments in
credit-oriented real estate sale leasebacks.
* TRANSPORTATION FINANCE structures equipment loans, leases and
acquisition financing for commercial and cargo airlines worldwide,
railroads and operators of other transportation-related equipment.
Typical transaction sizes range from $5 million to $30 million.
Through FINOVA Aircraft Investors LLC, FINOVA also seeks to use its
market expertise and industry presence to purchase, upgrade and
remarket used commercial aircraft.
2
<PAGE>
CAPITAL MARKETS
* HARRIS WILLIAMS & CO. provides merger and acquisition advisory
services targeting middle market businesses.
* INVESTMENT ALLIANCE provides equity and debt financing for midsize
businesses in partnership with institutional investors and selected
fund sponsors. Typical transaction sizes range from $2 million to $15
million.
* LOAN ADMINISTRATION provides servicing and subservicing of commercial
mortgages, business leases and prime and sub-prime consumer loans.
* MEZZANINE CAPITAL provides secured subordinated debt with warrants to
midsize North American companies for expansion capital, buyouts or
recapitalizations. Typical transaction sizes range from $2 million to
$15 million.
* REALTY CAPITAL provides commercial real estate bridge/interim mortgage
loans and capital markets-funded commercial real estate loans. Typical
transaction sizes range from $1 million to $25 million.
FINOVA is a Delaware corporation. The Company was incorporated in 1991 to
serve as the successor to The Dial Corp's financial services businesses. In
March 1992, Dial transferred those businesses to FINOVA in a spin-off. Since
that time, FINOVA has increased its total assets from $2.6 billion at December
31, 1992 to $14.1 billion at December 31,1999. Income from continuing operations
increased from $36.8 million in 1992 to $215.2 million in 1999. Management
believes FINOVA ranks among the largest independent commercial finance companies
in the U.S., based on total assets. FINOVA's common stock is traded on the New
York Stock Exchange under the symbol "FNV."
PORTFOLIO COMPOSITION
The total assets under management consist of FINOVA's net investment in
financing transactions plus certain assets that are owned by others but serviced
by the Company. Managed assets are not reported on the Company's balance sheet
(securitized assets and participations sold). The Company's investment in
financing transactions is primarily settled in U.S. dollars.
INVESTMENT IN FINANCING TRANSACTIONS
The following tables detail FINOVA's investment in financing transactions
(before reserve for credit losses) at December 31, 1999, 1998, 1997, 1996 and
1995.
3
<PAGE>
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Revenue Accruing Nonaccruing
--------------------------------------- ----------------------------------
Market Repossessed Repossessed Lease Total Carrying
Rate (1) Impaired Assets (2) Impaired Assets & Other Amount %
--------------------------------------- ---------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial Finance Group
Rediscount Finance $ 1,059,930 $ $ 12,574 $ 1,071 $ 3,042 $ $ 1,076,617 8.2
Business Credit 953,635 4,800 29,853 905 989,193 7.5
Corporate Finance 845,778 49,792 43,169 901 939,640 7.2
Distribution & Channel
Finance 467,720 76,770 13,867 558,357 4.3
Commercial Services 217,518 2,791 1,930 222,239 1.7
Growth Finance 55,276 2,625 57,901 0.4
----------- ---------- ---------- -------- ---------- ---------- ------------- -----
3,599,857 131,362 12,574 93,376 6,778 3,843,947 29.3
----------- ---------- ---------- -------- ---------- ---------- ------------- -----
Specialty Finance Group
Transportation
Finance 2,424,262 64,073 2,488,335 19.0
Resort Finance 1,584,508 14,383 2,699 19,318 1,620,908 12.4
Commercial Equipment
Finance 809,456 5,090 12,000 19,657 2,725 848,928 6.5
Franchise Finance 769,162 1,917 4,953 2,770 172 778,974 5.9
Specialty Real Estate
Finance 726,788 35,807 9,042 6,151 152 777,940 5.9
Healthcare Finance 692,876 17,695 5,137 35,076 1,162 5,945 757,891 5.8
Communications Finance 674,331 3,908 10,327 688,566 5.2
Public Finance 168,778 168,778 1.3
----------- ---------- ---------- -------- ---------- ---------- ------------- -----
7,850,161 85,676 62,334 74,097 49,058 8,994 8,130,320 62.0
----------- ---------- ---------- -------- ---------- ---------- ------------- -----
Capital Markets Group
Realty Capital 578,808 4,614 583,422 4.4
Mezzanine Capital 386,555 21,981 34,117 442,653 3.4
Investment Alliance 25,292 25,292 0.2
----------- ---------- ---------- -------- ---------- ---------- ------------- -----
990,655 21,981 38,731 1,051,367 8.0
----------- ---------- ---------- -------- ---------- ---------- ------------- -----
Other (3) 71,147 1,107 24,089 96,343 0.7
----------- ---------- ---------- -------- ---------- ---------- ------------- -----
TOTAL (4) $12,511,820 $ 240,126 $ 74,908 $206,204 $ 55,836 $ 33,083 $ 13,121,977 100.0
=========== ========== ========== ======== ========== ========== ============= =====
</TABLE>
- ----------
NOTES:
(1) Represents original or renegotiated market rate terms, excluding impaired
transactions.
(2) The Company earned income totaling $5.5 million on repossessed assets
during 1999, including $2.2 million in Specialty Real Estate Finance, $1.0
million in Resort Finance, $0.5 million in Healthcare Finance, $1.4 million
in Rediscount Finance, $0.3 million in Commercial Equipment Finance and
$0.1 million in Franchise Finance.
(3) Primarily includes other assets retained from disposed or discontinued
operations.
(4) Excludes $483.4 million of assets securitized and participations sold which
the Company manages, composed of securitizations of $300.0 million in
Corporate Finance and $121.3 million in Franchise Finance and
participations of $28.8 million in Corporate Finance, $3.0 million in
Communications Finance, $12.3 million in Rediscount Finance, $4.6 million
in Transportation Finance, $6.7 million in Business Credit, $6.3 million in
Resort Finance and $0.4 million in Other.
4
<PAGE>
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Revenue Accruing Nonaccruing
--------------------------------- ------------------------------
Market Repossessed Repossessed Lease Total Carrying
Rate (1) Impaired Assets (2) Impaired Assets & Other Amount %
--------------------------------- ------------------------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial Finance Group
Rediscount Finance $ 766,250 $ $ 999 $ 3,762 $ $ $ 771,011 7.7
Business Credit 292,696 7,416 300,112 3.0
Corporate Finance 729,461 16,183 41,007 1,115 787,766 7.9
Distribution & Channel
Finance 561,734 6,029 567,763 5.7
Commercial Services 160,012 648 8,912 936 170,508 1.7
Growth Finance 45,901 45,901 0.5
---------- -------- ------- -------- ------- ------- ----------- -----
2,556,054 16,831 999 67,126 2,051 2,643,061 26.5
---------- -------- ------- -------- ------- ------- ----------- -----
Specialty Finance Group
Transportation Finance 2,140,541 61,895 2,202,436 22.0
Resort Finance 1,209,062 16,415 24,800 1,250,277 12.5
Commercial Equipment
Finance 712,854 1,526 4,858 10,884 17,855 4,135 752,112 7.5
Franchise Finance 597,916 1,619 1,741 1,763 2,120 274 605,433 6.0
Specialty Real Estate
Finance 635,952 16,966 34,230 9,799 7,620 194 704,761 7.0
Healthcare Finance 597,201 7,018 5,902 1,102 611,223 6.1
Communications Finance 694,863 7,169 24,264 726,296 7.2
Public Finance 183,099 183,099 1.8
---------- -------- ------- -------- ------- ------- ----------- -----
6,771,488 89,175 64,262 52,612 52,395 5,705 7,035,637 70.1
---------- -------- ------- -------- ------- ------- ----------- -----
Capital Markets Group
Realty Capital 243,278 243,278 2.4
Investment Alliance 12,297 12,297 0.1
---------- -------- ------- -------- ------- ------- ----------- -----
255,575 255,575 2.5
---------- -------- ------- -------- ------- ------- ----------- -----
Other (3) 60,604 25,344 85,948 0.9
---------- -------- ------- -------- ------- ------- ----------- -----
TOTAL (4) $9,643,721 $106,006 $65,261 $119,738 $54,446 $31,049 $10,020,221 100.0
========== ======== ======= ======== ======= ======= =========== =====
</TABLE>
- ----------
NOTES:
(1) Represents original or renegotiated market rate terms, excluding impaired
transactions.
(2) The Company earned income totaling $4.7 million on repossessed assets
during 1998, including $2.4 million in Specialty Real Estate Finance, $1.0
million in Resort Finance, $0.9 million in Healthcare Finance, $0.2 million
in Rediscount Finance and $0.2 million in Commercial Equipment Finance.
(3) Primarily includes other assets retained from disposed or discontinued
operations.
(4) Excludes $537.6 million of assets securitized and participations sold which
the Company manages, composed of securitizations of $300.0 million in
Corporate Finance and $136.1 million in Franchise Finance and
participations of $49.3 million in Corporate Finance, $21.4 million in
Communications Finance, $5.4 million in Resort Finance, $6.9 million in
Rediscount Finance, $3.8 million in Business Credit, $12.6 million in
Transportation Finance and $2.1 million in Distribution & Channel Finance.
5
<PAGE>
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Revenue Accruing Nonaccruing
--------------------------------- ------------------------------
Market Repossessed Repossessed Lease Total Carrying
Rate (1) Impaired Assets (2) Impaired Assets & Other Amount %
--------------------------------- ------------------------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial Finance Group
Rediscount Finance $ 609,641 $ $ $ 993 $ $ $ 610,634 7.2
Business Credit 195,897 7,559 203,456 2.4
Corporate Finance 791,733 981 26,888 819,602 9.7
Distribution & Channel
Finance 544,108 4,333 548,441 6.5
Commercial Services 196,843 30,205 227,048 2.7
---------- ------- ---------- ---------- ------- ---------- ---------- -----
2,338,222 981 69,978 2,409,181 28.5
---------- ------- ---------- ---------- ------- ---------- ---------- -----
Specialty Finance Group
Transportation
Finance 1,631,685 1,631,685 19.4
Resort Finance 1,166,199 14,450 3,974 26,240 1,210,863 14.4
Commercial Equipment
Finance 614,712 1,816 11,802 4,030 632,360 7.5
Franchise Finance 430,651 808 2,171 305 433,935 5.2
Specialty Real Estate
Finance 610,711 24,120 38,055 7,648 10,853 196 691,583 8.2
Healthcare Finance 525,846 1,515 666 528,027 6.3
Communications Finance 628,947 8,724 24,452 662,123 7.9
Public Finance 135,826 135,826 1.6
---------- ------- ---------- ---------- ------- ---------- ---------- -----
5,744,577 35,468 52,505 51,562 37,093 5,197 5,926,402 70.5
---------- ------- ---------- ---------- ------- ---------- ---------- -----
Other (3) 61,353 23,526 84,879 1.0
---------- ------- ---------- ---------- ------- ---------- ---------- -----
TOTAL (4) $8,144,152 $36,449 $ 52,505 $ 121,540 $37,093 $ 28,723 $8,420,462 100.0
========== ======= ========== ========== ======= ========== ========== =====
</TABLE>
- ----------
NOTES:
(1) Represents original or renegotiated market rate terms, excluding impaired
transactions.
(2) The Company earned income totaling $4.1 million on repossessed assets
during 1997, including $3.1 million in Specialty Real Estate Finance and
$1.0 million in Resort Finance.
(3) Primarily includes other assets retained from disposed or discontinued
operations.
(4) Excludes assets securitized and participations sold which the Company
manages, composed of securitizations of $300.0 million in Corporate Finance
and $36.6 million in Franchise Finance and participations of $40.2 million
in Corporate Finance, $61.0 million in Communications Finance, $8.5 million
in Transportation Finance, $4.6 million in Rediscount Finance, $5.1 million
in Resort Finance and $1.9 million in Distribution & Channel Finance.
6
<PAGE>
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Revenue Accruing Nonaccruing
--------------------------------- ------------------------------
Market Repossessed Repossessed Lease Total Carrying
Rate (1) Impaired Assets (2) Impaired Assets & Other Amount %
--------------------------------- ------------------------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial Finance Group
Rediscount Finance $ 421,232 $ $ $ 245 $ $ $ 421,477 5.8
Business Credit 160,006 11,963 171,969 2.4
Corporate Finance 630,399 3,211 14,695 335 648,640 8.9
Distribution & Channel
Finance 314,446 1,273 315,719 4.3
Commercial Services 220,701 3,419 224,120 3.0
---------- ------- ------- ---------- ------- ---------- ---------- -----
1,746,784 3,211 31,595 335 1,781,925 24.4
---------- ------- ------- ---------- ------- ---------- ---------- -----
Specialty Finance Group
Transportation
Finance 1,330,578 1,330,578 18.2
Resort Finance 1,124,462 2,963 13,878 77 25,136 1,166,516 15.9
Commercial Equipment
Finance 570,574 7,900 6,564 585,038 8.0
Franchise Finance 366,202 1,104 1,985 996 370,287 5.0
Specialty Real Estate
Finance 700,932 30,245 46,068 6,748 9,853 940 794,786 10.8
Healthcare Finance 497,540 1,304 1,194 500,038 6.8
Communications Finance 535,701 8,796 14,129 3,095 561,721 7.7
Public Finance 150,361 13 150,374 2.1
---------- ------- ------- ---------- ------- ---------- ---------- -----
5,276,350 43,108 59,946 32,156 38,084 9,694 5,459,338 74.5
---------- ------- ------- ---------- ------- ---------- ---------- -----
Other 73,158 4,498 77,656 1.1
---------- ------- ------- ---------- ------- ---------- ---------- -----
TOTAL(3) $7,096,292 $46,319 $59,946 $ 63,751 $38,419 $ 14,192 $7,318,919 100.0
========== ======= ======= ========== ======= ========== ========== =====
</TABLE>
- ----------
NOTES:
(1) Represents original or renegotiated market rate terms, excluding impaired
transactions.
(2) The Company earned income totaling $5.1 million on repossessed assets
during 1996, including $4.4 million in Specialty Real Estate Finance and
$0.7 million in Resort Finance.
(3) Excludes assets securitized and participations sold which the Company
manages, composed of securitizations of $300.0 million in Corporate Finance
and participations of $24.6 million in Corporate Finance, $27.5 million in
Communications Finance, $4.8 million in Rediscount Finance, $4.4 million in
Resort Finance and $3.2 million in Distribution & Channel Finance.
7
<PAGE>
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Revenue Accruing Nonaccruing
---------------------------------- ---------------------------------
Market Repossessed Repossessed Lease & Total Carrying
Rate (1) Impaired Assets(2) Impaired Assets Other Amount %
--------------------------------- --------------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial Finance Group
Rediscount Finance $ 345,264 $ $ $ $ $ $ 345,264 5.4
Business Credit 200,365 12,685 213,050 3.3
Corporate Finance (3) 631,295 5,274 19,592 335 656,496 10.3
Distribution & Channel
Finance 202,879 430 203,309 3.2
Commercial Services 188,892 594 189,486 3.0
---------- -------- -------- ---------- -------- -------- ---------- -----
1,568,695 5,274 33,301 335 1,607,605 25.2
---------- -------- -------- ---------- -------- -------- ---------- -----
Specialty Finance Group
Transportation
Finance 929,043 929,043 14.6
Resort Finance 943,661 2,849 12,064 2,583 26,559 987,716 15.6
Commercial Equipment
Finance 345,039 69 6,079 351,187 5.5
Franchise Finance 327,356 1,462 6,408 1,850 337,076 5.3
Specialty Real Estate
Finance 703,018 3,898 42,304 15,264 18,231 988 783,703 12.3
Healthcare Finance 451,503 81 1,231 452,815 7.1
Communications Finance 662,191 2,502 2,217 16,817 4,863 688,590 10.8
Public Finance 121,956 47 122,003 1.9
---------- -------- -------- ---------- -------- -------- ---------- -----
4,483,767 10,711 56,585 41,222 49,653 10,195 4,652,133 73.1
---------- -------- -------- ---------- -------- -------- ---------- -----
Other 94,755 1,275 2,360 6,061 104,451 1.7
---------- -------- -------- ---------- -------- -------- ---------- -----
TOTAL (3) $6,147,217 $ 17,260 $ 56,585 $ 76,883 $ 49,988 $ 16,256 $6,364,189 100.0
========== ======== ======== ========== ======== ======== ========== =====
</TABLE>
- ----------
NOTES:
(1) Represents original or renegotiated market rate terms, excluding impaired
transactions.
(2) The Company earned income totaling $4.2 million on repossessed assets
during 1995, including $3.2 million in Specialty Real Estate Finance, $0.6
million in Resort Finance and $0.4 million in Communications Finance.
(3) Excludes $200 million of securitized assets which are managed by the
Company.
8
<PAGE>
The Company's geographic portfolio diversification at December 31, 1999 was
as follows:
State Total Percent
----- ----- -------
(Dollars in Thousands)
California $ 2,014,346 14.8%
Florida 1,365,676 10.0%
Texas 1,081,933 8.0%
New York 866,821 6.4%
Illinois 477,287 3.5%
Georgia 440,981 3.2%
New Jersey 429,370 3.2%
Arizona 389,931 2.9%
Pennsylvania 339,866 2.5%
Virginia 334,518 2.5%
Nevada 318,775 2.3%
Missouri 303,266 2.2%
South Carolina 298,393 2.2%
Minnesota 274,281 2.0%
Other (1) 4,669,930 34.3%
----------- -----
Total managed assets $13,605,374 100%
=========== =====
- ----------
NOTE:
(1) Other includes all states which on an individual basis represent less than
2% of the total; and international, which represents approximately 10% of
the total.
The following is an analysis of the reserve for credit losses for the years
ended December 31:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
Balance, beginning
of year $ 207,618 $ 177,088 $ 148,693 $ 129,077 $ 110,903
Provision for
credit losses 76,800 82,200 69,200 41,751 39,568
Write-offs (60,372) (59,037) (45,487) (32,017) (27,631)
Recoveries 3,518 2,279 2,287 3,296 2,104
Acquisitions and
other 37,419 5,088 2,395 6,586 4,133
--------- --------- --------- --------- ---------
Balance, end of
year $ 264,983 $ 207,618 $ 177,088 $ 148,693 $ 129,077
========= ========= ========= ========= =========
Included above is a specific impairment reserve of $146.7 million at
December 31, 1999, which applies to $298.6 million of the $446.3 million of
impaired loans. The remaining $118.3 million of the reserve for credit losses
represents management's best estimate of inherent losses in the remaining
portfolio considering delinquencies, loss experience and collateral. At December
31, 1998, the specific impairment reserve was $37.1 million, which applied to
$98.7 million of the $225.7 million of impaired loans. Additions to general and
specific reserves are reflected in current operations, and are fungible between
impairment reserves and other reserves. Included in the $37.4 million of
acquisition and other is $20.5 million in reserves for credit losses acquired
with the acquisition of Sirrom and $12.2 million in reserves acquired in the
acquisition of Fremont.
9
<PAGE>
Write-offs and recoveries by line of business, during the years ended
December 31, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
WRITE-OFFS
Commercial Finance Group
Corporate Finance $18,088 $ 6,728 $ 6,577 $ 9,470 $ 4,660
Commercial Services 8,385 36,286 24,382 5,098 3,728
Distribution & Channel Finance 3,996 2,609 1,777 201
Rediscount Finance 3,523 1,500
Growth Finance 2,590
Business Credit 2,367 1,253 452
------- ------- ------- ------- -------
38,949 48,376 32,736 14,568 9,041
------- ------- ------- ------- -------
Specialty Finance Group
Commercial Equipment Finance 6,030 3,845 3,722 3,207 2,271
Communications Finance 3,100 494 750 2,994 4,037
Healthcare Finance 1,327 1,502 1,798 1,018 314
Franchise Finance 1,064 3,035 696 3,267 3,448
Resort Finance 656 2,700 4,275 2,000
Specialty Real Estate Finance 500 1,785 2,106 1,793 2,275
------- ------- ------- ------- -------
12,677 10,661 11,772 16,554 14,345
------- ------- ------- ------- -------
Capital Markets Group
Mezzanine Capital 8,222
------- ------- ------- ------- -------
8,222
------- ------- ------- ------- -------
Other 524 979 895 4,245
------- ------- ------- ------- -------
Total Write-Offs 60,372 59,037 45,487 32,017 27,631
------- ------- ------- ------- -------
RECOVERIES
Commercial Finance Group
Corporate Finance 234 48 99 10 247
Commercial Services 1,007 623 1,127 1,488 482
Distribution & Channel Finance 72 33 20
Rediscount Finance 46
Business Credit 381 434
------- ------- ------- ------- -------
1,740 1,105 1,226 1,531 749
------- ------- ------- ------- -------
Specialty Finance Group
Commercial Equipment Finance 257 200 514 829 116
Communications Finance 250
Healthcare Finance 139 542 94 8 52
Franchise Finance 824 255 263 422 115
Resort Finance 26 22
Specialty Real Estate Finance 371 177 80
------- ------- ------- ------- -------
1,591 997 871 1,462 635
------- ------- ------- ------- -------
Capital Markets Group
Mezzanine Capital 68
------- ------- ------- ------- -------
68
------- ------- ------- ------- -------
Other 119 177 190 303 720
------- ------- ------- ------- -------
Total Recoveries 3,518 2,279 2,287 3,296 2,104
------- ------- ------- ------- -------
Total Net Write-Offs $56,854 $56,758 $43,200 $28,721 $25,527
======= ======= ======= ======= =======
Net write-offs as a percentage
of average managed assets
(excluding participations sold) 0.48% 0.60% 0.53% 0.41% 0.44%
------- ------- ------- ------- -------
</TABLE>
A further breakdown of the portfolio by line of business can be
found in Consolidated Financial Statements - Annex A ("Annex A"), Notes B and C.
10
<PAGE>
COST AND USE OF BORROWED FUNDS
FINOVA Capital relies on borrowed funds as well as internal cash flow to
finance its operations. It also has raised funds through the sale or
securitization of assets, but does not rely on those methods as a primary source
of capital. FINOVA also raises funds from the sale of equity from time to time.
The following table reflects the approximate average pre-tax effective cost
of borrowed funds and pre-tax equivalent rate earned on accruing assets for
FINOVA Capital for each of the periods listed:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Short-term and variable rate long-term debt 5.7% 6.1% 6.4% 6.5% 7.2%
Fixed-rate long-term debt 6.7% 7.0% 7.1% 7.2% 7.3%
Aggregate borrowed funds 6.1% 6.4% 6.6% 6.8% 7.2%
Rate earned on average earning assets (1) (2) 11.3% 11.9% 11.5% 11.4% 11.7%
Operating margin as a percentage of average
earning assets 5.8% 6.3% 5.9% 5.7% 5.6%
</TABLE>
- ----------
NOTES:
(1) Earning assets are net of average nonaccruing assets and average deferred
taxes applicable to leveraged leases.
(2) Earned amounts are net of depreciation.
The effective costs presented above include costs of commitment fees and
related borrowing costs. They do not necessarily predict future costs of funds.
For further information on FINOVA Capital's cost of funds, refer to Annex A,
Notes E and F.
Following are the ratios of income to fixed charges and preferred stock
dividends ("ratio") for each of the past five years:
Year Ended December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
1.58 1.53 1.51 1.51 1.45
==== ==== ==== ==== ====
Income for fixed charges consists of income from continuing operations
before income taxes and fixed charges. Fixed charges include interest and
related debt expense, a portion of rental expense representative of interest and
preferred stock dividends grossed up to a pre-tax basis.
Variations in interest rates generally do not have a substantial impact on
the ratio because fixed-rate and floating-rate assets are generally matched with
liabilities of similar rate and term.
MATCHED FUNDING POLICY
FINOVA Capital follows a "matched funding" policy. Under that policy, it
generally funds the floating-rate assets (loans and leases to FINOVA's
borrowers) with floating-rate liabilities (FINOVA's debt) and fixed-rate assets
with fixed-rate liabilities to the extent feasible. This policy helps protect
FINOVA from changes in interest rates. For further discussion on FINOVA
Capital's debt and matched funding policy, see Annex A, Notes E and F.
11
<PAGE>
CREDIT RATINGS
FINOVA Capital currently has investment-grade credit ratings from the
following rating agencies:
Commercial
Paper Senior Debt
---------- -----------
Duff & Phelps Credit Rating Co. D1 A
Fitch Investors Services, Inc. F1 A
Moody's Investors Service, Inc. P2 Baa1
Standard & Poor's Ratings Group A2 A-
FINOVA (Canada) Capital Corporation, a subsidiary of FINOVA Capital, has a
rating with Dominion Bond Rating Service Limited of R-1 (low) for commercial
paper.
In February 2000, FINOVA (Canada) Finance Inc., a subsidiary of FINOVA
Capital, received a rating with Dominion Bond Rating Service Limited of A (low)
for the Medium Term Note Program.
In addition, FINOVA Finance Trust, a subsidiary trust of the Company,
issued mandatory redeemable convertible preferred securities ("TOPrS") in
December 1996 having investment-grade ratings as follows:
Duff & Phelps Credit Rating Co. BBB+
Fitch Investors Services, Inc. A-
Moody's Investors Service, Inc. Baa2
Standard & Poor's Ratings Group BBB
For further information relating to the TOPrS, refer to Annex A, Note G.
Standard & Poor's Ratings Group changed on February 26,1999, its rating of
the TOPrS from BBB+ to BBB. The rating change was not a downgrade, but resulted
from the new rating scale under which Standard & Poor's Ratings Group rates
preferred stock two notches below the corporate or counter party credit rating
of an investment-grade issuer such as FINOVA.
There can be no assurance that these ratings will be maintained. The
ratings can be modified at any time. A credit rating is not a recommendation to
buy, sell or hold securities. Each rating should be evaluated independently of
any other rating.
RESIDUAL REALIZATION EXPERIENCE
Each year since its inception, FINOVA Capital has earned total proceeds
from the sale of assets upon lease termination in excess of carrying amounts.
There can be no assurance, however, that those results can be achieved in future
years. Actual proceeds will depend on current market values for those assets at
the time of sale. While market values are generally beyond the control of
FINOVA, the Company has some discretion in the timing of sales of the assets.
Sales proceeds on lease terminations in excess of carrying amounts are reported
as gains on disposal of assets when the assets are sold.
Income from leasing transactions is affected by gains from asset sales on
lease termination and, hence can be somewhat less predictable than income from
lending activities. During the five years ended December 31, 1999, the proceeds
to FINOVA Capital from sales of assets on early termination and the expiration
of leases have exceeded the carrying amounts and estimated residual values as
follows:
12
<PAGE>
<TABLE>
<CAPTION>
Early Terminations Terminations at End of Lease Term
- --------------------------------------------- ------------------------------------------
Carrying Proceeds Estimated Proceeds as a %
Sales Amount as a % of Sales Residual Value of Estimated
Year Proceeds of Assets Carrying Amount Proceeds of Assets Residual Value
- --------------------------------------------- ------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
1999 $ 95,721 $81,000 118% $29,474 $23,559 125%
1998 82,671 67,650 122% 40,571 35,647 114%
1997 114,680 96,656 119% 78,419 71,914 109%
1996 87,311 75,910 115% 16,334 13,872 118%
1995 1,402 905 155% 32,509 25,566 127%
</TABLE>
The estimated residual value of direct finance and leveraged lease assets
in the accounts of FINOVA Capital at December 31, 1999 was 34.4% of the original
cost of those assets (30.3% excluding the original costs of the assets and
residuals applicable to real estate leveraged leases, which typically have
higher residuals than other leases). The financing contracts and leases
outstanding at that date had initial terms ranging from one to 25 years. The
average initial term weighted by carrying amount at inception and the average
remaining term weighted by remaining carrying amount of financing contracts at
December 31, 1999 for financing contracts excluding leveraged leases were
generally 7.0 and 5.1 years, respectively, and for leveraged leases were
approximately 18.4 and 10.4 years, respectively. The comparable average initial
term and remaining term at December 31, 1998 for financing contracts excluding
leveraged leases were generally 7.5 and 5.4 years, respectively, and for
leveraged leases were approximately 18.7 and 11.2 years, respectively. FINOVA
Capital uses either employed or outside appraisers to determine the collateral
value of assets to be leased or financed and the estimated residual or
collateral value thereof at the expiration of each lease. Actual proceeds could
differ from those appraised values.
For a discussion of accounting for lease transactions, refer to Annex A,
Notes A and B.
BUSINESS DEVELOPMENT AND COMPETITION
FINOVA Capital seeks to develop business primarily through direct
solicitation by its own sales force. Customers are also introduced by
independent brokers and referred by other financial institutions and other
sources.
FINOVA Capital is engaged in an extremely competitive activity. It competes
with banks, savings and thrift institutions, insurance companies, leasing
companies, the credit units of equipment manufacturers and other finance
companies. Some of these competitors have substantially greater financial
resources and are able to borrow at costs below those of FINOVA Capital. FINOVA
Capital's principal competitive advantages are customer service, middle-market
and industry niche focus, structuring expertise and its broad array of financial
products. The interest rate FINOVA Capital charges for money is a function of
its borrowing costs, its operating costs and other factors. While many of FINOVA
Capital's larger competitors are able to offer lower interest rates due chiefly
to their lower borrowing costs, FINOVA Capital seeks to maintain the
competitiveness of the rates it offers by emphasizing strict discipline over its
operating costs. FINOVA's ability to manage costs is, in part, dependent on
factors beyond the Company's control, such as the cost of funds, outside
litigation expenses and competitive salaries.
CREDIT QUALITY
FINOVA Capital has maintained its asset base generally through the use of
defined underwriting standards, portfolio management techniques, monitoring of
covenant compliance and active collections and workout efforts.
13
<PAGE>
RISK MANAGEMENT
FINOVA Capital generally investigates its prospective customers through a
review of historical financial statements, published credit reports, credit
references, discussion with management, analysis of location feasibility,
personal visits and collateral appraisals and inspections. In many cases,
depending upon the results of its credit investigations and the nature of the
financing being provided, FINOVA Capital obtains additional collateral or
guarantees from other parties. As part of its underwriting process, FINOVA
Capital considers the management, industry, financial position and collateral
being provided by a proposed borrower or lessee. The purpose, term, amortization
and amount of any proposed transaction generally must be clearly defined and
within established corporate guidelines. In addition, FINOVA attempts to avoid
undue concentrations in any one customer, industry or geographic region.
* MANAGEMENT. FINOVA Capital considers the reputation, experience and
depth of management; quality of product or service; adaptability to
changing markets and demand; and prior banking, finance and trade
relationships.
* INDUSTRY. FINOVA Capital evaluates critical aspects of each industry
to which it lends, including general trend, seasonality and
cyclicality; governmental regulation; the effects of taxes; the
economic value of goods or services provided; and potential
environmental or other liabilities.
* FINANCIAL POSITION. FINOVA Capital's review of a prospective borrower
normally includes a thorough analysis of the borrower's financial
performance. Items considered include net worth; composition of assets
and liabilities; debt service coverage; liquidity; sales growth and
earning power; and cash flow generation and reliability.
* COLLATERAL. FINOVA Capital regards collateral as an important factor
in a credit evaluation and, for collateral dependent transactions, has
established maximum loan to value ratios, normally ranging from 60% -
90%, for each of its lines of business.
The underwriting process includes, in addition to the analysis of the
factors noted above, the design and implementation of transaction structure and
strategies to mitigate identified risks; a review of transaction pricing
relative to product-specific return requirements and acknowledged risk elements;
a multi-step, interdepartmental review and approval process with varying levels
of authority dependent on the size of the transaction; and periodic
interdepartmental reviews and revision of underwriting guidelines.
FINOVA Capital also monitors portfolio concentrations in the areas of total
exposure to a single borrower and related entities, within a given geographical
area and with respect to an industry and/or product type within an industry.
FINOVA Capital has established concentration guidelines for each line of
business. Geographic concentrations are reviewed periodically and evaluated
based on historic loan experience and prevailing market and economic conditions.
FINOVA Capital's financing contracts and leases generally require the
customer to pay taxes, license fees and insurance premiums and to perform
maintenance and repairs at the customer's expense. Contract payment rates are
based on several factors, including the costs of borrowed funds, term of
contract, creditworthiness of the prospective customer, type and nature of
collateral and other security and, in leasing transactions, the timing of tax
effects and estimated residual values. In direct finance lease transactions,
lessees generally are granted an option to purchase the equipment at the end of
the lease term at its then fair market value or, in some cases, are granted an
option to renew the lease at its then fair rental value. The extent to which
lessees exercise their options to purchase leased equipment varies from year to
year, depending on, among other factors, the state of the economy, the financial
condition of the lessee, interest rates and technological developments.
PORTFOLIO MANAGEMENT
In addition to the review at the time of original underwriting, FINOVA
Capital attempts to preserve and enhance the earnings quality of its portfolio
through proactive management of its financing relationships with its clients.
Generally, this process includes the periodic appraisal or verification of the
collateral to determine loan exposure and residual values; sales of residuals
and warrants to generate supplemental income; and review and management of
covenant compliance. Generally, the Portfolio Management department or dedicated
personnel within the business units regularly review financial statements to
assess customer cash flow performance and trends; periodically confirm
operations of the customer; conduct periodic assessments of the underlying
collateral; seek to identify issues concerning the vulnerabilities of the
customer; seek to resolve outstanding issues with the borrower; periodically
review and address covenant compliance issues; and prepare periodic summaries of
the aggregate portfolio quality and concentrations for management review.
Evaluation for loan impairment is performed as a part of the portfolio
management review process. When a loan is determined to be impaired, a
write-down is taken or an impairment reserve is established, if required, based
on the difference between the recorded balance of the loan ("carrying amount")
and the fair value of the collateral.
14
<PAGE>
DELINQUENCIES AND WORKOUTS
FINOVA Capital monitors the timing of payments on its accounts. For term
loans and leases, when an invoice is 10 days past due, the customer is typically
contacted, and a determination is made as to the extent of the problem, if any.
A commitment for immediate payment is pursued and the account is observed
closely. If satisfactory results are not obtained in communication with the
customer, the guarantor(s) are usually contacted to advise them of the situation
and the potential obligation under the guarantee agreement, if any. If an
invoice becomes 31 days past due, it is reported as delinquent. A notice of
default is generally sent prior to an invoice becoming 45 days past due. Between
60 and 90 days past the due date, if satisfactory negotiations are not underway,
outside counsel generally is retained to help protect FINOVA Capital's rights
and to pursue its remedies.
When accounts become more than 90 days past due income recognition is
usually suspended, and FINOVA Capital vigorously pursues its legal remedies.
Foreclosed or repossessed assets are considered to be nonperforming, and are
reported as such unless the assets generate sufficient cash to result in a
reasonable rate of return. Those accounts are continually reviewed, and
write-downs are taken as deemed necessary. While pursuing collateral and
obligors, FINOVA Capital generally continues to negotiate the restructuring or
other settlement of the debt, as appropriate.
Management believes that collateral values significantly reduce loss
exposure and that the reserve for credit losses is adequate. For additional
information regarding the reserve for credit losses, see Annex A, Note C.
GOVERNMENTAL REGULATION
FINOVA Capital's domestic activities, including the financing of its
operations, are subject to a variety of federal and state regulations such as
those imposed by the Federal Trade Commission, the Securities and Exchange
Commission, the Consumer Credit Protection Act, the Equal Credit Opportunity Act
and the Interstate Land Sales Full Disclosure Act. Additionally, a majority of
states have ceilings on interest rates chargeable to customers in financing
transactions. Some of FINOVA Capital's financing transactions and mortgage
broker activities are subject to additional government regulation. For example,
aircraft leasing is regulated by the Federal Aviation Administration, and
Communications Finance is regulated by the Federal Communication Commission.
FINOVA Capital's international activities are also subject to a variety of laws
and regulations of the countries in which the business is conducted.
EMPLOYEES
At December 31,1999, the Company had 1,465 employees compared to 1,262 at
December 31, 1998. The increase primarily included employees from companies
acquired in 1999. None of these employees were covered by collective bargaining
agreements. FINOVA believes its employee relations are satisfactory.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report are "forward-looking," in that they do
not discuss historical fact but instead note future expectations, projections,
intentions or other items. These forward-looking statements include matters in
the sections of this report captioned "Business," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Quantitative and
Qualitative Disclosure About Market Risk." They are also made in documents
incorporated in this report by reference, or in which this report may be
incorporated, such as a prospectus.
Forward-looking statements are subject to known and unknown risks,
uncertainties and other factors that may cause FINOVA's actual results or
performance to differ materially from those contemplated by the forward-looking
statements. Many of those factors are noted in conjunction with the
forward-looking statements in the text. Other important factors that could cause
actual results to differ include:
* The results of FINOVA's efforts to implement its business strategy. Failure
to fully implement its business strategy might result in decreased market
penetration, adverse effects on results of operations and other adverse
results.
* The effect of economic conditions and the performance of FINOVA's
borrowers. Economic conditions in general or in particular market segments
could impact the ability of FINOVA's borrowers to operate or expand their
businesses, which might result in decreased performance for repayment of
their obligations or reduce demand for additional financing needs. The rate
of borrower defaults or bankruptcies may increase. Economic conditions
could adversely affect FINOVA's ability to realize gains from sales of
assets and investments. Those items could be particularly sensitive to
changing market conditions. Certain changes in fair market values must be
reflected in FINOVA's reported financial results.
15
<PAGE>
* Actions of FINOVA's competitors and FINOVA's ability to respond to those
actions. As noted in "Business Development and Competition," FINOVA seeks
to remain competitive without sacrificing prudent lending standards. Doing
business under those standards becomes more difficult, however, when
competitors offer financing with lower pricing or less stringent criteria.
FINOVA may not be successful in maintaining and continuing asset growth at
historic levels.
* The cost of FINOVA's capital. That cost depends on many factors, some of
which are beyond FINOVA's control, such as its portfolio quality, ratings,
prospects and outlook. Changes in the interest rate environment may reduce
profit margins.
* Changes in government regulations, tax rates and similar matters. For
example, government regulations could significantly increase the cost of
doing business or could eliminate certain tax advantages of some of
FINOVA's financing products.
* Necessary technological changes may be more difficult, expensive or time
consuming than anticipated.
* Costs or difficulties related to integration of acquisitions.
* Other risks detailed in FINOVA's other SEC reports or filings.
FINOVA does not intend to update forward-looking information to reflect
actual results or changes in assumptions or other factors that could affect
those statements. FINOVA cannot predict the risk from reliance on
forward-looking statements in light of the many factors that could affect their
accuracy.
ITEM 2. PROPERTIES
FINOVA's principal executive offices are located in Scottsdale, Arizona.
FINOVA Capital operates various additional offices in the United States, one in
Canada and one in Europe. All these properties are leased. Alternative office
space could be obtained without difficulties in the event leases are not
renewed.
ITEM 3. LEGAL PROCEEDINGS
FINOVA is a party either as plaintiff or defendant to various actions,
proceedings and pending claims, including legal actions, some of which involve
claims for compensatory, punitive or other damages in significant amounts.
Litigation often results from FINOVA's attempts to enforce its lending
agreements against borrowers and other parties to those transactions. Litigation
is subject to many uncertainties. It is possible that some of the legal actions,
proceedings or claims could be decided against FINOVA. Although the ultimate
amount for which FINOVA may be held liable, if any, is not ascertainable, FINOVA
believes that any resulting liability would not materially affect its financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
16
<PAGE>
OPTIONAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT.
Set forth below is information with respect to those individuals who serve
as executive officers of FINOVA, including those officers of FINOVA Capital who
are responsible for its principal business units.
Name Age Position and Background
---- --- -----------------------
Samuel L. Eichenfield 62 Chairman, President and Chief Executive
Officer of FINOVA and Chairman and Chief
Executive Officer or similar positions of
FINOVA Capital for more than five years.
Matthew M. Breyne 42 President, Chief Operating Officer and a
Director of FINOVA Capital since June 1999.
Executive Vice President of FINOVA since
1998. Before that he was Group Vice
President - Communications Finance and
Franchise Finance or similar positions of
FINOVA Capital for more than five years.
Derek C. Bruns 40 Senior Vice President - Internal Audit or
similar positions of FINOVA for more than
five years.
Glenn E. Gray 45 Senior Vice President - Corporate Finance
Business of FINOVA Capital since January
2000; Vice President of FINOVA and Senior
Vice President - Corporate Development or
similar positions of FINOVA Capital since
1997. Previously he was Vice President -
Business Development, Money Management of
Bessemer Trust Company from 1996 to 1997.
From 1994 to 1997, he was Vice President -
Marketing of FINOVA Capital. From 1985 to
1993 he held various positions with a
securities subsidiary and the corporate
banking divisions of Wells Fargo Bank.
William J. Hallinan 57 Senior Vice President - General Counsel and
Secretary of FINOVA and FINOVA Capital for
more than five years.
Bruno A. Marszowski 58 Senior Vice President - Controller and Chief
Financial Officer or similar positions of
FINOVA and FINOVA Capital for more than five
years.
William C. Roche 46 Senior Vice President - Human Resources &
Facilities Planning or similar positions of
FINOVA and FINOVA Capital for more than five
years.
Meilee Smythe 44 Senior Vice President - Treasurer of FINOVA
and FINOVA Capital since 1998. Before that
she was Vice President - Assistant Treasurer
of FINOVA and FINOVA Capital for more than
five years and a Director of FINOVA Capital
since 1998.
Stuart A. Tashlik 43 Senior Vice President - Planning &
Communications of FINOVA since 1999, and
Senior Vice President or similar positions
of FINOVA Capital for more than five years.
John J. Bonano 57 Executive Vice President or similar
positions of FINOVA Capital for more than
five years.
17
<PAGE>
Jack Fields, III 45 Executive Vice President or similar
positions of FINOVA Capital for more than
five years.
Robert M. Korte 44 Executive Vice President of FINOVA Capital
since 1998. Before that he was Senior Vice
President - Strategy and Technology of
FINOVA since 1994 and Vice President - Human
and Corporate Development of FINOVA and
FINOVA Capital since 1991.
Gregory C. Smalis 47 Executive Vice President - Portfolio
Management or similar positions for more
than five years and a Director of FINOVA
Capital since 1993.
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY &
RELATED SHAREOWNER MATTERS.
The FINOVA Group Inc.'s common stock trades on the New York Stock Exchange
under the symbol "FNV." The following tables summarize the high and low market
prices as reported on the New York Stock Exchange Composite Tape and the cash
dividends declared from January 1, 1998 through December 31, 1999.
SALES PRICE RANGE OF COMMON STOCK
----------------------------------------------
1999 1998
--------------------- --------------------
Quarters: HIGH LOW HIGH LOW
--------- -------- ------- --------
First $62-7/16 $48-1/8 $60-1/4 $45-1/2
Second 53-15/16 45-5/16 63-1/2 53-5/16
Third 54-1/2 34-3/8 65-1/8 41-1/16
Fourth 44-5/8 32-1/2 56-3/8 35-9/16
DIVIDENDS DECLARED ON COMMON STOCK
-----------------------------------
1999 1998
------ ------
February $ 0.16 $ 0.14
May 0.16 0.14
August 0.18 0.16
November 0.18 0.16
------ ------
$ 0.68 $ 0.60
====== ======
Quarterly dividends have been paid on the first business day of each
calendar quarter. FINOVA anticipates it will continue to pay regular quarterly
dividends on the first business day of January, April, July and October. In
February 2000, the Board of Directors declared a dividend of $0.18 per share,
payable April 3, 2000, for shareowners of record on February 29, 2000. The
declaration of dividends and their amounts are at the discretion of the Board of
Directors of FINOVA, and there can be no assurance that additional dividends
will be declared.
As of March 3, 2000, there were approximately 20,700 holders of record of
The FINOVA Group Inc.'s common stock. The closing price of the common stock on
that date was $27.75.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes selected financial data of FINOVA, which
have been derived from the audited Consolidated Financial Statements of FINOVA
for each of the years ended December 31, 1999, 1998, 1997, 1996 and 1995. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Consolidated Financial Statements of FINOVA and the Notes included in Annex A,
as well as the remainder of this report. Prior year amounts have been
reclassified to conform to 1999 presentation and restated to exclude operations
which were discontinued in 1996 and to reflect a two-for-one stock split in
1997. For further detail, see Annex A, Note H.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
OPERATIONS: (Dollars in Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income earned from financing
transactions $ 1,228,643 $ 1,007,773 $ 879,763 $ 756,996 $ 673,194
Interest margins earned 567,798 459,515 392,124 329,107 280,788
Volume-based fees 50,080 77,723 39,378 28,588 21,204
Provision for credit losses 76,800 82,200 69,200 41,751 39,568
Gains on disposal of assets 68,020 27,912 30,333 12,562 10,490
Income from continuing operations 215,244 160,341 137,910 117,968 95,621
Net income 215,244 160,341 137,910 118,475 97,060
Basic earnings from continuing
operations per share 3.59 2.87 2.53 2.16 1.75
Basic earnings per share 3.59 2.87 2.53 2.17 1.78
Basic adjusted weighted average
outstanding shares 59,880,000 55,946,000 54,405,000 54,508,000 54,633,000
Diluted earnings from continuing
operations per share $ 3.41 $ 2.70 $ 2.40 $ 2.10 $ 1.72
Diluted earnings per share 3.41 2.70 2.40 2.11 1.75
Diluted adjusted weighted average
shares 64,300,000 60,705,000 59,161,000 56,051,000 55,469,000
Cash earnings per diluted share
from continuing operations $ 5.06 $ 4.18 $ 3.65 $ 3.08 $ 2.64
Dividends declared per common share 0.68 0.60 0.52 0.46 0.42
Dividend payout ratio 19.0% 21.0% 20.1% 21.3% 23.4%
FINANCIAL POSITION:
Investment in financing transactions $13,121,977 $10,020,221 $ 8,420,462 $ 7,318,919 $ 6,364,189
Nonaccruing assets 295,123 205,233 187,356 155,505 143,127
Reserve for credit losses 264,983 207,618 177,088 148,693 129,077
Total assets 14,050,293 10,441,236 8,724,626 7,538,456 7,045,547
Deferred income taxes 439,518 342,268 275,972 246,218 210,530
Total debt 11,407,767 8,394,578 6,764,581 5,850,223 5,649,368
Company-obligated mandatory
redeemable convertible preferred
of subsidiary trust solely
holding convertible debentures
of FINOVA ("TOPrS") 111,550 111,550 111,550 111,550
Shareowners' equity 1,663,381 1,167,231 1,092,254 936,085 829,040
</TABLE>
19
<PAGE>
December 31,
-------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
RATIOS:
Reserve for credit losses/managed
assets (1) (2) 2.0% 2.0% 2.0% 2.0% 2.0%
Nonaccruing assets/managed assets (1) 2.2% 2.0% 2.1% 2.0% 2.2%
Total debt to equity (3) 6.4x 6.6x 5.6x 5.6x 6.8x
Return on average common equity 14.4% 14.1% 14.1% 13.5% 12.0%
Return on average funds employed (4) 2.0% 1.8% 1.8% 1.8% 1.7%
Equity to assets (3) 12.6% 12.2% 13.8% 13.9% 11.8%
- ----------
NOTES:
(1) Managed assets exclude participations.
(2) Managed assets exclude financing contracts held for sale.
(3) Equity in 1999, 1998, 1997 and 1996 includes the TOPrS noted above.
(4) Average funds employed excludes deferred taxes applicable to leveraged
leases.
----------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
See pages 3 - 12 of Annex A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
See page 13 of Annex A.
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTAL DATA.
1. Financial Statements - See Item 14 hereof and Annex A.
2. Supplementary Data - See Condensed Quarterly Results included in
Supplemental Selected Financial Data of Notes to Consolidated
Financial Statements included in Annex A.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING & FINANCIAL
DISCLOSURE.
See Recent Developments and Business Outlook on page 11-12 of Annex A.
20
<PAGE>
PART III
ITEM 10. DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning FINOVA's directors is incorporated by reference
from FINOVA's Proxy Statement issued in connection with its 2000 Annual Meeting
of Shareowners (the "Proxy Statement").
For information regarding FINOVA's executive officers, see the Optional
Item in Part I, following Item 4.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT.
The information required by this item is incorporated by reference from the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS & RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from the
Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed.
1. Financial Statements.
The following financial statements of FINOVA are included in Annex A:
Annex A
Page
-------
Financial Highlights 1-2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 3-12
Quantitative and Qualitative Disclosure about Market Risk 13
Report of Management, Report of Independent Auditors
and Independent Auditors' Report 14-16
Consolidated Balance Sheets 17
Statements of Consolidated Income 18
Statements of Consolidated Shareowners' Equity 19
Statements of Consolidated Cash Flows 20
Notes to Consolidated Financial Statements 21-42
Supplemental Selected Financial Data 43
2. All Schedules have been omitted because they are not applicable or the
required information is shown in the financial statements or related
notes.
21
<PAGE>
3. Exhibits.
Exhibit No.
-----------
(3.A) Amended and Restated Certificate of Incorporation through
the date of this filing (incorporated by reference from
FINOVA's Registration Statement on Form S-3/A, SEC File
No. 333-74473, filed on May 28, 1999, Exhibit 4.1).
(3.B) Bylaws, as amended through the date of this filing
(incorporated by reference from FINOVA's report on Form
10-K for the year ended December 31, 1995 (the "1995
10-K") Exhibit 3.B).
(4.A) Form of FINOVA's Common Stock Certificate (incorporated
by reference from the 1994 10-K, Exhibit 4.B).
(4.B) Relevant portions of FINOVA's Certificate of
Incorporation and Bylaws included in Exhibits 3.A and 3.
B above are incorporated by reference.
(4.C) Rights Agreement dated as of February 15, 1992 between
FINOVA and the Rights Agent named therein, as amended
(incorporated by reference from FINOVA's report on Form
8-K dated September 21, 1995, Exhibit 4.1).
(4.C.1) Acceptance of Successor Trustee to Appointment under
Rights Agreement noted in 4-C above (incorporated by
reference from FINOVA's report on Form 8-K, dated
November 30, 1995, Exhibit 4).
(4.D) Long-term debt instruments with principal amounts not
exceeding 10% of FINOVA's total consolidated assets are
not filed as exhibits to this report. FINOVA will furnish
a copy of those agreements to the SEC upon its request.
(4.E) Form of Indenture dated as of September 1, 1992 between
FINOVA Capital and the Trustee named therein
(incorporated by reference from the Greyhound Financial
Corporation Registration Statement on Form S-3,
Registration No. 33-51216, Exhibit 4).
(4.F) Form of Indenture dated as of October 1, 1995 between
FINOVA Capital and the Trustee named therein
(incorporated by reference from FINOVA Capital's report
on Form 8-K dated October 24, 1995, Exhibit 4.1).
(4.G) Indenture, dated as of December 11, 1996, between FINOVA
and Fleet National Bank as trustee (incorporated by
reference from FINOVA's report on Form 8-K dated December
20, 1996, (the "December 1996 8-K") Exhibit 4.1).
(4.G.1) Indenture, dated as of May 15, 1999, between FINOVA
Capital and Norwest Bank Minnesota, National Association
(incorporated by reference from FINOVA's Registration
Statement on Form S-3/A, SEC File No. 333-74473, filed on
May 28, 1999, Exhibit 4.8.B).
(4.G.2) Indenture, dated as of May 15, 1999, between FINOVA
Capital and FMB Bank (incorporated by reference from
FINOVA's Registration Statement on Form S-3/A, SEC File
No. 333-74473, filed on May 28, 1999, Exhibit 4.8.C).
(4.G.3) Indenture, dated as of May 15, 1999 between FINOVA
Capital and The First National Bank of Chicago
(incorporated by reference from FINOVA's Registration
Statement on Form S-3/A, SEC File No. 333-74473, filed on
May 28, 1999, Exhibit 4.8.A).
22
<PAGE>
Exhibit No.
-----------
(4.G.4) Form of Trust Indenture among FINOVA (Canada) Finance
Inc., FINOVA Capital Corporation and CIBC Mellon Trust
Company made as of February 25, 2000.
(4.G.5) Amended and Restated Declaration of Trust, dated as of
December 11, 1996, among Bruno A. Marszowski and Robert
J. Fitzsimmons, as Regular Trustees, First Union Bank of
Delaware, as Delaware Trustee, Fleet National Bank, as
Property Trustee, and FINOVA (incorporated by reference
from the December 1996 8-K, Exhibit 4.2).
(4.G.6) Preferred Security Guarantee, dated as of December 11,
1996, between FINOVA and Fleet National Bank, as trustee
(incorporated by reference from the December 1996 8-K,
Exhibit 4.3).
(4.G.7) Form of 5 1/2% Convertible Subordinated Debenture
(incorporated by reference from the December 1996 8-K,
Exhibit 4.4).
(4.G.8) Form of Preferred Security (TOPrS) (incorporated by
reference from the December 1996 8-K, Exhibit 4.5).
(4.H) Form of Indenture, dated as of March 20, 1998, between
FINOVA, FINOVA Capital and The First National Bank of
Chicago as Trustee (incorporated by reference from FINOVA
and FINOVA Capital's registration statement on Form S-3,
Registration No. 333-38171, Exhibit 4.8).
(4.I) Announcement of 2-for-1 Stock Split (incorporated by
reference from FINOVA's August 14, 1998 8-K, Exhibit 28).
(4.I.1) Letter to shareowners regarding FINOVA's 2-for-1 Stock
Split (incorporated by reference from FINOVA's October 1,
1998 8-K, Exhibit 28.A)
(4.I.2) Letter to holders of Preferred Securities regarding the
2-for-1 common stock split and resulting adjustment in
conversion price applicable to the Convertible Trust
Originated Preferred Securities of FINOVA Finance Trust
(incorporated by reference from FINOVA's October 1, 1998
8-K, Exhibit 28.B).
(4.J) 1992 Stock Incentive Plan, as amended through the date of
this filing (incorporated by reference from the 1997
10-K, Exhibit 4.J).+
(4.K) Sirrom Capital Corporation Amended and Restated 1994
Stock Option Plan (incorporated by reference from
FINOVA's report on Form 10-K/A for the year ended
December 31, 1998 (the "1998 10-K/A") Exhibit 4.K).
(4.L) Sirrom Capital Corporation Amended and Restated Stock
Option Plan for Non-employee Directors (incorporated by
reference from the 1998 10-K/A, Exhibit 4.L).
(4.M) Director resolutions dated February 11, 1999, regarding
adoption of the Sirrom stock option plans (incorporated
by reference from the 1998 10-K/A, Exhibit 4.N).
(4.N) Sirrom Capital Corporation Amended and Restated 1996
Incentive Stock Option Plan (incorporated by reference
from the 1998 10-K, Exhibit 4.M).
23
<PAGE>
Exhibit No.
-----------
(10.A) Sixth Amendment and Restatement dated as of May 16, 1994
of the Credit Agreement, dated as of May 31, 1976 among
FINOVA Capital and the lender parties thereto, and Bank
of America National Trust and Savings Association, Bank
of Montreal, Chemical Bank, Citibank, N.A. and National
Westminister Bank USA, as agents (the "Agents") and
Citibank, N.A., as Administrative Agent (incorporated by
reference from FINOVA's report on Form 8-K dated May 23,
1994, Exhibit 10.1).
(10.A.1) First Amendment dated as of September 30, 1994, to the
Sixth Amendment and Restatement, noted in 10.A above
(incorporated by reference from the 1994 10-K, Exhibit
10.A.1).
(10.A.2) Second Amendment dated as of May 11, 1995 to the Sixth
Amendment and Restatement noted in 10.A above
(incorporated by reference from FINOVA's Quarterly Report
on Form 10-Q for the period ending September 30, 1995
(the "3Q95 10-Q"), Exhibit 10.A).
(10.A.3) Third Amendment dated as of November 1, 1995 to Sixth
Amendment noted in 10.A above (incorporated by reference
from the 3Q95 10-Q, Exhibit 10.B).
(10.A.4) Fourth Amendment dated as of May 15, 1996, to Sixth
Amendment noted in 10.A above (incorporated by reference
from the 1996 10-K, Exhibit 10.A.4).
(10.A.5) Fifth Amendment dated as of May 20, 1997 to Sixth
Amendment noted in 10.A above (incorporated by reference
from the 1997 10-K, Exhibit 10.A.5).
(10.A.6) Sixth Amendment dated as of May 17 1999 to Sixth
Amendment and Restatement of Credit Agreement dated as of
May 16, 1994. *
(10.B) Credit Agreement (Short-Term Facility) dated as of May
16, 1994 among FINOVA Capital, the Lender parties
thereto, the Agents and Citibank, N.A., as Administrative
Agent (incorporated by reference from FINOVA's report on
Form 8-K dated May 23, 1994, Exhibit 10.2).
(10.B.1) First Amendment dated as of September 30, 1994 to the
Credit Agreement noted in 10.B above (incorporated by
reference from the 1994 10-K, Exhibit 10.B.1).
(10.B.2) Second Amendment to Short-Term Facility noted in 10.B
above (incorporated by reference from the 3Q95 10-Q,
Exhibit 10.C).
(10.B.3) Third Amendment to Short-Term Facility noted in 10.B
above (incorporated by reference from the 3Q95 10-Q,
Exhibit 10.D).
(10.B.4) Fourth Amendment to Short-Term Facility noted in 10.B
above (incorporated by reference from 1996 10-K, Exhibit
B.4).
(10.B.5) Fifth Amendment to Short-Term Facility noted in 10.B
above (incorporated by reference from the 1997 10-K,
Exhibit 10.B.5).
(10.B.6) Sixth Amendment to Short-Term Facility noted in 10.B
above. *
(10.C) 1999 Management Incentive Plan (incorporated by reference
from the 1998 10-K/A, Exhibit 10.D). +
(10.D) 2000 Management Incentive Plan.*+
24
<PAGE>
Exhibit No.
-----------
(10.E.1) 1997-1999 Performance Share Incentive Plan
(incorporated by reference from the 1997 10-K, Exhibit
10.E.3).+
(10.E.2) 1998-2000 Performance Share Incentive Plan
(incorporated by reference from the 1997 10-K, Exhibit
10.E.4).+
(10.E.3) 1999-2001 Performance Share Incentive Plan
(incorporated by reference from the 1998 10-K, Exhibit
10.E.4). +
(10.E.4) 2000-2002 Performance Share Incentive Plan.*+
(10.F) Employment Agreement with Samuel L. Eichenfield dated
March 16, 1996 (incorporated by reference from the 1995
10-K, Exhibit 10.F.3).+
(10.F.1) Amendment to Employment Agreement referenced in 10.G
above (incorporated by reference from the 1996 10-K,
Exhibit 10.F.2).+
(10.F.2) Second Amendment to Employment Agreement referenced in
10.G above (incorporated by reference from the 2Q97 10-Q,
Exhibit 10).+
(10.G) Employment Agreement with William J. Hallinan, dated
February 25, 1992 (incorporated by reference from the
1992 10-K, Exhibit 10.1).+
(10.H) Amended and Restated Supplemental Pension Plan,
(incorporated by reference from the 1996 10-K, Exhibit
10.1).+
(10.I) A description of FINOVA's policies regarding compensation
of directors is incorporated by reference from the 2000
Proxy Statement. +
(10.J) Directors Deferred Compensation Plan (incorporated by
reference from the 1992 10-K, Exhibit 10.O).+
(10.K) Directors' Retirement Benefit Plan (incorporated by
reference from FINOVA's report on Form 10-K for the year
ended December 31, 1993 (the "1993 10-K"), Exhibit
10.OO).+
(10.L) Directors' Charitable Awards Program (incorporated by
reference from the 1994 10-K, Exhibit 10.CC).+
(10.M) Deferred Compensation Plan (incorporated by reference
from the 1995 10-K, Exhibit 10.N).+
(10.N) Bonus KEYSOP Plan (incorporated by reference from the
1997 10-K, Exhibit 10.N).+
(10.N.1) Bonus KEYSOP Trust Agreement (incorporated by reference
from the 1997 10-K, Exhibit 10.N.1).+
(10.O) FINOVA's Executive Officer Loan Program Policies and
Procedures, (incorporated by reference from the 1996
10-K, Exhibit 10.U).+
(10.O.1) FINOVA's Executive Severance Plan for Tier 1 Employees
(incorporated by reference from the 1995 10-K, Exhibit
10.C.1).+
25
<PAGE>
Exhibit No.
-----------
(10.O.2) FINOVA's Executive Severance Plan for Tier 2 Employees
(incorporated by reference from the 1995 10-K, Exhibit
10.C.2).+
(10.P.1) Value Sharing Plan for the Chief Executive Officer
(incorporated by reference from the 3Q95 10-Q, Exhibit
10.L).+
(10.P.2) Value Sharing Plan for Executive Officers and Key
Employees (incorporated by reference from the 3Q95 10-Q,
Exhibit 10-K).+
(12) Computation of ratio of Income to Fixed Charges and
Preferred Stock Dividends.*
(21) Subsidiaries.*
(23) Consent of Independent Auditors from Ernst & Young LLP.*
(23.1) Independent Auditors' Consent from Deloitte & Touche
LLP.*
(24) Powers of Attorney.*
(27) Financial Data Schedule for the year ended December 31,
1999.*
- ----------
* Filed with this report.
+ Relating to management compensation
(b) Reports on Form 8-K.
A report on Form 8-K, dated January 20, 2000, was filed by FINOVA which
reported under Items 5 and 7 the revenues, net income and selected Financial and
ratios for fourth quarter and year ended December 31, 1999.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized in the capacities indicated, in
Scottsdale, Arizona on March 7, 2000.
THE FINOVA GROUP INC.
By /s/ Samuel L. Eichenfield
----------------------------------------
Samuel L. Eichenfield
Chairman, President and Chief
Executive Officer
(Chief Executive Officer)
By: /s/ Bruno A. Marszowski
----------------------------------------
Bruno A. Marszowski
Senior Vice President - Controller and
Chief Financial Officer
(Chief Accounting and Financial Officer)
27
<PAGE>
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated:
* *
- -------------------------------- ------------------------------
Robert H. Clark, Jr. (Director) G. Robert Durham (Director)
/s/ Samuel L. Eichenfield *
- -------------------------------- ------------------------------
Samuel L. Eichenfield (Chairman) James L. Johnson (Director)
* *
- -------------------------------- ------------------------------
Kenneth R. Smith (Director) Shoshana B. Tancer (Director)
* *
- -------------------------------- ------------------------------
John W. Teets (Director) Constance R. Curran (Director)
* Signed on March 7, 2000, pursuant to Powers of Attorney
dated February 10, 2000.
/s/ Bruno A. Marszowski
-----------------------
Bruno A. Marszowski
Attorney-in-Fact
28
<PAGE>
ANNEX A
THE FINOVA GROUP INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Financial Highlights ..................................................... A-1
Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................. A-3
Quantitative and Qualitative Disclosure about Market Risk ................ A-13
Management's Report on Responsibility for Financial Reporting ............ A-14
Report of Independent Auditors ........................................... A-15
Independent Auditors' Report ............................................. A-16
Consolidated Balance Sheet ............................................... A-17
Statements of Consolidated Income ........................................ A-18
Statements of Consolidated Shareowners' Equity ........................... A-19
Statements of Consolidated Cash Flows .................................... A-20
Notes to Consolidated Financial Statements ............................... A-21
Supplemental Selected Financial Data ..................................... A-43
A-i
<PAGE>
THE FINOVA GROUP INC.
FINANCIAL HIGHLIGHTS
(Dollars in Thousands, except per share data)
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ------------------------ ---- ---- ----
OPERATIONS:
Interest margins earned $ 567,798 $ 459,515 $ 392,124
Volume-based fees 50,080 77,723 39,378
Operating expenses 253,754 216,653 168,444
Net income 215,244 160,341 137,910
FINANCIAL POSITION:
Ending funds employed 13,121,977 10,020,221 8,420,462
Ending managed assets (1) 13,605,374 10,557,817 8,878,429
Average managed assets (2) 11,845,460 9,502,823 8,156,242
Average earning assets (3) 10,718,941 8,546,715 7,360,012
Reserve for credit losses 264,983 207,618 177,088
Nonaccruing assets 295,123 205,233 187,356
Funded new business 4,865,746 3,979,265 3,311,105
Fee-based volume 6,315,296 7,257,003 4,532,494
Net write-offs 56,854 56,758 43,200
CAPITALIZATION:
Total debt 11,407,767 8,394,578 6,764,581
Company-obligated mandatory redeemable
convertible preferred securities of
a subsidiary trust solely holding
convertible debentures of FINOVA
("TOPrS") 111,550 111,550 111,550
Shareowners' equity 1,663,381 1,167,231 1,092,254
PORTFOLIO QUALITY:
Net write-offs as a % of average
managed assets (4) 0.48% 0.60% 0.53%
Nonaccruing assets as a % of ending
managed assets (4) 2.2% 2.0% 2.1%
Reserve for credit losses as a % of:
Ending managed assets (4) (5) 2.0% 2.0% 2.0%
Nonaccruing assets 89.8% 101.2% 94.5%
As a multiple of net write-offs 4.7x 3.7x 4.1x
A-1
<PAGE>
FINANCIAL HIGHLIGHTS Continued
1999 1998 1997
---- ---- ----
PERFORMANCE HIGHLIGHTS:
Return as a % of average funds
employed (6) 2.0% 1.8% 1.8%
Operating margin earned as a % of
average earning assets (3) 5.8% 6.3% 5.9%
Interest margins earned as a % of
average earning assets (3) 5.3% 5.4% 5.3%
Operating expenses as a % of operating
margin 41.1% 40.3% 39.0%
Operating expenses as a % of operating
margin plus gains 37.0% 38.3% 36.5%
Aggregate cost of funds 6.1% 6.4% 6.6%
Ratio of income to fixed
charges and preferred stock
dividends 1.58x 1.53x 1.51x
Return from continuing operations on
average equity 14.4% 14.1% 14.1%
Basic earnings per common share:
Net income $ 3.59 $ 2.87 $ 2.53
Adjusted weighted average shares 59,880,000 55,946,000 54,405,000
Diluted earnings per share:
Net income $ 3.41 $ 2.70 $ 2.40
Adjusted weighted average shares 64,300,000 60,705,000 59,161,000
Cash earnings per diluted share (7) $ 5.06 $ 4.18 $ 3.65
Book value per share outstanding $ 27.16 $ 20.95 $ 19.41
Shares outstanding 61,252,000 55,721,000 56,282,000
- ----------
(1) Includes assets sold under securitization and participation agreements that
are serviced by the Company.
(2) Includes average securitizations and participations of $520.7 million,
$484.5 million and $388.9 million for 1999, 1998 and 1997, respectively.
(3) Represents average funds employed excluding average deferred taxes on
leveraged leases of $356.4 million, $275.9 million and $234.4 million for
1999, 1998 and 1997, respectively and average nonaccruing assets.
(4) Excludes participations sold of $62.1 million, $101.5 million and $121.4
million for 1999, 1998 and 1997, respectively, in which the Company has
transferred credit risk.
(5) Excludes financing contracts held for sale of $168.0 million and $220.1
million for 1999 and 1998, respectively.
(6) Average funds employed excludes average deferred taxes on leveraged leases.
(7) Cash earnings exclude goodwill amortization, non-cash loss provisions and
non-cash taxes.
A-2
<PAGE>
THE FINOVA GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION RELATES TO THE FINOVA GROUP INC. AND ITS
SUBSIDIARIES (COLLECTIVELY, "FINOVA" OR THE "COMPANY") INCLUDING FINOVA CAPITAL
CORPORATION AND ITS SUBSIDIARIES (COLLECTIVELY, "FINOVA CAPITAL").
RESULTS OF OPERATIONS
The following table summarizes FINOVA's operating results for the years
ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Percent Percent
(Dollars in Millions) 1999 1998 Change 1998 1997 Change
- --------------------- ---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Interest margins earned $ 567.8 $ 459.5 23.6% $ 459.5 $ 392.1 17.2%
Volume-based fees 50.1 77.7 (35.5%) 77.7 39.4 97.4%
-------- -------- -------- --------
Operating margin 617.9 537.2 15.0% 537.2 431.5 24.5%
Provision for credit losses (76.8) (82.2) (6.6%) (82.2) (69.2) 18.8%
Gains on disposal of assets 68.0 27.9 143.7% 27.9 30.3 (8.0%)
Operating expenses (253.8) (216.7) 17.1% (216.7) (168.4) 28.6%
Income taxes (136.3) (102.2) 33.4% (102.2) (82.3) 24.2%
Preferred dividends, net (3.8) (3.8) 0.0% (3.8) (4.0) (5.3%)
-------- -------- -------- --------
Net Income $ 215.2 $ 160.3 34.2% $ 160.3 $ 137.9 16.3%
======== ======== ======== ========
</TABLE>
1999 COMPARED TO 1998
Net income for 1999 increased 34% to $215.2 million from $160.3 million in
1998. The increase was due to 25% growth in average earning assets, higher gains
on disposal of assets and a lower provision for credit losses, partially offset
by lower volume-based fees and higher operating expenses in 1999. Net income in
1999 included activity from the Sirrom Capital Corporation ("Sirrom") and
Preferred Business Credit acquisitions, which were acquired during the first
quarter of 1999 and to a much lesser extent, the Fremont Financial Corporation
acquisition, which occurred late in the fourth quarter of 1999. See Note R of
Notes to Consolidated Financial Statements for further discussion.
INTEREST MARGINS EARNED. The net spread from the portfolio is represented
by interest margins earned, which is the difference between (a) income earned
from financing transactions and (b) interest expense and depreciation on
operating leases and other owned assets. Interest margins earned increased 24%
to $567.8 million in 1999 from $459.5 million in 1998, due primarily to the
growth in average earning assets.
Average earning assets, which represents the average of FINOVA's investment
in financing transactions less nonaccruing assets and deferred taxes related to
leveraged leases, increased to $10.72 billion in 1999 from $8.55 billion in
1998. The increase was primarily due to an increase in funded new business to
$4.87 billion from $3.98 billion in 1998 and $453.7 million of average earning
assets added through acquisitions in 1999, partially offset by normal
amortization of the portfolio and prepayments during the year.
VOLUME-BASED FEES. Volume-based fees are generated by FINOVA's Distribution
& Channel Finance, Commercial Services and Realty Capital lines of business on
the volume of purchased accounts receivable and mortgage loan originations
transacted during the year. Due to the short-term nature of volume-originated
business, these fees are recognized as income in the period of origination.
A majority of Realty Capital's mortgage loan originations are funded by
other lenders and, therefore, are not recorded on FINOVA's balance sheet. FINOVA
took steps to eliminate balance sheet exposure in 2000 from the commercial
mortgage backed securities ("CMBS") product by entering into a Preferred Partner
Program with a prominent investment banking firm during the fourth quarter of
1999. See the Recent Developments and Business Outlook section for a further
discussion.
Volume-based fees were down by $27.6 million to $50.1 million in 1999 from
$77.7 million in 1998 due to lower fee-based volume in 1999 and returns on that
volume that were lower by 0.27% (0.80% in 1999 vs 1.07% in 1998). Fee-based
volume was down by $942 million to $6.32 billion in 1999 from $7.26 billion in
1998 primarily due to lower volume originated by Realty Capital. Realty Capital
curtailed its CMBS volume in 1999, which declined to $757.8 million from $1.76
billion in 1998; while its structured finance volume increased to $1.31 billion
A-3
<PAGE>
THE FINOVA GROUP INC.
from $1.05 billion in 1998. The shift in product mix resulted in a decline in
Realty Capital's commission rate to 0.50% from 0.88% in 1998. Structured finance
deals carry a lower net rate than CMBS transactions.
OPERATING MARGIN. Lower volume-based fees in 1999 was the major reason for
the decrease in FINOVA's operating margin as a percentage of average earning
assets to 5.8% in 1999 from 6.3% in 1998. The interest rate spread portion of
this margin decreased slightly to 5.3% in 1999 from 5.4% in 1998 primarily due
to the effects of competitive pricing pressures and increased debt costs related
to the strategic decisions to utilize a global debt offering, which increased
debt costs in the short-term, but is anticipated to help control costs in future
periods and the extension of maturities on commercial paper over year end 1999,
thereby avoiding potential liquidity issues associated with Year 2000 concerns.
The liquidity issues anticipated ultimately did not materialize in the
marketplace. The proceeds from the global debt offering were used to pay down
lower costing commercial paper. FINOVA expects competitive pressures on pricing
to continue, which may offset any cost of funds benefits realized from the
global debt offering and by reducing maturities on commercial paper to an
average term of 30 to 60 days in 2000.
PROVISION FOR CREDIT LOSSES. The provision for credit losses was $76.8
million in 1999 compared to $82.2 million in 1998. Provision for credit losses
is taken to maintain the reserve for credit losses at a level deemed by
management to be adequate to cover inherent losses in the portfolio. During
1999, it was determined that the Company did not need to record as large a
provision for credit losses as was necessary in 1998 to maintain the reserve for
credit losses at an appropriate level.
The provision for credit losses was affected by net write-offs. Net
write-offs in 1999 of $56.9 million were comparable to 1998 levels of $56.8
million. As a percent of average managed assets, net write-offs in 1999 were
0.48% compared to 0.60% in 1998. The decline in the write-off percentage was
primarily due to the Commercial Services line of business, which experienced
problems in 1998 with its wholesale textile customers. As a result of refocusing
its portfolio toward more retail customers in 1999, net write-offs in this
business unit decreased to $7.4 million from $35.7 million in 1998. Conversely,
Corporate Finance experienced a higher level of problem accounts resulting in
$17.9 million of net write-offs in 1999 compared to $6.7 million in 1998,
accompanied by $8.2 million of net write-offs for the Mezzanine Capital (Sirrom)
portfolio which was acquired in the first quarter of 1999.
GAINS ON DISPOSAL OF ASSETS. Gains on disposal of assets were $68.0 million
in 1999 compared to $27.9 million in 1998. Gains in 1999 included $20.6 million
from the sale of residuals coming off lease, $35.6 million from the sale of
investments and $11.8 million of CMBS gains as compared to 1998 gains which were
predominately related to residual sales and included a net loss of $7.2 million
on CMBS transactions. This shift in the composition of gain activity is expected
to continue due to FINOVA's expansion into capital market activities.
While in the aggregate, FINOVA has historically recognized gains on the
disposal of assets it holds, the timing and amount of these gains are sporadic
in nature. There can be no assurance FINOVA will recognize such gains in the
future, depending in part on market conditions at the time of disposal. The
range of gain activity is dependent upon the level of residuals coming off lease
and the level of capital market activity which will fluctuate with market
conditions and management's discretion whether to sell marketable investments.
FINOVA generally anticipates gains on disposal of assets to range from 15% to
25% of pretax income.
OPERATING EXPENSES. Operating expenses, which include selling,
administrative and other expenses, were generally higher in all major categories
and increased to $253.8 million in 1999 compared to $216.7 million in 1998.
Personnel costs increased due to the acquisitions of Preferred Business Credit
(included in Growth Finance) in February 1999, Sirrom Capital Corporation
(included in Mezzanine Capital and Harris Williams & Co.) in March 1999 and
Fremont Financial Corporation (included in Business Credit) in December 1999 and
due to higher sales incentive compensation related to the increased new business
levels in 1999. Problem accounts costs increased in 1999 due to increases in
nonearning and impaired accounts. Additions to deferred acquisition costs
increased in 1999 due to acquisitions and the deferral of expenses incurred to
book new business. Operating expenses as a percentage of operating margin plus
gains was 37.0% in 1999, an improvement from 38.3% in 1998. See Note O of Notes
to Consolidated Financial Statements for additional detail.
INCOME TAXES. Income taxes were $136.3 million in 1999 compared to $102.2
million in 1998. The increase was primarily due to higher pre-tax income in
1999. See Note J of Notes to Consolidated Financial Statements for further
discussion of income taxes.
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<PAGE>
THE FINOVA GROUP INC.
PREFERRED DIVIDENDS. Dividends, net of tax, paid on $111.6 million of
outstanding Company-obligated mandatory redeemable convertible preferred
securities ("TOPrS") was $3.8 million in 1999 and in 1998.
1998 COMPARED TO 1997
Net income for 1998 increased 16.3% to $160.3 million from $137.9 million
in 1997. The increase was due to the growth in average earning assets and the
expansion of the fee-related businesses, partially offset by a $10.0 million
loss on the sale of commercial mortgage-backed securities (CMBS) through
mini-CMBS transactions. See Note B of Notes to Consolidated Financial Statements
for a further discussion. Other offsetting items included a higher provision for
credit losses, increased operating expenses and a higher effective tax rate. Net
income in 1998 included a full year of Realty Capital and AT&T Capital's
Inventory Finance unit, both of which were acquired in the fourth quarter of
1997.
INTEREST MARGINS EARNED. Interest margins earned increased 17.2% to $459.5
million in 1998 from $392.1 million in 1997, due primarily to a 16.1% increase
in average earning assets in 1998.
Average earning assets increased to $8.55 billion in 1998 from $7.36
billion in 1997. The increase was primarily due to a 20.2% increase in funded
new business of $3.98 billion compared to $3.31 billion in 1997, partially
offset by normal amortization of the portfolio and prepayments during the year.
VOLUME-BASED FEES. The 97.4% increase in volume-based fees to $77.7 million
in 1998 from $39.4 million in 1997 was primarily due to fee-based volume
increasing by 60.1% to $7.26 billion in 1998 compared to $4.53 billion in 1997.
The increased volume was attributable to the addition of Realty Capital and AT&T
Capital's Inventory Finance unit.
The increase in volume-based fees in 1998 was the major reason for the
growth of FINOVA's operating margin as a percentage of average earning assets to
6.3% in 1998 from 5.9% in 1997. The interest rate spread portion of this margin
increased slightly to 5.4% in 1998 from 5.3% in 1997.
PROVISION FOR CREDIT LOSSES. The provision for credit losses increased
18.8% to $82.2 million in 1998 compared to $69.2 million in 1997. The increase
in the provision reflected the growth in managed assets of 18.9% to $10.56
billion in 1998 from $8.88 billion in 1997 and an increase in net write-offs in
1998 to $56.8 million compared to $43.2 million in 1997. The higher level of
write-offs in 1998 was primarily due to prior credit problems experienced in
FINOVA's Commercial Services line of business which had net write-offs of $35.7
million in 1998 principally related to the business' wholesale textile
customers. The 1998 Commercial Services write-offs represented problems
identified in 1997 that the Company believed could be worked out. Unfortunately,
the results of those efforts were unsuccessful, resulting in increased
write-offs for 1998. Net write-offs by line of business and other changes in the
reserve for credit losses can be found in Note C of Notes to Consolidated
Financial Statements.
GAINS ON DISPOSAL OF ASSETS. Gains on disposal of assets were $27.9 million
in 1998 compared to $30.3 million in 1997. Gains on disposal of assets included
the sale of loans via the CMBS market, the sale of assets coming off lease and
the sale of other assets. Sales of CMBS transactions (permanent and mini-CMBS
structures) resulted in a net loss of $7.2 million in 1998 and consisted of
gross gains of $25.0 million offset by hedge losses, commissions, expenses and
recourse obligations of $32.2 million. The total net loss on CMBS transactions
of $7.2 million included a net mini-CMBS loss of $10.0 million from the
utilization of the mini-CMBS structure to sell loans warehoused by FINOVA Realty
Capital and gains of $2.8 million from other CMBS securitizations. The other
$35.1 million of net gains in 1998 resulted from the sale of assets coming off
lease, Franchise Finance loans and other assets. In April 1999, approximately
70% of the assets within the mini-CMBS structure were sold into a permanent CMBS
structure. See Note B of Notes to the Consolidated Financial Statements for a
further discussion of the mini-CMBS transactions.
OPERATING EXPENSES. Operating expenses were generally higher in all major
categories and increased to $216.7 million in 1998 compared to $168.4 million in
1997. This increase was partially attributable to the growth in managed assets
during the year and to incentives paid to employees based on performance
criteria such as profitability and the increased value of FINOVA's stock. Also
contributing to the increase was the addition of Realty Capital, which had a
higher operating cost structure than other FINOVA lines of business, including
over 80 business development officers and support staff. Operating expenses were
38.3% of operating margin plus gains for 1998 compared to 36.5% in 1997. See
Note O of Notes to Consolidated Financial Statements for additional data.
INCOME TAXES. Income taxes were $102.2 million in 1998 compared to $82.3
million in 1997. The increase was primarily due to higher pre-tax income and a
higher effective tax rate in 1998 due to the realization of certain tax credits
in 1997.
A-5
<PAGE>
THE FINOVA GROUP INC.
PREFERRED DIVIDENDS. Dividends, net of tax, paid on $111.6 million of
outstanding TOPrS were $3.8 million in 1998 compared to $4.0 million in 1997.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Managed assets at December 31, 1999 increased 29% to $13.61 billion from
$10.56 billion at December 31, 1998. The increase was due to funded new business
of $4.9 billion in 1999 compared to $4.0 billion in 1998, plus $1.1 billion of
assets acquired in 1999, partially offset by normal loan and lease amortization,
asset sales and prepayments. Excluding acquired assets, managed assets grew by
$1.9 billion or 18% during 1999. See Note R of Notes to Consolidated Financial
Statements for a further discussion of acquisitions.
FINOVA's reserve for credit losses increased to $265.0 million at December
31, 1999 from $207.6 million at year-end 1998. The increase primarily consisted
of provisions of $76.8 million and acquired reserves of $37.4 million, partially
offset by net write-offs totaling $56.9 million. At December 31, 1999, the
reserve represented 2.0% of managed assets (excluding participations sold and
financing contracts held for sale); the same level as one year ago. Nonaccruing
assets increased to $295.1 million at December 31, 1999 representing 2.2% of
ending managed assets (excluding participations sold) compared to $205.2 million
in nonaccruing assets as of December 31, 1998, which constituted 2.0% of ending
managed assets. The increase in nonaccruing assets was primarily due to the
transition of FINOVA's $33 million share of a large syndicated credit facility
held by its Healthcare Finance line of business to nonaccruing status in the
third quarter and the addition of nonaccruing assets in the acquired Sirrom
portfolio. At December 31, 1999, the reserve represented 89.8% of nonaccruing
assets compared to 101.2% at December 31, 1998. See Note C of Notes to
Consolidated Financial Statements for more information on the reserves, net
write-offs and nonaccruing assets.
Revenue accruing impaired assets increased to $240.1 million in 1999, from
$106.0 million in 1998. This increase was primarily due to the addition of a
large computer and computer components distribution account ($69.6 million) in
Distribution & Channel Finance, the addition of 9 accounts included in the
acquired Sirrom portfolio ($22.0 million), the addition of a home health
services account ($17.7 million) in Healthcare Finance and the addition of a
trucking company account ($17.1 million) in Corporate Finance.
The Company had total debt outstanding of $11.41 billion at December 31,
1999 or 6.4 times its equity base (shareowners' equity plus convertible
preferred securities) of $1.77 billion (FINOVA Capital's leverage as of December
31, 1999 was 6.5 to 1). At December 31, 1998, the Company had debt leverage of
6.6 times its equity base ($8.39 billion debt outstanding to $1.28 billion of
equity). Deferred income taxes, which are used to finance a portion of FINOVA's
assets, grew 28.4% during 1999 to $439.5 million from $342.3 million at year-end
1998.
Growth in managed assets is generally financed by internally generated cash
flows and borrowings. During 1999, FINOVA Capital issued $3.4 billion in new
senior debt. These funds were used to finance new business and to redeem or
retire $809 million of debt. During 1999, the Company also issued approximately
6.1 million and 0.2 million shares of its common stock as the primary
consideration for the acquisitions of Sirrom and Preferred Business Credit,
respectively. See Note R of Notes to Consolidated Financial Statements for
further detail.
FINOVA satisfies a significant portion of its cash requirements from a
diversified group of worldwide funding sources and is not dependent on any one
lender. FINOVA also relies on the issuance of commercial paper as a major
funding source. During 1999, FINOVA Capital issued $19.0 billion of commercial
paper, at a weighted average cost of 5.4% (with an average of $4.1 billion
outstanding during the year) and raised $3.4 billion, as noted above, through
new long-term financings of one to ten year maturities. Commercial paper and
short-term bank borrowings totaled $3.9 billion at December 31, 1999 and 1998,
and were supported by available unused revolving credit lines which, if not
renewed, are convertible to long-term debt at FINOVA's option. During 1999,
FINOVA extended maturities on commercial paper over year end, beyond the average
58-day maturity, thereby avoiding potential liquidity issues associated with
Year 2000 concerns. The liquidity issues anticipated ultimately did not
materialize.
At December 31, 1999, FINOVA Capital maintained a multi-year revolving
credit facility and a 364-day facility with numerous lenders, in the aggregate
principal amount of $2.0 billion. Separately, FINOVA Capital also had two
multi-year facilities with numerous lenders for $700 million each and two
364-day facilities with numerous lenders for $600 million and $500 million,
respectively. These credit facilities, aggregating $4.5 billion, support
FINOVA's outstanding commercial paper and short-term borrowings. The Company
does not intend to borrow under the domestic revolving credit agreements to
refinance commercial paper and short-term bank loans unless it encounters
significant difficulties in rolling over its outstanding commercial paper and
short-term bank loans. The 364-day $1.0 billion, $600 million and $500 million
A-6
<PAGE>
THE FINOVA GROUP INC.
revolving credit agreements are subject to renewal in 2000, while the two $700
million and the other $1.0 billion credit facilities are subject to renewal in
2002. In addition to the above, FINOVA has a 364-day revolving credit facility
with one lender for $25 million, which is subject to renewal in 2000.
The Company, through one subsidiary, utilizes a multi-year multi-currency
facility with a small group of lenders for $100 million. Through another
subsidiary, the Company maintains a 364-day revolving credit facility with three
lenders in Canada for C$150 million. FINOVA Capital is the guarantor of these
credit facilities, which are subject to renewal in 2002 and 2000, respectively.
The Company, through the acquisition of Fremont Financial Corporation in
December 1999, assumed a trust financed with floating-rate debt and commercial
paper. The commercial paper program is backed by a 364-day facility with a small
group of lenders for $150 million. The facility is drawn upon to fund assets in
the trust. As of December 31, 1999, $46 million of commercial paper was
outstanding under this program.
In 1998, FINOVA Capital commenced a Euro Medium-Term Note Program allowing
for the issuance of up to $1.0 billion of debt securities. In 1999, FINOVA
Capital plc, FINOVA's U.K. subsidiary, was added to the program. As of December
31, 1999, there was $581 million available to issue under the program.
In 1999, FINOVA and FINOVA Capital jointly filed a universal shelf
registration statement with the SEC allowing for the issuance of $3.0 billion of
senior debt securities, common stock, preferred stock, depositary shares and
warrants to purchase common stock or debt securities. Under this shelf, the
Company issued an aggregate $2.35 billion of debt in 1999 including a global
debt offering of $1.5 billion in November 1999. At December 31, 1999, $645
million remained available under the shelf registration, of which $120 million
had been designated for the issuance of medium term notes.
The agreements pertaining to long-term debt include various restrictive
covenants and require the maintenance of certain defined financial ratios with
which FINOVA, FINOVA Capital and FINOVA Capital plc have complied, as
applicable.
FINOVA Capital's aggregate cost of funds decreased to 6.1% for 1999 from
6.4% for 1998 as a result of a decline in market rates, partially offset by the
additional cost related to the extension of maturities on commercial paper over
year end 1999 to avoid potential liquidity issues associated with Year 2000
concerns. FINOVA's cost of and access to capital is dependent, in large part, on
its credit ratings. FINOVA Capital has maintained investment-grade ratings since
1976. FINOVA Capital currently has investment-grade ratings from the following
agencies:
Senior
Commercial Paper Debt
---------------- ------
Duff & Phelps Credit Rating Co. D1 A
Fitch Investors Services, Inc. F1 A
Moody's Investors Service, Inc. P2 Baa1
Standard & Poor's Ratings Group A2 A-
FINOVA (Canada) Capital Corporation, a subsidary of FINOVA Capital, has a
rating with Dominion Bond Rating Service Limited of R-1 (low) for commercial
paper.
In February 2000, FINOVA (Canada) Finance Inc., a subsidiary of FINOVA
Capital, received a rating with Dominion Bond Rating Service Limited of A (low)
for the Medium Term Note Program.
In addition, FINOVA Finance Trust, a subsidiary trust of FINOVA, has issued
TOPrS with investment-grade ratings as follows:
TOPrS
-----
Duff & Phelps Credit Rating Co. BBB+
Fitch Investors Services, Inc. A-
Moody's Investors Service, Inc. Baa2
Standard & Poor's Ratings Group BBB
Standard & Poor's Ratings Group changed on February 26, 1999, its rating of
the TOPrS from BBB+ to BBB. The rating change was not a downgrade, but resulted
from the new rating scale under which Standard & Poor's Ratings Group rates
preferred stock two notches below the corporate or counterparty credit rating of
an investment-grade issuer such as FINOVA.
A-7
<PAGE>
THE FINOVA GROUP INC.
FINOVA periodically repurchases its securities on the open market to fund
its obligations pursuant to employee stock options, benefit plans and similar
obligations. During the years 1999 and 1998, FINOVA repurchased 1,833,200 and
1,299,200 shares, respectively. This program may be discontinued at any time.
DERIVATIVE FINANCIAL INSTRUMENTS
FINOVA enters into derivative transactions as part of its interest rate
risk management policy of match funding its assets and liabilities. The
derivative instruments used are straightforward. FINOVA continually monitors its
derivative position and uses derivative instruments for non-trading and
non-speculative purposes only.
At December 31, 1999, FINOVA Capital had outstanding interest rate
conversion agreements with notional principal amounts totaling $2.4 billion.
Agreements with notional principal amounts of $200 million were arranged to
effectively convert certain floating interest rate obligations into fixed
interest rate obligations. These agreements require interest payments on the
stated principal amount at rates ranging from 6.67% to 8.09% (remaining terms of
one to two years) in return for receipts calculated on the same notional amounts
of floating interest rates. Agreements with notional principal amounts of $1.93
billion were arranged to effectively convert certain fixed interest rate
obligations into floating interest rate obligations. They require interest
payments on the stated principal amount at the three month or six month London
interbank offered rates ("LIBOR") (remaining terms of one to ten years) in
return for receipts calculated on the same notional amounts at fixed interest
rates of 5.70% to 7.71%. FINOVA has also entered into a fixed-rate foreign
currency-denominated transaction (Japanese Yen ("JPY") 5 billion) maturing in
2002. Two derivatives are associated with this transaction, a receive fixed-rate
swap (JPY 5 billion) versus 3-month JPY LIBOR and a basis swap, converting JPY
LIBOR to US Dollar ("USD") LIBOR, both of which mature in 2002. The receive side
of the basis swap has a notional of JPY 5 billion paying 3-month JPY LIBOR and
the pay side has a notional of USD 43.6 million paying 3-month USD LIBOR. See
Note F of Notes to Consolidated Financial Statements for further discussion of
FINOVA's derivatives.
FINOVA also enters into short-term treasury rate locks, options, swaptions
and other derivative instruments to hedge interest rate risks associated with
the warehousing of CMBS loans primarily for FINOVA Realty Capital. FINOVA
entered into a partnership with a prominent investment banking firm which will
reduce the hedging activity previously associated with the CMBS program. See the
Recent Developments and Business Outlook section for a further discussion.
A-8
<PAGE>
THE FINOVA GROUP INC.
SEGMENT REPORTING
Information for FINOVA's reportable segments reconciles to FINOVA's
consolidated totals as follows:
Dollars in Thousands 1999 1998
- -------------------- ---- ----
TOTAL NET REVENUE:
Commercial Finance $ 216,083 $ 187,461
Specialty Finance 384,789 344,541
Capital Markets 101,414 24,170
Corporate and other (16,388) 8,978
----------- -----------
Consolidated total $ 685,898 $ 565,150
=========== ===========
INCOME (LOSS) BEFORE ALLOCATIONS:
Commercial Finance $ 87,406 $ 67,013
Specialty Finance 307,377 273,674
Capital Markets 31,235 (2,775)
Corporate and other, overhead and unallocated
provision for credit losses (70,674) (71,615)
----------- -----------
Income before income taxes and preferred dividends $ 355,344 $ 266,297
=========== ===========
MANAGED ASSETS:
Commercial Finance $ 4,195,237 $ 3,005,130
Specialty Finance 8,265,497 7,211,164
Capital Markets 1,051,367 255,575
Corporate and other 93,273 85,948
----------- -----------
Consolidated total $13,605,374 $10,557,817
Less securitizations and participations sold (483,397) (537,596)
----------- -----------
Investment in financing transactions $13,121,977 $10,020,221
=========== ===========
FINOVA's business is organized into three market groups, which are also its
reportable segments: Commercial Finance, Specialty Finance and Capital Markets.
Management principally relies on total net revenue, income before allocations
and managed assets in evaluating the business performance of each reportable
segment. See Note Q of Notes to Consolidated Financial Statements for additional
detail.
Total net revenue is the sum of operating margin and gains on disposal of
assets. Income before allocations is income before income taxes, preferred
dividends, corporate overhead expenses and the unallocated portion of the
provision for credit losses. Managed assets include each segment's investment in
financing transactions plus securitizations and participations sold.
COMMERCIAL FINANCE. Commercial Finance includes traditional asset-based
businesses that provide financing through revolving credit facilities and term
loans secured by assets such as receivables and inventories, as well as
providing factoring and management services. This segment includes the following
lines of business: Business Credit, Commercial Services, Corporate Finance,
Distribution & Channel Finance, Growth Finance and Rediscount Finance. In
December 1999, the Company acquired Fremont Financial Corporation, which was
added to Business Credit.
Total net revenue was $216.1 million in 1999 compared to $187.5 million in
1998, an increase of 15.3%. The increase was primarily due to 24.1% growth in
average earnings assets in 1999, partially offset by the effects of competitive
pricing pressures, a 4.5% decrease in fee-based volume, which fell to $4.24
billion from $4.45 billion in 1998, and a reduction in the rate earned on the
volume in 1999. Distribution & Channel Finance had fee-based volume of $2.87
billion in 1999 compared to $3.21 billion in 1998. The rate earned on the volume
declined from 1.27% to 0.99%. Commercial Services fee-based volume rose to $1.37
billion from $1.24 billion in 1998, an increase of $136.7 million; however, the
rate earned on that volume declined to 0.82% from 0.94% in 1998.
Income before allocations was $87.4 million in 1999 compared to $67.0
million in 1998. The increase in 1999, which was twice the increase in revenue,
was primarily due to lower net write-offs ($37.2 million in 1999 as compared to
$47.3 million for 1998) and to a lesser extent to the growth in earning assets
noted above, partially offset by higher operating expenses. The Commercial
A-9
<PAGE>
THE FINOVA GROUP INC.
Services line of business, which experienced problems in 1998 with its wholesale
textile customers, refocused its portfolio toward more retail customers in 1999.
As a result, the net write-offs decreased to $7.4 million from $35.7 million in
1998. Conversely, Corporate Finance experienced a higher level of problem
accounts resulting in $17.9 million of net write-offs in 1999 compared to $6.7
million in 1998. Net write-offs as a percentage of average managed assets for
the Commercial Finance Group declined to 1.2% compared to 1.8% in 1998.
Managed assets grew to $4.20 billion in 1999 from $3.01 billion in 1998, an
increase of 39.6%. The growth in managed assets was primarily due to the
addition of $661.9 million of managed assets acquired in connection with the
acquisition of Fremont Financial Corporation and strong growth in the Rediscount
Finance operation, which grew to $1.09 billion from $777.9 million, an increase
of 40.0%. Excluding the acquired assets, managed assets for the group grew by
$528.2 million, or 17.6% during 1999. This internal growth was driven by new
loan business of $1.12 billion in 1999 compared to $792.8 million in 1998.
SPECIALTY FINANCE. Specialty Finance provides a wide variety of lending
products such as leases, loans, accounts receivable and cash flow based
financing, as well as servicing and collection services to a number of highly
focused industry specific niches. This segment includes the following lines of
business: Commercial Equipment Finance, Communications Finance, Franchise
Finance, Healthcare Finance, Portfolio Services, Public Finance, Resort Finance,
Specialty Real Estate Finance and Transportation Finance.
Total net revenue increased 11.7% to $384.8 million in 1999 compared to
$344.5 million in 1998, while income before allocations grew 12.3% to $307.4
million in 1999 compared to $273.7 million in 1998. Both increases were
primarily due to 18.1% growth in average earning assets, partially offset by the
effects of competitive pricing pressures in certain of the business units and a
lower level of prepayment related penalties and fees. The lower amount of
prepayment income was not based solely on the level of prepayments, since $538.1
million of contracts prepaid in 1999 compared to $560.0 million in 1998. Income
will vary depending on where the deal is in its life cycle at time of prepayment
and which businesses are experiencing the prepayments because only certain lines
of business can structure prepayment penalties into their transactions.
Managed assets grew to $8.27 billion in 1999 from $7.21 billion in 1998, an
increase of 14.6%. The growth in managed assets was driven by new business of
$3.33 billion in 1999 compared to $3.08 billion in 1998. The growth in managed
assets was spread across most business units with Resort Finance, Healthcare
Finance and Franchise Finance contributing the most to the growth in managed
assets, while Communications Finance and Public Finance experienced declines.
The Communications Finance line of business experienced a greater amount of
prepayments in 1999 than 1998, which partially offset the growth in managed
assets for the segment as a whole. Communications' higher prepayments primarily
resulted from customers opting to seek capital infusion from the equity markets
and continued consolidation in the industry.
CAPITAL MARKETS. Capital Markets, in conjunction with institutional
investors, provides commercial mortgage banking services and debt and equity
capital funding. The Capital Markets Group expanded its product base to include
mezzanine debt with associated warrant positions and merger and acquisition
advisory services through the acquisition of Sirrom Capital Corporation and
Harris Williams & Co. in the first quarter of 1999. This segment now includes
Realty Capital, Investment Alliance, Loan Administration, Mezzanine Capital and
Harris Williams & Co.
Total net revenue was $101.4 million in 1999 compared to $24.2 million in
1998. The increase in 1999 was primarily due to the addition of Mezzanine
Capital and Harris Williams & Co. to this segment. Also contributing to the
increase in net revenue was the continued growth of Realty Capital's bridge and
mezzanine financing activities.
The Mezzanine Capital and Harris Williams & Co. units provided $59.9
million of net revenue during 1999, of which $16.9 million related to gains from
the sale of equity and warrant positions. Included in this amount was $4.6
million of gains generated from the sale of 140,000 shares of Healtheon/WebMD
stock. FINOVA recorded a pretax unrealized gain of $36.9 million through other
comprehensive income on the balance sheet related to 1,246,332 shares of
Healtheon/WebMD stock in its portfolio at December 31, 1999.
Mezzanine Capital provides mezzanine financing with the intent of receiving
stock warrants or other equity instruments in anticipation that the customers
will ultimately seek equity capital. As such, FINOVA periodically assesses its
position in this unit's investment portfolio and will exercise its position
based on various factors, including management's discretion.
Realty Capital increased its net revenue over 1998 primarily due to a
higher level of average earning assets related to the expansion of their bridge
and mezzanine financing products and higher CMBS gains, partially offset by a
reduction in volume-based fees. Realty Capital had $11.8 million of CMBS gains
in 1999, compared to a net loss on CMBS transactions of $7.2 million in 1998.
A-10
<PAGE>
THE FINOVA GROUP INC.
Realty Capital curtailed its CMBS volume in 1999, which declined to $757.8
million from $1.76 billion in 1998; while its structured finance volume
increased to $1.31 billion from $1.05 billion in 1998. The shift in product mix
resulted in a decline in Realty Capital's commission rate to 0.50% from 0.88% in
1998. Structured finance deals carry a lower net rate than CMBS transactions.
FINOVA took steps to eliminate the balance sheet exposure from the CMBS product
entirely in 2000 by entering into a Preferred Partner Program with a prominent
investment banking firm during the fourth quarter of 1999. See the Recent
Developments and Business Outlook section for a further discussion.
Income before allocations grew to $31.2 million in 1999 from a loss of $2.8
million in 1998 for the segment. This increase was primarily attributable to the
addition of Mezzanine Capital and Harris Williams & Co. and the turnaround in
gain activity for Realty Capital, all of which was partially offset by $8.2
million of net write-offs in the Mezzanine Capital portfolio and increased
operating expenses associated with the acquired operations.
Capital Markets was able to grow its managed asset base to $1.05 billion
from $255.6 million in 1998. This growth was primarily due to the addition of
$469.3 million of acquired assets combined with $339.1 million of new business
related to Realty Capital's bridge and mezzanine financing products. The
acquired assets of Mezzanine Capital declined to $442.7 million by year end.
FINOVA expects this portfolio to further compress during the first part of 2000
as it transitions to originating new business using FINOVA's underwriting
standards.
YEAR 2000 COMPLIANCE
FINOVA successfully completed all work necessary to make its
mission-critical systems Year 2000 compliant in 1999 and experienced no
significant problems during the transition to the new year. The Company incurred
expenses of $207,000 and capital costs of $1.7 million related to its Year 2000
compliance efforts. No material expenditures related to the Year 2000 issue are
expected to be incurred in the future.
FINOVA's estimate of future costs does not include time and costs that may
be incurred as a result of the failure of any third parties to become Year 2000
compliant. FINOVA is monitoring activity with customers and others during the
first quarter of 2000 to determine if their applications are Year 2000 compliant
and to assess the potential impact on FINOVA related to this issue. At the date
of this filing, no significant impact has been noted.
RECENT DEVELOPMENTS AND BUSINESS OUTLOOK
In December 1999, FINOVA acquired Fremont Financial Corporation, the
commercial lending subsidiary of Fremont General Corporation. Fremont Financial
Corporation was headquartered in Santa Monica, Calif., had account management
and operations in Santa Monica and Atlanta and provided secured working capital
and term loans averaging $2 million to $4 million to midsize businesses
throughout the U.S. Those operations were integrated into the Business Credit
line of business.
In December 1999, FINOVA entered into a formal partnership with a prominent
investment banking firm known as the "Preferred Partner Program." Under the
program, FINOVA Realty Capital will originate and close CMBS loans; the
investment banking firm will fund and warehouse the loans, then securitize them
in pools mixed with other similar loans originated by the investment banking
firm. FINOVA and the investment banking firm will share in all aspects of the
transactions (fees, commissions, interest margin, hedge costs and gains). FINOVA
is contractually exposed to losses from sales only up to its share of fees,
margin and commissions related to the transactions; therefore, FINOVA expects to
maintain no balance sheet exposure or additional downside risk to the CMBS
product.
FINOVA and FINOVA Capital dismissed their independent auditors, Deloitte &
Touche LLP, effective July 15, 1999 and appointed Ernst & Young LLP as
independent auditors. These actions were approved by FINOVA's Board of Directors
upon recommendation of its Audit Committee. The change was also approved by
FINOVA Capital's Board of Directors.
The selection of Ernst & Young was approved by FINOVA and FINOVA Capital
after an extended evaluation process initiated by FINOVA's Audit Committee.
Neither company sought the advice of Ernst & Young on specific audit issues
relating to their financial statements prior to engagement of that firm.
The change in independent auditors did not occur due to any existing or
previous accounting disagreements with Deloitte & Touche. Deloitte & Touche has
expressed no disclaimer of opinion, adverse opinion, qualification or limitation
regarding the financial statements of FINOVA or FINOVA Capital or the audit
process, for the years ended December 31, 1998 or 1997, or the interim periods
ended March 31, 1999 or June 30, 1999. Neither have there been any accounting
disagreements or reportable events within the meaning of Item 304 of SEC
Regulation S-K for those periods. Deloitte & Touche has stated in a letter
addressed to the SEC its concurrence with the foregoing statements in this
paragraph.
A-11
<PAGE>
THE FINOVA GROUP INC.
In February 2000, FINOVA Capital commenced a Canadian Medium-Term Note
Program through a newly formed subsidiary, FINOVA (Canada) Finance Inc.,
allowing for the issuance of up to C$300 million of debt securities.
On February 15, 2000, FINOVA terminated all agreements and paid all amounts
associated with Corporate Finance's $300 million securitization.
On February 23, 2000, FINOVA Capital began seeking consents from security
holders of the Fremont Small Business Loan Master Trust ("Trust") to accelerate
the first date on which FINOVA Capital can cause an optional redemption of the
Trust's Series D Securities. A proposed amendment to the Trust would accelerate
the first optional redemption date to March 15, 2000 from April 16, 2001. The
Trust was acquired with Fremont Financial Corporation in December 1999. Approval
of the amendment would permit FINOVA to redeem or retire the debt in the trust
and to terminate its activities during the first half of 2000.
NEW ACCOUNTING STANDARDS
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivatives and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133."
This statement defers the effective date of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," ("SFAS No. 133") to all fiscal
quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by recognition of those
items as assets or liabilities in the statement of financial position and
measurement at fair value. The impact of SFAS No. 133 on the Company's financial
position and results of operations has not yet been determined.
A-12
<PAGE>
THE FINOVA GROUP INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
FINOVA's primary market risk exposure is the volatility of interest rates.
FINOVA seeks to manage interest rate risk and preserve income through a
diversified borrowing base and a matched-funding policy. A diversified borrowing
base consists of short and long-term debt with a fixed or variable rate.
FINOVA's matched funding policy, approved by the Board of Directors or Audit
Committee and administered by the Finance Committee, requires that floating-rate
assets be financed with similar floating-rate liabilities and fixed-rate assets
be financed with similar fixed-rate liabilities. Under the matched-funding
policy, the difference between floating-rate assets and floating-rate
liabilities should not exceed 3% of total assets for any extended period.
FINOVA engages in hedging transactions using primarily interest rate swaps,
and to a lesser extent, other derivative instruments to lower its interest costs
and to manage its interest rate risk. Derivative instruments are used for
non-trading and non-speculative purposes only. A hedge consists of a position
that is substantially equal and opposite of the asset or liability being hedged.
It is structured to provide a high degree of correlation at the inception of the
hedge and throughout the hedge period so that hedging results will substantially
offset the effects of interest rate changes on the exposed item during the term
of the hedge.
Hedge transactions are authorized to be executed with financial
institutions rated "A" or better by Standard & Poor's Rating Group or Moody's
Investors Service, Inc. The notional principal amount of aggregate hedges on a
net basis with a given counterparty cannot exceed 10% of FINOVA's total debt
outstanding as of the time of entering into the derivative transaction.
FINOVA uses various sensitivity analysis models to measure the exposure of
net income to increases or decreases in interest rates. These models measure the
change in annual net income if interest rates on floating-rate assets,
liabilities and derivative instruments increase or decrease, assuming no
prepayments. Based on models used, a 100 basis point shift in interest rates
would affect net income by less than 1%.
Certain limitations are inherent in the models used for interest rate risk
measurements. Modeling changes require certain assumptions that may oversimplify
the manner in which actual yields and costs respond to changes in market
interest rates. For example, the models assume a more static composition of
FINOVA's interest sensitive assets, liabilities and derivative instruments than
would actually exist over the period being measured. The models also assume that
a particular change in interest rates is reflected uniformly across the yield
curve regardless of the maturity or repricing of specific assets and
liabilities. Although the sensitivity analysis models provide an indication of
FINOVA's interest rate risk exposure at a particular point in time, the models
are not intended to and do not provide a precise forecast of the effects of
changes in market interest rates on FINOVA's net income and will likely differ
from actual results.
A-13
<PAGE>
THE FINOVA GROUP INC.
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of The FINOVA Group Inc. is responsible for the preparation,
integrity and objectivity of the financial statements and other financial
information included in this Annual Report. The financial statements are
presented in accordance with generally accepted accounting principles
reflecting, where applicable, management's best estimates and judgments.
FINOVA's management has established and maintains a system of internal
controls to reasonably assure the fair presentation of the financial statements,
the safeguarding of FINOVA's assets and the prevention or detection of
fraudulent financial reporting. The internal control structure is supported by
careful selection and training of personnel, policies and procedures and regular
review by both internal auditors and the independent auditors.
The Board of Directors, through its Audit Committee, also oversees the
financial reporting of FINOVA and its adherence to established procedures and
controls. Periodically, the Audit Committee meets, jointly and separately, with
management, the internal auditors and the independent auditors to review
auditing, accounting and financial reporting matters.
FINOVA's financial statements have been audited by Ernst & Young LLP,
independent auditors. Management has made available to Ernst & Young LLP all of
FINOVA's financial records and related data and has made valid and complete
written and oral representations and disclosures in connection with the audit.
Management believes it is essential to conduct its business in accordance
with the highest ethical standards, which are characterized and set forth in
FINOVA's written Code of Conduct. These standards are communicated to and
acknowledged by all of FINOVA's employees.
/s/ Samuel L. Eichenfield
- -------------------------
Samuel L. Eichenfield
Chairman, President and Chief Executive Officer
/s/ Bruno A. Marszowski
- -------------------------
Bruno A. Marszowski
Senior Vice President - Controller and Chief Financial Officer
/s/ Derek C. Bruns
- -------------------------
Derek C. Bruns
Senior Vice President - Internal Audit
A-14
<PAGE>
THE FINOVA GROUP INC.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareowners of The FINOVA Group Inc.
We have audited the accompanying consolidated balance sheet of The FINOVA Group
Inc. and subsidiaries as of December 31, 1999, and the related consolidated
statements of income, shareowners' equity, and cash flows for the year then
ended. These financial statements are the responsibility of The FINOVA Group
Inc.'s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with accounting standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The FINOVA Group
Inc. and subsidiaries at December 31, 1999 and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.
Ernst & Young LLP
Phoenix, Arizona
January 19, 2000
A-15
<PAGE>
THE FINOVA GROUP INC.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareowners of The FINOVA Group Inc.
We have audited the accompanying consolidated balance sheet of The FINOVA Group
Inc. and subsidiaries as of December 31, 1998, and the related consolidated
statements of income, shareowners' equity and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of The FINOVA Group Inc.'s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The FINOVA Group Inc. and
subsidiaries as of December 31, 1998, and the results of their operations and
their cash flows for each of the two years in the period then ended in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Phoenix, Arizona
April 23, 1999
A-16
<PAGE>
THE FINOVA GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
1999 1998
------------ ------------
ASSETS
Cash and cash equivalents $ 100,344 $ 49,518
Investment in financing transactions:
Loans and other financing contracts 10,446,356 7,354,736
Leveraged leases 837,083 773,942
Operating leases 592,495 648,185
Fee-based receivables 583,885 626,499
Direct financing leases 494,175 396,759
Financing contracts held for sale 167,983 220,100
------------ ------------
13,121,977 10,020,221
Less reserve for credit losses (264,983) (207,618)
------------ ------------
Net investment in financing transactions 12,856,994 9,812,603
Investments 446,489 173,977
Goodwill, net of accumulated amortization 367,241 286,042
Other assets 279,225 119,096
------------ ------------
$ 14,050,293 $ 10,441,236
============ ============
LIABILITIES AND SHAREOWNERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 167,073 $ 154,137
Due to clients 146,607 205,655
Interest payable 114,397 65,817
Senior debt 11,407,767 8,394,578
Deferred income taxes 439,518 342,268
------------ ------------
12,275,362 9,162,455
------------ ------------
Commitments and contingencies
Company-obligated mandatory redeemable
convertible preferred securities of
subsidiary trust solely holding
convertible debentures of FINOVA,
net of expenses ("TOPrS") 111,550 111,550
Shareowners' equity:
Common stock, $0.01 par value, 400,000,000
shares authorized, 64,849,000 and
58,555,000 shares issued, respectively 648 585
Additional capital 1,109,521 765,050
Retained income 689,466 515,057
Accumulated other comprehensive income 33,812 686
Common stock in treasury, 3,597,000 and
2,834,000 shares, respectively (170,066) (114,147)
------------ ------------
1,663,381 1,167,231
------------ ------------
$ 14,050,293 $ 10,441,236
============ ============
See notes to consolidated financial statements.
A-17
<PAGE>
THE FINOVA GROUP INC.
STATEMENTS OF CONSOLIDATED INCOME
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- ------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Interest, fees and other income $ 1,017,940 $ 795,790 $ 691,565
Financing lease income 96,241 95,781 71,278
Operating lease income 114,462 116,202 116,920
----------- ----------- -----------
Income earned from financing transactions 1,228,643 1,007,773 879,763
Interest expense 592,858 478,177 414,650
Operating lease depreciation 67,987 70,081 72,989
----------- ----------- -----------
Interest margins earned 567,798 459,515 392,124
Volume-based fees 50,080 77,723 39,378
----------- ----------- -----------
Operating margin 617,878 537,238 431,502
Provision for credit losses 76,800 82,200 69,200
----------- ----------- -----------
Net interest margins earned 541,078 455,038 362,302
Gains on disposal of assets 68,020 27,912 30,333
----------- ----------- -----------
609,098 482,950 392,635
Operating expenses 253,754 216,653 168,444
----------- ----------- -----------
Income before income taxes and preferred dividends 355,344 266,297 224,191
Income taxes 136,318 102,174 82,289
----------- ----------- -----------
Income before preferred dividends 219,026 164,123 141,902
Preferred dividends, net of tax 3,782 3,782 3,992
----------- ----------- -----------
NET INCOME $ 215,244 $ 160,341 $ 137,910
=========== =========== ===========
Basic earnings per share $ 3.59 $ 2.87 $ 2.53
=========== =========== ===========
Adjusted weighted average shares outstanding 59,880,000 55,946,000 54,405,000
=========== =========== ===========
Diluted earnings per share $ 3.41 $ 2.70 $ 2.40
=========== =========== ===========
Adjusted weighted average shares outstanding 64,300,000 60,705,000 59,161,000
=========== =========== ===========
Dividends per common share $ 0.68 $ 0.60 $ 0.52
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
A-18
<PAGE>
THE FINOVA GROUP INC.
STATEMENTS OF CONSOLIDATED SHAREOWNERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Common
Common Additional Retained Income/ Stock in Shareowners' Comprehensive
Stock Capital Income (Deficit) Treasury Equity Income
----- ------- ------ --------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $568 $ 687,767 $ 279,139 $ 1,008 $ (32,397) $ 936,085
---- ----------- --------- -------- --------- -----------
Comprehensive income:
Net income 137,910 137,910 $ 137,910
---------
Foreign currency translation (1,018)
---------
Other comprehensive income (1,018) (1,018) (1,018)
---------
Comprehensive income $ 136,892
=========
Issuance of common stock 17 77,521 77,538
Net change in unamortized amount
of restricted stock (5,064) (5,064)
Dividends (28,584) (28,584)
Purchase of shares (37,296) (37,296)
Shares issued in connection with
employee benefit plans 4,301 8,382 12,683
---- ----------- --------- -------- --------- -----------
BALANCE, DECEMBER 31, 1997 585 764,525 388,465 (10) (61,311) 1,092,254
---- ----------- --------- -------- --------- -----------
Comprehensive income:
Net income 160,341 160,341 $ 160,341
---------
Net Unrealized holding gains 904
Foreign currency translation (208)
---------
Other comprehensive income 696 696 696
---------
Comprehensive income $ 161,037
=========
Net change in unamortized amount
of restricted stock (1,053) (1,053)
Dividends (33,749) (33,749)
Purchase of shares (63,271) (63,271)
Shares issued in connection with
employee benefit plans 1,578 10,435 12,013
---- ----------- --------- -------- --------- -----------
BALANCE, DECEMBER 31, 1998 585 765,050 515,057 686 (114,147) 1,167,231
---- ----------- --------- -------- --------- -----------
Comprehensive income:
Net income 215,244 215,244 $ 215,244
---------
Net Unrealized holding gains 37,054
Foreign currency translation (3,928)
---------
Other comprehensive income 33,126 33,126 33,126
---------
Comprehensive income $ 248,370
=========
Net change in unamortized amount
of restricted stock (4,825) (4,825)
Issuance of common stock 63 354,960 355,023
Dividends (40,835) (40,835)
Purchase of shares (89,272) (89,272)
Shares issued in connection with
employee benefit plans (5,664) 33,353 27,689
---- ----------- --------- -------- --------- -----------
BALANCE, DECEMBER 31, 1999 $648 $ 1,109,521 $ 689,466 $ 33,812 $(170,066) $ 1,663,381
==== =========== ========= ======== ========= ===========
</TABLE>
See notes to consolidated financial statements.
A-19
<PAGE>
THE FINOVA GROUP INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- ------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 215,244 $ 160,341 $ 137,910
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses 76,800 82,200 69,200
Depreciation and amortization 99,847 93,150 90,010
Deferred income taxes 118,538 66,296 29,754
Net deferred acquisition costs (12,232) (8,126) (5,718)
Change in assets and liabilities, net of
effects from acquisitions:
Increase in other assets (46,895) (31,817) (17,576)
(Decrease) increase in accounts payable
and accrued expenses (46,403) 4,369 20,800
Increase (decrease) in interest payable 46,564 11,399 (1,477)
Other (12,037) 1,819 (603)
----------- ----------- -----------
Net cash provided by operating activities 439,426 379,631 322,300
----------- ----------- -----------
INVESTING ACTIVITIES:
Proceeds from sales of investments, net of gains 26,711
Proceeds from sales of residual positions,
net of gains 104,559 99,647 165,890
Proceeds from sales of securitized assets, net
of gains 99,967 36,565
Proceeds from sales of commercial mortgage backed
securities ("CMBS"), net of gains or losses 511,024 869,296
Expenditures for investments and other
income-producing activities (126,999) (85,659) (15,200)
Expenditures for CMBS transactions (529,232) (1,005,373)
Principal collections on financing transactions 1,925,796 1,656,320 1,675,186
Expenditures for financing transactions (3,961,705) (3,282,348) (2,507,822)
Net change in fee-based receivables 42,614 123,900 (64,169)
Net change in revolving credit facilities (467,460) (252,612) (392,020)
Acquisitions, net of cash received (85,278) (61,164) (120,883)
Other 3,519 2,307 2,399
----------- ----------- -----------
Net cash used for investing activities (2,556,451) (1,835,719) (1,220,054)
----------- ----------- -----------
FINANCING ACTIVITIES:
Net (repayments)/ borrowings under commercial
paper and short-term loans (305,030) 739,515 649,653
Long-term borrowings 3,443,592 1,580,000 1,080,625
Repayment of long-term borrowings (809,245) (689,176) (817,892)
Proceeds from exercise of stock options 27,689 12,013 12,683
Common stock purchased for treasury (89,272) (63,271) (37,296)
Dividends (40,835) (33,749) (28,584)
Net change in due to clients (59,048) (72,916) 40,495
----------- ----------- -----------
Net cash provided by financing activities 2,167,851 1,472,416 899,684
----------- ----------- -----------
Increase in cash and cash equivalents 50,826 16,328 1,930
Cash and cash equivalents, beginning of year 49,518 33,190 31,260
----------- ----------- -----------
Cash and cash equivalents, end of year $ 100,344 $ 49,518 $ 33,190
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
A-20
<PAGE>
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in Thousands in Tables, except per share data)
NOTE A SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION - The consolidated
financial statements present the financial position, results of operations and
cash flows of The FINOVA Group Inc. and its subsidiaries (collectively, "FINOVA"
or the "Company"), including FINOVA Capital Corporation and its subsidiaries
(collectively, "FINOVA Capital").
The FINOVA Group Inc. is a financial services company engaged principally
in providing collateralized financing products to commercial enterprises
focusing on mid-size businesses in various market niches, primarily in the
United States.
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles. All significant intercompany balances
have been eliminated in consolidation. Described below are those accounting
policies particularly significant to FINOVA, including those selected from
acceptable alternatives:
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION - For loans and other financing contracts, earned
income is recognized over the life of the contract, using the interest method.
Leases that are financed by nonrecourse borrowings and meet certain other
criteria are classified as leveraged leases. For leveraged leases, aggregate
rental receivables are reduced by the related nonrecourse debt service
obligation including interest ("net rental receivables"). The difference between
(a) the net rental receivables and (b) the cost of the asset less estimated
residual value at the end of the lease term is recorded as unearned income.
Earned income is recognized over the life of the lease at a constant rate of
return on the positive net investment, which includes the effects of deferred
income taxes.
For operating leases, earned income is recognized on a straight-line basis
over the lease term and depreciation is taken on a straight-line basis over the
estimated useful lives of the leased assets.
Origination fees net of direct origination costs are deferred and amortized
over the life of the originated asset as an adjustment to yield.
Original issue discounts are established when equity interests are received
in connection with a funded loan based on the fair value of the equity interest.
The assigned value is amortized to income over the term of the loan as an
adjustment to yield.
Fees received in connection with loan commitments are deferred in accounts
payable and accrued expenses until the loan is advanced and are then recognized
over the term of the loan as an adjustment to the yield. Fees on commitments
that expire unused are recognized at expiration.
Fees are also generated on the volume of purchased accounts receivable and
mortgage loan originations. Fees on the volume of purchased accounts receivable
represent discounts or commissions to FINOVA in return for handling the accounts
receivable collection process. These fees are recognized as income in the period
the receivables are purchased due to the short-term nature of the accounts
receivable, which are generally collected from one to three months after
purchase. FINOVA's commercial mortgage operation originates and sells loans and
typically would only retain assets on the balance sheet for a short period of
time. Fees on mortgage loan originations represent broker commissions on the
loan originations and are recognized as income in the period of origination.
Income recognition is generally suspended for leases, loans and other
financing contracts at the earlier of the date at which payments become 90 days
past due or when, in the opinion of management, a full recovery of income and
principal becomes doubtful. Income recognition is resumed when the loan, lease
or other financing contract becomes contractually current and performance is
demonstrated to be resumed or when foreclosed or repossessed assets generate a
reasonable rate of return.
A-21
<PAGE>
THE FINOVA GROUP INC.
CASH EQUIVALENTS - FINOVA classifies highly liquid investments with
original maturities of three months or less from date of purchase as cash
equivalents.
FINANCING CONTRACTS HELD FOR SALE - Financing contracts held for sale are
composed of assets held for sale and retained interests from sales to a private
CMBS ("mini-CMBS") structure that are available for sale. Assets held for sale
are carried at the lower of cost or market with adjustment, if any, recorded in
operations. Assets available for sale are carried at fair value using the
specific identification method with unrealized gains and losses being recorded
as a component of accumulated other comprehensive income within the equity
section of the balance sheet. FINOVA had no retained interest available for sale
at December 31, 1999.
Since FINOVA is exposed to losses from asset sales under the Preferred
Partner Program with a prominent investment banking firm up to its share of
fees, margin and commissions related to the transactions, revenues and expenses
associated with the origination of CMBS loans under this program are deferred
until a determination of the gain or loss on sale of the loans has been
finalized.
FINOVA anticipates that the investment banking firm will execute
securitizations every four months on average. The timing of those
securitizations could vary, depending on market conditions, available volume for
securitization and other factors. See Notes B and P.
RESERVE FOR CREDIT LOSSES - The reserve for credit losses is available to
absorb credit losses and is not provided for financing contracts held for sale
and other owned assets, including assets on operating lease. The provision for
credit losses is the charge to income to increase the reserve for credit losses
to the level that management estimates to be adequate considering delinquencies,
loss experience and collateral. Other factors considered include changes in
geographic and product diversification, size of the portfolio and current
economic conditions. Accounts are either written off or written down when the
loss is considered probable and determinable, after giving consideration to the
customer's financial condition and the value of the underlying collateral,
including any guarantees. Any deficiency between the carrying amount of an asset
and the net sales price of repossessed collateral is charged to the reserve for
credit losses. Recoveries of amounts previously written off as uncollectible are
credited to the reserve for credit losses.
IMPAIRED LOANS - Impaired loans represent loans with probable significant
delays in collection of all of the scheduled principal and interest payments in
accordance with the original contractual terms or a deterioration of the
collateral net present value position below FINOVA's loan balance. The amount of
the specific impairment reserve is equal to the difference between the current
carrying amount of a loan and the greater of (a) the net present value of
expected cash flows from the borrower, discounted at the original effective
interest rate of the transaction, or (b) the net fair value of collateral.
Accruing impaired loans are paying in accordance with the current modified loan
agreement or have adequate collateral protection.
REPOSSESSED ASSETS - Repossessed assets are carried at the lower of cost or
fair value less estimated selling expenses.
RESIDUAL VALUES - FINOVA has a significant investment in residual values in
its leasing portfolios. These residual values represent estimates of the value
of leased assets at the end of the contract terms and are initially recorded
based upon appraisals and estimates. Residual values are periodically reviewed
to determine that recorded amounts are appropriate. Actual residual values
realized could differ from these estimates and updates.
INVESTMENTS - The Company's investments include government debt securities,
equity securities and partnership interests. The Company's investments have
increased significantly in connection with the acquisition of Sirrom Capital
Corporation ("Sirrom") in March 1999.
Certain marketable securities, as discussed in Notes D and K, are
considered trading securities and are stated at fair value with gains or losses
recorded in income in the period they occur.
Debt and equity securities that are being held for an indefinite period of
time are designated as available for sale and carried at fair value using the
specific identification method.
Partnership interests are accounted for under either the cost or equity
method depending on the Company's level of influence in the investee. Under the
equity method, the Company recognizes its share of income or losses of the
partnership in the period in which they are earned. Under the cost method, the
Company recognizes income based on distributions received.
The carrying value of debt and equity securities and partnership interests
are periodically reviewed for impairment which, if identified, is recorded as a
change to current operations.
A-22
<PAGE>
THE FINOVA GROUP INC.
GOODWILL - FINOVA amortizes the excess of cost over the fair value of net
assets acquired ("goodwill") on a straight-line basis primarily over 20 to 25
years. Amortization totaled $20.4 million ($13.2 million after-tax), $14.5
million ($10.6 million after-tax) and $9.7 million ($6.1 million after tax) for
the years ended December 31, 1999, 1998 and 1997, respectively. FINOVA
periodically evaluates the carrying value of its intangible assets for
impairment. This evaluation is based on projected, undiscounted cash flows
generated by the underlying assets. No portion of the Company's goodwill was
considered impaired at December 31, 1999 and 1998. At December 31, 1999,
approximately $289.8 million of goodwill (net of amortization), or 81% of the
original goodwill balance, was deductible for federal income tax purposes over
15 years.
PENSION AND OTHER BENEFITS - Trusteed, noncontributory pension plans cover
substantially all employees. Benefits are based primarily on final average
salary and years of service. Funding policies provide that payments to pension
trusts shall be at least equal to the minimum funding required by applicable
regulations.
Other post-retirement benefit costs are recorded during the period the
employees provide service to FINOVA. Post-retirement benefit obligations are
funded as benefits are paid.
Post-employment benefits are any benefits other than retirement benefits.
FINOVA records post-employment benefit costs at the time employees leave active
service.
SAVINGS PLAN - FINOVA maintains The FINOVA Group Inc. Savings Plan (the
"Savings Plan"), a qualified 401(k) program. The Savings Plan is available to
substantially all employees. The employee may elect voluntary wage reductions
ranging from 0% to 15% of taxable compensation. The Company's matching
contributions are based on employee pre-tax salary reductions, up to a maximum
of 100% of the first 6% of salary contributions, the first 3% of which are
matched in FINOVA stock through the Employee Stock Ownership Plan, discussed
below.
EMPLOYEE STOCK OWNERSHIP PLAN - Employees of FINOVA are eligible to
participate in the Employee Stock Ownership Plan in the month following the
first 12 consecutive month period during which they have at least 1,000 hours of
service with FINOVA. Company contributions are made in the form of matching
stock contributions of 100% of the first 3% of salary reduction contributions
made by participants of the Savings Plan.
Expenses under the Savings Plan and Employee Stock Ownership Plan were $4.0
million, $3.1 million and $2.5 million in 1999, 1998 and 1997, respectively.
INCOME TAXES - Deferred tax assets and liabilities are recognized for the
estimated future tax effects attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax law.
EARNINGS PER SHARE - Basic earnings per share exclude the effects of
dilution and are computed by dividing income available to common shareowners by
the weighted average amount of common stock outstanding for the period. Diluted
earnings per share reflect the potential dilution that could occur if options,
convertible preferred stock or other contracts to issue stock were exercised or
converted into common stock. These calculations are presented for the years
ended December 31, 1999, 1998 and 1997 on the Statements of Consolidated Income
and are more fully discussed in Note L.
DERIVATIVE FINANCIAL INSTRUMENTS - As more fully described in Note F,
FINOVA uses derivative financial instruments as part of its interest rate risk
management policy of match funding its assets and liabilities. The derivative
instruments used include interest rate swaps, and to a lesser extent treasury
locks, options, futures and swaptions which are subject to hedge accounting
determination.
Each derivative used as a hedge is matched with an asset or liability with
which it has a high correlation. The swap agreements are generally held to
maturity and FINOVA does not use derivative financial instruments for trading or
speculative purposes. Upon early termination of the designated matched asset or
liability, the related derivative is matched to another appropriate item or
marked to fair market value. Any gain or loss is not recognized immediately but
is amortized to operations over the remaining life of the hedged transaction.
SECURITIZATIONS - In accordance with SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
receivable transfers are accounted for as sales when legal and effective control
over the transferred receivables is surrendered.
A-23
<PAGE>
THE FINOVA GROUP INC.
RECLASSIFICATIONS - Certain reclassifications have been made to the prior
years financial statements to conform to the 1999 presentation.
NOTE B INVESTMENT IN FINANCING TRANSACTIONS
FINOVA provides secured financing to commercial and real estate enterprises
principally under financing contracts (such as loans and other financing
contracts, direct financing leases, operating leases, leveraged leases,
fee-based receivables and financing contracts held for sale). At December 31,
1999 and 1998, the carrying amount of the investment in financing transactions,
including the estimated residual value of leased assets upon lease termination,
was $13.1 billion and $10.0 billion (before reserve for credit losses),
respectively, and consisted of the following percentage of carrying amount by
segment and line of business:
Percent of Total
Carrying Amount
---------------
1999 1998
---- ----
Commercial Finance Group
Rediscount Finance 8.2% 7.7%
Business Credit 7.5 3.0
Corporate Finance 7.2 7.9
Distribution & Channel Finance 4.3 5.7
Commercial Services 1.7 1.7
Growth Finance 0.4 0.5
----- -----
29.3% 26.5%
----- -----
Specialty Finance Group
Transportation Finance 19.0 22.0
Resort Finance 12.4 12.5
Commercial Equipment Finance 6.5 7.5
Franchise Finance 5.9 6.0
Specialty Real Estate Finance 5.9 7.0
Healthcare Finance 5.8 6.1
Communications Finance 5.2 7.2
Public Finance 1.3 1.8
----- -----
62.0% 70.1%
----- -----
Capital Markets Group
Realty Capital 4.4 2.4
Mezzanine Capital 3.4
Investment Alliance 0.2 0.1
----- -----
8.0% 2.5%
----- -----
Other 0.7 0.9
----- -----
100.0% 100.0%
===== =====
A-24
<PAGE>
THE FINOVA GROUP INC.
Aggregate installments on investments in financing transactions at December
31,1999 (excluding nonaccruing repossessed assets of $55.8 million and estimated
residual values of $998.7 million) are contractually due or anticipated during
each of the years during December 31, 2000 to 2004 and thereafter as follows:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Loans and other financing contracts:
Fixed interest rate $ 961,915 $ 765,171 $ 606,896 $341,873 $ 253,564 $ 830,205
Floating interest rate 2,624,654 2,123,244 1,052,339 237,353 329,092 269,091
Leases, primarily at fixed interest
rate:
Operating leases 105,755 93,346 73,664 59,021 22,799 47,519
Leveraged leases 34,835 10,684 2,427 18,064 16,371 387,057
Direct financing leases 87,611 83,119 70,636 58,441 49,812 225,815
Fee-based receivables 583,885
Financing contracts held for sale 167,983
---------- ---------- ---------- -------- ---------- ----------
$4,566,638 $3,075,564 $1,805,962 $714,752 $ 671,638 $1,759,687
========== ========== ========== ======== ========== ==========
</TABLE>
The investment in operating leases at December 31 consisted of the
following:
1999 1998
---- ----
Cost of assets $ 725,829 $ 757,921
Accumulated depreciation (133,334) (109,736)
--------- ---------
Investment in operating leases $ 592,495 $ 648,185
========= =========
The net investment in leveraged leases at December 31 consisted of the
following:
1999 1998
---- ----
Rental receivables $ 2,987,277 $ 2,885,352
Less principal and interest payable on
nonrecourse debt (2,517,839) (2,403,623)
----------- -----------
Net rental receivables 469,438 481,729
Estimated residual values 848,236 794,112
Less unearned income (480,591) (501,899)
----------- -----------
Investment in leveraged leases 837,083 773,942
Less deferred taxes from leveraged leases (411,642) (314,243)
----------- -----------
Net investment in leveraged leases $ 425,441 $ 459,699
=========== ===========
The components of income from leveraged leases, after the effects of
interest on nonrecourse debt and other related expenses, for the years ended
December 31 were as follows:
1999 1998 1997
---- ---- ----
Lease and other income, net $60,936 $60,484 $35,834
Income tax expense 24,136 24,063 17,156
The investment in direct financing leases at December 31 consisted of the
following:
1999 1998
---- ----
Rental receivables $ 575,434 $ 398,303
Estimated residual values 150,483 126,095
Unearned income (231,742) (127,639)
--------- ---------
Investment in direct financing leases $ 494,175 $ 396,759
========= =========
A-25
<PAGE>
THE FINOVA GROUP INC.
FINOVA has a substantial number of loans and leases with payments that
fluctuate with changes in index rates, primarily prime interest rates and the
London interbank offered rates ("LIBOR"). The investment in loans and leases
with floating interest rates (excluding nonaccruing contracts and repossessed
assets) was $7.10 billion and $4.75 billion at December 31, 1999 and 1998,
respectively.
FINOVA had loans and leases of $1.87 billion in 1999 and $1.65 billion in
1998 collateralized by real estate.
Income earned from financing transactions with floating interest rates was
approximately $655 million in 1999, $562 million in 1998 and $491 million in
1997. The adjustments which arise from changes in index rates can have a
significant effect on income earned from financing transactions; however, the
effects on interest margins earned and net income are substantially offset by
related interest expense changes on debt obligations with floating interest
rates. FINOVA's matched funding policy is more fully described in Note F.
At December 31,1999, FINOVA had a committed backlog of new business of
approximately $2.0 billion compared to $1.9 billion at December 31, 1998. The
committed backlog includes unused lines of credit totaling $710 million and $549
million at December 31, 1999 and 1998, respectively. Historically, FINOVA has
booked a substantial portion of its backlog, although there can be no assurance
that the trend will continue. Loan commitments and lines of credit have
generally the same credit risk as extending loans to borrowers. These
commitments are generally subject to the same credit quality and collateral
requirements involved in lending transactions. Commitments generally have a
fixed expiration and usually require payment of a fee.
SECURITIZATIONS - In the later part of 1998, the Company used for the first
time a private CMBS structure ("mini-CMBS") to sell loans originated by FINOVA
Realty Capital ("FRC"). Under this structure, the Company sold $724.3 million of
loans originated by FRC to a trust with limited recourse. The trust held those
loans with plans to resell them to the permanent CMBS market. The trust paid
cash to the Company upon acquisition of the assets, issued a senior security
interest to an investment banking firm and a subordinated residual interest to
the Company. The Company retained the servicing rights and obligations related
to the assets transferred to the trust. FINOVA maintained no retained interest
in CMBS transactions at December 31, 1999 compared to a retained interest at
December 31, 1998 that was valued at $65.4 million.
In April 1999, approximately 70% of the mini-CMBS assets were sold into a
permanent CMBS structure and in June 1999 the remaining 30% were sold, resulting
in the elimination of the trust. The majority of the remaining assets were sold
to an investment banking firm, with an amount below cleanup call provisions
being repurchased by the Company.
In December 1999, FINOVA took steps to eliminate the balance sheet exposure
from the CMBS product entirely by entering into a formal partnership with a
prominent investment banking firm known as the "Preferred Partner Program."
Under the program, FRC will originate and close CMBS loans; the investment
banking firm will fund and warehouse the loans, then securitize them in pools
mixed with other similar loans originated by the investment banking firm. FINOVA
and the investment banking firm will share in all aspects of the transactions
(fees, commissions, interest margin, hedge costs and gains). FINOVA will only
have contractual liability for losses from sales up to its share of fees, margin
and commissions related to the transactions; therefore, FINOVA expects to
maintain no balance sheet exposure or additional downside risk to the CMBS
product.
In 1998 and 1997, under a separate securitization agreement, FINOVA sold
receivables totaling $103.2 million and $36.8 million, respectively with limited
recourse. Outstanding securitized assets under this agreement were $123.2
million at December 31, 1999. FINOVA will service these loan contracts for the
transferee and has defined a portion of the proceeds to be recognized as service
fee income over the term of the agreements.
In 1996 and 1995, FINOVA, under securitization agreements, sold a total of
$300 million in undivided proportionate interests in a revolving loan portfolio
totaling approximately $717.9 million as of December 31, 1999. Under this
agreement, there was limited recourse to FINOVA based on the outstanding balance
of the proportionate interest sold. This securitization was paid off in
February 2000.
In general, the servicing fees earned on securitizations are approximately
equal to the cost of servicing; therefore, no material servicing assets or
liabilities have been recognized in those transactions.
A-26
<PAGE>
THE FINOVA GROUP INC.
NOTE C RESERVE FOR CREDIT LOSSES
The following is an analysis of the reserve for credit losses for the
years ended December 31:
1999 1998 1997
---- ---- ----
Balance, beginning of year $ 207,618 $ 177,088 $ 148,693
Provision for credit losses 76,800 82,200 69,200
Write-offs (60,372) (59,037) (45,487)
Recoveries 3,518 2,279 2,287
Acquisitions and other 37,419 5,088 2,395
--------- --------- ---------
Balance, end of year $ 264,983 $ 207,618 $ 177,088
========= ========= =========
Net write-offs by segment and line of business for the years ended December
31 are as follows:
1999 1998 1997
---- ---- ----
Commercial Finance Group
Corporate Finance $17,854 $ 6,680 $ 6,478
Commercial Services 7,378 35,663 23,255
Distribution & Channel Finance 3,924 2,609 1,777
Rediscount Finance 3,477 1,500
Growth Finance 2,590
Business Credit 1,986 819
------- -------- -------
37,209 47,271 31,510
------- -------- -------
Specialty Finance Group
Commercial Equipment Finance 5,773 3,645 3,208
Communications Finance 3,100 494 750
Healthcare Finance 1,188 960 1,704
Resort Finance 656 2,700
Franchise Finance 240 2,780 433
Specialty Real Estate Finance 129 1,785 2,106
------- -------- -------
11,086 9,664 10,901
------- -------- -------
Capital Markets Group
Mezzanine Capital 8,154
------- -------- -------
8,154
------- -------- -------
Other 405 (177) 789
------- -------- -------
Total net write-offs by segment and
line of business $56,854 $ 56,758 $43,200
======= ======== =======
Net write-offs as a percentage of average
managed assets (excluding average
participations) 0.48% 0.60% 0.53%
======= ======== =======
An analysis of nonaccruing assets included in the investment in financing
transactions at December 31 is as follows:
1999 1998
---- ----
Contracts $239,287 $150,787
Repossessed assets 55,836 54,446
-------- --------
Total nonaccruing assets $295,123 $205,233
======== ========
Nonaccruing assets as a percentage of managed assets
(excluding participations) 2.2% 2.0%
======== ========
In addition to the repossessed assets included in the above table, FINOVA
had repossessed assets with a total carrying amount of $74.9 million and $65.3
million at December 31, 1999 and 1998, respectively, which earned income of $5.5
million and $4.7 million during 1999 and 1998, respectively.
A-27
<PAGE>
THE FINOVA GROUP INC.
At December 31, 1999, the total carrying amount of impaired loans was
$446.3 million, of which $240.1 million were revenue accruing. A reserve for
credit losses of $78.2 million has been established for $153.7 million of
nonaccruing impaired loans and $68.5 million has been established for $144.9 of
accruing impaired loans. At December 31, 1998, the total carrying amount of
impaired loans was $225.7 million, of which $106.0 million were revenue
accruing. A reserve for credit losses of $30.9 million was established for $74.3
million of nonaccruing impaired loans and $6.2 million was established for $24.4
million of accruing impaired loans. For the three years ended December 31, 1999,
1998 and 1997, the average carrying amount of impaired loans was $341.7 million,
$172.0 million and $130.3 million, respectively. Income earned on accruing
impaired loans was approximately $13.9 million in 1999, $4.0 million in 1998 and
$4.0 million in 1997. Income earned on impaired loans is recognized in the same
manner as it is on other accruing loans. Cash collected on all nonaccruing loans
is applied to the carrying amount.
Had all nonaccruing assets outstanding at December 31, 1999, 1998 and 1997
remained accruing, pre-tax income earned would have increased by approximately
$26 million, $19 million and $22 million, respectively.
NOTE D INVESTMENTS
Debt and equity securities that are being held for an indefinite period of
time, including those securities which may be sold in response to needs for
liquidity are classified as securities available for sale and are carried at
fair value using the specific identification method with unrealized gains and
losses, net of deferred taxes, reported as a component of accumulated other
comprehensive income in the equity section of the balance sheet. A summary of
securities classified as available for sale at December 31 is as follows:
1999 1998
---- ----
Debt securities $ 54,553 $ 1,311
Equity securities 183,622 32,415
Partnership interests 121,995 63,909
Other 15,798 27,157
-------- --------
$375,968 $124,792
======== ========
The net unrealized holding gains were $37.1 million and net unrealized
holding losses were $0.9 million (net of deferred tax liability of $26.1 million
and $0.6 million, respectively) at December 31, 1999 and 1998, respectively. The
increase in the unrealized gains during 1999 was due primarily to $36.9 million
of pretax unrealized gains on Healtheon/WebMD stock. Net gains of $35.6 million
and $0.2 million were recognized on sales of marketable investments in 1999 and
1998, respectively. Scheduled maturities of debt securities range from 2012 to
2014.
FINOVA also carried investments held for trading of $71 million and $49
million at December 31, 1999 and 1998, respectively, in a trust for nonqualified
compensation plans. The Company's investments in trading securities are marked
to market on a quarterly basis through current operations.
FINOVA currently maintains no assets that are classified as held to
maturity.
NOTE E DEBT
The Company satisfies its short-term financing requirements from the
issuance of commercial paper supported by bank lines of credit, other bank loans
and public notes. The Company's commercial paper borrowings are supported by
unused revolving bank credit agreements totaling $4.5 billion. FINOVA Capital
currently maintains a multi-year revolving credit facility and a 364-day
facility with numerous lenders, in the aggregate principal amount of $2.0
billion. Separately, FINOVA Capital also has two multi-year facilities with
numerous lenders for $700 million each and two 364-day facilities with numerous
lenders for $600 million and $500 million, respectively. The Company does not
intend to borrow under the domestic revolving credit agreements to refinance
commercial paper and short-term bank loans unless it encounters significant
difficulties in rolling over its outstanding commercial paper and short-term
bank loans. Under the terms of these agreements, the Company has the option to
periodically select either domestic dollars or Eurodollars as the basis of
borrowings. Interest is based on the lenders' prime rate for domestic dollar
advances or London interbank offered rates ("LIBOR") for Eurodollar advances.
The agreements also provide for a commitment fee, approximately 10 basis points,
on the unused credit. The 364-day $1.0 billion, $600 million and $500 million
revolving credit agreements are subject to renewal in 2000, while the two $700
A-28
<PAGE>
THE FINOVA GROUP INC.
million and the other $1.0 billion credit facilities are subject to renewal in
2002. In addition to the above, FINOVA has a 364-day revolving credit facility
with one lender for $25 million, which is subject to renewal in 2000.
The Company, through one subsidiary, utilizes a multi-year multi-currency
facility with a small group of lenders for $100 million. Under the terms of this
agreement, the subsidiary has the option to periodically select multiple
currencies as the basis of borrowings. Interest is based on the Eurocurrency
rate per annum for deposits in the relevant designated currency. Through another
subsidiary, the Company maintains one 364-day revolving credit facility with
three lenders in Canada for C$150 million, supporting the issuance of Canadian
commercial paper. Under the terms of this agreement, the subsidiary has the
option to borrow Canadian dollars through either bankers' acceptances or a prime
rate advance. Interest is based on the lenders' prime rate for prime advances or
bankers' acceptance rates. FINOVA Capital is the guarantor of these credit
facilities, which are subject to renewal in 2002 and 2000, respectively.
The Company, through the acquisition of Fremont Financial Corporation in
December 1999, assumed a trust financed with floating-rate debt and commercial
paper. The commercial paper program is backed by a 364-day facility with a small
group of lenders for $150 million. The facility is drawn upon to fund assets in
the trust. As of December 31, 1999, $46 million of commercial paper was
outstanding.
In 1998, FINOVA Capital commenced a Euro Medium-Term Note Program allowing
for the issuance of up to $1 billion of debt securities. In 1999, FINOVA Capital
plc, FINOVA's U.K subsidiary, was added to the program. As of December 31, 1999
there was $581 million available under the program.
The following information pertains to all short-term financing, primarily
commercial paper, issued by FINOVA Capital for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Maximum amount of short-term debt outstanding during year $4,708,392 $4,006,576 $3,284,118
Average short-term debt outstanding during year 4,080,529 3,529,528 2,886,668
Weighted average interest rate on short-term debt
outstanding at year end* 6.1% 5.7% 5.7%
Weighted average interest rate on short-term debt
outstanding during year* 5.5% 5.7% 5.7%
</TABLE>
- ----------
* Exclusive of the cost of maintaining bank lines in support of outstanding
commercial paper and the effects of interest rate conversion agreements. The
Company uses various mechanisms to manage interest rate risks. See Note F for
further discussions.
Senior debt at December 31 was as follows:
1999 1998
---- ----
Commercial paper and short-term bank loans supported
by unused bank revolving credit agreements, less
unamortized discount $ 3,876,955 $3,871,350
Medium term notes due to 2010, 5.7% to 10.2% 2,353,091 1,717,544
Term loans payable to banks due to 2000, 6.2% 250,000 190,000
Senior notes due to 2009, 5.9% to 16.0%, less
unamortized discount 4,919,218 2,604,762
Nonrecourse installment notes due to 2002, 10.6%
(assets of $21,877 and $22,838 respectively,
pledged as collateral) 8,503 10,922
----------- ----------
$11,407,767 $8,394,578
=========== ==========
Annual maturities of senior debt outstanding at December 31, 1999 due
through 2010 (excluding the amount supported by the revolving credit agreements
expected to be renewed) were approximately $1.17 billion (2000), $1.00 billion
(2001), $1.32 billion (2002), $893.5 million (2003), $1.80 billion (2004) and
$1.08 billion (thereafter).
The agreements pertaining to senior debt and revolving credit agreements
include various restrictive covenants and require the maintenance of certain
defined financial ratios with which FINOVA and FINOVA Capital have complied.
Total interest paid is not significantly different from interest expense.
A-29
<PAGE>
THE FINOVA GROUP INC.
NOTE F DERIVATIVE FINANCIAL INSTRUMENTS
FINOVA enters into interest rate swap, basis swap, foreign currency
exchange, swaption and futures agreements as part of its interest rate risk
management policy. Interest rate swap, basis swap, and swaption agreements are
primarily used to match fund assets and liabilities. Currency swaps are used to
convert both principal and interest payments on debt issued from one currency to
the appropriate functional currency. Futures contracts are used to target index
returns, lock funding costs, and for portfolio hedging. The Company continually
monitors its derivative position and uses derivative instruments for non-trading
and non-speculative purposes only.
FINOVA uses derivative instruments to minimize its exposure to fluctuations
in interest rates, reduce debt expense and lock funding costs over predetermined
periods of time. FINOVA strives to minimize its overall debt costs while
limiting the short-term variability of interest expense and funds required for
debt service. To achieve this objective, FINOVA diversifies its borrowing
sources (short- and long-term debt with a fixed or a variable rate) and seeks to
maintain a portfolio that is match funded. FINOVA's matched funding policy
generally requires that floating-rate assets be financed with floating-rate
liabilities and fixed-rate assets be financed with fixed-rate liabilities,
measured as a percent of total assets, which should not vary by more than 3% for
any extended period.
The notional amounts of derivatives do not represent amounts exchanged by
the parties and, thus, are not a measure of FINOVA's exposure through its use of
derivatives. The amounts exchanged are determined by reference to the notional
amounts and the other terms of the derivatives.
Under interest rate swap agreements, FINOVA agrees to exchange with the
other party, at specified intervals, the payment streams calculated on a
specified notional amount, with at least one stream based on a floating interest
rate. Generic swap notional amounts do not change for the life of the contract.
Basis swaps involve the exchange of floating-rate indices, such as the prime
rate, the commercial paper composite rate and LIBOR and are used primarily to
protect FINOVA's margins on floating-rate transactions by locking in the spread
between FINOVA's lending and borrowing rates.
FINOVA's off-balance sheet derivative instruments involve credit and
interest rate risks. Credit risk includes the nonperformance by counterparties
to the financial agreements. All financial agreements have been executed with
major financial institutions to mitigate the credit risk from transactions.
There can be no assurance that any such institution will perform under its
agreement. FINOVA's derivative policy stipulates that the maximum exposure to
any one counterparty relative to the derivative products is limited on a net
basis to 10% of FINOVA's outstanding debt at the time of that transaction.
Interest rate risks relate to changes in interest rates and the impact on
earnings.
The use of derivatives decreased interest expense by $5.1 million in 1999,
a decrease in the aggregate cost of funds of 0.07%. The use of derivatives in
1998 decreased interest expense by $5.3 million, a decrease in the aggregate
cost of funds of 0.07%, and the use of derivatives in 1997 decreased interest
expense by $1.0 million, a decrease in the aggregate cost of funds of 0.03%.
Premiums on swaptions sold during 1999 were $4.1 million and are amortized on a
straight line basis through 2009. Market values received on swap terminations in
1999 of $3.2 million were deferred and are being amortized on a straight line
basis through 2003. These changes in interest expense from off-balance sheet
derivatives effectively alter on-balance sheet costs and must be viewed as total
interest rate management.
FINOVA also enters into short-term treasury rate locks, options, swaptions
and other derivative investments to hedge interest rate risks associated with
the warehousing of loans, primarily for FRC. FINOVA took steps to remove balance
sheet exposure from the CMBS product in 2000 by entering into a Preferred
Partner Program with a prominent investment banking firm. See Note B of Notes to
Consolidated Financial Statements for additional discussion.
In a treasury rate lock, FINOVA agrees to lock in an interest rate on a
U.S. Treasury security until a specified date in the future. Prior to the
expiration date, if treasury rates decrease, there is an associated loss on the
hedge. If treasury rates increase, FINOVA will immediately benefit from an
increase in the hedge value.
In a treasury put option, FINOVA pays an up-front fee (premium) to have the
right, but not the obligation to sell a pre-determined treasury security at an
agreed-upon strike rate. Prior to the expiration date of the option, if treasury
rates decrease, the option expires worthless and there is no additional hedge
loss. If treasury rates increase and surpass the strike rate, the value of the
A-30
<PAGE>
THE FINOVA GROUP INC.
option will increase. In addition to the level of interest rates, the option
value also depends on other variables including volatility and the time to
maturity.
A swaption gives FINOVA the right, but not the obligation, to enter into a
swap on the exercise date. An up-front premium is the only cost incurred by
FINOVA. If swap rates rise above the strike rate, the option value will
increase. If swap rates decrease, the option will not be exercised and will
expire worthless. In addition to the level of the swap rates, the option value
also depends on other variables including volatility and time to maturity.
The following table provides annual maturities and weighted-average
interest rates for each significant derivative product type in place at December
31,1999. The rates presented are as of December 31, 1999. To the extent that
rates change, variable interest information will change:
<TABLE>
<CAPTION>
Outstanding
at
December 31, Maturities of Derivative Products
------------ ---------------------------------------------
(Dollars in Millions) 1999 2000 2001 2002 2003 Thereafter
- --------------------- ---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
RECEIVE FIXED-RATE SWAPS:
Notional value $1,925 $ 150 $ 150 $ 300 $ 100 $1,225
Weighted average receive rate 6.73% 7.24% 6.66% 6.20% 6.54% 6.82%
Weighted average pay rate 6.14% 6.07% 5.89% 6.18% 6.01% 6.19%
PAY FIXED-RATE SWAPS:
Notional value $ 200 $ 100 $ 100
Weighted average receive rate 5.64% 5.59% 5.69%
Weighted average pay rate 7.04% 7.38% 6.70%
INTEREST RATE HEDGES:
Notional value $ 131 $ 131
Weighted average rate 6.89% 6.89%
------ ----- ----- ----- ----- ------
TOTAL NOTIONAL VALUE $2,256 $ 381 $ 250 $ 300 $ 100 $1,225
====== ===== ===== ===== ===== ======
Total weighted average rates on Swaps:
Receive rate 6.63% 6.58% 6.27% 6.20% 6.54% 6.82%
====== ===== ===== ==== ===== ======
Pay rate 6.23% 6.59% 6.21% 6.18% 6.01% 6.19%
====== ===== ===== ==== ===== ======
</TABLE>
For the benefit of its customers, FINOVA enters into interest rate cap
agreements. The total notional amount of these agreements at December 31, 1999
was $35.1 million, none of which was in a pay or receive position. These
agreements will mature as follows: $1.5 million in 2000, $7.6 million in 2001,
$21.0 million in 2002 and $5.0 million in 2003. FINOVA has also entered into a
fixed-rate foreign currency-denominated transaction (Japanese Yen ("JPY") 5
billion) maturing in 2002. Two derivatives are associated with this transaction,
a receive fixed-rate swap (JPY 5 billion) versus 3-month JPY LIBOR and a basis
swap, converting JPY LIBOR to US Dollar ("USD") LIBOR , both of which mature in
2002. The receive side of the basis swap has a notional of JPY 5 billion paying
3-month JPY LIBOR and the pay side has a notional of USD 43.6 million paying
3-month USD LIBOR. In addition, FINOVA has another $75 million basis swap
maturing in 2000. These derivatives are not reflected in the table above.
A-31
<PAGE>
Derivative product activity for the three years ended December 31, 1999 is
as follows:
Interest
Receive Pay Rate
Fixed-Rate Fixed-Rate Basis Hedge
(Dollars in Millions) Swaps Swaps Swaps Agreements TOTAL
- --------------------- ----- ----- ----- ---------- -----
Balance, January 1, 1997 $ 1,350 $ 825 $ 878 $ $ 3,053
Expired (275) (275) (250) (800)
Additions 327 327
------- ----- ----- ------- -------
Balance December 31, 1997 1,402 550 628 2,580
Expired (325) (200) (628) (1,153)
Additions 350 217 567
------- ----- ----- ------- -------
Balance December 31, 1998 1,077 700 217 1,994
Expired (427) (500) (1,254) (2,181)
Additions 1,275 75 1,168 2,518
------- ----- ----- ------- -------
Balance December 31, 1999 $ 1,925 $ 200 $ 75 $ 131 $ 2,331
======= ===== ===== ======= =======
The table above does not include a JPY 5 billion receive fixed-rate swap or
a basis swap converting JPY LIBOR to US Dollar LIBOR. The receive side of the
basis swap has a notional of JPY 5 billion and the pay side has a notional of
USD 43.6 million.
NOTE G COMPANY-OBLIGATED MANDATORY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST SOLELY HOLDING CONVERTIBLE DEBENTURES
OF FINOVA ("TOPrS")
In December 1996, FINOVA Finance Trust, a subsidiary trust sponsored and
wholly-owned by FINOVA, issued (a) 2,300,000 shares of convertible trust
originated preferred securities (the "Preferred Securities" or "TOPrS") to the
public for gross proceeds of $115 million (before transaction costs of $3.5
million) and (b) 71,135 shares of common securities to FINOVA. The gross
proceeds from these transactions were invested by the trust in $118.6 million
aggregate principal amount of 5 1/2% convertible subordinated debentures due
2016 (the "Debentures") newly issued by FINOVA. The Debentures represent all of
the assets of the trust. The proceeds from the issuance of the Debentures were
contributed by FINOVA to FINOVA Capital, which used the proceeds to repay
commercial paper and other indebtedness.
The Preferred Securities accrue and pay cash distributions quarterly when
declared by FINOVA at a rate of 5 1/2% per annum of the stated liquidation
amount of $50 per preferred security. FINOVA has guaranteed, on a subordinated
basis, distributions and other payments due on the Preferred Securities (the
"Guarantee"). The Guarantee, when taken together with FINOVA's obligations under
the Debentures, the indenture under which the Debentures were issued and
FINOVA's obligations under the Amended and Restated Declaration of Trust
governing the trust, provides a full and unconditional guarantee on a
subordinated basis of amounts due on the Preferred Securities. FINOVA can defer
making distributions on the Debentures for up to 20 consecutive quarters, but
does not anticipate doing so. The Preferred Securities are mandatorily
redeemable upon the maturity of the Debentures on December 31, 2016, or earlier
to the extent of any redemption by FINOVA of any Debentures. The redemption
price in either case will be $50 per share plus accrued and unpaid distributions
to the date fixed for redemption.
Prior to their maturity, the Preferred Securities are convertible into
FINOVA's common stock at the election of the holders of the Preferrred
Securities individually. Each debenture is convertible into 1.2774 shares of
FINOVA's common stock (equivalent to a conversion price of $39.14 per share),
subject to adjustment in specified circumstances. FINOVA can terminate the
conversion rights noted above on 30 days notice on or after December 31,1999 if
it is current on its payments for the Debentures and the closing prices of its
common stock trade at or above 120% of the conversion price of the Preferred
Securities ($46.97, assuming no adjustments).
NOTE H SHAREOWNERS' EQUITY
On August 14, 1997, the Board of Directors declared a two-for-one stock
split of FINOVA's common stock effected as a stock distribution on October 1,
1997 to shareowners of record as of September 1, 1997. All share and per share
data have been restated to reflect the split.
A-32
<PAGE>
THE FINOVA GROUP INC.
At December 31, 1999, 1998 and 1997, FINOVA had 64,849,000, 58,555,000 and
58,555,000 shares of common stock issued, with 61,252,000, 55,721,000 and
56,282,000 shares of common stock outstanding, respectively. Approximately
5,926,000, 6,917,000 and 7,972,000 common shares were reserved for issuance
under the 1992 Stock Incentive Plan at December 31, 1999, 1998 and 1997,
respectively.
In addition to the convertible preferred securities issued by FINOVA
Finance Trust in 1996, FINOVA has 20,000,000 shares of preferred stock
authorized, none of which was issued at December 31, 1999. The Board of
Directors is authorized to provide for the issuance of shares of preferred stock
in series, to establish the number of shares to be included in each series and
to fix the designation, powers, preferences and rights of the shares of each
series. In connection with FINOVA's stock incentive plan, 250,000 shares of
preferred stock are reserved for issuance of awards under that plan.
Each outstanding share of FINOVA's common stock has a tandem junior
participating preferred stock purchase right ("Right") attached to it. The
Rights contain provisions to protect shareowners in the event of an unsolicited
acquisition or attempted acquisition of 20% or more of FINOVA's common stock
that is not believed by the Board of Directors to be in the best interest of
shareowners. The Rights are represented by the common share certificates and are
not exercisable or transferable apart from the common stock until such a
situation arises. The Rights may be redeemable by FINOVA at $0.01 per right
prior to the time any person or group has acquired 20% or more of FINOVA's
shares. FINOVA has reserved 600,000 shares of Junior Participating Preferred
Stock for issuance in connection with the Rights.
FINOVA periodically repurchases its securities on the open market to fund
its obligations pursuant to employee stock options, benefit plans and similar
obligations. During the years ended December 31, 1999, 1998 and 1997, FINOVA
repurchased 1,833,200, 1,299,200 and 1,035,800 shares, respectively. The program
may be discontinued at any time.
In 1999 the shareowners approved an amendment to FINOVA's certificate of
incorporation that increased the authorized common stock from 100 million to 400
million shares and the preferred stock from 5 million to 20 million shares.
NOTE I STOCK OPTIONS
During 1992, the Board of Directors of FINOVA adopted The FINOVA Group Inc.
1992 Stock Incentive Plan (the "Plan") for the grant of options, restricted
stock and stock appreciation rights to officers, directors and employees. The
Plan provides for the following types of awards: (a) stock options (both
incentive and non-qualified stock options), (b) stock appreciation rights and
(c) restricted stock. The Plan generally authorizes the issuance of awards for
up to 2 1/2% of the total number of shares of common stock outstanding as of the
first day of each year, with some modifications. In addition, 250,000 shares of
preferred stock are reserved for awards under the Plan.
The stock options outstanding at December 31, 1999 were granted for terms
of 10 years and generally become exercisable between one month to five years
from the date of grant. Stock options are issued at market value at the date of
grant, unless a higher exercise price is established. Since 1993, the Board has
issued multi-year, multi-priced stock options to senior executives. The exercise
price of those option grants range in price from the fair market value on the
grant date to prices up to 58.7% in excess of the grant date value. Those option
grants are intended to cover anticipated grants during the years the grants are
scheduled to vest, although the Board may issue additional grants at its
discretion. In 1999, premium-priced options were granted with exercise prices
ranging from $41.56 to $50.29.
A-33
<PAGE>
THE FINOVA GROUP INC.
Information with respect to options granted and exercised under the Plan
for the three years ended December 31, 1999 is as follows:
Average Option
Shares Price Per Share
------ ---------------
Options outstanding at January 1, 1997 3,437,178 $19.17
Granted 781,108 43.57
Exercised (442,049) 15.57
Canceled (191,094) 28.05
--------- ------
Options outstanding at December 31, 1997 3,585,143 24.45
Granted 1,197,032 58.22
Exercised (626,853) 18.13
Canceled (197,680) 42.00
--------- ------
Options outstanding at December 31, 1998 3,957,642 34.79
Granted 1,125,443 42.81
Exercised (258,004) 21.35
Canceled (248,335) 51.86
--------- ------
Options outstanding at December 31, 1999 4,576,746 $36.56
========= ======
At December 31, 1999, stock options with respect to 4,576,746 common shares
were outstanding at exercise prices ranging from $6.35 to $83.21 per share.
The following table summarizes information about stock options outstanding
under the Plan at December 31, 1999:
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/99 Life Price at 12/31/99 Price
------ ----------- ---- ----- ----------- -----
$ 6.35 - $18.44 933,512 3.20 $13.52 933,512 $13.52
18.50 - 32.75 990,772 5.71 24.85 988,660 24.83
32.84 - 41.56 1,006,271 9.38 40.45 76,976 35.90
42.75 - 54.47 1,224,067 8.20 50.10 537,152 48.07
54.97 - 83.21 422,124 8.16 66.48 129,911 60.91
-------------- --------- ---- ------ --------- ------
$6.35 - $83.21 4,576,746 6.90 $36.56 2,666,211 $27.63
============== ========= ==== ====== ========= ======
Since April 1992, the Board of Directors has only granted performance based
restricted stock to employees. Performance based restricted stock awards
(113,500 shares in 1999, 78,985 shares in 1998 and 90,100 shares in 1997), vest
generally over five years from the date of grant. The holder of the performance
based restricted stock, like restricted stock, has the right to receive
dividends and vote the target number of shares but may not sell, assign,
transfer, pledge or otherwise encumber the performance based restricted stock.
All performance based restricted stock grants since 1992 were based on FINOVA
share performance and may result in greater or lesser numbers of shares
ultimately being delivered to the holder, depending on that performance. The
target number of shares are deemed received on the grant date. Additional
vesting over the target are reported as new grants as of the vesting dates.
Vestings below target would be reported as a forfeiture of amounts below the
target number of shares. The balance of unamortized restricted stock was $12.3
million at December 31, 1999.
The Company applies APB Opinion 25 and related Interpretations in
accounting for its plans. No compensation cost has been recognized for its fixed
stock option plans because FINOVA grants options at or above market price on the
date of grant. Vesting criteria for restricted stock was not met in 1999.
A-34
<PAGE>
THE FINOVA GROUP INC.
Therefore, no compensation expense was charged against income in 1999. The
compensation cost charged against income for performance-based plans in 1998 and
1997 was $5.5 million and $7.9 million, respectively. Had compensation cost for
the Company's stock based compensation plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the fair
market value method, FINOVA's net income would have been $212.9 million, $153.4
million and $134.4 million for 1999, 1998 and 1997, respectively. Basic earnings
per share would have been $3.56, $2.74 and $2.47 and diluted earnings per share
would have been $3.37, $2.59 and $2.34 for 1999, 1998 and 1997, respectively.
The fair value of the options was estimated on the date of grant using the
Black Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: dividend yield
of 2.12%, 1.75% and 1.92%, expected volatility of 27%, 26% and 43%, risk-free
interest rates on options with expected lives of five years of 5.4%, 5.7% and
6.2% and risk-free interest rates on options with expected lives of seven years
of 5.5%, 5.8% and 6.3%. The weighted average grant date fair value of options
issued for 1999, 1998 and 1997 were $13.25, $17.45 and $17.51, respectively.
With the acquisition of Sirrom Capital Corporation in March 1999, the Board
of Directors of FINOVA adopted Sirrom's three existing stock option plans (the
"Sirrom Plans"). Each option outstanding under the Sirrom Plans at the time of
the acquisition was converted into an option exercisable for 0.1634 shares of
FINOVA common stock. No new options are expected to be issued under these plans.
Options from the Sirrom Plans were not included in the tables above.
The following table summarizes information about stock options outstanding
under the Sirrom Plans at December 31, 1999:
Number Weighted Average Number
Outstanding Remaining Exercisable
Exercise Prices at 12/31/99 Contractual Life at 12/31/99
--------------- ----------- ---------------- -----------
$ 15.30 5,237 8.76 5,237
21.80 158,402 6.75 158,402
32.51 1,634 8.88 1,634
85.49 1,960 0.22 1,960
--------------- ------- ---- -------
$15.30 - $85.49 167,233 6.76 167,233
--------------- ------- ---- -------
NOTE J INCOME TAXES
The consolidated provision for income taxes consists of the following for
the years ended December 31:
1999 1998 1997
-------- -------- --------
Current:
United States:
Federal $ 11,498 $ 25,308 $ 34,936
State 341 8,700 13,973
Foreign 5,941 1,870 3,626
-------- -------- --------
17,780 35,878 52,535
-------- -------- --------
Deferred:
United States:
Federal 94,878 51,491 30,869
State 19,193 6,855 (1,115)
Foreign 4,467 7,950
-------- -------- --------
118,538 66,296 29,754
-------- -------- --------
Provision for income taxes $136,318 $102,174 $ 82,289
======== ======== ========
Income taxes paid in 1999, 1998 and 1997 were approximately $11.5 million,
$26.0 million and $30.3 million, respectively.
A-35
<PAGE>
THE FINOVA GROUP INC.
The significant components of deferred tax liabilities and deferred tax
assets at December 31, 1999 and 1998 consisted of the following:
1999 1998
-------- --------
Deferred tax liabilities:
Deferred income from leveraged leases $511,233 $396,572
Deferred income from lease financing 135,889 108,883
Goodwill 42,335 23,726
Other comprehensive income 23,467
Deferred acquisition costs 19,963 15,045
Foreign taxes 8,458
Other 14,751 16,229
-------- --------
Gross deferred tax liability 756,096 560,455
-------- --------
Deferred tax assets:
Reserve for credit losses 119,457 92,784
Alternative minimum tax 66,259 52,442
Net operating loss carryforward/carryback 62,965 20,625
Basis difference in loans/investments 23,324
Accrued expenses 18,054 9,051
Foreign 10,792
Other 26,519 32,493
-------- --------
Gross deferred tax asset 316,578 218,187
-------- --------
Net deferred tax liability $439,518 $342,268
======== ========
The federal statutory income tax rate is reconciled to the effective income
tax rate as follows:
1999 1998 1997
---- ---- ----
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes 3.6 3.8 2.6
Foreign tax effects 0.1 (0.1)
Municipal and ESOP income (1.3) (1.6) (2.0)
Other 1.1 1.1 1.2
---- ---- ----
Provision for income taxes 38.4% 38.4% 36.7%
==== ==== ====
NOTE K PENSION AND OTHER BENEFITS
Net periodic pension costs were $4.2 million, $3.0 million and $1.9 million
for the years ended December 31, 1999, 1998 and 1997, respectively. FINOVA's
pension costs were accrued at $9.6 million at December 31, 1999 and $5.5 million
at December 31, 1998.
Net periodic other postretirement benefits costs were $0.9 million, $0.7
million and $0.5 million for each of the years ended December 31, 1999, 1998 and
1997, respectively. FINOVA's accrued postretirement benefit costs were $4.4
million at December 31, 1999 and $3.5 million at December 31, 1998.
FINOVA's investment of $71 million in trust for nonqualified compensation
plans consists of securities held for trading and is recorded at market.
NOTE L EARNINGS PER SHARE
Basic earnings per share exclude the effects of dilution and are computed
by dividing income available to common shareowners by the weighted average
amount of common stock outstanding for the period. Diluted earnings per share
reflect the potential dilution that could occur if options, convertible
preferred stock or other contracts to issue stock were exercised or converted
A-36
<PAGE>
THE FINOVA GROUP INC.
into common stock. These per share calculations are presented for the years
ended December 31, 1999, 1998 and 1997 on the Statements of Consolidated Income
and are detailed below:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE COMPUTATION:
Net income $ 215,244 $ 160,341 $ 137,910
============ ============ ============
Weighted average shares outstanding 60,173,000 56,232,000 54,748,000
Contingently issued shares (293,000) (286,000) (343,000)
------------ ------------ ------------
Adjusted weighted average shares 59,880,000 55,946,000 54,405,000
============ ============ ============
Earnings per share $ 3.59 $ 2.87 $ 2.53
============ ============ ============
DILUTED EARNINGS PER SHARE COMPUTATION:
Net income $ 215,244 $ 160,341 $ 137,910
Preferred dividends, net of tax 3,782 3,782 3,992
------------ ------------ ------------
Net income available to common shareowners $ 219,026 $ 164,123 $ 141,902
============ ============ ============
Weighted average shares outstanding 60,173,000 56,232,000 54,748,000
Contingently issued shares (293,000) (171,000) (184,000)
Incremental shares from assumed conversions:
Stock options 1,482,000 1,706,000 1,659,000
Convertible preferred securities 2,938,000 2,938,000 2,938,000
------------ ------------ ------------
Total potential dilutive common shares 4,420,000 4,644,000 4,597,000
------------ ------------ ------------
Adjusted weighted average shares 64,300,000 60,705,000 59,161,000
============ ============ ============
Earnings per share $ 3.41 $ 2.70 $ 2.40
============ ============ ============
</TABLE>
NOTE M LITIGATION AND CLAIMS
FINOVA is party either as plaintiff or defendant to various actions,
proceedings and pending claims, including legal actions, some of which involve
claims for compensatory, punitive or other damages in significant amounts. That
litigation often results from FINOVA's attempts to enforce its lending
agreements against borrowers and other parties to those transactions. Litigation
is subject to many uncertainties and it is possible that some of the legal
actions, proceedings or claims referred to above could be decided against
FINOVA. Although the ultimate amount for which FINOVA may be held liable, if
any, is not ascertainable, FINOVA believes that any resulting liability should
not materially affect FINOVA's financial position, results of operations or cash
flows.
NOTE N FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments has been determined by FINOVA using market information obtained by
FINOVA and the valuation methodologies described below. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein may not be indicative of
the amounts that FINOVA could realize in a current market exchange. The use of
different market assumptions or valuation methodologies may have a material
effect on the estimated fair value amounts.
A-37
<PAGE>
THE FINOVA GROUP INC.
The carrying amounts and estimated fair values of FINOVA's financial
instruments are as follows for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998
--------------------------- -----------------------
Carrying Estimated Fair Carrying Estimated
Amount Value Amount Fair Value
------ ----- ------ ----------
<S> <C> <C> <C> <C>
Balance Sheet - Financial Instruments:
Assets:
Loans and other financing contracts $10,109,408 $ 9,972,222 $7,115,291 $ 7,151,296
Liabilities:
Senior debt 11,407,767 11,227,306 8,394,578 8,472,603
Off-Balance Sheet - Financial Instruments:
Interest rate swaps (18,306) 17,558
Interest rate hedge agreements 2,681 (459)
</TABLE>
The carrying values of cash and cash equivalents, fee-based receivables,
financing contracts held for sale, accounts payable and accrued expenses, due to
clients and interest payable (including accrued amounts related to interest rate
swaps and interest rate hedge agreements) approximate fair values due to the
short-term maturity of these items.
The methods and assumptions used to estimate the fair values of other
financial instruments are summarized as follows:
Loans and Other Financing Contracts:
The fair value of loans and other financing contracts was estimated by
discounting expected cash flows using the current rates at which loans of
similar credit quality, size and remaining maturity would be made as of December
31, 1999 and 1998. Management believes that the risk factor embedded in the
current interest rates on performing loans results in a fair valuation of
performing loans. As of December 31, 1999 and 1998, the fair value of
nonaccruing impaired contracts with a carrying amount of $206.2 million and
$119.7 million, respectively, was not estimated because it is not practical to
reasonably assess the credit adjustment that would be applied in the marketplace
for such loans. As of December 31, 1999 and 1998, the carrying amount of loans
and other financing contracts excludes repossessed assets with a total carrying
amount of $130.7 million and $119.7 million, respectively.
Senior Debt:
The fair value of senior debt was estimated by discounting future cash
flows using rates currently available for debt of similar terms and remaining
maturities. The carrying values of commercial paper and borrowings under
revolving credit facilities, if any, were assumed to approximate fair values due
to their short maturities.
Interest Rate Swaps:
The fair values of interest rate swaps are based on quoted market prices
obtained from participating banks and dealers.
Interest Rate Hedge Agreements:
The fair value of interest rate hedge agreements in place at December 31,
1999 and 1998 were based on quoted market prices obtained from participating
loans and dealers for transactions of similar remaining durations.
The fair value estimates presented herein were based on information
obtained by FINOVA as of December 31, 1999 and 1998. Although management is not
aware of any factors that would significantly affect the estimated fair values,
such values have not been updated since December 31, 1999 and 1998. Therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
A-38
<PAGE>
THE FINOVA GROUP INC.
NOTE O OPERATING EXPENSES
The following represents a summary of the major components of operating
expenses for the three years ended December 31:
<TABLE>
<CAPTION>
1999 % 1998 % 1997 %
-------- ------ -------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $162,183 63.9% $140,939 65.1% $109,514 65.0%
Depreciation and amortization 31,860 12.6% 23,069 10.6% 17,021 10.1%
Travel and entertainment 18,667 7.4% 16,045 7.4% 11,917 7.1%
Problem account costs 18,636 7.3% 10,332 4.8% 11,577 6.9%
Occupancy expenses 13,356 5.3% 11,562 5.3% 8,368 5.0%
Professional services 10,504 4.1% 9,982 4.6% 7,654 4.5%
Deferred acquisition costs (32,197) (12.7%) (22,409) (10.3%) (16,847) (10.0%)
Other operating expenses 30,745 12.1% 27,133 12.5% 19,240 11.4%
-------- ------ -------- ----- -------- ------
Total operating expenses $253,754 100.0% $216,653 100.0% $168,444 100.0%
======== ====== ======== ===== ======== ======
</TABLE>
NOTE P OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income activity for the three years ended
December 31, 1999 was as follows:
Net Accumulated
Unrealized Other
Foreign Currency Holding Gains Comprehensive
Translation on Securities Income
----------- ------------- -------------
Balance, January 1, 1997 $ 1,008 $ $ 1,008
Change during 1997 (1,018) (1,018)
------- -------- -------
Balance, December 31, 1997 (10) (10)
Change during 1998 (208) 904 696
------- -------- -------
Balance, December 31, 1998 (218) 904 686
Change during 1999 (3,928) 37,054 33,126
------- -------- -------
Balance, December 31, 1999 $(4,146) $ 37,958 $33,812
======= ======== =======
For 1999 and 1998, the changes in foreign currency translation were net of
income tax benefits of $2.1 million and $140,000, respectively. Net unrealized
holding gains were net of income tax expenses of $25.6 million in 1999 and
$608,000 in 1998.
NOTE Q SEGMENT REPORTING
Management's Policy for Identifying Reportable Segments
FINOVA's reportable business segments are strategic business units that
offer distinctive products and services that are marketed through different
channels.
Types of Products and Services
FINOVA has three market groups that are also its reportable segments:
Commercial Finance, Specialty Finance and Capital Markets. Commercial Finance
includes traditional asset-based businesses that provide financing through
revolving credit facilities and term loans secured by assets such as receivables
and inventory, as well as providing factoring and management services. This
segment includes the following lines of business: Business Credit, Commercial
Services, Corporate Finance, Distribution & Channel Finance, Growth Finance and
Rediscount Finance. Specialty Finance includes businesses which lend to a
variety of highly focused, industry-specific niches. This segment includes the
following lines of business: Commercial Equipment Finance, Communications
Finance, Franchise Finance, Healthcare Finance, Portfolio Services, Public
Finance, Resort Finance, Specialty Real Estate Finance and Transportation
Finance. Capital Markets, in conjunction with institutional investors, provides
commercial mortgage banking services and debt and equity capital funding. This
segment includes: Realty Capital, Investment Alliance, Loan Administration,
Mezzanine Capital and Harris Williams & Co.
A-39
<PAGE>
THE FINOVA GROUP INC.
Reconciliation of Segment Information to Consolidated Amounts
Management evaluates the business performance of each group based on total
net revenue, income before allocations and managed assets. Total net revenue is
operating margin plus gains on disposal of assets. Income before allocations is
income before income taxes and preferred dividends, excluding allocation of
corporate overhead expenses and the unallocated portion of provision for credit
losses. Managed assets includes each segment's investment in financing
transactions plus securitizations and participations sold.
Information for FINOVA's reportable segments reconciles to FINOVA's
consolidated totals as follows:
1999 1998
---- ----
TOTAL NET REVENUE:
Commercial Finance $ 216,083 $ 187,461
Specialty Finance 384,789 344,541
Capital Markets 101,414 24,170
Corporate and other (16,388) 8,978
----------- -----------
Consolidated total $ 685,898 $ 565,150
=========== ===========
INCOME (LOSS) BEFORE ALLOCATIONS:
Commercial Finance $ 87,406 $ 67,013
Specialty Finance 307,377 273,674
Capital Markets 31,235 (2,775)
Corporate and other, overhead and unallocated
provision for credit losses (70,674) (71,615)
----------- -----------
Income before income taxes and preferred dividends $ 355,344 $ 266,297
=========== ===========
MANAGED ASSETS:
Commercial Finance $ 4,195,237 $ 3,005,130
Specialty Finance 8,265,497 7,211,164
Capital Markets 1,051,367 255,575
Corporate and other 93,273 85,948
----------- -----------
Consolidated total $13,605,374 $10,557,817
Less securitizations and participations sold (483,397) (537,596)
----------- -----------
Investment in financing transactions $13,121,977 $10,020,221
=========== ===========
GEOGRAPHIC INFORMATION
FINOVA attributes managed assets to geographic areas based on the location
of the asset. Managed assets at December 31, 1999 and 1998 by geographic area
were as follows:
1999 % 1998 %
----------- ----- ----------- -----
United States $12,248,105 90.0% $ 9,932,318 94.1%
Canada 258,990 1.9% 94,035 0.9%
United Kingdom 214,781 1.6% 156,021 1.5%
Other foreign 883,498 6.5% 375,443 3.5%
----------- ----- ----------- -----
$13,605,374 100.0% $10,557,817 100.0%
=========== ===== =========== =====
Other foreign includes customer relationships in geographic areas which, on
an individual basis represent less than 1.0% of the total.
Currently, it is impracticable to report revenues attributed to foreign
countries.
MAJOR CUSTOMER INFORMATION
FINOVA has no single customer that accounts for 10% or more of revenue.
A-40
<PAGE>
THE FINOVA GROUP INC.
NOTE R ACQUISITIONS
During 1999 and 1998, FINOVA acquired various businesses and portfolios
under the purchase method with initial managed assets totaling $1.15 billion and
$44 million, respectively.
In December 1999, FINOVA acquired Fremont Financial Corporation, the
commercial lending subsidiary of Fremont General Corporation, headquartered in
Santa Monica, California. The company, which provides secured working capital
and term loans averaging $2 million to $4 million to midsize businesses
throughout the U.S., was added to FINOVA's Commercial Finance Group. The
purchase price was approximately $131 million, paid in cash. Total assets
acquired were $723 million, including $23 million in goodwill and assumed
liabilities of $592 million. Managed assets purchased were $662 million.
Goodwill, amortizing over 20 years, is subject to change due to a preliminary
estimate of loan balances at the date of acquisition.
In March 1999, FINOVA acquired Sirrom Capital Corporation, a specialty
finance company headquartered in Nashville, Tennessee. The purchase price was
approximately $343 million in FINOVA common stock, excluding converted stock
options. Total assets acquired were $621 million, including $67 million in
goodwill with $278 million in assumed liabilities and transaction costs. Managed
assets acquired were $469 million. Goodwill is being amortized over 25 years and
covenants not to compete, which are included in goodwill, are being amortized
over 3 years.
The following unaudited pro forma information gives effect to the merger as
if it had occurred on January 1, 1999 and 1998 and combines the historical
consolidated information of FINOVA and Sirrom for the year ended December 31,
1999 and 1998.
The comparative pro forma information is not necessarily indicative of the
results that actually would have occurred had the merger been consummated on the
dates indicated or that may be obtained in the future. The pro forma financial
information does not give effect to the potential cost savings and other
synergies that may result from the merger or the possible cash-out of existing
stock options held by employees of Sirrom that became fully vested by reason of
the adoption of the merger agreement by Sirrom shareowners. There can be no
assurance that FINOVA will realize cost savings or synergies from this or any
other acquisition. Included in the historical operations of Sirrom for the year
ended 1999 are approximately $27 million of nonrecurring charges, a significant
portion of which related to the acquisition.
Years Ended December 31,
------------------------
1999 1998
---- ----
Total revenue $1,243,970 $1,080,507
Net Income $ 163,060 $ 87,853
Earnings per share-basic $ 2.72 $ 1.57
Earnings per share-diluted $ 2.59 $ 1.51
The acquisition resulted in an excess purchase price over the historical
net assets acquired. The excess is allocated to the net assets acquired and
liabilities assumed, as follows:
Allocation of purchase price:
Purchase price $ 342,730
Elimination of historical shareowners' equity of Sirrom (262,046)
---------
Excess purchase price $ 80,684
=========
Allocation of excess purchase price:
Elimination of unamortized debt costs $ (3,227)
Deferred income taxes 44,152
Assumed liabilities (26,802)
Goodwill 66,561
---------
Excess purchase price $ 80,684
=========
In February 1999, FINOVA acquired Preferred Business Credit, a Los
Angeles-based provider of accounts receivable loans to small and midsize
businesses for $12 million in FINOVA common stock. It is functioning as the West
Coast operation for the Growth Finance division, acquired in October 1998. Total
assets purchased were $30 million, including $12 million in goodwill that is
being amortized over 25 years. Managed assets purchased were $18 million.
A-41
<PAGE>
THE FINOVA GROUP INC.
In October 1998, FINOVA acquired United Credit Corporation for $26 million
cash. The New York-based provider of commercial financing serves small and
mid-size growth-oriented businesses. Total assets purchased were $62 million,
including $16 million in goodwill, which is being amortized over 25 years.
Managed assets acquired were $45 million. The addition formed a new division
named FINOVA Growth Finance, providing collateral-based working capital
financing, primarily secured by accounts receivable. The division provides
financing ranging from $100,000 to $1 million to businesses with annual sales
under $10 million.
In October 1998, FINOVA acquired Electronic Payment Systems, Inc., a
commercial receivables servicing business headquartered in Salt Lake City, Utah,
to support the activities of FINOVA Realty Capital.
NOTE S NEW ACCOUNTING STANDARDS
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivatives and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,"
("SFAS No. 137"). This statement defers the effective date of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," ("SFAS No. 133")
to all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS
No. 133 standardizes the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, by recognition of
those items as assets or liabilities in the statement of financial position and
measurement at fair value. The impact of SFAS No. 133 on the Company's financial
position and results of operations has not yet been determined.
A-42
<PAGE>
THE FINOVA GROUP INC.
SUPPLEMENTAL SELECTED FINANCIAL DATA
CONDENSED QUARTERLY RESULTS (UNAUDITED)
(Dollars in Thousands, except per share data)
The following represents the condensed quarterly results for the three
years ended December 31, 1999, 1998 and 1997:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Income earned from financing
transactions:
1999 $ 273,075 $ 295,846 $ 318,688 341,034
1998 232,833 246,069 253,309 275,562
1997 206,226 216,836 219,012 237,689
Interest expense:
1999 131,183 139,153 150,142 172,380
1998 110,280 114,692 121,937 131,268
1997 96,793 101,501 105,208 111,148
Volume-based fees:
1999 12,735 11,264 14,317 11,764
1998 22,156 19,103 16,687 19,777
1997 7,784 8,583 9,546 13,465
Gains on disposal of assets:
1999 12,370 18,760 14,880 22,010
1998 1,525 7,433 6,471 12,483
1997 3,233 9,768 10,305 7,027
Non-interest expenses:
1999 84,225 97,059 107,485 109,772
1998 79,548 89,702 85,922 113,762
1997 66,769 77,599 80,334 85,931
Net income:
1999 50,057 53,663 54,905 56,619
1998 39,741 40,535 41,838 38,227
1997 32,178 34,670 33,337 37,725
Basic earnings per share:
1999 0.89 0.87 0.90 0.93
1998 0.71 0.72 0.75 0.69
1997 0.60 0.64 0.62 0.68
Diluted earnings per share:
1999 0.83 0.83 0.86 0.89
1998 0.67 0.68 0.71 0.65
1997 0.57 0.61 0.58 0.64
A-43
<PAGE>
THE FINOVA GROUP INC.
AVERAGE BALANCES/OPERATING MARGIN/AVERAGE ANNUAL RATES (UNAUDITED) (1)
(Dollars in Thousands)
The following represents the breakdown of FINOVA's average balance
sheet, operating margin and average annual rates for the years ended December
31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------------------------------- ------------------------------------
Interest & Interest &
Average Volume-Based Average Average Volume-Based Average
Balance Fees Rate Balance Fees Rate
------- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 70,247 $ $ 38,304 $
Investment in financing transactions 11,352,204 1,210,736(2) 11.3%(3) 9,018,351 1,015,415(2) 11.9%(3)
Less reserve for credit losses (237,146) (184,162)
----------- ---------- ---- ---------- ---------- ----
Net investment in financing transactions 11,115,058 8,834,189
Investments 236,730
Goodwill and other assets 580,781 519,742
----------- ----------
$12,002,816 $9,392,235
=========== ==========
LIABILITIES AND SHAREOWNERS' EQUITY
Liabilities:
Other liabilities $ 380,913 $ $ 386,714 $
Senior debt 9,646,010 592,858 6.2% 7,452,245 478,177 6.4%
Deferred income taxes 370,986 304,571
----------- ---------- ---- ---------- ---------- ----
10,397,909 8,143,530
Company-obligated mandatory redeemable
convertible preferred securities of
subsidiary trust solely holding
convertible debentures of FINOVA 111,550 111,550
Shareowners' equity 1,493,357 1,137,155
----------- ----------
$12,002,816 $9,392,235
=========== ==========
Interest income and volume based fees/
average earning assets (3) $1,210,736 11.3% 1,015,415 11.9%
Interest expense/average earning
assets (3) (4) 592,858 5.5% 478,177 5.6%
---------- ---- ---------- ----
Operating margin (4) $ 617,878 5.8% $ 537,238 6.3%
========== ==== ========== ====
</TABLE>
- ----------
(1) Averages are calculated based on monthly balances.
(2) For the years ended December 31, 1999 and 1998 interest income is shown net
of operating lease depreciation.
(3) The average rate is calculated based on average earning assets ($10,718,941
and $8,546,715 for 1999 and 1998, respectively) which are net of average
deferred taxes on leveraged leases and average nonaccruing assets.
(4) For the year ended December 31, 1999, excluding the impact of derivatives,
interest expense would have been $597,919 or 5.58% of average earning
assets and operating margin would have been $612,817 or 5.72% of average
earning assets. For the year ended December 31, 1998, excluding the impact
of derivatives, interest expense would have been $472,893 or 5.53% of
average earning assets and operating margin would have been $542,522 or
6.35% of average earning assets.
A-44
TRUST INDENTURE
AMONG
FINOVA (CANADA) FINANCE INC.,
FINOVA CAPITAL CORPORATION
AND
CIBC MELLON TRUST COMPANY
Made as of February *, 2000
<PAGE>
- iii -
TABLE OF CONTENTS
ARTICLE 1 INTERPRETATION..................................................... 2
1.1 Definitions.......................................................... 2
1.2 Meaning of "outstanding" for Certain Purposes........................ 6
1.3 Special Accounting Provisions........................................ 7
1.4 Interpretation not Affected by Headings.............................. 7
1.5 Number and Gender.................................................... 7
1.6 Applicable Law....................................................... 7
1.7 References........................................................... 7
1.8 Judgments............................................................ 7
1.9 Submission to Jurisdiction........................................... 8
1.10 Currency............................................................ 8
1.11 Language............................................................ 8
1.12 Day Not a Business Day.............................................. 8
ARTICLE 2 ISSUE OF DEBENTURES................................................ 8
2.1 Limit of Issue....................................................... 8
2.2 Creation and Issue of Additional Debentures.......................... 8
2.3 Issue of Registered Global Debenture................................. 11
2.4 Debentures to Rank Pari Passu........................................ 12
2.5 Computation of Interest.............................................. 12
2.6 Signing of Debentures................................................ 13
2.7 Form of Debentures................................................... 13
2.8 Certification of Debentures.......................................... 13
2.9 Interim Debentures................................................... 13
2.10 Mutilation, Loss, Theft or Destruction of Debentures................ 14
2.11 Pledge and Re-Issue of Debentures................................... 14
ARTICLE 3 REGISTRATION, TRANSFER, EXCHANGE AND OWNERSHIP OF DEBENTURES....... 15
3.1 Fully Registered Debentures.......................................... 15
3.2 Registered Global Debentures......................................... 15
3.3 DEALINGS WITH THE DEPOSITARY......................................... 18
3.4 Coupon Debentures.................................................... 19
3.5 Transferee Entitled to Registration.................................. 20
3.6 Exchange of Debentures............................................... 20
3.7 Charges for Registration, Transfer and Exchange...................... 21
3.8 Registers Open for Inspection........................................ 21
3.9 Closing of Registers................................................. 21
3.10 Ownership of Debentures and Coupons................................. 22
3.11 Home Office Payment Agreements...................................... 23
ARTICLE 4 ISSUE OF SERIES OF MEDIUM TERM NOTES............................... 24
4.1 Form and Terms of Series of Medium Term Notes........................ 24
4.2 Issue of Medium Term Notes........................................... 26
4.3 Appointment of Note Agent............................................ 27
4.4 Exchange of Registered Global Note for Medium Term Notes............. 27
ARTICLE 5 GUARANTEE OF MEDIUM TERM NOTES..................................... 27
5.1 Guarantee of Medium Term Notes....................................... 27
5.2 Execution and Delivery of Guarantee.................................. 29
<PAGE>
ARTICLE 6 REDEMPTION AND PURCHASE OF DEBENTURES.............................. 30
6.1 Redemption or Purchase of Debentures................................. 30
6.2 Places of Payment.................................................... 30
6.3 Selection for Redemption............................................. 30
6.4 Partial Redemption................................................... 30
6.5 Notice of Redemption................................................. 31
6.6 Payment of Redemption Price.......................................... 31
6.7 Purchase of Debentures............................................... 31
6.8 Cancellation of Debentures........................................... 31
ARTICLE 7 COVENANTS.......................................................... 32
7.1 Payment of Principal, Premium and Interest........................... 32
7.2 Office for Notices, Payments and Registration of Transfer, Etc....... 33
7.3 Appointments to Fill Vacancies in Trustee's Office................... 33
7.4 Trustee's Remuneration and Expenses.................................. 33
7.5 Extension of Time..................................................... 33
7.6 Inspection of Books by Trustee....................................... 34
7.7 Performance of Covenants by Trustee.................................. 34
7.8 Annual Certificate of Corporation.................................... 34
7.9 Annual Certificate of Guarantor...................................... 34
7.10 Maintain Corporate Existence........................................ 34
7.11 Payment of Taxes and Other Claims................................... 34
7.12 Reports to Trustee.................................................. 35
7.13 Compensation of the Trustee......................................... 35
7.14 To Perform Obligations.............................................. 36
7.15 Additional Instruments.............................................. 36
7.16 Restrictive Covenants on Medium Term Notes........................... 36
ARTICLE 8 DEFAULT AND ENFORCEMENT............................................ 38
8.1 Events of Default.................................................... 38
8.2 Acceleration on Default.............................................. 39
8.3 Waiver of Default.................................................... 40
8.4 Proceedings by the Trustee........................................... 40
8.5 Suits by Debentureholders............................................ 41
8.6 Application of Monies Received by Trustee............................ 41
8.7 Distribution of Proceeds............................................. 42
8.8 Immunity of Shareholders, Officers, Directors and Employees.......... 42
8.9 Remedies Cumulative.................................................. 43
8.10 Judgment Against Corporation and Guarantor.......................... 43
8.11 Unconditional Right of Holders to Receive Principal,
Premium and Interest................................................ 43
ARTICLE 9 SATISFACTION AND DISCHARGE......................................... 43
9.1 Cancellation......................................................... 43
9.2 Non-Presentation of Debentures and Coupons........................... 43
9.3 Paying Agent to Repay Monies Held.................................... 44
9.4 Repayment of Unclaimed Monies to Corporation......................... 44
9.5 Satisfaction and Discharge........................................... 44
9.6 Defeasance........................................................... 44
ARTICLE 10 SUCCESSORS........................................................ 46
10.1 General Provisions.................................................. 46
10.2 Status of Successor................................................. 47
ARTICLE 11 MEETINGS OF DEBENTUREHOLDERS...................................... 47
11.1 Right to Convene Meeting............................................ 47
11.2 Notice.............................................................. 48
11.3 Chairman............................................................ 48
11.4 Quorum.............................................................. 48
11.5 Power to Adjourn.................................................... 48
<PAGE>
11.6 Show of Hands....................................................... 48
11.7 Poll................................................................ 48
11.8 Voting.............................................................. 49
11.9 Regulations......................................................... 49
11.10 Corporation, Guarantor and Trustee may be Represented.............. 50
11.11 Powers Exercisable by Extraordinary Resolution..................... 50
11.12 Powers Cumulative.................................................. 51
11.13 Meaning of "Extraordinary Resolution.................................. 51
11.14 Minutes............................................................ 52
11.15 Instruments in Writing............................................. 52
11.16 Binding Effect of Resolutions...................................... 52
11.17 Serial Meetings.................................................... 53
ARTICLE 12 SUPPLEMENTAL INDENTURES........................................... 54
12.1 Execution of Supplemental Indentures................................ 54
12.2 Correction of Manifest Errors....................................... 55
ARTICLE 13 CONCERNING THE TRUSTEE............................................ 55
13.1 Trust Indenture Legislation......................................... 55
13.2 Rights and Duties of Trustee........................................ 55
13.3 Evidence, Experts and Advisors...................................... 56
13.4 Documents and Monies Held by Trustee................................ 57
13.5 Action by Trustee to Protect Interests.............................. 57
13.6 Trustee not Required to Give Security............................... 57
13.7 Protection of Trustee............................................... 57
13.8 Replacement of Trustee.............................................. 58
13.9 Appointment of Authenticating Agent................................. 59
13.10 Corporate Trustee Required......................................... 59
13.11 Conflict of Interest............................................... 59
13.12 Acceptance of Trust................................................ 59
13.13 Indemnity to the Trustee........................................... 59
ARTICLE 14 NOTICES........................................................... 59
14.1 Notice to Debentureholders.......................................... 60
14.2 Notice to the Trustee............................................... 60
14.3 Notice to the Corporation........................................... 61
14.4 Notice to the Guarantor............................................. 61
14.5 Mail Service Interruption........................................... 61
ARTICLE 15 EXECUTION......................................................... 61
15.1 Counterparts and Formal Date........................................ 61
Schedule a Form of Registered Global Debenture for Medium Term Note
Schedule B Form of Registered Debenture for Medium Term Note
Schedule C Form of Guarantee
<PAGE>
TRUST INDENTURE
THIS INDENTURE is made as of the * day of February, 2000
AMONG:
FINOVA (CANADA) FINANCE INC., a body corporate incorporated under the
laws of the Province of Nova Scotia (the "CORPORATION")
and
FINOVA CAPITAL CORPORATION, a body corporate incorporated under the
laws of the State of Delaware (the "GUARANTOR")
and
CIBC MELLON TRUST COMPANY, a trust company incorporated under the
federal laws of Canada (the "TRUSTEE").
WHEREAS the Corporation deems it necessary for its corporate purposes to
create and issue Debentures to be created and issued in the manner hereinafter
appearing;
AND WHEREAS the Corporation, under the laws relating thereto, is duly
authorized to create and issue the Debentures to be issued as herein provided;
AND WHEREAS all things necessary have been done and performed to make the
Debentures, when certified by the Trustee and issued in accordance with the
terms of this Indenture, valid, binding and legal obligations of the Corporation
with the benefits and subject to the terms of this Indenture and to make this
Indenture a valid and binding indenture in accordance with its terms;
AND WHEREAS the Guarantor owns all of the issued and outstanding shares in
the share capital of the Corporation and has agreed to enter into this Indenture
and the Guarantee to assist the Corporation, for the mutual benefit of the
Corporation and the Guarantor, in the sale of the Medium Term Notes;
AND WHEREAS the Guarantor has duly authorized the entering into of this
Indenture and the Guarantee provided for herein;
AND WHEREAS all acts and things necessary to make the Guarantee to be
endorsed on the Medium Term Notes when executed by the Guarantor and endorsed on
Medium Term Notes executed by the Corporation and certified by or on behalf of
the Trustee as in this Indenture provided, valid, binding and legal obligations
of the Guarantor, and to constitute these presents a valid indenture and
agreement according to its terms, have been done and performed by the Guarantor,
and the execution by the Guarantor of this Indenture and the Guarantee of the
Medium Term Notes have in all respects been duly authorized by the Guarantor;
<PAGE>
FINOVA Trust Indenture Page 2 of 61
AND WHEREAS the Corporation and the Guarantor wish to appoint CIBC Mellon
Trust Company as trustee, to perform certain of the duties hereunder;
AND WHEREAS the foregoing recitals are made as statements of fact by the
Corporation and/or the Guarantor, as the case may be, and not the Trustee;
NOW THEREFORE, in consideration of the premises and respective agreements
set forth herein, the parties hereby agree as set forth below.
ARTICLE 1 INTERPRETATION
1.1 DEFINITIONS. In this Trust Indenture, including the recitals hereto, unless
there is something in the subject matter or context inconsistent therewith, the
following expressions shall have the meanings indicated.
"ADDITIONAL DEBENTURES" means Debentures of any one or more series, other than
Medium Term Notes.
"AFFILIATE" means, in relation to any body corporate, another body corporate:
(a) which is a Subsidiary of the first;
(b) of which the first is a Subsidiary; or
(c) which is a Subsidiary of a body corporate of which the first is
also a Subsidiary.
"AUTHORIZED INVESTMENTS" means short term interest bearing or discount debt
obligations issued or guaranteed by the Government of Canada, a province thereof
or a Canadian chartered bank (which may include an affiliate or related party of
the Trustee including, without limitation, Mellon Bank Canada) provided that
each such obligation is rated at least R1 (middle) by Dominion Bond Rating
Service Limited or any equivalent rating by CBRS Inc.
"Beneficial Owner" means any person holding a beneficial interest in the
Debentures issued in book-entry only form.
"BENEFICIARY REQUEST" means a notice in writing delivered to the Corporation and
signed by the owners of beneficial interests in the Registered Global Debenture
representing the Medium Term Notes as certified by the Depositary and its
participants, which interests represent not less than 10% of the aggregate
principal amount of such Registered Global Debenture, requesting that the Medium
Term Notes represented by such Registered Global Debenture be registered in the
respective names of the owners of the beneficial interest represented by such
Registered Global Debenture.
"BOARD RESOLUTION OF THE CORPORATION" means a resolution duly adopted by the
board of directors of the Corporation and certified by an officer of the
Corporation to be in full force and effect on the date of such certification and
delivered to the Trustee.
"BOARD RESOLUTION OF THE GUARANTOR" means a resolution duly adopted by the board
of directors of the Guarantor and certified by an officer of the Guarantor to be
in full force and effect on the date of such certification and delivered to the
Trustee.
<PAGE>
FINOVA Trust Indenture Page 3 of 61
"BUSINESS DAY", when used with respect to any place of payment or any other
particular location referred to in this Indenture or in the Debentures, means,
unless otherwise specified with respect to any Debentures pursuant to Section
2.2, each Monday to Friday, inclusive, which is not a day on which banking
institutions in that place of payment or other location are authorized or
obligated by law or executive order to close.
"CERTIFICATE OF THE CORPORATION" means a written certificate signed in the name
of the Corporation by:
(a) any two of the chairman, the deputy chairman, the chief executive
officer, the president, the chief financial officer, and a
vice-president;
(b) any one of the foregoing together with one of the treasurer, the
secretary, an assistant treasurer and an assistant secretary;
(c) any one of the foregoing together with a Director; or
(d) any two Directors.
"CERTIFICATE OF THE GUARANTOR" means a written certificate signed in the name of
the Guarantor by:
(a) any two of the chairman, the deputy chairman, the chief executive
officer, the president, the chief financial officer, and a
vice-president;
(b) any one of the foregoing together with one of the treasurer, the
secretary, an assistant treasurer and an assistant secretary;
(c) any one of the foregoing together with a director of the
Guarantor; or
(d) any two directors of the Guarantor.
"CONSOLIDATED NET TANGIBLE ASSETS" means the total of all assets reflected on an
consolidated balance sheet of the Guarantor and its consolidated Subsidiaries,
prepared in accordance with generally accepted accounting principles, at their
net book values (after deducting related depreciation, depletion, amortization
and all other valuation reserves which, in accordance with such principles,
should be set aside in connection with the business conducted), but excluding
goodwill, unamortized debt discount and all other like intangible assets, all as
determined in accordance with such principles, less the aggregate of the current
liabilities of the Guarantor and its consolidated Subsidiaries reflected on such
balance sheet, all as determined in accordance with such principles. For
purposes of this definition, "current liabilities" include all indebtedness for
money borrowed, incurred, issued and assumed or guaranteed by the Guarantor and
its consolidated Subsidiaries, and other payables and accruals, in each case
payable on demand or due within one year of the date of determination of
Consolidated Net Tangible Assets, but shall exclude any portion of long-term
debt maturing within one year of the date of such determination, all as
reflected on such consolidated balance sheet of the Guarantor and its
consolidated Subsidiaries, prepared in accordance with generally accepted
accounting principles.
"CORPORATION" means FINOVA (Canada) Finance Inc. and every successor corporation
to or of FINOVA (Canada) Finance Inc. which shall have complied with the
provisions of ARTICLE 10.
"CORPORATION'S AUDITORS" means the auditors of the Corporation at the date
hereof or any other independent firm of accountants duly appointed as auditors
of the Corporation.
"COUNSEL" means a barrister or solicitor or firm of barristers and solicitors
retained or employed by the Trustee or retained or employed by the Corporation
and acceptable to the Trustee.
<PAGE>
FINOVA Trust Indenture Page 4 of 61
"DEBENTUREHOLDERS" or "HOLDERS" means, with respect to registered Debentures,
the several Persons for the time being entered in the registers hereinafter
mentioned as holders thereof, with respect to unregistered Debentures, the
bearers thereof for the time being and with respect to Registered Global
Debentures, the Persons for the time being entered in the registry maintained by
the Depositary for beneficial holders of Registered Global Debentures.
"DEBENTUREHOLDERS' REQUEST" means an instrument signed in one or more
counterparts by the Holder or Holders of not less than 25% in principal amount
of the Debentures outstanding for the time being, requesting the Trustee to take
some action or proceeding specified therein.
"DEBENTURES" means the debentures, notes or other evidences of indebtedness of
any one or more series of the Corporation issued and certified hereunder and for
the time being outstanding, whether in definitive or interim form, and without
limiting the generality of the foregoing:
(a) "COUPON DEBENTURES" means Debentures which are issued with
interest coupons attached;
(b) "COUPONS" means the interest coupons attached or pertaining to
coupon Debentures;
(c) "FULLY REGISTERED DEBENTURES" means Debentures without coupons
which are registered as to principal and interest as hereinafter
provided;
(d) "REGISTERED GLOBAL DEBENTURE" means a Debenture representing all
or part of any series of Debentures that is issued to and
registered in the name of the Depositary for such series, or its
nominee, pursuant to Section 2.3 or 4.1, and that bears the legend
prescribed in Section 2.3;
(e) "REGISTERED DEBENTURES" means and includes fully registered
Debentures and coupon Debentures registered as to principal only;
(f) "UNREGISTERED DEBENTURES" means Debentures which are not
registered Debentures; and
(g) "U.S. DEBENTURES" Means any series of debentures issued in the
United States of America and registered with the United States
Securities and Exchange Commission from time to time upon and
subject to the provisions and conditions contained herein.
"DEPOSITARY" means, with respect to the Debentures of any series issuable or
issued in the form of one or more Registered Global Debentures, the Person
designated as Depositary by the Corporation pursuant to Section 2.2(d) or
Section 4.1 until a successor Depositary shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Depositary" shall mean
each Person who is then a Depositary hereunder; and if at any time there is more
than one such Person, "Depositary" as used with respect to the Debentures of any
such series shall mean each Depositary with respect to the Registered Global
Debenture of each series.
"DIRECTOR" means a director of the Corporation for the time being, and reference
to action by the directors or board of directors means action by the directors
of the Corporation as a board or, whenever duly empowered, action by an
executive committee or other duly authorized committee of the board.
"EVENT OF DEFAULT" means any event specified in Section 8.1, which has continued
for the period of time, if any, therein designated.
"EXTRAORDINARY RESOLUTION" has the meaning attributed to it in Section 11.13.
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"GUARANTEE" means the guarantee of the Guarantor endorsed on a Medium Term Note.
"GUARANTOR" means FINOVA Capital Corporation and every successor corporation to
or of FINOVA Capital Corporation which shall have complied with the provisions
of ARTICLE 10.
"INSOLVENCY PROCEEDING" means any proceedings:
(a) under the BANKRUPTCY AND INSOLVENCY ACT (Canada) or the COMPANIES'
CREDITORS ARRANGEMENT ACT (Canada) or under any other laws or
statutes of any jurisdiction relating to bankruptcy, insolvency,
adjustment of debt, dissolution, liquidation, winding-up or
compromise or moratorium of debt or analogous laws; or
(b) the appointment of a receiver of property or any part thereof
which is a substantial part thereof.
"LIEN" means any lien, charge, claim, security interest, pledge, hypothecation,
right of another under any conditional sale or other title retention agreement,
or any other encumbrance affecting title to property. Without limiting the
generality of the foregoing, the sale of property used or useful in the business
of the seller with the intention of retaining the use thereof under a lease, or
any other comparable arrangement commonly referred to as a "sale and leaseback,"
shall be deemed to create a Lien on such property.
"MEDIUM TERM NOTES" shall have the meaning ascribed in Subsection 4.1(a).
"PAYING AGENT" means any Person, which may be the Corporation, authorized by the
Corporation to pay the principal of, premium, if any, and interest on any
Debentures on behalf of the Corporation.
"PARTICIPANT" means a participant in the record entry and securities transfer
system which is administered by the Depositary in accordance with the operating
rules and procedures of its depositary service for book-entry only securities in
force from time to time, or any successor system.
"PERIODIC OFFERING" means an offering of Debentures of a series from time to
time, the specific terms of which Debentures, including, without limitation, the
rate or rates of interest, if any, thereon, the stated maturity or maturities
thereof and the redemption provisions, if any, with respect thereto, are to be
determined by the Corporation upon or prior to the original issuance of such
Debentures.
"PERSON" means an individual, a corporation, a partnership, a joint venture, an
association, a joint stock company, a trust, an unincorporated organization or a
government or an agency or a political subdivision thereof; and pronouns have a
similarly extended meaning.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Guarantor which is
designated as such by a Board Resolution of the Guarantor.
"SEC" means the United States Securities and Exchange Commission.
"SUBSIDIARY" means any corporation at least a majority of the Voting Shares of
which shall at the time be owned, directly or indirectly, by the Corporation, by
the Guarantor, by one or more Subsidiaries or by the Guarantor and one or more
Subsidiaries.
"TRUST INDENTURE", "INDENTURE", "HEREIN", "HEREBY", "HEREOF" and similar
expressions mean or refer to this Indenture and include any and every Indenture,
deed or instrument supplemental or ancillary hereto; and the expressions
"ARTICLE" and "SECTION" followed by a number mean and refer to the specified
Article or Section of this Indenture.
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FINOVA Trust Indenture Page 6 of 61
"TRUST INDENTURE ACT" means the United States TRUST INDENTURE ACT OF 1939 as in
force at the date as of which this Indenture was executed.
"TRUST INDENTURE LEGISLATION" means, at any time, (i) the provisions of the
COMPANIES ACT (Nova Scotia) and regulations thereunder as amended or re-enacted
from time to time, (ii) the provisions of any other applicable statute of Canada
or any province thereof and the regulations thereunder, and (iii) if applicable,
the provisions of the Trust Indenture Act, as amended, and regulations
thereunder, but only to the extent applicable under Rule 4d-9 under the Trust
Indenture Act, in each case, relating to trust indentures and to the rights,
duties, and obligations of trustees under trust indentures and of corporations
issuing debt obligations under trust indentures to the extent that such
provisions are at such time in force and applicable to this Indenture.
"TRUSTEE" means CIBC Mellon Trust Company until a successor trustee shall have
become such pursuant to the applicable provisions of this Indenture, and
thereafter "Trustee" shall mean each successor trustee.
"VOTING SHARES" means shares of any class of a corporation having under all
circumstances the right to vote for the election of the directors of such
corporation, provided that, for the purpose of this definition, shares which
only carry the right to vote conditionally on the happening of an event shall
not be considered Voting Shares whether or not such event shall have happened.
"WRITTEN ORDER OF THE CORPORATION" means a written order signed in the name of
the Corporation by any one or more of its chairman, deputy chairman, chief
executive officer, president, chief financial officer, a vice-president,
secretary, treasurer, an assistant secretary or an assistant treasurer, or by
any one or more of the Directors; and "Written Request of the Corporation" has a
similar meaning.
1.2 MEANING OF "OUTSTANDING" FOR CERTAIN PURPOSES. Every Debenture certified and
delivered by the Trustee hereunder shall be deemed to be outstanding until it
shall be cancelled or delivered to the Trustee for cancellation or monies for
the payment or redemption thereof shall be set aside under Section 9.2 or under
the terms of the Debentures, as the case may be; provided, however, that:
(a) Debentures which have been partially redeemed or purchased shall
be deemed to be outstanding only to the extent of the unredeemed
or unpurchased part of the principal amount thereof;
(b) where a new Debenture has been issued in substitution for a
Debenture which has been lost, mutilated, stolen or destroyed,
only one of them shall be counted for the purpose of determining
the aggregate principal amount of Debentures outstanding; and
(c) for the purpose of any provision of this Indenture entitling
Holders of outstanding Debentures to vote, sign consents,
requisitions or other instruments or take any other action under
this Indenture, Debentures owned legally or equitably by the
Corporation, the Guarantor or any Affiliate thereof shall be
disregarded except that:
(i) for the purpose of determining whether the Trustee shall be
protected in relying on any such vote, consent,
requisition, instrument or other action, only the
Debentures which are certified in writing by a Certificate
of the Corporation, or a Certificate of the Guarantor, as
the case may be, as being so owned shall be so disregarded,
and
(ii) Debentures so owned which have been pledged in good faith
other than to the Corporation, the Guarantor or any
Affiliate thereof shall not be so disregarded if the
pledgee shall establish to the satisfaction of the Trustee
the pledgee's right to vote such Debentures in his
discretion free from the control of the Corporation, the
Guarantor or any Affiliate thereof.
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1.3 SPECIAL ACCOUNTING PROVISIONS. For the purposes of this Indenture and in
respect of the Medium Term Notes and any Additional Debentures and the
determinations required to be made under any of the covenants herein contained
which relate to the Medium Term Notes and any Additional Debentures and the
definitions set forth in Section 1.1, the following shall apply:
(a) whenever any conversion of lawful money of the United States of
America or of any other currency or currency unit into lawful
money of Canada or vice versa is required herein, such conversion
shall, unless otherwise provided herein, be at a rate of exchange
determined by the Corporation as being made in accordance with
generally accepted accounting principles;
(b) debt for any period may be determined to be not more than a stated
amount, without determining the exact amount thereof;
(c) all determinations shall be made in accordance with generally
accepted accounting principles and shall give effect to
retirements of securities to be affected substantially
concurrently with or prior to any issue of Debentures; and
(d) all references herein to generally accepted accounting principles
shall refer to generally accepted accounting principles from time
to time utilized in Canada or, in the case of accounting terms
used in connection with the Guarantor or any of its Subsidiaries
other than the Corporation, in the United States, consistently
applied by the Corporation and the Guarantor, as applicable,
except for any changes in any method of accounting or changes in
accounting policies which may be required by any regulatory
authority or may be implemented by the Corporation or the
Guarantor as a result of any changes usual to the business of the
Corporation or the Guarantor, and all financial statements and
other financial data provided pursuant to this Indenture shall be
prepared, and all accounting terms used herein shall be construed,
in accordance with such principles.
1.4 INTERPRETATION NOT AFFECTED BY HEADINGS. The division of this Indenture into
Articles and Sections, Subsections, the provision of a table of contents and the
insertion of headings are for convenience of reference only and shall not affect
the construction or interpretation hereof.
1.5 NUMBER AND GENDER. Words importing the singular number include the plural
and vice versa, words importing gender include the masculine, feminine and
neuter genders and words importing individuals shall include firms and
corporations and vice versa.
1.6 APPLICABLE LAW. This Indenture, the Debentures and the Guarantee and any
coupons shall be governed by and construed in accordance with the laws of the
Province of Alberta and the laws of Canada applicable therein and shall be
treated in all respects as contracts made and performed in the Province of
Alberta.
1.7 REFERENCES. Unless there is something in the context or subject matter
inconsistent therewith, all references herein to Articles, Sections, Subsections
and other subdivisions refer to the corresponding Articles, Sections and other
subdivisions of this Indenture.
1.8 JUDGMENTS. If a judgment or order is rendered by a court of any particular
jurisdiction for the payment of any amounts owing to the Trustee or any Holder
under this Indenture, the Debentures or the Guarantee or under a judgment or
order of a court of any other jurisdiction in respect thereof or for the payment
of damages in respect thereof and any such judgment or order is expressed in a
currency (herein called the "JUDGMENT CURRENCY") other than lawful money of
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FINOVA Trust Indenture Page 8 of 61
Canada, the Corporation and, in the case of the Medium Term Notes, failing the
Corporation the Guarantor, shall indemnify and hold the Trustee and the Holders
harmless against any deficiency arising or resulting from any variation in rates
of exchange between the Judgment Currency and lawful money of Canada occurring
between (i) the date on which any amount expressed in lawful money of Canada is
converted, for the purposes of making or filing any claim resulting in any
judgment or order, into an equivalent amount in the Judgment Currency, and (ii)
the date or dates of payment of such amount (or part thereof) or of discharge of
such first-mentioned judgment or order (or part thereof) as appropriate. This
indemnity shall constitute a separate and independent obligation from the other
obligations contained in this Indenture, the Debentures and the Guarantee,
respectively, shall give rise to a separate and independent cause of action and
shall apply irrespective of any indulgence granted by any Holder or the Trustee
from time to time and shall continue in full force and effect notwithstanding
any judgment or order for a liquidated sum or sums in respect of amounts due
hereunder or under any judgment or order.
1.9 SUBMISSION TO JURISDICTION. The Trustee or (where entitled to do so under
the provisions contained herein) any Holder shall be entitled to take
proceedings against the Corporation and, if applicable, the Guarantor in the
courts of any province of Canada in respect of their obligations hereunder and
under the Debentures and Guarantee. The Guarantor hereby submits for all
purposes of, or in connection with, this Indenture, the Medium Term Notes and
Guarantee to the non-exclusive jurisdiction of the courts of the Province of
Alberta and appoints for such purposes any director or officer of the
Corporation for the time being to accept service of process in the Province of
Alberta on the Guarantor's behalf.
1.10 CURRENCY. All references to currency herein shall unless otherwise provided
be to lawful money of Canada.
1.11 LANGUAGE. This document is drawn up in English at the express wish of the
parties. C'est le volante expresse des parties que cette entente soit redigee en
anglais. In the event of any inconsistency between the English and French
versions, in any, of the Debentures and any coupons, the English version shall
govern.
1.12 DAY NOT A BUSINESS DAY. In the event that an action is required to be taken
hereunder on a day which is not a Business Day, then such action shall be
required to be taken on or before the requisite time on the first Business Day
thereafter.
ARTICLE 2
ISSUE OF DEBENTURES
2.1 LIMIT OF ISSUE. The aggregate principal amount of Debentures which may be
authorized and outstanding at any one time hereunder is unlimited. The
Debentures may be issued in several series as herein provided.
2.2 CREATION AND ISSUE OF ADDITIONAL DEBENTURES.
(a) The Additional Debentures may be issued in one or more series and
the Debentures of each such series shall rank equally and PARI
PASSU with all other unsecured and unsubordinated debt of the
Corporation. There shall be established herein, in or pursuant to
one or more resolutions of the Directors or in one or more
indentures supplemental hereto, prior to the initial issuance of
Additional Debentures of any particular series:
(i) the designation of the Debentures of the series, (which
need not include the term "Debentures") which shall
distinguish the Debentures of the series from the
Debentures of all other series;
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FINOVA Trust Indenture Page 9 of 61
(ii) any limit upon the aggregate principal amount of the
Debentures of the series that may be certified and
delivered under this Indenture (except for Debentures
certified and delivered upon registration of, transfer of,
amendment of, or in exchange for, or in lieu of, other
Debentures of the series pursuant to Sections 2.9, 2.10 or
2.11 or ARTICLE 3);
(iii) the date or dates, or the method by which such date or
dates will be determined or extended, on which the
principal of the Debentures of the series is payable;
(iv) the rate or rates at which the Debentures of the series
shall bear interest, if any, the date or dates from which
such interest shall accrue, on which such interest shall be
payable and on which a record, if any, shall be taken for
the determination of holders to whom such interest shall be
payable and/or the method or methods by which such rate or
rates or date or dates shall be determined;
(v) the place or places where the principal of, premium, if
any, and interest, if any, on Debentures of the series
shall be payable or where any Debentures of the series may
be surrendered for registration of transfer or exchange
and, if different than the location specified in Section
14.3, the place or places where notices or demands to or
upon the Corporation in respect of the Debentures of the
series and this Indenture may be served;
(vi) the right, if any, of the Corporation to redeem Debentures
of the series, in whole or in part, at its option and the
period or periods within which, the price or prices at, and
any terms and conditions upon, which Debentures of the
series may be so redeemed, pursuant to any sinking fund or
otherwise;
(vii) the obligation, if any, of the Corporation to redeem,
purchase or repay Debentures of the series pursuant to any
mandatory redemption, sinking fund or analogous provisions
or at the option of a Holder thereof and the price or
prices at, the period or periods within, the date or dates
on, and any terms and conditions upon, which Debentures of
the series shall be redeemed, purchased or repaid, in whole
or in part, pursuant to such obligation;
(viii) if other than denominations of $1,000 and any integral
multiple thereof, the denominations in which Debentures of
the series shall be issuable;
(ix) any trustees, depositaries, authenticating or Paying
Agents, transfer agents or registrars or any other agents
with respect to the Debentures of the series;
(x) any deletions from, modifications of or additions to the
events of default or covenants of the Corporation with
respect to the Debentures of the series, whether or not
such events of default or covenants are consistent with the
events of default or covenants contained in this Indenture;
(xi) whether and under what circumstances the Debentures of the
series will be convertible into or exchangeable for
securities of any Person;
(xii) whether such Debentures are to be issuable either
temporarily or permanently, as global securities and, if
so, whether beneficial owners of interests in any such
global security may exchange such interests for Debentures
of such series and of like tenor of any authorized form and
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FINOVA Trust Indenture Page 10 of 61
denomination and the circumstances under which any such
exchanges may occur, and if Debentures of the series are to
be issuable as a global security, the identity of the
Depositary for such series;
(xiii) if other than Canadian currency, the currency or currency
unit in which the Debentures of the series are issuable and
any provisions with respect to exchange rates and an
exchange rate agent and if the Holders have an option to
receive payments in one of a number of currencies or
currency units, the method of such issuance and the method
of determining the exchange rate; and
(xiv) any other terms of the Debentures of the series (which
terms shall not be inconsistent with the provisions of this
Indenture).
(b) The Additional Debentures of any series may be of different
denominations and forms (either coupon Debentures or fully
registered Debentures or one or more Registered Global Debentures
or any combination thereof) and may contain such variations of
tenor and effect, not inconsistent with the provisions of this
Indenture, as are incidental to such differences of denomination
and form including variations in the provisions for the exchange
of Additional Debentures of different denominations or forms and
in the provisions for the registration or transfer of Additional
Debentures, and any series of Additional Debentures may consist of
Additional Debentures having different dates of issue, different
dates of maturity, different rates of interest and/or different
redemption prices, if any, and/or different sinking fund or
analogous provisions, if any, and/or partly of Debentures carrying
the benefit of a sinking fund and partly of Debentures with no
sinking fund provided therefor.
(c) Subject to the foregoing provisions and subject to any limitation
as to the maximum principal amount of Additional Debentures of any
particular series, any of the Additional Debentures may be issued
as part of any series of Debentures previously issued, in which
case they shall bear the same designation and designating letters
or numbers as have been applied to such similar prior issue and
shall be numbered consecutively upwards in respect of each
denomination of Debentures in like manner and following the
numbers of the Debentures of such prior issue.
(d) Before the issue of any Additional Debentures of any series
subsequent to the Medium Term Notes, the Corporation shall execute
and deliver to the Trustee an indenture supplemental hereto for
the purpose of establishing the terms thereof and the forms, if
any, and denominations in which they may be issued, and the
appointment of any Depositary or any Paying Agent, and the Trustee
shall execute and deliver such supplemental indenture pursuant to
ARTICLE 12.
(e) Whenever any series of Additional Debentures subsequent to the
Medium Term Notes shall have been authorized as aforesaid, such
Additional Debentures may be from time to time executed by the
Corporation and, if applicable, the Guarantor and delivered to the
Trustee and shall be certified by the Trustee and delivered by it
to or to the order of the Corporation upon receipt by and deposit
with the Trustee of the following:
(i) a Board Resolution of the Corporation approving the
creation and issue of Additional Debentures of the series
in the aggregate principal amount therein specified,
designating the series of such Additional Debentures,
authorizing their execution and delivery and approving and
authorizing the execution by the Corporation and delivery
to the Trustee of an indenture supplemental hereto
providing for the terms and provisions of the Additional
Debentures of such series;
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FINOVA Trust Indenture Page 11 of 61
(ii) if applicable, a Board Resolution of the Guarantor
authorizing the execution of a guarantee of the Additional
Debentures of the series and approving and authorizing the
execution by the Guarantor and delivery to the Trustee of
an indenture supplemental hereto providing for the terms
and provisions of the guarantee of the Additional
Debentures of such series;
(iii) an indenture supplemental hereto in form satisfactory to
the Trustee providing for the terms and provisions of the
Additional Debentures of such series and the guarantee of
such Additional Debentures, if any, in each case duly
executed on behalf of the Corporation and, if applicable,
the Guarantor;
(iv) a Certificate of the Corporation stating that as of the
date of delivery of the documents in paragraphs 2.2(e)(i),
(ii), and (iii) to the Trustee, no Event of Default has
occurred which is continuing and that it has complied with
all the requirements and conditions of this Indenture and
any indenture supplemental thereto in connection with the
issue of the Additional Debentures of which certification
is requested;
(v) if applicable, a Certificate of the Guarantor stating that
as of the date of delivery of the documents in paragraphs
2.2(e)(i), (ii) and (iii) to the Trustee, the Guarantor has
complied with all the requirements and conditions of this
Indenture and any indenture supplemental thereto in
connection with the issue of the Additional Debentures of
which certification is requested;
(vi) such reports and certificates, if any, as may be required
by any provision hereof to evidence compliance with any
covenant restricting the issuance of debt;
(vii) a Written Order of the Corporation for the certification
and delivery of a specified principal amount of Additional
Debentures; and
(viii) an opinion of Counsel that all legal requirements imposed
by this Indenture, and any indenture supplemental thereto,
or by law in connection with the proposed issue of
Additional Debentures have been complied with by the
Corporation.
(f) No Additional Debentures shall be certified or delivered hereunder
if, to the knowledge of the Trustee, an Event of Default shall
have occurred and be continuing.
2.3 ISSUE OF REGISTERED GLOBAL DEBENTURE.
(a) If the Corporation shall establish that the Debentures of a series
are to be issued in whole or in part in the form of one or more
Registered Global Debentures, then the Corporation shall execute
and the Trustee shall certify and deliver one or more Registered
Global Debentures that shall:
(i) represent an aggregate amount equal to the aggregate
principal amount of the outstanding Debentures of such
series to be represented by one or more Registered Global
Debentures;
(ii) be registered in the name of the Depositary for such
Registered Global Debenture or Debentures or the nominee of
such Depositary;
(iii) be delivered by the Trustee to such Depositary or pursuant
to such Depositary's written instructions; and
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FINOVA Trust Indenture Page 12 of 61
(iv) bear a legend substantially as follows, or such other or
additional legends as may be required by the relevant
Depositary from time to time:
"This Debenture is a Registered Global Debenture
within the meaning of the Indenture hereinafter
referred to and is registered in the name of a
Depositary or a nominee thereof. This Debenture may
not be transferred to, registered in the name of, or
exchanged for Debentures registered in the name of,
any Person other than the Depositary or a nominee
thereof except in the limited circumstances
described in the Indenture. Every Debenture
authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, this
Debenture shall be a Registered Global Debenture
subject to the foregoing, except in such limited
circumstances described in the Indenture."
(b) Each Depositary designated for a Registered Global Debenture must,
at the time of its designation and at all times while it serves as
such Depositary, be a clearing agency registered or designated
under the securities legislation of the jurisdiction applicable to
the issue of such Debentures, and under any other applicable
statute or regulation.
(c) Subject to subsections 3.2(d) and 3.2(e), neither the Corporation
nor the Trustee shall be under any obligation to deliver to
Participants or Beneficial Owners, nor shall the participants or
the beneficial owners have any right to require the delivery of, a
certificate or other instrument evidencing an interest in a
Registered Global Debenture.
2.4 DEBENTURES TO RANK PARI PASSU. All Debentures issued pursuant to the
provisions of this Indenture shall rank PARI PASSU without discrimination,
preference or priority whatever may be the actual date thereof or of the
certification thereof or terms of issue of the same respectively, save only as
to purchase or sinking fund, amortization fund or analogous provisions, if any,
applicable to different series.
2.5 COMPUTATION OF INTEREST.
(a) Fully registered Debentures or Registered Global Debentures
originally issued hereunder shall bear interest from their
respective dates of certification. Fully registered Debentures or
Registered Global Debentures issued hereunder upon exchange or in
substitution for previously issued Debentures shall bear interest
from the interest payment date next preceding their respective
dates of certification unless such date of certification be an
interest payment date in which event such Debentures shall bear
interest from such interest payment date. Debentures subject to a
Periodic Offering shall bear interest from their date of
certification or from the last interest payment date to which
interest shall have been paid or made available for payment on
such Debentures, whichever shall be later.
(b) Coupon Debentures shall bear interest from their respective dates.
The coupons, if any, matured at the date of delivery by the
Trustee of any coupon Debenture shall be detached therefrom and
cancelled before delivery, unless such Debenture is being issued
in exchange or in substitution for another Debenture (whether in
interim or definitive form) and such matured coupons represent
unpaid interest to which the Holder of such exchanged or
substituted Debenture is entitled.
(c) Except as otherwise specified as contemplated by Section 2.2 with
respect to any Debentures, interest on the Debentures of each
series shall be computed on the basis of a 365 or 366 day year (as
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FINOVA Trust Indenture Page 13 of 61
the case may be). For the purposes of disclosure under the
Interest Act (Canada), the yearly rate of interest which is
equivalent to the rate payable with respect to any Debentures is
the rate payable with respect to such Debentures multiplied by the
actual number of days in the year for which such calculation is
made and divided by 365 or 366, as the case may be.
2.6 SIGNING OF DEBENTURES. The Debentures shall be signed by any two of the
chairman, the chief executive officer, the president, the chief financial
officer, the vice-president finance, the treasurer and the assistant treasurer
of the Corporation and the coupons, if any, shall be signed by any one of the
said officers of the Corporation. The signatures of such officers may be
mechanically reproduced and Debentures and coupons bearing such mechanical
signatures shall be binding upon the Corporation as if they had been manually
signed by such officers. Any Debenture or coupon signed as aforesaid shall be
valid and binding upon the Corporation, notwithstanding that any of the persons
whose manual or mechanical signature appears on any Debenture or coupon as one
of such officers may no longer hold office at the date of this Indenture or at
the date of such Debenture or coupon or at the date of certification and
delivery thereof.
2.7 FORM OF DEBENTURES. The Debentures of any series may be engraved,
lithographed, printed, mimeographed or typewritten, or partly in one form and
partly in another, as the Corporation may determine or as otherwise may be
provided herein.
2.8 CERTIFICATION OF DEBENTURES.
(a) No Debenture shall be issued or, if issued, shall be obligatory or
entitle the Holder to the benefit hereof until it has been
certified by the Trustee substantially in the form applicable to
such Debentures or in some other form approved by the Trustee and
such certification by the Trustee upon any Debenture shall be
conclusive evidence as against the Corporation that the Debenture
so certified has been duly issued hereunder and is a valid
obligation of the Corporation and that the Holder is entitled to
the benefit hereof.
(b) The certificate of the Trustee on Debentures or interim Debentures
issued hereunder shall not be construed as a representation or
warranty by the Trustee as to the validity of this Indenture or of
the Debentures or interim Debentures (except the due certification
thereof) and the Trustee shall in no respect be liable or
answerable for the use made of the Debentures or interim
Debentures or any of them or of the proceeds thereof. The
certificate of the Trustee signed on any definitive or interim
Debentures shall, however, be a representation and warranty by the
Trustee that said definitive or interim Debentures have been duly
certified by the Trustee pursuant to the provisions of this
Indenture.
2.9 INTERIM DEBENTURES. Pending the delivery of definitive Debentures of any
series to the Trustee, the Corporation may issue and the Trustee shall certify
in lieu thereof interim Debentures, with or without coupons, in such forms and
in such denominations and signed in such manner as the Trustee and the
Corporation may approve, entitling the Holders thereof to definitive Debentures
of the said series and any coupons relating thereto in any authorized
denominations when the same are ready for delivery; provided, however, that the
total amount of interim Debentures shall not exceed the aggregate principal
amount of Debentures of such series authorized for issue. When so issued and
certified, such interim Debentures shall, for all purposes, be deemed to be
Debentures and, pending the exchange thereof for definitive Debentures, the
Holders of the said interim Debentures shall be deemed to be Debentureholders
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FINOVA Trust Indenture Page 14 of 61
and entitled to the benefit of this Indenture to the same extent and in the same
manner as though the said exchange had actually been made. Forthwith after the
Corporation shall have executed and delivered the definitive Debentures to the
Trustee, the Trustee shall at the Corporation's expense, call in for exchange
all interim Debentures that shall have been issued and forthwith after such
exchange shall cancel the same together with all unmatured coupons (if any)
pertaining thereto. No charge shall be made by the Corporation or the Trustee to
the Holders of such interim Debentures for such exchange thereof. All interest
paid upon interim Debentures without coupons shall be noted thereon by the
Paying Agent as a condition precedent to such payment unless paid by cheque to
the registered Holders thereof.
2.10 MUTILATION, LOSS, THEFT OR DESTRUCTION OF DEBENTURES.
(a) In case any of the Debentures issued and certified hereunder or
coupons pertaining thereto shall become mutilated or be lost,
destroyed or stolen, the Corporation in its discretion may issue
and thereupon the Trustee shall certify and deliver a new
Debenture or coupon of like date and tenor as the one mutilated,
lost, destroyed or stolen in exchange for and in place of and upon
cancellation of such mutilated Debenture or coupon or in lieu of
and in substitution for such lost, destroyed or stolen Debenture
or coupon and the new Debenture or coupon shall be in a form
approved by the Trustee and shall be entitled to the benefit
hereof and rank equally in accordance with its terms with all
other Debentures or coupons issued or to be issued hereunder.
(b) The applicant for the issue of a new Debenture or coupon pursuant
to this Section 2.10 shall bear the cost of the issue thereof and
in case of loss, destruction or theft shall, as a condition
precedent to the issue thereof, provide to the Corporation and to
the Trustee such evidence of ownership and of the loss,
destruction or theft of the Debenture or coupon so lost, destroyed
or stolen as shall be satisfactory to the Corporation and the
Trustee in their discretion and such applicant may also be
required to provide indemnity in amount and form satisfactory to
the Corporation and the Trustee in their discretion, and shall pay
the reasonable charges of the Corporation and the Trustee in
connection therewith.
2.11 PLEDGE AND RE-ISSUE OF DEBENTURES. Provided no Event of Default has
occurred which is continuing, all or any of the Debentures may be pledged,
hypothecated or charged from time to time by the Corporation as security for
advances or loans to, or for debt or other obligations of, the Corporation and,
when redelivered to the Corporation or its nominees on or without payment,
satisfaction, release or discharge in whole or in part of any such advances,
loans, debt or obligations, such Debentures and all or any of the Debentures
which, pursuant to any provisions of the Debentures, may be purchased in the
open market or by tender or by private contract, may be held by the Corporation
for such period or periods as it deems expedient and shall (subject to any rule
of law to the contrary or pursuant to any provision of the Debentures or of this
Indenture or pursuant to a resolution of the Directors, which provision or
resolution requires cancellation and retirement of such Debentures so acquired),
while the Corporation remains in possession thereof, be treated as unissued
Debentures and accordingly may be issued or re-issued, pledged or charged, sold
or otherwise disposed of as and when the Corporation may think fit, and all such
Debentures so issued or re-issued or pledged or charged, sold or otherwise
disposed of before but not after the respective dates of maturity thereof shall,
subject to the provisions of Section 1.2, continue to be entitled, as upon their
original issue, to the benefit of all the terms, conditions, rights, priorities
and privileges hereby attached to or conferred on Debentures issued hereunder.
ARTICLE 3
REGISTRATION, TRANSFER, EXCHANGE AND OWNERSHIP OF DEBENTURES
3.1 FULLY REGISTERED DEBENTURES.
(a) With respect to each series of Debentures issuable in whole or in
part as fully registered Debentures, unless otherwise provided in
the supplemental Indenture establishing the terms thereof, the
Corporation shall cause to be kept by the Trustee, at its
principal office in Toronto, Ontario, a register in which shall be
entered the names and addresses of the Holders of fully registered
Debentures of such series and particulars of the Debentures held
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FINOVA Trust Indenture Page 15 of 61
by them respectively. Unless otherwise provided in this Indenture
or in any supplemental Indenture, the Corporation shall also, with
respect to each series of Debentures issuable as fully registered
Debentures, cause to be provided facilities for the exchange and
transfer of fully registered Debentures by and at the principal
office of the Trustee in Toronto, Ontario. The Corporation may, in
consultation with the Trustee, from time to time provide
additional facilities for such registration, exchange and transfer
at other offices of the Trustee or at other agencies, as
registrar.
(b) No transfer of a fully registered Debenture shall be valid unless:
(i) made at one of the offices or other agencies referred to in
Subsection 3.1(a) by the registered Holder or his
executors, administrators or other legal representatives or
his or their attorney duly appointed by an instrument in
writing in form and execution satisfactory to the Trustee
and upon compliance with such reasonable requirements as
the Trustee may prescribe; and
(ii) the name of the transferee has been noted on the Debenture
by the Trustee or other agent.
(c) The registered Holder of a fully registered Debenture may at any
time and from time to time have the registration of such Debenture
transferred from the register on which the registration thereof
appears to another authorized register upon compliance with such
reasonable requirements as the Trustee and/or other registrar may
prescribe and upon payment of a reasonable fee to be fixed by the
Trustee. Such change of registration shall be noted on such
Debenture by the Trustee or other registrar unless a new Debenture
shall be issued upon such change of registration.
3.2 REGISTERED GLOBAL DEBENTURES.
(a) With respect to each series of Debentures issuable in whole or in
part in the form of one or more Registered Global Debentures, the
Corporation shall cause to be kept by the Trustee at its principal
office in Toronto, Ontario or such other registrar as the
Corporation, with the approval of the Trustee, may appoint at such
place or places, if any, as may be specified in the Debentures of
such series or as the Corporation may designate with the approval
of the Trustee, registers in which shall be entered the name and
address of the Depositary or its nominee for each such Registered
Global Debenture and particulars of the Registered Global
Debenture held by it, and such registration shall be noted on the
Registered Global Debenture by the Trustee or other registrar.
With respect to any Debentures of such series that are at any time
not represented by one or more Registered Global Debentures, the
provisions of Section 3.1 or Section 3.4, whichever are
applicable, shall govern with respect to registrations === and
transfers.
(b) Notwithstanding any other provision of this ARTICLE 3, unless and
until it is wholly exchanged for fully registered Debentures or
coupon Debentures in definitive form in accordance with the terms
hereof or particular terms applicable to the series of Debentures
it represents, a Registered Global Debenture representing all or a
portion of the Debentures of a series may not be transferred
except as a whole by:
(i) the Depositary for such series to a nominee of such
Depositary;
(ii) a nominee of such Depositary to such Depositary or to
another nominee of such Depositary; or
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FINOVA Trust Indenture Page 16 of 61
(iii) such Depositary or any such nominee to a successor
Depositary for such series or a nominee of such successor
Depositary,
and only if the transfer is duly recorded by the Trustee on
the register for such series and, if required, on the
Registered Global Debenture.
(c) The Corporation and the Trustee understand that transfers of
beneficial ownership in any debentures represented by a Registered
Global Debenture will be effected only (i) with respect to the
interest of Participants, through records maintained by the
Depositary or its nominee for the Registered Global Debenture, and
(ii) with respect to interest of persons other than Participants,
through records maintained by Participants. Beneficial Owners who
are not Participants but who desire to purchase, sell or otherwise
transfer ownership of or other interest in Debentures represented
by Registered Global Debentures may do so only through a
Participant.
(d) If at any time the Depositary for a Registered Global Debenture
representing all or a portion of the Debentures of a series
notifies the Corporation that it is unwilling or unable to
continue as Depositary for such Registered Global Debenture, or
ceases to be eligible to be a Depositary under Subsection 2.3(b),
then the Corporation shall appoint a successor Depositary with
respect to such Registered Global Debenture. If a successor
Depositary for such Registered Global Debenture is not appointed
by the Corporation within 90 days after the Corporation receives
such notice or becomes aware of such ineligibility, then the
Corporation's determination that the Debentures represented by
such Registered Global Debenture be held as a Registered Global
Debenture shall no longer be effective with respect to the
Debentures represented by such Registered Global Debenture, and
the Corporation will execute, and the Trustee, upon receipt of a
Written Order of the Corporation for the certification and
delivery of individual Debentures of such series, will certify and
deliver, in exchange for such Registered Global Debenture,
individual Debentures of such series, in accordance with
Subsections 3.2(f) and (g), in an aggregate principal amount equal
to the principal amount of such Registered Global Debenture.
(e) The Corporation may at any time and in its sole discretion
determine that Debentures of any series issued in the form of one
or more Registered Global Debentures shall no longer be
represented by such Registered Global Debentures, in which event
the Corporation will execute, and the Trustee, upon receipt of a
Written Order of the Corporation for the certification and
delivery of individual Debentures of such series, will certify and
deliver, in exchange for such Registered Global Debentures,
individual Debentures of such series, in accordance with
Subsections 3.2(f) and (g), in an aggregate principal amount equal
to the principal amount of such Registered Global Debentures.
(f) In any exchange provided for in any of Subsections 3.2(d) or (e),
or in the terms applicable to any particular series of Debentures,
the Corporation will execute and the Trustee will certify and
deliver individual Debentures:
(i) as fully registered Debentures in authorized denominations
if the Debentures of such series are issuable as fully
registered Debentures;
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FINOVA Trust Indenture Page 17 of 61
(ii) as coupon Debentures, registrable as to principal only, in
authorized denominations with coupons attached if the
Debentures of such series are issuable as coupon Debentures
registrable as to principal only;
(iii) as coupon Debentures not registrable as to principal if the
Debentures of such series are issuable as coupon Debentures
not registrable as to principal; or
(iv) in any combination of the foregoing Debentures, if issuable
as such,
all according to instructions from the Depositary to the Trustee
in that regard, as contemplated by Subsection 3.2(g), and all in a
minimum of $1,000 principal amount and multiples thereof.
(g) Upon the exchange of a Registered Global Debenture for individual
Debentures in definitive form, pursuant to any of Subsections
3.2(d) or 3.2(e), or pursuant to the terms applicable to any
particular series of Debentures, such Registered Global Debenture
shall be cancelled by the Trustee. Individual registered
Debentures exchanged for portions of a Registered Global Debenture
shall be registered in such names and in such authorized
denominations as the Depositary for such Registered Global
Debenture, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver any such registered Debentures to the Persons in
whose names such Debentures are so registered. The Trustee shall
deliver individual coupon Debentures exchanged for a Registered
Global Debenture to the Persons, and in such authorized
denominations, as the Depositary for such Registered Global
Debenture, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. Unless
otherwise requested by the Holder, all such Debentures shall be
delivered by mailing the Debenture to the address of the Holder
provided by the Depositary.
(h) If authorized by the Corporation pursuant to Section 2.3 with If
authorized by the Corporation pursuant to Section 2.3 with respect
to a series of Debentures issued in the form of one or more
Registered Global Debentures, then the Depositary of a Registered
Global Debenture representing such series of Debentures may
surrender the Registered Global Debenture for such series of
Debentures in exchange in whole or in part for individual
Debentures of such series on such terms as are acceptable to the
Corporation and such Depositary. Thereupon, the Corporation shall
execute, and the Trustee shall certify and deliver to:
(i) each Person specified by such Depositary, one or more new
individual Debentures of the same series in any authorized
denomination as requested by such Person in an aggregate
principal amount equal to and in exchange for such Person's
beneficial interest in the Registered Global Debenture; and
(ii) such Depositary, a new Registered Global Debenture in a
denomination equal to the difference, if any, between the
principal amount of the surrendered Registered Global
Debenture and the aggregate principal amount of new
individual Debentures delivered to Persons under this
Subsection 3.2(h).
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FINOVA Trust Indenture Page 18 of 61
(i) All Debentures executed for delivery upon any transfer or exchange
of a Registered Global Debenture shall be valid obligations of the
Corporation, evidencing the same debt and entitled to the same
benefits under this Indenture as the Registered Global Debenture
surrendered for such transfer or exchange. No service charge shall
be made for any registration of transfer or exchange of a
Registered Global Debenture but the Corporation may require
payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any transfer,
registration of transfer or exchange of a Registered Global
Debenture.
(j) None of the Corporation, the Trustee or any other registrar shall
be required to:
(i) execute for delivery, register the transfer of or exchange
a Registered Global Debenture of any particular series
during a period beginning at the opening of business 15
Business Days before the day of the mailing of a notice of
redemption of all or any part of a Registered Global
Debenture selected for redemption and ending at the close
of business on the day of such mailing; or
(ii) register the transfer of or exchange any portion of a
Registered Global Debenture so selected for redemption in
whole or in part, except the unredeemed portion of any
Registered Global Debenture being redeemed in part.
3.3 Dealings with the Depositary
(a) The rights of Beneficial Owners shall be limited to those
established by applicable law and agreement between the Depositary
and the Participants and between such Participants and Beneficial
Owners, and must be exercised through a Participant in accordance
with the rules and procedures of the Depositary.
(b) The Corporation and the Trustee acknowledge that, subject to and
in accordance with the rules and procedures of the Depositary as
established from time to time, each Participant must look solely
to the Depositary through its Paying Agent service, for so long as
the Depositary is the registered holder of Registered Global
Debentures, for its share of each payment made by the Trustee to
the registered holder of the Registered Global Debentures, and
each Beneficial Owner must look solely to Participants for its
share of such payments. Provided that the Corporation has made
payments to the Trustee in respect of the Registered Global
Debentures no person, including any Participant or Beneficial
Owner, shall have any claim against the Corporation in respect of
payments due on such Registered Global Debentures and the
obligations of the Corporation shall be discharged by payment to
the Trustee in respect of each amount so paid.
(c) The Depositary shall be responsible for the creation and
maintenance of the book entries and the accounts of its
Participants with an interest in the Debentures represented by
Registered Global Debentures. The Corporation and the Trustee
understand that the Depositary will deliver to the Trustee a
certified list of Participants as at the date of issue of
Debentures represented by Registered Global Debentures showing the
name and address of each Participant (including the facsimile
number and electronic communications address, if any) together
with the aggregate principal amount of such Participants' interest
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FINOVA Trust Indenture Page 19 of 61
in such Debentures and that, for so long as interests in
Debentures are represented by one or more Registered Global
Debentures, the Depositary shall, upon the reasonable request of
the Trustee from time to time, deliver to the Trustee a copy of
the then current list of Participants and such additional
information as the Trustee may reasonably request. The Corporation
and the Trustee shall be entitled to rely upon all such
information provided by the Depositary to the Corporation and the
Trustee.
(d) The Corporation understands that the Depositary acts as the agent
and depositary for the Participants and neither the Corporation
nor the Trustee assume any liability for:
(i) any aspect of the records relating to the beneficial
ownership of or beneficial interest in the Debentures held
by the Depositary or the payments relating thereto;
(ii) maintaining, supervising or reviewing any records relating
to the Debentures held by the Depositary; or
(iii) any advice or representation made by or with respect to the
Depositary and those contained herein and relating to the
rules governing the Depositary or any action to be taken by
the Depositary or at the direction of its Participants.
3.4 COUPON DEBENTURES.
(a) Coupon Debentures issued hereunder shall be negotiable and title
thereto shall pass by delivery unless registered as to principal
for the time being as hereinafter provided. Notwithstanding
registration of coupon Debentures as to principal, the coupons
when detached shall continue to be payable to bearer and title
thereto shall pass by delivery.
(b) With respect to each series of Debentures issuable in whole or in
part as coupon Debentures registerable as to principal only,
unless otherwise provided in the supplemental Indenture
establishing the terms thereof, the Corporation shall cause to be
kept by the Trustee, at its principal office in Toronto, Ontario,
a register in which Holders of coupon Debentures of such series
may register the same as to principal only and in which shall be
entered the names and addresses of the Holders of coupon
Debentures of such series registered as to principal and
particulars of the coupon Debentures so registered held by them
respectively. Unless otherwise provided in this Indenture or in
any supplemental Indenture, the Corporation shall also, with
respect to each series of Debentures issuable as coupon Debentures
registrable as to principal only, cause to be provided facilities
for the registration, exchange and transfer of coupon Debentures
registrable as to principal only by and at the principal office of
the Trustee in Toronto, Ontario. The Corporation, in consultation
with the Trustee, may from time to time provide additional
facilities for such registration, exchange and transfer at other
offices of the Trustee or at other agencies. Such registration
shall be noted on the Debentures by the Trustee or other agencies,
as registrar.
(c) After such registration of a coupon Debenture, no transfer thereof
shall be valid unless made at one of the offices or other agencies
referred to in Subsection 3.4(b) by the registered Holder or his
executors, administrators or other legal representatives or his or
their attorney duly appointed by an instrument in writing in form
and execution satisfactory to the Trustee and upon compliance with
such reasonable requirements as the Trustee may prescribe, nor
unless such transfer shall have been noted on the Debenture by the
Trustee or other agent; provided, however, that any such Debenture
may be discharged from registry by being
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FINOVA Trust Indenture Page 20 of 61
transferred to bearer, after which it shall again be transferable
by delivery, but may again from time to time be registered and
discharged from registry.
(d) The registered Holder of a coupon Debenture registrable as to the
principal only may at any time and from time to time have the
registration of such Debenture transferred from the register on
which the registration thereof appears to another authorized
register upon compliance with such reasonable requirements as the
Trustee and/or other registrar may prescribe and payment of a
reasonable fee to be fixed by the Trustee or such other
registrars. Such change of registration shall be noted on such
Debenture by the Trustee or other registrar unless a new coupon
Debenture shall be issued upon such change of registration.
3.5 TRANSFEREE ENTITLED TO REGISTRATION. The transferee of a registered
Debenture, other than a Registered Global Debenture, shall, after the
appropriate form of transfer is deposited with the Trustee or other agent and
upon compliance with all other conditions in that behalf required by the
Trustee, this Indenture or by law, be entitled to be entered on the register as
the owner of such Debenture free from all equities or rights of set-off or
counterclaim between the Corporation and the transferor or any previous Holder
of such Debenture, save in respect of equities of which the Corporation or
Holder is required to take notice by statute or by order of a court of competent
jurisdiction.
3.6 EXCHANGE OF DEBENTURES.
(a) Debentures in any authorized form or denomination, other than
Registered Global Debentures, may be exchanged upon reasonable
notice for Debentures in any other authorized form or
denomination, of the same series and date of maturity, bearing the
same interest rate and of the same aggregate principal amount as
the Debentures so exchanged.
(b) Debentures of any series may be exchanged at the principal office
of the Trustee in Toronto, Ontario or at such other place or
places, if any, as may be specified in the Debentures of such
series and at such other place or places, if any, as may from time
to time be designated by the Corporation with the approval of the
Trustee. Any Debentures tendered for exchange shall be surrendered
to the Trustee together with all unmatured coupons, if any, and
all matured coupons in default, if any, pertaining thereto. The
Corporation shall execute and the Trustee shall certify all
Debentures necessary to carry out exchanges as aforesaid. All
Debentures and coupons surrendered for exchange shall be
cancelled.
(c) Debentures issued in exchange for Debentures which at the time of
such issue have been selected or called for redemption at a later
date shall be deemed to have been selected or called for
redemption in the same manner and shall have noted thereon a
statement to that effect.
(d) The transferee of a fully registered Debenture, other than a
Registered Global Debenture, shall be entitled, if such series
shall provide for the issue of coupon Debentures, on request, to
receive a coupon Debenture or Debentures on such transfer without
the prior issue to him of a fully registered Debenture.
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FINOVA Trust Indenture Page 21 of 61
3.7 CHARGES FOR REGISTRATION, TRANSFER AND EXCHANGE.
(a) Unless otherwise provided in any supplemental Indenture, for each
Debenture exchanged, registered, transferred or discharged from
registration, the Trustee or other agent shall, if required by the
Corporation in writing, make a reasonable charge for its services
and for each new Debenture issued, if any; provided, however, that
no charge to a Debentureholder shall be made hereunder for any:
(i) exchange, registration, transfer or discharge from
registration of any Debenture applied for within the period
of two months from and including the date of original issue
of such Debenture;
(ii) exchange of any interim or temporary Debenture or interim
certificate that has been issued under Section 2.9;
(iii) exchange of a Registered Global Debenture as contemplated
in Section 3.2 or Subsection 4.4(a); or
(iv) exchange of any Debenture resulting from a partial
redemption under Section 6.4.
(b) Payment of any such charges and reimbursement of the Trustee or
other agent or the Corporation for any transfer taxes or
governmental or other charges required to be paid shall be made by
the party requesting such exchange, registration, transfer or
discharge from registration as a condition precedent thereto.
3.8 REGISTERS OPEN FOR INSPECTION. The registers shall, at all reasonable times
and at such reasonable costs as established by the Trustee, be open for
inspection by the Corporation, the Guarantor or any Debentureholder. The Trustee
and every registrar shall, from time to time when requested to do so by the
Corporation or by the Trustee in writing, furnish the Corporation or the
Trustee, as the case may be, with a list of names and addresses of Holders of
registered Debentures entered on the register and showing the principal amount
and serial numbers of the Debentures held by each such Holder.
3.9 CLOSING OF REGISTERS.
(a) Subject to any restriction herein provided, the Corporation, with
the approval of the Trustee, may at any time close any register,
other than the register kept at the principal office of the
Trustee in Toronto, Ontario, and transfer the registration of any
Debentures registered thereon to another register and thereafter
such Debentures shall be deemed to be registered on such other
register and notice of such transfer shall be given in the manner
provided in Section 14.1 to the Holders of the Debentures
registered in the register so closed.
(b) Neither the Corporation nor the Trustee nor any other agent shall
be required to make:
(i) exchanges or transfers of fully registered Debentures of
any series on any interest payment date for Debentures of
that series or during the 14 preceding days; or
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FINOVA Trust Indenture Page 22 of 61
(ii) transfers of any registered Debentures of any series or
exchanges of Debentures of any series on the day of any
selection by the Trustee of Debentures of that series to be
redeemed or during the 14 preceding days; or
(iii) transfers of any registered Debentures of any series or
exchanges of Debentures of any series which have been
called for redemption in whole or in part unless, upon due
presentation thereof for redemption, such Debentures shall
not be redeemed.
3.10 OWNERSHIP OF DEBENTURES AND COUPONS.
(a) The Person in whose name any registered Debenture is registered
shall, for all the purposes of this Indenture, be and be deemed to
be the owner thereof, and the Trustee, the Corporation and the
Guarantor shall be protected in acting and relying on such
registration, and payment of or on account of the principal and
premium, if any, on such Debenture and, in the case of a fully
registered Debenture, interest thereon shall be made only to or
upon the order in writing of such registered Holder.
(b) The Corporation, the Trustee and any other agent may deem and
treat the bearer of any unregistered Debenture and the bearer of
any coupon, whether or not the Debenture from which it has been
detached shall be registered as to principal, as the absolute
owner of such Debenture or coupon, as the case may be, for all
purposes and neither the Corporation nor the Trustee nor any other
agent shall be affected by any notice to the contrary.
(c) Neither the Corporation nor the Trustee nor any other agent shall
be bound to take notice of or see to the execution of any trust,
whether express, implied or constructive, in respect of any
Debenture and may transfer the same on the direction of the Person
registered as the Holder thereof, whether named as trustee or
otherwise, as though that Person were the beneficial owner
thereof.
(d) The registered Holder for the time being of any registered
Debenture and the bearer of any unregistered Debenture and the
bearer of any coupon shall be entitled to the principal, premium,
if any, and/or interest evidenced by such instruments respectively
free from all equities or rights of set-off or counter-claim
between the Corporation and the original or any intermediate
Holder thereof, except in the case of any prior overpayment with
respect to a Debenture, and all Persons may act accordingly and
the receipt of any such registered Holder or bearer, as the case
may be, for any such principal, premium, if any, or interest shall
be a good discharge to the Corporation, the Trustee and any other
agent for the same and neither the Corporation, the Trustee nor
any other agent shall be bound to inquire into the title or
interest of any such registered Holder or bearer.
(e) Upon receipt of a certificate of any bank, trust company or other
depositary satisfactory to the Trustee stating that the
unregistered Debentures specified therein have been deposited by a
named Person with such bank, trust company or other depositary and
will remain so deposited until the expiry of the period specified
therein, the Corporation, the Trustee and any other agent shall
treat the Person so named as the owner, and such certificate as
sufficient evidence of the ownership by such Person during such
period, of such Debentures, for the purpose of any
Debentureholders' Request, requisition, direction, consent,
instrument, or other document to be made, signed or given by the
Holder of the Debentures so deposited. The Corporation, the
Trustee and any other agent shall treat the registered Holder of
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FINOVA Trust Indenture Page 23 of 61
any Debenture as the owner thereof without actual production of
such Debenture for the purpose of any Debentureholders' Request,
requisition, direction, consent instrument or other document as
aforesaid.
(f) Where a registered Debenture is registered in more than one name,
the principal, premium, if any, and interest (in the case of fully
registered Debentures) from time to time payable in respect
thereof may be paid by cheque payable to the order of all such
Holders, failing written instructions from them to the contrary,
and the receipt of any one of such Holders therefor shall be a
valid discharge to the Trustee and any other agent and to the
Corporation, unless such cheque not be paid at par on presentation
at any one of the places where such principal, premium, if any,
and interest is, by the terms of such Debenture, made payable.
(g) In the case of the death of one or more joint registered Holders,
the principal, premium, if any, and interest on fully registered
Debentures and the principal and premium, if any, on coupon
Debentures registered as to principal only may be paid by cheque
to the survivor or survivors of such registered Holders whose
receipt therefor shall constitute a valid discharge to the Trustee
and any other agent and to the Corporation, unless such cheque not
be paid at par on presentation at any one of the places where such
principal, premium, if any, and interest is, by the terms of such
Debenture, made payable.
3.11 HOME OFFICE PAYMENT AGREEMENTS. Notwithstanding anything herein contained,
the Corporation may enter into an agreement with the registered Holder of a
registered Debenture, or with the Person for whom such registered Holder is
acting as nominee, or with the Depositary, providing for the payment to such
registered Holder or to such Person or as the Depositary may advise, of the
principal of and premium (if any) and interest on such Debenture, at a place or
places other than the place or places specified herein and in such Debenture as
the place or places for such payment. Such payments may be made by the Trustee,
or by any Paying Agent with the consent of the Trustee, to the registered Holder
thereof or to such Person for whom such registered Holder is acting as nominee
or as the Depositary may advise, without presentation or surrender of the
Debenture to the Trustee if such Debenture is being redeemed in part only and if
there shall have been filed with the Trustee a Certificate of the Corporation
stating that the Corporation has entered into an agreement with such registered
Holder or the Person for whom such registered Holder is acting as nominee or the
Depositary to the effect that:
(a) payment will be so made;
(b) upon written request from the Trustee or the Corporation, such
registered Holder or other Person or the Depositary will make
notations on such Debenture of the portions thereof so redeemed;
(c) whether or not it shall have received any request to make
notations as aforesaid, such registered Holder or other Person or
the Depositary will not dispose of such Debenture or permit its
nominee to dispose of such Debenture or of any interest therein
without, prior to the delivery thereof, surrendering the same to
the Trustee or other registrar either for notation thereon of the
portion of the principal amount thereof redeemed or in exchange
for a Debenture or Debentures of the same series in authorized
denominations, aggregating the same principal amount as the
principal amount of such Debenture so surrendered which shall
remain unpaid; and
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FINOVA Trust Indenture Page 24 of 61
(d) such registered Holder, the Depositary or other Person shall
surrender such Debenture to the Trustee or other registrar upon
payment in full of the principal, premium, if any, and interest of
such Debentures.
Neither the Trustee nor any Paying Agent shall be under any duty to determine
that such notations have been made. Any payment of the principal of, and premium
(if any) and interest on, any such fully registered Debenture at such other
place or places pursuant to such agreement shall, notwithstanding any other
provision of this Indenture, be valid and binding on the Corporation, the
Trustee, the Holders of all Debentures and the Depositary.
ARTICLE 4
ISSUE OF SERIES OF MEDIUM TERM NOTES
4.1 FORM AND TERMS OF SERIES OF MEDIUM TERM NOTES.
(a) The first series of Debentures authorized to be issued hereunder
shall be designated as "MEDIUM TERM NOTES" which may be issued
from time to time upon and subject to the provisions and
conditions and in accordance with this Indenture. The aggregate
principal amount of Medium Term Notes that may be issued hereunder
is unlimited.
(b) Except as provided in Section 4.4 and Subsections 3.2(d) and
3.2(e), the Medium Term Notes shall be issuable as a Registered
Global Debenture substantially in the form as set forth in
Schedule A to this indenture with The Canadian Depositary for
Securities Limited being designated the initial Depositary
therefor and CDS & Co. being registered as the initial holder
thereof for each issue, and with the register being maintained by
the Trustee or other agent in Toronto, Ontario. Each Medium Term
Note to be issued in exchange for a Registered Global Debenture
representing Medium Term Notes pursuant to Section 4.4 or
Subsections 3.2(d) or 3.2(e), and any substitutions therefor in
whole or in part, shall only be issuable as fully registered
Debentures substantially in the form as set forth in Schedule B to
this Indenture.
(c) Each Medium Term Note shall be dated as of such date, shall mature
on such date, shall be issued and payable in such currency or
currency unit and shall bear interest at such rate or rates or
calculated in such manner as shall be determined by the
Corporation prior to the time of issue, provided however that each
Medium Term Note has a maturity date of at least one year from
date of issue. Interest at the annual rate so determined shall be
calculated and payable (both before and after default, maturity,
and judgment) on such dates in each year, commencing on such date,
as shall be determined by the Corporation prior to the time of
issue. After default, to the extent permitted by applicable law,
interest shall be payable on overdue interest at the same rate and
computed in such manner as shall be determined by the Corporation
prior to the time of issue.
(d) Unless otherwise specified in the applicable Written Order of the
Corporation, the Medium Term Notes shall be issued in multiples of
$1,000 or, in the case of another currency or currency unit, such
other denominations in such currency or currency unit and integral
multiples thereof as may be determined by the Corporation.
(e) The Medium Term Notes (endorsed by the Guarantor as required
pursuant to Section 5.2) and the certificate of the Trustee or
other agent endorsed thereon shall be substantially in the form
set out in Schedule A to this Indenture with such appropriate
insertions, omissions, substitutions and variations as
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FINOVA Trust Indenture Page 25 of 61
the Corporation, the Guarantor and the Trustee may approve and
shall be numbered in such manner as the Corporation and the
Trustee or other agent may approve, such approvals of the
Corporation, the Guarantor and the Trustee to be conclusively
evidenced by its execution, endorsement and certification,
respectively, of the Medium Term Notes.
(f) Unless otherwise specified in a Written Order of the Corporation,
the Medium Term Notes shall not be redeemable prior to maturity;
provided, however, that if stated to be redeemable, for purposes
of ARTICLE 6, each issuance of Medium Term Notes pursuant to a
Written Order of the Corporation shall be deemed to be a "series".
(g) The Corporation, when no Event of Default has occurred and is
continuing under this Indenture, will have the right to purchase
Medium Term Notes (including beneficial interests in any
Registered Global Debenture representing Medium Term Notes) in the
market or by tender or by private contract at any price without
having to purchase any or all of the other Debentures outstanding,
except as required by law.
(h) If, upon an invitation for tenders made pursuant to Subsection
4.1(g), more Medium Term Notes (including beneficial interests in
any Registered Global Debenture representing Medium Term Notes)
are tendered at the same price than the Corporation is prepared to
pay, then the Medium Term Notes (including beneficial interests in
any Registered Global Debenture representing Medium Term Notes) to
be purchased by the Corporation will be selected by the Trustee on
a pro rata basis, or in such other manner as the Trustee may deem
equitable, from the Medium Term Notes (including beneficial
interests in any Registered Global Debenture representing Medium
Term Notes) tendered by each tendering Holder of Medium Term Notes
who tendered at such lowest price. For this purpose, the Trustee
may make, and from time to time amend, regulations with respect to
the manner in which Medium Term Notes (including beneficial
interests in any Registered Global Debenture representing Medium
Term Notes) may be so selected, and regulations so made shall be
valid and binding upon the Depositary and all Holders of Medium
Term Notes or of a beneficial interest in any Registered Global
Debenture representing same, notwithstanding the fact that, as a
result thereof, one or more of such Medium Term Notes becomes
subject to purchase in part only. Appropriate notations shall be
made by the Depositary with respect to any Medium Term Notes
(including beneficial interests in any Registered Global Debenture
representing Medium Term Notes) purchased hereunder.
Notwithstanding the foregoing, no Debenture shall be purchased for
an amount less than $1,000 principal amount (or the equivalent
denomination if the Debenture in question is issued in a foreign
currency or currency unit).
(i) The principal of all Medium Term Notes and the premium, if any,
and interest thereon and all sums which may at any time become
payable thereon, whether at maturity, on a declaration, on
redemption or otherwise shall be payable at any branch in Canada
of Canadian Imperial Bank of Commerce, or such other financial
institution as may be designated from time to time by the
Corporation, at the Holder's option, against surrender of the
Medium Term Notes, except that the Corporation may agree with any
registered holder of Medium Term Notes or the Depositary to make
payment as provided for in Section 3.11. If the due date for
payment of any amount of principal or interest on any Medium Term
Note is not a Business Day, then such payment will be made on the
next Business Day and the Holder of such Medium Term Note shall
not be entitled to any further interest or other payment in
respect of such delay.
4.2 ISSUE OF MEDIUM TERM NOTES. Medium Term Notes are hereby created and may
forthwith and from time to time be executed by the Corporation, endorsed by the
Guarantor and delivered to the Trustee or other agent and shall thereupon be
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FINOVA Trust Indenture Page 26 of 61
certified by the Trustee or other agent and delivered by the Trustee or other
agent upon the Written Order of the Corporation, without receiving any
consideration therefor, upon receipt by the Trustee of:
(a) opinions of Counsel dated the date of such certification and
delivery to the effect that:
(i) this Indenture has been duly and validly authorized,
executed and delivered by the Corporation and the Guarantor
and is a valid and binding instrument in accordance with
its terms and is enforceable against the Corporation and
the Guarantor, and
(ii) all conditions precedent provided for in this Indenture and
by applicable law relating to the authorization, execution,
certification and delivery of the Medium Term Notes have
been complied with or satisfied in accordance with the
terms of this Indenture and by such applicable law,
provided, however, that such opinions may be expressed to be
subject to any applicable bankruptcy or insolvency laws or other
laws affecting the enforcement of creditors' rights generally and
may also indicate the discretionary nature of the remedies of
specific performance and injunctive relief;
(b) a Certificate of the Corporation dated the date of such
certification and delivery to the effect that:
(i) all conditions precedent provided for in this Indenture and
by applicable law relating to the authorization, execution,
issuance, certification and delivery of the Medium Term
Notes have been complied with or satisfied in accordance
with the terms of this Indenture and such applicable law,
and
(ii) at the time of the certification and delivery of the Medium
Term Notes by the Trustee, there is no Event of Default
under this Indenture and no event which, with the giving of
notice or the passage of time, or both, would constitute an
Event of Default under this Indenture has occurred and is
continuing; and
(c) a Certificate of the Guarantor dated the date of such
certification and delivery to the effect that the Guarantor has
complied with all the requirements of this Indenture in connection
with the issue of the Medium Term Notes.
The Written Order of the Corporation required by Section 4.2 for the
certification and delivery of Medium Term Notes shall specify in a schedule (the
"TERMS SCHEDULE") to such Written Order of the Corporation, the date, principal
amount, currency or currency units, maturity date, interest rate, if any, (or
the method of calculation thereof), interest payment dates, redemption
provisions (if any), whether the Notes are to be issued as fully registered
debentures or a Registered Global Debenture and place of delivery for each
Medium Term Note requested to be certified and delivered. Upon the certification
and delivery by the Trustee or other agent of Medium Term Notes in accordance
with such Written Order of the Corporation, the Terms Schedule to such Written
Order of the Corporation shall be deemed to be a schedule to and form part of
this Indenture and shall be binding on the parties hereto. The Trustee or other
agent shall have no duty or responsibility with respect to the use or
application of any of the Medium Term Notes so certified and delivered or of the
proceeds thereof.
4.3 APPOINTMENT OF NOTE AGENT. The Corporation hereby appoints Canadian Imperial
Bank of Commerce as its agent to provide services for the safekeeping,
authentication, issuance, delivery and transfer of the Medium Term Notes and to
act as registrar and Paying Agent for the Medium Term Notes, and the Trustee
hereby acknowledges such appointment. The Corporation agrees to provide to the
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FINOVA Trust Indenture Page 27 of 61
Trustee a copy of any agreement, and any amendments to such agreement, between
the Corporation and Canadian Imperial Bank of Commerce.
4.4 EXCHANGE OF REGISTERED GLOBAL DEBENTURE FOR MEDIUM TERM NOTES. If:
(a) an Event of Default shall have occurred and be continuing and
shall not have been waived by the Trustee pursuant to Section 8.3
and the Corporation shall have received a Beneficiary Request;
(b) the Trustee shall have received a Debentureholders' Request
requesting that the Medium Term Notes represented by all
Registered Global Debentures be registered in the names of the
owners of the beneficial interest represented by such Registered
Global Debentures; or
(c) an Extraordinary Resolution shall have been proposed by the
Corporation, the Depositary or the Trustee and the Corporation
shall have received a Beneficiary Request relating thereto,
then the Corporation and the Guarantor will execute, and the Trustee or other
agent, upon receipt of a Written Order of the Corporation for the certification
and delivery of individual Debentures of:
(d) the Medium Term Notes; or
(e) all series of Debentures represented by one or more Registered
Global Debentures in the case of a Debentureholders' Request under
Subsection 4.4(b) above,
will certify and deliver, in exchange for Registered Global Debentures of such
series, individual Debentures of such series, in accordance with Subsections
3.2(f) and 3.2(g), in an aggregate principal amount equal to the principal
amount of the Registered Global Debentures representing Debentures of such
series. The provisions of Section 3.2 shall apply to such exchange.
ARTICLE 5
GUARANTEE OF MEDIUM TERM NOTES
5.1 GUARANTEE OF MEDIUM TERM NOTES.
(a) The Guarantor covenants with the Trustee on behalf of the Holders
that the Corporation will pay, and hereby unconditionally
guarantees, as provided in the Guarantee to be endorsed on each
Medium Term Note pursuant to Section 5.2, the due and punctual
payment of the principal of and premium (if any) and interest on
each Medium Term Note certified by or on behalf of the Trustee,
when and as the same shall become due and payable after any
applicable grace period set out in Section 8.1, whether at their
respective due dates, on redemption or on a declaration or
otherwise, in accordance with the terms of such Medium Term Note
and this Indenture (the "OBLIGATIONS"); provided, however, that
payment of interest on overdue instalments of interest is hereby
guaranteed only to the extent permitted by applicable law. In case
of default by the Corporation in the payment of any such
principal, premium, or interest, the Guarantor agrees duly and
punctually to pay the same without demand after the expiry of any
applicable grace period. The Guarantor hereby agrees that its
obligations under each Guarantee and this Indenture shall be
unconditional, irrespective of any invalidity, illegality,
irregularity or unenforceability of any such Medium Term Note or
this Indenture as regards the Corporation (other than by reason of
lack of genuineness), or the absence of any action to enforce the
same, the recover of any judgment against the Corporation or any
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FINOVA Trust Indenture Page 28 of 61
action to enforce the same or any circumstances which might
otherwise constitute a legal or equitable discharge or defence of
a guarantor. The Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of
merger, amalgamation, reorganization, insolvency or bankruptcy of
the Corporation, any right to require a proceeding first against
the Corporation, protest or notice with respect to any Medium Term
Note or the indebtedness evidenced thereby and all demands
whatsoever, and covenants that its obligations under this Section
5.1 and each Guarantee will not be discharged as to any Medium
Term Note except by payment in full of the principal of and
premium (if any) and interest on such Medium Term Note.
(b) The obligation of the Guarantor under this Section 5.1 and each
Guarantee shall be a continuing obligation, shall cover all the
Obligations and shall apply to and secure any ultimate balance due
or remaining unpaid to the Holders of any Medium Term Note.
(c) In addition to the guarantee contained in each Guarantee and this
Indenture, the Guarantor hereby covenants and agrees to indemnify
and save the Holders of any Medium Term Note harmless against all
costs, losses, expenses and damages they may suffer from or as a
result of the Corporation's default in the performance of any of
the Obligations.
(d) The Guarantor shall not be or become liable hereunder or under any
Guarantee to make any payment of principal, premium (if any) or
interest in respect of which the Corporation is in default if the
default of the Corporation in respect of which the Guarantor would
otherwise be or become liable hereunder or under any guarantee has
been waived or directed to be waived pursuant to the provisions in
that behalf contained in this Indenture; but no waiver or consent
of any kind whatsoever shall release, alter or impair the
unconditional obligation of the Guarantor hereunder or under any
Guarantee after giving effect to such waiver or consent.
(e) The Guarantor shall be subrogated to all rights of the Holder of
each Medium Term Note against the Corporation in respect of any
amount paid by the Guarantor pursuant to the provisions of any
Guarantee, but the Guarantor shall not be entitled to enforce, or
to receive any payments arising out of or based upon, such right
of subrogation until the principal or and premium (if any) and
interest on all Medium Term Notes has been paid in full or duly
provided for.
(f) If any moneys become payable by the Guarantor hereunder the
Trustee shall be entitled to enforce and receive payment thereof
by the Guarantor, for the benefit of the Holders of the Medium
Term Notes, and shall be entitled to recover judgment against the
Guarantor for any portion of the same remaining unpaid; and the
Trustee shall have further remedies with respect to the Guarantor
similar to the remedies granted to it in ARTICLE 8 with respect to
the Corporation. The whole of the moneys from time to time
received by the Trustee hereunder shall be applied by the Trustee
in accordance with Section 8.6.
(g) The obligations of the Guarantor under each Guarantee shall
constitute direct unsecured and unsubordinated obligations of the
Guarantor and shall rank pari passu with all unsecured and
unsubordinated debt of the Guarantor.
(h) Payments in respect of the Medium Term Notes, if any, by the
Guarantor will be made without withholding for, or on account of,
any present or future taxes imposed by or on behalf of the United
States or any political subdivision thereof unless such taxes are
required by law or by the administration thereof to be withheld or
deducted, in which case the Guarantor will pay such additional
amounts as will result (after the withholding or deduction of such
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FINOVA Trust Indenture Page 29 of 61
taxes) in the payment to the holders of the Medium Term Notes of
the amounts that would otherwise have been payable pursuant to the
Guarantee but no such additional amount will be payable with
respect to the Guarantor's Guarantee of any Medium Term Notes (a)
which is held by a person who is subject to any such taxes by
reason of such person being connected with the United States
otherwise than merely by the holding or use outside the United
States or ownership as a non-resident of the United States of the
Medium Term Note and the guarantee in respect thereof, (b) which
is held by or on behalf of a Person who is not dealing at arm's
length with the Corporation or the Guarantor or (c) which is
presented for payment more than 60 days after the date on which
such payment became due and payable or the date on which payment
thereof is duly provided for, whichever occurs later, except to
the extent that the Holder thereof would have been entitled to
receive payment of such additional amount if the Holder had
presented such Debt Security for payment on the last day of such
60-day period. Under no circumstances shall any amounts be payable
under this section by the Guarantor to any Holder of a Medium Term
Note that is not resident in Canada for the purposes of the INCOME
TAX ACT (Canada).
5.2 EXECUTION AND DELIVERY OF GUARANTEE:
(a) To evidence its guarantee to the Holders of Medium Term Notes
specified in Section 5.1, the Guarantor shall endorse upon each
Medium Term Note duly issued hereunder a Guarantee substantially
in the form set out in Schedule C with such appropriate
insertions, omissions, substitutions and variations as the
officers of the Guarantor executing the same may approve, such
approval to be conclusively evidenced by the certification of the
Medium Term Note. The form of Guarantee may include a
corresponding French text. In the event of any contradiction,
discrepancy or difference between the English language text and
the French language text of the form of Guarantee, the English
language text shall govern, except where applicable law otherwise
requires. Each Guarantee shall be executed on behalf of the
Guarantor by any two of the chairman, the chief executive officer,
the president, the chief financial officer, the vice-president
finance, the treasurer and the assistant treasurer, manually or by
facsimile signature, and shall have a facsimile of the corporate
seal of the Guarantor affixed thereto or imprinted or otherwise
reproduced thereon. If any officer of the Guarantor who has signed
any Guarantee, manually or by facsimile signature, ceases to be
such officer before the Medium Term Note on which such Guarantee
is endorsed has been certified by or on behalf of the Trustee or
issued by the Corporation, such Medium Term Note, with such
Guarantee endorsed thereon, nevertheless may be certified,
delivered and issued as though the person who signed such
Guarantee had not ceased to be such officer; and any Guarantee may
be signed and sealed on behalf of the Guarantor by such Person as,
at the actual date of the Board Resolution or at any subsequent
time, is a proper officer of the Guarantor, although at the
original issue date of the Medium Term Note any such Person was
not such officer of the Guarantor.
(b) The Guarantor agrees that the certification by the Trustee, in the
manner provided in this Indenture, of any Medium Term Note
(whether in global form or definitive form), shall be conclusive
evidence that the Guarantee endorsed upon such Medium Term Note
has been duly executed and delivered and is a valid obligation of
the Guarantor. The Guarantor agrees that the issuance by the
Corporation of a Medium Term Note and the delivery of such Medium
Term Note by the Trustee, after certification by the Trustee in
the manner provided in this Indenture, shall be deemed delivery by
the Guarantor of the Guarantee appearing upon such Medium Term
Note. The Guarantor agrees that any such certification by the
Trustee shall not be regarded as a representation or warranty of
the Trustee of the Guarantor's duties or obligations hereunder.
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FINOVA Trust Indenture Page 30 of 61
ARTICLE 6
REDEMPTION AND PURCHASE OF DEBENTURES
6.1 REDEMPTION OR PURCHASE OF DEBENTURES. The provisions of Sections 6.2 to 6.8,
inclusive, shall apply to Debentures of all series that are by their terms
redeemable or purchasable, unless otherwise provided in the supplemental
Indenture establishing the terms of the Debentures of such series.
6.2 PLACES OF PAYMENT. The redemption price shall be payable upon presentation
and surrender of the Debentures to be redeemed with all unmatured coupons, if
any, pertaining thereto at any of the places where the principal of such
Debentures is expressed to be payable and at such other places, if any, as may
be specified in the notice of redemption.
6.3 SELECTION FOR REDEMPTION. If less than all of the outstanding Debentures of
any one series are to be redeemed at any one time, then the Trustee shall select
the Debentures to be redeemed by lot or on a pro rata basis or in such manner as
the Trustee shall deem equitable.
6.4 PARTIAL REDEMPTION.
(a) Any part, being equal in amount to the smallest denomination of
Debenture issued with respect to any series of Debentures, or a
multiple thereof, of a Debenture of a denomination in excess of
such smallest denomination, may be selected and called for
redemption as hereinafter provided and all references in this
Indenture to redemption of Debentures shall be deemed to include
redemption of any such part.
(b) The Holder of any Debenture of which part only is redeemed shall,
upon presentation of by such Holder of such Debenture and upon
such Holder receiving the monies payable to such Holder by reason
of such redemption, surrender such Debenture to the Paying Agent
for transmission to the Trustee and:
(i) the Trustee shall cancel such Debenture and shall, without
charge, forthwith certify and deliver to such Holder a new
Debenture or Debentures of the same series, maturity and
rate of interest of aggregate principal amount equal to the
unredeemed part of the principal amount of the Debenture so
surrendered;
(ii) at the option of such Holder in the case of a fully
registered Debenture, the Trustee shall return such
Debenture to such Holder after making notation thereon of
the part of the principal amount thereof so redeemed; or
(iii) with respect to a Registered Global Debenture, the
Depositary shall make notations on the Registered Global
Debenture of the amount thereof so redeemed.
6.5 NOTICE OF REDEMPTION. Notice of redemption of any Debentures shall be given
by the Trustee or, at the option of the Corporation, by the Corporation to the
Holders of the Debentures which are to be redeemed, not more than 90 days nor
less than 30 days prior to the date fixed for redemption, in the manner provided
in ARTICLE 14. Every such notice of redemption shall specify the aggregate
principal amount of Debentures called for redemption, the redemption date, the
redemption price and the places of payment and shall state that interest upon
the principal amount of Debentures called for redemption shall cease to be
payable from and after the redemption date. In addition, unless all of the
outstanding Debentures are to be redeemed, the notice of redemption shall
specify the designations and maturities of the Debentures which are to be
redeemed and, in case less than all of the Debentures of any one series and
maturity are to be redeemed, shall also specify:
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FINOVA Trust Indenture Page 31 of 61
(a) in the case of a notice mailed to a registered Debentureholder,
the distinguishing letters and numbers of the registered
Debentures which are to be redeemed (or of such thereof as are
registered in the name of such Debentureholder);
(b) in the case of a published notice described in Section 14.1, the
distinguishing letters and numbers of the unregistered Debentures
which are to be redeemed or, if such unregistered Debentures are
selected by terminal digit or other similar system, such
particulars as may be sufficient to identify the unregistered
Debentures so selected;
(c) in the case of a Registered Global Debenture, that the redemption
will take place in such manner as may be agreed upon by the
Depositary, the Trustee and the Corporation; and
(d) in all cases, the principal amounts of such Debentures or, if any
such Debenture is to be redeemed in part only, the principal
amount of such part.
In the event that all Debentures of any series to be redeemed are represented by
a Registered Global Debenture or other fully registered Debentures, publication
shall not be required.
6.6 PAYMENT OF REDEMPTION PRICE. Upon notice being given as aforesaid, the
principal amount of the Debentures so called for redemption and the principal
amount and premium, if any, to be redeemed of the Debentures so called for
redemption in part shall be and become due and payable at the redemption price,
on the redemption date specified in such notice and with the same effect as if
the redemption date were the date of maturity specified in such Debentures. From
and after such redemption date, interest upon the principal amounts so becoming
due and payable shall cease unless payment of the redemption price shall not be
made on presentation for surrender of such Debentures and all unmatured coupons,
if any, pertaining thereto at any of the places specified in Section 6.2 on or
after the redemption date and prior to the setting aside of the redemption price
pursuant to ARTICLE 9 .
6.7 PURCHASE OF DEBENTURES. Subject to the provisions of any series of
Debentures, the Corporation shall have the right at any time and from time to
time to purchase Debentures in the market, by tender or by private contract at
any price without having to purchase any or all of the Debentures outstanding,
except as required by law; provided, however, that no Event of Default has
occurred which is continuing at such time.
6.8 CANCELLATION OF DEBENTURES. Subject to the provisions of Section 6.4 as to
Debentures redeemed in part and to the provisions of Section 2.11, all
Debentures redeemed or purchased by the Corporation under the provisions of this
ARTICLE 6, with the unmatured coupons, if any, pertaining thereto, shall be
forthwith delivered to and cancelled by the Trustee and shall not be reissued.
ARTICLE 7
COVENANTS
7.1 PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
(a) The Corporation hereby covenants and agrees that it will duly and
punctually pay or cause to be paid to every Holder of every
Debenture issued hereunder the principal thereof, premium, if any,
and interest accrued thereon (including, in case of default,
interest on all amounts overdue at the rate specified therein) on
the dates and at the places, in the currencies, and in the manner
mentioned herein and in such Debentures and in the coupons, if
any, pertaining thereto.
(b) Unless otherwise provided in the supplemental Indenture creating a
series of Debentures or in an agreement referred to in Section
3.11,
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FINOVA Trust Indenture Page 32 of 61
(i) as interest becomes due on each fully registered Debenture
(except at maturity or on redemption, when interest may at
the option of the Corporation be paid upon surrender of
such Debenture for payment) the Corporation, either
directly or through the Trustee or any Paying Agent, shall,
by such means as is agreed upon by the Trustee, send or
forward by prepaid ordinary mail, transfer of funds, or by
such other means as may be agreed to by the Trustee, a
cheque for or other payment of such interest (less any tax
required to be withheld therefrom) payable to the order of
the then registered Holder of such Debenture and addressed
to such Holder at such Holder's last address appearing on
the appropriate register, unless such Holder otherwise
directs;
(ii) if payment is made by cheque, then such cheque shall be
forwarded at least three Business Days prior to each date
on which interest on such Debentures becomes due and, if
payment is made by other means (such as transfer of funds),
then such payment shall be made in a manner whereby the
Holder receives credit for such payment on the day such
interest on such Debentures becomes due; and
(iii) in the case of joint Holders, the cheque or other payment
shall be made payable to, or directed to the order of, all
such joint Holders at the address maintained on the
register in respect of such joint holding.
Notwithstanding the foregoing, if part or all of any series of
Debentures is represented by a Registered Global Debenture, then
all payments on the portion represented by the Registered Global
Debenture may be made, at the determination of the Corporation, by
electronic funds transfer or otherwise to the Depositary or its
nominee for subsequent payment to holders of interests in that
Registered Global Debenture. The mailing of such cheque or the
making of such payment by other means shall, to the extent of the
sum represented thereby plus the amount of any tax withheld, as
aforesaid, satisfy and discharge the liability for interest on
such Debenture unless, in case of payment by cheque, such cheques
are not paid at par on presentation at any one of the places where
such interest is, by the terms of such Debenture, made payable. In
the event of non-receipt of any such cheque or such other payment
of interest by the Person to whom it is sent as aforesaid, the
Corporation shall issue to such Person a replacement cheque or
other payment for a like amount upon being furnished with such
evidence of non-receipt as it shall reasonably require and upon
being indemnified to its satisfaction.
(c) None of the Corporation, the Trustee or any Paying Agent for any
Debentures issued as a Registered Global Debenture will be
responsible or liable to any Person for any aspect of the records
related to or payments made on account of beneficial interests in
any Registered Global Debenture or for maintaining, supervising or
reviewing any records relating to such beneficial interests.
(d) Notwithstanding the provisions of Subsection 7.1(b), any indenture
supplemental hereto providing for the issuance of Additional
Debentures may modify or supplement the provisions of Subsection
7.1(b) with respect to such Debentures.
7.2 OFFICE FOR NOTICES, PAYMENTS AND REGISTRATION OF TRANSFER, ETC.. The
Corporation shall maintain, in Toronto, Ontario and in such other places as the
Directors shall designate from time to time, an office or agency (which may be
an office of the Paying Agent) where:
(a) the Debentures may be presented for payment;
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FINOVA Trust Indenture Page 33 of 61
(b) the Debentures may be presented for registration of transfer and
for exchange as in this Indenture provided; and
(c) notices and demands to or upon the Corporation in respect of the
Debentures or this Indenture may be served.
The Corporation shall give to the Trustee written notice of the location of any
such office or agency and of any change of location thereof. In case the
Corporation shall fail to maintain any such office or agency or shall fail to
give such notice of the location or of any change in the location thereof,
presentations and demands may be made and notices may be served at the principal
office of the Trustee in Toronto, Ontario.
7.3 APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE. The Corporation,
whenever necessary to avoid or fill a vacancy in the office of trustee, will
appoint a trustee, so that there shall at all times be a Trustee hereunder.
7.4 TRUSTEE'S REMUNERATION AND EXPENSES. The Corporation covenants that it will
pay to the Trustee remuneration for the Trustee's services hereunder in
accordance with the fee schedule agreed to by the parties, as amended from time
to time, and will pay or reimburse the Trustee upon the Trustee's request for
all reasonable expenses, disbursements and advances incurred or made by the
Trustee in the administration or execution of the trusts hereby created
(including the reasonable compensation and the disbursements of the Trustee's
counsel and all other advisers and assistants not regularly in the Trustee's
employ), both before any default hereunder and thereafter until all duties of
the Trustee under the trusts hereof shall be finally and fully performed, except
any such expense, disbursement or advance as may arise from the Trustee's
negligence or wilful default. Following and during the continuation of an Event
of Default, all amounts so payable shall be payable out of any funds coming into
the possession of the Trustee or its successors in the trusts hereunder in
priority to any payment of the principal, premium, if any, or interest on the
Debentures. Any amount due under this Section 7.4 and unpaid 30 days after
demand for such payment shall bear interest from the expiration of such 30 days,
at the rate normally charged by the Trustee on overdue accounts.
7.5 EXTENSION OF TIME. The Corporation covenants with the Trustee that it will
not, except with the approval of the Debentureholders expressed by Extraordinary
Resolution, directly or indirectly extend or assent to the extension of time for
payment of any coupons or interest payable hereunder or be a party to or approve
any such arrangement by purchasing or funding any of said coupons or interest or
in any other manner. In case the time for payment of any such coupons or
interest shall be so extended, whether for a definite period or otherwise, such
coupons or interest shall not be entitled in case of default hereunder to the
benefit of these presents, except subject to the prior payment in full of the
principal of and premium, if any, on all Debentures then outstanding and of all
matured coupons and interest on such Debentures, the payment of which has not
been so extended, and of all other monies payable thereunder.
7.6 INSPECTION OF BOOKS BY TRUSTEE. At all reasonable times, upon the written
request of the Trustee, the Corporation will permit the Trustee, by its agents
and attorneys, to make reasonable examinations of the books of account, records,
reports and other papers of the Corporation and to take copies and extracts
therefrom.
7.7 PERFORMANCE OF COVENANTS BY TRUSTEE. If the Corporation, or the Guarantor,
if applicable, shall fail to perform any of its covenants contained in this
Trust Indenture, then the Trustee may notify the Debentureholders of such
failure on the part of the Corporation or the Guarantor or may itself perform
any of such covenants capable of being performed by it, but, subject to the
provisions of Section 8.3 and Section 13.2, shall be under no obligation to do
so or to notify the Debentureholders. All sums so expended or advanced by the
Trustee shall be repayable as provided in Section 7.4. No such performance or
advance by the Trustee shall be deemed to relieve the Corporation or the
Guarantor of any default hereunder.
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FINOVA Trust Indenture Page 34 of 61
7.8 ANNUAL CERTIFICATE OF CORPORATION. Within 120 days after the end of each
fiscal year of the Corporation in which Medium Term Notes are outstanding at
such fiscal year end, the Corporation shall furnish the Trustee with a
Certificate of the Corporation stating that in the course of the performance by
the signatories of their duties as officers or directors of the Corporation they
would normally have knowledge of any default by the Corporation in the
performance of its covenants under this Indenture or of any Event of Default
under ARTICLE 8 and certifying that the Corporation has complied with all
covenants, conditions or other requirements contained in this Indenture, the
non-compliance with which would, with notification or with the lapse of time or
otherwise, constitute an Event of Default hereunder, or, if such is not the
case, setting forth with reasonable particulars the circumstances of any failure
to comply.
7.9 ANNUAL CERTIFICATE OF GUARANTOR. Within 120 days after the end of each
fiscal year of the Corporation in which Medium Term Notes are outstanding at
such fiscal year end, the Guarantor shall furnish the Trustee with a Certificate
of the Guarantor stating that in the course of the performance by the
signatories of their duties as officers or directors of the Guarantor they would
normally have knowledge of any default by the Guarantor in the performance of
its covenants under this Indenture or of any Event of Default under ARTICLE 8
and certifying that the Guarantor has complied with all covenants, conditions or
other requirements contained in this Indenture, the non-compliance with which
would, with notification or with the lapse of time or otherwise, constitute an
Event of Default hereunder, or, if such is not the case, setting forth with
reasonable particulars the circumstances of any failure to comply.
7.10 MAINTAIN CORPORATE EXISTENCE. Except as provided in ARTICLE 10 of this In
denture, the Corporation and the Guarantor will each do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and corporate power and authority.
7.11 PAYMENT OF TAXES AND OTHER CLAIMS.
(a) The Corporation will pay or discharge or cause to be paid or
discharged, as and when the same shall become due and payable, all
material taxes, assessments and governmental charges levied or
imposed upon it or upon the income, profits or property of it, and
all lawful material claims for labour, materials and supplies
which, if unpaid, might by law become alien upon the property of
it; provided, however, that they shall not be required to pay or
discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate
proceedings and for which adequate provision has been made.
(b) The Guarantor will pay or discharge or cause to be paid or
discharged, as and when the same shall become due and payable, all
material taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or
property of it or any Subsidiary, and all lawful material claims
for labour, materials and supplies which, if unpaid, might by law
become alien upon the property of it or any Subsidiary; provided,
however, that they shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested
in good faith by appropriate proceedings and for which adequate
provision has been made.
7.12 REPORTS TO TRUSTEE. The Guarantor shall:
(a) file with the Trustee, within 15 days after the Guarantor is
required to file the same with the SEC, copies of the annual
reports and of the information, documents and other reports (or
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FINOVA Trust Indenture Page 35 of 61
copies of such portions of any of the foregoing as the SEC may
from time to time by rules and regulations prescribed) which the
Guarantor may be required to file with the SEC pursuant to Section
13 or Section 15(d) of the SECURITIES EXCHANGE ACT of 1934; or, if
the Guarantor is not required to file information, documents or
reports pursuant to either of said sections, then it shall file
with the Trustee and the SEC, in accordance with rules and
regulations prescribed from time to time by the SEC, such of the
supplementary and periodic information, documents and reports
which may be required pursuant to section 13 of the SECURITIES
EXCHANGE ACT of 1934 in respect of a security listed and
registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations;
(b) file with the Trustee and the SEC, in accordance with rules and
regulations prescribed from time to time by the SEC, such
additional information, documents and reports with respect to
compliance by the Guarantor with the conditions and covenants of
this Indenture as may be required from time to time by such rules
and regulations;
(c) transmit within 30 days after the filing thereof with the Trustee,
in the manner and to the extent provided in Subsection 7.12(b)
with respect to reports pursuant to Subsection 7.12(a), such
summaries of any information, documents and reports required to be
filed by the Guarantor pursuant to paragraphs (a) and (b) of this
Section as may be required by rules and regulations prescribed
from time to time by the SEC; and
(d) not require the Trustee to analyze such statements, reports,
documents or other information referred to above, or to evaluate
the performance of the Guarantor, as indicated therein, in any way
whatsoever.
7.13 COMPENSATION OF THE TRUSTEE. To the extent not paid by the Corporation
pursuant to Section 7.4, the Guarantor, covenants and agrees to pay to the
Trustee from time to time, and the Trustee shall be entitled to compensation for
all services rendered by it hereunder (which shall not be limited to any
provision of law in regard to the compensation of a trustee of any express
trust), and, except as otherwise expressly provided, the Guarantor will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Indenture (including the reasonable compensation
and expenses and disbursements of its agents, attorneys and counsel and of all
persons not regularly in its employ).
7.14 TO PERFORM OBLIGATIONS. Subject to the terms hereof, the Corporation and
the Guarantor will each do, observe and perform or cause to be done, observed
and performed all of its respective obligations and all matters and things
necessary or expedient to be done, observed or performed by virtue of any
applicable law for the purpose of creating, performing or maintaining the trusts
herein referred to and will do, observe and perform all the obligations hereby
imposed on it. The Corporation and the Guarantor will notify the Trustee in
writing upon becoming aware of an Event of Default.
7.15 ADDITIONAL INSTRUMENTS. Upon request of the Trustee from time to time, the
Corporation and the Guarantor shall execute and deliver all such additional
instruments and will do all such additional acts as may reasonably be required
or proper to carry out most effectively the purpose of this Indenture.
7.16 RESTRICTIVE COVENANTS ON MEDIUM TERM NOTES. So long as any of the Medium
Term Notes remain outstanding, the Guarantor will not, directly or indirectly,
nor will it permit any Restricted Subsidiary to, create, assume, incur or suffer
to be created, assumed or incurred or to exist any Lien upon any of the
properties of any character of the Guarantor or any Restricted Subsidiary
without making effective provision whereby the Medium Term Notes then
outstanding shall be secured equally and ratably with (or prior to) any other
obligation or indebtedness so secured, so long as such other obligation or
indebtedness remains secured. Notwithstanding the foregoing, the Guarantor or
any Restricted Subsidiary, without so securing the Medium Term Notes, may:
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FINOVA Trust Indenture Page 36 of 61
(a) lease property to others in the ordinary course of the business of
the Guarantor or any Restricted Subsidiary or lease or sublease
any property if the property subject thereto is not needed by the
Guarantor or any Restricted Subsidiary in the operation of its
business;
(b) create, assume and incur such Liens or permit such Liens to be
created, assumed, incurred or to exist provided, in each case, the
Lien secures indebtedness for borrowed money, including purchase
money indebtedness, which is incurred to finance the acquisition
of the property subject to such Lien and in respect of which the
creditor has no recourse against the Guarantor or any Restricted
Subsidiary except recourse to such property or to the proceeds of
any sale or lease of such property or both;
(c) make any deposit with or give any form of security to any
governmental agency or other body created or approved by law or
governmental regulation in order to enable the Guarantor or such
Restricted Subsidiary to maintain self-insurance, or to
participate in any fund in connection with workmen's compensation,
unemployment insurance, old-age pensions, or other social
security, or to share in any privileges or other benefits
available to corporations participating in any such arrangement,
or for any other purpose at any time required by law or regulation
promulgated by any governmental agency or office as a condition to
the transaction of any business or the exercise of any privilege
or license, or deposit assets of the Guarantor or such Restricted
Subsidiary with any surety company or clerk of any court, or in
escrow, as collateral in connection with, or in lieu of, any bond
on appeal by the Guarantor or such Restricted Subsidiary from any
judgment or decree against it, or in connection with any other
proceedings in actions at law or suits in equity by or against the
Guarantor or such Restricted Subsidiary;
(d) incur or suffer to be incurred or to exist upon any of its
property or assets (i) Liens for taxes, assessment or other
governmental charges or levies which are not yet due or are
payable without penalty or of which the amount, applicability or
validity is being contested by the Guarantor or such Restricted
Subsidiary in good faith by appropriate proceedings and the
Guarantor or such Restricted Subsidiary shall have set aside on
its books reserves which it deems to be adequate with respect
thereto (segregated to the extent required by generally accepted
accounting principles), provided that foreclosure, distraint, sale
or similar proceedings have not been commenced, (ii) the Liens of
any judgment, if such judgment shall not have remained
undischarged, or unstayed on appeal or otherwise, for more than
six months, (iii) undetermined Liens or charges incident to
construction, (iv) materialmen's mechanics', workmen's,
repairmen's or other like Liens arising in the ordinary course of
business in respect of obligations which are not overdue or which
are being contested by the Guarantor or such Restricted Subsidiary
in good faith by appropriate proceedings, or deposits to obtain
the release of such Liens, or (v) any encumbrances consisting of
zoning restrictions, licenses, easements and restrictions on the
use of real property and minor defects and irregularities in the
title thereto, which do not materially impair the use of such
property by the Guarantor or such Restricted Subsidiary in the
operation of its business or the value of such property for the
purpose of such business;
(e) create other Liens incidental to the conduct of its business or
the ownership of its property and assets which were not incurred
in connection with the borrowing of money or the obtaining of
advances or credit, and which do not in the aggregate materially
detract from the value of its property or assets or materially
impair the use thereof in the operation of its business;
(f) create or suffer to be created or to exist in favour of any lender
of moneys or holder of commercial paper of the Guarantor or a
Restricted Subsidiary in the ordinary course of business a
banker's lien or right of offset in the holder of such
indebtedness or moneys of the Guarantor or a Restricted Subsidiary
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FINOVA Trust Indenture Page 37 of 61
deposited with such lender or holder in the ordinary course of
business;
(g) create or suffer to be created or to exist with respect to any of
its property leasehold or purchase rights, exercisable for a fair
consideration, in favour of any Person which arise in transactions
entered into in the ordinary course of business;
(h) assume any Lien or permit any Lien to be assumed or exist if such
Lien is on property or shares in the share capital of a
corporation at the time the corporation becomes a Restricted
Subsidiary or merges into or consolidates with the Guarantor or a
Restricted Subsidiary; provided, however, that any such Lien may
not be assumed or permitted to exist if such Lien is incurred in
anticipation of such corporation becoming a Restricted Subsidiary
or in anticipation of such merger or consolidation;
(i) assume any Lien or permit any Lien to be assumed or exist if any
such Lien is on property at the time the Guarantor or a Restricted
Subsidiary acquires the property; provided, however, that any such
Lien may not extend to any other property owned by the Guarantor
or a Restricted Subsidiary at the time such Lien is assumed;
(j) assume, create or suffer to be created or to exist, such Liens in
an amount not to exceed in the aggregate U.S.$25,000,000 at any
one time outstanding, excluding Liens covered by other provisions
or clauses 7.10(a) through (i) above; and
(k) create or suffer to be created or to exist in favour of any lender
of moneys, any Lien that secures indebtedness of the Guarantor or
a Restricted Subsidiary; provided that the sum of the following
does not exceed 10% of Consolidated Net Tangible Assets: (i) such
indebtedness; plus (ii) other indebtedness of the Guarantor and
its Restricted Subsidiaries secured by Liens on property of the
Guarantor and its Restricted Subsidiaries, excluding indebtedness
secured by a Lien permitted by one of clauses 7.10(a) through (j)
above.
ARTICLE 8
DEFAULT AND ENFORCEMENT
8.1 EVENTS OF DEFAULT.
(a) Each of the following events is herein referred to as an "EVENT OF
DEFAULT":
(i) if the Corporation makes default in the due and punctual
payment of any installment of interest on any Debenture as
and when such interest installment becomes due and payable
as set forth in such Debenture, in this Indenture or any
indenture supplemental hereto expressed, and such default
continues for a period of 30 days;
(ii) if the Corporation makes default in the due and punctual
payment of the principal of or premium, if any, on any
Debenture as and when such Debenture becomes due and
payable, whether at maturity or otherwise;
(iii) if the Corporation makes default in the payment of any
purchase or sinking fund, amortization fund or analogous
fund or installment on any Debenture as and when such
payment shall become due and payable, and such default
shall have continued for a period of 30 days;
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FINOVA Trust Indenture Page 38 of 61
(iv) if the Corporation or the Guarantor makes default in the
performance or observance of any other of the covenants or
agreements on its part in this Indenture, in any indenture
supplemental hereto or in the Debentures contained and,
after written notice is given to the Corporation and, where
applicable, to the Guarantor, by the Trustee specifying
such default and requiring it to be remedied and stating
that such a notice is a "NOTICE OF DEFAULT" hereunder,
which Notice of Default may be given by the Trustee, in its
discretion, and shall be given by the Trustee upon receipt
by the Corporation and the Trustee of written notice from
the Holders of not less than 25% in principal amount of
Debentures at the time outstanding (excluding Debentures of
any series not entitled to the benefits of such covenant or
agreement), the Corporation or the Guarantor, as the case
may be, shall fail to remedy such default or shall fail to
make provision deemed by the Trustee to be adequate for the
remedying of such default within a period of 90 days after
receipt of the Notice of Default;
(v) if a resolution of the Directors is passed for the
dissolution, winding up or liquidation of the Corporation,
except in the course of carrying out or pursuant to a
transaction in respect of which the conditions of ARTICLE
10 are duly observed and performed;
(vi) if the Guarantor fails to make any payments required of it
pursuant to its Guarantee;
(vii) an event of default, as defined in any mortgage, indenture
or instrument, including this Indenture, under which there
may be issued, or by which there may be secured or
evidenced, any indebtedness for money borrowed of the
Corporation or the Guarantor, whether such indebtedness now
exists or shall hereafter be created, shall happen and
shall result in such indebtedness in an amount in excess of
U.S. $15,000,000 becoming or being declared due and payable
prior to the date on which it would otherwise become due
and payable, and such acceleration shall not have been
rescinded or annulled, or such indebtedness shall not have
been discharged, within a period of 10 days after there has
been given, by registered or certified mail, to the
Corporation or the Guarantor by the Trustee or to the
Corporation, the Guarantor and the Trustee by the holders
of at least 10% in principal amount of the outstanding
Medium Term Notes a written notice specifying such event of
default and requiring the Corporation and the Guarantor to
cause such acceleration to be rescinded or annulled or to
cause such indebtedness to be discharged and stating that
such notice is a "Notice of Default" hereunder; provided,
however, that the Trustee shall not be deemed to have
knowledge of such default unless either (A) the Trustee
shall have actual knowledge of such default or (B) the
Trustee shall have received written notice thereof from the
Corporation, from the Guarantor, from the holder of any
such indebtedness or from any trustee under any such
mortgage, indenture or other instrument;
(viii) if the Corporation or any Restricted Subsidiary institutes,
or consents to the institution of, an Insolvency Proceeding
or makes an assignment for the benefit of creditors, or
admits in writing its inability to pay its debts generally
as they become due, or declares a moratorium on the payment
of creditors generally, or shall be adjudicated insolvent
or bankrupt, or takes any corporate action in furtherance
of any such purpose; and
(ix) if any Person other than the Corporation or a Restricted
Subsidiary institutes an Insolvency Proceeding in respect
of the Corporation or a Restricted Subsidiary and such
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FINOVA Trust Indenture Page 39 of 61
Insolvency Proceeding is not being diligently defended in
good faith by the Corporation or the Restricted Subsidiary
or the Corporation or the Restricted Subsidiary fails to
have such Insolvency Proceeding dismissed or effectively
stayed within 60 days of the commencement thereof.
(b) The Guarantor shall provide notice to the Trustee forthwith upon
any indebtedness being declared due and payable in circumstances
that, after notice and lapse of time, would give rise to the Event
of Default referred to in paragraph 8.1(a)(vii). The Corporation
shall provide notice to the Trustee forthwith upon any
indebtedness of the Corporation being declared due and payable in
circumstances that, after notice and lapse of time, would give
rise to the Event of Default referred to in paragraph 8.1(a)(vii).
The Trustee shall provide the notice referred to in paragraph
8.1(a)(vii) forthwith after receiving any notice from the
Guarantor or the Corporation which is given under this Subsection
8.1(b).
(c) If an Event of Default shall occur and is continuing, then the
Trustee shall, within 45 days after it becomes aware of the
occurrence of such Event of Default, give notice of such Event of
Default to the Debentureholders in the manner provided in ARTICLE
14; provided, however, that, notwithstanding the foregoing, the
Trustee shall not be required to give such notice if the Trustee
in good faith shall have decided that the withholding of such
notice is in the best interests of the Debentureholders and shall
have so advised the Corporation in writing.
8.2 ACCELERATION ON DEFAULT. If an Event of Default hereunder has occurred and
is continuing, then the Trustee may in its discretion, and shall upon receipt of
a Debentureholders' Request, declare the principal of and interest on all
Debentures then outstanding and other monies payable hereunder to be due and
payable and such amounts shall forthwith become immediately due and payable to
the Trustee on demand, anything therein or herein to the contrary
notwithstanding. The Corporation shall on such demand forthwith pay to the
Trustee for the benefit of the Debentureholders the principal of, and accrued
and unpaid interest and interest on amounts in default on, such Debentures (and,
where such a declaration is based upon a voluntary dissolution, winding-up or
liquidation of the Corporation, the premium, if any, on the Debentures then
outstanding which would have been payable upon the redemption thereof by the
Corporation, other than through sinking fund operations, on the date of such
declaration) and all other monies payable thereunder together with subsequent
interest thereon at the rates borne by the Debentures from the date of such
declaration until payment is received by the Trustee, such subsequent interest
to be payable at the times and places and in the monies mentioned in and
according to the tenor of the Debentures and coupons. Such payment when made
shall be deemed to have been made in satisfaction of the Corporation's
obligations hereunder and any monies so received by the Trustee shall be applied
as herein provided.
8.3 WAIVER OF DEFAULT. In case an Event of Default has occurred otherwise than
by default in payment of any principal monies at maturity:
(a) the Holders of the Debentures then outstanding shall have power by
Extraordinary Resolution to require the Trustee to waive the Event
of Default and/or to cancel any declaration and/or demand made by
the Trustee pursuant to Section 8.2 and the Trustee shall
thereupon waive the Event of Default and/or cancel such
declaration and/or demand upon such terms and conditions as such
resolution shall prescribe; provided, however, that,
notwithstanding the foregoing, if the Event of Default has
occurred by reason of the non-observance or non-performance by the
Corporation or, if applicable, the Guarantor, of any covenant
applicable only to one or more particular series of Debentures,
then the Holders of the outstanding Debentures of that series or
those series, as the case may be, shall be entitled by
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FINOVA Trust Indenture Page 40 of 61
Extraordinary Resolution (or by separate Extraordinary Resolutions
if more than one series of Debentures is so affected) to exercise
the foregoing power as if the Debentures of that series or those
series, as the case may be, were the only Debentures outstanding
hereunder and the Trustee shall so act and it shall not be
necessary to obtain a waiver from the Holders of any other series
of Debentures; and
(b) the Trustee, so long as it has not become bound to institute any
proceedings hereunder, shall have power to waive the default if,
in the Trustee's opinion, the same shall have been cured or
adequate satisfaction made therefor, and in such event to cancel
any such declaration and/or demand theretofor made by the Trustee
in the exercise of its discretion, upon such terms and conditions
as the Trustee may deem advisable,
provided that no act or omission either of the Trustee or of the
Debentureholders in the premises shall extend to or be taken in any manner
whatsoever to affect any subsequent Event of Default or the rights resulting
therefrom.
8.4 PROCEEDINGS BY THE TRUSTEE.
(a) Subject to the provisions of Section 8.3 and to the provisions of
any Extraordinary Resolution, whenever any Event of Default
hereunder has occurred:
(i) the Trustee, in the exercise of its discretion, may proceed
to enforce the rights of any or all of the Trustee and the
Debentureholders by any action, suit, remedy or proceeding
authorized or permitted by law or by equity and may file
such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of
the Trustee and the Debentureholders lodged in any
bankruptcy, winding-up or other judicial proceedings
relative to the Corporation; and
(ii) upon receipt of a Debentureholders' Request, the Trustee,
subject to the provisions of Section 13.2, shall exercise
or take such one or more of such remedies as the
Debentureholders' Request may direct.
(b) No such remedy for the enforcement of the rights of the Trustee or
of the Debentureholders shall be exclusive of or dependent on any
other such remedy, but any one or more of such remedies may from
time to time be exercised independently or in combination.
(c) Upon the occurrence of an Event of Default and upon the exercising
or taking by the Trustee of any such remedies, whether or not a
declaration and demand have been made pursuant to the provisions
of Section 8.2, the principal and interest of all Debentures then
outstanding and the other monies payable pursuant to the
provisions of this Indenture shall, if the Trustee so elects,
forthwith become due and payable to the Trustee as though such a
declaration and a demand therefor had actually been made.
(d) All rights of action hereunder may be enforced by the Trustee
without the possession of any of the Debentures or coupons or the
production thereof at the trial or other proceedings relative
thereto.
(e) No delay or omission of the Trustee or of the Debentureholders to
exercise any remedy referred to in Subsection 8.4(a) shall impair
any such remedy or shall be construed to be a waiver of any
default hereunder or acquiescence therein.
8.5 SUITS BY DEBENTUREHOLDERS. No Holder of any Debenture or coupon shall have
the right to institute any action or proceeding or to exercise any other remedy
authorized by this Indenture for:
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FINOVA Trust Indenture Page 41 of 61
(a) the purpose of enforcing any rights on behalf of the
Debentureholders;
(b) the execution of any trust or power hereunder;
(c) the appointment of a liquidator or receiver; or
(d) a receiving order under bankruptcy legislation or to have the
Corporation wound up or to file or prove a claim in any
liquidation or bankruptcy proceedings,
unless the Trustee shall have failed to act within a reasonable time after the
Debentureholders' Request referred to in Section 8.2 has been delivered to the
Trustee, any funds and any indemnity required by it under the provisions of
Section 13.2 has been tendered to it and any Debentures required by it to be
deposited with the Trustee under the provisions of Section 13.2 have been so
deposited. In such case, but not otherwise, any Debentureholder acting on behalf
of himself and all other Debentureholders shall be entitled to take proceedings
in any court of competent jurisdiction such as the Trustee might have taken
under the provisions of Section 8.4, it being understood and intended that no
one or more Holders of Debentures or coupons shall have any right in any manner
whatsoever to affect, disturb or prejudice the rights hereby created by his or
their action or to enforce any right hereunder or under any Debenture or coupon,
except subject to the conditions and in the manner herein provided and that all
powers and trusts hereunder shall be exercised and all proceedings at law shall
be instituted and maintained by the Trustee, except only as herein provided, and
in any event for the equal benefit of all Holders of all outstanding Debentures
and coupons.
8.6 APPLICATION OF MONIES RECEIVED BY TRUSTEE. Except as otherwise herein
provided, all monies arising from any enforcement hereof shall be held by the
Trustee and applied by it, together with any other monies then or thereafter in
the hands of the Trustee available for the purpose, as follows:
(a) firstly, in payment or reimbursement to the Trustee of the
reasonable remuneration, expenses, disbursements and advances of
the Trustee earned, incurred or made in the administration or
execution of the trusts hereunder or otherwise in relation to this
Indenture;
(b) secondly, in or towards payment of accrued and unpaid interest on,
and interest on amounts in default under, the Debentures and
coupons which shall then be outstanding, and principal and
premium, if any, on the Debentures, in that order of priority
unless otherwise directed by Extraordinary Resolution and in that
case in such order of priority as between principal, premium, if
any, and interest as may be directed by such Extraordinary
Resolution; and
(c) thirdly, the surplus, if any, of such monies and any interest
accrued or earned on such monies received by the Trustee shall be
paid to the Corporation or its assigns.
8.7 DISTRIBUTION OF PROCEEDS. Payment to Holders of Debentures and coupons
pursuant to the provisions of Subsection 8.6(b) shall be made as follows:
(a) at least 15 days notice of every such payment shall be given in
the manner provided in ARTICLE 14 specifying the time when, and
the place or places where, the Debentures and coupons are to be
presented and the amount of the payment and the application
thereof as between principal, premium, if any, and interest;
(b) payment of any Debenture or coupon shall be made upon presentation
thereof at any one of the places specified in such notice and any
such Debenture or coupon thereby paid in full shall be
surrendered, otherwise a memorandum of such payment shall be
endorsed thereon; provided, however, that the Trustee may in its
discretion dispense with presentation and surrender or endorsement
in any special case upon such indemnity being given as it shall
deem sufficient; and
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(c) from and after the date of payment specified in the notice,
interest shall accrue only on the amount owing on each Debenture
and coupon after giving credit for the amount of the payment
specified in such notice unless it be duly presented on or after
the date so specified and payment of such amount not be made.
8.8 IMMUNITY OF SHAREHOLDERS, OFFICERS, DIRECTORS AND EMPLOYEES. No recourse
under or upon any obligation, covenant or agreement contained in this Indenture,
or in any Debenture or coupon issued hereunder, or under any judgment obtained
against the Corporation, or the Guarantor, if applicable, or by the enforcement
of any assessment, or by any legal or equitable proceeding by virtue of any
constitution or statute, or otherwise, shall be had against any shareholder,
officer, director or employee of the Corporation, or the Guarantor, if
applicable, or of any successor corporation to such corporations either directly
or through the Corporation or the Guarantor, or otherwise, for the payment for
or to the Trustee or any receiver or liquidator, for or to the Holder of any
Debentures or coupons issued hereunder or otherwise, of any sum that may be due
and unpaid by the Corporation or the Guarantor upon any such Debenture or
coupon. Any and all personal liability of every name and nature, whether at
common law or in equity, or by statute or by constitution or otherwise, of any
such shareholder, officer, director or employee, by reason of the non-payment of
any shares of the share capital of the Corporation or any act of omission or
commission on his part or otherwise, for the payment for or to the Trustee or
any receiver or liquidator, or for or to the Holder of any Debentures or coupons
issued hereunder or otherwise, of any sum that may remain due and unpaid on the
Debentures and coupons issued hereunder or any of them, is hereby expressly
waived and released as a condition of and as consideration for the execution of
this Indenture and the issue of such Debentures and coupons.
8.9 REMEDIES CUMULATIVE. Each and every remedy herein conferred upon or reserved
to the Trustee, or upon or to the Holders of the Debentures, shall be cumulative
and shall be in addition to every other remedy given hereunder or now existing
or hereafter to exist by law, by statute or equity.
8.10 JUDGMENT AGAINST CORPORATION AND GUARANTOR. The Corporation and the
Guarantor covenant and agree with the Trustee that, in case of any proceedings
to obtain judgment for the principal of or interest or premium on the
Debentures, judgment may be rendered against them in favour of the
Debentureholders hereunder, or in favour of the Trustee, as trustee of an
express trust for the Debentureholders, for any amount which may remain due in
respect of the Debentures and premium, if any, and interest thereon and any
other monies payable hereunder by the Corporation or the Guarantor.
8.11 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST.
Notwithstanding any other provision of this Indenture, the Holder of any U.S.
Debenture shall have the right, which is absolute and unconditional, to receive
payment, as provided herein and in such U.S. Debenture, of the principal of (and
premium, if any), including any amount payable upon redemption, and interest on,
such U.S. Debenture on the respective due dates therefor and to institute suit
for the enforcement of any such payment, and such rights shall not be impaired
without the consent of such Holder.
ARTICLE 9
SATISFACTION AND DISCHARGE
9.1 CANCELLATION. All matured coupons and Debentures shall forthwith after
payment thereof be delivered to the Trustee and cancelled. All Debentures and
coupons cancelled or required to be cancelled under this or any other provision
of this Indenture may be destroyed by or under the direction of the Trustee (in
the presence of a representative of the Corporation if the Corporation shall so
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require) and the Trustee shall prepare and retain a certificate of such
destruction and deliver a duplicate thereof to the Corporation.
9.2 NON-PRESENTATION OF DEBENTURES AND COUPONS. If the Holder of any Debenture
or coupon shall fail to present the same for payment on the date on which the
principal thereof, the premium, if any, thereon and/or the interest thereon or
represented thereby becomes payable, either at maturity or on redemption,
purchase or otherwise, or shall not accept payment on account thereof and give
such receipt therefor, if any, as the Trustee may require, then:
(a) the Corporation shall be entitled to pay to the Trustee and direct
it to set aside;
(b) in respect of monies in the hands of the Trustee which may or
should be applied to the payment or redemption of the Debentures,
the Corporation shall be entitled to direct the Trustee to set
aside; or
(c) if the redemption was pursuant to notice given by the Trustee, the
Trustee may itself set aside,
the principal monies and premium, if any, and/or the interest, as the case may
be, in trust to be paid to the Holder of such Debenture or coupon upon due
presentation or surrender thereof in accordance with the provisions of this
Indenture and, thereupon, the principal monies and premium, if any, and/or the
interest payable on or represented by each Debenture and each coupon in respect
whereof such monies have been set aside shall be deemed to have been paid and
the Holder thereof shall thereafter have no right in respect thereof except that
of receiving payment of the monies so set aside by the Trustee (without interest
on such monies, such interest being the property of the Corporation) upon due
presentation and surrender thereof, subject always to the provisions of Section
9.4.
9.3 PAYING AGENT TO REPAY MONIES HELD. Upon the satisfaction and discharge of
this Indenture, all monies then held by any Paying Agent of the Debentures
(other than the Trustee) shall, upon Written Order of the Corporation, be repaid
to it or paid to the Trustee, and thereupon such Paying Agent shall be released
from all further liability with respect to such monies.
9.4 REPAYMENT OF UNCLAIMED MONIES TO CORPORATION. Subject to applicable law, any
monies set aside under the provisions of Section 9.2 in respect of any Debenture
or coupon and not claimed by and paid to the Holder thereof, as provided in
Section 9.2, within six years after the date of such setting aside, shall be
repaid to the Corporation by the Trustee on written demand, and thereupon the
Trustee shall be released from all further liability with respect to such
monies, and thereafter, subject to any other requirements of law, such Holder
shall have no rights in respect of such Debenture or coupon except to obtain
payment of such monies (without interest thereon) from the Corporation at any
time up to the sixth anniversary of the date of setting aside. All monies
remaining unclaimed on the sixth anniversary of the date of setting aside shall
become the property of the Corporation and no other Person shall have any right
thereto.
9.5 SATISFACTION AND DISCHARGE. Upon proof being given to the reasonable
satisfaction of the Trustee that:
(a) the principal of all of the Debentures, or all of the outstanding
Debentures of any series, the premium thereon, if any, interest
(including interest on amounts overdue) thereon and other monies
payable hereunder have been paid or satisfied; or
(b) all of the outstanding Debentures, or all of the outstanding
Debentures of any series when, with respect to all of the
outstanding Debentures or all of the outstanding Debentures of any
series, having matured or having been duly called for redemption,
or the Trustee having been given irrevocable written instructions
by the Corporation to give, within 90 days, notice of redemption
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FINOVA Trust Indenture Page 45 of 61
of all the outstanding Debentures, or all of the outstanding
Debentures of any series, and such payment and/or redemption has
been duly and effectually provided for by payment to the Trustee
or otherwise, and
upon payment of all costs, charges and expenses properly incurred by the Trustee
in relation to these presents and the remuneration of the Trustee, or upon
provision satisfactory to the Trustee being made therefor, the Trustee shall, at
the request and at the expense of the Corporation, execute and deliver to the
Corporation such deeds or other instruments as shall be requisite to evidence
the satisfaction and discharge of this Indenture and/or any Indenture
supplemental hereto and to release the Corporation, and the Guarantor, if
applicable, from their covenants herein and therein contained with respect to
all the outstanding Debentures, or all such outstanding Debentures of any
series, as the case may be, except those relating to the indemnification of the
Trustee.
9.6 DEFEASANCE. The Corporation, and the Guarantor, if applicable, shall be
deemed to have fully satisfied their obligations under this Indenture in respect
of all of the outstanding Debentures or all of the outstanding Debentures of any
series and the Trustee, at the expense of the Corporation, shall execute and
deliver proper instruments acknowledging the full release of the Corporation and
the Guarantor from their covenants herein contained in respect of all of the
outstanding Debentures or all of the outstanding Debentures of any series when,
with respect to all of the outstanding Debentures or all of the outstanding
Debentures of any series, as the case may be, the Corporation or the Guarantor
has deposited or caused to be deposited with the Trustee as:
(a) trust funds in trust pursuant hereto, or made provision
satisfactory to the Trustee for the payment of, an amount
sufficient to pay, satisfy and discharge the entire amount of
principal and accrued and unpaid interest to the maturity date of
all the outstanding Debentures or all the outstanding Debentures
of such series;
(b) trust property in trust pursuant hereto:
(i) in the event the Debentures are payable in Canadian
currency, such amount of direct obligations of, or
obligations the principal and interest of which are
guaranteed by:
(A) the Government of Canada, or
(B) a province of Canada which are rated by both
Dominion Bond Rating Service Limited and CBRS Inc.
(or their successors or similar recognized rating
services) at least AA and A+, respectively, at the
time of the deposit thereof, or
(ii) in the event the Debentures are payable in United States
currency, such amount of direct obligations of, or
obligations the principal and interest of which are
guaranteed by, the Government of the United States of
America,
in each case as shall, together with the income to accrue thereon
without consideration of any reinvestment thereof, be sufficient
in the opinion of an independent chartered accountant (which may
include the Corporation's auditors or the Guarantor's auditors) to
pay, satisfy and discharge the entire amount of principal and
accrued and unpaid interest to the maturity date of all the
outstanding Debentures or all the outstanding Debentures of such
series and for the payment of any taxes arising with respect to
such deposited funds, obligations and/or other securities as same
shall become due from time to time; or
(c) the Corporation has delivered to the Trustee all the outstanding
Debentures or all the outstanding Debentures of such series for
cancellation;
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FINOVA Trust Indenture Page 45 of 61
provided that in any case:
(d) the Corporation or the Guarantor has paid or caused to be paid all
other sums payable with respect to all the outstanding Debentures
or all the outstanding Debentures of such series; and
(e) the Corporation or the Guarantor has delivered to the Trustee a
Certificate of the Corporation or a Certificate of the Guarantor,
as the case may be, stating that all conditions precedent set
forth in this Section 9.6 relating to the payment, satisfaction
and discharge of the outstanding obligations relating to all the
outstanding Debentures or all the outstanding Debentures of such
series have been complied with by the Corporation or the
Guarantor, as applicable.
Any deposits with the Trustee referred to in this Section 9.6 shall be made
under the terms of an escrow trust agreement in form and substance satisfactory
to the Trustee and which provides for the due and punctual payment of the
principal and accrued interest of all the outstanding Debentures or all the
outstanding Debentures of such series.
Upon the satisfaction of the conditions set forth in this Section 9.6
with respect to all the outstanding Debentures or all the outstanding Debentures
of such series, the Corporation and the Guarantor shall have and be deemed to
have satisfied all of their obligations under such Debentures and any related
coupons and this Indenture insofar as such Debentures and any related coupons
are concerned, except for the following which shall survive unless otherwise
terminated or discharged hereunder:
(a) the rights of the Holders of such Debentures and any related
coupons to receive, solely from the trust fund described herein,
payments in respect of principal, premium, if any, and interest on
such Debentures and any related coupons when due;
(b) the obligations of the Corporation pursuant to the provisions of
Sections 2.10, 3.1 to 3.7 inclusive, 7.2 and 7.4;
(c) the obligations of the Corporation and the Guarantor pursuant to
Section 13.3;
(d) the rights, powers, trusts, duties and immunities of the Trustee
hereunder; and
(e) this Section 9.6.
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FINOVA Trust Indenture Page 46 of 61
ARTICLE 10
SUCCESSORS
10.1 GENERAL PROVISIONS. Nothing in this Indenture shall prevent, if otherwise
permitted by law, the reorganization, consolidation, amalgamation or merger of
the Corporation or the Guarantor with any other corporation, including any
Affiliate of the Corporation or the Guarantor, or shall prevent the sale by the
Corporation or the Guarantor of all or substantially all of its assets to
another corporation, including any Affiliate of the Corporation or the
Guarantor, lawfully entitled to acquire and operate the same; provided, however,
that:
(a) no condition or event shall exist as to the Corporation or the
Guarantor or such successor or assign either at the time of or
immediately after such reorganization, consolidation,
amalgamation, merger or sale and after giving full effect thereto,
or immediately after such successor or assign shall become liable
to pay the principal, premium, if any, and interest, which
constitutes or would, with the giving of notice or lapse of time
or both, constitute a default or an Event of Default hereunder;
and
(b) every such successor or assign shall, as a part of such
reorganization, consolidation, amalgamation, merger or sale and in
consideration thereof enter into and execute such indenture or
indentures supplemental hereto in favour of the Trustee as the
Trustee may reasonably require whereby such successor or assign
covenants to:
(i) pay punctually when due the principal monies, premium, if
any, interest and other monies payable hereunder,
(ii) perform and observe punctually all the obligations of the
Corporation or the Guarantor, as the case may be, under and
in respect of all outstanding Debentures, and
(iii) observe and perform each and every covenant and agreement
of the Corporation or the Guarantor, as the case may be,
herein contained as fully and completely as if it had
itself executed this Indenture as the Corporation or the
Guarantor, as the case may be, and had expressly agreed
herein to observe and perform the same.
The Trustee shall facilitate every such reorganization, consolidation,
amalgamation, merger or sale and may give such consents and sign, execute or
join in such documents and do such acts as in its discretion may be thought
advisable in order that such reorganization, consolidation, amalgamation, merger
or sale may be carried out, and thereupon the Corporation or the Guarantor, as
applicable, may be released and discharged from liability under this Indenture
(if such release and discharge would not in the opinion of Counsel, acting
reasonably, prejudice the interests of the Debentureholders) and the Trustee may
execute any document or documents which it may be advised is or are necessary or
advisable for effecting or evidencing such release and discharge and the opinion
of Counsel as hereinafter mentioned shall be full warrant and authority to the
Trustee for so doing. As a condition precedent to any reorganization,
consolidation, amalgamation, merger or sale proposed to be carried out pursuant
to the provisions of this Section 10.1, the Corporation or the Guarantor, as the
case may be, shall furnish to the Trustee an opinion of Counsel, in form and
substance satisfactory to the Trustee, as to the legality of any such action
proposed to be taken pursuant to the provisions of this Section 10.1 and as to
the compliance of any such action with the terms of this Indenture.
10.2 STATUS OF SUCCESSOR. In case of any reorganization, consolidation,
amalgamation, merger or sale carried out pursuant to the provisions of Section
10.1, the successor or assign referred to in Section 10.1, upon executing an
indenture or indentures supplemental hereto as provided in Section 10.1, shall
succeed to and be substituted for the Corporation or the Guarantor, as the case
may be (which may then be wound up, if so desired by its shareholders and if
such winding-up would not terminate the existence of such successor), with the
same effect as if it had been named herein as the Corporation or the Guarantor,
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FINOVA Trust Indenture Page 47 of 61
as the case may be, and shall possess and may exercise each and every right of
the Corporation or the Guarantor, as the case may be, hereunder.
ARTICLE 11
MEETINGS OF DEBENTUREHOLDERS
11.1 RIGHT TO CONVENE MEETING. The Trustee may at any time and from time to time
and shall, on receipt of a Written Request of the Corporation or a
Debentureholders' Request, upon receiving sufficient funds, and upon being
indemnified to its reasonable satisfaction by the Corporation or by the
Debentureholders signing such Debentureholders' Request against the costs which
may be incurred in connection with the calling and holding of such meeting,
convene a meeting of the Debentureholders. In the event of the Trustee failing,
within 30 days after receipt of such request, funds and indemnity, to give
notice convening such meeting, the Corporation or such Debentureholders, as the
case may be, may convene such meeting. Every such meeting shall be held in the
City of Toronto, Ontario, or at such other place as may be approved or
determined by the Trustee. The accidental omission to give notice of a meeting
to any Debentureholder shall not invalidate any resolution passed at any such
meeting.
11.2 NOTICE. At least 21 days notice of any meeting shall be given to the
Debentureholders in the manner provided in ARTICLE 14 and a copy thereof shall
be sent by post or personal delivery to the Trustee unless the meeting has been
convened by it and to the Corporation unless the meeting has been convened by
it. Such notice shall state the time when and the place where the meeting is to
be held and shall state briefly the general nature of the business to be
transacted thereat and it shall not be necessary for any such notice to set out
the terms of any resolution to be proposed or any of the provisions of this
ARTICLE 11.
11.3 CHAIRMAN. Some individual, who need not be a Debentureholder, nominated in
writing by the Trustee shall be chairman of the meeting of Debentureholders and
if no individual is so nominated, or if the individual so nominated is not
present within 15 minutes from the time fixed for the holding of the meeting or
is unwilling or unable to act, then the Debentureholders present in person or by
proxy shall choose some individual present to be chairman.
11.4 QUORUM. Subject to the provisions of Section 11.13:
(c) at any meeting of the Debentureholders, a quorum shall consist of
Debentureholders present in person or by proxy and representing at
least 25% in principal amount of the outstanding Debentures;
(a) if a quorum of the Debentureholders shall not be present within 30
minutes from the time fixed for holding any meeting, then the
meeting, if convened by the Debentureholders or on a
Debentureholders' Request, shall be dissolved, but if otherwise
convened, the meeting shall stand adjourned without notice to the
same day in the next week (unless such day is not a Business Day
in which case it shall stand adjourned to the next following
Business Day thereafter) at the same time and place, unless the
chairman of such meeting shall appoint some other place, day
and/or time of which not less than seven days notice shall be
given in the manner provided in ARTICLE 14; and
(d) at the adjourned meeting, the Debentureholders present in Person
or by proxy shall form a quorum and may transact the business for
which the meeting was originally convened notwithstanding that
they may not represent 25% in principal amount of the outstanding
Debentures.
11.5 POWER TO ADJOURN. The chairman of any meeting at which a quorum of the
Debentureholders is present may, with the consent of the Holders of a majority
in principal amount of the Debentures represented thereat, adjourn any such
meeting and no notice of such adjournment need be given except such notice, if
any, as the meeting may prescribe.
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FINOVA Trust Indenture Page 48 of 61
11.6 SHOW OF HANDS. Every question submitted to a meeting of Debentureholders
shall, subject to the provisions of Section 11.7, be decided in the first place
by a majority of the votes given on a show of hands except that votes on
Extraordinary Resolutions shall be given in the manner hereinafter provided. At
any such meeting, unless a poll is demanded as herein provided, a declaration by
the chairman that a resolution has been carried or carried unanimously or by a
particular majority or lost or not carried by a particular majority shall be
conclusive evidence of the fact. The chairman of any meeting shall be entitled,
both on a show of hands and on a poll, to vote in respect of the Debentures, if
any, held by him.
11.7 POLL. On every Extraordinary Resolution, and on any other question
submitted to a meeting when demanded by the chairman, or by any Debentureholder
or proxies for Debentureholders holding not less than $100,000 in aggregate
principal amount of Debentures, after a vote by show of hands, a poll shall be
taken in such manner as the chairman shall direct. Questions other than
Extraordinary Resolutions shall if a poll be taken, be decided by the votes of
the Holders of more than 50% in principal amount of the Debentures represented
at the meeting and voted on the poll.
11.8 VOTING. On a show of hands, every Person who is present and entitled to
vote, whether as a Debentureholder or as proxy for one or more absent
Debentureholders or both, shall have one vote. On a poll, each Debentureholder
present in person or represented by a proxy duly appointed by instrument in
writing shall be entitled to one vote in respect of each $1,000 principal amount
of Debentures of which he shall then be the Holder. Each Holder of any
Debentures payable in a currency or currency unit other than Canadian dollars
shall have one vote for every $1,000 principal amount of Debentures computed
after conversion of the principal amount thereof at the applicable spot buying
rate of exchange for such currency or currency unit as reported by the Bank of
Canada at the close of business on the Business Day next preceding such meeting.
Any fractional amounts resulting from such computation shall be rounded to the
nearest $1,000. A proxy need not be a Debentureholder. In the case of joint
registered Debentureholders, any one of them present in person or by proxy at
the meeting may vote in the absence of the other or others; provided, however,
that in case more than one of them be present in person or by proxy they shall
vote as one in respect of the Debentures of which they are joint registered
Holders.
11.9 REGULATIONS. The Trustee, or the Corporation with the approval of the
Trustee, may from time to time make and from time to time vary such regulations
as it shall from time to time think fit:
(a) for the issue of voting certificates to any:
(i) bank, trust company or other depositary approved by the
Trustee certifying that specified unregistered Debentures
have been deposited with it by a named Holder and shall
remain on deposit until after the meeting, or
(ii) bank, trust company, insurance company, governmental
department or agency approved by the Trustee certifying
that it is the Holder of specified unregistered Debentures
and shall continue to hold the same until after the
meeting,
which voting certificates shall entitle the Holders named therein
to be present and vote at any such meeting and at any adjournment
thereof or to appoint a proxy or proxies to represent them and
vote for them at any such meeting and at any adjournment thereof,
in the same manner and with the same effect as though the Holders
so named in such voting certificates were the actual bearers of
the Debentures specified therein;
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FINOVA Trust Indenture Page 49 of 61
(b) for the deposit of any voting certificates and instruments
appointing proxies at such place as the Trustee, the Corporation
or the Debentureholders convening the meeting, as the case may be,
may in the notice convening the meeting direct;
(c) for the deposit of any voting certificates and instruments
appointing proxies at some approved place or places other than the
place at which the meeting is to be held and enabling particulars
of such voting certificates and instruments appointing proxies to
be mailed or otherwise transmitted before the meeting to the
Corporation or to the Trustee at the place where the same is to be
held and for the voting of proxies so deposited as though the
instruments themselves were produced at the meeting; and
(d) with respect to proof of the holding of Debentures and of the
appointment of proxies, the appointment and duties of inspectors
of votes, the submission and examination of proxies, certificates
and other evidence of the right to vote and such other matters
concerning the conduct of the meeting as it shall think fit.
Any regulations so made shall be binding and effective and the votes given in
accordance therewith shall be valid and shall be counted. Save as such
regulations may provide, the only Persons who shall be recognized at any meeting
as the Holders of any Debentures, or as entitled to vote or be present at the
meeting in respect thereof, shall be Holders and Persons whom Holders of
registered Debentures have by instrument in writing duly appointed as their
proxies.
11.10 CORPORATION, GUARANTOR AND TRUSTEE MAY BE REPRESENTED. The Corporation,
the Guarantor and the Trustee, by their respective employees, officers,
directors and legal advisers, may attend any meeting of the Debentureholders but
shall have no vote as such.
11.11 POWERS EXERCISABLE BY EXTRAORDINARY RESOLUTION. In addition to all other
powers conferred upon them by any other provisions of this Indenture or by law,
a meeting of the Debentureholders shall have the following powers exercisable
from time to time by Extraordinary Resolution:
(a) power to sanction any scheme for the reorganization,
consolidation, amalgamation or merger of the Corporation or the
Guarantor with any other corporation, or for the sale of all or
substantially all of the assets of the Corporation or the
Guarantor; provided, however, that no such sanction shall be
necessary for a reorganization, consolidation, amalgamation,
merger or sale carried out in compliance with the provisions of
ARTICLE 10;
(b) power to require the Trustee to exercise or refrain from
exercising any of the powers conferred upon it by this Indenture
or any Debenture or to waive any default on the part of the
Corporation, either unconditionally or, upon such terms as may be
decided upon and to annul and to direct the Trustee to annul, any
declaration or demand made pursuant to the provisions of Section
8.2 in respect of such default;
(c) power to remove the Trustee from office and to appoint a new
trustee or trustees in accordance with Section 13.8;
(d) power to sanction any change whatsoever of any provision of the
Debentures or coupons or of this Indenture agreed to by the
Corporation or the Guarantor and any modification, alteration,
abrogation, compromise or arrangement of or in respect of the
rights of the Debentureholders against the Corporation, or the
Guarantor, if applicable, or against their property, whether such
rights shall arise under the provisions of this Indenture, the
Debentures or coupons or otherwise;
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FINOVA Trust Indenture Page 50 of 61
(e) power to sanction the exchange of the Debentures or coupons for or
the conversion thereof into shares, bonds, debentures or other
securities of the Corporation or of any corporation formed or to
be formed;
(f) power to assent to any compromise or arrangement by the
Corporation or the Guarantor with any creditor, creditors or class
or classes of creditors or with the holders of any shares or
securities of the Corporation or the Guarantor;
(g) power to commence, carry on and settle any action against the
Trustee in respect of the performance of its duties hereunder;
(h) power to authorize the Trustee, in the event of the Corporation
making an authorized assignment or proposal, or a custodian or
trustee being appointed, under bankruptcy legislation or a
liquidator being appointed, for and on behalf of the
Debentureholders, and in addition to any claim or debt proved or
made for its own account as Trustee hereunder, to file and prove
any claim or debt against the Corporation and its property for an
amount equivalent to the aggregate amount which may be payable in
respect of the Debentures, value security and vote such claim or
debt at meetings of creditors and generally act for and on behalf
of the Debentureholders in such proceedings as such resolution may
provide;
(i) power to restrain any Holder of any Debenture or coupon
outstanding hereunder from taking or instituting any action, suit
or proceeding for the execution of any trust or power hereunder or
for the appointment of a custodian, sequestrator, liquidator,
receiver manager or receiver or trustee in bankruptcy or to have
the Corporation wound up or for any other remedy hereunder and to
direct such Holder of any Debenture or coupon to waive any default
or defaults by the Corporation on which any action, suit or
proceeding is founded;
(j) power to direct any Debentureholder bringing any action, suit or
proceeding and the Trustee to waive the default in respect of
which such action, suit or other proceeding shall have been
brought and to stay or discontinue any such action, suit or
proceeding upon payment to each such Debentureholder of such
Debentureholder's costs, provided that the action, suit or
proceeding was authorized pursuant to the provisions of Section
8.5;
(k) power to require the Trustee to make a declaration under the
provisions of Section 8.2 and/or to proceed to enforce any remedy
available hereunder, but subject always to compliance with the
provisions of Section 8.3;
(l) power to amend, alter or repeal any Extraordinary Resolution
previously passed or sanctioned by the Debentureholders;
(m) power to appoint a committee with power and authority (subject to
such limitations, if any, as may be prescribed in the
Extraordinary Resolution) to exercise on behalf of the
Debentureholders such of the powers of the Debentureholders
exercisable by Extraordinary Resolution or other resolution as
shall be included in such appointment; and
(n) power to assent to any modification of or change in or addition to
or omission from the provisions contained in this Indenture which
shall be agreed to by the Corporation and the Guarantor and to
authorize the Trustee to concur in and execute any indenture
supplemental to this Indenture embodying any such modification,
change, addition or omission or any deeds, documents or writings
authorized by such resolution.
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11.12 POWERS CUMULATIVE. It is hereby declared and agreed that any one or more
of the powers and any combination of the powers in this Indenture stated to be
exercisable by the Debentureholders by Extraordinary Resolution or otherwise may
be exercised from time to time and the exercise of any one or more of such
powers or any combination of powers from time to time shall not be deemed to
exhaust the right of the Debentureholders to exercise such power or powers or
combination of powers then, or any power or powers or combination of powers
thereafter, from time to time.
11.13 MEANING OF "EXTRAORDINARY RESOLUTION"".
(a) The expression "EXTRAORDINARY RESOLUTION" when used in this Trust
Indenture means, subject as hereinafter provided in this Section
11.13 and in Sections 11.15 and 11.17, a resolution proposed to be
passed as an Extraordinary Resolution at a meeting of
Debentureholders duly convened for the purpose and held in
accordance with the provisions of this ARTICLE 11 at which the
Holders of more than 25% in principal amount of the Debentures
then outstanding are present in person or by proxy and passed by
the favourable votes of the Holders of not less than 66 2/3% of
the principal amount of Debentures represented at the meeting and
voted on a poll upon such resolution.
(b) If at any such meeting the Holders of more than 25% in principal
amount of the Debentures outstanding are not present in person or
by proxy within 30 minutes after the time appointed for the
meeting, then the meeting, if convened by Debentureholders or on a
Debentureholders' Request, shall be dissolved, but if otherwise
convened, the meeting shall stand adjourned to such day, being not
less than 21 nor more than 60 days later, and to such place and
time as may be appointed by the chairman of the meeting. Not less
than 10 days notice shall be given of the time and place of such
adjourned meeting in the manner provided in ARTICLE 14. Such
notice shall state that, at the adjourned meeting, the
Debentureholders present in person or by proxy shall form a quorum
but it shall not be necessary to set forth the purposes for which
the meeting was originally called or any other particulars. At the
adjourned meeting the Debentureholders present in person or by
proxy shall form a quorum and may transact the business for which
the meeting was originally convened and a resolution proposed at
such adjourned meeting and passed by the requisite vote as
provided in Subsection 11.13(a) shall be an Extraordinary
Resolution within the meeting of this Indenture, notwithstanding
that the Holders of more than 25% in principal amount of the
Debentures then outstanding are not present in person or by proxy
at such adjourned meeting.
(c) Votes on an Extraordinary Resolution shall always be given on a
poll and no demand for a poll on an Extraordinary Resolution shall
be necessary.
11.14 MINUTES. Minutes of all resolutions and proceedings at every such meeting
as aforesaid shall be made and duly entered in books to be from time to time
provided for that purpose by the Trustee at the expense of the Corporation and,
any such minutes as aforesaid, if signed by the chairman of the meeting at which
such resolutions were passed or proceedings had, or by the chairman of the next
succeeding meeting of the Debentureholders, shall be prima facie evidence of the
matters therein stated and, until the contrary is proved, every such meeting, in
respect of the proceedings of which minutes shall have been made, shall be
deemed to have been duly held and convened, and all resolutions passed thereat
or proceedings taken, to have been duly passed and taken.
11.15 INSTRUMENTS IN WRITING. All actions that may be taken and all powers that
may be exercised by the Debentureholders at a meeting held as hereinbefore set
forth in this ARTICLE 11 may also be taken and exercised by the Holders of not
less than 66 2/3% in principal amount of all the outstanding Debentures by an
instrument in writing signed in one or more counterparts and the expression
"EXTRAORDINARY RESOLUTION" when used in this Trust Indenture shall include an
instrument so signed. Proof of the execution of an instrument in writing by any
Debentureholder may be made by the certificate of any notary public, or other
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FINOVA Trust Indenture Page 52 of 61
officer with similar powers, that the Person signing such instrument
acknowledged to him the execution thereof, or by an affidavit of a witness to
such execution or in any other manner which the Trustee may consider adequate.
Any instrument in writing signed as herein provided shall bind all future
Holders of the same Debenture or any Debenture or Debentures issued in exchange
therefor in respect of anything done or suffered by the Corporation or the
Trustee in pursuance thereof.
11.16 BINDING EFFECT OF RESOLUTIONS. Subject to the provisions of Section 11.17,
every resolution and every Extraordinary Resolution passed in accordance with
the provisions of this ARTICLE 11 at a meeting of Debentureholders shall be
binding upon all the Debentureholders, whether present at or absent from such
meeting, and every instrument in writing signed by Debentureholders in
accordance with the provisions of Section 11.15 shall be binding upon all the
Debentureholders, whether signatories thereto or not, and each and every
Debentureholder and the Trustee (subject to the provisions for its indemnity
herein contained) shall be bound to give effect accordingly to every such
resolution, Extraordinary Resolution and instrument in writing.
11.17 SERIAL MEETINGS.
(a) If any business to be transacted at a meeting of Debentureholders,
or any action to be taken or power to be exercised by instrument
in writing under the provisions of Section 11.15, especially
affects the rights of the Holders of Debentures of one or more
series or maturities in a manner or to an extent substantially
differing from that in or to which it affects the rights of the
Holders of Debentures of any other series or maturity (as to which
an opinion of Counsel shall be binding on all Debentureholders,
the Trustee and the Corporation for all purposes hereof), then:
(i) reference to such fact, indicating each series or maturity
so especially affected, shall be made in the notice of such
meeting and the meeting shall be and is herein called a
"serial meeting"; and
(ii) the Holders of Debentures of a series or maturity so
especially affected shall not be bound by any action taken
at a serial meeting or by instrument in writing under the
provisions of Section 11.15 unless in addition to
compliance with the other provisions of this ARTICLE 11:
(A) at such serial meeting:
(1) there are present in person or by proxy
Holders of at least 25% in principal amount
of the outstanding Debentures of such series
or maturity, subject to the provisions of
this ARTICLE 11 as to adjourned meetings, and
(2) the resolution is passed by the favourable
votes of the Holders of more than 50% (or in
the case of an Extraordinary Resolution not
less than 66 2/3%) in principal amount of
Debentures of such series or maturity voted
on the resolution, or
(B) in the case of action taken or power exercised by
instrument in writing under the provisions of
Section 11.15, such instrument is signed in one or
more counterparts by the Holders of not less than 66
2/3% in principal amount of the outstanding
Debentures of such series or maturity.
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FINOVA Trust Indenture Page 53 of 61
(b) If in the opinion of Counsel any business to be transacted at any
meeting, or any action to be taken or power to be exercised by
instrument in writing under the provisions of Section 11.15, does
not adversely affect the rights of the Holders of Debentures of
one or more particular series or maturities, then the provisions
of this ARTICLE 11 shall apply as if the Debentures of such series
or maturity were not outstanding and no notice of any such meeting
need be given to the Holders of Debentures of such series or
maturity. Without limiting the generality of the foregoing, a
proposal to modify or terminate any covenant or agreement which by
its terms is effective only so long as Debentures of a particular
series or maturity are outstanding shall be deemed not to
adversely affect the rights of the Holders of Debentures of any
other series or maturity.
(c) A proposal to:
(i) extend the maturity of Debentures of any particular series
or maturity or reduce the principal amount thereof or the
rate of interest or redemption premium thereon;
(ii) modify or terminate any covenant or agreement which by its
terms is effective only so long as Debentures of a
particular series or maturity are outstanding; or
(iii) reduce with respect to Holders of Debentures of a
particular series or maturity any percentage stated in
Sections 1.1, 11.4, 11.7, 11.13, or 11.15 or in this
Section 11.17,
shall be deemed to especially affect the rights of the Holders of
Debentures of such series or maturity, as the case may be, in a
manner substantially differing from that in which it affects the
rights of Holders of Debentures of any other series or maturity,
whether or not a similar extension, reduction, modification or
termination is proposed with respect to Debentures of any or all
other series and maturities.
ARTICLE 12
SUPPLEMENTAL INDENTURES
12.1 EXECUTION OF SUPPLEMENTAL INDENTURES. From time to time the Corporation,
and the Guarantor, if applicable, (when authorized by a resolution of its
respective directors) and the Trustee may, subject to the provisions of these
presents, and they shall, when so directed or required under this Indenture,
execute and deliver by their proper officers, Indentures or other instruments
supplemental hereto, which thereafter shall form part hereof, for any one or
more or all of the following purposes:
(a) creating any Additional Debentures and establishing the terms of
any Additional Debentures and the forms and denominations in which
they may be issued as provided in ARTICLE 2;
(b) deleting, modifying or adding to the covenants of the Corporation
or the Guarantor herein contained for the protection of the
Holders of the Debentures or of the Debentures of any series and
providing for events of default in addition to those specified in
ARTICLE 8;
(c) evidencing the succession of successors or assigns to the
Corporation or the Guarantor and the covenants of and obligations
assumed by such successors or assigns in accordance with the
provisions of ARTICLE 10;
(d) giving effect to any Extraordinary Resolution passed as provided
in ARTICLE 11;
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FINOVA Trust Indenture Page 54 of 61
(e) adding to or altering the provisions hereof in respect of the
registration and transfer of Debentures, making provision for the
issue of Debentures in forms or denominations other than those
herein provided for and for the exchange of Debentures of
different forms and denominations and making any modifications in
the forms of the Debentures and coupons which in the opinion of
Counsel do not affect the substance thereof;
(f) making any additions to, deletions from or alterations of the
provisions of this Indenture which the Corporation may deem
necessary or advisable in order to facilitate the sale of the
Debentures and which, in the opinion of Counsel, do not adversely
affect in any substantial respect the interests of the Holders of
the Debentures, or any series or maturity thereof then
outstanding, including without limiting the generality of the
foregoing such additions, deletions and alterations (including
provision for the appointment of an additional trustee or a
co-trustee in any jurisdiction) as would be required to comply
with the provisions relating to trust indentures contained in any
corporations act, securities act, trust indenture act or similar
legislation in any jurisdiction in which Debentures may have been
sold or in which the Corporation may desire to sell the
Debentures;
(g) making any additions or alterations to, or deletions from, the
provisions of this Indenture which in the opinion of Counsel may
from time to time be necessary or advisable to conform the same to
Trust Indenture Legislation;
(h) making such provisions not inconsistent with this Indenture as may
be necessary or desirable with respect to matters or questions
arising hereunder or for the purpose of obtaining a listing or
quotation of the Debentures or any series thereof on any stock
exchange or providing additional means of transferring Debentures
or additional or other provisions relating to Debentures, or to
facilitate the sale of any Additional Debentures, provided that
such provisions are not, in the opinion of Counsel, prejudicial to
the interests of the Debentureholders; and
(i) for any other purpose not inconsistent with the terms of this
Indenture, including, without limitation, the correction or
rectification of any ambiguities, defective provisions, errors or
omissions herein, provided that in the opinion of Counsel the
rights of the Trustee and of the Debentureholders are in no way
prejudiced thereby.
12.2 CORRECTION OF MANIFEST ERRORS. The Corporation, the Guarantor and the
Trustee may, without the consent or concurrence of the Debentureholders, by
supplemental indenture or otherwise, make any changes or corrections in this
Indenture which the Trustee shall have been advised by Counsel are required for
the purpose of curing or correcting any ambiguity or defective or inconsistent
provisions or clerical omission or mistake or manifest error contained herein,
or in any deed or indenture supplemental or ancillary hereto, provided that in
the opinion of the Trustee the rights of the Trustee and of the Debentureholders
are in no way prejudiced thereby.
ARTICLE 13
CONCERNING THE TRUSTEE
13.1 TRUST INDENTURE LEGISLATION.
(a) If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with a mandatory requirement of Trust
Indenture Legislation, such mandatory requirement shall prevail.
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FINOVA Trust Indenture Page 55 of 61
(b) The Corporation, the Guarantor and the Trustee agree that each
shall at all times in relation to this Indenture and any action to
be taken hereunder, observe and comply with and be entitled to the
benefits of Trust Indenture Legislation.
13.2 RIGHTS AND DUTIES OF TRUSTEE.
(a) In the exercise of the rights, duties and obligations prescribed
or conferred by the terms of this Indenture, the Trustee shall act
honestly and in good faith with a view to the best interests of
the Debentureholders and shall exercise that degree of care,
diligence and skill that a reasonably prudent trustee would
exercise in comparable circumstances.
(b) Subject only to the provisions of Subsection 13.2(a), the
obligation of the Trustee to commence or continue any act, action
or proceeding for the purpose of enforcing any rights of the
Trustee or the Debentureholders hereunder shall be conditional
upon the Debentureholders furnishing, when required by notice in
writing by the Trustee, sufficient funds to commence or continue
such act, action or proceeding and indemnity reasonably
satisfactory to the Trustee to protect and hold harmless the
Trustee against the costs, charges and expenses and liabilities to
be incurred thereby and any loss and damage it may suffer by
reason thereof. None of the provisions contained in this Indenture
shall require the Trustee to expend or risk its own funds or
otherwise incur financial liability in the performance of any of
its duties or in the exercise of any of its rights or powers
unless indemnified as aforesaid.
(c) The Trustee may, before commencing or at any time during the
continuance of any such act, action or proceeding, require the
Debentureholders at whose instance it is acting to deposit with
the Trustee the Debentures held by them, for which Debentures the
Trustee shall issue receipts.
(d) Every provision of this Indenture that by its terms relieves the
Trustee of liability or entitles it to rely upon any evidence
submitted to it, is subject to the provisions of Trust Indenture
Legislation and of this Section 13.2 and of Section 13.3.
13.3 EVIDENCE, EXPERTS AND ADVISORS.
(a) In addition to the reports, certificates, opinions and other
evidence required by this Indenture, the Corporation shall furnish
to the Trustee such additional evidence of compliance with any
provision hereof, and in such form, as may be prescribed by
applicable trust legislation or as the Trustee may reasonably
require by written notice to the Corporation.
(b) In the exercise of its rights, duties and obligations, the Trustee
may, if it is acting as set forth in Subsection 13.2(a), rely as
to the truth of the statements and the accuracy of the opinions
expressed therein, upon statutory declarations, opinions, reports,
certificates or other evidence referred to in Subsection 13.3(a)
and shall not be responsible for any loss incurred as a result of
so acting or relying, provided, however, that such evidence
complies with the provisions of this Indenture and with applicable
trust legislation and that the Trustee examines the same in order
to determine whether such evidence complies with the applicable
requirements of this Indenture and of applicable trust
legislation.
(c) Whenever applicable trust legislation requires that evidence
referred to in Subsection 13.3(a) be in the form of a statutory
declaration, the Trustee may accept such statutory declaration in
lieu of a Certificate of the Corporation required by any provision
hereof. Any such statutory declaration may be made by one or more
of those Persons authorized to sign a Certificate of the
Corporation.
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FINOVA Trust Indenture Page 56 of 61
(d) Proof of the execution of an instrument in writing, including a
Debentureholders' Request, by any Debentureholder may be made by
the certificate of a notary public, or other officer with similar
powers, that the Person signing such instrument acknowledged to
him the execution thereof, or by an affidavit of a witness to such
execution or in any other manner which the Trustee may consider
adequate. If applicable trust legislation so permits or requires,
any certificate required by this Indenture may be expressed as the
opinion of the signer or signers of such certificate.
(e) The Trustee may employ or retain such counsel (including outside
counsel to the Corporation), accountants or other experts or
advisers as it may reasonably require for the purpose of
discharging its duties hereunder and shall not be responsible for
any action taken in reliance on such advice if it is acting as set
forth in Subsection 13.2(a) or for any misconduct on the part of
any of them.
13.4 DOCUMENTS AND MONIES HELD BY TRUSTEE.
(a) Any securities or other instruments that may at any time be held
by the Trustee subject to the terms hereof may be placed in the
deposit vaults of the Trustee or of any Canadian chartered bank or
deposited for safekeeping with any such bank. Pending the
application or withdrawal of any monies so held under any
provision of this Indenture, the Trustee, unless it is herein
otherwise expressly provided, may deposit the same in the name of
the Trustee in any Canadian chartered bank at the rate of interest
(if any) then current on similar deposits or, if so directed by
Written Order of the Corporation, shall:
(i) deposit such monies in the deposit department of the
Trustee or any other loan or trust company authorized to
accept deposits under the laws of Canada or a province
thereof; or
(ii) invest such monies in Authorized Investments,
subject to any statutory obligation of the Trustee. Unless an
Event of Default shall have occurred and be continuing, all
interest or other income received by the Trustee in respect of
such deposits and investments shall belong to the Corporation.
(b) Any direction by the Corporation to the Trustee as to investment
or reinvestment of funds shall be in writing and shall be provided
to the Trustee no later than 9:00 a.m. (Toronto time) on the day
on which the investment is to be made. Any such direction received
after 9:00 a.m. (Toronto time) or received on a non-Business Day,
shall be deemed to have been given prior to 9:00 a.m. (Toronto
time) the next Business Day. If a direction is not received, the
Trustee shall not have any obligation to invest the monies in
Authorized Investments and pending receipt of same shall be
entitled to hold such monies uninvested in a trust account
established by the Trustee for the Corporation.
(c) The Trustee shall not be held liable for any losses incurred in
the investment of any funds in Authorized Investments.
13.5 ACTION BY TRUSTEE TO PROTECT INTERESTS. The Trustee shall have power to
institute and to maintain such actions and proceedings as it may consider
necessary or expedient to preserve, protect or enforce its interests and the
interests of the Debentureholders.
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FINOVA Trust Indenture Page 57 of 61
13.6 TRUSTEE NOT REQUIRED TO GIVE SECURITY. The Trustee shall not be required to
give any bond or security in respect of the execution of the trusts and powers
of this Indenture or otherwise in respect of the premises.
13.7 PROTECTION OF TRUSTEE. By way of supplement to the provisions of any law
for the time being relating to trustees, it is expressly declared and agreed as
follows:
(a) the Trustee shall not be liable for or by reason of any statements
of fact or recitals in this Indenture or in the Debentures (except
in the certificate of the Trustee thereon) or required to verify
the same, but all such statements or recitals are and shall be
deemed to be made by the Corporation;
(b) nothing herein contained shall impose any obligation on the
Trustee to see to or require evidence of the deposit, registration
or recording (or renewal thereof) of this Indenture or any
instrument ancillary or supplemental hereto;
(c) the Trustee shall not be bound to give notice to any Person or
Persons of the execution hereof;
(d) the Trustee shall not incur any liability or responsibility
whatever or be in any way responsible for the consequence of any
breach on the part of the Corporation or the Guarantor of any of
the covenants herein contained or of any acts of the agents or
servants of the Corporation or the Guarantor; and
(e) the Trustee, in its personal or any other capacity, may buy, lend
upon and deal in shares in the capital of the Corporation or the
Guarantor and in the Debentures and other securities of the
Corporation and generally may contract and enter into financial
transactions with the Corporation, the Guarantor or any Affiliate
of the Corporation or the Guarantor without being liable to
account for any profit made thereby.
13.8 REPLACEMENT OF TRUSTEE.
(a) The Trustee may resign its trust and be discharged from all
further duties and liabilities hereunder by giving to the
Corporation 60 days notice in writing or such shorter notice as
the Corporation may accept as sufficient. The Debentureholders by
Extraordinary Resolution shall have power at any time to remove
the Trustee and to appoint a new trustee. If at any time the
Trustee shall fail to comply with its obligations hereunder or
under Trust Indenture Legislation, fail to resign as required
herein, or becomes incapable of acting or is judged bankrupt or
insolvent, or a receiver of its property is appointed, the
Corporation may remove the Trustee on 30 days notice in writing to
the Trustee or such shorter notice as the Trustee may accept as
sufficient. In the event of the Trustee resigning or being removed
as aforesaid or being dissolved, becoming bankrupt, going into
liquidation or otherwise becoming incapable of acting hereunder,
the Corporation shall forthwith appoint a new trustee unless a new
trustee has already been appointed by the Debentureholders.
Failing such appointment by the Corporation, the retiring Trustee,
at the Corporation's expense, or any Debentureholder may apply to
the Court of Queen's Bench of Alberta on such notice as such court
may direct, for the appointment of a new trustee, but any new
trustee so appointed by the Corporation or by the court shall be
subject to removal as aforesaid by the Debentureholders. Any new
trustee appointed under any provision of this Section 13.8 shall
be a corporation authorized to carry on the business of a trust
company in the Province of Alberta and every other jurisdiction
where such authorization is necessary to enable it to act as
trustee hereunder and shall have a combined capital and surplus of
at least $10,000,000 according to its most recent financial
statements, prepared in accordance with accounting principles
generally accepted in Canada. On any new appointment, the new
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FINOVA Trust Indenture Page 58 of 61
trustee shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as
Trustee without any further assurance, conveyance, act or deed,
but there shall be immediately executed, at the expense of the
Corporation, all such conveyances or other instruments as may, in
the opinion of Counsel, be necessary or advisable for the purpose
of assuring the same to the new trustee.
(b) Any corporation into which the Trustee may be merged or with which
it may be consolidated or amalgamated, or any corporation
resulting from any merger, consolidation or amalgamation to which
the Trustee shall be a party, shall be the successor of the
Trustee under this Indenture without the execution of any
instrument or further act.
(c) Notwithstanding the foregoing, if at any time a material conflict
of interest exists in the Trustee's role as a fiduciary hereunder,
then the Trustee shall, within 90 days after ascertaining that
such a material conflict of interest exists, either eliminate such
material conflict of interest or resign its trust in the manner
and with the effect specified in this Section 13.8.
13.9 APPOINTMENT OF AUTHENTICATING AGENT. The Trustee may appoint an
authenticating agent or agents with respect to one or more series of the
Debentures which shall be authorized to act on behalf of, and subject to the
direction of, the Trustee to authenticate the Debentures of such series,
including Debentures issued upon original issue, exchange, registration of
transfer or partial redemption thereof or pursuant to Section 2.10; and
Debentures so authenticated shall be entitled to the benefits of this Indenture
and shall be valid and obligatory for all purposes as though authenticated by
the Trustee. Wherever reference is made in this Indenture to the authentication
and delivery of the Debentures of any series by the Trustee or to the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by such authenticating
agent for such series and a certificate of authentication executed on behalf of
the Trustee by such authenticating agent. Each authenticating agent shall be
acceptable to the Corporation.
13.10 CORPORATE TRUSTEE REQUIRED. For so long as U.S. Debentures are issued and
outstanding hereunder, there shall at all times be a trustee hereunder which
shall be eligible to act as trustee under Trust Indenture Act Section 310(a)(1)
and which shall have a combined capital and surplus of at least US$50 million
and its corporate trust office in the City of Toronto or The City of New York or
such other city as may be determined by the Corporation, provided that there
shall be such a corporation or other Person in such location willing to act upon
customary and reasonable terms. If such corporation or other Person publishes
reports of condition at least annually, pursuant to law or to the requirements
of said supervising or examining authority, then for the purposes of this
Section the combined capital and surplus of such corporation or other Person
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at anytime the trustee shall cease
to be eligible in accordance with the provisions of this Section, it shall
resign immediately.
13.11 CONFLICT OF INTEREST. The Trustee represents that, at the time of the
execution and delivery hereof, no material conflict of interest exists in the
Trustee's role as a fiduciary hereunder. If, after the time of the execution and
delivery of this Indenture, the Trustee ascertains that, notwithstanding the
foregoing, a material conflict of interest existed at such time, or that a
material conflict of interest has arisen subsequently to the appointment of the
Trustee, the Trustee shall, within 90 days after ascertaining that it has such a
material conflict of interest, either eliminate such material conflict of
interest or resign immediately.
13.12 ACCEPTANCE OF TRUST. The Trustee hereby accepts the trusts in this
Indenture declared and provided for and agrees to perform the same upon the
terms and conditions herein set forth.
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FINOVA Trust Indenture Page 59 of 61
13.13 INDEMNITY TO THE TRUSTEE. Except for its act of negligence, willful
misconduct or a breach of it duties under the Trust Indenture Legislation, the
Trustee shall not be liable for any act done or step taken or omitted by it in
good faith, or for any mistake of fact or law and the Corporation and the
Guarantor agree jointly and severally to indemnify and save harmless the Trustee
from and against all claims, demands, actions, suits or other proceedings by
whomsoever made, prosecuted or brought and from all loss, costs, damages and
expenses in any manner based upon, occasioned by or attributed to any act of the
Trustee in the execution of its duties hereunder. It is understood and agreed
that this indemnification shall survive the termination of this Indenture and
the resignation or removal of the Trustee.
ARTICLE 14
NOTICES
14.1 NOTICE TO DEBENTUREHOLDERS. Unless herein otherwise expressly provided, any
notice to be given hereunder to Debentureholders shall be deemed to be validly
given:
(a) to the Holders of registered Debentures, and to the Depositary in
the case of Registered Global Debentures, if such notice is sent
by surface or air mail, registered or unregistered, postage
prepaid, delivered in Person, or by facsimile or other electronic
means of written communication, addressed to such Holders at their
respective addresses appearing on the register maintained under
Section 3.1, 3.2 or 3.4 and in the case of joint Holders of any
Debentures such notice shall be addressed to the first address
maintained on the register in respect of such joint holding;
(b) to the Holders of unregistered Debentures, if such notice is
published once in a newspaper of national circulation or otherwise
as determined by the Corporation, provided that in the case of
notice convening a meeting of Debentureholders, the Trustee may
require such additional publications of such notice as it may deem
necessary for the reasonable protection of the Debentureholders;
and
(c) with respect to any series of Debentures which are represented in
whole or in part by one or more Registered Global Debentures, if
the Corporation or the Trustee shall determine that the Depositary
has not provided any notice it receives from the Corporation
hereunder to its participants, then the Corporation shall:
(i) cause such notice to be published in a newspaper of
national circulation or otherwise as determined by the
Corporation, provided that any such publication shall not
delay any action to be taken as provided for in such notice
and any failure to publish such notice shall not invalidate
any proceedings taken with respect to such notice, or
(ii) provide such notice directly to the Holders by utilizing
the communication system set forth in National Policy No.
41 (Canada).
Notice by mail shall be deemed to have been effectively given three days after
the date of mailing and if delivered shall be deemed to have been received on
the date of the delivery thereof. Notice by facsimile or other electronic means
of communication shall be deemed to have been given on the day the facsimile or
other electronic means of communication was sent if sent before 4:30 p.m. at the
place of receipt on a Business Day, and if not, on the next Business Day. Should
there be at the time of mailing or between the time of mailing and the actual
receipt of the notice, a mail strike, slow-down or other labour dispute which
might affect the delivery of such notice through the mail, then such notice
shall only be effective if actually delivered in Person or by facsimile or other
electronic means of communication to the address aforesaid, or at the discretion
of the Corporation, published in a newspaper in the manner provided in
Subsection 14.1(b). In determining under any provision hereof the date when
notice of any meeting, redemption or other event must be given, the date of
<PAGE>
FINOVA Trust Indenture Page 60 of 61
giving the notice shall be included and the date of the meeting, redemption or
other event shall be excluded. Any costs relating to the giving of any notice by
publication shall be borne by the Corporation. Accidental error or omission in
giving notice or accidental failure to mail notice to any Debentureholder shall
not invalidate any action or proceeding founded thereon.
14.2 NOTICE TO THE TRUSTEE. Any notice to the Trustee under the provisions of
this indenture shall be valid and effective if delivered to an officer of the
Trustee or if sent by registered mail, postage prepaid, addressed to the Trustee
at 320 Bay Street, P.O. Box 1, Toronto, Ontario, M5H 4A6, Attention: Manager,
Corporate Trust. The Trustee may from time to time notify the Corporation of a
change in address which thereafter, until changed by like notice, shall be the
address of the Trustee for all purposes of this Indenture. Notice by mail shall
be deemed to have been effectively given three days after the date of mailing
and if delivered shall be deemed to have been received on the date of delivery
thereof.
14.3 NOTICE TO THE CORPORATION. Any notice to the Corporation under the
provisions of this Indenture shall be valid and effective if delivered to the
Chief Financial Officer of the Corporation or if sent by registered mail,
postage prepaid, addressed to the Chief Financial Officer of the Corporation at
4800 North Scottsdale Road, Scottsdale, Arizona, 85251-7623. The Corporation may
from time to time notify the Trustee of a change in address which thereafter,
until changed by like notice, shall be the address of the Corporation for all
purposes of this Indenture. Notice by mail shall be deemed to have been
effectively given three days after the date of mailing and if delivered shall be
deemed to have been received on the date of the delivery thereof.
14.4 NOTICE TO THE GUARANTOR. Any notice to the Guarantor under the provisions
of this Indenture shall be valid and effective if delivered to the Chief
Financial Officer of the Guarantor or if sent by registered mail, postage
prepaid, addressed to the Chief Financial Officer of the Guarantor at 4800 North
Scottsdale Road, Scottsdale, Arizona, 85251-7623. The Guarantor may from time to
time notify the Trustee of a change in address which thereafter, until changed
by like notice, shall be the address of the Guarantor for all purposes of this
Indenture. Notice by mail shall be deemed to have been effectively given three
days after the date of mailing and if delivered shall be deemed to have been
received on the date of the delivery thereof.
14.5 MAIL SERVICE INTERRUPTION. If the Trustee determines that mail service is
or is threatened to be interrupted at the time when the Trustee is required or
elects to give any notice to Holders hereunder, the Trustee shall, despite the
provisions hereof, give such notice by means of publication in the GLOBE & MAIL,
national edition, or any other English language daily newspaper or newspapers of
general circulation in Canada and if there are Holders resident in the Province
of Quebec appearing on the register, in a French language daily newspaper of
general circulation in Quebec, once in each of two successive weeks, and notice
so published shall be deemed to have been given on the latest date on which the
first publication has taken place. If, by reason of any actual or threatened
interruption of mail service due to strike, lock-out or otherwise, any notice to
be given to the Trustee, the Corporation or the Guarantor would be unlikely to
reach its destination in a timely manner, such notice shall be valid and
effective only if delivered personally or by facsimile or courier in accordance
with Sections 14.2, 14.3 or 14.4, as the case may be.
ARTICLE 15
EXECUTION
15.1 COUNTERPARTS AND FORMAL DATE. This Indenture may be executed in several
counterparts, each of which when so executed shall be deemed to be an original,
and such counterparts together shall constitute one and the same instrument and
notwithstanding their date of execution shall be deemed to bear date as of
February *, 2000.
<PAGE>
FINOVA Trust Indenture Page 61 of 61
IN WITNESS WHEREOF the parties hereto have executed these presents
under their respective corporate seals and the hands of their proper officers in
that behalf.
FINOVA (CANADA) FINANCE INC.
By:
-------------------------------------
By:
-------------------------------------
FINOVA CAPITAL CORPORATION
By:
-------------------------------------
By:
-------------------------------------
CIBC MELLON TRUST COMPANY
By:
-------------------------------------
By:
-------------------------------------
<PAGE>
SCHEDULE "A" TO THE TRUST INDENTURE DATED AS OF FEBRUARY *, 2000 AMONG
FINOVA (CANADA) FINANCE INC., FINOVA CAPITAL CORPORATION AND CIBC MELLON
TRUST COMPANY, AS TRUSTEE.
No. _____
FORM OF REGISTERED GLOBAL DEBENTURE FOR MEDIUM TERM NOTES
This Medium Term Note is a Registered Global
Debenture within the meaning of the Indenture
hereinafter referred to and is registered in
the name of a Depositary or a nominee thereof.
This Medium Term Note may not be transferred
to, or exchanged for Medium Term Notes
registered in the name of, any Person other
than the Depositary or a nominee thereof and
no such transfer or exchange may be
registered, except in the limited
circumstances described in the Indenture.
Every Medium Term Note authenticated and
delivered upon registration of transfer of, or
in exchange for or in lieu of, this Medium
Term Note shall be a Registered Global
Debenture subject to the foregoing, except in
such limited circumstances described in the
Indenture.
FINOVA (CANADA) FINANCE INC.
(Incorporated under the laws of Nova Scotia)
MEDIUM TERM NOTE
Issue Date Redemption Provisions, if any:
Maturity Date
Interest Rate Per Annum Other Provisions, if any:
Interest Payment Dates
Initial Interest Payment Date CUSIP No.:
Principal Sum
Currency
FINOVA (CANADA) FINANCE INC. (the "CORPORATION") for value received hereby
acknowledges itself indebted and promises to pay to The Canadian
Depositary for Securities Limited under their nominee, CDS & Co., as depositary
(herein referred to as the "DEPOSITARY") hereof, on the above maturity date, or
on such earlier date as the principal amount hereof may become due and payable
in accordance with the provisions of the Indenture hereinafter mentioned or any
Pricing Supplement (as herein defined), the principal sum in the currency
specified on presentation and surrender of this Medium Term Note at any branch
in Canada of the Canadian Imperial Bank of Commerce or such other financial
institution as may be designated from time to time by the Corporation, at the
holder's option, and to calculate and pay interest, both before and after
maturity, default or judgment on the principal amount hereof at the above
interest rate per annum from the last interest payment date to which interest
shall have been paid or made available for payment on this Medium Term Note,
whichever is later, at any one of the said places, at the holder's option, in
<PAGE>
-2-
like money on the above-noted interest payment dates in each year, the first
such payment to be payable on the above initial interest payment date, and
should the Corporation at any time make default in the payment of any principal
or interest, to pay interest on demand on the amount in default, both before and
after maturity, default or judgment, at the same rate, in like money, at one of
the said places, at the holder's option, and on the same date. Interest hereon
shall be payable (except at maturity when interest may at the option of the
Corporation be paid on surrender hereof) by cheque mailed to the registered
holder hereof at least three business days prior to each date on which interest
becomes due as provided in the Indenture. Notwithstanding the foregoing, any
payments may be made at the option of the Corporation, by electronic funds
transfer or otherwise to the Depositary or its nominee for subsequent payment to
holders of interests herein. Subject to the provisions of the Indenture, the
mailing of such cheque or the making of such payment by other means shall, to
the extent of the sum represented thereby (plus the amount of any tax withheld),
satisfy and discharge all liability for interest on this Medium Term Note unless
such be not paid upon presentation.
This Medium Term Note is one of the series (designated as Medium Term
Notes) of Debentures of the Corporation issued or issuable in one or more series
under the provisions of a trust indenture (which trust indenture, together with
all instruments supplemental or ancillary thereto, is herein referred to as the
"INDENTURE") made as of February O, 2000 among the Corporation, FINOVA Capital
Corporation, as guarantor, (the "GUARANTOR") and CIBC Mellon Trust Company, as
trustee (the "TRUSTEE"). The Medium Term Notes, of which this is one, issued or
issuable under the Indenture are unlimited as to an aggregate principal amount.
The aggregate principal amount of Debentures of other series which may be
authorized under the Indenture is unlimited, but such Debentures may be issued
only upon the terms and subject to the conditions provided in the Indenture.
Reference is hereby made to the Indenture for a description of the terms and
conditions upon which the Medium Term Notes are issued, or may be issued, and
held and the rights of the holders of the said Medium Term Notes and of the
Corporation, the Guarantor and the Trustee and to the terms of any pricing
supplement or prospectus supplement issued with respect to any tranche of Medium
Term Notes which is a supplement to the then current prospectus of the
corporation for the issue of Medium Term Notes (the "Pricing Supplement"), all
to the same effect as if the provisions of the Indenture were herein set forth,
to all of which provisions the holder of this Medium Term Note by acceptance
hereof assents.
While the Medium Term Notes created and issuable under the Indenture
constitute a series of Debentures for purposes of the Indenture, for purposes of
ARTICLE 6 of the Indenture, each issuance of Medium Term Notes pursuant to a
Written Order of the Corporation, shall be deemed to be a separate series.
The Medium Term Notes are issuable only as fully registered Debentures or
as Registered Global Debentures in denominations of $1,000 or, in the case of
another currency or currency unit in such denominations as may be determined by
the Corporation. Upon compliance with the provisions of the Indenture and in
certain limited circumstances, a Registered Global Debenture may be exchanged
for Medium Term Notes in fully registered form in authorized denominations.
This Medium Term Note and all other Debentures certified and issued under
the Indenture rank pari passu, except for purchase or sinking fund, or
amortization fund or analogous provisions, according to their tenor without
discrimination, preference or priority. The Medium Term Notes are direct
obligations of the Corporation but are not secured by any mortgage, pledge or
other charge.
If provision is made therefor above, this Medium Term Note is redeemable
prior to maturity only in accordance with the terms of the Indenture, unless
otherwise provided in the Pricing Supplement.
<PAGE>
-3-
The right is reserved to the Corporation, subject to the terms and
conditions set forth in the Indenture, to purchase any of the Medium Term Notes
at any time and from time to time, in the market or by tender or by private
contract.
The principal hereof and interest hereon may also become or be declared due
and payable before the stated maturity in the events, in the manner and with the
effect provided in the Indenture.
If an Event of Default with respect to the Medium Term Notes of this series
shall occur and be continuing, the principal of all Medium Term Notes may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture contains provisions making binding upon all Holders of
Debentures outstanding thereunder resolutions passed at meetings of such Holders
held in accordance with such provisions and instruments in writing signed by the
Holders of a specified majority of Debentures outstanding.
This Medium Term Note may only be validly transferred upon compliance with
the limited conditions prescribed in the Indenture and in the manner as provided
in the Indenture, and upon compliance with such reasonable requirements as the
Trustee and other registrar may prescribe, and upon such transfer being noted
hereon.
This Medium Term Note shall not become obligatory for any purpose until
endorsed by the Guarantor and certified by the Trustee or other agent for the
time being under the Indenture.
This Medium Term Note shall be governed by and construed in accordance with
the laws of the Province of Alberta.
IN WITNESS WHEREOF FINOVA (CANADA) FINANCE INC. has caused this Medium Term
Note to be signed under its seal by its duly authorized officers as of
__________________, ________.
FINOVA (CANADA) FINANCE INC.
By:
-------------------------------------
By:
-------------------------------------
<PAGE>
FORM OF CERTIFICATION
This Registered Global Debenture represents one of the Medium Term Notes
referred to in the Indenture within mentioned.
CANADIAN IMPERIAL BANK OF COMMERCE
By:
-------------------------------------
Authorized Officer
<PAGE>
SCHEDULE "B" TO THE TRUST INDENTURE DATED AS OF FEBRUARY *, 2000 AMONG FINOVA
(CANADA) FINANCE INC., FINOVA CAPITAL CORPORATION and CIBC MELLON TRUST COMPANY,
AS TRUSTEE.
No. _____
FORM OF REGISTERED DEBENTURE FOR MEDIUM TERM NOTES
FINOVA (CANADA) FINANCE INC.
(Incorporated under the laws of Nova Scotia)
MEDIUM TERM NOTE
Issue Date Redemption Provisions, if any:
Maturity Date
Interest Rate Per Annum Other Provisions, if any:
Interest Payment Dates
Initial Interest Payment Date CUSIP No.:
Principal Sum
Currency
FINOVA (CANADA) FINANCE INC. (the "Corporation") for value received hereby
acknowledges itself indebted and promises to pay to
________________________________________________
_______________________________________________________________, on the above
maturity date, or on such earlier date as the principal amount hereof may become
due and payable in accordance with the provisions of the Indenture hereinafter
mentioned or any Pricing Supplement (as herein defined), the principal sum in
the currency specified on presentation and surrender of this Medium Term Note at
any branch in Canada of the Canadian Imperial Bank of Commerce or such other
financial institution as may be designated from time to time by the Corporation,
at the holder's option, and to calculate and pay interest, both before and after
maturity, default or judgment on the principal amount hereof at the above
interest rate per annum from the last interest payment date to which interest
shall have been paid or made available for payment on this Medium Term Note,
whichever is later, at any one of the said places, at the holder's option, in
like money on the above-noted interest payment dates in each year, the first
such payment to be payable on the above initial interest payment date, and
should the Corporation at any time make default in the payment of any principal
or interest, to pay interest on demand on the amount in default, both before and
after maturity, default or judgment, at the same rate, in like money, at one of
the said places, at the holder's option, and on the same date. Interest hereon
shall be payable (except at maturity when interest may at the option of the
Corporation be paid on surrender hereof) by cheque mailed to the registered
holder hereof at least three business days prior to each date on which interest
<PAGE>
-2-
becomes due as provided in the Indenture. Subject to the provisions of the
Indenture, the mailing of such cheque or the making of such payment by other
means shall, to the extent of the sum represented thereby (plus the amount of
any tax withheld), satisfy and discharge all liability for interest on this
Medium Term Note unless such be not paid upon presentation.
This Medium Term Note is one of the series (designated as Medium Term
Notes) of Debentures of the Corporation issued or issuable in one or more series
under the provisions of a trust indenture (which trust indenture, together with
all instruments supplemental or ancillary thereto, is herein referred to as the
"Indenture") made as of February o, 2000 among the Corporation, FINOVA Capital
Corporation, as guarantor, (the "Guarantor") and CIBC Mellon Trust Company, as
trustee (the "Trustee"). The Medium Term Notes, of which this is one, issued or
issuable under the Indenture are unlimited as to an aggregate principal amount.
The aggregate principal amount of Debentures of other series which may be
authorized under the Indenture is unlimited, but such Debentures may be issued
only upon the terms and subject to the conditions provided in the Indenture.
Reference is hereby made to the Indenture for a description of the terms and
conditions upon which the Medium Term Notes are issued, or may be issued, and
held and the rights of the holders of the said Medium Term Notes and of the
Corporation, the Guarantor and the Trustee and to the terms of any pricing
supplement or prospectus supplement issued with respect to any tranche of Medium
Term Notes which is a supplement to the then current prospectus of the
Corporation for the issue of Medium Term Notes (the "Pricing Supplement"), all
to the same effect as if the provisions of the Indenture were herein set forth,
to all of which provisions the holder of this Medium Term Note by acceptance
hereof assents.
While the Medium Term Notes created and issuable under the Indenture
constitute a series of Debentures for purposes of the Indenture, for purposes of
ARTICLE 6 of the Indenture, each issuance of Medium Term Notes pursuant to a
Written Order of the Corporation, shall be deemed to be a separate series.
The Medium Term Notes are issuable only as fully registered Debentures or
as Registered Global Debentures in denominations of $1,000 or, in the case of
another currency or currency unit in such denominations as may be determined by
the Corporation. Upon compliance with the provisions of the Indenture and in
certain limited circumstances, a Registered Global Debenture may be exchanged
for Medium Term Notes in fully registered form in authorized denominations.
This Medium Term Note and all other Debentures certified and issued under
the Indenture rank pari passu, except for purchase or sinking fund, or
amortization fund or analogous provisions, according to their tenor without
discrimination, preference or priority. The Medium Term Notes are direct
obligations of the Corporation but are not secured by any mortgage, pledge or
other charge.
If provision is made therefor above, this Medium Term Note is redeemable
prior to maturity only in accordance with the terms of the Indenture, unless
otherwise provided in the Pricing Supplement.
The right is reserved to the Corporation, subject to the terms and
conditions set forth in the Indenture, to purchase any of the Medium Term Notes
at any time and from time to time, in the market or by tender or by private
contract.
<PAGE>
-3-
The principal hereof and interest hereon may also become or be declared due
and payable before the stated maturity in the events, in the manner and with the
effect provided in the Indenture.
If an Event of Default with respect to the Medium Term Notes of this series
shall occur and be continuing, the principal of all Medium Term Notes may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture contains provisions making binding upon all Holders of
Debentures outstanding thereunder resolutions passed at meetings of such Holders
held in accordance with such provisions and instruments in writing signed by the
Holders of a specified majority of Debentures outstanding.
This Medium Term Note may only be validly transferred upon compliance with
the limited conditions prescribed in the Indenture and in the manner as provided
in the Indenture, and upon compliance with such reasonable requirements as the
Trustee and other registrar may prescribe, and upon such transfer being noted
hereon.
This Medium Term Note shall not become obligatory for any purpose until
endorsed by the Guarantor and certified by the Trustee or other agent for the
time being under the Indenture.
This Medium Term Note shall be governed by and construed in accordance with
the laws of the Province of Alberta.
IN WITNESS WHEREOF FINOVA (CANADA) FINANCE INC. has caused this Medium Term
Note to be signed under its seal by its duly authorized officers as of
__________________, ________.
FINOVA (CANADA) FINANCE INC.
By:
-------------------------------------
By:
-------------------------------------
<PAGE>
FORM OF CERTIFICATION
THIS FULLY REGISTERED DEBENTURE REPRESENTS ONE OF THE MEDIUM TERM NOTES
REFERRED TO IN THE INDENTURE WITHIN MENTIONED.
CANADIAN IMPERIAL BANK OF COMMERCE
BY:
-------------------------------------
AUTHORIZED OFFICER
FORM OF REGISTRATION PANEL
(NO WRITING HEREON EXCEPT BY THE TRUSTEE OR OTHER REGISTRAR)
DATE OF NAME OF PLACE OF TRUSTEE OR
REGISTRATION REGISTERED HOLDER REGISTRATION OTHER REGISTRAR
- ------------ ----------------- ------------ ---------------
- ------------ ----------------- ------------ ---------------
- ------------ ----------------- ------------ ---------------
- ------------ ----------------- ------------ ---------------
- ------------ ----------------- ------------ ---------------
<PAGE>
-1-
SCHEDULE "C" TO THE TRUST INDENTURE DATED AS OF FEBRUARY *, 1999
AMONG FINOVA (CANADA) FINANCE INC., FINOVA CAPITAL
CORPORATION AND CIBC MELLON TRUST COMPANY, AS TRUSTEE.
FORM OF GUARANTEE OF FINOVA CAPITAL CORPORTION
FOR VALUE RECEIVED, FINOVA CAPITAL CORPORATION (the "Guarantor"), which term
includes any successor corporation to the extent permitted under the Indenture
referred to in the Note upon which this guarantee is endorsed (the "Indenture"),
a corporation duly organized and existing under the laws of the State of
Delaware, hereby unconditionally guarantees to the Holder of the Note upon which
this Guarantee is endorsed (the "Note") the due and punctual payment of the
principal of, premium (if any) and interest on the Note, when and as the same
shall become due and payable after any applicable grace period set forth in the
Indenture, whether at their respective due dates, on redemption, on a
declaration or otherwise, in accordance with the terms of the Note and of the
Indenture (the "Obligations"); provided, however, that payment of interest on
overdue installments of interest is hereby guaranteed only to the extent
permitted by applicable law. In case of default by FINOVA (Canada) Finance Inc.
(the "Corporation") (which term includes any successor corporation to the extent
permitted under the Indenture) in the payment of any such principal, premium or
interest, the Guarantor agrees duly and punctually to pay the same without
demand after the expiry of any applicable grace period set forth in the
Indenture. The Guarantor hereby agrees that its obligations hereunder and under
the Indenture shall be unconditional, irrespective of any invalidity,
illegality, irregularity or unenforceability of the Note or the Indenture as
regards the Corporation, including any waiver or amendment thereof, (other than
by reason of lack of genuineness), or the absence of any action to enforce the
same, the recovery of any judgment against the Corporation or any action to
enforce the same or any circumstance which might otherwise constitute a legal or
equitable discharge or defence of a guarantor. The Guarantor hereby waives
diligence, presentment, demand of payment, filing of claims with a court in the
event of merger, amalgamation, reorganization, insolvency or bankruptcy of the
Corporation, any right to require a proceeding first against the Corporation,
protest or notice with respect to the Note or the indebtedness evidenced thereby
and all demands whatsoever, and covenants that this Guarantee will not be
discharged except by payment in full of the principal of, premium (if any) and
interest on the Note.
The obligation of the Guarantor under this Guarantee shall be a continuing
obligation, shall cover all the Obligations, and shall apply to and secure any
ultimate balance due or remaining unpaid to the Holder of the Note.
In addition to the guarantee contained in this Guarantee and the Indenture,
the Guarantor hereby covenants and agrees to indemnify and save the Holder of
the Note harmless against all reasonable costs, losses, expenses and damages it
may suffer as a result of the Corporation's default in performance of any of the
Obligations.
The Guarantor shall not be or become liable under this Guarantee to make
any payment of principal, premium (if any) or interest in respect of which the
Corporation shall be in default if the default of the Corporation in respect of
which the Guarantor would otherwise be or become liable under this Guarantee
shall have been waived or directed to be waived pursuant to the provisions in
that behalf contained in the Indenture, but no waiver or consent of any kind
whatsoever, shall release, alter or impair the unconditional obligation of the
Guarantor hereunder after giving effect to such waiver or consent.
The Guarantor shall be subrogated to all rights of the Holder of the Note
against the Corporation in respect of any amount paid by the Guarantor pursuant
to the provisions of this Guarantee; provided, however, that the Guarantor shall
not be entitled to enforce, or to receive any payments arising out of or based
upon, such right of subrogation until the principal of, premium, if any, and
interest on all Notes issued under the Indenture shall have been paid in full or
duly provided for.
<PAGE>
-2-
No remedy for the enforcement of the rights of the Holder of the Note to
receive payment of the principal of and/or premium and/or interest on the Note,
under the Note, the Indenture and hereunder, shall be exclusive of or dependant
on any other remedy.
This Guarantee has been given in accordance with the terms of the Indenture
and is subject to all applicable provisions thereof and the same shall be deemed
to be incorporated hereunder.
The Guarantor hereby certifies and warrants that all acts, conditions and
things required to be done and performed and to have happened prior to the
creation and issuance of this Guarantee to constitute the same a valid and
legally binding obligation of the Guarantor enforceable in accordance with its
terms have been done and performed and have happened in due and strict
compliance with all applicable laws.
This Guarantee shall be governed by and construed in accordance with the
laws of the Province of Alberta.
This Guarantee shall not be valid or become obligatory for any purpose
until the Note shall have been certified by or on behalf of the Trustee under
the Indenture.
IN WITNESS WHEREOF, FINOVA Capital Corporation has caused this Guarantee to
be signed in its corporate name by the signatures of any two of the Chief
Executive Officer, the Executive Vice-President and Chief Financial Officer, a
Senior Vice-President and the Treasurer.
This Guarantee is dated *, *.
FINOVA CAPITAL CORPORATION
By:
-------------------------------------
By:
-------------------------------------
<PAGE>
-3-
FINOVA (CANADA) FINANCE INC.
Reconciliation and tie between Trust Indenture Act
of 1939 and the Indenture, dated as of February o, 2000,
in accordance with Rule 4d-9 of the Trust Indenture Act of 1939
TRUST INDENTURE ACT SECTION INDENTURE SECTION
- --------------------------- -----------------
ss.310 (a)(1) 13.10
(a)(2) 13.10
ss.316 (b) 8.11
- ----------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
EXECUTION COPY
FINOVA CAPITAL CORPORATION
SIXTH AMENDMENT DATED AS OF MAY 17, 1999 TO SIXTH AMENDMENT AND
RESTATEMENT OF CREDIT AGREEMENT DATED AS OF MAY 16,1994
This SIXTH AMENDMENT TO SIXTH AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT
(this "AMENDMENT") is dated as of May 17, 1999 and entered into by and among
FINOVA CAPITAL CORPORATION, a Delaware corporation (formerly known as Greyhound
Financial Corporation, hereinafter the "COMPANY"), the undersigned lenders
(collectively the "Lenders"), the undersigned Agents, NATIONSBANK NA., BANK OF
MONTREAL, THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), and CITIBANK, N.A.,
individually and as agents (the "AGENTS") for the Lenders hereunder, and
CITIBANK, N.A., a national banking association, as administrative agent (the
"ADMINISTRATIVE AGENT") for the Lenders hereunder, and is made with reference to
that certain Sixth Amendment and Restatement dated as of May 16, 1994 of Credit
Agreement dated as of May 31, 1976, by and among the Company, the Lenders, the
Agents and the Administrative Agent, as amended by a First Amendment to Sixth
Amendment and Restatement of Credit Agreement dated as of September 30, 1994, a
Second Amendment to Sixth Amendment and Restatement of Credit Agreement dated as
of May 11, 1995, a Third Amendment to Sixth Amendment and Restatement of Credit
Agreement dated as of November 1, 1995, a Fourth Amendment to Sixth Amendment
and Restatement of Credit Agreement dated as of May 15, 1996 and a Fifth
Amendment to Sixth Amendment and Restatement of Credit Agreement dated as of May
20, 1997 (as so amended, the "CREDIT AGREEMENT"). Capitalized terms used herein
without definition shall have the same meanings herein as set forth in the
Credit Agreement.
RECITALS
WHEREAS, the parties to the Credit Agreement wish to modify the terms of
the Credit Agreement;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. COMMITMENTS AND LENDERS
The Commitment of each Lender as of the Amendment Effective Date is set
forth in the amended Schedule 2 attached hereto, which Schedule 2 reflects all
assignments of Commitments, if any, through the Amendment Effective Date..
SECTION 2. AMENDMENTS TO THE CREDIT AGREEMENT
A. Amendment to Definition of Margin. Table B to the definition of "Margin"
is hereby amended by deleting such table in its entirety, and by substituting in
lieu thereof the following:
<PAGE>
" Table B
Eurodollar Margins
(in basis points)
Outstanding Advances as a
Percentage of Commitments (without
giving effect to any B reduction)
---------------------------------------------------------
Greater than or equal to Greater than or
Level Less than 35% 35% but less than 65% equal to 65%
----- ------------- --------------------- ------------
Level 1 20.00 32.50 45.0
Level 2 24.00 36.50 59.0
Level 3 25.00 37.50 60.0
Level 4 30.00 42.50 65.0
Level 5 50.00 62.50 85.0
Level 6 65.00 77.50 100.0"
B. AMENDMENT TO SECTION 4.02(b). Section 4.02(b) of the Credit Agreement is
hereby amended by (a) deleting therefrom the phrase "and (iii)" and substituting
in lieu thereof the phrase "and (iv)", and (b) inserting the following
immediately prior to such phrase "and (iv)":
"(iii) Indebtedness secured by any Lien existing on property of a Person
immediately prior to its being consolidated with or merged into the Company
or a Subsidiary or its becoming a Subsidiary, or any Lien existing on any
property acquired by the Company or any Subsidiary at the time such
property is so acquired (whether or not the Indebtedness secured thereby
shall have been assumed), PROVIDED that (x) no such Lien shall have been
created or assumed in contemplation of such consolidation or merger or such
Person's becoming a Subsidiary or such acquisition of property, and (y)
each such Lien shall extend solely to the item or items of property so
acquired and, if required by the terms of the instrument originally
creating such Lien, other property which is an improvement to or is
acquired for specific use in connection with such acquired property."
C. AMENDMENT TO SECTION 4.02(e). Section 4.02(e) of the Credit Agreement is
hereby deleted in its entirety.
D. AMENDMENT TO SECTION 4.02(g). Section 4.02(g) of the Credit Agreement is
hereby deleted in its entirety.
E. AMENDMENT TO SCHEDULE 2. Schedule 2 attached to the Credit Agreement is
hereby amended by deleting in its entirety and substituting in lieu thereof the
Schedule 2 attached hereto.
2
<PAGE>
F. AMENDMENT TO COMPLIANCE CERTIFICATE. The form of Compliance Certificate
attached to the Credit Agreement as Exhibit B is hereby amended and restated in
its entirety to read as set forth on Exhibit B to this Amendment.
SECTION 3. COMPANY'S REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Amendment and to amend the Credit
Agreement in the manner provided herein, the Company represents and warrants to
each Lender that the following statements are true, correct and complete:
A. CORPORATE POWER AND AUTHORITY. The Company has all requisite corporate
power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement, as amended by this Amendment (the "AMENDED AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment and the consummation of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of the Company.
C. NO CONFLICT. The execution and delivery by the Company of this Amendment
and the consummation by the Company of the Amended Agreement do not and will not
(i) violate any provision of any law or any governmental rule or regulation
applicable to the Company or its Subsidiaries, the certificate of incorporation
or bylaws of the Company or any order, judgment or decree of any court or other
agency of government binding on the Company or its Subsidiaries, (ii) conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any Contractual Obligation of the Company or its
Subsidiaries, (iii) result in or require the creation or imposition of any Lien
upon any of the properties or assets of the Company or its Subsidiaries, or (iv)
require any approval of stockholders or any approval or consent of any Person
under any contractual obligation of the Company or its Subsidiaries (other than
the parties hereto).
D. GOVERNMENTAL CONSENTS. The execution and delivery by the Company of this
Amendment and the consummation by the Company of the Amended Agreement do not
and will not require any registration with, consent or approval of, or notice
to, or other action to, with or by, any federal, state or other governmental
authority or regulatory body.
E. BINDING OBLIGATION. This Amendment has been duly executed and delivered
by the Company and this Amendment and the Amended Agreement are the legally
valid and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or limiting
creditors' rights generally or by principles oi equity and commercial
reasonableness.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT.
The representations and warranties contained in Section 3.01 of the Credit
Agreement are true, correct and complete in all material respects to the same
extent as though made on and as of the date hereof, except as provided above or
to the extent such representations and warranties specifically relate to an
earlier date, in which case they were true, correct and complete in all material
respects on and as of such earlier date.
3
<PAGE>
G. ABSENCE OF DEFAULT. No event has occurred and is continuing or will
result from the consummation of the transactions contemplated by this Amendment
that would, upon the giving of notice, the passage of time, or otherwise,
constitute an Event of Default.
SECTION 4. CONDITIONS TO EFFECTIVENESS
Section 1 and Section 2 of this Amendment shall become effective as of the
date hereof (such date being referred to herein as the "Amendment Effective
Date"); PROVIDED that all of the following conditions precedent shall have been
satisfied:
A. The Company shall have delivered to the Administrative Agent the
following, each, unless otherwise noted, dated the Amendment Effective Date:
(i) Resolutions of its Board of Directors approving and authorizing
the execution, delivery, and performance of this Amendment, certified as of
the Amendment Effective Date by its corporate secretary or an assistant
secretary as being in hill force and effect without modification or
amendment;
(ii) Signature and incumbency certificates of its officers executing
this Amendment; and
(iii) Executed copies of this Amendment.
B. All corporate and other proceedings taken or to be taken in connection
with the transactions contemplated hereby and all documents incidental thereto
not previously found acceptable by the Agents, acting on behalf of the Lenders,
and their counsel shall be satisfactory in form and substance to the Agents and
such counsel, and the Agents and such counsel shall have received all such
counterpart originals or certified copies of such documents as the Agents may
reasonably request.
SECTION 5. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the Other Loan
Documents.
(i) On and after the date this Amendment becomes effective in
accordance with its terms, each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof', "herein" or words of like import
referring to the Credit Agreement, and each reference in the Notes to the
"Credit Agreement", "thereunder", "thereof' or words of like import
referring to the Credit Agreement shall mean and be a reference to the
Amended Agreement.
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the Notes shall remain in full force and effect and are
hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of, any right, power or remedy of the
Agent or any Lender under, the Credit Agreement or the Notes.
B. FEES AND EXPENSES. The Company acknowledges that all costs, fees and
expenses as described in Section 8.05 of the Credit Agreement incurred by the
Administrative Agent and its counsel with respect to this Amendment and the
documents and transactions contemplated hereby shall be for the account of the
Company.
4
<PAGE>
C. HEADINGS. Section and subsection headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document. This Amendment shall become effective as of the date hereof
upon the execution and delivery of a counterpart hereof by the Company and the
Majority Lenders.
[Remainder of page intentionally left blank]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
The Company:
FINOVA Capital Corporation
By: /s/ Meilee Smythe
------------------------------------
Senior Vice President
Treasurer
By: /s/ Melissa Huckins
------------------------------------
Vice President
Assistant Treasurer
The Lenders:
CITIBANK, N.A. (Individually and as
Agent and Administrative Agent)
By: /s/ David L. Harris
------------------------------------
Vice President
BANK OF MONTREAL (Individually and as an
Agent)
By: /s/ Leon H. Sinclair
------------------------------------
Director
WELLS FARGO BANK, N.A.
By: /s/ Eric A. Schultz
------------------------------------
SVP/Division Mgr.
By: /s/ Garry Franklin
------------------------------------
FLEET BANK, N.A.
By: /s/ Alex Meuhrer
------------------------------------
Vice President
<PAGE>
The CHASE MANHATTAN BANK (Individually
and as an Agent)
By: /s/ Roger Parker
------------------------------------
Vice President
CREDIT SUISSE FIRST BOSTON
By: /s/ Jay Chall
------------------------------------
Director
By: /s/ Andrea E. Shkane
------------------------------------
Vice President
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
LOS ANGELES AGENCY
By: /s/ Vicente L. Timiraos
------------------------------------
SVP & SDGM
NATIONSBANK, N.A.
By: /s/ Shelly K. Harper
------------------------------------
Vice President
WESTDEUTSCHE LANDESBANK GIROZENTRALE-NEW
YORK AND CAYMAN ISLANDS BRANCHES
By: /s/ Raymond K. Miller
------------------------------------
Vice President
By: /s/ Leo G. Kapakos
------------------------------------
Associate
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Edward W. Leong
------------------------------------
First Vice President & Manager
BANCA MONTE DEI PASCHI DI SIENA S.p.A.
<PAGE>
By: /s/ S.M. Sondak
------------------------------------
F.V.P. & Dep General Manager
By: /s/ Nicolas A. Kanaris
------------------------------------
Vice President
FMB BANK
(formerly The First National Bank of
Maryland)
By: /s/ Andrew W. Fish
------------------------------------
Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Richard Wilson
------------------------------------
AVP
DRESDNER BANK, AG, NEW YORK AND GRAND
CAYMAN BRANCHES
By: /s/ Lloyd C. Stevens
------------------------------------
Vice President
By: /s/ George T. Ferguson
------------------------------------
Assistant Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Donald H. Rubin
------------------------------------
Vice President
ARAB BANKING CORPORATION, NEW YORK
BRANCH
By: /s/ Richard B. Whelan
------------------------------------
Chief Representative
THE BANK OF NOVA SCOTIA
By: /s/ M. Van Otterloo
------------------------------------
Sr. Relationship Manager
<PAGE>
FIRST UNION NATIONAL BANK
By: /s/ Jane W. Workman
------------------------------------
Senior Vice President
BANK OF HAWAII
By: /s/ Brenda Testerman
------------------------------------
Vice President
BANQUE NATIONALE DE PARIS
By: /s/ C. Bettles
------------------------------------
Sr. V.P. & Manager
By: /s/ D. Gohh
------------------------------------
Vice President
CREDIT AGRICOLE INDOSUEZ
By: /s/ Patrick Cocquerel
------------------------------------
First Vice President and
Managing Director
By: /s/ Kenneth C. Coulter
------------------------------------
Vice President and Senior
Relationship Manager
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK, AG
By: /s/ Rob T. Jokhai
------------------------------------
Assistant Vice President
By: /s/ Andrew S. Resnick
------------------------------------
Vice President
KBC BANK N.V.
By: /s/ Robert Snauffer
------------------------------------
First Vice President
By: /s/ Raymond F. Murray
------------------------------------
First Vice President
<PAGE>
UNITED STATES NATIONAL BANK OF OREGON
By: /s/ Thomas W. Clgary
------------------------------------
Vice President
ABN AMRO BANK N.V.
By: /s/ Ellen M. Coleman
------------------------------------
Vice President
By: /s/ John A. Miller
------------------------------------
Group Vice President
THE FUJI BANK, LTD. LOS ANGELES AGENCY
By: /s/ Masahito Fukuoka
------------------------------------
Joint Commercial Manager
PARIBAS
By: /s/ Carol Simon
------------------------------------
Head of Credit
By: /s/ Jean McCuer
------------------------------------
Sr. Credit Finance
DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN
ISLANDS BRANCHES
By: /s/ Gayma Z. Shivnarain
------------------------------------
Director
Vice President
COMMERZBANK AG, LOS ANGELES BRANCH
By: /s/ Christian Jagenberg
------------------------------------
SVP and Manager
By: /s/ Steven F. Largsen
------------------------------------
Vice President
<PAGE>
CHIBA BANK, LTD.
By: /s/ Keiji Yoshioka
------------------------------------
General Manager
DEN DANSKE BANK AKTIESELSKAB, CAYMAN
ISLANDS BRANCH
By: /s/ George B. Wendell
------------------------------------
Vice President
By: /s/ John A. O'Neil
------------------------------------
Vice President
IMPERIAL BANK, A CALIFORNIA BANKING
CORPORATION
By: /s/ Clifford A Payson
------------------------------------
Vice President
EXECUTION COPY
FINOVA CAPITAL CORPORATION
SIXTH AMENDMENT DATED AS OF MAY 17, 1999 TO CREDIT AGREEMENT (SHORT
TERM FACILITY) DATED AS OF MAY 16, 1994
This SIXTH AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is dated as of
May 17, 1999 and entered into by and among FINOVA CAPITAL CORPORATION, a
Delaware corporation (formerly known as Greyhound Financial Corporation,
hereinafter the "COMPANY"), the undersigned lenders (collectively the
"LENDERS"), the undersigned Agents, NATIONSBANK N.A., BANK OF MONTREAL, THE
CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), and CITIBANK, N.A., individually
and as agents (the "AGENTS") for the Lenders hereunder, and CITIBANK, N.A., a
national banking association, as administrative agent (the "ADMINISTRATIVE
AGENT") for the Lenders hereunder, and is made with reference to that certain
Credit Agreement (Short Term Facility) dated as of May 16, 1994, by and among
the Company, the Lenders, the Agents and the Administrative Agent, as amended by
a First Amendment to Credit Agreement dated as of September 30, 1994, a Second
Amendment to Credit Agreement dated as of May 11, 1995, a Third Amendment to
Credit Agreement dated as of November 1, 1995, a Fourth Amendment to Credit
Agreement dated as of May 15, 1996 and a Fifth Amendment to Credit Agreement
dated as of May 20, 1997 (as so amended, the "CREDIT AGREEMENT"). Capitalized
terms used herein without definition shall have the same meanings herein as set
forth in the Credit Agreement.
RECITALS
WHEREAS, the parties to the Credit Agreement wish to modify the terms of
the Credit Agreement;
WHEREAS, certain Lenders declined to consent to the Company's request for
an extension of the Termination Date, and pursuant to Section 2.10(b) of the
Credit Agreement, the Company desires to exercise its rights to terminate the
respective Commitments of such non-consenting Lenders and to increase the
respective Commitments of certain existing Lenders pursuant to Section 2.10(c)
and/or add additional Lenders pursuant to Section 8.02;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. COMMITMENTS AND LENDERS
A. Pursuant to Section 2.10(b) of the Credit Agreement, the Company hereby
terminates the Commitment of each Lender which has not consented to the
Company's request for an extension of the Termination Date, and by execution of
this Amendment the Administrative Agent hereby acknowledges such termination.
B. Pursuant to Section 2.10(c) of the Credit Agreement, the Company hereby
increases the Commitments of certain existing Lenders, such increased
Commitments and the corresponding Lenders being identified in the amended
Schedule 2 attached hereto, and by execution of this Amendment the Lenders whose
Commitments are so increased hereby consent to such increases in their
respective Commitments.
<PAGE>
C. Pursuant to Section 8.02 of the Credit Agreement, the Company hereby
adds certain additional lenders as Lenders under the Credit Agreement, all
Lenders (including such additional Lenders) as of the Amendment Effective Date
being identified in the amended Schedule 2 attached hereto. By its execution of
this Amendment each such additional Lender hereby becomes a party to the Credit
Agreement, as amended by this Amendment. By its execution of this Amendment the
Administrative Agent hereby acknowledges the addition of such additional
Lenders.
D. The Commitment of each Lender as of the Amendment Effective Date is set
forth in the amended Schedule 2 attached hereto.
SECTION 2. AMENDMENTS TO THE CREDIT AGREEMENT
A. Amendment to Definition of Margin. Table B to the definition of "Margin"
is hereby amended by deleting such table in its entirety, and by substituting in
lieu thereof the following:
" Table B
Eurodollar Margins
(in basis points)
Outstanding Advances as a
Percentage of Commitments (without
giving effect to any B reduction)
---------------------------------------------------------
Greater than or equal to Greater than or
Level Less than 35% 35% but less than 65% equal to 65%
- ----- ------------- --------------------- ------------
Level 1 22.50 35.00 47.50
Level 2 26.50 39.00 61.50
Level 3 27.50 40.00 62.50
Level 4 32.50 45.00 67.50
Level 5 55.00 67.50 90.00
Level 6 75.00 87.50 110.00"
B. AMENDMENT TO SECTION 4.02(b). Section 4.02(b) of the Credit Agreement is
hereby amended by (a) deleting therefrom the phrase "and (iii)" and substituting
in lieu thereof the phrase "and (iv)", and (b) inserting the following
immediately prior to such phrase "and (iv)":
"(iii) Indebtedness secured by any Lien existing on property of a Person
immediately prior to its being consolidated with or merged into the Company
or a Subsidiary or its becoming a Subsidiary, or any Lien existing on any
property acquired by the Company or any Subsidiary at the time such
property is so acquired (whether or not the Indebtedness secured thereby
shall have been assumed), PROVIDED that (x) no such Lien shall have been
created or assumed in contemplation of such consolidation or merger or such
2
<PAGE>
Person's becoming a Subsidiary or such acquisition of property, and (y)
each such Lien shall extend solely to the item or items of property so
acquired and, if required by the terms of the instrument originally
creating such Lien, other property which is an improvement to or is
acquired for specific use in connection with such acquired property."
C. AMENDMENT TO SECTION 4.02(e). Section 4.02(e) of the Credit Agreement is
hereby deleted in its entirety.
D. AMENDMENT TO SECTION 4.02(g). Section 4.02(g) of the Credit Agreement is
hereby deleted in its entirety.
E. AMENDMENT TO SCHEDULE 1. Schedule I attached to the Credit Agreement is
hereby amended by adding the following information to the Schedule:
<TABLE>
<CAPTION>
Bank Domestic Lendine Office Eurodollar Lending Office
---- ----------------------- -------------------------
<S> <C> <C>
Barclays Bank, PLC Barclays Bank, PLC Barclays Bank, PLC
222 Broadway 222 Broadway
New York, NY 10038 New York, NY 10038
Attention: Cristina Challenger Attention: Cristina Challenger
Telephone No.: (212) 412-3701 Telephone No.: (212) 412-3701
Facsimile No.: (212) 412-5306 Facsimile No.: (212) 412-5306
</TABLE>
F. AMENDMENT TO SCHEDULE 2. Schedule 2 attached to the Credit Agreement is
hereby amended by deleting in its entirety and substituting in lieu thereof the
Schedule 2 attached hereto.
G. AMENDMENT TO COMPLIANCE CERTIFICATE. The form of Compliance Certificate
attached to the Credit Agreement as Exhibit B is hereby amended and restated in
its entirety to read as set forth on Exhibit B to this Amendment.
SECTION 3. COMPANY'S REPRESENTATIONS ANT) WARRANTIES
To induce the Lenders to enter into this Amendment and to amend the Credit
Agreement in the manner provided herein, the Company represents and warrants to
each Lender that the following statements are true, correct and complete:
A. CORPORATE POWER AND AUTHORITY. The Company has all requisite corporate
power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement, as amended by this Amendment (the "AMENDED AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment and the consummation of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of the Company.
C. NO CONFLICT. The execution and delivery by the Company of this Amendment
and the consummation by the Company of the Amended Agreement do not and will not
(i) violate any provision of any law or any governmental rule or regulation
3
<PAGE>
applicable to the Company or its Subsidiaries, the certificate of incorporation
or bylaws of the Company or any order, judgment or decree of any court or other
agency of government binding on the Company or its Subsidiaries, (ii) conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any Contractual Obligation of the Company or its
Subsidiaries, (iii) result in or require the creation or imposition of any Lien
upon any of the properties or assets of the Company or its Subsidiaries, or (iv)
require any approval of stockholders or any approval or consent of any Person
under any contractual obligation of the Company or its Subsidiaries (other than
the parties hereto).
D. GOVERNMENTAL CONSENTS. The execution and delivery by the Company of this
Amendment and the consummation by the Company of the Amended Agreement do not
and will not require any registration with, consent or approval of, or notice
to, or other action to, with or by, any federal, state or other governmental
authority or regulatory body.
E. BINDING OBLIGATION. This Amendment has been duly executed and delivered
by the Company and this Amendment and the Amended Agreement are the legally
valid and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or limiting
creditors' rights generally or by principles of equity and commercial
reasonableness.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT.
The representations and warranties contained in Section 3.01 of the Credit
Agreement are true, correct and complete in all material respects to the same
extent as though made on and as of the date hereof, except as provided above or
to the extent such representations and warranties specifically relate to an
earlier date, in which case they were true, correct and complete in all material
respects on and as of such earlier date.
G. ABSENCE OF DEFAULT. No event has occurred and is continuing or will
result from the consummation of the transactions contemplated by this Amendment
that would, upon the giving of notice, the passage of time, or otherwise,
constitute an Event of Default.
SECTION 4. CONDITIONS TO EFFECTIVENESS
Section 1 and Section 2 of this Amendment shall become effective as of the
date hereof (such date being referred to herein as the "Amendment Effective
Date"), PROVIDED that all of the following shall have been satisfied:
A. The Company shall have delivered to the Administrative Agent the
following, each, unless otherwise noted, dated the Amendment Effective Date:
(i) Resolutions of its Board of Directors approving and authorizing
the execution, delivery, and performance of this Amendment, certified as of
the Amendment Effective Date by its corporate secretary or an assistant
secretary as being in full force and effect without modification or
amendment;
(ii) Signature and incumbency certificates of its officers executing
this Amendment; and
4
<PAGE>
(iii) Executed copies of this Amendment.
B. All corporate and other proceedings taken or to be taken in connection
with the transactions contemplated hereby and all documents incidental thereto
not previously found acceptable by the Agents, acting on behalf of the Lenders,
and their counsel shall be satisfactory in form and substance to the Agents and
such counsel, and the Agents and such counsel shall have received all such
counterpart originals or certified copies of such documents as the Agents may
reasonably request.
SECTION 5. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the Other Loan
Documents.
(i) On and after the date this Amendment becomes effective in
accordance with its terms, each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof', "herein" or words of like import
referring to the Credit Agreement, and each reference in the Notes to the
"Credit Agreement", "thereunder", "thereof' or words of like import
referring to the Credit Agreement shall mean and be a reference to the
Amended Agreement.
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the Notes shall remain in fill force and effect and are
hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of, any right, power or remedy of the
Agent or any Lender under, the Credit Agreement or the Notes.
B. FEES AND EXPENSES. The Company acknowledges that all costs, fees and
expenses as described in Section 8.05 of the Credit Agreement incurred by the
Administrative Agent and its counsel with respect to this Amendment and the
documents and transactions contemplated hereby shall be for the account of the
Company.
C. HEADINGS. Section and subsection headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document. This Amendment shall become effective as of the date hereof
upon the execution and delivery of a counterpart hereof by the Company, the
Majority Lenders, each Lender whose Commitment is increased pursuant to Section
1B hereof and each additional Lender added as a Lender pursuant to Section 1C
hereof.
[Remainder of page intentionally left blank]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
The Company:
FINOVA Capital Corporation
By: /s/ Meilee Smythe
------------------------------------
Senior Vice President
Treasurer
By: /s/ Melissa Huckins
------------------------------------
Vice President
Assistant Treasurer
The Lenders:
CITIBANK, N.A. (Individually and as
Agent and Administrative Agent)
By: /s/ David L. Harris
------------------------------------
Vice President
BANK OF MONTREAL (Individually and as an
Agent)
By: /s/ Leon H. Sinclair
------------------------------------
Director
The CHASE MANHATTAN BANK (Individually
and as an Agent)
By: /s/ Roger Parker
------------------------------------
Vice President
CREDIT SUISSE FIRST BOSTON
By: /s/ Jay Chall
------------------------------------
Director
By:
------------------------------------
Andrea E. Shkane
Vice President
<PAGE>
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
LOS ANGELES AGENCY
By: /s/ Vicente L. Timiraos
------------------------------------
SVP & SDGM
NATIONSBANK, N.A.
By: /s/ Shelly K. Harper
------------------------------------
Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Donald H. Rubin
------------------------------------
Vice President
WESTDEUTSCHE LANDESBANK GIROZENTRALE-NEW
YORK AND CAYMAN ISLANDS BRANCHES
By: /s/ Raymond K. Miller
------------------------------------
Vice President
By:
------------------------------------
Leo G. Kapakos
Associate
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Edward W. Leong
------------------------------------
First Vice President & Manager
WELLS FARGO BANK
By:
------------------------------------
Eric A Schulz
SVP/Division Mgr.
FMB BANK
(formerly The First National Bank of
Maryland)
By: /s/ Andrew W. Fish
------------------------------------
Vice President
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Richard Wilson
------------------------------------
AVP
DRESDNER BANK, AG, NEW YORK AND GRAND
CAYMAN BRANCHES
By: /s/ Lloyd C. Stevens
------------------------------------
Vice President
By: /s/ George T. Ferguson
------------------------------------
Assistant Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Donald H. Rubin
------------------------------------
Vice President
ARAB BANKING CORPORATION, NEW YORK
BRANCH
By: /s/ Richard B. Whelan
------------------------------------
Chief Representative
THE BANK OF NOVA SCOTIA
By: /s/ M. Van Otterloo
------------------------------------
Sr. Relationship Manager
FIRST UNION NATIONAL BANK
By: /s/ Jane W. Workman
------------------------------------
Senior Vice President
BANK OF HAWAII
By: /s/ Brenda Testerman
------------------------------------
Vice President
<PAGE>
BANQUE NATIONALE DE PARIS
By: /s/ C. Bettles
------------------------------------
Sr. V.P. & Manager
By: /s/ D. Gohh
------------------------------------
Vice President
COMERICA BANK
By: /s/ Eoin P. Collins
------------------------------------
Account Officer
CREDIT AGRICOLE INDOSUEZ
By: /s/ Patrick Cocquerel
------------------------------------
First Vice President and
Managing Director
By: /s/ Kenneth C. Coulter
------------------------------------
Vice President and Senior
Relationship Manager
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK, AG
By: /s/ Rob T. Jokhai
------------------------------------
Assistant Vice President
By: /s/ Andrew S. Resnick
------------------------------------
Vice President
KBC BANK N.V.
By: /s/ Robert Snauffer
------------------------------------
First Vice President
By: /s/ Raymond F. Murray
------------------------------------
First Vice President
ISTITUTO BANCARIO SAN PAOLO DI TORINO
ISTITUTO MOBILIARE ITALIANO S.P.A.
By: /s/ Carlo Persico
------------------------------------
Deputy Manager
<PAGE>
By: /s/ Robert Wurster
------------------------------------
First Vice President
UNITED STATES NATIONAL BANK OF OREGON
By: /s/ Thomas W. Clgary
------------------------------------
Vice President
ABN AMRO BANK N.V.
By: /s/ Ellen M. Coleman
------------------------------------
Vice President
By: /s/ John A. Miller
------------------------------------
Group Vice President
PARIBAS
By: /s/ Carol Simon
------------------------------------
Head of Credit-NY
By: /s/ Jean McCuer
------------------------------------
Sr. Credit Officer
DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN
ISLANDS BRANCHES
By: /s/ Gayma Z. Shivnarain
------------------------------------
Director
By: /s/ John S. McGill
------------------------------------
Director
BANCA MONTE DEI PASCHI DI SIENA S.p.A.
By: /s/ S.M. Sondak
------------------------------------
F.V.P. & Dep General Manager
By: /s/ Nicolas A. Kanaris
------------------------------------
Vice President
<PAGE>
DEN DANSKE BANK AKTIESELSKAB, CAYMAN
ISLANDS BRANCH
By: /s/ George B. Wendell
------------------------------------
Vice President
By: /s/ John A. O'Neill
------------------------------------
Vice President
COMMERZBANK AG, LOS ANGELES BRANCH
By: /s/ Christian Jagenberg
------------------------------------
SVP and Manager
By: /s/ Steven F. Largsen
------------------------------------
Vice President
THE FUJI BANK, LTD. LOS ANGELES AGENCY
By: /s/ Masahito Fukuoka
------------------------------------
Joint Commercial Manager
THE FINOVA GROUP INC.
2000 MANAGEMENT INCENTIVE PLAN
I. PURPOSE:
The purpose of the Management Incentive Plan ("MIP") is to give key management
employees an incentive to fully contribute to annual improvement of our
historical operating results through effective leadership and action. By
operating as efficiently and effectively as possible, The FINOVA Group Inc. and
its subsidiaries (the "Company") can continue to position itself as the
"low-cost producer" among its peers, a valuable competitive advantage.
II. PARTICIPANTS:
The Human Resources Committee of The FINOVA Group Inc. ("the Committee") is
provided a list of Executive Officer participants (Securities Exchange Act of
1934 Section 16(b) insiders) at its first meeting of the year (other
participants may be designated by the Chairman and Chief Executive Officer). The
list includes the proposed current year target MIP percentage, target MIP award
and estimated earnings for each participant. New hires, promotions, and
acquisitions will increase this estimate. Terminations, demotions, deaths,
retirements, disabilities, and divestitures will decrease this estimate. Some of
these events may result in pro-rata awards at the same time regular awards are
made at the beginning of the following year.
The target percentage for each participant is established at the beginning of
each year. Target percentages are based on responsibilities and do not generally
change from year to year except for promotions and adjustments resulting from
market survey data.
Each participant shall prepare a list of individual objectives at the beginning
of the plan year. The objectives cover financial, task, leadership, development
and innovation goals. Each objective is weighted based on relative importance.
III. FINANCIAL OBJECTIVES:
Critical financial objectives are determined by appropriate senior managers of
the Company. These financial objectives are then weighted.
For 2000 these objective and percentage weightings are:
PERFORMANCE MEASURE FINOVA GROUP FINOVA CAPITAL
------------------- ------------ --------------
EARNINGS PER SHARE FROM CONT. OPS.. 30%
RELATIVE SHAREHOLDER PERFORMANCE 10%
NET INCOME FROM CONT. OPS. 30% 40%
RETURN ON AVERAGE EQUITY 30% 40%
AVERAGE MANAGED ASSETS 20%
The target, minimum and maximum performance level for each measurement are
presented to the Committee at its first meeting of the year. Minimum performance
results in 50% achievement, target performance results in 100% achievement and
maximum performance results in 187% achievement with consideration given for
over achievement of any measure. However, maximum pool may not exceed 187% of
target pool. Performance less than minimum results in zero achievement. Other
results are interpolated.
Extraordinary and unusual events will generally be excluded from results.
Accruals under this Plan are added back for earnings calculations.
<PAGE>
IV. RELATIVE SHAREHOLDER PERFORMANCE:
This measure is a comparison of the Company's total shareholder return ("TSR")
as compared to the market TSR. TSR is the dividend yield added to the share
price appreciation (depreciation). The market TSR is the lesser of the TSR for
the S&P 500 or the S&P Financial Index. The measurement is based on the average
of the daily high and low share price for December of the previous year and
December of the plan year. The minimum performance level, which results in 50%
achievement, is for the Company's TSR to equal the market TSR. The target
performance level, 100% achievement, is for the Company's TSR to exceed the
market TSR by 2%. The maximum performance level, 187% achievement, is for the
Company's TSR to exceed the market TSR by 5% (e.g. the Company's TSR = 20%;
Market TSR = 15%).
V. MIP POOLS AND AWARDS:
The target MIP Pool for the Company is the sum of each participant's target
award (earnings multiplied by target percentage). The MIP pool available for the
Company is the target MIP pool multiplied by the achievement level of all
financial objectives (0% or 50%-187%).
At the end of the plan year, each MIP participant will be reviewed to assess
their level of completion of their individual objectives. The individual
objectives performance, the individual target percentage and the financial
objective achievement are all considered when determining recommended awards.
Individual awards may not exceed 200% of their target award. The sum of all
individual awards may not exceed the MIP pool available.
An alternate MIP pool is available to The FINOVA Group Inc. participants. The
pool is 25% of subsidiary pools achieved.
VI. SPECIAL ACHIEVEMENT AWARDS AND POOLS:
EXEMPT EMPLOYEES. Special Achievement awards are available for exempt employees
who do not have job responsibilities which allow them to be an MIP participant.
The amount of each award is based on the individual's accomplishments of their
objectives detailed at the beginning of the year and the achievement level of
the financial objectives. The awards may be up to 15% of base earnings during
the plan year for exempt employees.
NON-EXEMPT EMPLOYEES. Special Achievement Awards are available for non-exempt
employees at the sole discretion of the Company. The amount of each award may be
up to 10% of plan year base earnings (excluding overtime pay). Although
non-exempt employee awards are generally based upon accomplishment of certain
objectives, the award is determined at the sole discretion of the Company.
Unused MIP awards are available for Special Achievement awards. However, unused
Special Achievement awards are not available for MIP awards.
VII. APPROVAL AND DISTRIBUTION:
The Committee is responsible for approving any partial or full awards to
Executive Officers (Section 16(b) insiders). The Chief Executive Officer of The
FINOVA Group Inc. is responsible for approving all other partial or full awards.
The exercise of discretion in the evaluation of executive performance and the
establishment of individual awards shall be guided by this MIP, but shall not be
fettered by the provisions hereof. For example, the Committee may consider
matters such as extensive changes in the environment, significant increases in
stockholder value while earnings are below target, and significant excess
accruals from prior years.
<PAGE>
VIII. COMPENSATION ADVISORY COMMITTEE:
The Compensation Advisory Committee is appointed by the Chief Executive Officer
of The FINOVA Group Inc. to assist in the implementation and administration of
this MIP. The Compensation Advisory Committee shall propose administrative
guidelines to govern interpretations of this MIP and to resolve ambiguities, if
any, but will not have the power to terminate, alter, amend, or modify this MIP
or any actions hereunder in any way at any time.
IX. SPECIAL COMPENSATION STATUS:
All bonuses paid under this MIP shall be deemed to be special compensation and,
therefore, unless otherwise provided for in another plan or agreement, will not
be included in determining the earnings of the recipients for the purposes of
any pension, group insurance or other plan or agreement of the Company.
X. PLAN TERMINATION:
This MIP shall continue in effect until such time as it is canceled or otherwise
terminated by action of the Committee. While it is contemplated that incentive
awards for the MIP will be made, the Committee may terminate, amend, alter, or
modify this MIP at any time and from time to time. The Committee shall also have
the right to alter by addition or deletion, the participants in this MIP and
their target awards. Participation in this MIP shall create no right to
participate in any future year's plan.
XI. EMPLOYEE RIGHTS:
No participant in this MIP shall be deemed to have a right to any part or share
of this MIP. This MIP does not create for any employee or participant any right
to be retained in service by any company, nor affect the right of any such
company to discharge any employee or participant from employment.
THE FINOVA GROUP INC.
2000-2002 PERFORMANCE SHARE INCENTIVE PLAN
1. PURPOSE
The purpose of this Plan is to promote the long term interests of the Company
and its shareholders by providing (i) a means for attracting and retaining, and
(ii) a system of cash reward for the accomplishment of long term predefined
objectives by designated key officers of the Company and its Affiliates.
2. DEFINITIONS:
The following definitions are applicable to the Plan:
"Affiliate" - Any "Parent Corporation" or "Subsidiary Corporation" of the
Company as such terms are defined in Section 425 (e) and (f), or the
successor provisions, if any, respectively, of the Code (as defined
herein).
"Award" - The grant by the Board of a Performance Share or Shares as
provided in the plan.
"Board" - The Board of Directors of The FINOVA Group Inc. or a duly
authorized Committee of such Board.
"Code" - The Internal Revenue Code of 1986, as amended, or its successor
general income tax law of the United States.
"Company" - The FINOVA Group Inc.
"Company Achievement Percentage" - The actual performance of the Financial
Measures during the relevant period weighted proportionately as determined
by the Plan.
"Financial Measures" - The performance measures established by the Board
for the Plan objectives, such as return on equity, net income or level of
nonperforming assets, for example.
"Participant" - Any officer of the Company or any of its Affiliates who is
selected by the Board to receive an award.
"Performance Period" - The period of time selected by the Board for the
purpose of determining performance goals and measuring the degree of
accomplishment.
"Performance Share Award" - An Award.
"Plan" - The Performance Share Incentive Plan of the Company.
"Share" - A Performance Share shall serve as the basis for any Award under
the Plan.
"Target Company Achievement Percentage" - Company Achievement Percentage
assuming that target performance of the Financial Measures was achieved.
3. ADMINISTRATION
The Plan shall be administered by the Board. Except as limited by the express
provisions of the Plan, the Board shall have sole and complete authority and
discretion to (i) select Participants and grant Awards; (ii) determine the
number of Shares to be subject to Awards generally, as well as to individual
Awards granted under the Plan; (iii) determine the terms and conditions upon
which Awards shall be granted under the Plan; (iv) prescribe the form and terms
of instruments evidencing such grants; and (v) establish from time to time
<PAGE>
regulations for the administration of the Plan, interpret the Plan, and make all
determinations deemed necessary or advisable for the administration of the Plan.
4. PARTICIPATION:
The Board may select from time to time Participants for the Plan. Participants
shall be key executives of the Company or its Affiliates who, in the opinion of
the Board, contribute in a substantial measure to the successful performance of
the Company or its Affiliates. The Company shall have the authority to add new
participants on a prorata basis if hired during the first year of a performance
period. In all cases, the Human Resources Committee must approve participants
with target levels greater than 30% or Securities Exchange Act of 1934 Section
16(b) individuals.
5. PERFORMANCE SHARE AWARDS:
The Chairman and Chief Executive Officer of the Company annually during the life
of the Plan will determine and recommend to the Board in writing (i) the Company
and which among its Affiliates are to participate in the Plan for that year,
(ii) the names of those key executives who should participate in the Plan for
that year, (iii) the performance measurement factors to be used in the
determination of degree of accomplishment for purposes of the Plan for that
year, and (iv) the Performance Period to be used as a basis for the measurement
of performance for Awards under the Plan for that year.
6. GENERAL TERMS AND CONDITIONS:
The Board shall have full and complete authority and discretion, except as
expressly limited by the Plan, to grant Shares and to provide the terms and
conditions (which need not be identical among Participants) thereof. No
participant or any person claiming under or through such person shall have any
right or interest, whether vested or otherwise, in the Plan or in any Award
thereunder, contingent or otherwise, unless and until all the terms, conditions,
and provisions of the Plan and its approved administrative requirements that
affect such Participant or such other person shall have been complied with.
Nothing contained in the Plan or its administrative guidelines shall (i) require
the Company to segregate cash or other property on behalf of any Participant or
(ii) affect the rights and power of the Company or its Affiliates to dismiss
and/or discharge any officer or employee at any time.
7. CALCULATION AND PAYMENT OF AWARDS:
(a) Performance Share Awards which may be payable under this Plan shall be
calculated as determined by the Board but any resulting Performance Share Award
Payable shall be subject to the following calculation: each Share payable shall
be multiplied by the average of the daily means of the market prices of the
Company's Common Stock during the last month of the Performance Period.
Performance Share Awards earned will be determined within sixty (60) days
following the close of the Performance Period and distribution of the Award will
be made within ninety (90) days following the close of the Performance Period.
(b) Performance Share Awards granted under this Plan shall be payable
during the lifetime of the Participant to whom such Award was granted and only
to such Participant; and, except as provided in (d) and (e) of this Section 7,
no such Award will be payable unless at the time of payment such Participant is
an employee of and has continuously since the grant thereof been an employee of,
the Company or an Affiliate. Neither absence on leave, if approved by the
Company, nor any transfer of employment between Affiliates or between Affiliate
and the Company shall be considered an interruption or termination of employment
for purposes of this Plan.
(c) Beginning Period Target Share Units (Target Share Units) shall be
calculated for each participant at the beginning of the Performance Period by
dividing 1) the product of participant Target Percents of Salary and Base
Salaries in effect on the December 31 immediately preceding the beginning of the
Performance Period by 2) the average of the daily means of share prices of
FINOVA Common Stock for the December preceding the Performance Period.
<PAGE>
(d) Subject to Section 11, Target Share Units represent the middle of a
Discretionary Range of Beginning Period Share Units bounded by Low End Share
Units and High End Share Units. The calculation for Low End Share Units shall be
the same as for Target Share Units (paragraph 7c, above) except the Target
Percents of Salary are reduced by 5 percentage points (e.g., from 25% to 20%).
The calculation for High End Share Units shall be the same as for Target Share
Units (paragraph 7c, above) except the Target Percents of Salary are increased
by 5 percentage points (e.g., from 25% to 30%).
(e) At the end of the Performance Period, company performance is determined
relative to the preestablished minimums, targets and maximums of the Financial
Measures. Minimum performance or less results in no awards. Target performance
results in 100% (target) awards. Maximum performance results in 200% awards.
Performance levels between Minimum and Maximum are interpolated. These
percentages are referred to as Company Achievement Percentages.
(f) Target Final Awards are calculated by multiplying all three of the
following: 1) Beginning Period Target Share Units, 2) Company Achievement
Percentage and 3) the average of the daily means of share prices of FINOVA
Common Stock for the last December in the Performance Period. As with Target
Share Units (paragraph 7.d, above), Subject to Section 11, Target Final Awards
represent the middle of a Discretionary Range of Awards. The calculation for the
Low End of the Discretionary Range of Awards is the same as the calculation for
Target Final Awards except Beginning Period Low End Share Units should be
substituted for Beginning Period Target Share Units. Similarly, The calculation
for the High End of the Discretionary Range of Awards is the same as the
calculation for Target Final Awards except Beginning Period High End Share Units
should be substituted for Beginning Period Target Share Units.
(g) Subject to Section 11, notwithstanding the existence of a Low End of a
Discretionary Range, the Committee has the authority to grant awards of less
than the Low End of the Discretionary Range or no awards at all if individual
performance so warrants.
(h) At the beginning of (and for each year in) the Performance Period,
Financial Measures, minimums, targets and maximums will be determined for each
business group and line of business. If FINOVA Capital Corporation achieves at
least its minimum objectives for the Performance Period, 25% of each award for
leaders of business groups and lines of business shall be based upon the FINOVA
Capital Corporation achievement level and 75% will be based on the level of
achievement of the participant's business group or line of business.
(i) Ninety (90) days before the expiration of the Performance Period, all
participants will be provided an irrevocable option to defer all or a portion of
any earned Performance Share Award, if there be one, but not less than $1,000,
in written form as prescribed by the Board under the provisions of a deferred
compensation plan for executives of the Company and its Affiliates, if one be
adopted.
(j) Subject to the provisions of Section 11, if a Participant to whom a
Performance Share Award was granted shall cease to be employed by the Company or
its Affiliate for any reason (other than death, disability, or retirement) prior
to the completion of any applicable Performance Period, said Performance Share
Award will be withdrawn and subsequent payment in any form or at any time will
not be made.
(k) If a Participant to whom a Performance Share Award was granted shall
cease to be employed by the Company or its Affiliate due to early, normal, or
deferred retirement (other than within twenty-four months of or as a result of a
Change in Control, which event shall be governed by Section 11), or in the event
of the death or disability of the Participant during the Performance Period
stipulated in the Performance Share Award, such Award shall be prorated for the
period of time from date of grant to date of retirement, disability or death, as
applicable, and become payable within ninety (90) days to the Participant or the
person to whom interest therein is transferred by will or by the laws of descent
and distribution.
(l) There shall be deducted from all payment of Awards any taxes required
to be withheld by any Federal, State, or local government and paid over to any
such government in respect to any such payment.
<PAGE>
8. ASSIGNMENTS AND TRANSFERS:
No Award to any Participant under the provisions of the Plan may be assigned,
transferred, or otherwise encumbered except, in the event of death of a
Participant, by will or the laws of descent and distribution. Participants may
complete a beneficiary designation form in accordance with then-current Company
policies.
9. AMENDMENT OR TERMINATION:
The Board may amend, suspend, or terminate the Plan or any portion thereof at
any time provided, however, that no such amendment, suspension, or termination
shall invalidate the Awards already made to any Participant pursuant to the
Plan, without his or her consent.
10. EFFECTIVE DATE AND TERM OF PLAN:
The Plan shall be effective the first of the year indicated on the first page
hereof. No Awards shall be made under the Plan after December 31 of the tenth
year following its adoption.
11. CHANGE OF CONTROL:
(a) Impact of Event. Notwithstanding any other provision of this Plan to
the contrary, after or as a result of a Change in Control and one of the
following events occurs:
(i) the Participant is terminated (except for Cause) during the life
of the Plan;
(ii) participant's employment is terminated for Good Reason within
twenty-four months after or as a result of a Change in Control;
or
(iii) the Plan is terminated or amended so that it is less favorable
to the Participant.
Participant shall be paid by the Company, within 60 days of the termination or
amendment, whichever occurs sooner, a pro rata portion of the sums to be paid
under this Plan (from the beginning of any unpaid Performance Periods to the end
of the last full calendar month on or before the termination or amendment date,
as the case may be), the greater of:
(x) Participant's Target Final Award based on achievement of Target
Company Achievement Percentage, or
(y) Participant's Target Final Award based on actual Company
Achievement Percentage annualized using the most recently available
audited or unaudited financial results on or before the payment date,
including the higher of Change in Control Price or actual share price,
as provided in Section 7(a) for the Company's common stock, as
applicable.
Actual Company Achievement Percentages shall be used in calculating Awards for
any completed years. For uncompleted years, in the event of a Change in Control,
High End Share Units shall be awarded if the Company Achievement Percentage is
equal to or in excess of 50% over the Target Company Achievement Percentage
(compared to maximum Company Achievement Percentage) level. Otherwise, Target
Share Units shall be awarded, unless the Board, in its discretion, awards
greater than Target Share Units. The Board shall not have discretion to award
less than Target Share Units in the event of a Change in Control.
(b) Definitions: For purposes of this Plan, the following terms shall have the
meanings noted below, unless the context clearly requires otherwise:
(i) CHANGE IN CONTROL. Any of the following events shall
constitute a Change in Control:
(A) the acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"))(a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (I) the then outstanding shares of common stock
<PAGE>
of the Company (the "Outstanding Company Common Stock") or
(II) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this
subsection (A), the following acquisitions shall not
constitute a Change of Control: (W) any acquisition directly
from the Company other than an acquisition by virtue of the
exercise of a conversion privilege unless the security being
so converted was itself acquired directly from the Company,
(X) any acquisition by the Company, (Y) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company or (Z) any acquisition by any corporation pursuant to
a transaction which complies with clauses (I), (II) and (III)
of subsection (C) of this Section 11(b)(i); or
(B) individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(C) approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless,
following such Business Combination, (I) all or substantially
all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation
which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be,
(II) no Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation resulting
from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination and (III) at least a majority of the members of
the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination;
or
(D) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(ii) CHANGE IN CONTROL PRICE. For purposes of this Plan, "Change in
Control Price" shall have the same meaning for such term as in
effect in the Company's 1992 Stock Incentive Plan, as amended
from time to time; provided, however, that if that plan is
terminated, the definition in that plan immediately preceding
such termination shall continue to apply to this Plan;
provided, further, that no amendment of the definition of such
term shall apply to this Plan with respect to a participant if
such amendment would have an adverse impact on the aggregate
benefits available to a participant in this Plan and such
amendment was made during the period from six months preceding
<PAGE>
a Change in Control (if a Change in Control event was
contemplated by the Company at that time) to twenty four
months after such an event.
(iii) CAUSE. For purposes of this Plan, "Cause" shall mean:
(A) the willful and continued failure of the Participant to
perform substantially the Participant's duties with the
Company or one of its affiliates (other than any such failure
resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is
delivered to the Participant by the Board or the Chairman of
the Company which specifically identifies the manner in which
the Board or Chairman believes that the Participant has not
substantially performed the Participant's duties, or
(B) the willful engaging by the Participant in illegal conduct
or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act or failure to act on the part
of the Participant shall be considered "willful" unless it is done
or omitted to be done by the Participant in bad faith or without
reasonable belief that the Participant's action or omission was in
the best interests of the Company. Any act, or failure to act, based
upon authority given pursuant to a resolution duly adopted by the
Board or upon the instructions of the Chairman or a senior officer
of the Company or based upon the advice of counsel for the Company
shall be conclusively presumed to be done or omitted to be done by
the Participant in good faith and in the best interests of the
Company. The cessation of employment of the Participant shall not be
deemed to be for Cause unless and until there shall have been
delivered to the Participant a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the
Participant and the Participant is given an opportunity, together
with counsel, to be heard before the Board), finding that, in the
good faith opinion of the Board, the Participant is guilty of the
conduct described in subparagraph (A) or (B) above, and specifying
the particulars thereof in detail.
(iv) Good Reason. For purposes of this Plan, "Good Reason" shall
mean:
(A) the assignment to the Participant of any duties
inconsistent in any respect with the Participant's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities immediately prior to the
Change of Control, or any other action by the Company which results
in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Participant,
(B) any reduction by the Company of the Participant's base
salary, annual bonus, incentive opportunities, retirement benefits,
welfare or fringe benefits below the highest level enjoyed by the
Participant during the 120-day period prior to the Change of
Control;
(C) the Company's requiring the Participant to be based at any
office or location other than that at which he or she was based
immediately prior to the Change of Control or the Company's
requiring the Participant to travel on Company business to a
substantially greater extent than required immediately prior to the
Change of Control;
(D) any purported termination by the Company of the
Participant's employment otherwise than as expressly permitted by
this Agreement; or
(E) any failure by the Company to comply with and satisfy
Section 11(d) of this Plan.
For purposes of this Agreement, any good faith determination of "Good Reason"
made by the Participant shall be conclusive.
<PAGE>
(c). Excise Taxes. Anything in this Plan to the contrary notwithstanding,
in the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Participant who also is a participant in
either of the Company's Executive Severance Plans (Tier 1 or Tier 2 Employees)
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section XII (c)) (a "Payment") would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended, or any comparable successor provision, or any interest or penalties are
incurred by the Participant with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Participant shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Participant of all taxes (including any interest and
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Participant retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(d). The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Plan in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used in this
Plan, Company shall mean the Company as hereinbefore defined and any entity
which assumes and agrees to perform this Plan by operation of law, or otherwise.
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before income taxes $355,344 $266,297 $224,191 $188,288 $153,883
-------- -------- -------- -------- --------
Add fixed charges:
Interest expense 592,858 478,177 414,650 365,603 337,188
One-third of rent expense 4,452 3,854 2,789 2,368 2,084
-------- -------- -------- -------- --------
Total fixed charges 597,310 482,031 417,439 367,971 339,272
-------- -------- -------- -------- --------
Income as adjusted $952,654 $748,328 $641,630 $556,259 $493,155
-------- -------- -------- -------- --------
Ratio of income to fixed charges 1.59 1.55 1.54 1.51 1.45
======== ======== ======== ======== ========
Preferred stock dividends on a pre-tax basis $ 6,325 $ 6,325 $ 6,676 $ $
Total fixed charges and preferred
stock dividends $603,635 $488,356 $424,115 $367,971 $339,272
-------- -------- -------- -------- --------
Ratio of income to fixed charges and
preferred stock dividends 1.58 1.53 1.51 1.51 1.45
======== ======== ======== ======== ========
</TABLE>
The FINOVA Group Inc.
(January 1, 2000)
FINOVA ACQUISITION CORPORATION (Delaware)**
FINOVA CAPITAL CORPORATION (Delaware)
Cactus Resort Properties, Inc. (Delaware)
Cactus Resort Properties II, Inc. (Delaware)
Commonwealth Avenue Warehouse, Inc. (Florida)
Desert Communications I, Inc. (Delaware)
Desert Communications II, Inc. (Delaware)
Desert Communications III, Inc. (Delaware)
Desert Communications V, Inc. (Delaware)
Desert Communications VI, Inc. (Delaware)
Desert Communications VII, Inc. (Delaware)
Desert Island Capital Corporation (Delaware)
FCS 525, Inc. (Delaware)
FCS 517, Inc. (Delaware)
FFC Distribution Corporation (California)
FINOVA Aircraft Investors, LLC (Delaware)
FINOVA Aircraft Management, Inc. (Delaware)
The FINOVA (Canada) Group Inc. (Canada)
FINOVA (Canada) Capital Corporation (Canada)
FINOVA (Canada) Finance Inc. (Nova Scotia)
SCC Canada, Inc. (Ontario)
FINOVA Capital Funding, Inc. (Delaware)
FINOVA Capital Funding (II) Corporation (Delaware)
FINOVA Capital plc (United Kingdom)
FINOVA Finance Limited (United Kingdom)*
Greyfin Services Limited (United Kingdom)*
Greyhound Guaranty Limited (United Kingdom)*
Greyhound Credit Limited (United Kingdom)*
FINOVA Capital Corporation Limited (United Kingdom)*
Greyhound Financial Services Limited (United Kingdom)*
The FINOVA Group Limited*
Hunt Bros (Oldbury) Limited (United Kingdom)
Townmead Garages Limited (United Kingdom)*
FINOVA Capital Markets Inc. (Delaware)
FINOVA Realty Capital Inc. (Delaware)
FINOVA Realty Capital of Greater Florida Inc. (Delaware)
FINOVA (Cayman) Capital Ltd. (Cayman Islands)
FINOVA Connecticut Limited Partnership (Delaware)
FINOVA Denmark, Inc. (Arizona)
FINOVA Fund Investments, Inc. (Delaware)
FINOVA Fund Investments II, Inc. (Delaware)
FINOVA Fund Investments III, Inc. (Delaware)
FINOVA Fund Investments IV, Inc. (Delaware)
FINOVA Loan Administration Inc. (Utah)
FINOVA Mezzanine Capital Inc. (Tennessee)
Harris William & Co. (Virginia)
IOL 2000, Inc. (Tennessee)
Multimedia 2000, Inc. (Tennessee)
Recycling Technologies, Inc. (Tennessee)
Sherwood, Inc. (Tennessee)*
Sirrom Funding Corporation (Delaware)*#
SWS 5, Inc. (Tennessee)
SWS 6, Inc. (Tennessee)
Vision 2000, Inc. (Tennessee)
Vision 2000 Technologies, Inc. (Tennessee)
FINOVA Portfolio Services, Inc. (Arizona)
FINOVA Public Finance, Inc. (Delaware)
FINOVA Realty Mezzanine Inc. (Delaware)
FINOVA Resort Assets Company, L.L.C. (Delaware)
FINOVA Resort Investments Company (Delaware)
FINOVA Resort Receivables I Inc. (Delaware)
FINOVA Stamford LLC (Delaware)
FINOVA Technology Finance, Inc. (Delaware)*#
FINOVA Health Care Finance Limited (United Kingdom)
Fremont Funding, Inc. (Delaware)
Fremont VFC Funding Corporation (Delaware)
Greyfin (Nassau) Limited (Bahamas)*
Greyfin Corporation (Liberia)*
Greyhound Shipping Corporation (Liberia)*
Greyhound Real Estate Finance Company (Arizona)*#
Greyhound Real Estate Investment BRB Inc. (Arizona)
Greyhound Real Estate Investment Eight Inc. (Delaware)
Greyhound Real Estate Investment Eleven Inc. (Delaware)
Greyhound Real Estate Investment Nine Inc. (Delaware)
Greyhound Real Estate Investment One Inc. (Arizona)
Greyhound Real Estate Investment Seven Inc. (Delaware)
Greyhound Real Estate Investment Two Inc. (Arizona)
New Jersey Realty Corporation II (California)
New York Realty Corporation II (California)
Pine Top Insurance Company Limited (United Kingdom)#
RJ Capital, LLC (California)
Resort Capital Corporation (Delaware)*#
TriContinental Leasing of Puerto Rico, Inc. (Delaware)
Wisconsin Hotel Operating Corporation (Wisconsin)
* INACTIVE
** SHELL CORPORATION
# IN LIQUIDATION
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Forms S-3 Nos. 333-15445, 333-39383, 333-74473, 333-75719, and on Form S-4 No.
333-74809 of The FINOVA Group Inc. of our report dated January 19, 2000, with
respect to the consolidated financial statements of The FINOVA Group Inc.
included and incorporated by reference in this Annual Report Form 10-K for the
year ended December 31, 1999.
March 7, 2000
/s/ Ernst & Young LLP
Phoenix, Arizona
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements Nos.
333-15445, 333-39383, 333-74473, 333-75719 on Form S-3, and No. 333-74809 on
Form S-4 of The FINOVA Group Inc. of our report dated April 23, 1999 appearing
in this Annual Report on Form 10-K of The FINOVA Group Inc. for the year ended
December 31, 1999.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 3, 2000
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes and appoints
Samuel L. Eichenfield and Bruno A. Marszowski, and each of them severally, as
his or her attorneys-in-fact, with full power of substitution and
resubstitution, to sign and file on his or her behalf individually and in each
such capacity stated below, The FINOVA Group Inc.'s Annual Report on Form 10-K
for the year ending December 31, 1999, and any amendments thereto, to be filed
with the Securities and Exchange Commission, the New York Stock Exchange, and
otherwise, as fully as such person could do in person, hereby verifying and
confirming all that said attorneys-in-fact, or their or his or her substitutes
or substitute, may lawfully do or cause to be done by virtue hereof.
Signatures Title Date
---------- ----- ----
Principal Executive Officer
/s/ Samuel L. Eichenfield Chairman of the Board, February 10, 2000
- ---------------------------- President and Chief
Samuel L. Eichenfield Executive Officer
Principal Financial and
Accounting Officer
/s/ Bruno A. Marszowski Senior Vice President- February 10, 2000
- ---------------------------- Controller and Chief
Bruno A. Marszowski Financial Officer
Directors
/s/ Robert H. Clark, Jr. February 10, 2000
- ----------------------------
Robert H. Clark, Jr.
/s/ Constance R. Curran February 10, 2000
- ----------------------------
Constance R. Curran
/s/ G. Robert Durham February 10, 2000
- ----------------------------
G. Robert Durham
/s/ James L. Johnson February 10, 2000
- ----------------------------
James L. Johnson
/s/ Kenneth R. Smith February 10, 2000
- ----------------------------
Kenneth R. Smith
/s/Shoshana B. Tancer February 10, 2000
- ----------------------------
Shoshana B. Tancer
/s/John W. Teets February 10, 2000
- ----------------------------
John W. Teets
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 100,344
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 70,521
<INVESTMENTS-HELD-FOR-SALE> 375,968
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 13,121,977
<ALLOWANCE> 264,983
<TOTAL-ASSETS> 14,050,293
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 867,595
<LONG-TERM> 11,407,767
0
111,550
<COMMON> 648
<OTHER-SE> 1,662,733
<TOTAL-LIABILITIES-AND-EQUITY> 14,050,293
<INTEREST-LOAN> 1,228,643
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 0
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 592,858
<INTEREST-INCOME-NET> 567,798
<LOAN-LOSSES> 76,800
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 253,754
<INCOME-PRETAX> 355,344
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 215,244
<EPS-BASIC> 3.59
<EPS-DILUTED> 3.41
<YIELD-ACTUAL> 5.8
<LOANS-NON> 295,123
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 207,618
<CHARGE-OFFS> 60,372
<RECOVERIES> 3,518
<ALLOWANCE-CLOSE> 264,983
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
