SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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FINANCIAL FEDERAL CORPORATION
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(Name of Registrant as Specified In Its Charter)
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FINANCIAL FEDERAL
CORPORATION
Notice of Annual
Meeting of Stockholders
and Proxy Statement
Tuesday, December 10, 2002
at 10:00 a.m. Eastern Time
270 Park Avenue, 11th Floor
New York, New York 10017
FINANCIAL FEDERAL CORPORATION
733 THIRD AVENUE, 7th FLOOR
NEW YORK, NEW YORK 10017
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, DECEMBER 10, 2002
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NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting" or "Meeting") of Financial Federal Corporation, a Nevada
corporation (the "Company"), will be held at 270 Park Avenue, 11th Floor, New
York, New York 10017 on Tuesday, December 10, 2002, at 10:00 a.m. Eastern
Time, for the following purposes:
(1) Electing seven directors to serve until the next annual meeting of
stockholders;
(2) Ratifying the appointment of KPMG LLP as the Company's independent
public accountants for the fiscal year ending July 31, 2003; and
(3) Transacting such other business as may properly come
before the Annual Meeting.
The Board of Directors of the Company has fixed the close of business on
October 16, 2002 as the record date for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting. The list of
stockholders entitled to vote at the Annual Meeting will be available for
inspection by any stockholder for any valid purpose related to the Annual
Meeting at the office of Financial Federal Corporation, 733 Third Avenue, 7th
Floor, New York, New York 10017 for the ten days prior to the Annual Meeting.
The list will also be available during the Annual Meeting for inspection by
any stockholder present at the Meeting. We are enclosing a copy of the
Company's Annual Report to Stockholders for the fiscal year ended July 31,
2002.
All stockholders are cordially invited to attend the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, please complete, date,
sign and return the enclosed proxy card as soon as possible in the enclosed
reply envelope.
FINANCIAL FEDERAL CORPORATION
Troy H. Geisser
Secretary
October 31, 2002
New York, New York
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE FILL IN, SIGN
AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH
DOES NOT REQUIRE POSTAGE IF MAILED IN THE UNITED STATES.
FINANCIAL FEDERAL CORPORATION
733 THIRD AVENUE, 7TH FLOOR
NEW YORK, NEW YORK 10017
____________
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 10, 2002
____________
This Proxy Statement and the accompanying form of proxy are solicited by
the Board of Directors (the "Board of Directors" or the "Board") of Financial
Federal Corporation, a Nevada corporation (the "Company"), to be voted at the
Annual Meeting of Stockholders to be held at 270 Park Avenue, 11th Floor, New
York, New York 10017 on December 10, 2002 and at any postponements or
adjournments thereof.
Shares represented by properly executed proxies, which are received in
time and not revoked, will be voted at the Meeting in the manner described in
the proxies. A stockholder may revoke his proxy at any time prior to its
exercise by notice in writing to the Secretary of the Company indicating that
his/her proxy is revoked, by submitting another proxy with a later date or by
attending the Meeting and voting in person. Please note, however, that if a
stockholder's shares are held of record by a broker, bank or other nominee and
that stockholder wishes to vote at the Meeting, the stockholder must bring a
letter from the broker, bank or other nominee confirming such stockholder's
beneficial ownership of shares.
At the Meeting, the Company's stockholders will be asked (i) to elect
the Board of Directors to serve until the next annual meeting of stockholders;
(ii) to ratify the appointment of KPMG LLP ("KPMG") as the Company's
independent public accountants for the fiscal year ending July 31, 2003; and
(iii) to take such other action as may properly come before the Meeting. Each
proposal is described in more detail in this Proxy Statement.
The approximate date on which this Proxy Statement and accompanying form
of proxy are first being sent or given to stockholders is November 7, 2002.
Holders of the Company's common stock, par value $.50 per share (the "Common
Stock"), as of the record date, which is the close of business on October 16,
2002, are entitled to vote at the Meeting. As of October 16, 2002, the Company
had 18,564,928 shares of Common Stock outstanding and had no preferred stock,
par value $1.00 per share, outstanding.
Each share of Common Stock entitles the holder thereof on the record
date to one vote on matters to be considered at the Meeting. The presence, in
person or by proxy, of stockholders holding a majority of the issued and
outstanding shares of Common Stock entitled to vote at the Meeting is
necessary to constitute a quorum. Abstentions and broker non-votes are each
included for purposes of determining the presence or absence of a sufficient
number of shares to constitute a quorum for the transaction of business. A
broker non-vote is when a nominee holding shares for a beneficial owner does
not vote on a particular proposal because the nominee does not have
discretionary voting power with respect to that proposal and has not received
instructions from the beneficial owner.
Unless contrary instructions are indicated on the proxy, shares
represented by each properly executed and returned proxy card (and not revoked
before they are voted) will be voted "FOR" the election of the nominees for
directors named below, "FOR" the ratification of the appointment of KPMG as
independent public accountants for the fiscal year ending July 31, 2003, and
by the proxies in their discretion on any other matters to properly come
before the Meeting, or any postponement or adjournment thereof. If a
stockholder specifies a different choice on the proxy, such stockholder's
shares of Common Stock will be voted in accordance with the specification so
made.
The entire expense of this proxy solicitation will be borne by the
Company. Solicitation will be made primarily by mail. Proxies may also be
solicited personally and by telephone by regular employees of the Company
without any additional remuneration and at minimal cost. Management may also
request banks, brokerage houses, custodians, nominees and fiduciaries to
obtain authorization for the execution of proxies and may reimburse them for
expenses incurred by them in connection therewith. The Company has retained
Georgeson Shareholder Communications, Inc. to assist in the solicitation of
proxies, at an estimated cost of $1,000 plus other reasonable expenses.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, to the knowledge of the Company,
information regarding the ownership of Common Stock by (i) each person who may
be deemed to be the beneficial owner of more than 5% of the Common Stock
outstanding as of October 16, 2002 or such other date as may be noted below,
(ii) each director and each nominee for election as a director, (iii) each
executive officer named in the Summary Compensation Table, and (iv) all
directors and executive officers of the Company as a group. There were
18,564,928 shares of Common Stock outstanding as of October 16, 2002.
Name and Address of Beneficial Owner Number of Shares Percentage of
or Number of Persons in Group 1 Beneficially Owned 2 Ownership
------------------------------------ -------------------- -------------
Waddell & Reed Financial Services 3 1,933,500 10.4%
6300 Lamar Avenue
Shawnee Mission, KS 66201
Lord Abbett & Co. 3 1,404,691 7.6%
90 Hudson Street
Jersey City, NJ 07302
RS Investment Management Co. LLC 3 975,950 5.3%
388 Market Street
San Francisco, CA 94111
Kayne Anderson Rudnick Investment
Management, LLC 3 947,990 5.1%
1800 Avenue of the Stars
Los Angeles, CA 90067
Lawrence B. Fisher 2,500 *
William M. Gallagher 4 135,792 *
John V. Golio 5 123,700 *
Steven F. Groth 6 117,666 *
William C. MacMillen, Jr. 26,250 *
Daniel J. McDonough 7 132,400 *
Michael C. Palitz 8 746,602 4.0%
Thomas F. Robards 9 6,000 *
Paul R. Sinsheimer 10 698,147 3.7%
H. E. Timanus, Jr. 11 11,500 *
Stephen D. Weinroth 12 5,000 *
All directors and executive officers 2,162,315 11.4%
as a group (15 persons) 13
* Less than 1% of Common Stock outstanding.
1 Unless otherwise indicated, the address of each person listed is c/o
Financial Federal Corporation, 733 Third Avenue, 7th Floor, New York, New
York 10017.
2 Unless otherwise noted, each person listed has the sole power to vote, or
direct the voting of, and power to dispose, or direct the disposition of,
all such shares. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and includes options that
are exercisable or will become exercisable within 60 days of October 16,
2002, shares of restricted stock, and stock units.
3 Share ownership as reported in the most recently filed Schedule 13-G.
4 Mr. Gallagher's holdings include (i) 102,292 shares of Common Stock, (ii)
options to purchase 11,000 shares of Common Stock, and (iii) 22,500 shares
of restricted stock that are subject to forfeiture.
5 Mr. Golio's holdings include (i) 200 shares of Common Stock, (ii) options
to purchase 18,500 shares of Common Stock, and (iii) 105,000 shares of
restricted stock that are subject to forfeiture.
6 Mr. Groth's holdings include (i) 5,530 shares of Common Stock, (ii)
options to purchase 31,386 shares of Common Stock, and (iii) 80,750 shares
of restricted stock that are subject to forfeiture.
2
7 Mr. McDonough's holdings include (i) 9,150 shares of Common Stock, (ii)
options to purchase 19,500 shares of Common Stock, and (iii) 103,750
shares of restricted stock that are subject to forfeiture. As of September
24, 2002, Mr. McDonough resigned his position as an officer of the
Company.
8 Mr. Palitz's holdings include (i) 194,847 shares of Common Stock, (ii)
options to purchase 15,000 shares of Common Stock, (iii) 536,230 shares of
Common Stock held by a corporation owned and controlled by Mr. Palitz,
(iv) 225 shares of Common Stock held by Mr. Palitz's wife, as to which
shares Mr. Palitz disclaims beneficial ownership, and (v) 300 shares of
Common Stock owned by Mr. Palitz's children.
9 Mr. Robards' holdings include (i) 1,000 shares of Common Stock, and (ii)
options to purchase 5,000 shares of Common Stock.
10 Mr. Sinsheimer's holdings include (i) 275,647 shares of Common Stock, (ii)
options to purchase 200,000 shares of Common Stock, (iii) 122,500 shares
of restricted stock that are subject to forfeiture, and (iv) 100,000 stock
units that are subject to forfeiture.
11 Mr. Timanus' holdings include (i) 6,500 shares of Common Stock, and (ii)
options to purchase 5,000 shares of Common Stock.
12 Mr. Weinroth's holdings include options to purchase 5,000 shares of Common
Stock.
13 Includes (i) 1,160,671 shares of Common Stock, options to purchase 310,386
shares of Common Stock, and 534,500 shares of restricted stock and stock
units that are subject to forfeiture as described in notes 4 through 12
above, as well as (ii) 20,725 shares of Common Stock, options to purchase
26,158 shares of Common Stock, and 109,875 shares of restricted stock that
are subject to forfeiture held by executive officers not named in the
table.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and certain beneficial owners of the
Company's equity securities (the "Section 16 Reporting Persons") to file
reports of holdings of and transactions in the Company's equity securities
with the Securities and Exchange Commission ("SEC") and the New York Stock
Exchange, Inc., and to furnish the Company with all copies of Section 16(a)
forms they file. Based solely on the Company's review of the copies of such
forms that the Company has received, or written representations from the
Section 16 Reporting Persons, to the Company's knowledge, all transactions in
the Company's equity securities by the Company's Section 16 Reporting Persons
during the Company's last fiscal year were reported on-time, except that Mr.
Golio reported a sale of 3,250 shares of Common Stock in October 2000 on a
Form 4 filed in December 2001 and Mr. Sinsheimer reported the grant of 100,000
stock units in June 2002 on an amended Form 5 filed in October 2002. The
Company is not aware of any other failures by Section 16 Reporting Persons to
file the forms required to be filed by them pursuant to Section 16 of the
Exchange Act.
ELECTION OF DIRECTORS
(Item 1 on Proxy Card)
The Board of Directors has nominated the persons listed below to serve
as directors of the Company until the next annual meeting and until their
respective successors are elected and qualified, or until their earlier
resignation or removal. It is intended that shares represented by proxies
solicited by the Board will, unless authority to vote for some or all of the
nominees is withheld, be voted in favor of electing as directors the nominees
listed below. The Company has no reason to believe any of the nominees will be
disqualified or unable or unwilling to serve if elected. However, if any
nominee becomes unavailable for any reason, the shares will be voted for
another person nominated by the Board, unless the Board by resolution provides
for a lesser number of directors.
The election of the seven director nominees requires an affirmative vote
by a plurality of votes cast at the meeting of stockholders by the
stockholders entitled to vote in the election. Any shares not voted (by
abstention, broker non-vote, or otherwise) have no impact on the vote.
3
Nominees for Election as Directors
The name, age, principal occupation or employment, and other data
regarding each nominee, based on information received from the respective
nominees, are as follows:
Lawrence B. Fisher, 64, has served as a director of the Company since
1992. Mr. Fisher has been a partner of Orrick, Herrington & Sutcliffe LLP, a
law firm, since December 1995. He had previously been a partner of Kelley Drye
& Warren LLP, a law firm, from 1985 to December 1995. He is also a director of
National Bank of New York City, a privately owned commercial bank.
William C. MacMillen, Jr., 89, has served as a director of the Company
since 1989. Mr. MacMillen is the President of William C. MacMillen & Co.,
Inc., an investment banking firm. He served as a director of Republic New York
Corporation and Republic National Bank of New York until December 1999 and as
a director of Commercial Alliance Corporation, an equipment finance company,
from its inception in 1963 to 1984.
Michael C. Palitz, 44, has served as an Executive Vice President of the
Company since July 1995 and as a director of the Company since July 1996. Mr.
Palitz served as a Senior Vice President of the Company from February 1992 to
July 1995 and served as a Vice President of the Company from its inception in
1989 to February 1992. He has also served as Treasurer and Assistant Secretary
of the Company since its inception and as Chief Financial Officer of the
Company from 1989 through September 2000. From 1985 to 1989, Mr. Palitz was an
Assistant Vice President of Bankers Trust Company and, from 1980 to 1983, he
was an Assistant Secretary of Chemical Bank.
Thomas F. Robards, 56, has served as a director of the Company since
2000. From April 2000 until September 2002, Mr. Robards was employed by Datek
Online Holdings Corp. as its Chief Financial Officer, until it was acquired by
Ameritrade Holding Corp.; he currently serves as Senior Advisor to Ameritrade
Holding Corp. From 1976 until December 1999, he was employed by Republic New
York Corporation. He served as its Chief Financial Officer from March 1995
through March 1999 and as a director from 1998 until March 1999.
Paul R. Sinsheimer, 55, has served as Chairman of the Board and Chief
Executive Officer of the Company since December 2000, as President of the
Company since September 1998, as an Executive Vice President of the Company
from its inception in 1989 to September 1998 and as a director of the Company
since its inception. From 1970 to 1989, Mr. Sinsheimer was employed by
Commercial Alliance Corporation, where he served in various positions
including Executive Vice President.
H. E. Timanus, Jr., 57, has served as a director of the Company since
1999. Mr. Timanus is the President and Chief Operating Officer of Prosperity
Bank, Houston, Texas; Executive Vice President and Chief Operating Officer of
Prosperity Bancshares, Inc., Houston, Texas; and Executive Vice President and
Chief Operating Officer of Prosperity Holdings, Inc., Wilmington, Delaware. He
was formerly Chairman of the Board and Chief Executive Officer of Heritage
Bank, Houston, Texas, which merged into Prosperity Bank; President and Chief
Executive Officer of Commercial Bancshares, Inc., Houston, Texas, which merged
into Prosperity Bancshares, Inc.; and President and Chief Executive Officer of
Heritage Bancshares, Inc., Wilmington, Delaware, which merged into Prosperity
Holdings, Inc. Mr. Timanus began his career with Commercial Bancshares, Inc.
in 1982.
Stephen D. Weinroth, 63, has served as a director of the Company since
2001. Mr. Weinroth is a senior partner in Andersen, Weinroth & Co., L.P., a
merchant banking firm which he co-founded in 1996. He is also Chairman
Emeritus of Core Laboratories N.V., a New York Stock Exchange listed worldwide
oil field services company, having retired from the position of Chairman of
the Board in June 2001. He served as Chairman from 1994 until his retirement.
Mr. Weinroth has served as director of Hovnanian Enterprises, Inc., a New York
Stock Exchange listed national home builder since 1982. From 1989 to the
present, Mr. Weinroth has been Co-Chairman of the Board of Directors and
Chairman of the Investment Committee of First Britannia N.V., an international
mezzanine and equity fund. In addition, since 1998, at the appointment of the
President of the United States, he has also served as a director and currently
serves as Vice Chairman of the Central Asian-American Enterprise Fund, a
development lender and investor in five countries formerly in the Soviet
Union.
4
Board of Directors Meetings and Committees
The Board has established an Executive Committee, currently composed of
three directors. The Executive Committee can exercise all of the powers of
the Board between meetings of the Board. The current members of the Executive
Committee are Messrs. Fisher, Palitz and Sinsheimer.
The Board has established an Audit Committee, currently composed of four
outside directors. The Audit Committee is responsible for the engagement of
the Company's independent public accountants and reviews the scope and timing
of their audit services and any other services they are asked to perform,
their report on the Company's financial statements following completion of
their audit and the Company's policies and procedures with respect to internal
auditing and financial controls. The Audit Committee operates under a written
charter adopted by the Board. The current members of the Audit Committee are
Messrs. Fisher, MacMillen, Robards and Weinroth.
The Board has established an Executive Compensation and Stock Option
Committee, currently composed of four directors. The Executive Compensation
and Stock Option Committee is responsible for approving appointments and
promotions and determining salaries of executives of the Company between
meetings of the full Board and is responsible for administering the Company's
Amended and Restated 1998 Stock Option/Restricted Stock Plan (the "1998
Plan"), including the granting, modification and cancellation of options to
purchase Common Stock and shares of restricted stock and stock units granted
thereunder. All actions of the Committee with respect to appointments,
promotions and determining salaries of executive officers, to remain
effective, must be ratified by a majority vote of the Board within six months
of such action. Prior to fiscal 2002, there was an Executive Compensation
Committee and a Stock Option Committee; these were merged during fiscal 2002.
The current members of the Executive Compensation and Stock Option Committee
are Messrs. MacMillen, Robards, Sinsheimer and Timanus.
During the Company's fiscal year ended July 31, 2002, the Board of
Directors met six times, the Executive Committee met twice, the Audit
Committee met six times, and the Executive Compensation and Stock Option
Committee met eight times. Each member of the Board attended, either
telephonically or in person, at least 80% of the total number of meetings of
the Board and its committees of which they were members during such fiscal
year. The Board has no standing committees other than those described above.
Compensation Committee Interlocks and Insider Participation
No interlocking relationships exist between any member of the Executive
Compensation and Stock Option Committee and any member of any other company's
Board of Directors or compensation committee. Mr. Sinsheimer, a member of the
Executive Committee and the Executive Compensation and Stock Option Committee,
is an executive officer of the Company and he abstains from votes on matters
regarding his own compensation and the equity compensation for executive
officers. Mr. Sinsheimer holds debt issued by the Company (see "Certain
Transactions").
Mr. Fisher, a director of the Company, is a partner of the law firm of
Orrick, Herrington & Sutcliffe LLP, which has been retained by the Company in
connection with certain legal matters.
Compensation of Directors
Directors who are not officers or employees of the Company or any of its
subsidiaries receive stipends, as follows:
1. Annual stipend of twenty-five thousand dollars ($25,000) per
year, payable upon their election by the stockholders after the
annual meeting of stockholders each year. If a director joins
the Board during the year, such stipend will be pro rated.
2. One thousand dollars ($1,000) per Board meeting attended.
3. One thousand dollars ($1,000) per committee meeting attended if
not in conjunction with a Board meeting.
The Company does not have a formal policy of granting options to
directors. Nevertheless, current directors have each received an option grant,
shortly after joining the Board as an outside director, to purchase 5,000
shares of Common Stock at the fair market value on the date of grant.
Directors who are officers of the Company receive no additional compensation
for attending Board or committee meetings. Directors may participate in the
1998 Plan.
The Board of Directors recommends that stockholders vote "FOR" each of
the foregoing nominees.
5
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the annual and
long-term compensation paid to those persons who were, at July 31, 2002, the
Chief Executive Officer ("CEO") and the other four most highly compensated
executive officers of the Company.
Annual Long-term Compensation
Compensation ($) Awards
--------------------- ---------------------------
Restricted Securities
Fiscal Stock Underlying All Other
Name and Principal Position(s) Year Salary Bonus (1) Awards (2)($) Options (#) Compensation ($)
------------------------------ ------ --------- --------- ------------- ----------- ----------------
Paul R. Sinsheimer 2002 757,350 750,000 6,290,000 0 0
CEO, President and 2001 750,634 375,000 861,000 0 0
Director 2000 728,518 0 0 0 0
Steven F. Groth (3) 2002 344,608 0 2,340,000 0 0
Senior Vice President and 2001 336,741 0 28,700 60,000 0
Chief Financial Officer 2000 -- -- -- -- --
John V. Golio 2002 307,545 0 2,925,000 0 0
Executive Vice President 2001 294,582 0 143,500 50,000 0
2000 260,188 0 0 25,000 0
Daniel J. McDonough (4) 2002 300,633 0 2,925,000 0 0
Executive Vice President 2001 298,067 0 143,500 50,000 0
2000 262,834 0 0 25,000 0
William M. Gallagher 2002 290,633 0 585,000 0 0
Senior Vice President 2001 283,133 0 71,750 20,000 0
2000 263,106 0 0 11,000 0
(1) Awarded under the 2001 Management Incentive Plan for the CEO.
(2) Determined by multiplying the number of shares of restricted stock and
stock units granted by the fair market value of the Common Stock on the
date of the award. The restricted stock and stock units granted in
fiscal 2002 vest ratably in annual increments over an eight-year
period subject to earlier vesting upon a sale of the Company and
certain qualifying terminations of employment. Restricted stock was
granted in March 2002 under the 1998 Plan in the following amounts:
Mr. Groth 80,000; Mr. Golio 100,000; Mr. McDonough 100,000; and Mr.
Gallagher 20,000. 100,000 shares of restricted stock were granted to
Mr. Sinsheimer in March 2002 under the 2001 Management Incentive Plan.
Mr. Sinsheimer also received a grant of 100,000 stock units in June
2002 under a Supplemental Retirement Benefit. Payout of the stock units
will be in the form of an equivalent number of shares of Common Stock
reserved for issuance under the 1998 Plan. The aggregate number of
restricted stock and stock units holdings as of July 31, 2002 were
as follows: Mr. Sinsheimer 222,500; Mr. Groth 80,750; Mr. Golio,
105,000; Mr. McDonough 103,750; and Mr. Gallagher 22,500. The value of
such restricted stock and stock units as of July 31, 2002 were as
follows: Mr. Sinsheimer $6,454,725; Mr. Groth $2,342,558; Mr. Golio
$3,046,050; Mr. McDonough $3,009,788; and Mr. Gallagher $652,725.
(3) Mr. Groth joined the Company in September 2000.
(4) Mr. McDonough resigned from his position as an officer of the Company
on September 24, 2002.
Option Grants In Last Fiscal Year
No options to purchase Company securities or stock appreciation rights
were granted to any of the named executive officers in the last fiscal year.
6
Aggregated Option Exercises In Last Fiscal Year
And Fiscal Year-End Option Values
Number of
Securities Underlying Value of Unexercised
Unexercised Options Held In-the-Money Options
Shares At July 31, 2002 (#) At July 31, 2002 (2) ($)
Acquired on Value -------------------------- --------------------------
Name (1) Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
----------------------- ------------ ----------- ----------- ------------- ----------- -------------
Paul R. Sinsheimer 11,250 218,374 161,250 50,000 1,795,361 519,250
Steven F. Groth 10,280 106,594 31,386 18,334 316,130 138,040
John V. Golio 29,750 485,131 18,500 59,000 152,748 350,840
Daniel J. McDonough 2,813 53,166 39,250 59,250 421,546 352,561
William M. Gallagher 10,125 191,464 11,000 26,000 98,485 165,260
(1) Includes those who in fiscal 2002 were the CEO and the four other most
highly compensated executive officers.
(2) Only the value of unexercised, in-the-money options are reported.
Value was calculated by (i) subtracting the total exercise price per
share from the fiscal year-end value of $29.01 per share and (ii)
multiplying by the number of shares subject to the option.
REPORT OF THE EXECUTIVE COMPENSATION AND STOCK OPTION COMMITTEE
The Executive Compensation and Stock Option Committee (the "Committee")
is pleased to present its report on executive compensation. The Committee is
composed of William C. MacMillen, Jr., Thomas F. Robards, Paul R. Sinsheimer
and H. E. Timanus, Jr. Messrs. MacMillen, Robards and Timanus are outside
directors of the Company. This report to stockholders presents an overview of
the role of the Committee and of the Company's present compensation
philosophy. The Committee's principal functions are to review and approve the
compensation of executive officers of the Company, to approve any officer
appointments and promotions, and to administer the Company's stock plans. All
actions of the Committee with respect to appointments, promotions and
determining salaries of executive officers, to remain effective, must be
ratified by a majority vote of the Board within six months of such action; and
all such actions to date have been so ratified.
It is the philosophy of the Committee that a significant portion of
executive compensation be linked directly to the Company's success in meeting
profit, growth and other corporate performance goals, operating efficiencies,
success in handling non-performing receivables, the Company's overall
performance regarding its return on earning assets and average equity, as well
as the quality and integrity of the Company's receivables. The Company
compensates certain officers through salary, a portion of which may be
deferred by agreement between the Company and its officers, and through grants
of restricted stock and stock options. The Company believes granting
restricted stock and stock options to employees and officers further aligns
their objectives with those of the Company and its stockholders.
The Committee reviews the Company's compensation programs and consults
with independent experts from time to time to ensure that the compensation and
benefits offered to its executives are competitive and reflect the Company's
performance. In order to attract and retain exceptionally high caliber
employees and executives, the Company offers competitive salaries and long-
term incentives compared to other financial services companies of similar
size.
The Committee's compensation evaluation procedures include reviewing
public filings of other financial services companies and performing an
informal survey as well as a comparison and review of its competitors and
other companies that are compared and contrasted in the SNL Executive
Compensation Review for Specialty Lenders (the "SNL Review") published by SNL
Securities. The SNL Review provides information on executive compensation
awarded by approximately 100 finance companies (including the Company and
competitors of the Company) obtained from public filings and surveys. The SNL
Review compares, contrasts and details the following: (1) executive
compensation; (2) Chief Executive Officer compensation; (3) Chief Operating
Officer compensation; (4) Chief Financial Officer compensation; (5) corporate
benefit plans; and (6) compensation reports. The Committee, when determining
salary adjustments, also considers that the Company does not generally offer
certain fringe benefits that may be part of competitors' compensation
programs, such as commissions, retirement benefits and profit sharing plans.
7
The Committee, in establishing compensation for the CEO, generally used
the same criteria as it did for other employees and officers. Competitive
CEO pay practices were assessed using Proxy Statements of a comparison group
of publicly traded financial institutions and an independent compensation
consultant's proprietary database of compensation survey sources.
Compensation of the Chief Executive Officer
The CEO's annual rate of salary for fiscal 2002 was $750,000 and is
unchanged as of the date of the mailing of this proxy. In addition, the CEO
was eligible to receive an incentive bonus under the 2001 Management Incentive
Plan (the "MIP") based upon satisfaction of the plan's performance goals.
Based upon the Company's financial performance and the accomplishment of such
goals in fiscal 2002, Mr. Sinsheimer was awarded the target bonus in the
amount of $750,000. Mr. Sinsheimer was also granted 100,000 shares of
restricted stock under the MIP. 50,000 shares may be forfeited if the plan's
performance goals for the first half of fiscal 2003 are not satisfied. The
restricted stock is subject to forfeiture and vests ratably in annual
increments over an eight year period subject to earlier vesting upon a sale of
the Company and certain qualifying terminations of employment.
The Company does not generally provide any Executive Officers with a
retirement plan, other than a Company sponsored qualified 401(k) savings plan.
During the last fiscal year, the Company determined that it would be
beneficial to offer the CEO a Supplemental Retirement Benefit ("SERP") as a
retention tool and a competitive benefit upon retirement. Accordingly, the
Board of Directors approved a SERP consisting solely of `stock units' that
vest ratably in annual increments over eight years, subject to certain
forfeiture provisions and earlier vesting upon a sale of the Company and
certain qualifying terminations of employment. Vested SERP benefits are not
paid until the CEO attains age 62 unless there is an earlier sale of the
Company or certain qualifying terminations of employment. A total of 100,000
stock units were granted to Mr. Sinsheimer in fiscal 2002. A `stock unit'
represents the economic equivalent of a share of Common Stock.
Policy with Respect to Qualifying Compensation for Deductibility
Section 162(m) of the Internal Revenue Code of 1986, as amended
("Section 162(m)"), limits the deduction allowable to the Company for
compensation paid to the CEO and each of the named executive officers listed
in the Summary Compensation Table to $1.0 million per individual per fiscal
year. Qualified performance-based compensation is excluded from this
limitation if certain requirements are met. The Company's policy is generally
to preserve the federal income tax deductibility of compensation paid, to the
extent feasible. The Committee believes that awards to the CEO under the MIP,
as previously approved by the stockholders, and its award of options made
under the stock option plans for employees, will qualify as performance-based
compensation and thereby be excluded from the $1.0 million limitation.
Notwithstanding the Company's desire to generally preserve the federal income
tax deductibility of compensation payments, under certain circumstances in the
interests of offering competitive compensation, the Committee, in its
discretion, may authorize payments that are not deductible under Section
162(m).
This report is submitted by the members of the Executive Compensation
and Stock Option Committee of the Board of Directors:
William C. MacMillen, Jr.
Thomas F. Robards
Paul R. Sinsheimer
H. E. Timanus, Jr.
8
STOCK PERFORMANCE GRAPH
The following graph compares the percentage change in cumulative total
stockholder return on Financial Federal Corporation's Common Stock during the
five-year period ending July 31, 2002 with the cumulative total return on the
Russell 2000 Index and on the S&P Financial Index. The comparison assumes $100
was invested on July 31, 1997 in each of such indices. Note that historical
stock price is not indicative of future stock price performance. All amounts
have been calculated as if all dividends were reinvested.
Financial Federal Corporation's Common Stock listed on the New York
Stock Exchange, Inc. on June 22, 1998, and was previously listed on the
American Stock Exchange.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
7/1997 7/1998 7/1999 7/2000 7/2001 7/2002
------ ------ ------ ------ ------ ------
Financial Federal Corporation $100 $164.1 $152.1 $130.58 $175.1 $191.8
Russell 2000 100 102.3 109.9 125.0 122.9 118.8
S&P Financial * 100 124.2 126.1 136.0 149.5 125.1
* Copyright 2002, Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. All rights reserved. www.researchdatagroup.com/S&P.htm
The Stock Performance Graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, or the Securities
Exchange Act of 1934, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
Graph produced by Research Data Group
9
CERTAIN TRANSACTIONS
Certain officers and directors of the Company or their affiliates held
$13,087,053 of the Company's senior and subordinated debt at July 31, 2002.
Such debt was issued at prevailing interest rates and on customary terms. Mr.
Fisher, a director of the Company, is a partner of the law firm of Orrick,
Herrington & Sutcliffe LLP, which has been retained by the Company in
connection with certain legal matters.
CHANGE IN AUDITORS
On June 6, 2002, the Board of Directors, on the recommendation of the
Audit Committee, appointed the firm of KPMG as the Company's independent
public accountants for the fiscal year ending July 31, 2002 and dismissed
Arthur Andersen LLP ("Andersen"). Andersen's report on the financial
statements of the Company for fiscal 2001 did not contain any adverse opinion
or disclaimer of opinion nor was it in any way qualified or modified as to
uncertainty, audit scope or accounting principles.
The decision to change accountants was recommended by management and
approved by the Audit Committee of the Board of Directors and the full Board
as well.
During fiscal 2001, and the interim period preceding the dismissal,
there were no disagreements between the Company and Andersen on any matter of
accounting principles or practices, financial statement disclosure or audit
scope or procedure. The Company has never been advised by Andersen that
internal controls necessary for the Company to develop reliable financial
statements do not exist or that any information has come to the attention of
Andersen which would have caused it not to be able to rely on management's
representations or that has made Andersen unwilling to be associated with the
financial statements prepared by management. Andersen has not advised the
Company of any need to significantly expand the scope of its audit or that
information has come to their attention that upon further investigation may
materially impact on the fairness or reliability of a previously issued audit
report or financial statements issued or which would cause them to be
unwilling to rely on management's representations or be associated with the
Company's financial statements.
Andersen has not advised the Company of any information which they
concluded materially impacts upon the fairness or reliability of either a
previously issued audit report, underlying financial statements or the
financial statements issued or to be issued since the last financial
statements covered by an audit report.
On October 19, 2000, the Board of Directors, on the recommendation of
the Audit Committee, appointed the firm of Arthur Anderson as the Company's
independent public accountants for the fiscal year ending July 31, 2001 and
dismissed Eisner & Lubin LLP ("Eisner & Lubin"). Eisner & Lubin's report on
the financial statements of the Company for the fiscal years 1999 and 2000 did
not contain any adverse opinion or disclaimer of opinion nor was it in any way
qualified or modified as to uncertainty, audit scope or accounting principles.
The decision to change accountants was recommended by management and
approved by the Audit Committee of the Board of Directors and the full Board
as well.
During fiscal years 1999 and 2000, and the interim period preceding the
dismissal, there were no disagreements between the Company and Eisner & Lubin
on any matter of accounting principles or practices, financial statement
disclosure or audit scope or procedure. The Company has never been advised by
Eisner & Lubin that internal controls necessary for the Company to develop
reliable financial statements do not exist or that any information has come to
the attention of Eisner & Lubin which would have caused it not to be able to
rely on management's representations or that has made Eisner & Lubin unwilling
to be associated with the financial statements prepared by management. Eisner
& Lubin has not advised the Company of any need to significantly expand the
scope of its audit or that information has come to their attention that upon
further investigation may materially impact on the fairness or reliability of
a previously issued audit report or financial statements issued or which would
cause them to be unwilling to rely on management's representations or be
associated with the Company's financial statements.
Eisner & Lubin has not advised the Company of any information which they
concluded materially impacts upon the fairness or reliability of either a
previously issued audit report, underlying financial statements or the
financial statements issued or to be issued since the last financial
statements covered by an audit report. Nor has Eisner & Lubin advised that
they would be prevented from rendering an unqualified audit report on any such
financial statements.
10
AUDIT COMMITTEE REPORT
The Audit Committee is composed of Lawrence B. Fisher, William C.
MacMillen, Jr., Thomas F. Robards, and Stephen D. Weinroth. Each member of the
Audit Committee, is independent as currently defined under the New York Stock
Exchange listing standards. Under recently proposed New York Stock Exchange
rules, however, Mr. Fisher would no longer be considered independent. When,
and if, such proposed rules become effective, Mr. Fisher will not be serve on
the Audit Committee. The Audit Committee operates under a written charter
adopted by the Board of Directors.
Management is responsible for the Company's internal financial controls
and the financial reporting process. The Company's independent public
accountants, KPMG, are responsible for performing an independent audit of the
Company's consolidated financial statements and to express an opinion as to
whether those financial statements fairly present the financial position,
results of operations and cash flows of the Company, in conformity with
generally accepted accounting principles. The Audit Committee's responsibility
is to monitor and oversee these processes.
The Audit Committee has reviewed and discussed the audited financial
statements of the Company for the year ended July 31, 2002, with the Company's
management. The Audit Committee has discussed with the Company's independent
public accountants the matters required to be discussed by Statement on
Auditing Standards No. 61, "Communication with Audit Committees."
The Company's independent public accountants provided to the Audit
Committee the written disclosure required by Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees." The Audit
Committee discussed with the independent accountants that firm's independence
and considered whether the non-audit services provided by the independent
accountants are compatible with maintaining its independence.
Based on the Audit Committee's review and discussions noted above, the
Audit Committee recommended to the Board that the Company's audited financial
statements be included in the Company's Annual Report on Form 10-K for the
year ended July 31, 2002, for filing with the SEC.
For the fiscal year ended July 31, 2002, fees related to services
performed by the Company's independent public accountants are as follows:
Audit Fees $ 50,000
Financial Information Systems Design and Implementation 0
Tax Compliance and Other Fees 50,000
--------
Total $100,000
========
Fees paid for and during the fiscal year ended July 31, 2002 to the
Company's former independent public accountants are as follows:
Audit Fees $ 75,000
Financial Information Systems Design and Implementation 0
Tax Compliance and Other Fees 12,925
--------
Total $ 87,925
========
This report is submitted by the members of the Audit Committee of the
Board of Directors:
Lawrence B. Fisher
William C. MacMillen, Jr.
Thomas F. Robards
Stephen D. Weinroth
RATIFICATION OF AUDITORS
(Item 2 on Proxy Card)
The Board of Directors, on the recommendation of the Audit Committee,
has appointed the firm of KPMG as the Company's independent public accountants
for the fiscal year ending July 31, 2003 and recommends that the stockholders
vote "FOR" ratification of such appointment. KPMG has audited the Company's
financial statements since June 6, 2002. It is expected that a representative
of KPMG will be present at the Meeting and will have the opportunity to make a
statement and will be available to respond to appropriate questions.
11
Stockholder ratification of the appointment of KPMG as the Company's
independent public accountants is not required by the Company's bylaws or
other applicable legal requirement. However, the Board is submitting the
appointment of KPMG to the stockholders for ratification as a matter of good
corporate practice. If the stockholders fail to ratify the appointment, the
Audit Committee and the Board will reconsider whether or not to retain that
firm. Even if the appointment is ratified, the Board may direct the
appointment of a different independent accounting firm at any time during the
year if it determines that such a change would be in the Company's best
interests and in the best interests of the Company's stockholders.
Ratification of the appointment of auditors requires a majority of the
votes cast thereon. Abstentions with respect to this proposal have the same
effect as a vote against the proposal. Broker non-votes with respect to this
proposal will not be counted with regard to this proposal.
The Board of Directors recommends that stockholders vote "FOR" the
ratification of the appointment of KPMG LLP as the Company's independent
public accountants.
STOCKHOLDER PROPOSALS
As a stockholder, you may be entitled to present proposals for action at
a forthcoming meeting if you comply with the requirements of the proxy rules
established by the SEC. All proposals of stockholders to be presented for
consideration at the Company's next Annual Meeting of Stockholders, expected
to be held in December 2003, must be directed to the Secretary of the Company
at the Company's principal executive office and, if they are to be considered
for possible inclusion in the Proxy Statement and form of proxy for such
Annual Meeting in accordance with the rules and regulations of the SEC, must
be received on or before July 2, 2003.
The attached proxy card grants the proxy holders discretionary authority
to vote on any matter raised at the Meeting. If you intend to submit a
proposal at the Company's next Annual Meeting of Stockholders, which is not
eligible for inclusion in the Proxy Statement and form of proxy relating to
that meeting, you must do so no later than September 15, 2003. If you fail to
comply with the foregoing notice provision, the proxy holders will be allowed
to use their discretionary voting authority when the proposal is raised at the
Company's next Annual Meeting of Stockholders, without any discussion of the
matter in the Proxy Statement.
OTHER BUSINESS
As of the date of this Proxy Statement, neither the Company nor the
Board of Directors knows of any matters, other than those indicated above, to
be presented at the Meeting. If any additional matters are properly presented,
the persons named in the proxy will have discretion to vote the shares
represented by such proxy in accordance with their judgment.
ANNUAL REPORT
THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED
JULY 31, 2002 WAS MAILED TOGETHER WITH THE PROXY STATEMENT AND IS AVAILABLE ON
THE INTERNET IN THE INVESTOR RELATIONS SECTION OF THE COMPANY'S WEBSITE AT
www.financialfederal.com. ADDITIONAL COPIES OF THE ANNUAL REPORT MAY BE
OBTAINED BY CALLING THE COMPANY AT (212) 599-8000. UPON RECEIPT OF A WRITTEN
REQUEST, THE COMPANY ALSO WILL FURNISH TO ANY STOCKHOLDER, WITHOUT CHARGE, A
COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR FISCAL 2002 REQUIRED TO
BE FILED WITH THE SEC UNDER THE SECURITIES EXCHANGE ACT OF 1934. WRITTEN
REQUESTS SHOULD BE DIRECTED TO INVESTOR RELATIONS AT FINANCIAL FEDERAL
CORPORATION, 733 THIRD AVENUE, NEW YORK, NY 10017.
BY ORDER OF THE BOARD OF DIRECTORS
Troy H. Geisser
Secretary
DATE: October 31, 2002
12
FINANCIAL FEDERAL CORPORATION
P R O X Y
THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON DECEMBER 10, 2002
The undersigned stockholder of Financial Federal Corporation (the
"Corporation") hereby appoints Paul R. Sinsheimer and Michael C. Palitz, or
either of them, with full power of substitution, as proxies for the
undersigned to attend and act for and on behalf of the undersigned at the
Annual Meeting of Stockholders of the Corporation to be held at 270 Park
Avenue, New York, New York on December 10, 2002 at 10:00 a.m., and at any
adjournment thereof, to the same extent and with the same power as if the
undersigned were present in person thereat and with authority to vote and act
in such proxyholder's discretion with respect to other matters which may
properly come before the Meeting. Such proxyholder is specifically directed
to vote or withhold from voting the shares registered in the name of the
undersigned as indicated below.
Notes:
(1) This form of proxy must be executed by the stockholder or his attorney
authorized in writing or, if the stockholder is a corporation, under the
corporate seal or by an officer or attorney thereof duly authorized.
Joint holders should each sign. Executors, administrators, trustees, etc.
should so indicate when signing. If undated, this proxy is deemed to bear
that date it was mailed to the stockholder.
(2) The shares represented by this proxy
will, on a show of hands or any ballot
that may be called for, be voted or FINANCIAL FEDERAL CORPORATION
withheld from voting in accordance P.O. BOX 111O2
with the instructions given by the NEW YORK, N.Y. 10203-0102
stockholder, in the absence of any
contrary instructions, this proxy will
be voted "FOR" the itemized matters.
(Continued on reverse side)
Whether or not you plan to attend [X]
---- the meeting, please mark, sign,
| | date and return this proxy promptly Votes must be indicated
---- in the envelope provided. (x) in Black or Blue ink.
The Board of Directors recommends a vote FOR proposals 1 and 2:
1. ELECTION OF DIRECTORS
FOR all nominees [ ] WITHHOLD AUTHORITY to vote [ ] *EXCEPTIONS [ ]
listed below for all nominees listed below.
Nominees: Lawrence B. Fisher, William C. MacMillen, Jr., Michael C. Palitz,
Thomas F. Robards, Paul R. Sinsheimer, H.E. Timanus, Jr.,
Steven D. Weinroth.
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and strike a line through that nominee's name.)
FOR AGAINST ABSTAIN
2. In respect of the resolution on ratifying the
appointment of KPMG LLP as auditors of the [ ] [ ] [ ]
Corporation for the fiscal year ending
ending July 31, 2003.
To change your address, please mark this box. [ ]
To include any comments, please mark this box. [ ]
The signature on this Proxy should correspond exactly
with stockholder's name as printed to the left. In the
case of joint tenancies, co-executors, or co-trustees,
both should sign. Persons signing as Attorney, Executor,
Administrator, Trustee or Guardian should give their
full title.
Date Share Owner sign here Co-Owner sign here
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