EXHIBIT 1
United Rentals, Inc.
Five Greenwich Office Park
Greenwich, CT 06830
Tel: 203-622-3131
Fax: 203-622-6080
www:unitedrentals.com
December 29, 2000
Special Committee of the Board of Directors
Neff Corp.
3750 N.W. 87th Avenue, Suite 400
Miami, FL 33178
Dear Sirs:
United Rentals, Inc. ("United Rentals") is pleased to submit this
non-binding expression of interest to pursue a transaction in which all
shares of the common stock of Neff Corp. ("Neff") not held by General
Electric Capital Corporation ("GE Capital") or Santos Fund I, L.P.
("Santos") would be acquired by United Rentals in a merger transaction in
accordance with the terms set forth in the attached term sheet (the "Term
Sheet"). The proposed transaction is supported by GE Capital, Jorge Mas and
certain members of his family (the "Mas Family"), and Santos, all of whom
are principal stockholders of Neff.
As set forth in the Term Sheet, each of the approximately 6.6 million
shares of Neff Class A common stock currently owned by public stockholders
would be exchanged for 0.18 (the "Exchange Ratio") of a share of newly
issued United Rentals common stock. The approximately 8.6 million shares of
Neff Class A common stock currently owned by the Mas Family would be
exchanged for shares of newly issued United Rentals Series C Perpetual
Convertible Preferred Stock ("Series C Preferred Stock") (which would be
convertible into United Rentals common stock at $22 per share, as explained
below) with an aggregate liquidation preference equal to the value of
approximately 1,548,000 shares of United Rentals common stock (based upon
the product of the Exchange Ratio and 8.6 million). The 900,000 shares of
Neff Class A common stock currently owned by Santos would be exchanged for
900,000 shares of Neff Class B common stock. After the closing, GE Capital
and Santos would own 6 million shares of Neff Class B common stock, subject
to the right of GE Capital and Santos to sell all or a portion of these
shares to United Rentals for an aggregate consideration of $96 million in
2010, and the right of United Rentals to buy all or a portion of these
shares for an aggregate consideration of $96 million commencing in 2002.
These periods may be accelerated under certain conditions.
If the proposed transaction is completed, an investor group including
GE Capital would purchase $90 million of newly issued shares of Series C
Preferred Stock.
Each share of Series C Preferred Stock, face value $1,000 per share,
would be convertible into shares of United Rentals common stock at $22.00
per share. The Series C Preferred Stock does not accrue dividends, and
would be entitled to dividends only if United Rentals declares dividends on
its common stock.
In addition, under the proposed transaction, United Rentals would
offer to exchange its newly issued 10.25% Senior Subordinated Notes due
2008 (the "New Notes") for Neff's 10.25% Senior Subordinated Notes due 2008
(the "Old Notes"). The exchange offer would be at an exchange ratio of $750
principal amount of New Notes (which, based on current market rates, would
represent a value of approximately $600) for each $1,000 principal amount
of Old Notes.
The proposed transaction is contingent, among other things, upon the
approval of the Neff Special Committee, the Boards of Directors of United
Rentals and Neff, United Rentals' senior lenders, Neff stockholders, and
appropriate regulatory agencies. The proposed transaction is also
contingent on completion of satisfactory due diligence (including branch
due diligence after receiving full access and cooperation by Neff), the
signing of a definitive merger agreement and the satisfaction of its terms
and conditions, confirmation prior to the signing of a definitive merger
agreement that the proposed transaction would not negatively change United
Rentals' current credit ratings, and acceptance of United Rentals' exchange
offer by holders of at least 95% of the Old Notes. There can be no
assurance that these conditions will be met or that this transaction will
take place. We believe that if we are given full access and cooperation, we
can complete our due diligence and execute a definitive merger agreement by
January 19, 2001. We will deliver a draft merger agreement prepared by our
counsel shortly.
This letter, including the attached Term Sheet, constitutes a
non-binding indication of interest regarding a transaction on the general
terms and conditions outlined in this letter and in the Term Sheet. This
letter and the Term Sheet do not purport to summarize all of the terms and
conditions upon which any transaction would be based, which terms and
conditions would be contained fully only in any final documentation, and
indicate only the principal terms and conditions under which an overall
transaction would be considered. We may for whatever reason or for no
reason change the terms of this indication of interest, or cease further
consideration of any transaction, at any time without liability to any
party, and no party shall have any claim that any other party did not act
in good faith.
The parties will need to make appropriate public filings disclosing
this expression of interest in order to comply with their obligations under
the federal securities laws. We would respectfully request that the Special
Committee coordinate its public disclosures with United Rentals.
Please be advised that the expression of interest set forth in this
letter and the related Term Sheet will expire on January 19, 2001. While we
recognize the Special Committee's fiduciary responsibilities in the event
another proposal is received, we request that the Special Committee
negotiate with us exclusively until January 19, 2001 or, if earlier, until
the Special Committee gives us notice that negotiations with us have been
terminated, and not solicit or entertain other proposals until such time.
In addition, we request that the Special Committee notify us if it receives
any other inquiries or acquisition proposals while it negotiates with us.
We and our advisors are prepared to meet with the Special Committee
and its advisors in order to answer any questions about this letter or the
attached Term Sheet. I can be reached at (203) 622-3131. Questions of a
legal nature should be directed to our legal counsel, Richard Grossman of
Skadden, Arps, Slate, Meagher & Flom LLP at (212) 735-2116.
We look forward to hearing from you soon.
Very truly yours,
/s/ John Milne
-----------------
John N. Milne
Vice Chairman
Attachment: Term Sheet
cc: Gerald Eppner
SUMMARY OF TERMS FOR A POSSIBLE
TRANSACTION INVOLVING NEFF ("TERM SHEET")
I. THE TRANSACTION
Merger: Acquisition of the majority of the shares of capital stock
of Neff Corp. ("Neff") by United Rentals, Inc. ("United
Rentals"), in a one-step merger transaction (the "Merger")
in which a newly formed wholly-owned subsidiary of United
Rentals would merge with and into Neff pursuant to which
(A) each publicly held share of Class A common stock of
Neff (the "Class A Common Stock") would be exchanged for
0.18 (the "Exchange Ratio") of a share of United Rentals
common stock (the "United Rentals Common Stock"); (B)
certain members of the Mas family (the "Mas Family") would
exchange pursuant to the Merger their shares of Class A
Common Stock for shares of a new convertible preferred
stock in United Rentals having characteristics stated in
Section II; (C) Santos Fund I, L.P. ("Santos") would
exchange its 0.9 million shares of Class A Common Stock in
Neff for an equal number of shares of Class B Common Stock
of Neff (the "Class B Common Stock"); and (D) General
Electric Capital Corporation ("GE Capital") would maintain
its 5.1 million shares of Class B Common Stock in Neff and
would be the holder of such shares after giving effect to
the Merger (with such Class B Common Stock held by GE
Capital and Santos having reduced voting rights so that GE
Capital and Santos would have less than 20% of the Neff
vote upon consummation of the Merger). The Neff employee
stock options would roll-over into United Rentals options
based on the Exchange Ratio.
Variable Forward In connection with the transaction, GE Capital, Santos and
Contracts: United Rentals will enter into contracts that set forth
terms on which each of GE Capital and Santos can, at
their option, require United Rentals to purchase from GE
Capital and Santos or United Rentals can, at its option,
require GE Capital and Santos to sell to United Rentals,
as applicable, all or a portion of the shares of Class B
Common Stock retained by GE Capital and received by
Santos in the Merger. A summary of the terms of these
contracts is set forth in Appendix 1.
Subordinated Note United Rentals would offer to exchange newly issued 10.25%
Exchange Offer: Senior Subordinated Notes due 2008 (the "New Notes") for
Neff's 10.25% Senior Subordinated Notes due 2008 (the
"Old Notes"). The exchange offer would be at an exchange
ratio of $750 principal amount of New Notes (which,
based on current market rates, would represent a value
of approximately $600) for each $1,000 principal amount
of Old Notes.
Voting Irrevocable voting agreement by GE Capital, the Mas Family
Agreements: and Santos to vote in favor of the Merger.
II. TERMS OF THE UNITED RENTALS SERIES C PERPETUAL CONVERTIBLE
PREFERRED STOCK ("SERIES C PREFERRED STOCK")
Issuance of The 8.6 million shares of Class A Common Stock currently
Series C owned by the Mas Family would be exchanged for shares of
Preferred Stock: Series C Preferred Stock with an aggregate liquidation
preference equal to the value of a number of shares of
United Rentals Common Stock equal to the product of the
Exchange Ratio and the number of Class A Common Stock
currently owned by the Mas Family. The value of the
shares of United Rentals Common Stock will be the
average closing price of the United Rentals Common Stock
on the NYSE for the ten consecutive trading days ending
on the trading day prior to the occurrence of the
closing (the "10-day Average United Rentals Closing
Price").
If the proposed transaction is completed, an investor
group including GE Capital would purchase $90 million of
newly issued Series C Preferred Stock.
Conversion 15% above the 10-day Average United Rentals Closing Price,
Price: but not less than $22 per share.
Anti-dilution: Anti-dilution adjustments, primarily on stock splits,
stock dividends, sales of stock to affiliates at less
than the Conversion Price (other than in bona fide
compensation arrangements), and on certain mergers, in
each case consistent with United Rentals Series B
Perpetual Convertible Preferred Stock ("Series B
Preferred Stock"). Must give notice of these events to
the holders.
Dividends: Series C Preferred Stock does not accrue dividends, and is
entitled to dividends on an as-converted basis only if
United Rentals declares dividends on its common stock.
Other Preferreds: Parity stock can be issued, but not senior stock.
Liquidation $1,000 per share, but holders will in no event receive
Preference: less than the amount they would have received in
liquidation as a common stockholder participating with
other common stockholders had the holders of the
Preferred Stock converted their Series C Preferred Stock
prior to liquidation.
Ranking: Pari passu with United Rentals Series A Perpetual
Convertible Preferred Stock ("Series A Preferred Stock")
and Series B Preferred Stock.
Voting: Shares of Series C Preferred Stock vote together with
United Rentals common stock as one class on all matters on
an as-converted basis, unless required otherwise by
Delaware law. However, on matters which require the
consent of the holders of Series C Preferred Stock, the
holders of Series C Preferred Stock will vote as one class
with the holders of Series A Preferred Stock and Series B
Preferred Stock, unless otherwise required by Delaware law.
Change of On a change of control which is not a pooling, the holders
Control: of Series C Preferred Stock can put their Series C
Preferred Stock to United Rentals at the Liquidation
Preference plus a premium equal to 6.25% of the
Liquidation Preference compounded annually from the date
of issuance to the date of change of control (the "Put
Price"). The Put Price is payable in cash.
On a change of control which is a pooling, Series C
Preferred Stock automatically converts into United
Rentals Common Stock. For this purpose, Series C
Preferred Stock will be valued at 109.5% of the Put
Price and Series C Preferred Stock will be converted
into a number of shares of United Rentals Common Stock
equal to (i) such adjusted value, divided by (ii) the
Conversion Price.
A change of control occurs when any outside group (other
than the holders of Series C Preferred Stock) acquires
control of more than 50% of the United Rentals Common
Stock, either directly or indirectly by way of a merger.
Restrictions on Consent of Series C Preferred Stock required for annual
dividends, dividends in excess of 5% of market capitalization.
tender offers Repurchases of stock are limited on an annual basis to 5%,
and stock 10% and 15% of market capitalization for successive
repurchases: five-year periods coinciding with the applicable
five-year periods in the Series B preferred stock; the
restriction lapses at the end of the third period. This
restriction shall allow for the existing stock
repurchase program and shall authorize United Rentals to
acquire an additional $200 million of its issued and
outstanding common stock.
Registration for Two Demands (plus one clean-up after third year), subject
underlying to certain black-out periods; 45 days to file; United
common stock: Rentals has certain piggybacks on demand registration.
Customary piggyback registration rights, subject to
cut-back. United Rentals selects the underwriters.
Holders will lock-up for any United Rentals stock
offerings (30 days before and 90 days after) and for any
United Rentals pooling.
Reporting Copies of all SEC filings must be delivered to holders
requirements: within three business days; also promptly deliver all
materials distributed to shareholders. Materials
available on EDGAR will be delivered only on request.
III. CLOSING CONDITIONS AND CERTAIN OTHER TERMS
A. CONDITIONS TO (1) The parties shall have entered into a definitive
CLOSING UNDER merger agreement which among other things sets forth
DEFINITIVE detailed pre-closing covenants regarding the operation of
MERGER AGREEMENT the business and the condition of the assets at closing.
(2) No superior proposal shall have been accepted by the
Special Committee.
(3) The transaction shall have received HSR approval.
(4) A group of investors including GE Capital shall have
purchased $90 million of newly issued Series C Preferred
Stock.
(5) Shareholders of Neff shall have approved the Merger.
(6) United Rentals shall have received any required
consents from the banks under its existing credit
facilities to consummate the transaction contemplated by
this Term Sheet.
(7) United Rentals and GE Capital shall have entered
into a shareholders' agreement under which:
GE Capital and Santos consent to (i) purchases and sales
of assets between United Rentals or affiliates of United
Rentals and Neff at fair market value, provided that any
purchase or related series of purchases in excess of $25
million would either require the consent of GE Capital
or a fairness opinion acceptable to the parties; (ii)
administrative and other transactions between Neff and
United Rentals or its affiliates that are no less
favorable to Neff than United Rentals' policies for such
transactions with its other subsidiaries, provided that
payment for services may be made only for services
actually rendered; (iii) the determination by Neff's
board not to make cash or other distributions; provided,
that, if there are cash or other distributions, GE
Capital and Santos would receive their pro rata share;
(iv) the guarantee by Neff of all debt obligations of
United Rentals and its subsidiaries and the pledge by
Neff of its assets as collateral for such obligations;
and (v) the waiver by Neff, GE Capital and Santos of any
rights they might otherwise have under doctrines of
corporate or business opportunity as against URI, its
affiliates, officers, directors, agents or
representatives (acting in such capacity). Except as
aforesaid, GE Capital and Santos shall retain all other
rights as stockholders of Neff which they would
otherwise have under law, and, in addition, the consent
of GE Capital and Santos shall be required for the
following extraordinary actions: amendment of Neff's
charter and by-laws; selection of accountants if other
than one of the Big Five; and issuances of equity
securities. GE Capital and Santos shall also receive
customary and proportionate tag-along rights in the
event of a sale of shares of Neff by United Rentals to
unaffiliated third parties.
(8) Neff shall not have indebtedness for money borrowed
(other than its subordinated notes) in excess of $160
million.
(9) United Rentals' note exchange offer shall have been
accepted by holders of at least 95% of the Old Notes.
(10) Other customary conditions, including receipt of a
tax opinion by Neff's counsel that the Merger is more
likely than not to qualify as a tax-free reorganization
and the consideration to be received in the Merger is
more likely than not to be tax-free to the Neff public
stockholders and the Mas Family.
B. CERTAIN OTHER
MATTERS
Credit Ratings United Rentals shall not enter into a definitive merger
Not Impacted: agreement until it receives confirmation that the proposed
transaction would not negatively change United Rentals'
current credit ratings.
Nortrax Neff currently is engaged in litigation and arbitration
Litigation: proceedings (the "Nortrax Litigation") against Nortrax
Equipment Company. Should Neff after the closing recover
any amount from Nortrax in the Nortrax Litigation, Neff
will pay to GE Capital 50% of any net proceeds after
deducting all attorneys' and other fees and
disbursements, court costs, and all settlement, damage,
award and other costs incurred from and after the
closing with respect to the Nortrax Litigation
("Costs"). In the event such net recovery does not
occur, or should Neff otherwise incur any Costs for
which it has not been made whole by payments from
Nortrax, GE Capital and United Rentals would share on a
50/50 basis the first $10 million (the "Shared Portion")
of such Costs, and GE Capital will indemnify and hold
harmless United Rentals, or Neff as a subsidiary of
United Rentals, for any Costs incurred by United Rentals
or Neff in excess of the Shared Portion. In addition, to
the extent United Rentals incurs any liability or costs
in connection with the sharing of the Shared Portion, GE
Capital on a quarterly basis (subject to a de minimus
exception) will purchase additional shares of Series C
Preferred Stock (at a conversion price equal to the
greater of $22 or 15% above the United Rentals Common
Stock market price at the time of issuance) for a
purchase price and with a face amount equal to the Costs
incurred by United Rentals. United Rentals will have the
right to control the prosecution and defense of the
Nortrax Litigation.
Indemnification Without limiting any rights under the officer and director
Matters: liability insurance policy or any indemnification claim
for matters not covered by the following sentence, GE
Capital, Santos and the Mas Family (and their
representatives) will not bring any direct action or
lawsuit against Neff relating to events occurring prior
to the closing. GE Capital, Santos and the Mas Family
(and their representatives) shall not be indemnified or
advanced expenses by Neff or United Rentals in
connection with shareholder claims or lawsuits arising
in connection with the transaction or any prior
proposals or offers made to acquire Neff, except to the
extent such indemnification or expense advancement is
covered by amounts available under an existing officer
and director liability policy of Neff, with Neff
responsible for any retention/deductible under such
policy up to $150,000 in the aggregate.
APPENDIX 1
VARIABLE FORWARD CONTRACTS AND ELECTIONS OF THE PARTIES
THEREUNDER
Variable Forward United Rentals and each of GE Capital and Santos will
Contracts enter into a variable forward contract (each, a "Variable
Between United Forward Contract") with respect to the Class B Common
Rentals and Each Stock held by each of GE Capital and Santos after the
of GE Capital Merger. As more fully described below, the Variable
and Santos: Forward Contracts will provide for terms on which
parties can elect for the acquisition of all or a
portion of such shares by United Rentals from GE Capital
and Santos.
Settlement Date: The GE Capital Variable Forward Contract will be settled
on the earliest of (i) if GE Capital elects, the ninth
anniversary of the date of the Variable Forward Contract
(the "Latest Settlement Date"), (ii) if GE Capital elects,
for 30 days after any consecutive period of 20 trading
days in which United Rentals Common Stock closes above $45
per share, (iii) if GE Capital elects, the bankruptcy of
United Rentals, (iv) if United Rentals elects, at any time
commencing on the second anniversary of the date of the
Variable Forward Contract through the Latest Settlement
Date, and (v) if either GE Capital or United Rentals
elects, a Change-in-Control Event (as defined).
Change-in-Control Event means, at any time (a) United
Rentals shall cease to beneficially own and control more
than 50% on a fully diluted basis of the economic and
voting interests in the voting stock of Neff, (b) Neff
shall liquidate or dissolve, (c) Neff shall sell all or
substantially all of its assets to a third party or (d)
Neff shall enter into a merger transaction in which United
Rentals shall cease to own a majority of the voting stock
of Neff after such merger. The Santos Variable Forward
Contract will have corresponding Settlement Date
provisions.
Termination: If there shall not previously have occurred a Settlement
Date, the Variable Forward Contract will terminate on the
first day after the Latest Settlement Date.
Determination At the Settlement Date of the GE Capital Variable Forward
of Neff Shares Contract, the number of shares of Class B Common Stock to
Delivered: be delivered by GE Capital to United Rentals will be the
excess of 5.1 million over the Retained Appreciation
Amount (as defined). The Retained Appreciation Amount
will be that number of such shares equal in value,
determined for this purpose using the value of the Class
B Common Stock as of the Settlement Date, to the lesser
of (i) the excess, if any, of the aggregate value, at
the Settlement Date, of the 5.1 million shares of such
stock, over the Reference Value, and (ii) 20% of the
Reference Value. The Santos Variable Forward Contract
will have corresponding Settlement Date Provisions.
Notwithstanding the foregoing, in the event that the
Settlement Date occurs in the first five years after the
Closing pursuant to clause (ii) or (v) of the Settlement
Date paragraph, there will be no Retained Appreciation
Amount and the full 5.1 million shares (or 900,000
shares in the case of Santos) will be delivered on the
Settlement Date to satisfy the GE Capital Variable
Forward Contract (or the Santos Variable Forward
Contract, as applicable).
Forward Sales On any Settlement Date that is triggered by an election
Price: referred to in the Settlement Date paragraph, United
Rentals will pay to GE Capital $81,600,000 with respect
to the GE Capital Variable Forward Contract. On any
Settlement Date that is triggered by an election
referred to in the Settlement Date paragraph, United
Rentals will pay to Santos $14,400,000 with respect to
the Santos Variable Forward Contract. Payment at the
Settlement Date shall be made in cash or, at United
Rentals' election in the case of a Settlement Date
described in clause (ii) of the Settlement Date
paragraph, in freely tradable United Rentals Common
Stock.
Reference Value: Reference Value will equal $11,475,000 in the
case of the GE Capital Variable Forward Contract.
Reference Value will equal $2,025,000 in the case of the
Santos Variable Forward Contract.
Settlement Date The parties will establish a mechanism for valuation of
Value: Class B Common Stock as of the Settlement Date based on
the net worth of Neff.
Right to Buy United Rentals will have the right to purchase at then
Remaining fair market value any shares of Class B Common Stock held
Class B Shares: by GE Capital or Santos after the Settlement Date.
