UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
FINANCIAL FEDERAL CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[X] No fee required.
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previously. Identify the previous filing by registration statement number,
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FINANCIAL FEDERAL
CORPORATION
Notice of Annual
Meeting of Stockholders
and Proxy Statement
Tuesday, December 11, 2007
at 10:00 a.m. Eastern Time
270 Park Avenue, 11th Floor
New York, New York 10017
FINANCIAL FEDERAL CORPORATION
733 Third Avenue, 24th Floor
New York, New York 10017
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Tuesday, December 11, 2007, 10:00 a.m.
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 11, 2007, at 10:00 a.m. Eastern Time,
to
(1) Elect six directors to serve until the next annual meeting of
stockholders;
(2) Ratify the appointment of KPMG LLP as the Company's
independent registered public accounting firm for the fiscal
year ending July 31, 2008;
(3) Transact any other business that properly comes before the
Annual Meeting.
The Board of Directors of the Company has fixed the close of business on
October 15, 2007 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, 24th
Floor, New York, New York 10017 for the ten days before the Annual Meeting. The
list will also be available during the Annual Meeting for inspection by any
stockholder present at the Meeting. A copy of the Company's Annual Report to
Stockholders for the fiscal year ended July 31, 2007 is also enclosed.
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
November 6, 2007
New York, New York
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING, PLEASE FILL IN, SIGN AND DATE THE ENCLOSED
PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE THAT DOES NOT NEED POSTAGE IF
MAILED IN THE UNITED STATES.
FINANCIAL FEDERAL CORPORATION
733 Third Avenue, 24th Floor
New York, New York 10017
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
To Be Held On December 11, 2007
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 11, 2007 and at any postponements or
adjournments.
Shares represented by properly executed proxies, received timely and not
revoked, will be voted at the Meeting in the manner described in the proxies.
Stockholders may revoke their proxy before its exercise by written notice to the
Company's Secretary stating that their 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 the stockholder's beneficial ownership of shares on October 15, 2007.
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
registered public accounting firm for the fiscal year ending July 31, 2008 and
(iii) to take any other actions that properly come before the Meeting. Each
proposal is described in more detail in this Proxy Statement.
The approximate date this Proxy Statement and accompanying form of proxy
will first be sent or given to stockholders is November 6, 2007. Holders of the
Company's common stock, par value $0.50 per share (the "Common Stock"), on the
record date, the close of business on October 15, 2007, are entitled to vote at
the Meeting. On October 15, 2007, 25,712,760 shares of Common Stock were
outstanding and no shares of the Company's preferred stock, par value $1.00,
were outstanding.
Each share of Common Stock entitles the holder 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 to determine the
presence or absence of a sufficient number of shares to constitute a quorum to
transact business. A broker non-vote occurs 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 for 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 the
Company's independent registered public accounting firm for the fiscal year
ending July 31, 2008, and by the proxies in their discretion on any other
matters to come properly before the Meeting, or any postponement or adjournment.
If a stockholder specifies a different choice on the proxy, the stockholder's
shares of Common Stock will be voted according to the specification made.
The entire expense of this proxy solicitation will be paid 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 related expenses. The
Company has retained Georgeson Shareholder Communications, Inc. to assist in
soliciting proxies, at an estimated cost of $1,000 plus other reasonable
expenses.
-1-
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, to the Company's knowledge, the number of
shares of Common Stock beneficially owned on October 15, 2007, unless otherwise
indicated, by (i) each holder who may be deemed to be the beneficial owner of
more than 5% of the Common Stock outstanding (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 as a group.
There were 25,712,760 shares of Common Stock outstanding on October 15, 2007.
Amount and Nature of Percent of
Name and Address of Beneficial Owner 1 Beneficial Ownership 2 Class
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Lord, Abbett & Co. LLC 3 4,005,049 15.6
90 Hudson Street
Jersey City, NJ 07302
Waddell & Reed Financial, Inc. 3 2,309,529 9.0
6300 Lamar Avenue
Overland Park, KS 66202
Kayne Anderson Rudnick Investment
Management, LLC 3 2,127,457 8.3
1800 Avenue of the Stars
Los Angeles, CA 90067
Barclays Global Investors UK
Holdings Ltd 3 1,525,962 5.9
1 Churchill Place
Canary Wharf
London, England
M. A. Weatherbie & Co., Inc. 3 1,513,654 5.9
265 Franklin Street
Boston, MA 02110
Goldman Sachs Group Inc. 3 1,333,166 5.2
85 Broad Street
New York, NY 10004
Lawrence B. Fisher 4 0 *
Troy H. Geisser 5 208,142 *
John V. Golio 6 230,049 *
Steven F. Groth 7 161,250 *
James H. Mayes, Jr. 8 250,154 *
Michael C. Palitz 4,9 353,404 1.4
Paul R. Sinsheimer 10 782,217 3.0
Leopold Swergold 4,11 14,066 *
H. E. Timanus, Jr. 4,12 24,750 *
Michael J. Zimmerman 4,13 9,000 *
All directors and executive officers
as a group (13 persons) 14 2,276,506 8.8
* 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, 24th Floor, New York,
NY 10017.
2 Unless otherwise noted, each person has the sole power to vote, or
direct the voting of, and power to dispose, or direct the disposition
of, all shares. Beneficial ownership was determined according to the
rules of the Securities and Exchange Commission and includes options
that are exercisable or will become exercisable within 60 days of
October 15, 2007 and shares of restricted stock subject to forfeiture.
-2-
3 This information is based on the most recent Forms 13F or 13F-NT filed
with the Securities and Exchange Commission.
4 Holdings do not include 3,750 unvested stock units because they are not
considered beneficially owned securities.
5 Mr. Geisser's holdings include (i) 193,142 shares of Common Stock of
which 148,750 shares are restricted stock subject to forfeiture and
(ii) options to purchase 15,000 shares of Common Stock.
6 Mr. Golio's holdings include (i) 215,049 shares of Common Stock of
which 150,937 shares are restricted stock subject to forfeiture and
(ii) options to purchase 15,000 shares of Common Stock.
7 Mr. Groth's holdings are 161,250 shares of Common Stock of which
120,937 shares are restricted stock subject to forfeiture.
8 Mr. Mayes' holdings include 244,408 shares of Common Stock of which
188,125 shares are restricted stock subject to forfeiture and (ii)
options to purchase 5,746 shares of Common Stock.
9 Mr. Palitz's holdings include (i) 239,107 shares of Common Stock (ii)
104,297 shares of Common Stock held by a corporation owned and
controlled by Mr. Palitz and (iii) 10,000 shares of Common Stock held
by Mr. Palitz's wife.
10 Mr. Sinsheimer's holdings include (i) 433,560 shares of Common Stock
held by a limited partnership of which the general partner is
controlled by Mr. Sinsheimer and (ii) 348,657 shares of restricted
stock subject to forfeiture. Mr. Sinsheimer's holdings do not include
177,084 stock units (of which 120,834 are vested) because they are not
considered beneficially owned securities.
11 Mr. Swergold's holdings include (i) 6,566 shares of Common Stock and
(ii) options to purchase 7,500 shares of Common Stock.
12 Mr. Timanus' holdings are shares of Common Stock only.
13 Mr. Zimmerman's holdings include (i) 1,500 shares of Common Stock and
(ii) options to purchase 7,500 shares of Common Stock.
14 Includes (i) 1,982,286 shares of Common Stock of which 957,406 shares
are restricted stock subject to forfeiture and options to purchase
50,746 shares of Common Stock as described in notes 5 through 13 above
and (ii) 215,974 shares of Common Stock of which 151,874 shares are
restricted stock subject to forfeiture and options to purchase 27,500
shares of Common Stock 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 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, and to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on a review of copies of
these reports and written representations from the Section 16 reporting persons,
the Company believes for the fiscal year ended July 31, 2007, that its executive
officers, directors and greater than ten percent stockholders timely filed all
reports due under Section 16(a) of the Securities Exchange Act of 1934.
-3-
ELECTION OF DIRECTORS
(Item 1 on Proxy Card)
The Corporate Governance and Nominating Committee and the Board of
Directors 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. The
Company's bylaws set the Board's membership at a minimum of five directors. On
September 24, 2007, the Board of Directors decreased the size of the Board from
eight to six members.
It is intended that shares represented by proxies solicited by the Board
will, unless authority to vote for some or all 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.
Directors are encouraged to attend the Annual Meeting of Stockholders. All
directors who were serving as a director at the time of the 2006 Annual Meeting
of Stockholders attended the meeting. All nominees listed below are directors of
the Company.
Electing the six director nominees requires an affirmative vote by a
plurality of votes cast. Shares not voted (by abstention, broker non-vote, or
otherwise) will not impact the vote.
The Board of Directors recommends stockholders vote "FOR" each of the
nominees listed below.
Nominees for Election as Directors
The name, age, principal occupation or employment, and other information
regarding each nominee, based on information received from the respective
nominees, are set forth below:
Lawrence B. Fisher, 69, has served as a director of the Company since
1992. Mr. Fisher was a partner of Orrick, Herrington & Sutcliffe LLP, a law
firm, from December 1995 until he retired in December 2005. He had previously
been a partner of Kelley Drye & Warren LLP, a law firm, from 1985 to December
1995. He is a director of National Bank of New York City, a privately owned
commercial bank and is a member of the Board of Directors of the Quantum Group,
a publicly held health care service company.
Michael C. Palitz, 49, has served as a director of the Company since July
1996. He is a Managing Director of Preston Partners LLC, a Manhattan based
merchant banking firm. He is also a Manager of Harmic III, LLC, a New York City
based hospitality company. He served as an Executive Vice President of the
Company from July 1995 until he resigned as an officer and employee of the
Company on March 14, 2003. 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 also served as Treasurer
and Assistant Secretary of the Company since its inception in 1989 and as Chief
Financial Officer from 1989 through September 2000. He was a member of the Board
of Directors and Chair of the Audit Committee of City and Suburban Financial
Corporation until it was sold in July 2007. He also is a Director of the Sy Syms
School of Business of Yeshiva University and a Trustee of the Museum of the
Moving Image, where he also serves on its Finance and Audit Committee.
Paul R. Sinsheimer, 60, 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 worked for Commercial Alliance
Corporation in several positions including Executive Vice President.
Leopold Swergold, 67, has served as a director of the Company since August
16, 2005. Mr. Swergold is the sole member of Anvers Management LLC, a general
partner of two private equity funds. Mr. Swergold was a Managing Director at ING
Groep N.V. from 1997 until he retired in December 2004. He was Head of
Healthcare Investment Banking and a member of the Board of Directors of Furman
Selz from 1989 until it was acquired by ING Groep N.V. in 1997. After working on
Wall Street for twenty years, Mr. Swergold formed his own investing banking firm
in 1983 that later merged into Furman Selz in 1989. Mr. Swergold served as a
Governor and Chair of the Audit Committee of the National Association of
Securities Dealers ("NASD") from 1989 to 1992. He is a member of the Board of
Directors of Select Medical Corporation. Mr. Swergold is also a Trustee of the
Freer and Sackler Galleries at the Smithsonian Institution in Washington, D.C.
-4-
H. E. Timanus, Jr., 62, has served as a director of the Company since
1999. Mr. Timanus is the Chairman of the Board 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 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.
Michael J. Zimmerman, 57, has served as a director of the Company since
June 7, 2004. Mr. Zimmerman is Executive Vice President and Chief Financial
Officer of ContiGroup Companies, Inc. and President of its ContiInvestments
subsidiary. Before joining ContiGroup in 1996, Mr. Zimmerman was a Managing
Director at Salomon Brothers, where he served in various senior positions in the
investment banking and firm investment areas. He is a member of the Board of
Directors of Overseas Shipholding Group, Inc, where he serves as non-executive
Chairman. He became an Advisory Director of Smithfield Foods, Inc. in May 2007
and he became a member of the Board of Directors of KBW, Inc. in October 2007.
Independent and Non-Management Directors
The Board of Directors affirmatively determined that each member of the
Board other than Mr. Sinsheimer (the Chief Executive Officer) meets the
independence criteria established by the New York Stock Exchange for independent
board members. Therefore, all non-management directors are independent. The
Board also affirmatively determined that no material relationships exist between
the Company and any of the independent directors that would interfere with their
judgment in carrying out their responsibilities as a director. In addition, the
Board of Directors determined that the members of the Audit Committee meet the
additional independence criteria required for audit committee membership.
The non-management directors meet regularly without management directors
or employees present. If the meeting is in conjunction with a committee meeting,
the Chair of the committee meeting acts as the presiding director. If the
meeting is not in conjunction with a committee meeting, the non-management
directors rotate acting as the presiding director. Interested parties may
communicate with non-management directors in the manner described in the
Communications with the Board of Directors section below.
Board of Directors Committees and Meetings
Executive Committee
The Board has established an Executive Committee, currently consisting of
four directors. The Executive Committee can exercise all the powers of the Board
between meetings of the Board. The current members of the Executive Committee
are Messrs. Fisher, Palitz, Sinsheimer and Swergold.
Audit Committee
The Board has established an Audit Committee, currently consisting of
three independent directors. The Audit Committee acts under a written charter
approved by the Board. The current members of the Audit Committee are Messrs.
Palitz, Timanus (Chairperson) and Zimmerman. The Audit Committee is responsible
for monitoring:
* the integrity of the Company's financial statements;
* the independent registered public accounting firm's qualifications
and independence;
* the performance of the Company's internal audit function and
independent registered public accounting firm; and
* the Company's compliance with legal and regulatory requirements.
The Audit Committee pre-approves all auditing services and permitted
non-audit services to be performed for the Company by the independent registered
public accounting firm. The Audit Committee is also responsible for engaging the
Company's independent registered public accounting firm and establishes
procedures (i) for the receipt, retention and treatment of complaints received
by the Company regarding accounting, internal control or auditing matters and
(ii) for the confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters.
-5-
Upon consideration of the attributes of an audit committee financial
expert set forth in Item 401(h) of Regulation S-K promulgated by the SEC, the
Board determined Mr. Timanus possesses these attributes through his experience
as Chief Operating Officer of Prosperity Bank, and he is designated as the Audit
Committee financial expert. In addition, the Board also determined Mr. Zimmerman
possesses the attributes of an audit committee financial expert through his
experience as the Chief Financial Officer of ContiGroup Companies, Inc. In
addition, Mr. Palitz also possesses the attributes of an audit committee
financial expert through his experience as former chairman of City and Suburban
Financial Corporation's audit committee and as the Company's former chief
financial officer.
Executive Compensation and Stock Option Committee
The Board has established an Executive Compensation and Stock Option
Committee (the "Executive Compensation Committee") currently consisting of three
independent directors. The Executive Compensation Committee acts under a written
charter approved by the Board. The current members are Messrs. Swergold
(Chairperson), Timanus and Zimmerman.
The Executive Compensation Committee solely reviews and approves the
goals, objectives and performance relevant to the named executive officers'
compensation and approves compensation including any equity compensation awards.
The Committee retains and does not delegate any of its exclusive power to
determine all matters of executive compensation and benefits, although the
Committee does discuss with Mr. Sinsheimer (who is also a director of the
Company) the compensation for the other executive officers. The Committee
administers the Company's Amended and Restated 2001 Management Incentive Plan
(the "MIP") and the 2006 Stock Incentive Plan (the "SIP"). The Committee also
reviews director compensation annually and recommends the form and amount of
director compensation to the Board of Directors for approval.
The Executive Compensation Committee considers the competitive market data
provided by its independent compensation consultant, Company performance and the
assessments provided by the Chief Executive Officer for each of the other
executives' individual performance. For Fiscal 2007, the Committee engaged
Watson Wyatt Worldwide ("Watson") to construct a peer group, provide marketplace
information, provide advice on competitive market practices and also support
specific compensation decisions for the Chief Executive Officer. Watson also
provided this service to the Committee for Fiscal 2006. Watson does not provide
any other services to the Company. In addition, the Committee also separately
engaged SNL Financial to construct a peer group from its data base of bank and
finance public company filings for the other named executive officers. SNL
Financial does not provide any other services to the Company. The peer groups
are described in the Compensation Discussion and Analysis section below.
Corporate Governance and Nominating Committee
The Board has established a Corporate Governance and Nominating Committee,
currently consisting of four independent directors. The Committee acts under a
written charter approved by the Board. The current members are Messrs. Fisher
(Chairperson), Swergold, Timanus and Zimmerman.
The purpose of the Corporate Governance and Nominating Committee is to
ensure that the Board of Directors is properly constituted to meet its fiduciary
obligations to the Company and its stockholders, and that the Company has and
follows appropriate corporate governance standards. The Committee is responsible
for (i) nominating qualified candidates for appointments to the Board (ii)
recommending the code of business conduct and ethics and corporate governance
guidelines to the Board and (iii) overseeing the evaluation of the Board and
management.
The Corporate Governance and Nominating Committee also recommends director
nominations, and reviews the appropriate skills and characteristics required of
Board members. In conducting this assessment, the Committee focuses on a
candidate's financial expertise and finance company experience and considers
knowledge, skills, experience in business, administration and relevant technical
disciplines and other appropriate factors given the current needs of the Board
and the Company, to maintain a balance of knowledge, experience and capability.
Nominees for the Board should have the highest personal and professional ethics,
integrity and values and be committed to representing the long-term interests of
stockholders. They should be inquisitive and objective and exhibit practical
judgment on issues. The Committee may engage consultants or third-party search
firms to assist in identifying and evaluating potential nominees.
In recommending candidates for election to the Board, the Corporate
Governance and Nominating Committee considers nominees recommended by directors,
officers, stockholders and others, using the same criteria to evaluate all
candidates. Evaluation of candidates generally involves reviewing background
materials, internal discussions and interviewing selected candidates as
appropriate. Upon selecting a qualified candidate, the Committee recommends the
candidate for the Board's consideration.
-6-
Stockholders may recommend a nominee by writing to the Company's Secretary
specifying the nominee's name and qualifications for Board membership. All
recommendations are submitted to the Corporate Governance and Nominating
Committee. Each submission must include (i) a brief description of the candidate
(ii) the candidate's name, age, business address and residence address (iii) the
candidate's principal occupation (iv) the number of shares of Common Stock
beneficially owned and (v) any other information required by the rules of the
New York Stock Exchange and SEC to list the candidate as a nominee for director
in a proxy statement. Recommended candidates may be required to provide
additional information.
Meetings in Fiscal 2007
During the Company's fiscal year ended July 31, 2007, the Board of
Directors met five times and acted once by unanimous written consent, the
Executive Committee met once, the Audit Committee met four times, the Executive
Compensation and Stock Option Committee met four times and the Corporate
Governance and Nominating Committee met three times. Each director attended,
either in person or telephonically, all of the meetings of the Board and their
respective committees during Fiscal 2007. The Board has no other standing
committees.
Communications with the Board of Directors
Stockholders may communicate with the Company's Board of Directors through
the Company's Secretary by writing to the following address: Board of Directors,
c/o Secretary, Financial Federal Corporation, 733 Third Avenue, 24th Floor, New
York, NY 10017. The Company's Secretary will forward all correspondence to the
Board, except for spam, junk mail, mass mailings, job inquiries, surveys,
business solicitations or advertisements, or patently offensive or inappropriate
material. The Company's Secretary may forward certain correspondence elsewhere
within the Company for review and possible response.
Interested parties can report any concerns to non-management directors
confidentially or anonymously by writing direct to the Chair of the Corporate
Governance and Nominating Committee c/o Financial Federal Corporation, 733 Third
Avenue, 24th Floor, New York, NY 10017. These communications will be reviewed
and any concerns relating to accounting, internal control or auditing will be
forwarded to the Chair of the Audit Committee.
Compensation Committee Interlocks and Insider Participation
Messrs. Swergold, Timanus and Zimmerman served as members of the Executive
Compensation and Stock Option Committee during Fiscal 2007. They have no
relationship with the Company other than as directors and stockholders and they
have never been (i) an officer or employee of the Company (ii) a participant in
a "related person" transaction in Fiscal 2007 or (iii) an executive officer of
another entity, at which one of the Company's executive officers serves on the
board of directors.
Available Information
The Company's website is http://www.financialfederal.com. The following
corporate governance and committee charter documents are available in the
Investor Relations section of the website under Corporate Governance:
* Corporate Governance Guidelines
* Code of Business Conduct and Ethics
* Charters for the Audit Committee, Executive Compensation and Stock
Option Committee, and Corporate Governance and Nominating Committee.
Printed versions of these documents are also available free to any
stockholder on request to Financial Federal Corporation, 733 Third Avenue, 24th
Floor, New York, NY 10017, Attn: Corporate Secretary.
-7-
COMPENSATION OF DIRECTORS
This section provides information regarding the compensation policies for
non-employee directors and amounts paid to them in Fiscal 2007.
The Executive Compensation Committee reviews director compensation
annually, including fees, retainers, and equity compensation, as well as total
compensation. Changes to director compensation are recommended by the Executive
Compensation Committee to the Board for approval.
The following table presents the Company's Fiscal 2007 policy for
providing cash compensation to non-employee directors. The annual retainers are
pro-rated if a director joins the Board or begins to serve as a committee chair
during the fiscal year. Directors who are officers of the Company, such as Mr.
Sinsheimer, do not receive any Board compensation. Directors can elect to
receive their cash retainers in shares of the Company's common stock.
Annual Fee for attending each
Position retainer regular meeting
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Director $45,000 $1,000
Audit Committee Chair $10,000 --
Executive Compensation and Stock
Option Committee Chair $6,000 --
Corporate Governance and Nominating
Committee Chair $4,000 --
Committee Member -- $1,000
In addition to providing cash compensation, the Board also believes in
granting equity compensation to non-employee directors to further align their
interests with those of stockholders.
Therefore, on January 12, 2007, each non-employee director was awarded a
restricted stock unit grant of 3,750 shares when the Company closing share price
was $28.44. This award had a Statement of Financial Accounting Standards No.
123(R), SFAS 123R, grant date fair value of $106,650. The restricted stock units
vest one year after grant and are subject to earlier acceleration upon a sale of
the Company or the director's death or disability, and forfeiture upon
resignation of service before vesting or not being re-elected to the Board at
the 2007 annual meeting of stockholders. Vested restricted stock units will be
settled with an equal number of Company common shares upon the director's
termination of service or an earlier sale of the Company. The stock units are
eligible to receive dividend equivalent payments when the Company pays dividends
on its Common Stock.
All directors are reimbursed for travel and other expenses directly
related to activities as directors. Directors are also entitled to the
protection provided by certain indemnification provisions in the Company's
Restated Articles of Incorporation, Bylaws and indemnification agreements.
The following table provides information on the compensation of
non-employee directors during Fiscal 2007.
DIRECTOR COMPENSATION - FISCAL YEAR 2007
Change in
Pension
Value and
Fees Nonqualified
earned or Non-Equity Deferred
paid in Stock Option Incentive Plan Compensation All Other
Name cash ($) Awards($) Awards($) Compensation($) Earnings($) Compensation($) Total ($)
(a) (b) (c)(1) (d) (e) (f) (g) (h)
-----------------------------------------------------------------------------------------------------------------
Lawrence Fisher $58,000 $58,438 $0 $0 $0 $0 $116,438
Michael Palitz $55,000 $58,438 $0 $0 $0 $0 $113,438
Thomas Robards (2) $4,000 $0 $0 $0 $0 $0 $4,000
Leopold Swergold (3) $64,000 $58,438 $0 $0 $0 $0 $122,438
H. E. Timanus, Jr. $71,000 $58,438 $0 $0 $0 $0 $129,438
Michael Zimmerman $61,000 $58,438 $0 $0 $0 $0 $119,438
-8-
(1) The amounts in this column are the expense recorded in the Company's
financial statements, excluding any assumed forfeitures, for the fiscal year
ended July 31, 2007 for stock units awarded under the 2006 Stock Incentive
Plan according to FAS 123(R). Assumptions used to calculate these amounts
are included in Note 6 to the Company's audited financial statements for the
fiscal year ended July 31, 2007 included in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission on September 28,
2007.
(2) In June 2006, Mr. Robards notified the Company of his decision to not stand
for re-election to the Board and his service on the Board ended on December
6, 2006 (the date of the Company's 2006 annual meeting of stockholders).
(3) Pursuant to the terms of the SIP, Mr. Swergold elected to receive his annual
retainer of $45,000 for director services in shares of the Company's Common
Stock. He received 1,566 shares on December 19, 2006 when the closing share
price was $28.73.
Each non-employee director owned the following number of restricted stock
units and stock options as of July 31, 2007.
Name Restricted Units Stock Options
------------------------------------------------------------
Mr. Fisher 3,750 0
Mr. Palitz 3,750 0
Mr. Swergold 3,750 7,500
Mr. Timanus, Jr. 3,750 0
Mr. Zimmerman 3,750 7,500
For Fiscal 2008, the Board determined to keep the cash compensation
schedule the same as in Fiscal 2007. In September 2007, the Executive
Compensation Committee recommended to the Board that each continuing
non-employee director re-elected at the 2007 annual meeting of stockholders
should receive an award of 2,250 restricted stock units vesting in one year
after grant and subject to earlier acceleration upon a sale of the Company or
the director's death or disability and forfeiture upon resignation of service
before vesting or not being re-elected to the Board at the 2008 annual meeting
of stockholders. Vested restricted stock units will be settled with an equal
number of Company common shares upon the director's termination of service or an
earlier sale of the Company. The stock units will also be eligible to receive
dividend equivalent payments when the Company pays dividends on its Common
Stock. The Board has yet to take any action on this recommendation but intends
to consider it before the end of calendar 2007.
RELATED PERSON TRANSACTIONS
Paul R. Sinsheimer (officer and director), Michael C. Palitz (director),
and Troy H. Geisser (officer), including their affiliates, invest in the
Company's commercial paper. The Company issued this debt under the terms of its
direct commercial paper program at an annual interest rate of 5.25% and at the
same terms and conditions available to investors unrelated to the Company. The
table below provides more information on these transactions.
Highest Principal Principal
Outstanding in Interest Paid Outstanding at
Name Fiscal 2007 during Fiscal 2007 October 15, 2007
--------------------------------------------------------------------------------
Paul Sinsheimer $4,963,932 $137,184 $5,242,214
Michael Palitz $3,459,172 $67,530 $696,184
Troy Geisser $181,473 $9,442 $159,376
The Company does not currently have a policy regarding the review,
approval or ratification of commercial paper transactions with related persons
because the Company issues commercial paper to unrelated investors with the same
terms and conditions.
-9-
COMPENSATION DISCUSSION AND ANALYSIS
This discussion describes the Company's compensation program for the five
named executive officers, namely, the Chief Executive Officer (CEO), Chief
Financial Officer (CFO) and the three other most highly compensated executive
officers in Fiscal 2007.
Overview, Objectives and Compensation Philosophy
The Executive Compensation and Stock Option Committee is responsible for
determining the compensation of the named executive officers. The Executive
Compensation Committee oversees the compensation programs for these officers to
ensure consistency with Company goals and objectives and is responsible for
approving and executing the Company's executive compensation programs.
The Executive Compensation Committee's objective in designing the
executive compensation program is to retain key executive talent and ensure that
executives are provided overall compensation in a manner that aligns pay with
performance and supports the long-term interests of and value creation for
Company stockholders. In this regard, the Committee believes that earnings,
revenue, growth, liquidity, credit quality and risk management are fundamental
key metrics to evaluate in determining compensation. In addition, the Committee
will review and consider other items, including compensation paid to similarly
situated executives of designated peer companies, but these other items are
primarily data reference points and the Committee is more concerned with (i) the
Company's financial and business performance rather than compensation paid to
executives of other companies and (ii) retaining and motivating talented
executives who have consistently provided exemplary service to the Company over
many years.
The Executive Compensation Committee believes the Company has an
outstanding management team that has produced excellent results since its
inception in 1989. Notwithstanding the vicissitudes of the national economy and
credit markets over this period, the Company has been profitable in every single
fiscal quarter since its founding. There has been little turnover in the
Company's executive management ranks during the last ten years. Four of the
named executive officers have been with the Company for more than ten years and
the other officer (Mr. Groth) joined the Company in September 2000.
Mr. Sinsheimer, the Company's Chairman, Chief Executive Officer and
President, co-founded the Company in 1989 and has been directly responsible for
recruiting the executive management team. In the last ten years, under the
leadership of Mr. Sinsheimer and the management team, the Company has shown
impressive and consistent growth as exemplified by the following statistics ($
in millions):
Compounded
annual
July 31, 1997 July 31, 2007 Increase increase
-------------------------------------------------------------------------------
Number of employees 130 230 77% 6%
Total assets $575 $2,120 269% 14%
Net income $13 $50 288% 15%
Market capitalization $150 $730 387% 17%
Fiscal 2007 was also one of the most successful years in the Company's
history as evidenced by record net income, revenue and finance receivables. As a
result, the Executive Compensation Committee strongly believes it is important
to keep the executive management team intact to continue to generate positive
results for the Company and its stockholders.
The Executive Compensation Committee's policy has been generally to rely
on equity compensation as the optimal way to provide incentive compensation for
top management. The Committee believes this approach best aligns the mutual
long-term interests of management and stockholders because both groups will
share in appreciation of the Company's value. The Committee also believes the
success of the compensation policy is evidenced by the stability of the
management team and the superior historical financial results they have achieved
for the Company. In this regard, the Committee issued a special award of shares
of restricted stock as a long-term incentive in February 2006 to the named
executive officers to further induce them to remain with the Company for the
duration of their careers. To achieve their retention, these restricted shares
generally will not vest until termination of employment on or after age 62
unless there is an earlier sale of the Company.
By virtue of the extended vesting schedule associated with this special
stock award and due to the federal golden parachute excise tax rules, the
Company has also provided each named executive officer with a right to receive
excise tax restoration payments if necessary. The principal reasons for
providing this excise tax protection were to ensure that the purpose and
benefits of this long-term stock award would be achieved in the event of a
corporate transaction that could result in the imposition of the 20% excise tax
on an executive, and also so that the executives would not have a disincentive
to support any such potential transaction. The Committee also believes that
providing excise tax restoration is appropriate so that, in the event of a
corporate transaction, executive officers receive as much value from their
equity holdings as do other stockholders
-10-
who would not be subject to the excise tax. As shown in the Potential Payments
Upon Termination or Change-in-Control section below, if there had been a
hypothetical corporate transaction at the end of Fiscal 2007 at the Company's
then share price, only one named executive officer would have needed an excise
tax restoration payment.
The Executive Compensation Committee's philosophy includes linking a
significant portion of the CEO's compensation directly to the Company's
year-to-year success. While the MIP permits other executive officers to be
participants, the Committee continues to believe that the CEO should be the only
executive to be compensated with cash incentives for short-term annual corporate
performance and that other executives should have their performance-based
compensation tied to the long-term success of the Company. The Committee
believes this is appropriate because the CEO is charged with running the Company
and is ultimately responsible for its performance.
Compensation Peer Groups and Tally Sheet
Given the Company's niche role in the financial services industry, it is
difficult to identify and construct a true peer group of competitive companies.
As a result, the Executive Compensation Committee engaged two separate
consultants (Watson and SNL Financial) to independently construct alternative
peer groups to consider and review.
Therefore, to evaluate competitive compensation practices, the Executive
Compensation Committee selected the following peer groups of competitor and
generally comparable companies for Fiscal 2007 and 2008. These groups include
commercial lenders and other financial institutions:
SNL Financial's Recommended Peer Group
--------------------------------------
Banks:
------
Lakeland Bancorp, Inc. Century Bancorp, Inc.
Tompkins Trustco, Inc. Intervest Bancshares Corporation
Sterling Bancorp Camden National Corporation
Hudson Valley Holding Corp. Pennsylvania Commerce Bancorp, Inc.
Financial Institutions, Inc. State Bancorp, Inc.
Omega Financial Corporation Arrow Financial Corporation
Univest Corporation of Pennsylvania Bancorp Rhode Island, Inc.
Suffolk Bancorp
Specialty Lenders:
------------------
Interpool, Inc. Franklin Credit Management
Advanta Corp. Corporation
Williams Scotsman International, Inc. TAL International Group, Inc.
Watson Wyatt's Recommended Peer Group
-------------------------------------
Trustco Bank Corp. NY Firstfed Financial Corp.
Republic Bancorp Inc. Hanmi Financial Corp.
Sterling Financial Corp. Bankunited Financial Corp.
Community Bank System Inc. Triad Guaranty Inc.
Capitol Bancorp Ltd. Dime Community Bancshares Inc.
In addition to the peer group data, the Executive Compensation Committee
also requested a "tally sheet" of the CEO's compensation from the Company. The
tally sheet reported details of the CEO's fiscal year compensation, the
compensation that would be provided to the CEO upon a hypothetical corporate
transaction or involuntary termination of employment, and the current value of
previously granted compensatory awards.
As mentioned above, to determine executive compensation, the Executive
Compensation Committee focuses more on the Company's performance, but remains
knowledgeable of (i) compensation practices in the financial services industry
and (ii) the CEO's aggregate compensation and the Company's contingent
post-service obligations to the CEO. Based on the Committee's review of the peer
groups' compensation data and the Company's superior performance, the Committee
determined the CEO's total compensation for Fiscal 2007 should be within the top
quartile of the peer groups.
Tax Considerations
The Executive Compensation Committee believes retaining maximum
flexibility is important in designing compensation programs to meet its stated
objectives. In determining executive compensation, the Committee considers
income tax consequences to the Company. Tax consequences are subject to many
variables (such as changes in tax laws, regulations or interpretations and the
timing and nature of various decisions by executives regarding stock options and
other rights) beyond the Committee's or the Company's control. For these
reasons, the Committee will not limit compensation to the levels or types that
will be fully tax deductible. The Committee considers alternative forms of
compensation consistent
-11-
with its compensation goals and to preserve deductibility. The SIP and MIP
described below provide for performance-based awards that comply with Internal
Revenue Code Section 162(m) so that awards can be fully deductible. Section
162(m) precludes the Company from claiming an income tax deduction on
non-performance based compensation paid to covered employees (officers listed in
the Summary Compensation Table) that exceeds $1 million per fiscal year.
Components of Executive Compensation
The compensation of named executive officers has a few primary components:
annual base salary, long-term incentive compensation awarded under the SIP,
nominal perquisites, and employee benefits generally available to other
employees. In addition, the CEO receives supplemental executive retirement
benefits in the form of stock units subject to time-based vesting and is a
participant in the MIP annual incentive bonus opportunity. The Company does not
provide severance or retirement programs (other than the supplemental executive
retirement benefits for the CEO) to the executive officers. The Company's
current and historical philosophy is not to provide cash severance because it
wants to reward and motivate performance and to not provide compensation to
former executives no longer contributing to the Company.
The Executive Compensation Committee views the various components of
compensation as related but distinct. The Committee does not believe accumulated
wealth from prior compensation or significant compensation from one component of
compensation should necessarily negate or reduce compensation from other
components. For example, if an officer's equity awards are providing significant
compensatory value because the Company's stock price has been appreciating, that
would not cause the size of future equity awards or other compensation to be
reduced.
Annual Base Salary
Base salaries are set by the Executive Compensation Committee. The
Committee generally determines base salaries for each position primarily on the
abilities, performance and experience of the executives and may also review
compensation data on comparable positions in the financial services industry.
For Fiscal 2007, base salaries for the named executive officers were unchanged
from Fiscal 2006.
Amended and Restated 2001 Management Incentive Plan (MIP)
The MIP is a stockholder-approved plan designed to comply with Internal
Revenue Code Section 162(m) and provides an annual incentive compensation
opportunity for the CEO. The maximum annual restricted stock award under the MIP
is 200,000 shares and the maximum cash bonus award per performance period is
$3,000,000. For Fiscal 2007, the Executive Compensation Committee granted the
CEO an annual cash-based award opportunity based on the Company's Fiscal 2007
diluted earnings per share. Further details on this bonus are provided in the
Summary Compensation Table and the Grants of Plan-Based Awards Table below.
Long-Term Incentive Compensation - 2006 Stock Incentive Plan (SIP)
The Company provides long-term equity incentive compensation to retain its
executives and to provide for a significant portion of their compensation to be
at risk and directly linked with the Company's long-term success. Long-term
compensation is generally provided through equity awards principally in the form
of restricted stock and stock options.
In Fiscal 2006, the Company adopted the 2006 Stock Incentive Plan, or SIP,
and the SIP was approved by stockholders in December 2006. The SIP replaced the
1998 Restricted Stock/Stock Option Plan. Equity compensation awards, consisting
of restricted stock, stock options, stock units and stock appreciation rights,
are available for issuance under the SIP. The Company does not currently have a
formal policy regarding the timing of stock option grants. Recently, the Company
has been relying more on restricted stock grants for executives rather than
stock options. The Executive Compensation Committee believes restricted stock
provides a better retention vehicle for officers than stock options and further
believes overall share dilution is also reduced. The Committee reviews the
amount of vested and unvested equity holdings for executives but their
accumulated holdings generally will not affect the size of new equity grants.
The executive officers receive dividends on all unvested shares of
restricted stock and dividend equivalent payments on restricted stock units when
the Company pays dividends on its Common Stock. The stock grant agreements also
generally provide for all unvested shares or stock units to vest immediately
when certain events occur including the sale of the Company, the officer's death
or disability and qualifying involuntary terminations of employment. Unvested
shares are also subject to forfeiture for non-qualifying terminations of
employment.
On February 28, 2007, the Executive Compensation Committee granted
restricted stock under the SIP to the named executive officers, other than the
CEO, in the amounts set forth in the Grants of Plan-Based Awards Table.
Supplemental Retirement Benefits (SERP)
The Company established a Supplemental Retirement Benefits program
("SERP") for the CEO in June 2002. The purpose of the SERP is to retain the
services of the CEO for the duration of his career and motivate him to further
contribute
-12-
to increases in stockholder value and participate in any such increases upon his
retirement. The SERP is further discussed in the Nonqualified Deferred
Compensation section below.
Employee Benefits, Perquisites and Deferred Compensation
The Company offers its executive officers 401(k) plan participation
without Company matching contributions, as well as an employee contributory
health plan and other benefits generally available to other employees.
The Executive Compensation Committee provided only limited perquisites to
the named executive officers during Fiscal 2007 as shown in column (i) of the
Summary Compensation Table below.
The Company also permits executives to defer certain compensation but the
Company does not match contributions. Deferred compensation arrangements are
described in the Nonqualified Deferred Compensation section below.
Change in Control and Severance
As described in the section below entitled Potential Payments Upon
Termination or Change-in-Control, unvested restricted stock or stock units of
named executive officers would fully vest upon a sale of the Company (commonly
referred to as a "single trigger") or qualifying involuntary terminations of
employment including death or disability. The Company does not currently offer
cash severance benefits. The Executive Compensation Committee considers a sale
of the Company as a triggering event to be reasonable and necessary from a
competitive perspective and to induce retention in the event of contemplated
corporate transaction that would benefit stockholders but would potentially
place the executive's job in jeopardy. In addition, since the Company provides
no cash severance (unlike many other companies) and because equity compensation
is the primary form of long-term incentive compensation and source of potential
wealth accumulation for the named executive officers, the Committee believes
providing accelerated vesting of unvested restricted stock and stock units is
appropriate in the event the executive's employment is involuntarily terminated
for a reason other than cause.
Compensation of the Chief Executive Officer
Mr. Sinsheimer's annual base salary for Fiscal 2007 was $600,000. Before
Fiscal 2007, his annual salary was $750,000 at its highest level. The Executive
Compensation Committee and Mr. Sinsheimer agreed to reduce his base salary to
its present level to provide him with more at-risk long-term equity awards to
further the long-term interests of the Company and its stockholders.
In October 2006, the Executive Compensation Committee, with the assistance
of Watson, established a performance-based annual cash bonus award under the MIP
for the CEO for Fiscal 2007. The CEO was eligible to earn a performance-based
cash bonus for Fiscal 2007 ranging from $0 to $900,000 determined according to a
pre-established objective performance matrix prescribed by the Committee and
based on the Company's diluted earnings per share ("EPS") for Fiscal 2007, and
with achievement of the objectives subject to being certified by the Committee.
Diluted earnings per share is a fundamental reported financial metric for
evaluating a company's performance and therefore the Committee selected it to
measure performance and provide incentive compensation. The Committee also
retained the ability to use its discretion to reduce the maximum cash bonus
determined according to the performance matrix based on other factors it
considers important.
At a meeting on September 24, 2007, the Executive Compensation Committee
determined the amount of the MIP Fiscal 2007 annual cash award to be paid to the
CEO. Diluted EPS of $1.90 for Fiscal 2007 exceeded the MIP targets. As a result
of this outstanding financial result, the Committee decided not to exercise its
discretion to reduce the performance-based annual cash bonus. Therefore, the CEO
received the full amounts of the $300,000 target bonus plus the additional
$600,000 bonus for achieving superior performance in Fiscal 2007. The Committee
also awarded the CEO an additional $100,000 special recognition bonus as a
direct result of the Company exceeding its financial performance targets for
Fiscal 2007. These amounts are reported in columns (d) and (g) of the Summary
Compensation Table below.
In addition, at a meeting on October 5, 2007, the Executive Compensation
Committee, with the assistance of Watson, also approved short and long-term
awards under the MIP for the CEO for Fiscal 2008. Similar to the Fiscal 2007 MIP
arrangement, the CEO is eligible to earn a performance-based cash bonus for
Fiscal 2008 ranging from $0 to $1,000,000 determined according to a
pre-established objective performance matrix prescribed by the Committee. The
performance goal for Fiscal 2008 is again based on the Company's diluted EPS and
with achievement of the objectives subject to being certified by the Committee.
Similar to Fiscal 2007, the short-term annual award will have a target bonus of
$400,000 and an additional performance-based annual cash bonus of up to $600,000
for superior Company performance. The long-term award is a grant of 75,000
shares of restricted Common Stock. Both the short-term and long-term awards are
subject to achieving specified objective performance goals for Fiscal 2008. To
achieve the performance goals for the target cash bonus and the 75,000
restricted shares, the Company's Fiscal 2008 diluted EPS must approximate its
recent fiscal year EPS performance. If the target diluted EPS objective is not
attained in Fiscal 2008, then all of the 75,000 restricted shares will be
-13-
forfeited. Full payment for the superior performance bonus will only occur if
the Company's diluted EPS in Fiscal 2008 exceeds its record Fiscal 2007 diluted
EPS results.
The restricted stock award cliff vests in five years from the date of
grant for any of the shares retained based on attainment of the performance
objectives, subject to earlier vesting upon a sale of the Company and qualifying
terminations of employment and also subject to forfeiture for non-qualifying
terminations of employment. The Executive Compensation Committee also retained
the ability to exercise its discretion to reduce or eliminate the amounts of the
superior performance bonus and the stock award.
The compensation for the CEO is materially greater than the other
executive officers' compensation because of his historical, current and future
critical importance to the Company's success. Mr. Sinsheimer is a co-founder of
the Company and has been its primary guiding force for many years. He serves as
Chief Executive Officer, President, and Chairman of the Board and is a principal
stockholder. The difference between his compensation and the other officers'
compensation is primarily due to performance based incentive awards that will
only create value for Mr. Sinsheimer if Company performance goals are attained.
The Executive Compensation Committee believes it is desirable to provide a
significant amount of at-risk, performance-based compensation to the CEO to
continue to motivate and reward him for superior accomplishments.
Compensation of Other Named Executive Officers
Fiscal 2007 annual base salaries for the other executive officers were
unchanged from Fiscal 2006 and annual restricted stock grants are reported in
the Grants of Plan-Based Awards table below. At the September 24, 2007 meeting,
the Executive Compensation Committee approved the following adjustments to the
other named executive officers' salaries effective October 1, 2007 to reward
them for many years of successful Company financial performance and because
their base salaries were only adjusted by a total of 5%-10% since the start of
Fiscal 2005.
Name Previous Salary Adjusted Salary Increase
------------------------------------------------------------------------
John V. Golio $315,000 $350,000 11%
James H. Mayes, Jr. $300,000 $350,000 17%
Steven F. Groth $300,000 $340,000 13%
Troy H. Geisser $295,000 $340,000 15%
Additionally, at the October 5, 2007 meeting, the Executive Compensation
Committee awarded 150,000 shares of performance-based restricted stock under the
SIP to executive officers including the following amounts to the other named
executive officers:
Name Restricted Shares
---------------------------------------------
John V. Golio 30,000
James H. Mayes, Jr. 30,000
Steven F. Groth 25,000
Troy H. Geisser 25,000
These restricted stock grants are subject to the same general terms and
vesting conditions applied to the CEO's Fiscal 2008 restricted stock grant under
the MIP.
Stock Ownership Guidelines
While executive officers are expected to own a meaningful number of shares
of the Company's common stock, the Company does not currently have a formal
policy mandating threshold ownership levels.
Compensation Committee Report
We, the Executive Compensation and Stock Option Committee of the board of
directors of the Company, have reviewed and discussed the Compensation
Discussion and Analysis section (set forth above in this proxy statement) with
the management of the Company, and, based on our review and discussion, have
recommended to the Board of Directors inclusion of the Compensation Discussion
and Analysis section in this Proxy Statement.
Executive Compensation and Stock Option Committee
Leopold Swergold, Chairman
H. E. Timanus, Jr.
Michael Zimmerman
-14-
Executive Compensation Tables
The following tables provide information on compensation for services of
the Company's principal executive officer, principal financial officer and the
three other executive officers of the Company with the highest total
compensation (determined under applicable regulations) for Fiscal 2007.
SUMMARY COMPENSATION TABLE - FISCAL YEAR 2007
Change in
Pension Value
Non-Equity and
Incentive Nonqualified
Plan Deferred All Other
Name and Principal Stock Option Compensation Compensation Compensation Total
Position Year Salary($) Bonus($) Awards($) Awards($) ($) Earnings($) ($) ($)
(a) (b) (c)(1) (d)(2) (e)(3) (f)(3) (g)(4) (h) (i)(5) (j)
----------------------------------------------------------------------------------------------------------------------------
Paul R. Sinsheimer
President & Chief
Executive Officer
and Chairman 2007 $600,000 $100,000 $2,775,339 $0 $900,000 $0 $14,400 $4,389,739
John V. Golio
Executive Vice
President 2007 $315,000 $0 $496,589 $10,920 $0 $0 $0 $822,509
Troy H. Geisser
Senior Vice
President and
Secretary 2007 $295,000 $0 $479,711 $10,920 $0 $0 $0 $785,631
Steven F. Groth
Senior Vice
President and Chief
Financial Officer 2007 $300,000 $0 $475,677 $0 $0 $0 $0 $775,677
James H. Mayes, Jr.
Executive Vice
President 2007 $300,000 $0 $393,465 $22,827 $0 $0 $12,000 $728,292
(1) The amounts in this column include amounts voluntarily deferred into
401(k) plan accounts. Mr. Sinsheimer and Mr. Groth each deferred
$19,700; Mr. Golio and Mr. Mayes, Jr. each deferred $15,200 and Mr.
Geisser deferred $15,567.
(2) The amount in this column is the discretionary special recognition cash
award paid to the CEO for Fiscal 2007 described in the Compensation
Discussion and Analysis section.
(3) The amounts in columns (e) and (f) are the expense recorded in the
Company's financial statements, excluding any assumed forfeitures, for
the fiscal year ended July 31, 2007 for equity awards granted in fiscal
2002 through fiscal 2007 according to SFAS 123(R). Assumptions used to
calculate these amounts are included in Note 6 to the Company's audited
financial statements for the fiscal year ended July 31, 2007 included in
the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission on September 28, 2007.
(4) The amount in this column is the cash award paid to the CEO under the
MIP for Fiscal 2007 as described in the Grants of Plan-Based Awards
Table below and the Compensation Discussion and Analysis section above.
(5) The amounts in this column are automobile allowances. Messrs. Golio,
Geisser and Groth did not receive perquisites above the $10,000 annual
de minimis reporting threshold.
-15-
The following table provides information on stock options, restricted
stock and cash-based performance awards granted in Fiscal 2007 to each of the
Company's named executive officers. There can be no assurance that the Grant
Date Fair Value of Stock and Option Awards will be the amount actually realized
by the officer.
GRANTS OF PLAN-BASED AWARDS - FISCAL YEAR 2007
Estimated future payouts under
non-equity incentive plan awards
---------------------------------------
All other stock
awards: number of Grant Date Fair
shares of stock Value of Stock and
Name Grant date Threshold ($) Target ($) Maximum ($) or units (#) Option Awards ($)
(a) (b) (c) (d) (e) (i) (2) (l)
---------------------------------------------------------------------------------------------------------------
Paul R. Sinsheimer (1) $125,000 $300,000 $900,000 0 $0
John V. Golio 2/28/07 $0 $0 $0 15,000 $404,400
Troy H. Geisser 2/28/07 $0 $0 $0 15,000 $404,400
Steven F. Groth 2/28/07 $0 $0 $0 5,000 $134,800
James H. Mayes, Jr. 2/28/07 $0 $0 $0 25,000 $674,000
(1) This bonus award opportunity for Fiscal 2007 was granted under the MIP.
The bonus amounts that could be earned were based on the Company's
diluted EPS for Fiscal 2007. The Company's diluted EPS for Fiscal 2007
was $1.90 and this exceeded the MIP's diluted EPS performance goal
target values for Fiscal 2007 resulting in full payment of the maximum
possible bonus of $900,000 as reported in column (g) of the Summary
Compensation Table.
(2) The restricted shares were granted on February 28, 2007 under the SIP
and vest in 20% increments on March 15, 2008, 2009, 2010, 2011 and 2012,
subject to continued service. The restricted shares would also vest in
full upon an earlier sale of the Company or qualifying involuntary
terminations of employment. The Fiscal 2007 expense for these awards is
included in column (e) of the Summary Compensation Table.
The following table shows the number of Company common shares covered by
exercisable and unexercisable stock options and the number of Company unvested
restricted common shares and restricted stock units held by the Company's named
executive officers as of July 31, 2007.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END - 2007
Option awards Stock awards
--------------------------------------------------- ---------------------------------
Number of Number of
securities securities Market value
underlying underlying Number of shares of shares or
unexercised unexercised Option Option or units of stock units of stock
options (#) options (#) exercise expiration that have not that have not
Name exercisable unexercisable price ($) date vested (#) vested ($)
(a) (b) (c) (e) (f) (g) (h)
---------------------------------------------------------------------------------------------------------------
Paul R. Sinsheimer (3) 0 0 -- -- 339,578 $9,627,036
John V. Golio (4) 15,000 0 $25.01 3/16/2009 (1) 120,937 $3,428,564
Troy H. Geisser (5) 15,000 0 $25.01 3/16/2009 (1) 123,750 $3,508,313
Steven F. Groth (6) 0 0 -- -- 95,937 $2,719,814
James H. Mayes, Jr. (7) 37,500 0 $17.40 7/24/2008 (2) 158,125 $4,482,844
All option awards in the above table have an exercise price equal to the fair
market value of a Company common share on the date of grant.
(1) These options were granted on March 16, 2005 and vested in three equal
installments on July 31, 2005, 2006 and 2007.
-16-
(2) These options were granted on July 24, 2002 and vested in four equal
installments on July 24, 2004, 2005, 2006 and 2007.
(3) Scheduled to vest as follows: 15,834 shares on March 15, 2008, 2009 (15,835
shares) and 2010; 3,000 shares on October 14, 2007, 2008 and 2009; 6,671
shares on September 28, 2007, 2008 (6,672 shares) and 2009; 8,937 shares on
November 2, 2007, 2008 and 2009; 18,750 units on January 1, 2008, 2009 and
2010; 180,000 shares on February 13, 2010
(4) Scheduled to vest as follows: 21,750 shares on March 15, 2008, 2009 and
2010; 937 shares on April 30, 2008, 2009 (938 shares), 2010, 2011 (938
shares) and 2012; 3,000 shares on March 15, 2011 and 2012; 45,000 shares on
May 2, 2023.
(5) Scheduled to vest as follows: 18,000 shares on March 15, 2008, 2009 and
2010; 3,750 shares on April 30, 2008, 2009, 2010, 2011 and 2012; 3,000
shares on March 15, 2011 and 2012; 45,000 shares on November 18, 2023.
(6) Scheduled to vest as follows: 17,875 shares on March 15, 2008, 2009 and
2010; 937 shares on April 30, 2008, 2009 (938 shares), 2010, 2011 (938
shares) and 2012; 2,875 shares on March 15, 2011 and 2012; 1,875 shares on
March 15, 2013; 30,000 shares on November 12, 2014.
(7) Scheduled to vest as follows: 14,375 shares on March 15, 2008, 2009 and
2010; 3,750 shares on April 30, 2008, 2009, 2010, 2011 and 2012; 12,500
shares on March 15, 2011; 6,875 shares on March 15, 2012; 1,875 shares on
March 15, 2013; 75,000 shares on August 22, 2026.
The market value of unvested shares of restricted stock and restricted
stock units was calculated by multiplying the number of shares or units by the
$28.35 closing market price of Company Common Stock on July 31, 2007. Except as
provided in the next paragraph, these restricted shares and units also generally
vest in full upon an earlier sale of the Company or certain involuntary
terminations of employment including death or disability.
For the special long-term restricted share awards granted in February
2006, shares will vest and be delivered to the executive on the earlier of (i)
six months after the executive's termination of service (other than if
terminated for cause) on or after attaining age 62 (ii) the executive's death or
disability or (iii) a sale of the Company. If an executive's service is
terminated by the Company without cause or by the executive for good reason
before the executive attains age 62, the executive will receive delivery of a
portion of the shares of restricted stock granted. The number of shares received
would equal the number of shares granted multiplied by the number of full months
between the grant date and the termination date divided by the number of full
months between the grant date and the date the executive would attain age 62.
The remaining shares would be forfeited. Additionally, all shares would be
forfeited (i) if the executive's service terminates in any manner other than
described above or (ii) if at any time the Company terminates the executive's
service for cause.
The following table shows (i) the number of shares acquired upon exercise
of stock options and the value realized upon exercise and (ii) the number of
restricted shares of Company Common Stock and restricted stock units that
vested, along with their market value at the time of vesting, for each of the
named executive officers during Fiscal 2007.
OPTION EXERCISES AND STOCK VESTED - FISCAL YEAR 2007
Option awards Stock awards
--------------------------------- --------------------------------
Number of Number of
shares acquired Value realized shares acquired Value realized
Name on exercise (#) on exercise ($) on vesting (#) on vesting ($)
(a) (b) (c) (d) (e)
------------------------------------------------------------------------------------------
Paul R. Sinsheimer (1) 0 $0 53,195 $1,476,850
John V. Golio 41,250 $470,939 19,688 $520,776
Troy H. Geisser 0 $0 18,750 $495,450
Steven F. Groth 0 $0 17,813 $471,163
James H. Mayes, Jr. 17,872 $214,584 13,125 $346,613
(1) The amounts in columns (d) and (e) include 18,750 stock units that vested
under the SERP. The SERP is described in the Nonqualified Deferred
Compensation section.
-17-
PENSION BENEFITS
The Company does not maintain any pension plan arrangements for the named
executive officers.
NONQUALIFIED DEFERRED COMPENSATION
The Company established a Supplemental Retirement Benefit ("SERP") for Mr.
Sinsheimer, Chief Executive Officer, in June 2002. Under the SERP, the Company
awarded Mr. Sinsheimer 150,000 stock units vesting annually in equal amounts
over eight years on January 1 of each year, subject to his continued service.
Subject to forfeiture for earlier termination of service, Mr. Sinsheimer will
receive shares of Common Stock equal to the number of stock units vested when he
retires or if there is an earlier qualifying involuntary termination of
employment (including death or disability) or a sale of the Company. The SERP
was amended in December 2005 according to its anti-dilution provisions to
proportionately increase the number of units as a result of the Company's
January 2006 three-for-two stock split, and the SERP was further amended in
March 2006 to provide for dividend equivalent payments to the extent that the
Company pays dividends on Common Stock. As of July 31, 2007, 93,750 units were
vested under the SERP.
Mr. Sinsheimer and the Company also previously entered into two separate
agreements to defer receipt of vesting of 27,084 shares of restricted stock. In
exchange for the receipt of vested stock, Mr. Sinsheimer agreed to instead
receive vested stock units.
The Company also entered into four deferred compensation agreements with
Mr. Geisser and one with Mr. Groth to defer portions of their salary to
prescribed future dates.
The executives' right to receive these deferred compensation payments is
that of an unsecured general creditor.
The following table shows the contributions, earnings, withdrawals and
account balances as of July 31, 2007 for the named executive officers under the
Company's nonqualified deferred compensation plans and arrangements. The
executive officers and the Company did not make any contributions in Fiscal
2007.
NONQUALIFIED DEFERRED COMPENSATION - FISCAL YEAR 2007
Executive Registrant Aggregate Aggregate Aggregate
contributions contributions earnings in withdrawals/ balance at
Name in last FY ($) in last FY ($) last FY ($) distributions($) last FYE ($)
(a) (b) (c) (d) (e) (f)
-----------------------------------------------------------------------------------------------
Paul R. Sinsheimer
(1a) $0 $0 $40,084 $0 $767,831
(1b) $0 $0 $222,000 $0 $4,252,500
John V. Golio $0 $0 $0 $0 $0
Troy H. Geisser
(2a) $0 $0 $1,877 $0 $29,722
(2b) $0 $0 $1,483 $0 $34,284
(2c) $0 $0 $3,215 $0 $55,065
(2d) $0 $0 $3,763 $0 $67,851
Steven F. Groth (3) $0 $0 $1,797 $96,614 $0
James H. Mayes, Jr. $0 $0 $0 $0 $0
(1a) Reflects 27,084 vested stock units deferred by Mr. Sinsheimer in February
2003. The value shown is based on the closing market share price of $28.35
per unit on July 31, 2007. The earnings in column (d) reflect the
difference in the Company's closing share prices between year-end Fiscal
2007 ($28.35) and Fiscal 2006 ($26.87) multiplied by the 27,084 stock
units. These stock units are scheduled to be settled with an equal number
of Company common shares on January 1, 2010.
(1b) Reflects the vested (93,750 units) and unvested (56,250 units) amounts of
the SERP total of 150,000 units at a closing market price of $28.35 per
unit on July 31, 2007. The earnings in column (d) reflect the difference in
the Company's
-18-
closing share price between year-end Fiscal 2007 ($28.35) and Fiscal 2006
($26.87) multiplied by the 150,000 stock units. The vested stock units will
be settled with an equal number of Company common shares following Mr.
Sinsheimer's termination of employment and generally after he has attained
age 62 (except settlement will occur earlier if there is a prior sale of
the Company or a qualifying termination of employment).
(2a) Reflects an August 1, 1996 deferred compensation agreement for the deferral
of $14,583 of vested salary by Mr. Geisser with interest accruing at a
6.54% per annum rate, compounded monthly, until it is settled with a
$33,863 lump sum payment on July 31, 2009. The then current balance will be
paid earlier upon a termination of employment.
(2b) Reflects a December 18, 1998 deferred compensation agreement for the
deferral of $24,000 of vested salary by Mr. Geisser with interest accruing
at a 4.43% per annum rate, compounded monthly, until it is settled with a
$39,002 lump sum payment on June 30, 2010. The then current balance will be
paid earlier upon a termination of employment.
(2c) Reflects a December 27, 1999 deferred compensation agreement for the
deferral of $36,000 of vested salary by Mr. Geisser with interest accruing
at a 6.03% per annum rate, compounded monthly, until it is settled with a
$62,104 lump sum payment on July 31, 2009. The then current balance will be
paid earlier upon a termination of employment.
(2d) Reflects a December 27, 2000 deferred compensation agreement for the
deferral of $48,000 of vested salary by Mr. Geisser with interest accruing
at a 5.72% per annum rate, compounded monthly, until it is settled with an
$80,139 lump sum payment on June 30, 2010. The then current balance will be
paid earlier upon a termination of employment.
(3) Reflects a July 31, 2002 deferred compensation agreement for the deferral
of $80,000 of vested salary by Mr. Groth with interest accruing at a 4.51%
per annum rate, compounded monthly, until it settled with a $96,614 lump
sum payment on January 2, 2007.
(4) None of the amounts shown in the above table were reported in the 2007
Summary Compensation Table.
(5) $3,889,103 of the amounts reported in column (f) was previously reported in
Summary Compensation Tables for Mr. Sinsheimer for fiscal years before
2007. The $80,000 reported in column (e) was previously reported in Summary
Compensation Tables for Mr. Groth for fiscal years before 2007. $48,000 of
the amounts reported in column (f) was previously reported in Summary
Compensation Tables for Mr. Geisser for fiscal years before 2007.
-19-
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL
None of the executive officers have employment, severance or change in
control agreements providing termination benefits except the CEO is a
participant in the SERP and there are stock and stock option agreements and
nonqualified deferred compensation agreements (as described in the Nonqualified
Deferred Compensation section). All named executive officers have excise tax
restoration agreements for golden parachute excise taxes that may be incurred in
connection with a sale of the Company.
Payments Made Upon Resignation or Termination for Cause
If an executive resigns without good reason or is terminated by the
Company for cause, the executive will be entitled only to any accrued and unpaid
salary and vested benefits.
Payments Made Upon Involuntary Termination by Company Without Cause or by
Executive for Good Reason or due to Death, Disability, or Sale of Company
If there is a sale of the Company, or a named executive officer's
employment is involuntarily terminated either without cause by the Company or by
the executive for good reason, or due to death or disability, the officer will
generally be entitled to full vesting of all then unvested restricted stock or
stock units. However, the executive officers' February 2006 restricted stock
agreements described in the Outstanding Equity Awards section provide only for a
portion (based on the percentage of the vesting period elapsed) of the shares to
vest immediately if there is a qualifying termination of employment occurring
before the age of 62.
If there is a sale of the Company and if the executive is subject to
golden parachute excise taxes, the Company would provide an executive with
excise tax restoration payments so that the executive will be in the same
after-tax position as if no excise taxes had been imposed.
For purposes of these events, the following definitions are generally
applicable:
"Sale of Company" means that there is a sale of all or substantially all
of the assets (exclusive of securitized assets) or stock of the Company.
"Cause" means that the executive officer has either: (i) engaged in an act
or acts of gross misconduct or negligence that has materially harmed or
materially damaged the Company, (ii) repeatedly failed to follow the
lawful instructions of the Company following written notice informing him
of such conduct, (iii) misappropriated Company property, (iv) been
convicted of, or plead "no contest" to, a felony, or (v) exhibited a
repeated inability to competently perform the essential functions of his
job which has been memorialized in the Company's records and has resulted
in material harm or material damage to the Company.
"Good Reason" means that the executive officer has resigned his employment
after experiencing: (i) any reduction (in the aggregate) in his base
salary by more than 25%, unless all Company executive officers incur the
same proportionate reduction in base salary; or (b) a material
diminishment in his position, job duties and/or responsibilities. The
officer must have experienced the foregoing without providing his consent
and he must also provide the Company with written notice stating his
intention to resign with good reason.
"Disability" means a permanent and total disability within the meaning of
Section 22(e)(3) of the Internal Revenue Code. Under this definition, an
individual is permanently and totally disabled if he is unable to engage
in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result
in death or which has lasted or can be expected to last for a continuous
period of not less than 12 months.
Hypothetical Potential Payment Estimates
The table below describes and provides estimates for compensation payable
to each named executive officer under two hypothetical termination of employment
scenarios and in the event of a sale of the Company under the Company's
compensatory arrangements other than nondiscriminatory arrangements generally
available to salaried employees. The amounts shown in the following table are
estimates and assume the hypothetical involuntary termination, sale of the
Company, death or disability occurred on July 31, 2007 (the last business day of
Fiscal 2007). Due to the number of factors and assumptions that affect the
nature and amount of any benefits provided upon the events discussed below, any
actual amounts paid or distributed upon an actual event may be different.
-20-
Under the golden parachute rules prescribed under Internal Revenue Code
Section 280G and 4999, a 20% excise tax will be imposed on compensatory
parachute payments that equal or exceed the officer's base amount. For purposes
of the golden parachute excise tax analysis and the hypothetical estimates, some
of the important assumptions were:
* Sale of Company occurring on July 31, 2007 at share price of $28.35;
* Accelerated full vesting and settlement of all unvested restricted
stock and stock units;
* No acceleration of vesting for any unvested outstanding stock options;
* No cash severance;
* Equity awards, bonuses and any other payments made within one year of
July 31, 2007 were not contingent on or related to the hypothetical
sale of the Company;
* Base amounts are the average compensation for calendar years 2002
through 2006;
* July 2007 applicable federal rates were used to calculate discounted
present values (120%, semi-annual compounding; short-term: 5.89%,
mid-term: 5.87%; long-term: 6.11%); and
* Aggregate marginal income tax rates of 46.35% for New Jersey residents,
43.30% for New York residents and 36.45% for Texas residents; golden
parachute excise tax of 20%.
Involuntary
termination
(without cause or Death or
Name for good reason) Sale of Company disability
------------------------------------------------------------------------------------------
Paul Sinsheimer
2007 Annual MIP Cash Payment $0 $900,000 $900,000
Unvested Restricted Stock (Accelerated) $4,775,114 $8,032,348 $8,032,348
Vested SERP Stock Units $2,657,812 $2,657,812 $2,657,812
Unvested SERP Stock Units (Accelerated) $1,594,688 $1,594,688 $1,594,688
Vested Deferred Stock Units/Compensation $767,831 $767,831 $767,831
IRC 280G Excise Tax Restoration $0 $0 $0
Total $9,795,445 $13,952,679 $13,952,679
John Golio
2007 Annual MIP Cash Payment $0 $0 $0
Unvested Restricted Stock (Accelerated) $2,258,094 $3,428,564 $3,428,564
Vested Deferred Stock Units/Compensation $0 $0 $0
IRC 280G Excise Tax Restoration $0 $0 $0
Total $2,258,094 $3,428,564 $3,428,564
Troy Geisser
2007 Annual MIP Cash Payment $0 $0 $0
Unvested Restricted Stock (Accelerated) $2,334,863 $3,508,313 $3,508,313
Vested Deferred Stock Units/Compensation $186,922 $186,922 $186,922
IRC 280G Excise Tax Restoration $0 $0 $0
Total $2,521,785 $3,695,235 $3,695,235
Steven Groth
2007 Annual MIP Cash Payment $0 $0 $0
Unvested Restricted Stock (Accelerated) $2,008,338 $2,719,814 $2,719,814
Vested Deferred Stock Units/Compensation $0 $0 $0
IRC 280G Excise Tax Restoration $0 $0 $0
Total $2,008,338 $2,719,814 $2,719,814
James Mayes, Jr.
2007 Annual MIP Cash Payment $0 $0 $0
Unvested Restricted Stock (Accelerated) $2,503,530 $4,482,844 $4,482,844
Vested Deferred Stock Units/Compensation $0 $0 $0
IRC 280G Excise Tax Restoration $0 $1,171,015 $0
Total $2,503,530 $5,653,859 $4,482,844
-21-
AUDIT COMMITTEE REPORT
The current members of the Audit Committee are Michael C. Palitz, H. E.
Timanus, Jr. and Michael J. Zimmerman. Each meets the independence and
experience requirements of the New York Stock Exchange, Section 10A(m)(3) of the
Securities Exchange Act of 1934 and SEC rules and regulations. The Audit
Committee acts under a written charter approved by the Board of Directors.
Management is responsible for the Company's internal control over
financial reporting and the financial reporting process. The Company's
independent registered public accounting firm, KPMG, is responsible for the
integrated audit of the Company's consolidated financial statements and internal
control over financial reporting. The Audit Committee's responsibility is to
monitor and oversee these processes. The Audit Committee relies on the
independent registered public accounting firm's opinions on the consolidated
financial statements and the effectiveness of internal control over financial
reporting. The Audit Committee pre-approves all fees charged and work performed
by KPMG.
The Audit Committee reviewed and discussed the Company's audited
consolidated financial statements for Fiscal 2007 with the Company's management.
The Audit Committee also discussed the matters required by Statement on Auditing
Standards No. 61, "Communication with Audit Committees" with KPMG.
KPMG provided the Audit Committee with the written disclosure required by
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees." The Audit Committee discussed with KPMG its independence from
the Company and management. KPMG did not perform any non-audit services for the
Company during Fiscal 2007.
Based on the Audit Committee's review and discussions noted above, the
Audit Committee recommended to the Board (and the Board approved) to include the
Company's audited consolidated financial statements in the Company's Annual
Report on Form 10-K for the year ended July 31, 2007, for filing with the SEC.
This report is submitted by the members of the Audit Committee of the
Board of Directors:
Michael C. Palitz
H. E. Timanus, Jr., Chairman
Michael J. Zimmerman
-22-
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Item 2 on Proxy Card)
General
The Audit Committee appointed KPMG as the Company's independent registered
public accounting firm for the fiscal year ending July 31, 2008. KPMG has
audited the Company's financial statements since fiscal 2002. A representative
of KPMG is expected to attend the Meeting and will have an opportunity to make a
statement and be available to respond to appropriate questions.
Stockholder ratification of the appointment of the Company's independent
registered public accounting firm is not required by the Company's bylaws or
other applicable legal requirements. However, the Board is submitting the
appointment of KPMG to stockholders for ratification as good corporate practice.
If stockholders do not ratify the appointment, the Audit Committee will
reconsider retaining KPMG. If stockholders ratify the appointment, the Audit
Committee may appoint a different independent registered public accounting firm
at any time if it determines a change would be in the best interests of the
Company and its stockholders.
Ratification of the appointment of the Company's independent registered
public accounting firm requires a majority of the votes cast on this proposal.
Abstentions and broker non-votes will have no impact on the vote.
Principal Accounting Fees and Services
The fees for services provided by KPMG to the Company in Fiscal 2007 and
2006 follow:
Audit Fees: Consists of fees paid for the integrated audit of the
Company's consolidated financial statements and management's assessment of
internal control over financial reporting (required by Section 404 of the
Sarbanes-Oxley Act of 2002), the audit of subsidiary consolidated
financial statements and reviews of the Company's quarterly consolidated
financial statements. Audit fees also include fees for services closely
related to the audit that primarily could only be provided by the
Company's independent registered public accounting firm. These services
include consents related to SEC registration statements. Audit fees were
$715,000 in Fiscal 2007 and $685,000 in Fiscal 2006.
Audit-Related Fees: No audit related services were provided for Fiscal
2007 or 2006.
Tax Fees: No tax compliance, advice or planning services were provided for
Fiscal 2007 or 2006.
All Other Fees: No products or services other than the services reported
above were provided for Fiscal 2007 or 2006.
Pre-Approval Policy and Procedures
The Audit Committee's policy is to pre-approve all audit and permissible
non-audit services provided by the independent registered public accounting
firm. Permissible non-audit services include audit-related services, tax
services and other services. The independent registered public accounting firm
and management are required to report periodically to the Audit Committee
services provided by the independent registered public accounting firm according
to this pre-approval, and the fees for these services.
The Board of Directors recommends stockholders vote "FOR" the ratification
of the appointment of KPMG LLP as the Company's independent registered public
accounting firm for the fiscal year ending July 31, 2008.
-23-
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 2008 Annual Meeting of Stockholders, expected to
be held December 9, 2008, must be directed to the Secretary of the Company at
the Company's principal executive office and must be received by July 9, 2008 to
be considered for inclusion in the proxy materials for the 2008 Annual Meeting
of Stockholders according to the rules and regulations of the SEC. If you intend
to submit a proposal at the 2008 Annual Meeting of Stockholders that is not
eligible to be included in the proxy materials for that meeting, you must
provide notice of such proposal by September 22, 2008. If you fail to comply
with this notice provision, the proxy holders will be allowed to use their
discretionary voting authority if the proposal is raised at the 2008 Annual
Meeting of Stockholders without any discussion of the matter in the proxy
materials.
OTHER BUSINESS
As of the date of this Proxy Statement, neither the Company nor the Board
of Directors know 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. The attached proxy card grants proxy holders discretionary
authority to vote on any matter raised at the Meeting.
ANNUAL REPORT
THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED JULY 31,
2007 WAS MAILED WITH THE PROXY STATEMENT AND IS AVAILABLE ON THE INTERNET IN THE
INVESTOR RELATIONS SECTION OF THE COMPANY'S WEBSITE AT
HTTP://WWW.FINANCIALFEDERAL.COM. ADDITIONAL COPIES OF THE ANNUAL REPORT MAY BE
OBTAINED BY CALLING THE COMPANY AT (212) 599-8000. ON RECEIVING A WRITTEN
REQUEST, THE COMPANY WILL ALSO PROVIDE FREE TO ANY STOCKHOLDER A COPY OF THE
ANNUAL REPORT ON FORM 10-K FOR FISCAL 2007 FILED WITH THE SEC UNDER THE
SECURITIES EXCHANGE ACT OF 1934. WRITTEN REQUESTS SHOULD BE SENT TO INVESTOR
RELATIONS AT FINANCIAL FEDERAL CORPORATION, 733 THIRD AVENUE, 24TH FLOOR, NEW
YORK, NEW YORK 10017. ATTN: CORPORATE SECRETARY
BY ORDER OF THE BOARD OF DIRECTORS
Troy H. Geisser
Secretary
DATE: November 6, 2007
-24-
FINANCIAL FEDERAL CORPORATION PROXY
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF ALL NOMINEES AND FOR PROPOSAL 2.
1. Election of Directors
Nominees: Lawrence B. Fisher Michael C. Palitz Paul R. Sinsheimer
Leopold Swergold H.E. Timanus, Jr. Michael J. Zimmerman
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to
above (except as marked vote for all nominees
to the contrary) listed above
INSTRUCTIONS: To withhold authority for an individual nominee, strike a
line through that nominee's name.
2. Ratifying the appointment of KPMG LLP as the Corporation's independent
registered public accounting firm for the fiscal year ending July 31, 2008.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued on reverse side)
FINANCIAL FEDERAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING TO BE HELD ON DECEMBER 11, 2007
The undersigned stockholder of Financial Federal Corporation (the "Corporation")
hereby appoints Paul R. Sinsheimer and Troy H. Geisser, 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
11, 2007 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 on the reverse side.
Dated: , 2007
----------------------------------
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(Signature)
-----------------------------------------------
(Signature, if held jointly)
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, Trustee,
Administrator or Guardian should give their
full title.
Please Mark, Sign, Date and Return this Proxy Card Promptly Using the Enclosed
Envelope.