EXHIBIT NO. 99.1
November 10, 2000
The FINOVA Group Inc.
0000 Xxxxx Xxxxxxxxxx Xxxx
Xxxxxxxxxx, Xxxxxxx 00000
Gentlemen:
This letter agreement sets forth the principal terms and conditions on
which Leucadia National Corporation or a subsidiary ("Leucadia") would be
willing to invest up to $350 million in The FINOVA Group Inc. ("Finova").
1. Preferred Stock Investment. Leucadia will purchase 10 million shares
of a new series of convertible preferred stock of Finova at a purchase price of
$25.00 per share (the "PIK Preferred Stock"). The principal terms of the PIK
Preferred Stock will be as follows:
(a) Five Year Pay-in-Kind: Cumulative dividends will be payable
quarterly in additional shares of PIK Preferred Stock at the rate
of 14% per annum during the first five years after issuance.
(b) Coupon: Beginning in the sixth year, at Finova's option,
cumulative dividends will be payable quarterly either: (i) in
cash, in an amount equal to the greater of: (x) a rate of 14% per
annum or (y) ten times the amount of any cash dividend paid or
payable per share of Common Stock; or (ii) in additional shares
of PIK Preferred Stock at the rate of 14% per annum.
(c) Conversion: For a period from June 30, 2006 until the tenth
anniversary of the date of issuance of the PIK Preferred Stock,
each share of PIK Preferred Stock will be convertible, at the
option of the holder, into ten shares of Common Stock at a
conversion price of $2.50 per share of Common Stock (which number
and price will be subject to normal anti-dilution adjustments).
(d) Voting: The PIK Preferred Stock will vote as one class with the
common stock and will have twenty (20) votes per PIK Preferred
Stock share, subject to New York Stock Exchange approval, or such
lesser number of votes (but not less than ten votes) per PIK
Preferred Share, as the New York Stock Exchange requires.
(e) Preference Rights: The PIK Preferred Stock will have a
liquidation preference of $25.00 per share, plus accrued but
unpaid dividends thereon.
(f) Registration Rights: The PIK Preferred Stock will be entitled to
demand and incidental registration rights.
2. Rights Offering. As soon as practicable after the closing, Finova
will conduct a rights offering whereby existing shareholders will be permitted
to purchase up to 6 million shares of PIK Preferred Stock at a price of $25.00
per share ($150 million aggregate). The rights shall be transferable, and
Leucadia shall act as standby underwriter of the offering with respect to $100
million of the offering. As compensation for agreeing to act as standby
underwriter, Finova will pay Leucadia $ 5 million upon distribution of the
rights.
3. Leucadia Warrant. Leucadia will receive a ten-year warrant to
purchase for an aggregate exercise price of $125 million such number of shares
of Common Stock that will represent 20% of the outstanding shares of Common
Stock immediately after exercise, assuming for the purposes of such calculation
the conversion and exercise of all outstanding securities which are or will be
convertible or exercisable into shares of Common Stock (other than any
securities issued or issuable in a merger, acquisition or public offering for
cash at fair value, in respect of "out of the money" employee and director stock
options, in respect of trust originated preferred securities issued by FINOVA
Finance Trust ("TOPrS"), or as may otherwise be agreed to by Leucadia and
Finova), and taking into account the exercise of the Leucadia Warrant itself.
4. Sharing of "Upside" and "Downside" of Certain Collections. The
Common Stockholders, on the one hand, and holders of PIK Preferred Stock and of
the Leucadia Warrant (collectively, the "Other Equity") on the other hand, will
share in the collection, based on a December 31, 2005 measurement date, of the
(i) gross Investment in Financing Transactions as reflected on Finova's June 30,
2000 consolidated balance sheet (the "June 30 Balance Sheet"), (ii) Investments
as reflected on the June 30 Balance Sheet, (iii) Offlease Aircraft as reflected
in the June 30, 2000 Balance Sheet and (iv) the amount of any unfunded
commitments existing as of June 30, 2000 to the extent such commitments are
ultimately funded (collectively, the "Portfolio") in such amount that will yield
50% of the Sharing Amount (as defined below) being attributed to the Common
Stockholders and 50% of the Sharing Amount being attributed to the Other Equity.
The amount to be shared (the "Sharing Amount") will be $780 million plus the
after tax gain, if any, or minus the after tax loss, if any, (in each case using
a 40% tax rate) actually realized in the collection of the Portfolio. If the
Sharing Amount is negative, it will be grossed-up by dividing the Sharing Amount
by 60%. For purposes of determining the Sharing Amount, unrealized gains and
unrealized losses on the balance of the Portfolio remaining outstanding at
December 31, 2005 will be estimated by the Board of Directors of Finova and
approved by a majority of the directors unaffiliated with Leucadia. The Board of
Directors will determine the form of the distribution to securityholders, which
will be payable by May 31, 2006 to Common Stockholders, if the Sharing Amount is
a positive number, or to the Other Equity holders, if the Sharing Amount is a
negative number.
Once the Sharing Amount has been determined, if it is a
positive number, the Sharing Amount to be distributed (the "Distribution") to
the Common Stockholders shall be in an amount, which, together with the Common
Stockholders' equity interest in the Company multiplied by the undistributed
portion of the Sharing Amount remaining in the Company, will equal 50% of the
Sharing Amount. A recipient's equity interest in the Company shall be determined
on a common stock equivalent basis.
If the Sharing Amount is a negative number, the Distribution
to the Other Equity holders shall be in an amount which, when the Distribution
is subtracted from the product of (x) the Other Equity holders' equity interest
in the Company multiplied by (y) the sum of (i) the Sharing Amount (expressed as
a positive number) plus (ii) the Distribution, will equal 50% of the Sharing
Amount (expressed as a positive number).
Any Distribution Amount to be paid to the Other Equity holders
will be allocated pro rata to the relative equity interests in the Company of
the PIK Preferred Stockholders and the Leucadia Warrant holder.
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5. Refinancing of Existing Bank Debt. Leucadia's offer and Finova's
acceptance is contingent upon Leucadia and the Company completing a refinancing
or restructuring with the Company's lenders of the existing $4.7 billion in
outstanding bank debt (the "Refinancing") upon terms acceptable to Leucadia and
the Company. Promptly following execution of this agreement, Finova will notify
the Banks of this agreement and request the Banks to commence such negotiation.
Simultaneously with the Bank negotiations, Leucadia and Finova will commence
negotiations of a mutually acceptable definitive agreement with respect to the
Preferred Stock Investment and the other matters outlined in this agreement,
which shall contain normal and customary representations, covenants, conditions
and indemnities.
6. Additional Conditions to Consummation of the Preferred Stock
Investment. The obligation of Leucadia and Finova to consummate the Preferred
Stock Investment, in addition to customary closing conditions, will be subject
to receipt of required regulatory approvals (including the expiration or
termination of any waiting periods under the Xxxx-Xxxxx-Xxxxxx Anti-trust
Improvements Act of 1976, as amended), exemption of Leucadia from Finova's
existing rights plan, approval by the Board of Directors of Finova of each
element of the transaction with Leucadia for purposes of Article IX of Finova's
Certificate of Incorporation, and the absence of any applicable law or
regulation and no judgment, injunction, order or decree prohibiting consummation
of the Preferred Stock Investment and the other transactions contemplated
hereby.
The parties hereto agree to fully cooperate to promptly make all
requisite regulatory filings and to work together to obtain required regulatory
approvals.
7. Exclusivity. To allow time for negotiation of the Refinancing, from
and after the date hereof until the termination of exclusivity pursuant to the
terms of this agreement and except as expressly permitted by the following
provisions of this paragraph, Finova shall not, directly or indirectly, through
any representative or otherwise, solicit or entertain offers from, negotiate
with or in any manner encourage, discuss, accept or consider (including
furnishing any information to any other party) any proposal of any other person
or entity relating to (i) any merger, consolidation, share exchange,
recapitalization, business combination or other similar transaction, (ii) any
sale, lease or exchange, mortgage, pledge, transfer or other disposition of 20%
or more of the assets of Finova, in a single transaction or in a series of
transactions or (iii) any tender offer, exchange offer for securities of Finova
or any purchase or other acquisition of beneficial ownership of 20% or more of
the equity of Finova (or securities convertible into 20% or more of the equity
of Finova) (an "Acquisition Proposal"); provided, however, that nothing
contained in this paragraph shall prohibit Finova's Board of Directors from
furnishing information to, or entering into discussions or negotiations with,
any person that makes an unsolicited bona fide, fully financed, written
Acquisition Proposal which relates to the acquisition by another entity of all
of the equity of Finova, whether by merger, tender offer or otherwise, if and
only to the extent that (A) Finova's Board of Directors, after consultation with
independent legal counsel, determines in good faith that such action is
necessary for Finova's Board of Directors to comply with its fiduciary duties to
Finova's stockholders under applicable law, (B) Finova's Board of Directors
determines in good faith after consultation with a nationally recognized expert
with experience in appraising the terms and conditions of such unsolicited
Acquisition Proposal, that such unsolicited Acquisition Proposal after taking
into account the strategic benefits to be derived from the transaction with
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Leucadia and the long-term prospects of Finova, would, if consummated, result in
a transaction more favorable to Finova's stockholders from a financial point of
view (any such more favorable bona fide unsolicited Acquisition Proposal being
referred to as a "Superior Proposal"), (C) the meeting of Finova's stockholders,
if required to consummate the transaction with Leucadia, shall not have occurred
and (D) prior to taking such action, Finova (i) notifies Leucadia of any
Acquisition Proposal (including, without limitation, the material terms and
conditions thereof and the identity of the person making the Acquisition
Proposal) as promptly as practicable (but in no case later than 24 hours) after
receipt thereof, (ii) provides Leucadia with a copy of any written Acquisition
Proposal, (iii) thereafter informs Leucadia on a prompt basis of the status of
any discussion or negotiations with such a third party and any material changes
to the terms and conditions of such Acquisition Proposal, (iv) promptly gives
Leucadia a copy of any information delivered to such person which has not been
previously been reviewed by Leucadia and (v) receives from such person an
executed confidentiality agreement in reasonably customary form and in any event
containing terms at least as stringent as those contained in the confidentiality
agreement to which Leucadia is a party. Finova agrees to notify any investment
banker or other representative of the substance of this agreement for the
purpose of terminating any solicitation efforts that previously took place.
The exclusivity provision of this agreement (but not the break
up fee provision of this agreement) shall expire (i) if a definitive agreement
with respect to the Preferred Stock Investment is not executed by Finova and
Leucadia by December 8, 2000; (ii) if a term sheet for the Refinancing (which
shall have been agreed to by Finova and Leucadia) (the "Term Sheet") is not
presented to the agent banks for Finova's outstanding bank debt (the "Agent
Banks") by December 20, 2000; and (iii) if the Agent Banks do not recommend
approval of the Term Sheet (as such Term Sheet may be amended from time to time
with the approval of Finova and Leucadia) to the lenders by February 27, 2001.
8. Break Up Fee. If Finova accepts an offer from any party other than
Leucadia relating to an Acquisition Proposal whether through direct purchase of
stock or assets, merger, consolidation or otherwise, within one year from the
date of this agreement, then Finova shall pay to Leucadia in immediately
available funds, at Leucadia's option, either (i) $15 million or (ii) an amount
equal to the product of 3 million multiplied by the excess of (x) the fair
market value of the consideration to be paid for each share of Common Stock of
Finova pursuant to such Acquisition Proposal over (y) $2.50.
9. Stockholder Approval. If Finova stockholder approval is required in
order to implement the actions contemplated by this agreement, the Board of
Directors of Finova shall recommend that stockholders approve the Preferred
Stock Investment; provided, however, that the Board of Directors of Finova may
withdraw such recommendation if Finova enters into an agreement for an
Acquisition Proposal which complies with the provisions of paragraph 7 of this
Agreement. If such stockholder approval is not received, Leucadia shall receive
the break-up fee.
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10. Access to Information. From and after the date of this agreement,
Finova will provide Leucadia with complete access to Finova's facilities, books
and records, and personnel. The parties shall make their respective personnel
available to each other in Phoenix, Arizona or New York, New York and shall
cause their personnel to cooperate with the other in establishing a mutually
acceptable plan for the Refinancing.
11. No Extraordinary Transactions. During the term of the exclusivity
period of this agreement, Finova agrees that, without the consent of Leucadia,
except in the ordinary course of business, Finova will not enter into any
agreement for or take any action related to (i) the sale of assets,(ii) the sale
of securities, (iii) any financings or refinancings, (iv) any reorganization,
recapitalization, dissolution or liquidation of Finova, (v) the material
amendment to any existing, or entering into any new, employment, severance or
other employee benefit arrangements or (vi) other material matters; provided,
however, that Finova may enter into an agreement for an Acquisition Proposal
which complies with the provisions of paragraph 7 of this agreement.
12. Board Representation. Upon consummation of the Preferred Stock
Investment, designees of Leucadia shall have six seats out of the ten-member
Board of Directors, which designees shall be distributed evenly among the three
classes of members of the Board of Directors. Finova will take all necessary
corporate action to increase the size of its Board of Directors to ten (10)
members and obtain all necessary resignations for existing directors to enable
the Leucadia designees to be appointed to the Board of Directors.
13. Management Fee. Upon consummation of the Preferred Stock
Investment, Leucadia will receive a management fee of $5 million per year,
payable quarterly, for a period of five years from consummation of the Preferred
Stock Investment.
14. No Public Disclosure. Except as may be required by law, without the
prior consent of the other party, neither Leucadia nor Finova shall make any
public announcement with respect to, or otherwise disclose, the existence of
this letter or the terms of the possible transaction.
15. Costs and Expenses. All costs and expenses (including legal,
accounting and other advisory fees and disbursements) incurred in connection
with this Agreement, the conduct of any due diligence review and the preparation
and delivery of the definitive agreements and related documentation shall be
borne by Leucadia to the extent incurred by it and by Finova to the extent
incurred by it.
16. Governing Law; Miscellaneous. This Agreement shall be governed by,
and construed in accordance with the laws of the State of New York. This
Agreement supercedes all prior discussions and correspondence between the
parties and their affiliates in respect of the transactions described herein.
This Agreement may only be amended by a written instrument signed by the
parties. This Agreement may not be assigned by the parties without the prior
consent of the other parties.
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17. Specific Performance; Equitable Relief. The parties agree that
their remedies for any breach of this Agreement include, without limitation,
specific performance and injunctive relief.
Please acknowledge by your signature below that you wish to proceed in
accordance with the terms of this proposal and that you agree to be bound by the
terms of this agreement.
Very truly yours,
LEUCADIA NATIONAL CORPORATION
By:
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Name:
Title:
Accepted and Agreed To:
THE FINOVA GROUP INC.
By:
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Name:
Title:
Date:
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