AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 1998
REGISTRATION STATEMENT NO. 333-48077
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------
NEFF CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7353 65-0626400
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
3750 N.W. 87TH AVENUE
MIAMI, FLORIDA 33178
(305) 513-3350
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KEVIN P. FITZGERALD
CHIEF EXECUTIVE OFFICER AND PRESIDENT
NEFF CORP.
3750 N.W. 87TH AVENUE
MIAMI, FLORIDA 33178
(305) 513-3350
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
STEPHEN I. GLOVER, ESQ. WILLIAM M. HARTNETT, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON CAHILL GORDON & REINDEL
1001 PENNSYLVANIA AVENUE, N.W. 80 PINE STREET
WASHINGTON, D.C. 20004 NEW YORK, NEW YORK 10005
(202) 639-7000 (212) 701-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED , 1998
SHARES
NEFF CORP.
CLASS A COMMON STOCK
---------------
OF THE SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY,
SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED
STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." ALL
OF THE SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY ARE BEING
SOLD BY THE COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET
FOR THE CLASS A COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT
THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER SHARE.
SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
---------------
APPLICATION WILL BE MADE TO LIST THE CLASS A COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "NFF."
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
PRICE $ A SHARE
---------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------- ---------------- ------------
PER SHARE ......... $ $ $
TOTAL(3) .......... $ $ $
- -------
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITERS."
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT
$ .
(3) THE COMPANY HAS GRANTED TO THE U.S. UNDERWRITERS AN OPTION, EXERCISABLE
WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF
ADDITIONAL SHARES OF CLASS A COMMON STOCK AT THE PRICE TO PUBLIC
LESS UNDERWRITING DISCOUNTS AND COMMISSIONS, FOR THE PURPOSE OF COVERING
OVERALLOTMENTS, IF ANY. IF THE U.S. UNDERWRITERS EXERCISE SUCH OPTION IN
FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS
AND PROCEEDS TO COMPANY WILL BE $ , $ AND $ ,
RESPECTIVELY. SEE "UNDERWRITERS."
---------------
THE SHARES OF CLASS A COMMON STOCK ARE OFFERED, SUBJECT TO PRIOR SALE,
WHEN, AS AND IF ACCEPTED BY THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO
APPROVAL OF CERTAIN LEGAL MATTERS BY CAHILL GORDON & REINDEL, COUNSEL FOR THE
UNDERWRITERS. IT IS EXPECTED THAT DELIVERY OF THE SHARES WILL BE MADE ON OR
ABOUT , 1998 AT THE OFFICE OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK,
N.Y., AGAINST PAYMENT THEREFOR IN IMMEDIATELY AVAILABLE FUNDS.
---------------
MORGAN STANLEY DEAN WITTER
BT ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1998
<PAGE>
PHOTOGRAPHS OF CONSTRUCTION EQUIPMENT
COMPANY LOGO
2
<PAGE>
Certain statements contained in this Prospectus that are not related to
historical results are forward-looking statements. Actual results may differ
materially from those projected or implied in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed under "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
Further, certain forward-looking statements are based upon assumptions as to
future events that may not prove to be accurate. These forward-looking
statements involve risks and uncertainties including, but not limited to, those
set forth under "Risk Factors."
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------
TABLE OF CONTENTS
PAGE
-----
Prospectus Summary ............................. 4
Risk Factors ................................... 10
Use of Proceeds ................................ 17
Dividend Policy ................................ 17
Capitalization ................................. 18
Dilution ....................................... 19
Unaudited Pro Forma Consolidated
Financial Data .............................. 20
Selected Consolidated Financial Data ........... 24
Management's Discussion and Analysis
of Financial Condition and
Results of Operations ....................... 26
Business ....................................... 33
PAGE
-----
Management ..................................... 42
Principal Stockholders ......................... 51
Certain Relationships and Transactions ......... 52
Description of Certain Indebtedness ............ 53
Description of Capital Stock ................... 54
Shares Eligible for Future Sale ................ 62
Underwriters ................................... 64
Certain United States Tax Considerations for
Non-United States Holders ................... 68
Legal Matters .................................. 71
Experts ........................................ 71
Additional Information ......................... 72
Index to Financial Statements .................. F-1
No person is authorized in connection with any offering made hereby to
give any information or to make any representation not contained in this
Prospectus and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company or any Underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the shares of Class A Common Stock offered
hereby, nor does it constitute an offer to sell or solicitation of an offer to
buy any of the securities offered hereby to any person in any jurisdiction in
which it is unlawful to make such an offer or solicitation to such person.
Neither the delivery of this Prospectus nor any sale made in the Offering shall
under any circumstances imply that the information contained herein is correct
as of any date subsequent to the date hereof.
---------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR, AND PURCHASE, SHARES OF CLASS A COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES THERETO AND THE UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL DATA APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT
OTHERWISE REQUIRES, ALL REFERENCES TO "NEFF" OR THE "COMPANY" INCLUDE NEFF
CORP. AND ITS WHOLLY OWNED SUBSIDIARIES, NEFF RENTAL, INC. ("NEFF RENTAL") AND
NEFF MACHINERY, INC. ("NEFF MACHINERY"). UNLESS THE CONTEXT OTHERWISE REQUIRES,
ALL REFERENCES TO GENERAL ELECTRIC CAPITAL CORPORATION ("GE CAPITAL") INCLUDE
ITS AFFILIATE GECFS, INC. UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES
TO "COMMON STOCK" INCLUDE THE COMPANY'S CLASS A COMMON STOCK, PAR VALUE $.01
PER SHARE (THE "CLASS A COMMON STOCK") AND THE COMPANY'S CLASS B SPECIAL COMMON
STOCK, PAR VALUE $.01 PER SHARE (THE "CLASS B COMMON STOCK") AND REFLECT AN
84.65 FOR 1.00 STOCK SPLIT FOR EACH CLASS OF COMMON STOCK TO BE EFFECTED PRIOR
TO THE COMPLETION OF THE OFFERING. UNLESS OTHERWISE INDICATED, THE INFORMATION
IN THIS PROSPECTUS ASSUMES THAT THE U.S. UNDERWRITERS' OVER-ALLOTMENT OPTION IS
NOT EXERCISED.
THE COMPANY
Neff is one of the largest and fastest growing equipment rental companies
in the United States, with 68 rental locations in 15 states. The Company rents
a wide variety of equipment, including backhoes, air compressors, loaders,
lifts and compaction equipment to construction and industrial customers. The
Company also acts as a dealer of new equipment on behalf of several nationally
recognized equipment manufacturers. In addition, the Company sells used
equipment, spare parts and merchandise and provides ongoing repair and
maintenance services. The Company has increased its total revenues from $67.3
million in 1995 to $142.0 million in 1997; pro forma for the Acquisitions (as
defined) and the Argentina Acquisition (as defined), the Company's total
revenues for 1997 were $255.6 million.
According to industry sources, the U.S. equipment rental industry grew from
approximately $600 million in revenues in 1982 to an estimated $18 billion in
1997. This growth has been driven primarily by construction and industrial
companies that have increasingly outsourced equipment needs to reduce investment
in non-core assets and convert costs from fixed to variable. The equipment
rental industry is highly fragmented, with an estimated 17,000 equipment rental
companies in the United States. As a result, the Company believes that there are
substantial consolidation opportunities for well-capitalized operators such as
the Company. According to RENTAL EQUIPMENT REGISTER and studies prepared by
Manfredi & Associates, Inc. on the size of the equipment rental market, no
single company's revenues represented more than 2% of total market revenues in
1996. Relative to smaller competitors, the Company has several advantages,
including increased purchasing power, larger inventories to service larger
accounts and the ability to transfer equipment among rental locations in
response to changing patterns of customer demand.
COMPETITIVE STRENGTHS
The Company believes it has several competitive strengths which provide it
with the opportunity for continued growth and increased profitability.
STRONG MARKET POSITION. The Company is one of the largest and fastest
growing construction and industrial equipment rental companies in the United
States, and is a leading competitor with a significant presence in the
Southeast and Gulf Coast regions. The Company operates 68 rental locations in
15 states, including Florida, Georgia, Alabama, Mississippi, South Carolina,
North Carolina, Tennessee, Louisiana, Texas, Oklahoma, Arizona, Nevada, Utah,
California and Colorado. From December 31, 1995 to December 31, 1997, pro forma
for the Richbourg Acquisition (as defined), the
4
<PAGE>
Company increased its equipment rental locations from eight to 68 and expanded
its rental fleet from $62 million to $321 million based on original cost. The
Company believes its dealership operations complement its equipment rental
operations by providing it with competitive advantages over competitors which
only rent equipment. These advantages include the ability to achieve favorable
pricing by combining equipment purchases for its dealership and rental fleets;
the reduction of costs in certain locations by sharing service, maintenance and
administrative personnel; and better knowledge of certain local markets by
pooling management information. In addition, management believes the Company's
size and geographic diversity help insulate it from regional economic
downturns. The Company's efforts to improve its market position have caused it
to increase its debt and incur significant operating expenses, and thus have
adversely affected its short-term cash flow and net income. The Company
believes, however, that these efforts are essential to its future performance.
See "Risk Factors--Risks Inherent in Growth Strategy," "Risk
Factors--Dependence on Additional Capital for Future Growth; Restrictions Under
Terms of Indebtedness" and "Risk Factors--Substantial Leverage."
HIGH QUALITY RENTAL FLEET. Management believes the Company has one of the
newest, most comprehensive and well-maintained rental fleets in the equipment
rental industry. As of December 31, 1997, pro forma for the Richbourg
Acquisition, the average age of the Company's rental fleet was approximately 23
months. The Company makes ongoing capital investment in new equipment, engages
in regular sales of new equipment and conducts an advanced preventative
maintenance program. Management believes this maintenance program increases
fleet utilization, extends the useful life of equipment and produces higher
resale values.
EXCELLENT CUSTOMER SERVICE. The Company differentiates itself from its
competitors by providing high quality, responsive service to its customers.
Service initiatives include (i) reliable on-time equipment delivery directly to
customers' job sites, (ii) on-site repairs and maintenance of rental equipment
by factory trained mechanics, generally available 24 hours a day, seven days a
week and (iii) ongoing training of an experienced sales force to consult with
customers regarding their equipment needs.
STATE-OF-THE-ART MANAGEMENT INFORMATION SYSTEM. The Company has developed
a customized, state-of-the-art management information system capable of
monitoring operations at up to 300 sites. The Company uses this system to
maximize fleet utilization and determine the optimal fleet composition by
market. The system links all of the Company's rental locations and allows
management to track customer and sales information, as well as the location,
rental status and maintenance history of every piece of equipment in the rental
fleet. Rental location managers can search the Company's entire rental fleet
for needed equipment, quickly determine the closest location of such equipment,
and arrange for delivery to the customer's work site, thus maximizing equipment
utilization.
EXPERIENCED MANAGEMENT TEAM. Since 1995, the Company has significantly
increased the quality and depth of its management team to help oversee its
growth strategy. Neff's senior management team has extensive experience in the
equipment rental industry and its seven regional managers have, on average, 17
years of experience and substantial knowledge of the local markets served
within their regions. The Company believes that its management team has the
ability to continue the Company's strong growth as well as manage the Company
on a much larger scale. The Company is not dependent on recruiting additional
operating, acquisition, finance or other personnel to implement its growth
strategy. Management believes MasTec, Inc., a public company engaged in the
telecommunications construction business which has operations in South America
and, like the Company, is majority-owned by the Mas family, will be valuable to
the Company in identifying and evaluating acquisitions in both North and South
America. It also believes that GE Capital, another major stockholder, can
provide significant assistance in this regard.
5
<PAGE>
GROWTH STRATEGY
The Company's objective is to increase revenue, cash flow and
profitability by building and maintaining a leading market position in the
equipment rental industry. Key elements of the Company's growth strategy
include:
ACQUIRE EQUIPMENT RENTAL COMPANIES. Management intends to expand the
Company through acquisitions of equipment rental companies and believes there
are a significant number of acquisition opportunities in North and South
America which would complement the Company's existing operations. After
completing an acquisition, the Company generally integrates the operations of
the acquired company into its management information system, consolidates
equipment purchasing and resale functions and centralizes fleet management as
quickly as possible while assuring consistent, high-quality service to the
acquired company's customers. Since July 1997, the Company has made two
strategic acquisitions which have more than doubled the Company's number of
rental locations, significantly enhanced the Company's geographic presence and
further diversified the Company's customer base. The Company has also entered
into a letter of intent to acquire 51% of the outstanding stock of Sullair
Argentina Sociedad Anonima ("S.A. Argentina"), a leading equipment rental
company and dealer of new equipment in South America, and the Company has four
letters of intent outstanding to acquire the assets of additional equipment
rental companies in the United States. See "--Recent Acquisitions." To date,
the Company has financed its acquisitions primarily with debt, which has
resulted in increased interest expense. See "Risk Factors--Substantial
Leverage."
INCREASE PROFITABILITY OF RECENTLY OPENED RENTAL LOCATIONS. Since March 1,
1995, the Company has opened 21 start-up rental equipment locations including
11 locations in 1997. Management believes the Company's financial performance
does not yet fully reflect the benefit of these rental locations. The Company
incurs significant expenses in connection with the opening of new locations.
See "Risk Factors--Risks Inherent in Growth Strategy." Based on the Company's
historical experience, a new equipment rental location tends to realize
significant increases in revenues, cash flow and profitability during the first
three years of operation as more prospective customers become aware of its
operation and as the rental equipment fleet is customized to local market
demand. Because there is relatively little incremental operating expense
associated with such revenues, cash flow and profitability increase
significantly as a rental location matures. Although the Company intends to
expand primarily through acquisitions, management intends to open additional
start-up locations in markets where the Company has not been able to identify
attractive acquisition candidates. The Company plans to open five to seven
additional branches in 1998.
INCREASE FLEET AT EXISTING LOCATIONS. Management believes it can
capitalize on the demand for rental equipment in the markets it serves and
increase revenues by increasing the size of the rental fleet and adding new
product lines at existing locations. Management believes that this strategy
allows the Company to attract new customers and serve as a single source
supplier for its customers. Because the start-up expenditures associated with
increasing the fleet and expanding product lines at existing locations are
relatively modest, these investments typically generate higher and faster
returns than investments in new locations.
SELECTIVE EXPANSION OF DEALERSHIP OPERATIONS. The Company intends to
selectively expand its dealership operations. The Company believes it can
realize significant economies of scale by expanding its dealership operations
in areas where it has already established equipment rental operations. The
Company's distributor relationships and the combined purchasing volume of its
dealership and rental operations allow it to acquire inventory at favorable
prices and terms. The Company's dealership operations also allow it to reduce
overhead costs by sharing service, maintenance and administrative personnel
with its rental operations, as well as generating better knowledge of local
markets through the sharing of information. The Company also intends to expand
its dealership operations to areas where it does not yet have equipment rental
operations.
6
<PAGE>
RECENT ACQUISITIONS
On August 1, 1997, the Company acquired, for a purchase price of $63.6
million, Industrial Equipment Rentals, Inc., the parent company of Buckner
Rental Service, Inc. ("Buckner," such aquisition, the "Buckner Acquisition").
Buckner is a leading provider of rental equipment in the Gulf Coast region with
26 locations in Texas, Louisiana, Mississippi and Alabama. During 1997, Buckner
served over 39,500 customers in the oil and gas, industrial/petrochemical and
construction industries. The Buckner Acquisition gives the Company a greater
presence in the Gulf Coast region and further diversifies the Company's
customer base by significantly increasing its strength in the industrial
sector.
Effective January 1, 1998, the Company acquired, for a purchase price of
$100.0 million, substantially all of the assets of Richbourg's Sales and
Rentals, Inc. ("Richbourg," such acquisition, the "Richbourg Acquisition" and,
together with the Buckner Acquisition, the "Acquisitions"). Richbourg is a
leading provider of rental equipment in the Southeast region with 17 locations
in Florida, North Carolina, South Carolina and Georgia. During 1997, Richbourg
served over 15,500 customers in the industrial and construction industries. The
Richbourg Acquisition gives the Company a greater presence in the Southeast
region and additional customers in the industrial sector.
In March 1998, the Company entered into a letter of intent to acquire 51%
of the outstanding stock of S.A. Argentina (such acquisition, the "Argentina
Acquisition") for $28 million and 65% of S.A. Argentina's net income for 1998
and 1999, such earn-out payments not to exceed $10 million in the aggregate.
S.A. Argentina rents and sells industrial and construction equipment throughout
South America, including Argentina, Brazil, Uruguay, Paraguay, Chile and
Bolivia. S.A. Argentina's revenues for 1997 were approximately $57.3 million.
S.A. Argentina's principal operations are located in Buenos Aires, Argentina;
it also has locations in Cordoba and Rosario, Argentina and an assembly plant
in San Luis, Argentina. The current management of S.A. Argentina will continue
to oversee the day-to-day management of S.A. Argentina. The Argentina
Acquisition will enable the Company to expand internationally and take
advantage of the opportunities for equipment rental businesses in the emerging
South American market. The Argentina Acquisition is subject to a number of
closing conditions, including the execution of a definitive purchase agreement,
and there can be no assurance that the Argentina Acquisition will be
consummated. See "Risk Factors--Put Option Held by Existing Stockholders of
Sullair Argentina," and "Business--Acquisition Strategy."
In February and March 1998, the Company entered into letters of intent to
acquire the assets of four equipment rental companies with aggregate 1997
revenues of approximately $19 million. These businesses have a total of five
equipment rental locations in Florida, California and Texas. Each of these
acquisitions is subject to a number of closing conditions, including the
execution of definitive purchase agreements, and there can be no assurance that
these acquisitions will be consummated.
COMPANY HISTORY
The Company was founded in 1988 and is owned by the Mas family, GE Capital
and Santos Fund I, L.P., a Texas limited partnership ("Santos") which is owned
by the Mas family and Kevin P. Fitzgerald, the Chief Executive Officer and
President of the Company. The Mas family is also the principal stockholder of
MasTec, Inc., a public company traded on the New York Stock Exchange and one of
the largest providers of telecommunications-related engineering and
construction services in the United States, South America and Europe. In 1995,
the Company entered into a strategic partnership with GE Capital to take
advantage of growth and consolidation opportunities in the equipment rental
industry. See "Certain Relationships and Transactions."
The Company's chief executive offices are located at 3750 N.W. 87th
Avenue, Miami, Florida, 33178 and its telephone number is (305) 513-3350.
7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock Offered by the Company
U.S. Offering ................................. shares
International Offering ........................ shares
Total ........................................ shares
Common Stock to be outstanding immediately
after the Offering
Class A Common Stock .......................... shares(1)
Class B Common Stock(2) ....................... shares(2)
Total ........................................ shares
Use of Proceeds to the Company .................. The net proceeds of the
Offering will be used for the
repayment of indebtedness. See
"Use of Proceeds".
Proposed New York Stock Exchange Symbol ......... NFF
</TABLE>
- ----------------
(1) Excludes (i) 1,000,000 additional shares of Class A Common Stock reserved
for issuance in connection with the Company's Incentive Stock Plan, (ii)
additional shares of Class A Common Stock reserved for issuance in
connection with options granted to Kevin P. Fitzgerald, the Chief
Executive Officer and President of the Company, and (iii) 84,650
additional shares of Class A Common Stock reserved for issuance in
connection with options granted to Robert G. Warren, Senior Vice President
of Neff Machinery.
(2) The holders of Class A and Class B Common Stock are entitled to one vote
per share on all matters submitted to a vote of the stockholders. Upon the
liquidation, dissolution or winding up of the Company, after satisfaction
of all of the Company's liabilities and the payment of the liquidation
preference of any preferred stock that may be outstanding, the holder of
each share of Class B Common Stock is entitled to receive before any
distribution or payment is made upon any other capital stock of the
Company, an amount in cash equal to $11.67.
RISK FACTORS
See "Risk Factors" for information concerning certain factors that should
be considered by prospective investors.
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PRO FORMA AS
YEAR ENDED DECEMBER 31, ADJUSTED(2)
---------------------------------------------------------------------- -------------
1993(1) 1994 1995 1996 1997 1997
------------ ------------ ----------- ----------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ..................... $ 43,834 $ 49,526 $ 67,254 $ 95,013 $ 142,019 $ 255,633
Gross profit(3) .................... 10,549 14,711 17,972 25,320 43,274 79,529
Selling, general and administrative
expenses ......................... 6,078 8,493 10,956 18,478 30,129 47,315
Officer stock option
compensation(4) .................. -- -- -- -- 4,400 4,400
Income from operations ............. 3,857 5,993 6,100 5,410 6,197 21,860
Income (loss) before extraordinary
items(5) ......................... 1,663 2,712 1,834 (1,388) (6,393)
Income (loss) before extraordinary
items per share ..................
Weighted average common shares
outstanding(6) ................... 8,465 8,465 8,465 8,465 8,465
BALANCE SHEET DATA (END OF PERIOD):
Net book value of rental
equipment ........................ $ 18,418 $ 31,331 $ 47,989 $ 76,794 $ 184,787
Total assets ....................... 30,761 47,722 68,816 109,118 280,790
Total debt ......................... 27,747 38,603 48,345 58,250 226,203
Redeemable preferred stock ......... -- -- 11,430 46,299 53,747
Total common stockholders' equity
(deficit) ........................ 571 4,205 (1,931) (7,508) (24,735)
OTHER DATA:
Adjusted EBITDA(7) ................. $ 10,255 $ 15,129 $ 18,763 $ 26,695 $ 37,635 $ 78,157
Adjusted EBITDA margin(8) .......... 23.4% 30.5% 27.9% 28.1% 26.5% 28.9%
Number of rental locations
(end of period) .................. 5 6 8 16 53
</TABLE>
- ----------------
(1) The consolidated balance sheet data and statement of operations data for
the year ended December 31, 1993 is derived from financial statements of
the Company's two wholly-owned subsidiaries, Neff Rental and Neff
Machinery, each of which was individually audited by independent certified
public accountants.
(2) The summary consolidated pro forma as adjusted financial data are derived
from the Company's Unaudited Pro Forma Consolidated Financial Data
appearing elsewhere in this Prospectus. The Unaudited Pro Forma
Consolidated Financial Data were prepared by the Company to illustrate the
estimated effects of the Offering, the Argentina Acquisition, the Buckner
Acquisition, the Richbourg Acquisition and related transactions described
in the Notes to the Unaudited Pro Forma Consolidated Financial Data as if
they had occurred as of January 1, 1997 for purposes of the unaudited pro
forma consolidated statements of operations and as of December 31, 1997
for purposes of the unaudited pro forma consolidated balance sheets.
(3) Gross profit for 1996 and 1997 reflect the Company's change in depreciation
policy to recognize extended estimated service lives and increased
residual values of its rental equipment. See the Consolidated Financial
Statements and the Notes thereto appearing elsewhere in this Prospectus.
(4) Officer stock option compensation expense represents a noncash charge with
respect to the change in estimated market value of the shares to be issued
to Kevin P. Fitzgerald under an option agreement.
(5) Prior to December 26, 1995, the Company operated as a Subchapter S
corporation under the provisions of the Internal Revenue Code. Income
(loss) before extraordinary items for 1993, 1994 and 1995 is restated to
reflect what the data would have been if the Company had Subchapter C
status in these years.
(6) Based on the number of shares outstanding as of . Assumes exercise of
options currently exercisable and exercisable within the next 60 days.
(7) Adjusted EBITDA represents income from operations plus depreciation and
amortization and officer stock option compensation expenses. Adjusted
EBITDA is not intended to represent cash flow from operations and should
not be considered as an alternative to operating or net income computed in
accordance with GAAP, as an indicator of the Company's operating
performance, as an alternative to cash flows from operating activities (as
determined in accordance with GAAP) or as a measure of liquidity. The
Company believes that Adjusted EBITDA is a standard measure commonly
reported and widely used by analysts and investors as a measure of
profitability for companies with significant depreciation and amortization
expense. However, not all companies calculate Adjusted EBITDA using the
same methods; therefore, the Adjusted EBITDA figures set forth above may
not be comparable to Adjusted EBITDA reported by other companies.
(8) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total
revenues.
9
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS, IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, IN
EVALUATING AN INVESTMENT IN THE CLASS A COMMON STOCK OFFERED HEREBY.
RISKS INHERENT IN GROWTH STRATEGY
The Company has recently accelerated its growth, expanding the rental
equipment fleet at existing locations and adding eight locations in 1996 and 37
locations in 1997. The Company intends to continue this rapid growth over the
next five years by continuing to make acquisitions, expand its rental equipment
fleet at existing locations and open several new locations each year. There can
be no assurance that the Company will be able to identify acquisition
candidates and attractive new locations or obtain financing for acquisitions
and internal expansion on satisfactory terms, or at all. The Company's growth
strategy presents the risks inherent in assessing the value, strengths and
weaknesses of growth opportunities, in evaluating the costs and uncertain
returns of expanding the operations of the Company, and in integrating
acquisitions with existing operations. The Company expects that its growth
strategy will affect short-term cash flow and net income as the Company
increases the amount of its indebtedness and incurs expenses to open new
locations, make acquisitions and expand the rental fleet. There can be no
assurance that the Company will successfully expand, that any acquired
businesses will be successfully integrated into the Company's operations or
that any expansion will result in profitability. The Company's anticipated
growth will place significant demands on the Company's management and its
operational, financial and marketing resources. In connection with acquisitions
and the start-up of new branches, the Company anticipates experiencing growth
in the number of its employees, the scope of its operating and financial
systems and the geographic area of its operations. The Company believes this
growth will increase the operating complexity of the Company and the level of
responsibility exercised by both existing and new management personnel. To
manage this expected growth, the Company intends to invest further in its
operating and financial systems and to continue to expand, train and manage its
employee base. There can be no assurance that the Company will be able to
attract and retain qualified management and employees or that the Company's
current operating and financial systems and controls will be adequate as the
Company grows or that any steps taken to improve such systems and controls will
be sufficient. See "Business--Growth Strategy."
DEPENDENCE ON ADDITIONAL CAPITAL FOR FUTURE GROWTH; RESTRICTIONS UNDER TERMS OF
INDEBTEDNESS
The Company's ability to remain competitive, sustain its growth and expand
rental operations through start-up locations and acquisitions largely depends
on its access to capital. The Company must make ongoing capital expenditures to
maintain the age and condition of its rental equipment fleet in order to
provide its customers with high-quality equipment. Historically, the Company
has financed capital expenditures, start-up locations and acquisitions
primarily through the incurrence of indebtedness, cash flow from operations
and, to a lesser extent, the issuance of equity securities. To implement its
growth strategy and meet its capital needs, the Company may in the future issue
additional equity securities or may incur additional indebtedness. Such
additional indebtedness may make the Company more vulnerable to economic
downturns and may limit its ability to withstand competitive pressures. There
can be no assurance that additional capital, if and when required, will be
available on terms acceptable to the Company, or at all. Failure by the Company
to obtain sufficient additional capital in the future could force the Company
to curtail its growth or delay capital expenditures, which could have a
material adverse effect on the Company and the market price of the Class A
Common Stock.
The Company has entered into a commitment letter with Bankers Trust
Company to amend and restate the Company's existing $250 million revolving
credit facility (the "Senior Credit Facility," and, as amended and restated,
the "New Credit Facility"). The Company expects the New Credit Facility will be
in place upon consummation of the Offering.
The Company's ability to finance future acquisitions, start-ups and
internal growth is currently limited by the covenants contained in the Senior
Credit Facility, including a number of covenants that,
10
<PAGE>
among other things, restrict the ability of the Company to dispose of assets or
merge, incur debt, pay dividends, repurchase or redeem capital stock, create
liens, make capital expenditures and make certain investments or acquisitions
and otherwise restrict corporate activities. The Senior Credit Facility also
contains, among other covenants, requirements that the Company maintain
specified financial ratios, including minimum cash flow levels and interest
coverage. The Company expects the New Credit Facility will contain similar
covenants and requirements. At December 31, 1997, the Company was not in
compliance with the minimum EBITDA covenant, as defined in the Senior Credit
Facility. For the year ended December 31, 1997 the minimum EBITDA calculation
was $44.8 million but was required to be $45.9 million. The lenders under the
Senior Credit Facility have waived this non-compliance.
The Company expects to offer approximately $ million in debt
securities (the "Notes") for sale to qualified investors concurrently with this
Offering (the "Private Debt Offering.") There can be no assurance that the
Private Debt Offering will be consummated. This Offering is not conditioned
upon the consummation of the Private Debt Offering. If the Company were to
consummate the Private Debt Offering, the indenture governing the Notes is
likely to contain certain restrictive covenants that will affect, and in some
cases will significantly limit or prohibit, among other things, the ability of
the Company to pay dividends, make investments, engage in transactions with
stockholders and affiliates, issue capital stock, incur indebtedness, create
liens, sell assets and engage in mergers and consolidations. As a result of
these covenants, the ability of the Company and its subsidiaries to respond to
changing business and economic conditions and to secure additional financing
may be significantly restricted, and the Company may be prevented from engaging
in transactions, including acquisitions, that might be considered important to
the Company's growth strategy or otherwise beneficial to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Business--Growth Strategy" and
"Description of Certain Indebtedness."
SUBSTANTIAL LEVERAGE
The Company has a substantial amount of indebtedness. As of March 31,
1998, on a pro forma basis after giving effect to the Richbourg Acquisition,
the Argentina Acquisition, the Offering and the Private Debt Offering and the
application of the estimated net proceeds therefrom, the Company would have had
total indebtedness of approximately $ million and would have had
approximately $ million of availability under the Senior Credit Facility.
The degree to which the Company is leveraged could have important
consequences to holders of the Class A Common Stock including, but not limited
to, the following: (i) the Company's ability to obtain additional financing in
the future for working capital, capital expenditures, acquisitions or general
corporate or other purposes may be limited; (ii) a substantial portion of the
Company's cash flow from operations will be dedicated to the payment of the
principal of, and interest on, its indebtedness; (iii) the agreements governing
the Company's long-term indebtedness will contain certain restrictive financial
and operating covenants that could limit the Company's ability to compete and
expand; and (iv) the Company's substantial leverage may make it more vulnerable
to economic downturns, limit its ability to withstand competitive pressures and
reduce its flexibility in responding to changing business and economic
conditions. See "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources," "Description of Certain Indebtedness" and the Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
GENERAL ECONOMIC CONDITIONS; REGIONAL CONDITIONS AND CYCLICALITY
The Company's business is affected by general economic and competitive
conditions, including national, regional and local slowdowns in construction
activity. The Company currently operates in 15 states located throughout the
southern and western United States. As a result, the Company's operating
results may be adversely affected by events or conditions, such as regional
economic slowdowns, adverse weather conditions and other factors, in the areas
in which it operates.
11
<PAGE>
DEPENDENCE ON EQUIPMENT MANUFACTURERS
The Company sells John Deere, Bomag and Terex Americas construction and
industrial equipment through dealership agreements. Each of the dealership
agreements is terminable at the option of the manufacturer. See
"Business--Dealership Agreements." There can be no assurance that the Company
will be able to continue its current, or obtain additional, dealership
agreements with any of the manufacturers. The Company's operating results could
be materially adversely impacted if the John Deere dealership agreements were
terminated for any reason.
John Deere has filed a notice of arbitration (the "Notice") with the
American Arbitration Association seeking review of the question of whether Neff
Corp. and Neff Machinery breached their agreements with John Deere by failing
to obtain John Deere's consent to transactions in which GE Capital increased
its equity interest in the Company in 1996. The Company has not filed a
response to the Notice and is actively discussing the issues raised by the
Notice with John Deere. Although the arbitration could result in a finding that
the Company breached its agreement with John Deere and that John Deere has the
right to terminate the dealership agreements, the Company believes that this
matter can be resolved in a manner that does not have a material adverse effect
on its financial condition or results of operations.
RECENT NET LOSSES
The Company incurred net losses of $2.2 million and $6.8 million in 1996
and 1997, respectively. There can be no assurance that the Company will operate
profitably in the future or have earnings or cash flow sufficient to comply
with the financial covenants to which it is subject or to cover its fixed
charges.
COMPETITION
The equipment rental and sales industries are highly competitive. The
Company's competitors include large national rental companies, regional
corporations, smaller independent businesses, and equipment vendors and dealers
who both sell and rent equipment to customers. Some of the Company's
competitors have greater financial resources, are more geographically diverse,
and have greater name recognition than the Company. There can be no assurance
that the Company will not encounter increased competition from existing
competitors or new market entrants, such as manufacturers, that may be
significantly larger and have greater financial and marketing resources than
the Company. If existing or future competitors reduce prices to gain or retain
market share and the Company must also reduce prices to remain competitive, the
Company's operating results would be adversely affected. Additionally, existing
or future competitors may seek to compete with the Company for start-up
locations or acquisition candidates, which may have the effect of increasing
acquisition prices and reducing the number of suitable acquisition candidates
or expansion locations. See "Business-- Competition."
SEASONALITY AND QUARTERLY FLUCTUATIONS IN REVENUES AND OPERATING RESULTS
Historically, the Company's revenues and operating results have varied
throughout the year and are expected to continue to fluctuate in the future.
These fluctuations have been due to a number of factors, including: (i) general
economic conditions in the Company's markets; (ii) the timing of start-up
locations and acquisitions and related costs; (iii) the effectiveness of
integrating start-up locations and acquired businesses; (iv) rental patterns of
the Company's customers; (v) price changes in response to competitive factors;
and (vi) changes in manufacturers' incentive programs. The Company incurs
various costs in establishing or integrating start-ups or newly acquired
locations, and the profitability of a new location is generally expected to be
lower in the initial months of its operation.
Construction equipment sales and rental businesses often experience a
slowdown in demand during the winter months when adverse weather conditions
affect construction activity. To date, seasonal demand fluctuations have not
materially affected the Company's operating results. However, as the Company
expands geographically, seasonal demand fluctuations may lower operating
results in the first and fourth quarters.
12
<PAGE>
LIABILITY AND INSURANCE
The Company's business exposes it to possible claims for personal injury
or death resulting from the use of equipment rented or sold by the Company and
from injuries caused in motor vehicle accidents in which Company delivery and
service personnel are involved. The Company carries comprehensive insurance
subject to a deductible at a level it believes is sufficient to cover existing
and future claims. There can be no assurance that existing or future claims
will not exceed the level of the Company's insurance or that such insurance
will continue to be available on economically reasonable terms, or at all.
ENVIRONMENTAL AND SAFETY REGULATION
The Company's facilities and operations are subject to certain federal,
state and local laws and regulations relating to environmental protection and
occupational health and safety, including those governing wastewater
discharges, the treatment, storage and disposal of solid and hazardous wastes
and materials, and the remediation of contamination associated with the release
of hazardous substances. The Company believes that it is in material compliance
with such requirements and does not currently anticipate any material capital
expenditures for environmental compliance or remediation for the current or
succeeding fiscal years. Certain of the Company's present and former facilities
have used substances and generated or disposed of wastes which are or may be
considered hazardous, and the Company may incur liability in connection
therewith. Moreover, there can be no assurance that environmental and safety
requirements will not become more stringent or be interpreted and applied more
stringently in the future. Such future changes or interpretations, or the
identification of adverse environmental conditions currently unknown to the
Company, could result in additional environmental compliance or remediation
costs to the Company. Such compliance and remediation costs could be material
to the Company's financial condition or results of operations. See
"Business--Environmental and Safety Regulation."
DEPENDENCE ON SENIOR MANAGEMENT
The Company is managed by a small number of key executive officers. The
loss of the services of certain of these key executives could have a material
adverse effect on the Company. The Company presently does not maintain any key
man life insurance policies on any of its officers. The Company's success also
depends on its ability to hire and retain additional qualified management
personnel. There can be no assurance that the Company will be able to hire and
retain such personnel. See "Management."
CONTROLLING STOCKHOLDERS
The Company is controlled by the Mas family and GE Capital. Jorge Mas, the
Company's Chairman, his brothers, Juan Carlos Mas and Jose Ramon Mas, and
Santos, a limited partnership controlled by the Mas family and Mr. Fitzgerald,
beneficially own all of the Company's outstanding Class A Common Stock, which
represents 66% of the fully diluted equity of the Company prior to the Offering
and % of the fully diluted equity of the Company upon completion of the
Offering. GE Capital owns Class B Common Stock which is convertible into Class
A Common Stock that represents 34% of the fully diluted equity of the Company
prior to the Offering and % of the fully diluted equity of the Company upon
completion of the Offering. The holders of a majority of the Series A
Cumulative Redeemable Preferred Stock, par value $.01 per share, of the
Company, (the "Series A Preferred Stock"), voting separately as a single class
in the election of directors of the Company, with each share of Series A
Preferred Stock entitled to one vote, are entitled to elect one director to
serve on the Company's Board of Directors. Upon the Company's failure to pay
certain dividends on the Series A Preferred Stock, the holders thereof have the
right to elect up to five additional directors to the Company's Board of
Directors. See "Description of Capital Stock--Preferred Stock." GE Capital owns
all of the issued and outstanding Series A Preferred Stock and, therefore, is
entitled to elect one director to the Company's Board of Directors. The Company
expects to redeem the Series A Preferred Stock with the proceeds of the Private
Debt Offering. See "Capitalization." Santos Capital Advisers,
13
<PAGE>
Inc. ("Santos Capital"), a Florida corporation owned by the Mas family and Mr.
Fitzgerald, has an option to acquire 1.5 million shares of Common Stock from GE
Capital; these shares represent 10% of the fully diluted equity of the Company
prior to the Offering and % of the fully diluted equity of the Company
upon completion of the Offering. As a result, the Mas family, GE Capital and
Mr. Fitzgerald are able to exercise a controlling influence over the outcome of
matters submitted to the Company's stockholders for approval and will have the
power to delay, defer or prevent a change in control of the Company. In
addition, pursuant to an Amended and Restated Stockholders' Agreement by and
among the Company, GE Capital, Jorge Mas, Jose Ramon Mas, Juan Carlos Mas, Mr.
Fitzgerald, Santos Capital and Santos, if GE Capital transfers Common Stock
representing 15% or more of the equity of the Company to a third party (the
"Transferee"), the Company's Board of Directors will increase from six to seven
members and the Transferee will be entitled to designate the additional
director. At each meeting of the stockholders of the Company held for the
purpose of electing the class of directors of which the director designated by
the Transferee is a member, the parties to the Stockholders Agreement, in
accordance with such agreement, will cast their votes so as to cause such
designee to be elected as a director. See "Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the consummation of the Offering, the Company will
have outstanding shares of Class A Common Stock ( shares outstanding
if the U.S. Underwriters' over-allotment option is exercised in full),
including outstanding shares of Class A Common Stock beneficially owned by
existing stockholders. The shares of Class A Common Stock to be sold
pursuant to the Offering ( if the U.S. Underwriters' over-allotment
option is exercised in full) will be eligible for sale without restriction
under the Securities Act of 1933, as amended (the "Securities Act"), in the
public market after the consummation of the Offering by persons other than
affiliates of the Company. Sales of shares by "affiliates" of the Company as
the term is defined in Rule 144 under the Securities Act ("Affiliates") will be
subject to Rule 144. The Company and all existing stockholders, who will
beneficially own outstanding shares immediately following the consummation
of the Offering, have agreed with the Underwriters not to offer, sell or
otherwise dispose of any shares of Class A Common Stock (other than issuances
by the Company pursuant to the employee stock option plan) for a period of 180
days after the date of the Prospectus without the prior written consent of
Morgan Stanley & Co. Incorporated.
GE Capital holds 5,100,000 shares of Class B Common Stock which it may
exchange for 5,100,000 shares of Class A Common Stock. Upon such exchange, GE
Capital has the right to demand registration of its shares of Class A Common
Stock under the Securities Act. The Mas family, and Santos have the right to
demand registration of their shares of Class A Common Stock under the
Securities Act. Mr. Fitzgerald and Santos Capital each also have the right to
demand registration of shares he or it may acquire from the exercise of certain
options. Registration of any shares held by the Mas family, Santos, Santos
Capital, Mr. Fitzgerald or GE Capital would permit the sale of these shares
without regard to the restrictions of Rule 144. These parties have agreed to
waive their right to exercise their registration rights in connection with the
Offering and for 180 days thereafter. See "Description of Capital Stock--Common
Stock--Registration Rights."
Based on shares outstanding as of , 1998, following the expiration or
waiver of the foregoing restrictions on dispositions and any applicable holding
periods under Rule 144, outstanding shares of Class A Common Stock owned
by existing stockholders will be available for sale in the public market
pursuant to Rule 144 (including the volume and other limitations set for
therein). The Company intends to register on Form S-8 shares of Class A
Common Stock reserved for issuance upon exercise of options granted to certain
employees under the Company's Incentive Stock Plan, and shares of Class A
Common Stock reserved for issuance upon the exercise of certain options granted
to Mr. Fitzgerald and Robert G. Warren, the Senior Vice President of the
Company. Options to purchase shares granted to Mr. Fitzgerald and Mr.
Warren and other employees are currently exercisable.
14
<PAGE>
No prediction can be made as to the effect, if any, that market sales of
shares held by the Mas family, GE Capital, Santos, Santos Capital, Mr.
Fitzgerald, Mr. Warren, other employees, or other stockholders, or the
availability of such shares for future sales, or market sales of shares sold in
the Offering pursuant to this Prospectus or the availability of such shares for
future sales, will have on the market price of shares of Class A Common Stock
prevailing from time to time. Sales of substantial amounts of Class A Common
Stock in the public market could adversely affect the prevailing market price
of the Class A Common Stock and could materially impair the Company's future
ability to realize capital through an offering of equity securities. See
"Shares Eligible for Future Sale."
RISKS OF DOING BUSINESS IN SOUTH AMERICA
If the Argentina Acquisition is consummated, the Company will be subject
to the risks and uncertainties attendant to doing business in countries which
may be exposed to, or may have recently experienced, economic or governmental
instability. The South American operations, earnings, asset values and
prospects of the Company may be materially adversely affected by developments
with respect to inflation, interest rates, currency fluctuations, governmental
policies, price and wage controls, exchange control regulations, taxation,
expropriation, social instability and other political or economic developments
in or affecting the countries in which the Company may operate.
PUT OPTION HELD BY EXISTING STOCKHOLDERS OF SULLAIR ARGENTINA
The letter of intent with respect to the Argentina Acquisition provides
that the existing stockholders of S.A. Argentina will have the option to
require the Company to purchase all of the remaining shares of S.A. Argentina
(the "Put Option"). The Put Option will be exercisable for a period of 30
months commencing 30 months after the consummation of the Argentina Acquisition
(the "Put Period"). The Put Option may also become exercisable before and/or
after the Put Period if the Company makes a decision affecting S.A. Argentina
with respect to certain matters, including, for example, mergers and
acquisitions, strategic alliances or dividends, with which the existing
stockholders of S.A. Argentina disagree. The exercisability of the Put Option
may be subject to certain additional restrictions imposed by the terms of the
Company's indebtedness on the Company's ability to make acquisitions. The
purchase price for the shares subject to the Put Option shall be the fair
market value of such shares as determined by an independent appraiser. There
can be no assurance that the Put Option will be exercised at a time when such
exercise will not have a material adverse effect on the Company.
ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and By-Laws and certain provisions of the
Delaware General Corporation Law (the "DGCL") may make it difficult in some
respects to effect a change in control of the Company and replace incumbent
management. The existence of these provisions may have a negative impact on the
price of the Class A Common Stock, may discourage third party bidders from
making a bid for the Company, or may reduce any premiums paid to stockholders
for their Common Stock. For example, the directors may only be removed for
cause and only the directors may fill vacancies that occur prior to the end of
a director's term. In addition, the Board of Directors of the Company has the
authority to fix the rights and preferences of, and to issue shares of, the
Company's Preferred Stock. The Company must obtain the consent of the holders
of a majority of the outstanding shares of Series A Preferred Stock before it
may authorize, recommend or enter into an agreement with any person to effect a
Change of Control (as defined in the Certificate of Incorporation). Moreover,
prior to the closing of the Offering, the Company intends to adopt a
Stockholders' Rights Plan (the "Rights Plan"). The Rights Plan will permit the
Board to adjust the number and kind of shares subject to the Rights Plan so as
to prevent dilution or enlargement of rights in the event of a merger or other
events which could affect control of the Company. See "Management" and
"Description of Capital Stock--Stockholders' Rights Plan."
15
<PAGE>
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of shares of Class A Common Stock pursuant to the Offering
will experience immediate and substantial dilution of the net tangible book
value per share of Class A Common Stock from the initial public offering price.
See "Dilution."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Company's
Class A Common Stock, and there can be no assurance that an active trading
market will develop or be sustained after this Offering. The initial public
offering price will be determined through negotiations between the Company and
representatives of the Underwriters; however, there can be no assurance that
future market prices for the Class A Common Stock will equal or exceed the
range for the initial public offering price set forth on the cover page of this
Prospectus. After completion of this Offering, the market price of the Class A
Common Stock could be subject to significant variation due to fluctuations in
the Company's operating results, changes in earnings estimates by investment
analysts, the success or failure of the Company's growth strategies, and
changes in business or regulatory conditions affecting the Company. In
addition, the stocks listed on the New York Stock Exchange have experienced
extreme price fluctuations in recent years which have often been unrelated to
the operating performance of the affected companies. Such fluctuations could
adversely affect the market price of the Company's Class A Common Stock.
DIVIDEND RESTRICTIONS
The terms of the Company's Series A Preferred Stock, Senior Credit
Facility and the Private Debt Offering if consummated, restrict the Company
from paying dividends on its Class A Common Stock. The Company does not expect
to pay dividends on its Class A Common Stock in the foreseeable future. See
"Dividend Policy."
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements, including
without limitation, statements concerning the Company's operations, economic
performance and financial condition. The words "believe," "expect,"
"anticipate" and other similar expressions identify forward-looking statements.
Investors are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. These forward-looking
statements are based largely on the Company's current expectations and are
subject to a number of important risks and uncertainties, including those
identified under "Risk Factors" and elsewhere in this Prospectus. Actual
results could differ materially from the forward-looking statements. In light
of these risks and uncertainties, there can be no assurance that the results
referred to in the forward-looking statements contained in this Prospectus will
in fact occur.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Class A
Common Stock offered hereby are estimated to be approximately $ million
assuming an initial public offering price of $ per share ($ million
if the U.S. Underwriters' overallotment option is exercised in full), after
deducting underwriting discounts and commissions and offering expenses payable
by the Company (currently estimated to be $ million). The Company intends
to use the net proceeds from the Offering to (i) repay a loan which the Company
incurred to finance the Richbourg Acquisition (the "Term Loan") and (ii) reduce
outstanding borrowings under the Senior Credit Facility or the New Credit
Facility, as the case may be. The Term Loan carries interest at LIBOR plus
% and matures on January 31, 1999. The interest rate on the indebtedness
on the Senior Credit Facility is variable based on the Company's leverage and
averaged % for 1997. The Senior Credit Facility terminates on October 31,
1998; however, upon the completion of the Private Debt Offering, this date will
be extended to October 31, 2001. It is expected that the New Credit Facility,
if entered into, will expire on , 2003. See "Description of Certain
Indebtedness--Credit Facilities."
DIVIDEND POLICY
The Company did not pay any cash dividends during 1996 and 1997. The
Company anticipates that, following the completion of the Offering, earnings
will be retained for the development of its business and will not be
distributed to stockholders as dividends. The declaration and payment by the
Company of any future dividends and the amounts thereof will depend upon the
Company's results of operations, financial condition, cash requirements, future
prospects, limitations imposed by the Senior Credit Facility or the New Credit
Facility, as the case may be, the Private Debt Offering (if consummated), the
terms of its Preferred Stock and other factors deemed relevant by the Board of
Directors. See "Description of Capital Stock."
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997, (i) on an actual basis, (ii) pro forma for the Richbourg
Acquisition, the Argentina Acquisition and related borrowings under the Senior
Credit Facility and Term Loan and (iii) pro forma as adjusted to give effect to
the Offering assuming an initial public offering price per share of $ and
the application of the estimated net proceeds therefrom and the exchange by GE
Capital of the Company's Series B and Series C Cumulative Convertible
Redeemable Preferred Stock for Class B Common Stock. This table should be read
in conjunction with "Use of Proceeds," "Unaudited Pro Forma Consolidated
Financial Data," "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED(1)
----------- --------------- ---------------
Debt: (IN THOUSANDS)
<S> <C> <C> <C>
Senior Credit Facility ............................................ $ 161,825 $ 239,741 $
Term Loan ......................................................... 49,916 100,000
Notes payable ..................................................... 14,462 26,418(2) 26,418
--------- ----------- -------
Total debt ....................................................... 226,203 366,159
--------- ----------- -------
Redeemable preferred stock:
Series A Cumulative Redeemable Preferred Stock, $.01
par value, 519,503 shares authorized; 340,907 shares issued
and outstanding ................................................. 10,649 10,649 10,649
Series B Cumulative Convertible Redeemable Preferred
Stock, $.01 par value, 800,000 shares authorized; 800,000
shares issued and outstanding ................................... 8,336 8,336 --
Series C Cumulative Convertible Redeemable Preferred
Stock, $.01 par value, 800,000 shares authorized; 800,000
shares issued and outstanding ................................... 31,562 31,562 --
Accrued preferred stock dividends payable--Series B and C ......... 3,200 3,200 --
--------- ----------- -------
Total redeemable preferred stock ................................. 53,747 53,747 10,649
--------- ----------- -------
Minority interest .................................................. -- 15,524 15,524
Common stockholders' equity (deficit):
Class A Common Stock, $.01 par value, 100,000,000 shares
authorized; shares issued and outstanding ................. 85 85
Class B Common Stock, $.01 par value 20,000,000 shares
authorized; 5,100,000 shares issued and outstanding ............. -- --
Additional paid-in capital ........................................ -- --
Accumulated deficit(3) ............................................ (24,820) (24,820)
--------- ----------- -------
Total common stockholders' equity (deficit) ...................... (24,735) (24,735)
--------- ----------- -------
Total capitalization ............................................ $ 255,215 $ 410,695 $
========= =========== =======
</TABLE>
- ----------------
(1) In addition, the Company expects to consummate the Private Debt Offering
for estimated net proceeds of approximately $ million, on or after
consummation of the Offering. It is anticipated that the proceeds of the
Private Debt Offering will be used to reduce outstanding borrowings under
the Senior Credit Facility or the New Credit Facility, as applicable, to
redeem the Series A Preferred Stock, and to repay the mortgage on
properties the Company owns in Florida. Amounts repaid under the Senior
Credit Facility or New Credit Facility, as applicable, are available for
reborrowing. This Offering is not conditioned on the completion of the
Private Debt Offering. There can be no assurance that the Private Debt
Offering will be consummated. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations--Liquidity and Capital
Resources."
(2) This increase is a result of the consolidation of approximately $12 million
of debt incurred by S.A. Argentina, however, this debt is solely the
responsibility of S.A. Argentina without recourse to the Company.
(3) No effect is given to the write-off of deferred debt costs upon the
repayment of the Term Loan and the replacement of the Senior Credit
Facility with the New Credit Facility.
18
<PAGE>
DILUTION
As of March , 1998, the Company had an aggregate of shares of
Common Stock outstanding, including shares of Class A Common Stock and
5,100,000 shares of Class B Common Stock. Net tangible book value per share of
Class A Common Stock represents the amount of total tangible assets less the
sum of (i) total liabilities, and (ii) the liquidation preference of the Series
A Preferred Stock of the Company and the Class B Common Stock. After giving
effect to the sale of the Class A Common Stock in the Offering at an assumed
initial public offering price of $ per share and the application of the
estimated net proceeds therefrom, the pro forma net tangible book value as of
would have been $ or $ per share. This represents an immediate
increase in net tangible book value of $ per share of Class A Common Stock
to existing stockholders and an immediate dilution in pro forma net tangible
book value of $ per share of Class A Common Stock to new investors
purchasing shares in the Offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ....................... $
Net tangible book value per share before the Offering .................
Increase per share attributable to new investors ......................
Pro forma net tangible book value per share after the Offering ........
--------
Dilution per share to new investors(1) ................................ $
========
</TABLE>
- ----------------
(1) Assuming the conversion of the shares of Class B Common Stock into Class A
Common Stock, pro forma net tangible book value per share of Class A
Common Stock and dilution per share of Class A Common Stock to new
investors would be $ and $ , respectively.
The following table summarizes, as of on a pro forma basis, after
giving effect to the Offering, the differences between existing stockholders
and new investors in this Offering with respect to: (i) the number of shares of
Class A and Class B Common Stock purchased from the Company; (ii) the total
consideration paid to the Company; and (iii) the average price paid per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- --------- -------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders ......... % $ % $
New Investors .................
Total ......................... % $ %
======= ====== ====== ======
</TABLE>
The tables above assume no exercise of outstanding options to purchase
Common Stock, and therefore exclude (i) 1,000,000 additional shares of Class A
Common Stock reserved for issuance in connection with the Company's Incentive
Stock Plan, (ii) additional shares of Class A Common Stock reserved for
issuance in connection with an option granted to Kevin P. Fitzgerald to
purchase 3% of the issued and outstanding Common Stock of the Company for an
aggregate purchase price of $1.6 million, (iii) additional shares of
Class A Common Stock reserved for issuance in connection with an option granted
to Mr. Fitzgerald to purchase shares of Class A Common Stock at the
initial public offering price set forth on the cover of this Prospectus and
(iv) 84,650 additional shares of Class A Common Stock reserved for issuance in
connection with an option granted to Robert G. Warren for an aggregate purchase
price of $0.5 million.
19
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth the unaudited pro forma consolidated
balance sheet of the Company as of December 31, 1997, adjusted to give effect
to (i) the Richbourg Acquisition (January 2, 1998) and the financing of such
acquisition, (ii) the Argentina Acquisition and the financing of such
acquisition and (iii) the Offering and the application of the estimated net
proceeds therefrom and the exchange by GE Capital of the Company's Series B and
Series C Cumulative Convertible Redeemable Preferred Stock for Class B Common
Stock; as if these transactions had occurred as of December 31, 1997. The
second following table sets forth the unaudited pro forma consolidated
statement of operations of the Company for the year ended December 31, 1997,
adjusted to give effect to: (i) the Buckner Acquisition (August 1, 1997), the
Richbourg Acquisition (January 2, 1998) (together, "Completed Acquisitions")
and the financing of these acquisitions, (ii) the Argentina Acquisition and the
financing of such acquisition and (iii) the Offering and the application of the
estimated net proceeds therefrom, as if these transactions had occurred on
January 1, 1997. All acquisitions are accounted for using the purchase method
of accounting. The table does not give effect to the consummation of the
Private Debt Offering. It is anticipated that the proceeds of the Private Debt
Offering, if consummated, will be used to reduce outstanding borrowings under
the Senior Credit Facility or the New Credit Facility, as the case may be, to
redeem the Series A Preferred Stock, and to repay the mortgage on properties
the Company owns in Florida. There can be no assurance that the Private Debt
Offering will be consummated. The unaudited pro forma consolidated financial
data are based upon certain assumptions and estimates which are subject to
change. These statements are not necessarily indicative of the actual results
of operations that might have occurred, nor are they necessarily indicative of
expected results of the future. The unaudited pro forma consolidated financial
data should be read in conjunction with the Company's Consolidated Financial
Statements and the Notes thereto.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
RICHBOURG ACQUISITION(A)
-------------------------------------------
HISTORICAL PRO FORMA
COMPANY(A) HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------ ----------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ................. $ 2,885 $ 161 3,046
Marketable securities-trading ............. -- 593 (593)(c) --
Accounts receivable, net .................. 25,007 3,126 28,133
Inventories ............................... 6,072 420 6,492
Rental equipment, net ..................... 184,787 57,604 (4,090)(d) 238,301
Property and equipment, net ............... 23,737 3,068 26,805
Goodwill, net ............................. 29,444 -- 40,790 (e) 70,234
Intangible assets, net .................... 622 -- 622
Prepaid expenses and other assets ......... 8,236 12 1,362 (f) 9,610
--------- ------- -------
Total assets ............................ $ 280,790 $64,984 383,243
========= ======= =======
LIABILITIES AND COMMON
STOCKHOLDERS' DEFICIT
Liabilities
Accounts payable ......................... $ 10,871 $ 930 $ (305)(g) $ 11,496
Accrued expenses ......................... 11,248 -- 11,248
Senior Credit Facility ................... 161,825 26,526 25,218 (h) 213,569
Term loan payable ........................ 49,916 -- 50,084 (i) 100,000
Capitalized lease obligations ............ 2,320 -- 2,320
Notes payable ............................ 14,462 -- 14,462
Deferred income taxes .................... 1,136 -- 1,136
--------- ------- ----------
Total liabilities ....................... 251,778 27,456 354,231
--------- ------- ----------
Redeemable preferred stock ................ 53,747 -- 53,747
--------- ------- ----------
Minority interest ......................... -- --
Common stockholders'
equity (deficit) ......................... (24,735) 37,528 (37,528)(j) (24,735)
--------- ------- ----------
Total liabilities and common
stockholders' equity (deficit) ......... $ 280,790 $64,984 383,243
========= ======= ==========
<CAPTION>
ARGENTINA ACQUISITION(A)
------------------------------
OFFERING
HISTORICAL PRO FORMA AND OTHER PRO FORMA
ARGENTINA ADJUSTMENTS ADJUSTMENTS AS ADJUSTED(B)
------------ ----------------- ------------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ................. 306 3,352
Marketable securities-trading ............. 234 234
Accounts receivable, net .................. 16,940 45,073
Inventories ............................... 12,687 19,179
Rental equipment, net ..................... 18,831 257,132
Property and equipment, net ............... 7,647 16 (k) 34,468
Goodwill, net ............................. -- 12,363 (l) 82,597
Intangible assets, net .................... -- 622
Prepaid expenses and other assets ......... 67 9,677
------ -------
Total assets ............................ 56,712 452,334
====== =======
LIABILITIES AND COMMON
STOCKHOLDERS' DEFICIT
Liabilities
Accounts payable ......................... $11,738 $ 23,234
Accrued expenses ......................... 392 399 (m) 12,039
Senior Credit Facility ................... -- 28,000 (h) (p)
Term loan payable ........................ -- (100,000)(p) --
Capitalized lease obligations ............ -- 2,320
Notes payable ............................ 11,956 26,418
Deferred income taxes .................... 1,059 79 (n) 2,274
------- --------
Total liabilities ....................... 25,145
------- --------
Redeemable preferred stock ................ -- (43,098)(q) 10,649
------- --------
Minority interest ......................... -- 15,468 (o) 15,468
------- --------
Common stockholders'
equity (deficit) ......................... 31,567 (31,567)(j) (p)(q)
------- --------
Total liabilities and common
stockholders' equity (deficit) ......... 56,712
======= ========
</TABLE>
20
<PAGE>
- ----------------
<TABLE>
<S> <C>
(a) The following table presents the allocation of purchase price for each of the companies acquired or proposed to be
acquired:
</TABLE>
<TABLE>
<CAPTION>
BUCKNER RICHBOURG ARGENTINA
----------- ------------ -----------
<S> <C> <C> <C>
Purchase Price .............. $63,605,000 $100,000,000 $28,000,000
----------- ------------ -----------
Net Assets Acquired ......... 33,636,000 63,300,000 15,637,000
Fair Value Adjustments:
Rental Fleet ............... 1,019,000 (4,090,000) --
----------- ------------ -----------
Goodwill .................... $28,950,000 $ 40,790,000 $12,363,000
=========== ============ ===========
</TABLE>
<TABLE>
<S> <C>
(b) In addition, the Company expects to consummate the Private Debt Offering for estimated net proceeds of approximately
$ million, on or after consummation of the Offering. It is anticipated that the proceeds of the Private Debt
Offering will be used to reduce outstanding borrowings under the Senior Credit Facility or the New Credit Facility,
as applicable, to redeem the Series A Preferred Stock, and to repay the mortgage on properties the Company owns in
Florida. Amounts reported under the Senior Credit Facility or New Credit Facility, as applicable, are available for
reborrowing. This Offering is not conditioned on the completion of the Private Debt Offering. There can be no assurance
that the Private Debt Offering will be consummated. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations--Liquidity and Capital Resources."
(c) Eliminates assets not acquired as part of the Richbourg Acquisition.
(d) Adjusts the carrying value of rental equipment acquired from Richbourg to fair market value.
(e) Adjustment reflects the allocation of the Richbourg Acquisition purchase price of $100 million to the fair value of
the net assets acquired resulting in an increase of $40.8 million in goodwill. The historical carrying values of net
assets acquired approximate fair value.
(f) Records deferred financing costs related to indebtedness which funded the Richbourg Acquisition.
(g) Eliminates liabilities not assumed as part of the Richbourg Acquisition.
(h) Records the elimination of liabilities not assumed, net of the extinguishment of the $50 million Term Loan related to
the Buckner Acquisition and other acquisition expenses funded through the Senior Credit Facility.
(i) Records acquisition consideration funded through the Term Loan, net of the extinguishment of the $50 million Term
Loan related to the Buckner Acquisition.
(j) Records elimination of the stockholders' equity of the respective acquisition.
(k) Adjustment for capitalized interest not recorded under Argentine GAAP.
(l) Adjustment reflects the allocation of the Argentina Acquisition purchase price of $28 million to the fair value of
the net assets acquired resulting in an increase of $12.4 million to goodwill.
(m) Adjustment for vacation accrual not recorded under Argentine GAAP.
(n) Adjustment for deferred income taxes not recorded under Argentine GAAP.
(o) Records minority interest.
(p) Records the Offering and the application of the estimated net proceeds therefrom to repay the Term Loan and reduce
the Senior Credit Facility with remaining proceeds.
(q) Records the exchange by GE Capital of the Company's Series B and C Cumulative Convertible Redeemable Preferred
Stock for Class B Common Stock, liquidation value $11.67.
</TABLE>
21
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMPLETED ACQUISITIONS
---------------------------------------------------------
HISTORICAL
-------------------------
HISTORICAL PRO FORMA
COMPANY INDUSTRIAL(A) RICHBOURG ADJUSTMENTS PRO FORMA
------------ --------------- ----------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues
Rental revenue .................... $ 68,056 $15,710 $28,894 112,660
Equipment sales ................... 50,578 2,468 6,510 59,559
Parts and service ................. 23,385 2,709 -- 26,094
-------- ------- ------- -------
Total revenues ................... 142,019 20,887 35,404 198,310
-------- ------- ------- -------
Cost of revenues
Cost of equipment sold ............ 40,766 1,750 1,956 44,472
Depreciation of rental
equipment ......................... 24,490 4,161 10,928 (83)(b) 39,496
Maintenance of rental
equipment ......................... 19,748 2,799 10,714 33,261
Cost of parts and service ......... 13,741 1,047 -- 14,788
-------- ------- ------- -------
Total cost of revenues ........... 98,745 9,757 23,598 132,017
-------- ------- ------- -------
Gross profit ....................... 43,274 11,130 11,806 66,293
-------- ------- ------- -------
Other operating expenses
Selling, general and
administrative expenses .......... 30,129 8,616 4,160 42,905
Officer stock option
compensation ...................... 4,400 -- -- 4,400
Other depreciation
and amortization ................. 2,548 855 880 1,372 (c) 5,655
-------- ------- ------- -------
Total other operating
expenses .......................... 37,077 9,471 5,040 52,960
-------- ------- ------- -------
Income from operations ............. 6,197 1,659 6,766 13,333
-------- ------- ------- -------
Other (income) expense
Interest expense .................. 11,976 1,862 2,406 7,357 (d) 23,601
Amortization of debt
issue costs ...................... 2,362 21 -- 1,125 (e) 3,508
Other (income) expense ............ -- 260 (140) 120
-------- ------- ------- -------
Total other expense, net ......... 14,338 2,143 2,266 27,229
-------- ------- ------- -------
Income (loss) before (provision
for) benefit from income taxes
and extraordinary item ............ (8,141) (484) 4,500 (13,896)
(Provision for) benefit from
income taxes ...................... 1,748 80 -- 1,976 (f) 7,024
-------- ------- ------- -------
Income (loss) before
extraordinary item and
minority interest ................. (6,393) (404) 4,500 (10,092)
Minority interest ..................
-------- ------- ------- -------
Income (loss) before
extraordinary item ................ $ (6,393) $ (404) $ 4,500 (10,092)
======== ======= ======= =======
Basic and Diluted Earnings
Per Share:
Income (loss) before
Extraordinary Item ............... $
Extraordinary Loss, net ...........
-------
Net Income (loss) ................. $
=======
Weighted Average Common
Shares Outstanding ................
=======
<CAPTION>
ARGENTINA ACQUISITION
-----------------------------
HISTORICAL PRO FORMA OFFERING PRO FORMA
ARGENTINA ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
------------ ---------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues
Rental revenue .................... 19,919 132,579
Equipment sales ................... 37,404 96,960
Parts and service ................. -- 26,094
------ -------
Total revenues ................... 57,323 255,633
------ -------
Cost of revenues
Cost of equipment sold ............ 31,075 75,547
Depreciation of rental
equipment ......................... 6,108 45,604
Maintenance of rental
equipment ......................... 6,904 40,165
Cost of parts and service ......... -- 14,788
------ -------
Total cost of revenues ........... 44,087 176,104
------ -------
Gross profit ....................... 13,236 79,529
------ -------
Other operating expenses
Selling, general and
administrative expenses .......... 4,606 30 (g) 47,315
Officer stock option
compensation ...................... -- 4,400
Other depreciation
and amortization ................. 431 309 (c) 6,395
------ -------
Total other operating
expenses .......................... 5,037 58,110
------ -------
Income from operations ............. 8,199 21,419
------ -------
Other (income) expense
Interest expense .................. 1,118 2,513 (h) (k)
Amortization of debt
issue costs ...................... -- 3,508
Other (income) expense ............ 48 168
------ -------
Total other expense, net ......... 1,166
------ -------
Income (loss) before (provision
for) benefit from income taxes
and extraordinary item ............ 7,033
(Provision for) benefit from
income taxes ...................... (2,013) 1,142 (i) (g)
------
Income (loss) before
extraordinary item and
minority interest ................. 5,020
Minority interest .................. (2,460)(j) (2,460)
------ ------ -------
Income (loss) before
extraordinary item ................ 5,020
====== =======
Basic and Diluted Earnings
Per Share:
Income (loss) before
Extraordinary Item ............... $
Extraordinary Loss, net ...........
-------
Net Income (loss) ................. $
=======
Weighted Average Common
Shares Outstanding ................
=======
</TABLE>
22
<PAGE>
- ----------------
<TABLE>
<S> <C>
(a) Reflects seven months of operations prior to the Buckner Acquisition in August 1997.
(b) Reflects the adjustment of Buckner's historical depreciation expense to conform to the Company's depreciation policy
adopted on January 1, 1997.
(c) Records the increase in amortization of goodwill, using an estimated life of 40 years, of $0.4 million, $1.0 million
and $0.3 million attributable to the Buckner, Richbourg and Argentina Acquisitions, respectively.
(d) Records interest expense related to the portion of the Acquisitions funded through borrowings under the Term Loan and
Senior Credit Facility, using the Company's historical rate of 9.0% per annum and eliminates interest expense related
to indebtedness of the acquired companies which was not assumed by the Company.
(e) Records the amortization of debt issue costs related to the Term Loan.
(f) Adjusts historical income taxes expense to reflect an estimated rate of 38%.
(g) Adjustment for vacation accrual not recorded under Argentine GAAP.
(h) Adjustment for capitalized interest not recorded under Argentina GAAP and records interest expense related to the
portion of the Argentina Acquisition funded through borrowings under the Senior Credit Facility, using the Company's
historical rate of 9.0% per annum.
(i) Adjustment for deferred income taxes not recorded under Argentine GAAP and records a provision for income taxes at an
estimated rate of 38%.
(j) Records minority interest.
(k) Eliminates interest expense resulting from a reduction of debt outstanding from the use of proceeds of the Offering.
</TABLE>
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for each of the five years ended December 31, 1997. The consolidated
statements of operations data for the years ended December 31, 1995, 1996 and
1997, and the consolidated balance sheet data as of December 31, 1996 and 1997
are derived from financial statements audited by Deloitte & Touche LLP,
independent certified public accountants. The consolidated statement of
operations data for the year ended December 31, 1994 and the consolidated
balance sheet data as of December 31, 1994 and 1995 are derived from audited
financial statements of the Company not included in this Prospectus. The
consolidated statement of operations and balance sheet data for and as of the
year ended December 31, 1993 is derived from financial statements of the
Company's two wholly-owned subsidiaries, Neff Rental and Neff Machinery,
audited by other independent certified public accountants, and, in the opinion
of management, reflect all adjustments (consisting only of normal recurring
adjustments) that the Company considers necessary for a fair presentation of
such information in accordance with generally accepted accounting principles.
The historical results are not necessarily indicative of results to be expected
for any future period. The data set forth below should be read in conjunction
with, and are qualified by reference to, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- --------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Rental revenue ...................................... $ 11,878 $ 16,226 $ 20,019 $ 35,808 $ 68,056
Equipment sales ..................................... 22,233 22,996 33,943 44,160 50,578
Parts and service ................................... 9,723 10,304 13,292 15,045 23,385
-------- -------- -------- --------- ---------
Total revenues ..................................... 43,834 49,526 67,254 95,013 142,019
Cost of revenues
Cost of equipment sold .............................. 19,101 17,111 26,562 33,605 40,766
Depreciation of rental equipment .................... 5,784 8,911 11,747 19,853(1) 24,490(1)
Maintenance of rental equipment ..................... 1,833 2,806 3,469 8,092 19,748
Cost of parts and service ........................... 6,567 5,987 7,504 8,143 13,741
-------- -------- -------- ----------- -----------
Total cost of revenues ............................. 33,285 34,815 49,282 69,693 98,745
-------- -------- -------- ----------- -----------
Gross profit ......................................... 10,549 14,711 17,972 25,320 43,274
Selling, general and administrative expenses ......... 6,078 8,493 10,956 18,478 30,129
Other depreciation and amortization .................. 614 225 916 1,432 2,548
Officer stock option compensation(2) ................. -- -- -- -- 4,400
-------- -------- -------- ----------- -----------
Income from operations ............................... 3,857 5,993 6,100 5,410 6,197
Other (income) expense ............................... 1,175 1,669 3,090 6,337 14,338
-------- -------- -------- ----------- -----------
Income (loss) before provisions for income taxes
and extraordinary items ............................ 2,682 4,324 3,010 (927) (8,141)
(Provision for) benefit from income taxes(3) ......... (1,019) (1,612) (1,176) (461) 1,748
-------- -------- -------- ----------- -----------
Income (loss) before extraordinary items ............. 1,663 2,712 1,834 (1,388) (6,393)
Net income (loss) .................................... $ 1,663 $ 2,712 $ 1,834 $ (2,197) $ (6,844)
======== ======== ======== =========== ===========
Net income (loss) before extraordinary items per
share (basic and diluted) .......................... $ .20 $ .32 $ .22 $ (.66) $ (1.69)
Weighted average shares outstanding(4) ............... 8,465 8,465 8,465 8,465 8,465
</TABLE>
(FOOTNOTES ON NEXT PAGE)
24
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Net book value of rental equipment .................. $ 18,418 $ 31,331 $ 47,989 $ 76,794 $ 184,787
Total assets ........................................ 30,761 47,722 68,816 109,118 280,790
Total debt .......................................... 27,747 38,603 48,345 58,250 226,203
Redeemable preferred stock .......................... -- -- 11,430 46,299 53,747
Total common stockholders' equity (deficit) ......... 571 4,205 (1,931) (7,508) (24,735)
OTHER DATA:
Adjusted EBITDA(5) .................................. $ 10,255 $ 15,129 $ 18,763 $ 26,695 $ 37,635
Adjusted EBITDA margin(6) ........................... 23.4% 30.5% 27.9% 28.1% 26.5%
Number of locations (end of period) ................. 5 6 8 16 53
</TABLE>
- ----------------
(1) Depreciation of rental equipment for 1996 and 1997 reflect the Company's
change in depreciation policy to recognize extended estimated service
lives and increased residual values of its rental equipment. See the
Consolidated Financial Statements and the Notes thereto included elsewhere
in this Prospectus.
(2) Officer stock option compensation expense represents the changes with
respect to the change in estimated market value of the shares to be issued
to Kevin P. Fitzgerald under an option agreement.
(3) Prior to December 26, 1995, the Company operated as a Subchapter S
corporation under the provisions of the Internal Revenue Code. Income
(loss) before extraordinary items for 1993, 1994 and 1995 is restated to
reflect what the data would have been if the Company had Subchapter C
status in these years.
(4) Based on the number of shares outstanding as of . Assumes exercise of
options currently exercisable and exercisable within the next 60 days.
(5) Adjusted EBITDA represents income from operations plus depreciation and
amortization and officer stock option compensation expenses. Adjusted
EBITDA is not intended to represent cash flow from operations and should
not be considered as an alternative to operating or net income computed in
accordance with GAAP, as an indicator of the Company's operating
performance, as an alternative to cash flows from operating activities (as
determined in accordance with GAAP) or as a measure of liquidity. The
Company believes that Adjusted EBITDA is a standard measure commonly
reported and widely used by analysts and investors as a measure of
profitability for companies with significant depreciation and amortization
expense. However, not all companies calculate Adjusted EBITDA using the
same methods; therefore, the Adjusted EBITDA figures set forth above may
not be comparable to Adjusted EBITDA reported by other companies.
(6) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total
revenues.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The matters discussed herein may include forward-looking statements that
involve risks and uncertainties which could result in operating performance
that is materially different from management's projections. The section of this
Prospectus entitled "Risk Factors" should be read in conjunction with this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
The following discussion and analysis of the Company's consolidated
financial condition and consolidated results of operations should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto and the Company's Unaudited Pro Forma Consolidated Financial Data and
the Notes thereto, appearing elsewhere in this Prospectus.
OVERVIEW
The Company is one of the largest and fastest growing equipment rental
companies in the United States. In addition to its rental business, the Company
acts as a dealer of new equipment on behalf of several nationally recognized
equipment manufacturers. The Company also sells used equipment, spare parts and
merchandise and provides ongoing repair and maintenance services. Prior to
1995, the Company primarily acted as a dealer of new equipment on behalf of
several nationally recognized equipment manufacturers. During this time, many
of the Company's dealer locations (six locations) also operated as rental
locations. In 1995, the Company, responding to changes in the industry, began
to modify its operating structure to focus resources of the Company on the
rental equipment business. As part of this strategy, in December 1995, the
Company entered into a strategic partnership with GE Capital to take advantage
of the growth and consolidation opportunities in the equipment rental industry.
Since 1995, the Company has pursued an aggressive growth strategy,
increasing its number of equipment rental and sales locations to 68, as of
December 31, 1997, on a pro forma basis for the Richbourg Acquisition. The
Company has achieved this growth through: (i) the addition of 26 equipment
rental locations as a result of the Buckner Acquisition, (ii) the addition of
15 equipment rental locations as a result of the Richbourg Acquisition and
(iii) the opening of 21 new equipment rental locations primarily throughout the
southeast and southwest regions of the United States. The Company intends to
continue to pursue its aggressive growth strategy by: (i) making additional
acquisitions of equipment rental companies; (ii) increasing fleet at its
existing equipment rental locations in both existing and new product lines;
(iii) continuing to open new equipment rental locations; and (iv) expanding its
dealership operations.
Since January 1, 1995, the Company has opened 21 start-up rental equipment
locations. Management believes the Company's recent financial performance does
not fully reflect the benefit of these rental locations. Based on the Company's
historical experience, a new equipment rental location realizes significant
increases in revenues and cash flow during the first three years of operation
as more equipment is added to the rental fleet and as the location matures.
Because there is relatively little incremental operating expense associated
with such revenues, there is a greater proportionate increase in cash flow and
profitability as a rental location matures. The Company believes the revenues,
cash flow and profitability of the 21 start-up locations opened since January
1, 1995 will increase significantly as these locations mature.
The Company primarily derives revenue from (i) the rental of equipment,
(ii) sales of new and used equipment and (iii) sales of parts and service. On a
pro forma basis for the Acquisitions, the Company's primary source of revenue
is the rental of equipment to construction and industrial customers. Growth in
rental revenue is dependent upon several factors, including the demand for
rental equipment, the amount of equipment available for rent, rental rates and
the general economic environment. The level of new and used equipment sales is
primarily a function of the supply and
26
<PAGE>
demand for such equipment, price and general economic conditions. The age,
quality and mix of the Company's rental fleet also affect revenues from the
sale of used equipment. Revenues derived from the sale of parts and service is
generally correlated with sales of new equipment.
Costs of revenues include cost of equipment sold, depreciation and
maintenance costs of rental equipment and cost of parts and service. Cost of
equipment sold consists of the net book value of rental equipment at the time
of sale and cost for new equipment sales. Depreciation of rental equipment
represents the depreciation costs attributable to rental equipment. Maintenance
of rental equipment represents the costs of servicing and maintaining rental
equipment on an ongoing basis. Cost of parts and service represents costs
attributable to the sale of parts directly to customers and service provided
for the repair of customer owned equipment.
Depreciation of rental equipment is calculated on a straight-line basis
over the estimated service life of the asset (generally four to seven years
with a 10% residual value). During 1996 and 1997, the Company made certain
changes to its depreciation assumptions to recognize extended estimated service
lives and increased residual values of its rental equipment. The Company
believes that these changes in estimates will more appropriately reflect its
financial results by better allocating the cost of its rental equipment over
the service lives of these assets. In addition, the new lives and residual
values more closely conform to those prevalent in the industry.
Selling, general and administrative expenses include sales and marketing
expenses, payroll and related costs, professional fees, property and other
taxes and other administrative overhead. Other depreciation and amortization
represents the depreciation associated with property and equipment (other than
rental equipment) and the amortization of goodwill and intangible assets.
Prior to December 26, 1995, the Company had Subchapter S Corporation
status under the provisions of the Internal Revenue Code. As a result, the
stockholders of the Company were responsible for income taxes for the period
prior to December 26, 1995. In 1995, the Company recorded a deferred tax
liability for timing differences which existed at the time the Company changed
its tax status (see the Consolidated Financial Statements and the Notes thereto
included elsewhere in this Prospectus).
RESULTS OF OPERATIONS
In view of the Company's growth, management believes that the
period-to-period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future
performance. In addition, the Company's results of operations may fluctuate
from period to period in the future as a result of the cyclical nature of the
industry in which the Company operates. See "Risk Factors--Seasonality and
Quarterly Fluctuations in Revenues and Operating Results."
27
<PAGE>
The following table sets forth, for the periods indicated, information
derived from the consolidated statements of operations of the Company expressed
as a percentage of total revenues. There can be no assurance that the trends in
the table below will continue in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
1995 1996 1997
---- ---- ----
Revenues:
Rental revenue ....................................... 29.8% 37.7% 47.9%
Equipment sales ...................................... 50.5 46.5 35.6
Parts and service .................................... 19.7 15.8 16.5
----- ----- -----
Total revenues ...................................... 100.0% 100.0% 100.0%
----- ----- -----
Cost of revenues:
Cost of equipment sold ............................... 39.5 35.4 28.7
Depreciation of rental equipment ..................... 17.5 20.9 17.2
Maintenance of rental equipment ...................... 5.2 8.5 13.9
Cost of parts and service ............................ 11.1 8.6 9.7
----- ----- -----
Total cost of revenues .............................. 73.3 73.4 69.5
----- ----- -----
Gross profit .......................................... 26.7 26.6 30.5
Selling, general and administrative expenses ......... 16.3 19.4 21.2
Other depreciation and amortization .................. 1.4 1.5 1.8
Officer stock option compensation .................... -- -- 3.1
----- ----- -----
Income from operations ................................ 9.0% 5.7% 4.3%
</TABLE>
28
<PAGE>
1997 COMPARED TO 1996
REVENUES. Total revenues for 1997 increased 49.5% to $142.0 million from
$95.0 million in 1996. This growth in revenues primarily resulted from an
increase in revenues of (i) approximately $12.3 million attributable to the
continued maturation of existing rental locations, (ii) approximately $16.1
million associated with the Company's acquisition of 26 rental locations in
August 1997 and (iii) approximately $9.2 million from the opening of 11 new
rental locations during the period.
GROSS PROFIT. Gross profit for 1997 increased 70.9% to $43.3 million or
30.5% of total revenues from $25.3 million or 26.6% of total revenues in 1996.
These increases can primarily be attributed to an increase in gross profit of
(i) approximately $9.3 million from the continued growth of revenues from the
10 locations opened during 1995 and 1996; (ii) approximately $4.8 million from
the growth in revenues arising from the acquisition of 26 rental locations in
August 1997; and (iii) approximately $3.2 million from the growth in revenues
associated with the opening of 11 new rental locations during 1997. These
increases in gross profit include approximately $3.3 million related to the
change in the Company's depreciation policy to recognize extended service lives
and increased salvage values of its rental equipment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1997 increased 63.1% to $30.1 million or 21.2% of
total revenues from $18.5 million or 19.4% of total revenues in 1996. The
increase in selling, general and administrative expenses as a percent of
revenues is primarily attributable to the opening of 11 new rental locations
and the increase in regional and corporate personnel in anticipation of
continued growth through acquisitions and new location openings. Based upon the
Company's historical experience, a new location tends to incur costs during the
early period of operations without the benefit of the revenue stream
representative of a mature location. As new locations mature, selling, general
and administrative expenses as a percentage of revenue are expected to decline.
In 1996, selling, general and administrative expenses included approximately
$0.9 million of expenses related to the investigation of alternative financing
arrangements.
OTHER DEPRECIATION AND AMORTIZATION. Other depreciation and amortization
expense for 1997 increased 77.9% to $2.5 million from $1.4 million in 1996. The
increase in other depreciation and amortization is primarily attributable to
increased expenditures on computer equipment, management information systems
and property and equipment needed to support the Company's expansion.
OFFICER STOCK OPTION COMPENSATION EXPENSE. Officer stock option
compensation expense of $4.4 million represents changes in estimated market
value of the shares to be issued to a key employee under an option agreement.
INTEREST EXPENSE. Interest expense for 1997 increased to $12.0 million
from $6.0 million in 1996. This increase is attributable to additional
borrowings related to the Company's continued investment in rental equipment
and the Company's acquisition of 26 locations in August 1997.
EXTRAORDINARY LOSS. During 1997, as a result of modifications to the
Company's credit facility, the Company recorded extraordinary losses from the
write-off of debt issue costs associated with the early extinguishment of debt
of $0.4 million, net of related income taxes.
1996 COMPARED TO 1995
REVENUES. Total revenues for 1996 increased 41.3% to $95.0 million from
$67.3 million in 1995. This increase was primarily attributable to the increase
in the number of rental locations operated by the Company. The increase in
rental locations resulted from the opening of eight new rental locations during
1996. In addition, several changes were made to the Company's operating
structure to focus resources of the Company on the rental equipment business
which also increased revenues at existing locations.
29
<PAGE>
GROSS PROFIT. Gross profit for 1996 increased 40.9% to $25.3 million, or
26.6% of total revenues from $18.0 million or 26.7% of total revenues in 1995.
The increase in gross profit is primarily attributable to (i) the continued
growth of revenues from the two locations opened during 1995; (ii) the growth
in revenues associated with the opening of eight new rental locations during
1996; and (iii) the change in the Company's depreciation policy to recognize
extended service lives of its rental equipment. The increases were offset by
lower margins at new rental locations. As a result, gross profit as a
percentage of total revenues was relatively consistent year to year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1996 increased 68.7% to $18.5 million, or 19.4% of
total revenues from $11.0 million or 16.3% of total revenues in 1995. The
increase in selling, general and administrative expenses is primarily
attributable to the opening of eight new rental locations. Based upon the
Company's historical experience, a new location tends to incur costs during the
early period of operations without the benefit of the revenue stream
representative of a mature location. In addition, the Company incurred
approximately $0.9 million of expenses related to the investigation of
alternative financing arrangements during 1996. No such costs were incurred in
1995.
OTHER DEPRECIATION AND AMORTIZATION. Other depreciation and amortization
expense for 1996 increased 56.3% to $1.4 million from $0.9 million in 1995. The
increase in other depreciation and amortization is primarily attributable to
increased expenditures on computer equipment as a result of the Company's new
location expansion.
INTEREST EXPENSE. Interest expense for 1996 increased to $6.0 million from
$3.1 million in 1995. This increase is attributable to additional borrowings
related to the Company's investment in rental equipment for its new locations.
EXTRAORDINARY LOSS. During 1996, as a result of modifications to the
Company's credit facility, the Company recorded extraordinary losses from the
write-off of deferred financing costs associated with the early extinguishment
of debt of $0.8 million, net of related income taxes. There were no such
transactions in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations, acquisitions and new rental
locations primarily through cash flow from operations, proceeds received from
the issuance of preferred stock and borrowings under the credit facilities and
term loans.
During 1997, the Company's operating activities provided net cash flow of
$9.4 million as compared to $7.2 million for 1996. This increase is primarily
attributable to the growth in the Company's operations resulting from an
increase in the number of rental locations operated by the Company.
Net cash used in investing activities was $173.7 million for 1997 as
compared to $44.7 million in the same period for the prior year. This increase
is primarily attributable to the Buckner Acquisition, increased expenditures
for fleet, computer equipment and other property and equipment necessary to
support the Company's expansion.
Net cash provided by financing activities was $162.3 million for 1997 as
compared to $37.2 million for 1996. The net cash provided by financing
activities was primarily attributable to borrowings under the Company's Senior
Credit Facility and Term Loan used to finance the Buckner Acquisition and
capital expenditures supporting the Company's expansion.
The Company's $250 million Senior Credit Facility allows borrowings based
upon eligible accounts receivable, rental fleet and inventory amounts. The
interest rates on balances outstanding under the Senior Credit Facility vary
based upon the leverage ratio maintained by the Company and were 10% for prime
and 9.2% for LIBOR-based borrowings at December 31, 1997. All outstanding
balances under
30
<PAGE>
the Senior Credit Facility are due on October 31, 1998 unless the Company
successfully completes the sale of at least $200 million of qualified debt
securities, as defined in the Senior Credit Facility, in which case they become
due in October 2001. The Senior Credit Facility is secured by substantially all
of the Company's assets and contains certain restrictive covenants which, among
other things, require the Company to maintain certain financial coverage ratios
and places certain restrictions on the payment of dividends. At December 31,
1997, the Company was not in compliance with the minimum EBITDA covenant, as
defined in the Senior Credit Facility. For the year ended December 31, 1997,
the minimum EBITDA calculation was $44.8 million but was required to be $45.9
million. The lenders under the Senior Credit Facility have waived this
non-compliance.
In January 1998, in connection with the Richbourg Acquisition, the Company
executed the Term Loan, which has terms and requirements similar to the
Company's Senior Credit Facility.
The Company's Senior Credit Facility is expected to be amended and
restated in connection with the Offering. Borrowings under the New Credit
Facility will continue to be based upon eligible accounts receivable, rental
fleet and inventory amounts. Based upon these requirements, the Company will
have access to the entire facility amount. The interest rates on balances
outstanding under the New Credit Facility will vary based upon the leverage
ratio maintained by the Company and range from prime rate or LIBOR plus 1.00%
to prime plus 1.25% or LIBOR plus 2.25%. Based upon the Company's current
leverage ratio the interest rate would be prime plus % or LIBOR plus %. In
the event the Company repays the Term Loan prior to October 31, 1998, the
maturity of the New Credit Facility will be extended to April 30, 2003;
otherwise, the New Credit Facility will mature on October 31, 1998. The Company
expects the New Credit Facility to be secured by substantially all of the
Company's assets and will contain various restrictive covenants which, among
other things, will place restrictions on dividends and indebtedness and require
the Company to maintain certain interest coverage ratios.
The Company plans to use the proceeds of the Offering to repay its $100
million Term Loan and approximately $ million in outstanding borrowings
under the Senior Credit Facility or New Credit Facility. Following the
Argentina Acquisition, Offering and repayment of indebtedness, the Company
expects to have approximately $ million available under its Senior Credit
Facility or $ million if the Private Debt Offering is consummated. Based
upon current expectations, the Company believes that cash flow from operations,
together with amounts which may be borrowed under the Senior Credit Facility or
New Credit Facility, will be adequate for it to meet its capital requirements
and pursue its business strategy for the next twelve months.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE
INCOME, which is required to be adopted in the first quarter of 1998. SFAS No.
130 established standards for the reporting and display of comprehensive income
and its components. Comprehensive income includes certain non-owner changes in
equity that are currently excluded from net income.
In June 1997, SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION, was issued. SFAS No. 131 establishes standards for the way
that public companies disclose selected information about operating segments in
annual financial statements and requires that those companies disclose selected
information about segments in interim financial reports issued to stockholders.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. SFAS No. 131 is effective for
financial statements for periods beginning after December 15, 1997.
Accordingly, the Company is not required to adopt SFAS No. 131 until the fiscal
year ending December 31, 1998. SFAS No. 131 relates solely to disclosure
provisions, and therefore will not have any effect on the results of
operations, financial position and cash flows of the Company.
YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer and software systems as the millennium ("Year 2000")
approaches. The Year 2000 problem is pervasive
31
<PAGE>
and complex, as virtually every computer operation could be affected in some
way by the rollover of the two-digit year value to "00". The issue is whether
systems will properly recognize date sensitive information when the year
changes to 2000. Systems that do not properly recognize such information could
generate erroneous data or cause complete system failures. The Company has
received confirmation from all of its current systems' vendors that each of
their systems will properly handle the rollover to the Year 2000. Although
there can be no assurance, management believes the Year 2000 problem will not
have a material effect on the financial position, results of operations or cash
flows of the Company.
INFLATION AND GENERAL ECONOMIC CONDITIONS
Although the Company cannot accurately anticipate the effect of inflation
on its operations, it does not believe that inflation has had, or is likely in
the foreseeable future to have, a material impact on its results of operations.
The Company's operating results may be adversely affected by events or
conditions in a particular region, such as regional economic, weather and other
factors. In addition, the Company's operating results may be adversely affected
by increases in interest rates that may lead to a decline in economic activity,
while simultaneously resulting in higher interest payments by the Company under
its variable rate credit facilities.
Although much of the Company's business is with customers in industries
that are cyclical in nature, management believes that certain characteristics
of the equipment rental industry and the Company's operating strategies should
help to mitigate the effects of an economic downturn. These characteristics
include: (i) the flexibility and low cost offered to customers by renting,
which may be a more attractive alternative to capital purchases; (ii) the
Company's ability to redeploy equipment during regional recessions; and (iii)
the diversity of the Company's industry and customer base.
32
<PAGE>
BUSINESS
GENERAL
Neff is one of the largest and fastest growing equipment rental companies
in the United States, with 68 rental locations in 15 states. The Company rents
a wide variety of equipment, including backhoes, air compressors, loaders,
lifts and compaction equipment to construction and industrial customers. The
Company also acts as a dealer of new equipment on behalf of several nationally
recognized equipment manufacturers. In addition, the Company sells used
equipment, spare parts and merchandise and provides ongoing repair and
maintenance services. The Company has increased its total revenues from $67.3
million in 1995 to $142.0 million in 1997; pro forma for the Acquisitions and
the Argentina Acquisition, the Company's total revenues for 1997 were $255.6
million.
According to industry sources, the equipment rental industry grew from
approximately $600 million in revenues in 1982 to an estimated $18 billion in
1997. This growth has been driven primarily by construction and industrial
companies that have increasingly outsourced equipment needs to reduce
investment in non-core assets and convert costs from fixed to variable. The
equipment rental industry is highly fragmented, with an estimated 17,000
equipment rental companies in the United States. As a result, the Company
believes that there are substantial consolidation opportunities for
well-capitalized operators such as the Company. According to RENTAL EQUIPMENT
REGISTER and studies prepared by Manfredi & Associates, Inc. on the size of the
equipment rental market, no single company's revenues represented more than 2%
of total market revenues in 1996. Relative to smaller competitors, the Company
has several advantages, including increased purchasing power, larger
inventories to service larger accounts and the ability to transfer equipment
among rental locations in response to changing patterns of customer demand.
COMPETITIVE STRENGTHS
The Company believes it has several competitive strengths which provide it
with the opportunity for continued growth and increased profitability.
STRONG MARKET POSITION. The Company is one of the largest and fastest
growing construction and industrial equipment rental companies in the United
States, and is a leading competitor with a significant presence in the
Southeast and Gulf Coast regions. The Company operates 68 rental locations in
15 states, including Florida, Georgia, Alabama, Mississippi, South Carolina,
North Carolina, Tennessee, Louisiana, Texas, Oklahoma, Arizona, Nevada, Utah,
California and Colorado. From December 31, 1995 to December 31, 1997, pro forma
for the Richbourg Acquisition, the Company increased its equipment rental
locations from eight to 68 and expanded its rental fleet from $62 million to
$321 million based on original cost. The Company believes its dealership
operations complement its equipment rental providing it with competitive
advantages over competitors which only rent equipment. These advantages include
the ability to achieve favorable pricing by combining equipment purchases for
its dealership and rental fleets; the reduction of costs in certain locations
by sharing service, maintenance and administrative personnel; and better
knowledge of certain local markets by pooling management information. In
addition, management believes the Company's size and geographic diversity help
insulate it from regional economic downturns. The Company's efforts to improve
its market position have caused it to increase its debt and incur significant
operating expenses, and thus have adversely affected its short-term cash flow
and net income. The Company believes, however, that these efforts are essential
to its future performance. See "Risk Factors--Risks Inherent in Growth
Strategy," "Risk Factors--Dependence on Additional Capital for Future Growth;
Restrictions Under Terms of Indebtedness" and "Risk Factors--Substantial
Leverage."
HIGH QUALITY RENTAL FLEET. Management believes the Company has one of the
newest, most comprehensive and well-maintained rental fleets in the equipment
rental industry. As of December 31, 1997, pro forma for the Richbourg
Acquisition, the average age of the Company's rental fleet was approximately 23
months. The Company makes ongoing capital investment in new equipment, engages
33
<PAGE>
in regular sales of new equipment and conducts an advanced preventative
maintenance program. Management believes this maintenance program increases
fleet utilization, extends the useful life of equipment and produces higher
resale values.
EXCELLENT CUSTOMER SERVICE. The Company differentiates itself from its
competitors by providing high quality, responsive service to its customers.
Service initiatives include (i) reliable on-time equipment delivery directly to
customers' job sites, (ii) on-site repairs and maintenance of rental equipment
by factory trained mechanics, generally available 24 hours a day, seven days a
week and (iii) ongoing training of an experienced sales force to consult with
customers regarding their equipment needs.
STATE-OF-THE-ART MANAGEMENT INFORMATION SYSTEM. The Company has developed
a customized, state-of-the-art management information system capable of
monitoring operations at up to 300 sites. The Company uses this system to
maximize fleet utilization and determine the optimal fleet composition by
market. The system links all of the Company's rental locations and allows
management to track customer and sales information, as well as the location,
rental status and maintenance history of every piece of equipment in the rental
fleet. Rental location managers can search the Company's entire rental fleet
for needed equipment, quickly determine the closest location of such equipment,
and arrange for delivery to the customer's work site, thus maximizing equipment
utilization.
EXPERIENCED MANAGEMENT. Since 1995, the Company has significantly
increased the quality and depth of its management team to help oversee its
growth strategy. Neff's senior management team has extensive experience in the
equipment rental industry and its seven regional managers have, on average, 17
years of experience and substantial knowledge of the local markets served
within their regions. The Company believes that its management team has the
ability to continue the Company's strong growth as well as manage the Company
on a much larger scale. The Company is not dependent on recruiting additional
operating, acquisition, finance or other personnel to implement its growth
strategy. Management believes MasTec, Inc., a public company engaged in the
telecommunication construction business, which has operations in South America
and, like the Company, is majority-owned by the Mas family, and GE Capital, one
of the Company's major stockholders, will be valuable to the Company in
identifying and evaluating acquisitions in both North and South America.
GROWTH STRATEGY
The Company's objective is to increase revenue, cash flow and
profitability by building and maintaining a leading market position in the
equipment rental industry. Key elements of the Company's growth strategy
include:
ACQUIRE EQUIPMENT RENTAL COMPANIES. Management intends to expand the
Company through acquisitions of equipment rental companies and believes there
are a significant number of acquisition opportunities in North and South
America which would complement the Company's existing operations. After
completing an acquisition, the Company generally integrates the operations of
the acquired company into its management information system, consolidates
equipment purchasing and resale functions and centralizes fleet management as
quickly as possible while assuring consistent, high-quality service to the
acquired company's customers. Since July 1997, the Company has made two
strategic acquisitions which have more than doubled the Company's number of
rental locations, significantly enhanced the Company's geographic presence and
further diversified the Company's customer base. The Company has also entered
into a letter of intent to acquire 51% of the outstanding stock of S.A.
Argentina, a leading equipment rental company and dealer of new equipment in
South America, and the Company has four letters of intent outstanding to
acquire the assets of additional equipment rental companies in the United
States. To date, the Company has financed its acquisitions primarily with debt,
which has resulted in increased interest expense. See "Risk
Factors--Substantial Leverage."
INCREASE PROFITABILITY OF RECENTLY OPENED RENTAL LOCATIONS. Since March 1,
1995, the Company has opened 21 start-up rental equipment locations including
11 locations in 1997. Management believes the
34
<PAGE>
Company's financial performance does not yet fully reflect the benefit of these
rental locations. The Company incurs significant expenses in connection with
the opening of new locations. See "Risk Factors--Risks Inherent in Growth
Strategy." Based on the Company's historical experience, a new equipment rental
location tends to realize significant increases in revenues, cash flow and
profitability during the first three years of operation as more prospective
customers become aware of its operation and as the rental equipment fleet is
customized to local market demand. Because there is relatively little
incremental operating expense associated with such revenues, cash flow and
profitability increases significantly as a rental location matures. Although
the Company intends to expand primarily through acquisitions, management
intends to open additional start-up locations in markets where the Company has
not been able to identify attractive acquisition candidates. The Company plans
to open five to seven additional branches in 1998.
INCREASE FLEET AT EXISTING LOCATIONS. Management believes it can
capitalize on the demand for rental equipment in the markets it serves and
increase revenues by increasing the size of the rental fleet and adding new
product lines at existing locations. Management believes that this strategy
allows the Company both to attract new customers and serve as a single source
supplier for its customers. Because the startup expenditures associated with
increasing the fleet and expanding product lines at existing locations are
relatively modest, these investments typically generate higher and faster
returns than investments in new locations.
SELECTIVE EXPANSION OF DEALERSHIP OPERATIONS. The Company intends to
selectively expand its dealership operations. The Company believes it can
realize significant economies of scale by expanding its dealership operations
in areas where it has already established equipment rental operations. The
Company's distributor relationships and the combined purchasing volume of its
dealership and rental operations allow it to acquire inventory at favorable
prices and terms. The Company's dealership operations also allow it to reduce
overhead costs by sharing service, maintenance and administrative personnel
with its rental operations, as well as generating better knowledge of local
markets through the sharing of information. The Company also intends to expand
its dealership operations to areas where it does not yet have equipment rental
operations but may in the future; establishing a dealership presence in such
areas will facilitate equipment rental presence in those areas also.
ACQUISITION STRATEGY
The Company believes it can successfully implement its acquisition
strategy because of (i) the Company's access to financial resources, (ii) the
potential for increased profitability due to the centralizing of certain
administrative functions, enhanced systems capabilities, greater purchasing
power and economies of scale and (iii) the potential for owners of the
businesses being acquired to participate in the Company's planned growth while
realizing liquidity. The Company has developed a set of financial, geographic
and management criteria designed to assist management in the evaluation of
acquisition candidates. These criteria evaluate a variety of factors,
including, but not limited to, (i) historical and projected financial
performance, (ii) composition and size of the candidate's customer base, (iii)
relationship of the candidate's geographic location to the Company's market
areas, (iv) potential synergies gained through acquisition of the candidate and
(v) liabilities, contingent or otherwise, of the candidate.
The Company intends to evaluate acquisition candidates in South America as
well as the United States. Management believes it can capitalize on the
business relationships of its major stockholders, GE Capital and the Mas
family, and its affiliate, MasTec Inc., in South America in locating potential
South American acquisition candidates and consummating such acquisitions. Based
on the RENTAL EQUIPMENT REGISTER and the Company's experience evaluating
potential acquisitions in South America, the Company estimates that the
equipment rental market in South America is 20 to 30 years behind the North
American market and will experience significant growth in the next five to ten
years.
The Company recently acted on its plan to expand its operations into South
America by entering into a letter of intent to acquire 51% of the outstanding
stock of S.A. Argentina. S.A. Argentina rents
35
<PAGE>
and sells industrial and construction equipment throughout South America,
including Argentina, Brazil, Uruguay, Paraguay, Chile and Bolivia. S.A.
Argentina's revenues for 1997 were approximately $57.3 million. S.A. Argentina's
principal operations are located in Buenos Aires, Argentina; it also has
locations in Cordoba and Rosario, Argentina and an assembly plant in San Luis,
Argentina. The current management of S.A. Argentina will continue to oversee the
day-to-day management of S.A. Argentina. The letter of intent provides that the
Company will have the option to purchase the remaining 49% of the outstanding
stock of S.A. Argentina from the existing stockholders. This option will be
exercisable for a period of 30 months commencing 30 months after the
consummation of the Argentina Acquisition. In addition, the existing
stockholders of S.A. Argentina will have the option during the same period to
require the Company to purchase the remaining 49% of the outstanding stock of
S.A. Argentina. The exercisability of these options may be subject to certain
additional terms and conditions, including restrictions imposed by the terms of
the Company's indebtedness on the Company's ability to make acquisitions. The
Argentina Acquisition is subject to a number of closing conditions, including
the execution of a definitive purchase agreement, and there can be no assurance
that the Argentina Acquisition will be consummated. See "Risk Factors -- Put
Option Held by Existing Stockholders of Sullair Argentina."
OPERATIONS
The Company's operations primarily consist of renting equipment, and, to a
lesser extent, selling used equipment, complementary parts and merchandise to a
wide variety of construction and industrial customers. In addition, to service
its customer base more fully, the Company also acts as a dealer of new
equipment on behalf of several nationally known equipment manufacturers and
provides ongoing maintenance and repair services for the equipment it sells and
rents. The Company's locations are grouped together by geographic area and a
regional manager oversees operations within each region.
EQUIPMENT RENTALS. The Company is one of the largest and fastest growing
equipment rental companies in the United States, with 68 rental locations in 15
states. The Company's rental fleet is comprised of a complete line of light and
heavy construction and industrial equipment from a wide variety of
manufacturers, including John Deere, Case, Bomag, Terex Americas, JCB, Sullivan
Industries, Ingersoll-Rand, Gradall, Lull, JLG, Bobcat, MultiQuip and Wacker.
Major categories of equipment represented the following percentages (based on
original cost) of the Company's total rental fleet as of December 31, 1997:
PERCENTAGE OF TOTAL RENTAL FLEET
MAJOR EQUIPMENT CATEGORY (BASED ON ORIGINAL COST)
- ------------------------------ ---------------------------------
Earthmoving ............... 41.0%
Material Handling ......... 16.1
Aerial .................... 12.7
Compressors ............... 6.2
Compaction ................ 6.1
Trucks .................... 4.2
Cranes .................... 3.8
Welders ................... 2.7
Pumps ..................... 1.3
Generators ................ 1.3
Lighting .................. 1.3
Other ..................... 3.3
The Company attempts to differentiate itself from its competitors by
providing a broad selection of new and well-maintained rental equipment, and
through high-quality, responsive service to its customers. As of December 31,
1997, on a pro forma basis for the Acquisitions, the Company's equipment rental
fleet had an original cost of approximately $321 million and an average age of
23 months, which management believes compares favorably with other leading
equipment rental companies. The Company makes ongoing capital investments in
new equipment, engages in regular sales of used equipment and conducts an
advanced preventative maintenance program. This program increases fleet
utilization, extends the useful life of equipment and produces higher resale
values.
36
<PAGE>
In addition to providing a new and reliable equipment rental fleet,
management believes providing high quality customer service is essential to the
Company's future success. The equipment rental business is a service industry
requiring quick response times to satisfy customers' needs. Though some
activity is arranged with lead-time, much of the rental initiation process
takes place within a 48-hour period. Consequently, equipment availability,
branch location and transportation capabilities play a major role in earning
repeat business. Rental customers prefer a quick selection process and seek
quick, concise communication when ordering equipment. Punctuality and
reliability are key components of the servicing process, as well as maintenance
performance, timely equipment removal at the rental termination, and simplified
billing. The Company's service initiatives include (i) reliable on-time
equipment delivery directly to customers' job sites, (ii) on-site repairs and
maintenance of rental equipment by factory trained mechanics, which are
generally available 24 hours a day, seven days a week and (iii) ongoing
training of an experienced sales force to consult with customers regarding
their equipment needs.
NEW EQUIPMENT SALES. The Company is a distributor of new equipment on
behalf of several nationally known equipment manufacturers. The Company is the
sole authorized distributor of John Deere industrial and construction equipment
in central and southern Florida; it is one of the largest John Deere
construction equipment dealerships in the United States. The Company also has
distributor arrangements with Bomag to sell heavy compaction equipment, and
with Terex Americas to sell off-road trucks, in central and southern Florida.
The Company's sales line consists of nine categories of John Deere, Bomag and
Terex Americas equipment and a total of 58 different machines, including: John
Deere backhoe loaders, forklifts, crawler dozers, four-wheel-drive loaders,
scrapers, skid steers, motor graders and excavators; Bomag vibratory rollers,
static rollers, recyclers and trash compacters; and a complete line of
articulated off-road trucks manufactured by Terex Americas.
The Company's ability to sell new equipment offers flexibility to its
customers and enhances the Company's customer relations. In addition, the
Company's dealership operations provide it with several competitive advantages,
including the opportunity to achieve favorable pricing by combining equipment
purchases for its dealership and rental fleets, the reduction of costs in
certain locations by sharing service, maintenance and administrative personnel
and better knowledge of its local markets by pooling management information.
The Company currently operates new equipment dealerships at six of its
locations.
In addition to standard equipment sales, the Company also offers customers
the option to rent-to-purchase equipment for a period of time. Under this
program, the customer applies a portion of the rental payment to the purchase
price, thus accruing equity over the term of the rental period. The Company's
rent-to-purchase customers generally rent new equipment for a period of six to
18 months with the option to purchase at the end of the rental period. Sales
under the Company's rent-to-purchase program represented approximately 35% of
the Company's new equipment sales in 1997.
The Company effectively competes against other dealers by offering John
Deere and other quality equipment lines for sale, and by providing high quality
service. All personnel, from management to mechanics, are factory trained. The
training of mechanics is continually upgraded as new product lines are
introduced. The Company can transfer equipment from one store to another based
upon a particular customer's needs. Customers also have the opportunity to rent
equipment from the Company's rental fleet if their own equipment is under
repair. The parts department features ample stock to limit customer down time.
Maintenance vehicles are equipped to handle minor repairs in the field to
prevent costly down time.
USED EQUIPMENT SALES. The Company maintains a regular program of selling
used equipment in order to adjust the size and composition of its rental fleet
to changing market conditions and to maintain the quality and low average age
of its rental fleet. Management attempts to balance the objective of obtaining
acceptable prices from equipment sales against the revenues obtainable from
used equipment rentals. The Company is generally able to achieve favorable
resale prices for its used equipment due to its strong preventative maintenance
program and its practice of selling used
37
<PAGE>
equipment before it becomes obsolete or irreparable. The Company believes the
proactive management of its rental fleet allows it to adjust the rates of new
equipment purchases and used equipment sales to maximize equipment utilization
rates and respond to changing economic conditions. Such proactive management,
together with the Company's broad geographic diversity, minimizes the impact of
regional economic downturns.
PARTS AND SERVICE. The Company sells a full complement of parts, supplies
and merchandise to its customers in conjunction with its equipment rental and
sales business. The Company also offers maintenance service to its customers
that own equipment and generates revenues from damage waiver charges, delivery
charges and warranty income. Management believes that these revenues are more
stable than equipment sales revenues because of the recurring nature of the
parts and service business. Management also believes that during economic
downturns, the parts and service business may actually increase as customers
postpone new equipment purchases and instead attempt to maintain their existing
equipment.
MANAGEMENT INFORMATION SYSTEM
The Company has developed a state-of-the-art, customized management
information system, capable of monitoring operations on a real-time basis at up
to 300 sites that can be upgraded to support additional locations or terminals.
The Company currently employs six management information system employees who
continually update and refine the system. The Company uses this system to
maximize fleet utilization and determine the optimal fleet composition by
market. This system links all of the Company's rental locations and allows
management to track customer and sales information, as well as the location,
rental status and maintenance history of every piece of equipment in the rental
fleet. Using this system, rental equipment branch managers can search the
Company's entire rental fleet for needed equipment, quickly determine the
closest location of such equipment and arrange for delivery to the customer's
work site. This practice helps diminish "lost rents," improve utilization and
make equipment available in markets where it can earn increased revenues. The
Company's communications system can handle multiple protocols and allows the
integration of systems running on different platforms. This feature allows the
Company to include systems used by locations acquired in an acquisition of an
existing equipment rental company in its central databases while the acquired
locations are integrated into the Company's system. The Company is in the
process of integrating the locations acquired in the Acquisitions into its
management information system.
CUSTOMERS
The Company's customers include commercial, industrial and civil
construction contractors, manufacturers, public utilities, municipalities, golf
courses, shippers, commercial farmers, military bases, offshore platform
operators and maintenance contractors, refineries and petrochemical facilities
and a variety of other industrial accounts. The Company has a broad customer
base of more than 19,000 customers with active accounts at any one time, none
of which accounted for more than 1.5% of the Company's total 1997 revenues. Pro
forma for the Acquisitions, the Company's top ten customers in 1997 represented
7.6% of the Company's total revenues.
The Company's rental equipment customers vary in size from large Fortune
500 companies who have elected to outsource much of their equipment needs to
small construction contractors, subcontractors, and machine operators whose
equipment needs are job-based and not easily measured in advance. The Company's
new and used equipment sales customers are generally large construction
contractors who regularly purchase wholesale goods and annually budget for
fleet maintenance purchases.
The Company does not currently provide its own purchase financing to
customers. The Company rents equipment, sells parts, and provides repair
services on account to customers who are screened through a credit application
process. Customers can finance purchases of large equipment with a variety of
creditors, including manufacturers, banks, finance companies and other
financial institutions.
38
<PAGE>
SALES AND MARKETING
The Company maintains a strong sales and marketing orientation throughout
its organization in order to increase its customer base and better understand
and serve its customers. Managers at each of the Company's branches are
responsible for supervising and training all sales employees at that location
and directing the salesforce by conducting regular sales meetings and
participating in selling activities. Managers develop relationships with local
customers and assist them in planning their equipment requirements. Managers
are also responsible for managing the mix of equipment at their locations,
keeping abreast of local construction activity and monitoring competitors in
their respective markets.
To stay informed about their local markets, salespeople track new
equipment sales and construction projects in the area through EQUIPMENT DATA
REPORTS, FW DODGE REPORTS and PEC Reports (Planning, Engineering and
Construction), follow up on referrals and visit construction sites and
potential equipment users who are new to the local area. The Company's
salespeople also use targeted marketing strategies to address the specific
needs of local customers.
PURCHASING
The Company purchases equipment from vendors with reputations for product
quality and reliability. The Company believes its size and the quantity of
equipment it purchases enable it to purchase equipment directly from vendors
pursuant to national purchasing agreements at lower prices and on more
favorable terms than many smaller competitors. The Company seeks to maintain
close relationships with its vendors to ensure the timely delivery of new
equipment.
The Company believes that it has sufficient alternative sources of supply
for the equipment it purchases in each of its principal product categories. The
following table summarizes the Company's principal categories of equipment and
specifies the Company's major suppliers of such equipment:
<TABLE>
<CAPTION>
PRODUCT CATEGORY PRIMARY VENDORS
- ----------------------------------------- ---------------------------------------------------
<S> <C>
Air Compressors and Equipment ........... Sullivan, Ingersoll-Rand and Atlas Copco
Earthmoving Equipment (such as Backhoes,
Loaders, Dozers, Excavators and Material
Handling Equipment) .................... John Deere, Case, JCB, Daewoo and Bobcat
Compaction Equipment, Rollers
and Recyclers .......................... Bomag, Wacker, MultiQuip and Stone
Pumps ................................... MultiQuip, Wacker and Thompson
Generators .............................. MultiQuip, Wacker and Atlas Copco
Welders ................................. MultiQuip and Miller
Electric Tools .......................... Bosch, Kango and Hitachi
Light Towers ............................ Specialty Lighting, Coleman and Amida
Forklifts ............................... JCB, Gradall, Lull and Ingersoll-Rand
Trucking ................................ Terex Americas, Ford and International
Aerial .................................. Skyjack, JLG, Mark Industries and Genie Industries
Concrete ................................ Partner, Edco, Whiteman, Miller, MultiQuip, Wacker
and Stone
Hydraulic Hammers ....................... Kent
</TABLE>
LOCATIONS
The Company's locations typically include: (i) offices for sales,
administration and management, (ii) a customer showroom displaying equipment
and parts, (iii) an equipment service area and (iv) outdoor and indoor storage
facilities for equipment. Each location offers a full range of rental equipment
for rental, with the mix designed to meet the anticipated needs of the
customers in each location. The Company's equipment dealerships typically
operate at the same sites as rental equipment locations.
Each stand-alone rental equipment location is staffed by, on average,
approximately 15 full-time employees, including a branch manager, a rental
coordinator, service manager, sales representatives, an
39
<PAGE>
office administrator, mechanics and drivers. Each dealership has approximately
25 full-time employees including a branch manager, parts manager, service
manager, sales representatives, departmental personnel, including mechanics,
and administrative staff. These employees are in addition to the full-time
employees used to staff the rental equipment operations located at the same
sites.
DEALERSHIP AGREEMENTS
Neff Machinery has entered into several dealership agreements with each of
John Deere, Bomag and Terex Americas in central and southern Florida. These
dealership agreements appoint Neff Machinery as the equipment manufacturer's
authorized dealer in certain "Areas of Responsibility," which generally
includes 100% of certain counties in southern and central Florida. Under the
dealership agreements, the equipment manufacturers agree to sell equipment to
Neff Machinery for resale in these areas. The dealership agreements typically
do not have a specific term, but may be terminated by either party upon 120
days written notice, or immediately by the equipment manufacturer for cause,
which generally includes, among other things, default by Neff Machinery under
any security agreement between Neff Machinery and the equipment manufacturer,
dissolution or liquidation of Neff Machinery, or a significant change in the
control, ownership or capital structure of Neff Machinery without the equipment
manufacturer's prior written consent. See "--Legal Proceedings."
The Company receives cash incentives and volume-related discounts from the
equipment manufacturers which it represents. The Company uses most of these
cash rebates and marketing fund contributions to give customers price
discounts. In addition, John Deere, Bomag and Terex Americas offer the Company
standard dealer cash discounts or limited interest-free financing.
COMPETITION
EQUIPMENT RENTALS. The equipment rental industry is highly fragmented and
very competitive. The Company competes with independent third parties in all of
the markets in which it operates. Most of the Company's competitors in the
rental business tend to operate in specific, limited geographic areas, although
some larger competitors do compete on a national basis. The Company also
competes with equipment manufacturers which sell and rent equipment directly to
customers. Some of the Company's competitors have greater financial resources
and name recognition than the Company.
EQUIPMENT SALES. The equipment distribution market consists of many firms
which operate dealerships representing equipment manufacturers, such as
Caterpillar, John Deere, Case and Komatsu. As the authorized dealer of John
Deere equipment in central and southern Florida, the Company competes with
dealers who sell other manufacturers' equipment in the same area. Key
competitive factors include fleet quality, pricing and the ability of a
particular dealer to provide satisfactory service and parts. John Deere
provides promotional programs which help the dealerships increase market share
against competitors.
ENVIRONMENTAL AND SAFETY REGULATION
The Company's facilities and operations are subject to certain federal,
state and local laws and regulations relating to environmental protection and
occupational health and safety, including those governing wastewater
discharges, the treatment, storage and disposal of solid and hazardous wastes
and materials, and the remediation of contamination associated with the release
of hazardous substances. The Company believes that it is in material compliance
with such requirements and does not currently anticipate any material capital
expenditures for environmental compliance or remediation for the current or
succeeding fiscal years. Certain of the Company's present and former facilities
have used substances and generated or disposed of wastes which are or may be
considered hazardous, and the Company may incur liability in connection
therewith. Moreover, there can be no assurance that environmental and safety
requirements will not become more stringent or be interpreted and applied more
stringently in the future. Such future changes or interpretations, or the
identification of adverse environmental conditions currently unknown to the
Company, could result in additional environmental
40
<PAGE>
compliance or remediation costs to the Company. Such compliance and remediation
costs could be material to the Company's financial condition or results of
operations.
In particular, at its owned and leased facilities the Company stores and
dispenses petroleum products from aboveground storage tanks and has in the past
stored and dispensed petroleum products from underground storage tanks. The
Company also uses hazardous materials, including solvents, to clean and
maintain equipment, and generates and disposes of solid and hazardous wastes,
including used motor oil, radiator fluid and solvents. In connection with such
activities, the Company has incurred capital expenditures and other compliance
costs which are expensed on a current basis and which, to date, have not been
material to the Company's financial condition. Based on currently available
information, the Company believes that it will not be required to incur
material capital expenditures or other compliance or remediation costs on
environmental and safety matters in the foreseeable future. See "Risk
Factors--Environmental and Safety Regulation."
EMPLOYEES
As of March 12, 1998, the Company had approximately 1,100 employees. None
of the Company's employees is represented by a union or covered by a collective
bargaining agreement. The Company believes its relations with its employees are
good.
RETENTION OF MANAGEMENT OF ACQUIRED COMPANIES
The Company's policy is to retain any available members of an acquired
company's management who have strengths that are beneficial to the Company. In
connection with the Buckner Acquisition, the Company retained all members of
Buckner's senior management. Those management personnel are now responsible for
the day-to-day operation of Neff Rental's Gulf Region. In connection with the
Richbourg Acquisition, the Company retained substantially all management
personnel with the exception of Richbourg's founder, Bruce Richbourg. Those
personnel continue to hold management positions at the Neff Rental branch
locations acquired from Richbourg.
PROPERTIES
The Company leases 13,000 square feet for its corporate headquarters in an
office building in Miami, Florida. The Company owns the buildings and/or the
land at 11 of its locations. In May 1997, the Company purchased the buildings
and land at six of its locations in Florida from Atlantic Real Estate Holdings
Corp., an affiliate of the Company controlled by the Mas family which formerly
leased these locations to the Company. The Company also owns the buildings
and/or the land at its locations in Phoenix, Arizona; Hardeeville, Georgia;
Texas City, Texas; Pasadena, Texas; and Corpus Christi, Texas. All other sites
are leased, generally for terms of five years. Owned and leased sites range
from approximately 10,000 to 25,000 square feet on lots ranging up to 22 acres,
and include showrooms, equipment service areas and storage facilities. The
Company does not consider any specific leased location to be material to its
operations. The Company believes that equally suitable alternative locations
are available in all areas where it currently does business.
LEGAL PROCEEDINGS
The Company is a party to pending legal proceedings arising in the
ordinary course of business. While the results of such proceedings cannot be
predicted with certainty, the Company does not believe any of these matters are
material to the Company's financial condition or results of operations.
John Deere has filed a notice of arbitration (the "Notice") with the
American Arbitration Association seeking review of the question of whether Neff
Corp. and Neff Machinery breached their agreements with John Deere by failing
to obtain John Deere's consent to transactions in which GE Capital increased
its equity interest in the Company in 1996. The Company has not filed a
response to the Notice and is actively discussing the issues raised by the
Notice with John Deere. Although the arbitration could result in a finding that
the Company breached its agreement with John Deere and that John Deere has the
right to terminate the dealership agreements, the Company believes that this
matter can be resolved in a manner that does not have a material adverse effect
on its financial condition or results of operations.
41
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The table below sets forth the names and ages of the directors, executive
officers and significant employees of the Company and its subsidiaries as well
as the positions and offices held by such persons, as of April , 1998. Jorge
Mas, Juan Carlos Mas and Jose Ramon Mas, all of whom are members of the Board
of Directors, are brothers. There are no other family relationships among the
directors or officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ ----- -------------------------------------------------
<S> <C> <C>
Jorge Mas .................... 34 Chairman of the Board of Directors
Kevin P. Fitzgerald .......... 41 Chief Executive Officer, President and Director
Peter A. Gladis .............. 47 Senior Vice President--Neff Rental
Robert G. Warren ............. 40 Senior Vice President--Neff Machinery
Bonnie S. Biumi .............. 35 Chief Financial Officer
William Derenbecker .......... 43 Regional Vice President--Neff Rental--Gulf Coast
Steve Halliwell .............. 39 Regional Vice President--Neff Rental--Florida
Graham Hood .................. 42 Regional Vice President--Neff Rental--Southeast
Wes Parks .................... 35 Regional Vice President--Neff Rental--Atlantic
Bruce Pope ................... 52 Regional Vice President--Neff Rental--Southwest
Thomas Vandever .............. 52 Regional Vice President--Neff Rental--Central
Jon Zier ..................... 42 Regional Vice President--Neff Rental--West
Juan Carlos Mas .............. 31 Director
Jose Ramon Mas ............... 28 Director
</TABLE>
JORGE MAS. Mr. Mas has been Chairman of Neff Corp. and its predecessor, MP
Equipment ("MP") since he founded MP in 1988. Since 1994, Mr. Mas has been the
President and CEO, and a director of MasTec, Inc., a provider of
telecommunications related engineering and construction services. Mr. Mas is a
member of the boards of directors of Supercanal Holdings, S.A., Primera Fila,
S.A. and Santos Capital. Mr. Mas has an M.B.A. and a B.A. in business
administration.
KEVIN P. FITZGERALD. Mr. Fitzgerald joined the Company in 1995 as
President and CEO. From 1991 through July, 1995, he was a Senior Vice President
for the investment banking firm of Houlihan Lokey Howard and Zukin. He is also
a member of the board of directors of Supercanal Holdings, S.A., Primera Fila,
S.A. and Santos Capital. Mr. Fitzgerald holds an M.B.A. in finance and a B.S.
in electrical engineering.
PETER A. GLADIS. Mr. Gladis joined the Company in 1995 after 20 years of
employment with Hertz Corporation, most recently, as Regional Vice President of
western region operations. Mr. Gladis is the Senior Vice President of Neff
Rental. Mr. Gladis has a B.S. in business administration and marketing and a
total of 25 years of experience in the equipment rental industry.
ROBERT G. WARREN. Mr. Warren joined the Company in 1988 after being
employed by Hertz Corporation as Regional Vice President. Mr. Warren is Senior
Vice President of Neff Machinery. Mr. Warren has a total of 20 years of
experience in the equipment sales and rental industry.
BONNIE S. BIUMI. Ms. Biumi is Chief Financial Officer of the Company. She
joined the Company in 1997 after being employed as Executive Vice President and
Chief Financial Officer of Peoples Telephone Company, Inc., a publicly traded
telecommunication services company, from 1994 to 1997. From 1983 to 1994, Ms.
Biumi was employed by Price Waterhouse LLP in Miami, Florida, most recently as
a Senior Manager. Ms. Biumi is a certified public accountant and holds a B.S.
in Business Administration.
WILLIAM G. DERENBECKER. Mr. Derenbecker joined the Company in August 1997
as Neff Rental's Vice President for the Gulf Coast Region. He previously served
for 11 years in a variety of senior management positions at Buckner.
42
<PAGE>
STEVE HALLIWELL. Mr. Halliwell joined the Company in 1990 after one year
with Wacker as Territory Manager and two years with Hood Equipment as a Sales
Representative. Mr. Halliwell serves as Neff Rental's Vice President for the
Florida Region. Mr. Halliwell has a total of 12 years of experience in the
equipment rental industry.
GRAHAM HOOD. Mr. Hood joined the Company in 1995 after 17 years of
employment with Hertz Corporation, where he most recently served as Regional
Vice President. Mr. Hood serves as Neff Rental's Vice President for the
Southwest Region. Mr. Hood has a total of 20 years of experience in the
equipment rental industry.
WES PARKS. Mr. Parks joined the Company in 1995 after eight years of
employment with Hertz Corporation, where he served as Branch Manager. Mr. Parks
serves as Neff Rental's Vice President for the Atlantic Region. Mr. Parks has a
total of 13 years in the equipment rental industry.
BRUCE POPE. Mr. Pope joined the Company in 1995 after being employed by
Hertz Corporation as Branch Manager. Mr. Pope serves as Neff Rental's Vice
President for the Southwest Region. Mr. Pope has a total of 33 years of
experience in the equipment rental industry.
THOMAS VANDEVER. Mr. Vandever joined the Company in 1997 after being
employed by Hertz Corporation as Regional Manager. Mr. Vandever serves as Neff
Rental's Vice President for the Central Region. Mr. Vandever has a total of 16
years of experience in the equipment rental industry.
JON ZIER. Mr. Zier joined the Company in 1996 after being employed by
Hertz Corporation as Regional Manager. Mr. Zier serves as Neff Rental's Vice
President for the West Region. Mr. Zier has a total of 20 years of experience
in the equipment rental industry.
JUAN CARLOS MAS. Mr. Mas has been a Director of the Company and MP since
1989. He is currently Director and President of the Construction Division of
Church and Tower, a subsidiary of MasTec, Inc., where he has been employed for
the past five years. Mr. Mas holds a B.A. in business administration and a J.D.
JOSE RAMON MAS. Jose Ramon Mas has also been a Director of the Company and
MP since 1989. Mr. Mas is Director and President of the Telecommunications
Division of Church and Tower, a subsidiary of MasTec, Inc., where he has been
employed for the past five years. He has a B.A. in business administration and
an M.B.A.
BOARD OF DIRECTORS
The Company's Board of Directors is currently composed of four directors,
Jorge Mas, Mr. Fitzgerald, Juan Carlos Mas and Jose Ramon Mas. The Company
intends to expand the Board to include two outside directors following the
Offering. The Company's Certificate of Incorporation provides that the Board of
Directors shall be divided into three classes. The members of each class of
directors will serve for staggered three-year terms. Following the consummation
of the Offering, the Board will be composed of two Class I directors, two Class
II directors and three Class III directors. Jorge Mas and Kevin P. Fitzgerald
will serve as Class I directors for an initial term which will expire at
43
<PAGE>
the time of the annual stockholder meeting in June 2000. Juan Carlos Mas and
Jose Ramon Mas will serve as Class II directors for the initial term which will
expire at the time of the annual stockholders meeting in June 1999; and the two
outside directors to be selected will serve as Class III directors for the
initial term which will expire at the time of the annual stockholder meeting in
June 1998. Thereafter, each class will serve three-year terms.
The Company must select two additional independent directors within
days after the date of this Prospectus in order to maintain its New York Stock
Exchange listing. Failure to select such directors within this period could
result in a delisting of the Class A Common Stock from the New York Stock
Exchange.
The holders of a majority of the Series A Preferred Stock, voting
separately as a single class in the election of directors of the Company, with
each share of Series A Preferred Stock entitled to one vote, are entitled to
elect one director to serve on the Company's Board of Directors. See
"Description of Capital Stock--Preferred Stock." GE Capital owns all of the
issued and outstanding Series A Preferred Stock and, therefore, is entitled to
elect one director to the Company's Board of Directors. The Company expects to
redeem the Series A Preferred Stock with the proceeds of the Private Debt
Offering. See "Capitalization."
Pursuant to an Amended and Restated Stockholders Agreement dated as of
, 1998, if GE Capital transfers Common Stock representing at least 15% of
the equity of the Company to a third party (the "GE Transferee") the Company
will increase the Board of Directors from six to seven members and the parties
to the Stockholders' Agreement, in accordance with such agreement, have agreed
to vote their shares of Common Stock to elect the GE Transferee's nominee as a
director to fill the vacancy.
COMMITTEES OF THE BOARD OF DIRECTORS
After completion of the Offering, the Company intends to establish an
Audit Committee and a Compensation Committee, each composed of two independent
directors. The Audit Committee will recommend the annual appointment of the
Company's auditors, with whom the Audit Committee will review the scope of
audit and non-audit assignments and related fees, accounting principles used by
the Company in financial reporting, internal auditing procedures and the
adequacy of the Company's internal control procedures. The Compensation
Committee will administer the Company's Incentive Stock Plan and make
recommendations to the Board of Directors regarding compensation for the
Company's executive officers.
COMPENSATION OF DIRECTORS
Each of the Company's nonemployee directors will receive an annual
retainer. In addition, nonemployee directors will receive meeting attendance
fees for special board meetings or committee meetings not held in conjunction
with a regular board meeting. Jorge Mas, Jose Ramon Mas and Juan Carlos Mas
will not receive any such retainers or fees, however. All directors will be
reimbursed for expenses incurred in connection with attending board and
committee meetings. Pursuant to the Company's Stock Incentive Plan, the
Company's nonemployee directors will receive options to purchase Common Stock
upon their initial appointment. These options will have an exercise price equal
to 100% of the fair market value on the date of the grant, and will vest over a
five year period (20% each year). The options will expire in ten years, unless:
(a) the director leaves the Board of Directors for any reason other than
disability, death or cause, in which case the director will have three months
after termination to exercise his vested options; (b) the director is dismissed
from the Board of Directors for cause, in which case all options will terminate
immediately; (c) the director's service terminates by reason of disability or
resignation, in which case the director will have one year after the
termination date to exercise vested options; or (d) the director dies, in which
case the director's estate will have one year to exercise vested options.
44
<PAGE>
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that a director of the
Company will not be personally liable to the Company or its stockholders for
monetary damages for any breach of fiduciary duty as a director, except in
certain cases where liability is mandated by the DGCL. The provision has no
effect on any non-monetary remedies that may be available to the Company or its
stockholders, nor does it relieve the Company or its directors from compliance
with federal or state securities laws. The Certificate of Incorporation of the
Company generally provide that the Company shall indemnify, to the fullest
extent permitted by law, any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit,
investigation, administrative hearing or any other proceeding (each, a
"Proceeding") by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another entity, against expenses (including
attorneys' fees) and losses, claims, liabilities, judgments, fines and amounts
paid in settlement actually incurred by such person in connection with such
Proceeding. The Company has entered into, or intends to enter into, agreements
to provide indemnification for its directors and executive officers in addition
to the indemnification provided for in the Certificate of Incorporation. These
agreements, among other things, will indemnify the Company's directors and
executive officers for certain expenses (including attorneys' fees), and all
losses, claims, liabilities, judgments, fines and settlement amounts incurred
by such persons arising out of or in connection with their service as a
director or officer of the Company to the fullest extent permitted by
applicable law. In addition, the Company has obtained director and officer
liability insurance that insures the Company's directors and officers against
certain liabilities.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During its fiscal year ended December 31, 1997, the Company had no
Compensation Committee or other committee of the Board of Directors performing
similar functions. Decisions concerning compensation of executive officers were
made by certain executive officers of the Company. It is contemplated that the
Board of Directors will establish a Compensation Committee consisting of
nonemployee directors following consummation of the Offering. See "--Board of
Directors."
45
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth a summary of compensation for services
rendered in all capacities to the Company by the Chief Executive Officer and
President and each of the Company's most highly compensated executive officers
as to whom the total annual base salary, bonus and other compensation for the
fiscal year ended December 31, 1997 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- -------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS OPTIONS/SARS
- ----------------------------------------------- ------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Kevin P. Fitzgerald 1995 $ 50,000 --
President and Chief Executive 1996 150,000 $ 75,000
Officer(1) .................................... 1997 246,000 150,000
Robert G. Warren 1995 $ 90,000 $ 50,000 84,650
Senior Vice President, Neff Machinery ......... 1996 126,000 40,000 --
1997 155,000 25,000
Peter A. Gladis 1995 $ 42,000 -- --
Senior Vice President, Neff Rental(2) ......... 1996 145,000 $ 40,000
1997 150,000 75,000
Bonnie S. Biumi
Chief Financial Officer(3) .................... 1997 -- -- --
</TABLE>
- ----------------
(1) Mr. Fitzgerald commenced work for the Company in August 1995. He was paid
at the rate of $145,000 per year during fiscal year 1995. The salary set
forth above for 1995 represents his salary for the five-month period from
August to December, 1995.
(2) Mr. Gladis commenced work for the Company in September 1995. He was paid at
the rate of $145,000 per year during fiscal year 1995. The salary set
forth above represents his salary for the four-month period from September
to December, 1997.
(3) Ms. Biumi commenced work for the Company on December 29, 1997. Her annual
salary was $175,000.
OPTION GRANTS AND EXERCISES
The Company did not grant any options to purchase any of its capital stock
in 1997 and no options to purchase any of its capital stock were exercised in
1997.
Options to purchase shares of Class A Common Stock representing three
percent of the issued and outstanding Common Stock of the Company for an
aggregate purchase price of approximately $1.6 million have been granted to Mr.
Fitzgerald. One-third of Mr. Fitzgerald's options expire on December 1, 2005,
one-third expire on December 31, 2005 and the remaining one-third expire on
December 31, 2006. Options to purchase shares of Class A Common Stock at
the initial offering price set forth on the front cover of the Prospectus have
also been granted to Mr. Fitzgerald. These options expire on , 2008. These
options are not intended to qualify as incentive stock options and all of these
options are exercisable. Options to purchase 84,650 shares of Class A Common
Stock for an aggregate purchase price of $0.5 million have been granted to Mr.
Warren. These options are not intended to qualify as incentive stock options
and all of these options are exercisable. Mr. Warren's options expire on June
28, 2006.
46
<PAGE>
The following table sets forth information concerning the year-end value
of unexercised options held by Messrs. Fitzgerald and Warren:
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS "IN-THE-MONEY"
AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR END(1)
------------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Kevin P. Fitzgerald,
Chief Executive Officer
and President ............. -- -- -- --
Robert G. Warren,
Senior Vice President,
Neff Machinery ............ 84,650 -- -- --
Peter A. Gladis,
Senior Vice President,
Neff Rental ............... -- -- -- --
Bonnie S. Biumi, Chief
Financial Officer ......... -- -- -- --
</TABLE>
- ----------------
(1) Options are "in-the-money" at the fiscal year end if the fair market value
of the underlying securities on such date exceeds the exercise price of
the option. For the purposes of this calculation, the fair market value of
the Class A Common Stock is $ , the mid-point of the range of the
initial public offering price set forth on the cover of this Prospectus.
Mr. Fitzgerald also has certain rights to cause the Company to register
Class A Common Stock issued to him upon exercise of his options. At any time
during the period from December 1, 1995 until December 1, 2010 (the
"Registration Period") Mr. Fitzgerald may make one demand upon the Company and
require it to register any shares of Class A Common Stock issued to him upon
exercise of his options. If the Company files a registration statement to
register Class A Common Stock during the Registration Period, Mr. Fitzgerald
may demand that the Company include any shares of Class A Common Stock issued
to him upon exercise of his options in such registration statement. Mr.
Fitzgerald has agreed to waive any rights he may have to register any shares of
Class A Common Stock prior to the Offering or to demand an offering within 180
days of the closing of the Offering.
COMPANY COMPENSATION AND BENEFITS
SALARY AND BENEFITS. It is contemplated that the Company will establish
annual base salaries for Messrs. Warren and Gladis and Ms. Biumi in the amounts
of $160,000, $185,000 and $175,000 respectively, effective upon the closing of
the Offering. The Company will also establish an annual bonus plan for
executive officers and other key employees under which bonuses will be paid
based on sales increases, increases in earnings per share and return on equity.
The Company will provide medical and dental benefits, life and disability
insurance, vacation and holidays, and will implement the other benefit plans
described below.
INCENTIVE STOCK PLAN
Under the Company's Incentive Stock Plan (the "Incentive Stock Plan"),
designated officers, employees and consultants of the Company will be eligible
to receive awards in the form of stock options, stock appreciation rights,
restricted stock grants, performance awards or dividend equivalent rights. The
Incentive Stock Plan is intended to promote the long-term financial interests
of the Company by encouraging employees to acquire an ownership position in the
Company and to provide incentives for employee performance. The Incentive Stock
Plan, which is expected to be approved by the Board of Directors, will be
effective upon consummation of the Offering.
47
<PAGE>
An aggregate of 1,000,000 shares of Class A Common Stock will be reserved
for issuance under the Incentive Stock Plan, subject to adjustment in the event
of a stock split, stock dividend or other change in the Class A Common Stock or
the capital structure of the Company. In the aggregate, not more than one-third
of these shares may be made the subject of restricted Class A Common Stock
awards. In addition, the Chief Executive Officer of the Company may not be
granted options or awards in respect of more than shares in one year and
no individual (other than the Chief Executive Officer) may be granted options
or awards in respect of more than 300,000 shares in one year.
The Incentive Stock Plan will be administered by the Compensation
Committee of the Board of Directors. Subject to the provisions of the Incentive
Stock Plan, the Compensation Committee will be authorized to determine who may
participate in the Incentive Stock Plan, the number and types of awards made to
each participant and the terms, conditions and limitations applicable to each
award. In addition, the Compensation Committee will have the exclusive power to
interpret the Incentive Stock Plan and to adopt such rules and regulations as
it may deem necessary or appropriate for purposes of administering the plan.
Subject to certain limitations, the Board of Directors will be authorized to
amend, modify or terminate the Incentive Stock Plan to meet any changes in
legal requirements or for any other purpose permitted by law.
STOCK OPTIONS. Under the Incentive Stock Plan, the Committee is authorized
to grant options to purchase shares of Class A Common Stock, including options
qualifying as "incentive stock options" ("ISOs") under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and options that do not
so qualify ("NSOs") to employees as additional compensation for their services
to the Company. Options granted will be subject to adjustment in the event of a
stock split, stock dividend or other change in the Class A Common Stock or the
capital structure of the Company.
Options shall be exercisable over such period as may be determined by the
Compensation Committee, but no stock option may be exercised after ten years
from the date of grant. Options may be exercisable in installments and upon
such other terms as determined by the Compensation Committee. Options will be
evidenced by option agreements. No option may be transferable other than by
will or by the laws of descent and distribution or pursuant to certain domestic
relations orders. The purchase price of Common Stock subject to an ISO shall
not be less than 100% of the Fair Market Value (as defined in the Incentive
Stock Plan) of such Common Stock on the date of grant, (110% in the case of an
ISO granted to an individual holding more than 10% of the Company's capital
stock). Such purchase price shall be paid in full in cash, Class A Common Stock
or a combination of both.
STOCK APPRECIATION RIGHTS. Under the Incentive Stock Plan, the
Compensation Committee also may grant stock appreciation rights either in
tandem with an option or alone. Stock appreciation rights granted in tandem
with a stock option may be granted at the same time as the stock option or at a
later time. A stock appreciation right shall entitle the participant to receive
from the Company an amount payable in cash, in shares of Class A Common Stock
or in a combination of cash and Class A Common Stock, equal to the positive
difference between the fair market value of a share of Class A Common Stock on
the date of exercise and the grant price, or such lesser amount as the
Compensation Committee may determine.
RESTRICTED STOCK AWARDS. Under the Incentive Stock Plan, the Compensation
Committee may grant shares of restricted Class A Common Stock, which are
subject to forfeiture under such conditions and for such period of time (not
less than one year) as the Compensation Committee may determine. The
Compensation Committee shall determine the conditions or restrictions of any
restricted Class A Common Stock awards, which may include restrictions on
transferability, requirements of continued employment, individual performance
or the Company's financial performance.
PERFORMANCE AWARDS. The Compensation Committee in its discretion may grant
awards of performance units or performance shares to an employee contingent
upon the attainment of a specified objective during a specified period of time.
Performance units may be denominated in shares of Class A Common Stock or a
specified dollar amount and are contingent upon attainment of the specified
48
<PAGE>
performance objectives within the specified period of time. Performance shares
will be awarded in the form of shares of Class A Common Stock. The Compensation
Committee will determine the total number of performance shares subject to an
award, the terms and the time at which the performance shares will be issued.
Performance shares may not be sold, transferred, assigned, pledged or otherwise
encumbered so long as such performance shares remain restricted.
DIVIDEND EQUIVALENT RIGHTS. Dividend equivalent rights, defined as a right
to receive all or some portion of the cash dividends that are or would be
payable with respect to shares of Class A Common Stock, may be awarded in
tandem with stock options or other awards under the Incentive Stock Plan. The
Committee will determine the terms and conditions of these rights. The rights
may be paid in cash or shares or a combination of both.
EFFECT OF CHANGE IN CONTROL. The Incentive Stock Plan provides for the
acceleration of certain benefits in the event of a "Change in Control" of the
Company. A Change in Control will be deemed to have occurred if either (i) any
person or group other than the Mas brothers acquires beneficial ownership
equivalent to 30% of the voting securities of the Company, (ii) individuals who
are directors as of the closing of the Offering, or individuals who became
directors after being approved by two-thirds of such individuals (and other
directors previously so approved) cease to constitute at least two-thirds of
the members of the Board of Directors, (iii) the consummation of certain
mergers, the sale of substantially all of the assets of the Company or a
complete liquidation or dissolution of the Company.
PHANTOM STOCK PLAN
Effective January 1, 1997, the Company adopted a phantom stock plan (the
"Phantom Stock Plan"). The Phantom Stock Plan is designed to reward employees
for increases in the Company's performance. Pursuant to the terms of this plan,
employees are eligible to receive individual units representing a hypothetical
share of the Company's Common Stock (a "Phantom Share"). Each Phantom Share is
assigned a value on the date granted as determined by the administrator of the
Phantom Stock Plan. The difference between the calculated share value of the
Phantom Share on the date redeemed by the employee as determined pursuant to a
formula set forth in the Phantom Stock Plan and the value assigned on the date
of grant represents the cash award the employee is entitled to receive on the
redemption date. The Phantom Shares generally vest over five years and must be
redeemed by the Company within one year of vesting.
401(K) PLAN
The Company maintains a 401(k) Retirement Savings Plan (the "401(k) Plan")
to provide retirement and other benefits to employees of the Company and to
permit employees a means to save for their retirement. The 401(k) Plan is
intended to be a tax-qualified plan under Section 401(a) of the Code. Subject
to legal limitations, participants may elect, by salary reduction, to have
401(k) contributions of 1% to 15% of their compensation made to their accounts.
The Company may make discretionary profit sharing contributions on behalf of
participants based on the participant's contribution amounts. Participants in
the 401(k) Plan always have a 100% vested and nonforfeitable interest in the
value of their 401(k) contributions. In certain circumstances, participants may
receive loans and hardship withdrawals from their accounts in the 401(k) Plan.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
The DGCL authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of the directors' fiduciary duty of care. The Company's
Certificate of Incorporation limits the liability of directors of the Company
to the Company or its stockholders to the fullest extent permitted by Delaware
law. Specifically, directors of the Company will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Company
49
<PAGE>
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or knowing violations of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. The inclusion of this provision in the
Certificate of Incorporation may have the effect of reducing the likelihood of
derivative litigation against directors, and may discourage or deter
stockholders or management from bringing a lawsuit against directors for breach
of their duty of care, even though such an action, if successful, might
otherwise have benefited the Company and its stockholders.
The Certificate of Incorporation provides mandatory indemnification rights
to any officer or director of the Company who, by reason of the fact that he or
she is an officer or director of the Company, is involved in a legal proceeding
of any nature. Such indemnification rights include reimbursement for expenses
incurred by such officer in advance of the final disposition of such proceeding
in accordance with the applicable provisions of the DGCL.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March , 1998, information with
respect to the beneficial ownership of the Company's Common Stock by: (i) each
person known to the Company to beneficially own more than 5% of the outstanding
shares of the Company's Class A Common Stock, (ii) each person known to the
Company to beneficially own more than 5% of the outstanding shares of the
Company's Class B Common Stock, (iii) each director of the Company and each
executive officer named in the Summary Compensation Table; and (iv) all
directors and executive officers of the Company as a group. Unless otherwise
indicated, (a) each such stockholder has sole voting and investment power with
respect to the shares beneficially owned by such stockholder and (b) has the
same address as the Company.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
BEFORE THE OFFERING AFTER THE OFFERING
--------------------------------------------------------- -------------------------------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES OF PERCENT SHARES OF PERCENT SHARES OF PERCENT SHARES OF PERCENT
CLASS A OF CLASS B OF CLASS A OF CLASS B OF
COMMON CLASS COMMON CLASS COMMON CLASS COMMON CLASS
STOCK OWNED STOCK OWNED STOCK OWNED STOCK OWNED
----------------------- --------- ----------- --------- ------------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jorge Mas ................ 3,702,744(1) 25.6% -- -- -- --
Juan Carlos Mas .......... 2,381,303(1) 16.5 -- -- -- --
Jose Ramon Mas ........... 2,381,303(1) 16.5 -- -- -- --
GE Capital ............... 5,100,000(2) 35.2 (1) 100% (1) 100%
Santos ................... 900,000(3) 6.2 -- -- (2) -- --
Santos Capital ........... 1,500,000(4) 10.4 -- --
Kevin P. Fitzgerald ...... [450,000(1)(5) 3.0] -- -- (1)(5) -- --
Robert G. Warren ......... 84,650(6) * -- -- (4) * -- --
All executive officers
and directors as a
group (8 persons) ....... 9,000,000 60.0 -- -- --
</TABLE>
- ----------------
* Less than 1%.
(1) Does not include shares beneficially owned through Santos Fund L.P. or
Santos Capital
(2) The amount shown includes shares owned by GECFS, Inc., an affiliate of GE
Capital. The amount shown includes 1,500,000 shares of Class B Common
Stock subject to an option held by Santos Capital. Santos has agreed to
convert these shares to Class A Common Stock upon exercise. GE Capital's
and GECFS, Inc.'s address is: 777 Long Ridge Road, Building B, First
Floor, Stamford, CT., 06927.
(3) Santos is beneficially owned by Jorge Mas, Juan Carlos Mas, Jose Ramon Mas
and Kevin P. Fitzgerald.
(4) The amount shown includes an option currently exercisable by Santos
Capital, an affiliate of Santos, to purchase 1,500,000 shares of Common
Stock from GE Capital. Santos Capital is beneficially owned by Jorge Mas,
Juan Carlos Mas, Jose Ramon Mas and Kevin P. Fitzgerald.
(5) The amount shown consists of shares covered by options currently
exercisable by Mr. Fitzgerald.
(6) The amount shown consists of 84,650 shares covered by options currently
exercisable by Mr. Warren.
51
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
MASTEC, INC.
MasTec, Inc., an affiliate of the Company controlled by the Mas family,
purchases and leases construction equipment from the Company. During the years
ended December 31, 1996 and 1997, revenues from MasTec, Inc. amounted to
approximately $1.5 and $0.7 million, respectively. The Company believes that
these payments were substantially equivalent to the payments that would have
been made between unrelated parties acting at arm's length.
ATLANTIC REAL ESTATE HOLDINGS CORPORATION
In May 1997, the Company acquired six properties that it previously leased
from Atlantic Real Estate Holdings Corp., an affiliate of the Company owned by
Jorge Mas, Juan Carlos Mas and Jose Ramon Mas, for approximately $13.9 million.
The Company operated its Miami, West Palm Beach, Fort Myers, Orlando, Pompano
Beach and Tampa equipment rental and dealership locations at these properties.
GE CAPITAL, SANTOS AND SANTOS CAPITAL
The Company and GE Capital have entered into a registration rights
agreement with respect to the Class B Common Stock held by GE Capital (the "GE
Capital Shares"). The registration rights agreement provides that GE Capital
may, after the earlier of (i) December 29, 1998 or (ii) an initial public
offering of the Company's Common Stock and subject to certain limitations, make
two demand registrations with respect to all or part of the GE Capital Shares.
The GE Capital Shares being registered must be converted to shares of Class A
Common Stock prior to registration. The registration rights agreement also
provides GE Capital with piggyback registration rights with respect to certain
registration statements filed by the Company. In any registration, the Company
must pay the registration expenses of GE Capital, excluding GE Capital's legal
fees, underwriting commissions and discounts. The Company has agreed to
indemnify GE Capital against certain liabilities under the Securities Act in
connection with the registration of the GE Capital Shares.
In 1998, GE Capital and the Company consummated a series of transactions
pursuant to which GE Capital (i) exchanged its 800,000 shares of the Company's
Series B Preferred Stock and 800,000 shares of Series C Preferred Stock for
6,000,000 shares of the Company's Class B Common Stock and (ii) sold 900,000
shares of Class B Common Stock to Santos, which Santos then converted into
Class A Common Stock. Santos Capital purchased an option from GE Capital to
acquire an additional 1,500,000 shares of Common Stock, exercisable for a
period of 18 months. The $16.5 million purchase price for the shares of Class A
Common Stock was paid in part by the delivery by Santos of a promissory note to
GE Capital for $11.5 million. This promissory note is secured by the shares of
Class A Common Stock Santos purchased from GE Capital.
Santos, Santos Capital and the Company have entered into a registration
rights agreement with respect to the shares of Class A Common Stock held by
Santos and Santos Capital. The terms of this agreement are substantially
equivalent to the terms of the registration rights agreement for GE Capital and
the Company.
PEP CONSULTING
PEP Consulting receives a consultant fee of $5,663 per month for services
rendered to Neff Rental. The owner of PEP Consulting, Jose Perez, was a
director of Neff Rental from December 1995 until October 1997.
52
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITIES
The Company has established the Senior Credit Facility with a syndicate of
Lenders and GE Capital, as agent, dated December 31, 1997, which consists of a
$250 million revolving line of credit, under which each of Neff, Neff Rental
and Neff Machinery can borrow, repay and reborrow funds for general corporate
purposes. The Senior Credit Facility terminates on October 31, 1998; however,
upon the completion of the Private Debt Offering, this date will be changed to
October 31, 2001. Credit facilities with syndicates of lenders and GE Capital,
as agent, have been the Company's principal source of liquidity since December
1995.
The Company's Senior Credit Facility allows borrowings based upon eligible
accounts receivable, rental fleet and inventory amounts. The interest rates on
balances outstanding under the Senior Credit Facility vary based upon the
leverage ratio maintained by the Company and were % for Prime and for
LIBOR based borrowings at December 31, 1997. As of December 31, 1997, the
Company was not in compliance with certain financial covenants contained in the
Senior Credit Facility. The Company expects to obtain a waiver for the
non-compliance from the lenders under the Senior Credit Facility prior to the
consummation of the Offering.
The Company has also entered into a Term Loan with GE Capital, Bankers
Trust Company and BankAmerica Business Credit, Inc., dated December 31, 1997,
pursuant to which the Company received $100 million for the purpose of: (i)
repaying a July 31, 1997 term loan; and (ii) funding a portion of the Richbourg
Acquisition.
The terms and conditions of the indebtedness of the Company under the GE
Capital facilities impose restrictions that prohibit the Company from taking
certain actions without the prior written consent of the members of the
syndicate, including but not limited to merging with another company, incurring
certain kinds of indebtedness, changing the Company's capital structure,
selling assets other than in the ordinary course of business and declaring
dividends other than in connection with the Series A Preferred Stock of the
Company. See "Risk Factors--Dependence on Additional Capital for Future Growth;
Reliance on Credit Facilities."
The Company's Senior Credit Facility is expected to be amended and
restated at the time of the Offering. Borrowings under the New Credit Facility
will continue to be based upon eligible accounts receivable, rental fleet and
inventory amounts. Based upon these requirements, the Company will have access
to the entire facility amount. The interest rates on balances outstanding under
the New Credit Facility will vary based upon the leverage ratio maintained by
the Company and range from prime rate or LIBOR plus 1.00% to prime plus 1.25%
to LIBOR plus 2.25%. Based upon the Company's current leverage ratio the
interest rate would be prime plus % or LIBOR plus %. In the event the
Company repays the Term Loan prior to October 31, 1998, the New Credit Facility
will be due in 2003, otherwise, it will become due on October 31, 1998.
The Company expects the New Credit Facility will be secured by substantially
all of the Company's assets and will contain various restrictive covenants
which, among other things, place restrictions on indebtedness and require the
Company to maintain certain interest coverage ratios.
PRIVATE DEBT OFFERING
The Company expects to consummate the Private Debt Offering for estimated
gross proceeds of approximately $ million, and estimated net proceeds of
$ million after fees and expenses, on or after the consummation of the
Offering. The notes offered in the Private Debt Offering (the "Notes") are
expected to be general unsecured obligations of the Company and subordinated in
right of payment to all existing and future senior indebtedness of the Company.
The Notes will rank PARI PASSU in right of payment with any future senior
subordinated indebtedness of the Company and will rank senior in right of
payment to all other subordinated indebtedness of the Company. The indenture
governing the Notes
53
<PAGE>
(the "Indenture"), if issued, will contain certain covenants that, among other
things, limit the ability of the Company and its subsidiaries to incur
indebtedness, pay certain payments, create liens securing certain indebtedness,
pay dividends, make certain payments affecting subsidiaries or sell assets.
There can be no assurance that the Private Debt Offering will be consummated.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Class A Common Stock, $.01 par value, 20,000,000 shares of Class B Common
Stock, $.01 par value, 519,503 shares of Series A Preferred Stock and 1,000,000
shares of Series B Junior Participating Preferred Stock, $.01 par value (the
"Series B Junior Preferred Stock"). Upon completion of the Offering, there will
be issued and outstanding shares of Class A Common Stock, shares of
Class B Common Stock, 340,907 shares of Series A Preferred Stock, and no shares
of Series B Junior Participating Preferred Stock. In addition, shares
of Class A Common Stock have been reserved for issuance in connection with the
grant of options to purchase Class A Common Stock, and shares have been
reserved in connection with the conversion of Class B Common Stock.
COMMON STOCK
The Company's Class A Common Stock and Class B Common Stock are equal in
all respects except for dividend and liquidation rights and conversion rights
of the Class B Common Stock, as discussed more fully below. Immediately upon
consummation of this Offering, all of the then outstanding shares of Common
Stock will be validly issued, fully paid and nonassessable.
VOTING RIGHTS; CONVERSION OF CLASS B COMMON STOCK INTO CLASS A COMMON
STOCK. The holders of Class A and Class B Common Stock are entitled to one vote
per share on all matters submitted to a vote of the stockholders. Holders of
Class A and Class B Common Stock do not have cumulative rights, so that holders
of more than 50% of the shares of Common Stock present at a meeting at which a
quorum is present are able to elect all of the Company's directors eligible for
election in a given year. Shares of Class B Common Stock are convertible into
shares of Class A Common Stock, in whole or part, at any time and from time to
time at the option of the holder, on the basis of one share of Class A Common
Stock for each share of Class B Common Stock converted. In the event of any
increase or reduction in the number of shares of Class A Common Stock, or the
exchange of Class A Common Stock for a different number or kind of securities
of the Company, by reason of a reclassification, recapitalization, merger,
consolidation, reorganization, spin-off, split-up, stock split or reverse stock
split, change in corporate structure or otherwise, the number of shares of
Class B Common Stock and the liquidation preference of each share thereof will
be proportionately increased or reduced, as appropriate. The Company is
obligated to at all times reserve and keep available out of its authorized but
unissued shares of Class A Common Stock, such number of shares of Class A
Common Stock issuable upon the conversion of all outstanding shares of Class B
Common Stock. Class A Common Stock has no conversion rights.
LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding up of the
Company, after satisfaction of all the Company's liabilities and the payment of
the liquidation preference of any Preferred Stock that may be outstanding, the
holder of each share of Class B Common Stock is entitled to receive before any
distribution or payment is made upon any other capital stock of the Company, an
amount in cash equal to $11.67. The holders of Class B Common Stock shall not
be entitled to any further payment. Upon the liquidation, dissolution or
winding up of the Company, the holders of shares of Class A Common Stock are
entitled to share pro rata in the distribution of all of the Company's assets
remaining available for distribution after satisfaction of all the Company's
liabilities and the payment of the liquidation preference of any Preferred
Stock that may be outstanding and the payment of the liquidation preference to
holders of Class B Common Stock described above.
DIVIDEND RIGHTS. Following consummation of the Offering, holders of the
Class A Common Stock and the Class B Common Stock are entitled to receive
ratably such dividends, if any, as are declared by
54
<PAGE>
the Company's Board of Directors out of funds legally available for that
purpose, subject to the preferential rights of any holder of Preferred Stock
that may from time to time be outstanding. Prior to the consummation of the
Offering, the holders of Class B Common Stock are entitled to receive, in the
aggregate, 75% of the total amount of any cash dividend paid to the holders of
Common Stock. The terms of the Company's credit facilities, Series A Preferred
Stock and the Private Debt Offering limit the Company's ability to pay
dividends on the Common Stock. See "Dividend Policy" and "--Preferred Stock."
OTHER PROVISIONS. The holders of Class A Common Stock and Class B Common
Stock have no preemptive or other subscription rights to purchase shares of
stock of the Company, and there are no redemptive or sinking fund provisions
applicable to the Class A Common Stock and Class B Common Stock.
REGISTRATION RIGHTS. The Company is a party to agreements pursuant to
which GE Capital, the Mas family, Santos, Santos Capital and Mr. Fitzgerald
have the right, among other matters, to require the Company to register their
shares of Class A Common Stock under the Securities Act under certain
circumstances. These rights cover approximately shares of Class A Common
Stock. See "Management--Company Compensation and Benefits" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
PREFERRED STOCK
The Certificate of Incorporation, a copy of which is filed as an exhibit
to the Registration Statement of which this Prospectus constitutes a part,
authorizes the Company's Board of Directors to issue Preferred Stock in series
and to establish the number of shares to be included in each such series and to
fix the designations, powers, preferences and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof. Because the
Board of Directors has the power to establish the preferences and rights of the
shares of any such series of Preferred Stock, it may afford the holders of any
Preferred Stock that may be outstanding, preferences, powers and rights
(including voting rights) senior to the rights of the holders of Class A Common
Stock. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company. See "Risk Factors--
Anti-Takeover Provisions."
The Board of Directors has established a class of Preferred Stock
designated Series A Preferred Stock consisting of 519,503 authorized shares,
par value $.01 per share. The Series A Preferred Stock has the dividend,
redemption, liquidation and other rights described below.
DIVIDEND RIGHTS. Dividends on each share of Series A Preferred Stock
accrue on a semi-annual basis at a rate of 5% per annum of the "Liquidation
Value," or $40 per share, thereof, plus all accumulated and unpaid dividends
thereon. Such dividends accrue whether or not they have been declared and
whether or not there are profits, surplus or other funds of the Company legally
available for the payment of dividends. During the period from December 31,
1995 until the earlier of December 31, 1999 or the termination of the Senior
Credit Facility (the "PIK Period"), under certain circumstances, the Company
may pay dividends on the Series A Preferred Stock in kind by issuing additional
shares of Series A Preferred Stock to the holders thereof that have an
aggregate Liquidation Value equal to the amount of the accrued and unpaid
dividend. At the end of the PIK Period, all accrued and unpaid dividends on the
Series A Preferred Stock must be paid in cash.
PRIORITY OF SERIES A PREFERRED STOCK ON DIVIDENDS AND REDEMPTIONS. As long
as any shares of Series A Preferred Stock remain outstanding, the Company must
obtain the prior written consent of the holders of a majority of the
outstanding shares of Series A Preferred Stock before it may redeem, retire,
purchase or otherwise acquire any stock of the Company other than Series A
Preferred Stock ("Junior Securities"), or pay or declare any dividend or make
any distribution (in cash or property) upon any Junior Securities, other than
dividends payable solely in the securities in respect of which such dividends
are paid or such that are payable upon the conversion of convertible preferred
stock into common stock.
55
<PAGE>
LIQUIDATION RIGHTS. Upon any liquidation, dissolution or winding up of the
Company, holders of Series A Preferred Stock will be entitled to be paid,
before any distribution or payment is made upon any Junior Securities, an
amount in cash equal to the aggregate Liquidation Value (plus all accrued and
unpaid dividends thereon) of all such Series A Preferred Stock outstanding. The
holders of Series A Preferred Stock will not be entitled to receive any further
payment. Prior to the time of any liquidation, dissolution or winding up of the
Company, to the extent permitted by applicable law, the Company shall declare
for payment all accrued and unpaid dividends with respect to the Series A
Preferred Stock.
REDEMPTION RIGHTS. On December 31, 2002 (the "Scheduled Redemption Date")
the Company is obligated to redeem all issued and outstanding shares of Series
A Preferred Stock at a price per share equal to the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon). If the Company's funds which
are legally available for the redemption of the Series A Preferred Stock are
insufficient to redeem the total number of shares to be redeemed, those funds
which are legally available shall be used to redeem the maximum number of
shares of Series A Preferred Stock possible. At any time thereafter when
additional funds of the Company are legally available for the redemption of
shares of Series A Preferred Stock, such funds will immediately be used to
redeem the balance of the shares of Series A Preferred Stock.
ELECTION OF DIRECTORS. The holders of a majority of the Series A Preferred
Stock, voting separately as a single class in the election of directors of the
Company, with each share of Series A Preferred Stock entitled to one vote,
shall be entitled to elect one director to serve on the Company's Board of
Directors until his successor is elected by holders of a majority of the Series
A Preferred Stock or he is removed from office by a majority of the holders of
the Series A Preferred Stock. During the PIK Period, if dividends on the
outstanding shares of Series A Preferred Stock shall have not been paid in an
amount equal to one full semiannual dividend thereon, and if at any time after
the PIK Period, dividends on the outstanding shares of Series A Preferred Stock
shall have not been paid in an amount equal to two full semiannual dividends
thereon, the number of directors on the Company's Board of Directors shall be
increased by five. The holders of all Series A Preferred Stock then outstanding
shall be entitled to elect five directors to fill these five new positions on
the Board of Directors. These directors will serve on the Company's Board of
Directors until it has declared and paid to all holders of the Series A
Preferred Stock then outstanding, all accrued and unpaid dividends and two
consecutive semiannual dividends.
VOTING RIGHTS. So long as any shares of Series A Preferred Stock are
outstanding, the Company shall not, without first obtaining the consent of the
holders of a majority of the outstanding shares of Series A Preferred Stock,
(i) authorize, create or issue any shares of stock of any other class or series
which shall rank in any respect on a parity with the Series A Preferred Stock,
or authorize, create or issue any obligations, bonds, notes, debentures, stock
or other securities by their terms convertible into shares of stock of any
other class or series which shall rank in any respect on a parity with the
Series A Preferred Stock, (ii) increase the authorized number of shares of
Series A Preferred Stock or (iii) authorize, recommend or enter into an
agreement with any person to effect a Change of Control (as defined in the
Certificate). In addition, the Company shall not, without first obtaining the
consent of the holders of at least 80% of the outstanding shares of Series A
Preferred Stock, (i) authorize, create or issue any shares of stock of any
other class or series which shall rank in any respect prior to the Series A
Preferred Stock, or authorize, create or issue any obligations, bonds, notes,
debentures, stock or other securities by their terms convertible into shares of
stock of any other class or series which shall rank in any respect prior to the
Series A Preferred Stock or (ii) amend, alter, change or repeal any of the
express terms and provisions of the Series A Preferred Stock in a manner which
would materially adversely affect the rights or preferences of the Series A
Preferred Stock.
The Board of Directors has established a class of Preferred Stock
designated Series B Junior Preferred Stock, consisting of 100,000 shares. The
Series B Junior Preferred is reserved for issuance in connection with the
Stockholder Rights Plan. See "--Stockholder Rights Plan."
56
<PAGE>
DELAWARE LAW AND CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation, the Company's By-Laws and Section 203 of
the DGCL contain certain provisions that may make the acquisition of control of
the Company by means of a tender offer, open market purchase, proxy fight or
otherwise, more difficult.
BUSINESS COMBINATIONS. The Company is a Delaware corporation and is
subject to Section 203 of the DGCL. In general, subject to certain exceptions,
Section 203 of the DGCL prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless: (i) upon consummation of such
transaction, the interested stockholder owned 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding for
purposes of determining the number of shares outstanding those shares owned by
(x) persons who are directors and also officers and (y) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer); (ii) the business combination is, or the transaction in which
such person became an interested stockholder was, approved by the board of
directors of the corporation before the stockholder became an interested
stockholder; or (iii) the business combination is approved by the board of
directors of the corporation and authorized at an annual or special meeting of
the corporation's stockholders by the affirmative vote of at least 662/3% of
the outstanding voting stock which is not owned by the interested stockholder.
For purposes of Section 203, a "business combination" includes mergers, asset
sales and other transactions resulting in a financial benefit to the interested
stockholder; an "interested stockholder" is a person who, together with
affiliates and associates, owns (or, in the case of affiliates and associates
of the issuer, did own within the last three years) 15% or more of the
corporation's voting stock other than a person who owned such shares on
December 23, 1987. An interested stockholder who became an interested
stockholder at a time when the restrictions of Section 203 did not apply to the
corporation shall not be subject to such restrictions.
BOARD OF DIRECTORS AND RELATED PROVISIONS. The Certificate of
Incorporation provides that the number of directors of the Company shall be
fixed from time to time by a resolution of a majority of the Board of Directors
of the Company. The Certificate of Incorporation provides that the Board of
Directors shall have no less than three and no more than eleven members and
shall be divided into three classes. The members of each class of directors
will serve for staggered three-year terms. Thereafter, the number of directors
may be fixed, from time to time, by the affirmative vote of a majority of the
entire Board of Directors by action of the stockholders of the Company. The
holders of a majority of the Series A Preferred Stock, voting separately as a
single class in the election of directors of the Company, with each share of
Series A Preferred Stock entitled to one vote, have the right to elect one
member of the Board of Directors, as well as certain other rights to elect
directors if the Company does not declare and pay dividends on the Series A
Preferred Stock, as described above. See "Description of Capital
Stock--Preferred Stock." In accordance with the DGCL, directors serving on
classified boards of directors may only be removed from office for cause.
Vacancies on the Board of Directors may be filled by a majority of the
remaining directors, or by the sole remaining director or by the stockholders.
The Certificate provides that stockholders may take action by the written
consent of 662/3% of the stockholders, and that a special meeting of
stockholders may be called only by the Board of Directors. The By-Laws of the
Company provide that stockholders must follow an advance notification procedure
for certain stockholder nominations of candidates for the Board of Directors
and for certain other stockholder business to be conducted at an annual
meeting. These provisions could, under certain circumstances, operate to delay,
defer or prevent a change in control of the Company.
AUTHORIZED AND UNISSUED PREFERRED STOCK. Upon consummation of the
Offering, there will be authorized and unissued shares of Preferred
Stock. The Company's Certificate of Incorporation authorizes the Board of
Directors to issue one or more series of Preferred Stock and to establish the
designations, powers, preferences and rights of each series of Preferred Stock.
The existence of authorized and unissued Preferred Stock may enable the Board
of Directors to render more difficult or to discourage an attempt to obtain
control of the Company by means of a merger,
57
<PAGE>
tender offer, proxy contest or otherwise. For example, if in the due exercise
of its fiduciary obligations, the Board of Directors were to determine that a
takeover proposal is not in the Company's best interests, the Board of
Directors could cause shares of Preferred Stock to be issued without
stockholder approval in one or more private offerings or other transactions
that might dilute the voting or other rights of the proposed acquirer or
insurgent stockholder or stockholder group or create a substantial voting block
in institutional or other hands that might undertake to support the position of
the incumbent Board of Directors. See "--Preferred Stock."
SPECIAL MEETINGS OF STOCKHOLDERS. The By-Laws provide that special
meetings of the stockholders of the Company may be called only by the Board of
Directors of the Company, the Chairman of the Board of the Company or the
President of the Company. This provision will render it more difficult for
stockholders to take action opposed by the Board of Directors.
INDEMNIFICATION. The Certificate of Incorporation provides that the
Company shall indemnify each director, officer, employee or agent of the
Company to the fullest extent permitted by law. The Certificate of
Incorporation limits the liability of the Company's directors and stockholders
for monetary damages in certain circumstances. The Certificate of Incorporation
also provides that the Company may purchase insurance on behalf of the
directors, officers, employees and agents of the Company against certain
liabilities they may incur in such capacity, whether or not the Company would
have the power to indemnify against such liabilities.
STOCKHOLDERS' RIGHTS PLAN
The Company intends to declare a dividend distribution of one right (a
"Right") for each outstanding share of Class A Common Stock, without par value
(the "Common Shares"), of the Company. The dividend will be payable to the
stockholders of record on a certain date (the "Record Date"), and with respect
to Common Shares issued thereafter until the Distribution Date (as defined
below) and, in certain circumstances, with respect to Common Shares issued
after the Distribution Date. Except as set forth below, each Right, when it
becomes exercisable, entitles the registered holder to purchase from the
Company one one-thousandth of a share of Series B Junior Preferred Stock,
without par value (the "Preferred Shares"), of the Company (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights will be
set forth in a Rights Agreement (the "Rights Agreement") between the Company
and a Rights Agent (the "Rights Agent").
Initially, the Rights will be attached to all certificates representing
Common Shares then outstanding, and no separate Right Certificates will be
distributed. The Rights will separate from the Common Shares upon the earliest
to occur of (i) the date of a public announcement that, without the prior
consent of a majority of the members of the Board of Directors, a person or
group of affiliated or associated persons having acquired beneficial ownership
of 15% or more of the outstanding Common Shares (except pursuant to a Permitted
Offer, as defined), or (ii) 10 days (or such later date as the Board may
determine) following the commencement or announcement of an intention to make a
tender or exchange offer, the consummation of which would result in a person or
group becoming an Acquiring Person (as defined) (the earliest of such dates
being called the "Distribution Date"). A person or group whose acquisition of
Common Shares causes a Distribution Date pursuant to clause (i) above is an
"Acquiring Person." The date that a person or group announces publicly that it
has become an Acquiring Person is the "Shares Acquisition Date."
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the Record Date upon transfer or new
issuance of Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Shares outstanding as of the Record Date, even without such notation or
a copy of the Summary of Rights being attached thereto, will also constitute
the transfer of the Rights associated with the Common Shares represented by
such certificate. As soon as
58
<PAGE>
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Shares as of the close of business on the Distribution Date (and to each
initial record holder of certain Common Shares issued after the Distribution
Date), and such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date and will expire
on the tenth anniversary of the Record Date unless earlier redeemed by the
Company as described below.
In the event that any person becomes an Acquiring Person (except pursuant
to a tender or exchange offer which is for all outstanding Common Shares at a
price and on terms which a majority of the members of the Board of Directors
determines to be adequate and in the best interests of the Company and its
stockholders, other than such Acquiring Person, its affiliates and associates
(a "Permitted Offer")), each holder of a Right will thereafter have the right
(the "Flip-In Right") to receive upon exercise the number of units of one
one-thousandth of a Preferred Share (or, in certain circumstances, other
securities of the Company) having a value (immediately prior to such triggering
event) equal to two times the exercise price of the Right. Notwithstanding the
foregoing, following the occurrence of the event described above, all Rights
that are, or (under certain circumstances specified in the Rights Agreement)
were, beneficially owned by any Acquiring Person or any affiliate or associate
thereof will be null and void.
In the event that, at any time following the Shares Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction
in which the holders of all of the outstanding Common Shares immediately prior
to the consummation of the transaction are not the holders of all of the
surviving corporation's voting power, or (ii) more than 50% of the Company's
assets or earning power is sold or transferred, in either case with or to an
Acquiring Person or any Affiliate or Associate thereof, or any other person in
which such Acquiring Person, Affiliate or Associate has an interest, or any
person acting on behalf of or in concert with such Acquiring Person, Affiliate
or Associate, or, if in such transaction all holders of Common Shares are not
treated alike, any other person, then each holder of a Right (except Rights
which previously have been voided as set forth above) shall thereafter have the
right (the "Flip-Over Right") to receive, upon exercise, common shares of the
acquiring company having a value equal to two times the Purchase Price. The
holder of a Right will continue to have the Flip-Over Right whether or not such
holder exercises or surrenders the Flip-In Right.
The Purchase Price payable, and the number of Preferred Shares, Common
Shares or other securities issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price,
less than the then current market price of the Preferred Shares, or (iii) upon
the distribution to holders of the Preferred Shares of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
The number of outstanding Rights and the Purchase Price payable are also
subject to adjustment in the event of a stock split of the Common Shares or a
stock dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such
case, prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share but, if greater, will be entitled
to an aggregate dividend per share of 1,000 times the dividend declared per
Common Share. In the event of liquidation, the holders of the Preferred Shares
will be entitled to a minimum preferential liquidation payment of $1,000 per
share; thereafter, and after the holders of the Common Shares receive a
liquidation payment of $1.00 per share, the holders of the Preferred Shares and
the holders of the Common Shares will share the remaining assets in the ratio
of 1,000 to 1 (as
59
<PAGE>
adjusted) for each Preferred Share and Capital Share so held, respectively.
Finally, in the event of any merger, consolidation or other transaction in
which Common Shares are exchanged, each Preferred Share will be entitled to
receive 1,000 times the amount received per Common Share. These rights are
protected by customary antidilution provisions. In the event that the amount of
accrued and unpaid dividends on the Preferred Shares is equivalent to six full
quarterly dividends or more, the holders of the Preferred Shares shall have the
right, voting as a class, to elect two directors in addition to the directors
elected by the holders of the Common Shares until all cumulative dividends on
the Preferred Shares have been paid through the last quarterly dividend payment
date or until non-cumulative dividends have been paid regularly for at least
one year.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are one one-thousandth or integral multiples of one one-
thousandth of a Preferred Share, which may, at the election of the Company, be
evidenced by depository receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Preferred Shares on the last
trading day prior to the date of exercise.
At any time after a person becomes an Acquiring Person and prior to the
acquisition by such person or group of 50% or more of the Common Shares, the
Board of Directors of the Company may exchange the Rights (other than the
Rights owned by the Acquiring Person or its Associates and Affiliates, which
shall have become void) at an exchange ratio of one Common Share per Right
(subject to adjustment).
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Rights the Company may redeem
the Rights in whole, but not in part, at a price of $0.001 per Right (the
"Redemption Price") which redemption shall be effective upon the action of the
Board of Directors. Additionally, following the Shares Acquisition Date, the
Company may redeem the then outstanding Rights in whole, but not in part, at
the Redemption Price, that such redemption is in connection with a merger or
other business combination transaction or series of transactions involving the
Company in which all holders of Common Shares are treated alike but not
involving an Acquiring Person or Transaction Person or any Affiliates or
Associates thereof. Upon the effective date of the redemption of the Rights,
the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
All of the provisions of the Rights Agreement may be amended by the Board
of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, defect or inconsistency, to make changes
which do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person), or, subject to certain limitations, to
shorten or lengthen any time period under the Rights Agreement.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to stockholders of the Company, stockholders may, depending
upon the circumstances, recognize taxable income should the Rights become
exercisable or upon the occurrence of certain events thereafter.
Each outstanding Common Share on the Record Date will receive one Right.
As long as the Rights are attached to the Common Shares, the Company will issue
one Right with each new Common Share so that all such shares will have attached
rights. 1,000,000 Preferred Shares will be reserved for issuance upon exercise
of the Rights.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on (i) the Rights being redeemed, (ii) a
substantial number of Rights being acquired or (iii) that the offer will be
deemed a
60
<PAGE>
"Permitted Offer" under the Rights Agreement. However, the Rights should not
interfere with any merger or other business combination in connection with a
Permitted Offer or that is approved by the Company because the Rights are
redeemable under certain circumstances.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock is First
Union National Bank. The Company has not appointed a transfer agent for the
Class B Common Stock.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the consummation of the Offering, the Company will
have outstanding shares of Class A Common Stock ( shares outstanding
if the Underwriters' over-allotment option is exercised in full), including
outstanding shares of Class A Common Stock beneficially owned by existing
stockholders. In addition, immediately following the consummation of Offering,
the Company will have shares of Class B Common Stock outstanding, all of
which are convertible into shares of Class A Common Stock. The shares of
Class A Common Stock to be sold pursuant to the Offering ( if the
Underwriters' over-allotment option is exercised in full) will be eligible for
sale without restriction under the Securities Act of 1933, as amended (the
"Securities Act") in the public market after the consummation of the Offering
by persons other than affiliates of the Company. Sales of shares by
"affiliates" of the Company as the term is defined in Rule 144 under the
Securities Act ("Affiliates") will be subject to Rule 144. The Company and all
existing stockholders, who will beneficially own outstanding shares
immediately following the consummation of the Offering, have agreed with the
Underwriters not to offer, sell or otherwise dispose of any shares of Class A
Common Stock (other than issuances by the Company pursuant to the employee
stock option plan) for a period of 180 days after the date of the Prospectus
without the prior written consent of Morgan Stanley & Co. Incorporated.
GE Capital owns all of the outstanding shares of Class B Common Stock. GE
Capital has the right to convert its Class B Common Stock to Class A Common
Stock and demand registration of its shares of Class A Common Stock under the
Securities Act. Registration of any shares held by GE Capital would permit the
sale of these shares without regard to the restrictions of Rule 144. Kevin P.
Fitzgerald, President and Chief Executive Officer of the Company, also has the
right to demand registration of shares he may acquire from the exercise of
certain options. Registration of any shares held by Mr. Fitzgerald would permit
the sale of these shares without regard to the restrictions of Rule 144. The
Mas family and Santos also have the right to demand registration of their
shares of Class A Common Stock under the Securities Act. Registration of any
shares held by the Mas family or Santos would permit the sale of these shares
without regard to the restrictions of Rule 144. Santos Capital has the right to
demand registration of shares it may acquire upon the exercise of certain
options. Registration of these shares would permit their sale without regard to
the restrictions of Rule 144. Mr. Fitzgerald, GE Capital, the Mas family,
Santos and Santos Capital have agreed to waive their right to exercise their
registration rights in connection with the Offering and for 180 days
thereafter. See "Description of Capital Stock-- Registration Rights." Based on
shares outstanding as of , 1998, following the expiration or waiver of the
foregoing restrictions on dispositions and any applicable holding periods under
Rule 144, shares of Class A Common Stock owned by existing stockholders
will be available for sale in the public market pursuant to Rule 144 (including
the volume and other limitations set for therein). See "Underwriting." The
Company intends to register on Form S-8 shares of Class A Common Stock
reserved for issuance upon exercise of options granted to certain employees
under the Company's Incentive Stock Plan, and shares of Class A Common Stock
reserved for issuance upon the exercise of certain options granted to Mr.
Fitzgerald and Mr. Warren. Options to purchase shares of Class A Common
Stock are currently issued and exercisable.
Prior to the Offering, there has been no market for the Class A Common
Stock of the Company. The Company can make no predictions as to the effect, if
any, that sales of shares or the availability of shares for sale will have on
market prices prevailing from time to time. Nevertheless, sales of substantial
amounts of the Class A Common Stock of the Company in the public market, or the
prospect of such sales, could adversely affect the market price of the Class A
Common Stock.
In general, under Rule 144 as presently in effect, beginning 90 days after
the date of this Prospectus, if a period of at least one year has elapsed since
the later of the date shares of Class A Common Stock that are "restricted
securities" (as that term is defined in Rule 144) were acquired from the
Company or the date they were acquired from an affiliate (as that term is
defined in Rule 144) of the Company, as applicable, then the holder of such
restricted shares (including an Affiliate) is entitled to sell a number of
shares within any three-month period that does not exceed the greater of 1% of
the
62
<PAGE>
then outstanding shares of Class A Common Stock (approximately shares
immediately after the consummation of the Offering, assuming that the
Underwriters' over-allotment option is not exercised) or the average weekly
trading volume of the Class A Common Stock on the New York Stock Exchange
during the four calendar weeks preceding such sale. The holder may only sell
such shares through unsolicited brokers' transactions. Sales under Rule 144 are
also subject to certain requirements pertaining to the manner of such sales,
notices of such sales and the availability of current public information
concerning the Company. Affiliates may sell shares not constituting restricted
securities in accordance with the foregoing volume limitations and other
requirements but without regard to the two-year holding period requirement.
Under Rule 144(k), if a period of at least two years has elapsed since the
later of the date restricted shares were acquired from the Company or the date
they were acquired from an Affiliate of the Company, as applicable, then a
holder of such restricted shares who is not an Affiliate of the Company at the
time of the sale and who has not been an Affiliate of the Company for at least
three months prior to the sale would be entitled to sell the shares immediately
without regard to the volume limitations and other conditions described above.
63
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below for whom Morgan Stanley & Co. Incorporated, BT Alex.
Brown Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation are
acting as U.S. Representatives, and the International Underwriters named below
for whom Morgan Stanley & Co. International Limited, BT Alex. Brown
International, a division of Bankers Trust International PLC and Donaldson,
Lufkin & Jenrette International are acting as International Representatives,
have severally agreed to purchase, and the Company has agreed to sell to them,
severally, the respective number of shares of Class A Common Stock set forth
opposite the names of such Underwriters below:
NUMBER OF
NAME SHARES
- ------------------------------------------------------------------ -----------
U.S. Underwriters:
Morgan Stanley & Co. Incorporated ...........................
BT Alex. Brown Incorporated .................................
Donaldson, Lufkin & Jenrette Securities Corporation .........
---------
Subtotal ...................................................
---------
International Underwriters:
Morgan Stanley & Co. International Limited ..................
BT Alex. Brown International, a division of
Bankers Trust International PLC ...........................
Donaldson, Lufkin & Jenrette International ..................
---------
Subtotal ...................................................
---------
Total .....................................................
=========
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively
referred to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Class A Common
Stock offered hereby are subject to the approval of certain legal matters by
their counsel and to certain other conditions. The Underwriters are obligated
to take and pay for all of the shares of Class A Common Stock offered hereby
(other than those covered by the U.S. Underwriters' overallotment option
described below) if any such shares are taken.
Pursuant to the Agreement between U.S. and International Underwriters,
each U.S. Underwriter has represented and agreed that, with certain exceptions:
(i) it is not purchasing any Shares (as defined herein) for the account of
anyone other than a United States or Canadian Person (as defined herein) and
(ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any Shares or distribute any prospectus relating to the Shares
outside the United States or Canada or to anyone other than a United States or
Canadian Person. Pursuant to the Agreement between U.S. and International
Underwriters, each International Underwriter has represented and agreed that,
with certain exceptions: (i) it is not purchasing any Shares for the account of
any United States or Canadian Person and (ii) it has not offered or sold, and
will not offer or sell, directly or indirectly, any Shares or distribute any
prospectus relating to the Shares in the United States or Canada or to any
United States or Canadian Person. With respect to any Underwriter that is a
U.S. Underwriter and an International Underwriter, the foregoing
representations and agreements (i) made by it in its capacity as a U.S.
Underwriter apply
64
<PAGE>
only to it in its capacity as a U.S. Underwriter and (ii) made by it in its
capacity as an International Underwriter apply only to it in its capacity as an
International Underwriter. The foregoing limitations do not apply to
stabilization transactions or to certain other transactions specified in the
Agreement between U.S. and International Underwriters. As used herein, "United
States or Canadian Person" means any national or resident of the United States
or Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person), and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Class A Common Stock to be purchased
by the Underwriters under the Underwriting Agreement are referred to herein as
the "Shares."
Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed. The per share price of any
Shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters,
each U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any Shares, directly or indirectly, in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and has represented that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus in
the province or territory of Canada in which such offer or sale is made. Each
U.S. Underwriter has further agreed to send to any dealer who purchases from it
any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, directly or indirectly, any of such Shares in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made, and that
such dealer will deliver to any other dealer to whom it sells any of such
Shares a notice containing substantially the same statement as is contained in
this sentence.
Pursuant to the Agreement between U.S. and International Underwriters,
each International Underwriter has represented and agreed that (i) it has not
offered or sold and, prior to the date six months after the closing date for
the sale of the Shares to the International Underwriters, will not offer or
sell, any Shares to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the Shares in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and
will only issue or pass on in the United Kingdom any document received by it in
connection with the offering of the Shares to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document
may otherwise lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters,
each International Underwriter has further represented that it has not offered
or sold, and has agreed not to offer or sell, directly or indirectly, in Japan
or to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or
sales to Japanese International Underwriters or dealers and except pursuant to
any exemption from the registration requirements of the Securities and Exchange
Law and otherwise in compliance with applicable
65
<PAGE>
provisions of Japanese law. Each International Underwriter has further agreed
to send to any dealer who purchases from it any of the Shares a notice stating
in substance that, by purchasing such Shares, such dealer represents and agrees
that it has not offered or sold, and will not offer or sell, any of such
Shares, directly or indirectly, in Japan or to or for the account of any
resident thereof except for offers or sales to Japanese International
Underwriters or dealers and except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law and otherwise in
compliance with applicable provisions of Japanese law, and that such dealer
will send to any other dealer to whom it sells any of such Shares a notice
containing substantially the same statement as is contained in this sentence.
The Underwriters initially propose to offer part of the shares of Class A
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $ a share to other Underwriters or to certain dealers. After the
initial offering of the shares of Class A Common Stock, the offering price and
other selling terms may from time to time be varied by the Representatives.
The Company has granted to the U.S. Underwriters an option, exercisable
for 30 days from the date of this Prospectus, to purchase up to an aggregate of
additional shares of Class A Common Stock at the public offering price
set forth on the cover page hereof, less underwriting discounts and
commissions. The U.S. Underwriters may exercise such option solely for the
purpose of covering overallotments, if any, made in connection with the
offering of the shares of Class A Common Stock offered hereby. To the extent
such option is exercised, each U.S. Underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares of Class A Common Stock as the number set forth next to such
U.S. Underwriter's name in the preceding table bears to the total number of
shares of Class A Common Stock set forth next to the names of all U.S.
Underwriters in the preceding table.
At the request of the Company, the Underwriters have reserved
shares of Class A Common Stock for sale to employees of the Company at the
public offering price set forth on the cover page of this Prospectus. Any shares
not so purchased will be offered to the public at such price.
The Underwriters have informed the Company that they do not intend sales
to discretionary accounts to exceed five percent of the total number of shares
of Class A Common Stock offered by them.
The Company will be applying to list the Class A Common Stock on the New
York Stock Exchange under the symbol "NFF."
Each of the Company and the directors, executive officers and certain
other stockholders of the Company has agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it
will not, during the period ending 180 days after the date of this Prospectus,
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend or otherwise transfer or dispose of, directly or
indirectly, any shares of Class A Common Stock or any securities convertible
into or exercisable or exchangeable for Class A Common Stock or (ii) enter into
any swap or other arrangement that transfers to another, in whole or in part,
any of the economic consequences of ownership of the Class A Common Stock,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of Class A Common Stock or such other securities, in cash
or otherwise. The restrictions described in this paragraph do not apply to (x)
the sale of Shares to the Underwriters, (y) the issuance by the Company of
shares of Class A Common Stock upon the exercise of an option or a warrant or
the conversion of a security outstanding on the date of this Prospectus of
which the Underwriters have been advised in writing or (z) transactions by any
person other than the Company relating to shares of Class A Common Stock or
other securities acquired in open market transactions after the completion of
the offering of the Shares.
In order to facilitate the offering of the Class A Common Stock, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class A Common Stock. Specifically, the Underwriters
may overallot in connection with the offering, creating a short position in
66
<PAGE>
the Class A Common Stock for their own account. In addition, to cover
overallotments or to stabilize the price of the Class A Common Stock, the
Underwriters may bid for, and purchase, shares of Class A Common Stock in the
open market. Finally, the underwriting syndicate may reclaim selling
concessions allowed to an Underwriter or a dealer for distributing the Class A
Common Stock in the offering, if the syndicate repurchases previously
distributed Class A Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Class A Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
Bankers Trust Company, an affiliate of BT Alex. Brown Incorporated, will
act as agent under the New Credit Facility. In addition, Bankers Trust Company
is one of the lenders under the Term Loan. In each case, Bankers Trust Company
receives usual and customary fees. From time to time, Morgan Stanley & Co.
Incorporated has provided, and continues to provide, investment banking
services to the Company and its affiliates, in each case, receiving the usual
and customary fees.
Pursuant to the repayment of the Term Loan, Bankers Trust Company will
recieve an amount greater than 10% of the net proceeds of the Offering. Bankers
Trust Company is an affiliate of BT Alex. Brown Incorporated, which is a member
of the National Association of Securities Dealers, Inc. (the "NASD").
Accordingly, the underwriting arrangements for the Offering will be made in
compliance with Rule 2710 (c)(8) and Rule 2720 of the Conduct Rules of the
NASD, which provides that, among other things, when an NASD member is to
receive an amount greater than 10% of the net proceeds of an offering, the
initial public offering price can be no higher than that recommended by a
"qualified independent underwriter" meeting certain standards. In accordance
with this requirement, Morgan Stanley & Co. Incorporated has served in such
role and has recommended a price in compliance with the requirements of Rule
2720. In connection with the Offering, Morgan Stanley & Co. Incorporated, in
its role as a qualified independent underwriter, has performed due diligence
investigations and reviewed and participated in the preparation of the
Prospectus and the Registration Statement of which this Prospectus forms a
part.
At the request of the Company, the Underwriters have reserved for sale, at
the initial offering price, up to shares offered hereby for directors,
officers, employees, business associates, and related persons of the Company.
The number of shares of Class A Common Stock available for sale to the general
public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares which are not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares
offered hereby.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the Class A
Common Stock. The initial public offering price will be determined by
negotiations between the Company and the U.S. Representatives. Among the
factors to be considered in determining the initial public offering price will
be the future prospects of the Company and its industry in general, sales,
earnings and certain other financial operating information of the Company in
recent periods, and the price-earnings ratios, price-sales ratios, market
prices of securities and certain financial and operating information of
companies engaged in activities similar to those of the Company. The estimated
initial public offering price range set forth on the cover page of this
Preliminary Prospectus is subject to change as a result of market conditions
and other factors.
67
<PAGE>
CERTAIN UNITED STATES TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
GENERAL
The following is a general discussion of the principal United States
federal income and estate tax consequences of the ownership and disposition of
Class A Common Stock by a Non-U.S. Holder, as defined below. As used herein,
the term "Non-U.S. Holder" means a holder that for United States federal income
tax purposes is an individual or entity other than (i) a citizen or individual
resident of the United States, (ii) a corporation or partnership created or
organized in or under the laws of the United States or of any political
subdivision thereof (other than a partnership treated as foreign under U.S.
Treasury regulations), (iii) an estate the income of which is subject to U.S.
federal income taxation regardless of its source or (iv) a trust if both (A) a
U.S. court is able to exercise primary supervision over the administration of
the trust and (B) one or more U.S. persons have the authority to control all
substantial decisions of the trust.
This discussion does not address all aspects of United States federal
income and estate taxes that may be relevant to Non-U.S. Holders in light of
their personal circumstances (including the fact that in the case of a Non-U.S.
Holder that is a partnership, the U.S. tax consequences of holding and
disposing of shares of Class A Common Stock may be affected by certain
determinations made at the partner level), or to certain types of Non-U.S.
Holders which may be subject to special treatment under United States federal
income tax laws (for example, insurance companies, tax-exempt organizations,
financial institutions, dealers in securities and holders of securities held as
part of a "straddle," "hedge," or "conversion transaction") and does not
address U.S. state or local or foreign tax consequences. Furthermore, this
discussion is based on provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed regulations promulgated thereunder
and administrative and judicial interpretations thereof, all as of the date
hereof, and all of which are subject to change, possibly with retroactive
effect. The following summary is included herein for general information.
ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS
REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER
TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF SHARES OF COMMON STOCK.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a nonresident alien) by virtue of being present
in the United States for at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-year period ending in the current
calendar year (counting for such purposes all of the days present in the
current year, one-third of the days present in the immediately preceding year
and one-sixth of the days present in the second preceding year). Resident
aliens are subject to U.S. federal tax as if they were U.S. citizens.
DIVIDENDS
The Company does not anticipate paying cash dividends on its capital stock
in the foreseeable future. See "Dividend Policy." In the event, however, that
dividends are paid on shares of Class A Common Stock, dividends paid to a
Non-U.S. Holder of Class A Common Stock generally will be subject to
withholding of United States federal income tax at a 30% rate, or such lower
rate as may be provided by an income tax treaty between the United States and a
foreign country if the Non-U.S. Holder is treated as a resident of such foreign
country within the meaning of the applicable treaty. Non-U.S. Holders should
consult their tax advisors regarding their entitlement to benefits under a
relevant income tax treaty.
Dividends that are effectively connected with: (i) a Non-U.S. Holder's
conduct of a trade or business in the United States (or, if an income tax
treaty applies, attributable to a permanent establishment), or, in the case of
the individual, a "fixed base" in the United States ("U.S. trade or business
income"), are generally subject to U.S. federal income tax on a net income
basis at regular
68
<PAGE>
graduated rates, but are not generally subject to the 30% withholding tax if
the Non-U.S. Holder files the appropriate U.S. Internal Revenue Service ("IRS")
form with the payor (which form under U.S. Treasury regulations generally
effective for payments made after December 31, 1998 (the "Final Regulations"),
will require the Non-U.S. Holder to provide a U.S. taxpayer identification
number). Any U.S. trade or business income received by a Non-U.S. Holder that
is a corporation may also, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
Under currently applicable U.S. Treasury regulations, dividends paid to an
address in a foreign country are presumed (absent actual knowledge to the
contrary) to be paid to a resident of such country for purposes of the
withholding discussed above and for purposes of determining the applicability
of a tax treaty rate. Under the Final Regulations, however, a Non-U.S. Holder
of Class A Common Stock who wishes to claim the benefit of an applicable treaty
rate generally will be required to satisfy applicable certification and other
requirements. In addition, under the Final Regulations, in the case of Class A
Common Stock held by a foreign partnership, (i) the certification requirement
will generally be applied to the partners of the partnership and (ii) the
partnership will be required to provide certain information, including a United
States taxpayer identification number. The Final Regulations also provide
look-through rules for tiered partnerships.
A Non-U.S. Holder of Class A Common Stock that is eligible for a reduced
rate of U.S. withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for a
refund with the IRS.
The Final Regulations also provide special rules for dividend payments
made to foreign intermediaries, U.S. or foreign wholly owned entities that are
disregarded for U.S. federal income tax purposes and entities that are treated
as fiscally transparent in the United States, the applicable income tax treaty
jurisdiction, or both. In addition, recently enacted legislation, effective
August 4, 1997, denies income tax treaty benefits to foreigners receiving
income derived through a partnership (or otherwise fiscally transparent entity)
in certain circumstances. Prospective investors should consult with their own
tax advisers concerning the effect, if any, of these new Treasury regulations
and the recent legislation on an investment in the Class A Common Stock.
GAIN ON DISPOSITION OF CLASS A COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of Class A Common Stock unless:
(i) the gain is U.S. trade or business income (in which case, the branch
profits tax described above may also apply to a corporate Non-U.S. Holder),
(ii) the Non-U.S. Holder is an individual who holds the Class A Common Stock as
a capital asset within the meaning of Section 1221 of the Code, is present in
the United States for 183 or more days in the taxable year of the disposition
and meets certain other requirements, (iii) the Non-U.S. Holder is subject to
tax pursuant to the provisions of the U.S. tax law applicable to certain United
States expatriates or (iv) the Company is or has been a "U.S. real property
holding corporation" for federal income tax purposes at any time during the
shorter of the five-year period preceding such disposition or the period that
the Non-U.S. Holder held the Class A Common Stock. Generally, a corporation is
a "U.S. real property holding corporation" if the fair market value of its
"U.S. real property interests" equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interests plus its other assets
used or held for use in a trade or business. The Company believes that it has
not been, is not currently, and does not anticipate becoming, a "U.S. real
property holding corporation" for U.S. federal income tax purposes. The tax
with respect to stock in a "U.S. real property holding corporation" does not
apply to a Non-U.S. Holder whose holdings, direct and indirect, at all times
during the applicable period, constituted 5% or less of the Class A Common
Stock, provided that the Class A Common Stock was regularly traded on an
established securities market. If the Company were, or were to become, a U.S.
real property holding corporation, the Company believes that the Class A Common
Stock would be treated as "regularly traded."
69
<PAGE>
If a Non-U.S. Holder who is an individual is subject to tax under clause
(i) above, such individual generally will be taxed on the net gain derived from
a sale of Class A Common Stock under regular graduated United States federal
income tax rates. If an individual Non-U.S. Holder is subject to tax under
clause (ii) above, such individual generally will be subject to a flat 30% tax
on the gain derived from a sale, which may be offset by certain United States
capital losses (notwithstanding the fact that such individual is not considered
a resident alien of the United States). Thus, individual Non-U.S. Holders who
have spent (or expect to spend) more than a DE MINIMIS period of time in the
United States in the taxable year in which they contemplate a sale of Class A
Common Stock are urged to consult their tax advisers prior to the sale
concerning the U.S. tax consequences of such sale.
If a Non-U.S. Holder that is a foreign corporation is subject to tax under
clause (i) above, it generally will be taxed on its net gain under regular
graduated United States federal income tax rates and, in addition, will be
subject to the branch profits tax equal to 30% of its "effectively connected
earnings and profits," within the meaning of the Code for the taxable year, as
adjusted for certain items, unless it qualifies for a lower rate under an
applicable tax treaty.
FEDERAL ESTATE TAX
Class A Common Stock owned or treated as owned by an individual who is
neither a United States citizen nor a United States resident (as defined for
United States federal estate tax purposes) at the time of death will be
included in the individual's gross estate for United States federal estate tax
purposes, unless an applicable estate tax or other treaty provides otherwise
and, therefore, may be subject to United States federal estate tax.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under United States Treasury regulations, the Company must report annually
to the IRS and to each Non-U.S. Holder the amount of dividends paid to such
holder and the tax withheld with respect to such dividends. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder is
a resident under the provisions of an applicable income tax treaty or
agreement.
Currently, United States backup withholding (which generally is a
withholding tax imposed at the rate of 31% on certain payments to persons that
fail to furnish certain information under the United States information
reporting requirements) generally will not apply (i) to dividends paid to
Non-U.S. Holders that are subject to the 30% withholding discussed above (or
that are not so subject because a tax treaty applies that reduces such 30%
withholding) or (ii) before January 1, 1999, to dividends paid to a Non-U.S.
Holder at an address outside of the United States unless the payor has actual
knowledge that the payee is a U.S. Holder. Backup withholding and information
reporting generally will apply to dividends paid to addresses inside the United
States on shares of Class A Common Stock to beneficial owners that are not
"exempt recipients" and that fail to provide in the manner required certain
identifying information.
The payment of the proceeds of the disposition of Class A Common Stock by
a holder to or through the U.S. office of a broker or through a non-U.S. branch
of a U.S. broker generally will be subject to information reporting and backup
withholding at a rate of 31% unless the holder either certifies its status as a
Non-U.S. Holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a Non-U.S. Holder
of Class A Common Stock to or through a non-U.S. office of a non-U.S. broker
will not be subject to backup withholding or information reporting unless the
non-U.S. broker has certain U.S. relationships. In the case of the payment of
proceeds from the disposition of Class A Common Stock effected by a foreign
office of a broker that is a U.S. person or a "U.S. related person," existing
regulations require information reporting on the payment unless the broker
receives a statement from the owner, signed under penalty of perjury,
certifying its non-U.S. status or the broker has documentary evidence in its
files as to the Non-U.S. Holder's foreign status and the broker has no actual
knowledge to the contrary. For this
70
<PAGE>
purpose, a "U.S. related person" is (i) a "controlled foreign corporation" for
U.S. federal income tax purposes or (ii) a foreign person 50% or more of whose
gross income from all sources for the three-year period ending with the close
of its taxable year preceding the payment (or for such part of the period that
the broker has been in existence) is derived from activities that are
effectively connected with the conduct of a U.S. trade or business.
The Regulations alter the foregoing rules in certain respects. Among other
things, such regulations provide certain presumptions under which a Non-U.S.
Holder is subject to backup withholding at the rate of 31% and information
reporting unless the Company receives certification from the holder of non-U.S.
status. Depending on the circumstances, this certification will need to be
provided (i) directly by the Non-U.S. Holder, (ii) in the case of a Non-U.S.
Holder that is treated as a partnership or other fiscally transparent entity,
by the partners, shareholders or other beneficiaries of such entity, or (iii)
by certain qualified financial institutions or other qualified entities on
behalf of the Non-U.S. Holder.
Any amounts withheld under the backup withholding rules from a payment to
a Non-U.S. Holder will be refunded (or credited against the holder's U.S.
federal income tax liability, if any) provided that the required information is
furnished to the IRS.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Fried, Frank, Harris, Shriver & Jacobson (a partnership
including professional corporations) 1001 Pennsylvania Avenue, N.W.,
Washington, D.C., 20004. Certain legal matters in connection with the Common
Stock offered hereby will be passed upon for the Underwriters by Cahill Gordon
& Reindel (a partnership including a professional corporation), 80 Pine Street,
New York, New York 10005.
EXPERTS
The audited financial statements of Neff Corp. and subsidiaries and of
Richbourg's Sales & Rentals, Inc. as of December 31, 1996 and 1997 and for each
of the three years in the period ended December 31, 1997 included in this
Prospectus and the related financial statement schedule of Neff Corp. and
subsidiaries included elsewhere in the Registration Statement have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the registration statement, and are included
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
The consolidated balance sheets as of July 31, 1996 and July 31, 1997 and
the consolidated statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended July 31, 1997 of Industrial
Equipment Rentals, Inc. and subsidiary included in this Registration Statement
have been audited by Arthur Andersen LLP, independent public accountants, as
set forth in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
The consolidated financial statements of Sullair Argentina Sociedad
Anonima and its subsidiaries as of December 31, 1997 and 1996 and for each of
the three years in the period ended December 31, 1997 included in this
Registration Statement have been so included in reliance upon the report of
Price Waterhouse & Co. Buenos Aires, Argentina, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
71
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Class A Common Stock
offered hereby. This Prospectus, which constitutes part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Class A Common Stock, reference
is hereby made to such Registration Statement and the exhibits and schedules
thereto, copies of which may be inspected without charge at the public
reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its regional offices at: 75 Park
Place, Room 1228, New York, New York 10007 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60621. Copies of such material may be obtained from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C.
at prescribed rates. The summaries in this Prospectus of additional information
included in the Registration Statement or any exhibit thereto are qualified in
their entirety by reference to such information or exhibit. The Company intends
to file an application for listing of the shares of Class A Common Stock
offered hereby on the New York Stock Exchange under the symbol "NFF." Upon such
listing, reports and other information concerning the Company will be available
for inspection at the New York Stock Exchange, 70 Broad Street, New York, NY
10005. In addition, registration statements and certain other filings are
publicly available through the Commission's site on the Internet's World Wide
Web, located at http://www.sec.gov. The Registration Statement, including all
exhibits thereto and amendments thereof, has been filed with the Commission
through EDGAR.
72
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
NEFF CORP.
Independent Auditors' Report ................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 ................... F-3
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1997 ........................................ F-4
Consolidated Statements of Redeemable Preferred Stock and Common Stockholders'
Deficit for each of the three years in the period ended December 31, 1997 .... F-5
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1997 ........................................ F-6
Notes to Consolidated Financial Statements ..................................... F-7
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
Report of Independent Public Accountants ....................................... F-22
Consolidated Balance Sheets as of July 31, 1996 and 1997 ....................... F-23
Consolidated Statements of Operations for each of the three years
in the period ended July 31, 1997 ............................................ F-24
Consolidated Statements of Stockholders' Equity for each of the three years
in the period ended July 31, 1997 ............................................ F-25
Consolidated Statements of Cash Flows for each of the three years
in the period ended July 31, 1997 ............................................ F-26
Notes to Consolidated Financial Statements ..................................... F-27
RICHBOURG'S SALES AND RENTALS, INC.
Independent Auditors' Report ................................................... F-38
Balance Sheets as of December 31, 1996 and 1997 ................................ F-39
Statements of Operations for each of the three years
in the period ended December 31, 1997 ........................................ F-40
Statements of Common Stockholders' Equity for each of the three years
in the period ended December 31, 1997 ........................................ F-41
Statements of Cash Flows for each of the three years
in the period ended December 31, 1997 ........................................ F-42
Notes to Financial Statements .................................................. F-43
SULLAIR ARGENTINA SOCIEDAD ANONIMA AND ITS SUBSIDIARY
SULLAIR SAN LUIS SOCIEDAD ANONIMA
Report of Independent Accountants .............................................. F-47
Consolidated Balance Sheets as of December 31, 1997 and 1996 ................... F-48
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995 ............................................. F-49
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995 ............................................. F-50
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 ............................................. F-51
Notes to the Consolidated Financial Statements ................................. F-52
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Neff Corp.:
We have audited the accompanying consolidated balance sheets of Neff Corp.
and subsidiaries (the "Company"), as of December 31, 1996 and 1997, and the
related consolidated statements of operations, common stockholders' deficit and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1996 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
Miami, Florida
March 11, 1998, except for the preferred stock exchange
referred to in Note 1 and for the third paragraph of Note 5
as to which the dates are March 25, 1998 and is April 23, 1998, respectively
----------------
The accompanying consolidated financial statements reflect the 84.65 for
one stock split of the Company's outstanding common stock which is to be
effected on or about April 27, 1998. The above report is in the form which will
be furnished by Deloitte & Touche LLP upon completion of such stock split,
which is described in Note 1 to the consolidated financial statements and
assuming that from March 11, 1998 to the date of such stock split, no other
events shall have occurred that would affect the accompanying consolidated
financial statements and notes thereto.
DELOITTE & TOUCHE LLP
Miami, Florida
April 24, 1998
F-2
<PAGE>
NEFF CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31,
------------------------- -------------
1996 1997 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and Cash Equivalents ............................................... $ 4,989 $ 2,885 $ 2,885
Accounts Receivable, net of allowance for doubtful accounts of $375 in
1996 and $1,092 in 1997................................................. 10,313 25,007 25,007
Inventories ............................................................. 7,429 6,072 6,072
Rental Equipment, net ................................................... 76,794 184,787 184,787
Property and Equipment, net ............................................. 4,304 23,737 23,737
Goodwill, net ........................................................... 667 29,444 29,444
Intangible Assets, net .................................................. 200 622 622
Prepaid Expenses and Other Assets ....................................... 4,422 8,236 8,236
-------- --------- ---------
Total Assets ......................................................... $109,118 $ 280,790 $ 280,790
======== ========= =========
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Liabilities
Accounts Payable ....................................................... $ 7,291 $ 10,871 $ 10,871
Accrued Expenses ....................................................... 1,068 11,248 11,248
Senior Credit Facility ................................................. 58,250 161,825 161,825
Term Loan Payable ...................................................... -- 49,916 49,916
Capitalized Lease Obligations .......................................... 1,454 2,320 2,320
Notes Payable .......................................................... -- 14,462 14,462
Deferred Income Taxes .................................................. 2,264 1,136 1,136
-------- --------- ---------
Total Liabilities .................................................... 70,327 251,778 251,778
-------- --------- ---------
Redeemable Preferred Stock
Series A Cumulative Redeemable Preferred Stock, $.01 Par Value, 520
Shares Authorized; 324 and 341 Shares Issued and Outstanding in
1996 and 1997, respectively .......................................... 9,486 10,649 10,649
Series B Cumulative Convertible Redeemable Preferred Stock,
$.01 Par Value, 800 Shares Authorized, Issued and Outstanding......... 5,324 8,336 --
Series C Cumulative Convertible Redeemable Preferred Stock,
$.01 Par Value, 800 Shares Authorized, Issued and Outstanding......... 31,489 31,562 --
Preferred Stock Dividend Payable--Series B and C ....................... -- 3,200 --
-------- --------- ---------
Total Redeemable Preferred Stock ..................................... 46,299 53,747 10,649
-------- --------- ---------
Commitments and Contingencies(Note 12) .................................. -- -- --
Common Stockholders' Deficit
Class A Common Stock; $.01 Par Value, 100,000 Shares Authorized;
8,465 Shares Issued and Outstanding .................................. 85 85 85
Class B Special Common Stock; $.01 Par Value, Liquidation Preference
$11.67, 20,000 Shares Authorized; 6,000 Shares Issued and
Outstanding .......................................................... -- -- 60
Additional Paid-in Capital ............................................. -- -- 43,038
Accumulated Deficit .................................................... (7,593) (24,820) (24,820)
-------- --------- ---------
Total Common Stockholders' Deficit ................................... (7,508) (24,735) 18,363
-------- --------- ---------
Total Liabilities and Common Stockholders' Deficit ................... $109,118 $ 280,790 $ 280,790
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
NEFF CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
---------- ------------ ------------
<S> <C> <C> <C>
Revenues
Rental Revenue ............................................. $ 20,019 $ 35,808 $ 68,056
Equipment Sales ............................................ 33,943 44,160 50,578
Parts and Service .......................................... 13,292 15,045 23,385
-------- -------- --------
Total Revenues ........................................... 67,254 95,013 142,019
-------- -------- --------
Cost of Revenues
Cost of Equipment Sold ..................................... 26,562 33,605 40,766
Depreciation of Rental Equipment ........................... 11,747 19,853 24,490
Maintenance of Rental Equipment ............................ 3,469 8,092 19,748
Cost of Parts and Service .................................. 7,504 8,143 13,741
-------- -------- --------
Total Cost of Revenues ................................... 49,282 69,693 98,745
-------- -------- --------
Gross Profit ................................................ 17,972 25,320 43,274
-------- -------- --------
Other Operating Expenses
Selling, General and Administrative Expenses ............... 10,956 18,478 30,129
Other Depreciation and Amortization ........................ 916 1,432 2,548
Officer Stock Option Compensation .......................... -- -- 4,400
-------- -------- --------
Total Other Operating Expenses ........................... 11,872 19,910 37,077
-------- -------- --------
Income from Operations ...................................... 6,100 5,410 6,197
-------- -------- --------
Other (Income) Expense
Interest Expense ........................................... 3,090 6,012 11,976
Amortization of Debt Issue Costs ........................... -- 325 2,362
-------- -------- --------
Total Other Expense, Net ................................. 3,090 6,337 14,338
-------- -------- --------
Income (Loss) before (Provision for) Benefit from Income
Taxes and Extraordinary Item ............................... 3,010 (927) (8,141)
(Provision for) Benefit from Income Taxes ................... (2,860) (461) 1,748
-------- -------- --------
Income (Loss) before Extraordinary Item ..................... 150 (1,388) (6,393)
Extraordinary Loss, Net of Income Taxes ..................... -- (809) (451)
-------- -------- --------
Net Income (Loss) ........................................... $ 150 $ (2,197) $ (6,844)
======== ======== ========
Unaudited Pro Forma Net Income:
Income Before Pro Forma Provision for Income Taxes ......... $ 3,010
Pro Forma Provision for Income Taxes ....................... (1,176)
--------
Pro Forma Net Income ........................................ $ 1,834
========
Basic and Diluted Earnings Per Share (pro forma for 1995):
Income (loss) before Extraordinary Item ..................... $ .22 $ (.66) $ (1.69)
Extraordinary Loss, net ..................................... -- (.10) ( .05)
-------- -------- --------
Net Income (Loss) ........................................... $ .22 $ (.76) $ (1.74)
======== ======== ========
Weighted Average Common Shares Outstanding
(Basic and Diluted) ........................................ 8,465 8,465 8,465
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
NEFF CORP.
CONSOLIDATED STATEMENT OF COMMON
STOCKHOLDERS' DEFICIT FOR EACH OF THE
THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 (after giving retroactive effect to the
transaction discussed in Note 1) ................................ 8,465 $85 $2,799 $ 1,321 $ 4,205
Net income ....................................................... -- -- -- 150 150
Distributions to common stockholders ............................. -- -- (2,799) (3,487) (6,286)
----- --- ------ -------- --------
Balance, December 31, 1995 ....................................... 8,465 85 -- (2,016) (1,931)
Net loss ......................................................... -- -- -- (2,198) (2,198)
Preferred stock dividend ......................................... -- -- -- (979) (979)
Accretion of Series A Preferred Stock and
Detachable Stock Purchase Warrant ............................... -- -- -- (2,400) (2,400)
----- --- ------ -------- --------
Balance, December 31, 1996 ....................................... 8,465 85 -- (7,593) (7,508)
Net loss ......................................................... -- -- -- (6,844) (6,844)
Adjustment for acquired property and equipment
(Note 13), net of taxes ......................................... -- -- -- (2,936) (2,936)
Dividends in kind--Series A Preferred Stock ...................... -- -- -- (657) (657)
Preferred stock dividends accrued--Series B and C ................ -- -- -- (3,200) (3,200)
Accretion of Series A, B and C Preferred Stock ................... -- -- -- (3,590) (3,590)
----- --- ------ -------- --------
Balance, December 31, 1997 ....................................... 8,465 $85 $ -- $(24,820) $(24,735)
===== === ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
NEFF CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ................................................ $ 150 $ (2,197) $ (6,844)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ................................... 12,663 21,610 29,399
Officer stock option compensation ............................... -- -- 4,400
Gain on sale of rental equipment ................................ (8,846) (8,328) (11,856)
Extraordinary loss on debt extinguishment ....................... -- 1,298 722
Provision (benefit) for/(from) deferred income taxes ............ 2,860 (596) (1,748)
Change in operating assets and liabilities:
Accounts receivable ............................................ (1,487) (3,329) (8,341)
Inventories .................................................... 1,465 (2,227) 2,528
Other assets ................................................... (191) 255 (4,093)
Accounts payable and accrued expenses .......................... 866 2,831 5,240
Accrued financing costs ........................................ 2,143 (2,143) --
--------- --------- ----------
Net cash provided by operating activities ..................... 9,623 7,174 9,407
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of rental equipment .................................... (52,795) (86,886) (143,999)
Proceeds from sale of rental equipment ........................... 33,943 44,160 50,578
Purchases of property and equipment .............................. (1,483) (1,972) (16,747)
Advances to affiliate under a note receivable .................... -- -- --
Cash paid for acquisitions ....................................... -- -- (63,605)
Other ............................................................ -- -- --
--------- --------- ----------
Net cash used in investing activities ......................... (20,335) (44,698) (173,773)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issue costs ................................................. (1,623) (3,989) (2,425)
Net borrowings (repayments) under Senior Credit Facility ......... (250) -- 103,576
Advances under revolving credit facility ......................... -- 58,250 --
Borrowings under mortgage note ................................... -- -- 13,400
Borrowings under capitalized lease obligations ................... -- -- 866
Net borrowings (repayments) under floor plans payable ............ 10,039 (31,493) --
Borrowings under term loan ....................................... 17,135 -- 49,916
Repayments of notes payable ...................................... (11,285) (16,852) (135)
Repayments of notes payable to stockholders ...................... (4,836) -- --
Repayments under capitalized lease obligations ................... -- (222) --
Issuance of Series A preferred stock with detachable stock
purchase warrant, net of costs ................................. 11,430 -- --
Issuance of Series C preferred stock, net of costs ............... -- 31,489 --
Distributions to stockholders .................................... (6,286) -- (2,936)
--------- --------- ----------
Net cash provided by financing activities ..................... 14,324 37,183 162,262
--------- --------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents ............. 3,612 (341) (2,104)
Cash and Cash Equivalents, Beginning of Year ..................... 1,718 5,330 4,989
--------- --------- ----------
Cash and Cash Equivalents, End of Year ........................... $ 5,330 $ 4,989 $ 2,885
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--GENERAL
DESCRIPTION OF BUSINESS
Neff Corp. (the "Company") owns and operates equipment rental locations
throughout the southern and western regions of the United States. In addition
to its rental business, the Company acts as a dealer of new equipment on behalf
of several nationally recognized equipment manufacturers. The Company also
sells used equipment, spare parts and merchandise and provides ongoing repair
and maintenance services.
Neff Corp. was formed in 1995 to serve as a holding company for its
wholly-owned subsidiaries, Neff Machinery, Inc. ("Machinery") and Neff Rental,
Inc. ("Rental"). On December 26, 1995, the stockholders of Machinery and Rental
contributed 100% of their ownership interest in Machinery and Rental to Neff
Corp. in exchange for a 100% ownership interest in Neff Corp. The transaction
was accounted for as a reorganization of entities under common control (similar
to a pooling of interest business combination due to their common ownership).
As a result, the financial statements of Neff Corp. have been presented herein
as if Neff Corp. had conducted Machinery's and Rental's businesses since their
inception.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
STOCK SPLIT
The Company has effected a 84.65 for 1.00 stock split. The accompanying
financial statements reflect the stock split on a retroactive basis from the
beginning of the periods presented.
PREFERRED STOCK EXCHANGE
On March 25, 1998, General Electric Capital Corporation ("GE Capital")
exchanged their Series B and Series C Cumulative Convertible Redeemable
Preferred Stock for Class B Common Stock, liquidation preference $11.67. The
Company's unaudited pro forma balance sheet as of December 31, 1997 reflects
this exchange.
ACQUISITIONS
In August 1997, the Company purchased the common stock of Industrial
Equipment Rentals, Inc. ("IER") for approximately $3.6 million. This purchase
was funded by a $50 million term loan and borrowings under the Company's Senior
Credit Facility (see Note 5). IER has rental equipment operations similar to
the Company's in Alabama, Louisiana, Mississippi and Texas. The transaction was
accounted for under the purchase method. In connection with this purchase,
goodwill of approximately $29.2 million was recorded. Subsequent to the
acquisition, IER was merged into Neff Rental, Inc.
F-7
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--GENERAL--(CONTINUED)
UNAUDITED PRO FORMA INFORMATION
The following unaudited pro forma information has been prepared to reflect
the IER acquisition as if it was consummated as of January 1, 1996, after
giving effect to certain pro forma adjustments described below (in thousands).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Revenues ......................................................... $129,172 $163,799
======== ========
(Loss) income before (provision for) benefit from income taxes and
extraordinary item .............................................. $ (63) $ (8,625)
======== ========
Net (loss) income ................................................ $ (1,895) $ (7,248)
======== ========
Basic and diluted earnings per share
Basic ........................................................... $ (.62) $ (1.74)
======== ========
Diluted ......................................................... $ (.62) $ (1.74)
======== ========
</TABLE>
Pro forma adjustments reflect amortization of intangible assets,
depreciation of property and equipment and increased interest on borrowings to
finance the acquisitions. The unaudited pro forma information is based upon
certain assumptions and estimates and does not necessarily represent operating
results that would have occurred had the acquisitions been consummated as of
the beginning of the periods presented, nor is it necessarily indicative of
expected future operating results.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RECOGNITION OF REVENUE
Rental agreements are structured as operating leases and the related
revenues are recognized over the rental period. Sales of equipment and parts
are recognized at the time of shipment or, if out on lease, at the time a sales
contract is finalized. Equipment may at times be delivered to customers for a
trial period. Revenue on such sales are recognized at the time a sales contract
is finalized. Service revenues are recognized at the time the services are
rendered.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories, which consist principally of parts and new equipment held for
sale, are stated at the lower of cost or market, with cost determined on the
first-in, first-out basis for parts and specific identification basis for
equipment. Substantially all inventory represents finished goods held for sale.
F-8
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
RENTAL EQUIPMENT
Rental equipment is stated at cost less accumulated depreciation.
Depreciation is recorded using the straight-line method over the estimated
useful life of the related equipment (generally four to seven years with a 10%
residual value). For certain equipment, depreciation is matched against the
related rental income earned by computing depreciation on individual equipment
at the rate of 80% of the rental income earned. Routine repairs and maintenance
are expensed as incurred; improvements are capitalized at cost.
The Company routinely reviews the assumptions utilized in computing
depreciation of its rental equipment. Changes to the assumptions (such as
service lives and/or residual values) are made when, in the opinion of
management, such changes more appropriately allocate asset costs to operations
over the service life of the assets. Management utilizes, among other factors,
historical experience and industry comparison in determining the propriety of
any such changes.
During 1996 and 1997, the Company made certain changes to its depreciation
assumptions to recognize extended estimated service lives and increased
residual values of its rental equipment. The Company believes that these
changes in estimates will more appropriately reflect its financial results by
better allocating the cost of its rental equipment over the service life of
these assets.
This change in accounting estimate reduced depreciation of rental
equipment, loss before extraordinary item and net loss by approximately $5.3
million and $3.3 million or $.63 and $.39 per common share, for the years ended
December 31, 1996 and 1997, respectively.
Rental Fleet accumulated depreciation at December 31, 1996 and 1997 was
approximately $20.6 million and $34.8 million, respectively.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is recorded using accelerated and straight-line methods over the
estimated useful lives of the related assets. Significant improvements are
capitalized at cost. Repairs and maintenance are expensed as incurred.
The capitalized cost of equipment and vehicles under capital leases is
amortized over the lesser of the lease term or the asset's estimated useful
life, and is included in depreciation and amortization expense in the
consolidated statements of operations.
INTANGIBLE ASSETS
Intangible assets primarily result from business combinations and include
agreements not to compete and other identifiable intangible assets. These
assets are amortized on a straight-line basis over the estimated useful life
(five to 15 years). Accumulated amortization at December 31, 1996 and 1997 was
approximately $0.2 million and $2.5 million, respectively.
Goodwill arising from acquisitions is being amortized over 40 years using
the straight-line method. Accumulated amortization at December 31, 1996 and
1997 was approximately $0.1 million and $0.5 million, respectively.
F-9
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The carrying value of intangible assets is periodically reviewed by the
Company and impairments, if any, are recognized when the expected future
undiscounted cash flows derived from such intangible assets are less than their
carrying value.
During the first quarter of 1996, the Company adopted Statement No. 121,
("SFAS 121"), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
adoption of SFAS 121 did not have a material impact on the financial results of
the Company for the year ended December 31, 1996.
PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets primarily include debt issue costs,
prepaid expenses and deposits. Debt issue are amortized over the term of the
debt on a straight-line basis. For the years ended December 31, 1996 and 1997,
amortization of debt issue costs was $0.3 million and $2.4 million,
respectively. There was no amortization in 1995.
STOCK OPTIONS
In October 1995, the FASB issued Statement No. 123 ("SFAS 123"),
ACCOUNTING FOR STOCK-BASED COMPENSATION, which requires companies to either
recognize expense for stock-based awards based on their fair value on the date
of grant or provide footnote disclosures regarding the impact of such changes.
The Company adopted the provisions of SFAS 123 on January 1, 1996, but will
continue to account for options issued to employees or directors under the
Company's non-qualified stock option plans in accordance with Accounting
Principles Board Opinion No. 25 ("APB 25"), ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130 ("SFAS 130"), REPORTING
COMPREHENSIVE INCOME, which is required to be adopted in the first quarter of
1998. SFAS 130 established standards for the reporting and display of
comprehensive income and its components. Comprehensive income includes certain
non-owner changes in equity that are currently excluded from net income.
In June 1997, Statement No. 131 ("SFAS 131"), DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION, was issued. SFAS 131 establishes
standards for the way that public companies disclose selected information about
operating segments in annual financial statements and requires that those
companies disclose selected information about segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997. Accordingly, the Company is not required to adopt SFAS 131
until the fiscal year ending December 31, 1998. SFAS 131 relates solely to
disclosure provisions, and therefore will not have any effect on the results of
operations, financial position and cash flows of the Company.
RECLASSIFICATIONS
Certain amounts for the prior years have been reclassified to conform with
the current year presentation.
F-10
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--ACCOUNTS RECEIVABLE
The majority of the Company's customers are engaged in the construction
and industrial business throughout the southern and western regions of the
United States. The Company extends credit to its customers based upon an
evaluation of the customer's financial condition and credit history. For sales
of certain construction equipment, the Company's policy is to secure its
accounts receivable by obtaining liens on the customer's projects and issuing
notices thereof to the projects' owners and general contractors. All other
receivables are generally unsecured.
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
------------------------- USEFUL LIVES
1996 1997 (IN YEARS)
----------- ----------- -------------
<S> <C> <C> <C>
Land ................................... $ -- $ 5,407 --
Buildings and improvements ............. -- 6,540 2-30
Office equipment ....................... 2,944 2,768 2-7
Service equipment and vehicles ......... 2,784 9,994 2-5
Shop equipment ......................... 1,060 2,075 7
Capitalized lease equipment ............ 1,706 3,230 3-5
-------- --------
8,494 30,014
Less accumulated depreciation .......... (4,190) (6,277)
-------- --------
$ 4,304 $ 23,737
======== ========
</TABLE>
The Company has entered into lease arrangements for certain property and
equipment which are classified as capital leases. Future minimum lease payments
under capitalized lease obligations are as follows (in thousands):
1997
---------
1998 ......................................................... $ 802
1999 ......................................................... 813
2000 ......................................................... 466
2001 ......................................................... 390
2002 ......................................................... 215
------
Total future minimum lease payments .......................... 2,686
Less amounts representing interest (6.00% to 13.5%) .......... (366)
------
Present value of net future minimum lease payments ........... $2,320
======
F-11
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--NOTES PAYABLE AND DEBT
Notes payable and debt consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- -----------
<S> <C> <C>
$250 million revolving line of credit with interest rates ranging from the
Lender's prime rate plus 1.5% to LIBOR plus 3.5%. At December 31,
1997, the Lender's prime rate was 8.5% and the LIBOR rate was
5.718% ...................................................................... $58,250 $161,825
$50 million Term Loan with an interest rate of LIBOR plus 3.5%................ -- 49,916
Mortgage note payable with an interest rate of LIBOR plus 2% ................. -- 13,400
Various notes payable assumed through acquisition of IER with interest
rates ranging from 7% to 12% and maturity dates through 2001. ............... -- 1,062
------- --------
$58,250 $226,203
======= ========
</TABLE>
In December 1996, the Company and its subsidiaries (collectively referred
to as the "Borrowers") executed a $250 million revolving credit facility (the
"Senior Credit Facility") with a syndicate of lenders (the "Lenders").
Borrowings under the Senior Credit Facility are based upon eligible accounts
receivable, rental fleet and inventory amounts.
During July and December 1997, the Borrowers amended the Senior Credit
Facility (the "Amendments") with the Lenders. The Amendments, among other
things, allowed the Company to complete the IER and Richbourg acquisitions (see
Note 1 and Note 15) and revised certain financial covenants. The interest rates
on balances outstanding under the amended facility vary based upon the leverage
ratio maintained by the Borrowers. All outstanding principal balances are due
in October 1998 unless the Borrowers successfully complete the sale of at least
$200 million of Qualified Debt Securities (as defined in the Amendments) in
which case they become due in October 2001. A commitment fee of 1/2 of 1% is
charged on the aggregate daily unused balance of the Senior Credit Facility.
The Senior Credit Facility is secured by substantially all of the
Borrowers' assets and contains certain restrictive covenants which, among other
things, require the Borrowers to maintain certain financial coverage ratios and
places certain restrictions on the payment of dividends. At December 31, 1997,
the Company was not in compliance with the minimum EBITDA covenant, as defined
in the Senior Credit Facility. For the year ended December 31, 1997, the
minimum EBITDA calculation was $44.8 million of EBITDA but was required to be
$45.9 million. The lenders under the Senior Credit Facility have waived this
non-compliance.
During August 1997, the Company entered into a $50 million term loan (the
"Term Loan") in connection with its acquisition of IER (see Note 1). The Term
Loan is secured by assets acquired and is due in January 1999. During January
1998, the Company repaid all outstanding principal balances due under the Term
Loan with borrowings under its Senior Credit Facility.
In May 1997, the Company purchased land and buildings related to several
of its locations (see Note 13). The purchase was financed with a lender in the
principal amount $13.4 million. The interest rate on the outstanding balance
varies based upon the leverage ratio of the Company. As of December 31, 1997
interest was being charged at an annual rate of LIBOR plus 2%. Five annual
principal payment installments commence in May 2002. The mortgage is secured by
the land and buildings acquired.
F-12
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--NOTES PAYABLE AND DEBT--(CONTINUED)
During 1996 and 1997, the Company recorded extraordinary losses of
approximately $1.3 million and $0.7 million from the write-off of debt issue
costs associated with the early extinguishment of debt, before the related
income tax benefit of approximately $0.5 million and $0.3 million,
respectively.
Future maturities of the notes payable and debt, based upon amounts
outstanding as of December 31, 1997, are as follows (in thousands):
1998 ............... $212,077
1999 ............... 312
2000 ............... 274
2001 ............... 140
2002 ............... 2,680
Thereafter ......... 10,720
--------
$226,203
========
NOTE 6--REDEEMABLE PREFERRED STOCK AND DETACHABLE STOCK PURCHASE WARRANT
During December 1995, the Company issued 300,000 shares of Series A
Cumulative Redeemable Preferred Stock ("Series A"), and a detachable stock
purchase warrant (the "Redeemable Warrant") for $12.0 million ($11.4 million
net of certain related costs). Series A provides for the semiannual payment of
preferential dividends at an annual rate of 8% (5% beginning January 1, 1997)
of the liquidation value. The dividends are payable in cash or in additional
shares through the later of December 31, 1999 or the expiration of the
Company's Senior Credit Facility (see Note 5). Series A is scheduled to be
redeemed by the Company in December 2002 and restricts the payment of dividends
or any other distributions to holders of the Company's common stock.
The Redeemable Warrant granted the holder the right to acquire
approximately 20% of the common stock of the Company at a purchase price of
$.01 per share. The Redeemable Warrant was redeemable at the holder's option
during a specified period and at a price equal to its fair market value. The
Company had the option for a specified period of time to redeem the Redeemable
Warrant from the holder at a price equal to its fair market value as defined.
Series A and the Redeemable Warrant were recorded at their pro rata estimated
fair value in relation to the proceeds received on the date of issuance ($8.0
million for the Series A and $3.4 million for the Redeemable Warrant, net of
issue costs). Series A will be accreted to its liquidation value at maturity of
$12.0 million utilizing the effective interest method. The Redeemable Warrant
was being accreted to its fair value on a prospective basis until the mandatory
redemption date in December 2000. Through December 31, 1996, accretion to the
Series A and the Redeemable Warrant amounted to approximately $0.5 million and
$1.9 million, respectively.
During December 1996, in connection with the execution of the Senior
Credit Facility, the Company, and GE Capital, entered into certain agreements,
including an agreement to exercise the Redeemable Warrant for approximately 20%
of the Company's common stock. Simultaneously with this exercise, the Company
and GE Capital agreed to exchange the shares of common stock for 800,000 shares
of Series B Cumulative Convertible Redeemable Preferred Stock ("Series B"). The
accreted balance of the Redeemable Warrant on the date these agreements were
entered into was approximately $5.3 million which represented the carrying
value of Series B as of December 31, 1996. Series B is
F-13
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--REDEEMABLE PREFERRED STOCK AND DETACHABLE STOCK PURCHASE
WARRANT--(CONTINUED)
scheduled to be redeemed in December 2003 and provides for the payment of
dividends upon redemption of or upon conversion into common stock at an annual
rate of 5%. For the year ended December 31, 1997, accretion of Series A and
Series B amounted to approximately $0.5 million and $3.0 million, respectively.
In a separate transaction related to the Senior Credit Facility, the
Company issued 800,000 shares of Series C Cumulative Convertible Redeemable
Preferred Stock ("Series C") to GE Capital in exchange for $32.0 million ($31.5
million net of certain related costs). Series C is scheduled to be redeemed in
December 2003 and provides for the payment of dividends upon redemption or upon
conversion into common stock at an annual rate of 5%. For the year ended
December 31, 1997, accretion of Series C amounted to approximately $0.1
million. Series B and C may be converted to common stock for a conversion fee
of $1 per share. The conversion fee shall increase by $1 per share in June and
December of each year until conversion. Similarly to Series A, Series B and
Series C will be accreted to their ultimate total liquidation value of $64
million.
NOTE 7--STOCK OPTION PLANS
In December 1995, the Company granted a key employee the option to
purchase 3% (on a fully-diluted basis) of the common stock of the Company Since
the number of shares ultimately issuable to the key employee is not known at
the grant date, the Company estimates compensation expense at each reporting
date based upon the estimated market value of the shares to be issued. Changes
in the estimated market value of the shares to be issued continue to affect the
amount of compensation expense until the number of shares issuable are known.
No compensation expense was recognized in 1995 and 1996 since the exercise
price approximated the market value of the shares to be issued. Compensation
expense of $4.4 million was recognized in 1997. This option was one-third
vested on December 7, 1995, two-thirds vested on December 31, 1995 and fully
vested on December 31, 1996. The total exercise price for each one-third option
block, determined based upon a multiple of the Company's adjusted earnings, is
approximately $0.4 million, $0.5 million and $0.7 million, respectively. The
portion of the option that vested in 1995 expires in the year 2005 and the
balance of the option expires in the year 2006.
In May 1996, the Company also granted to another key employee an option to
purchase 84,650 shares of the Company's common stock at an exercise price of
approximately $0.5 million, determined based upon a multiple of the Company's
adjusted earnings. Since the number of shares ultimately issuable to the key
employee and the exercise price is known at the date, compensation expense is
measured only at the date of grant. No compensation expense has been recognized
at the date of grant since the exercise price of these options approximated the
estimated market value of the shares to be issued at the date of grant.
F-14
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--STOCK OPTION PLANS--(CONTINUED)
The following table sets forth pro forma net loss and earnings per share
as if the stock options were accounted for under the fair value method:
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1995 1996
---------- ------------
Pro forma net loss (in thousands) ......... $ (189) $ (2,439)
====== ========
Pro forma earnings per share
Basic ................................... $ (.02) $ (.69)
====== ========
Diluted ................................. $ (.02) $ (.69)
====== ========
The fair value of options granted, in accordance with the provisions of
SFAS 123, were determined using the Black-Scholes option pricing model with a
risk-free interest rate of 6.74%, zero volatility and expected life of 10
years.
Effective January 1, 1997, the Company adopted a phantom stock plan (the
"Phantom Plan"). The Phantom Plan is designed to reward employees for increases
in the Company's performance. The Phantom Plan enables the Company to award
employees individual units representing a hypothetical share of the Company's
stock (the "Phantom Share"). Each Phantom Share is assigned a share value on
the date granted as determined by the administrator of the Phantom Plan. The
difference between the calculated share value, as determined pursuant to a
formula set forth in the Phantom Plan, of the Phantom Share on the date
redeemed by the employee and the value assigned on the date of grant represents
the cash award the employee is entitled to receive on the redemption date. The
Phantom Shares generally vest over five years. As of December 31, 1997, the
Company had granted 155,500 Phantom Shares with an assigned per share value of
$9. No compensation expense had been recorded in the accompanying statements
of operations as the assigned share value on the date of grant exceeds the
calculated share value as of December 31, 1997.
The Company has granted to GE Capital an option to acquire common stock of
the Company in an amount that would equal 51% ownership after conversion of the
Series B and Series C preferred stock. In connection with the conversion of the
Series B and Series C preferred stock, (see Note 15), the Company and GE
Capital plan to cancel this option. The exercise price for this option is based
upon fair market value of the Company determined on the date the option is
exercised. GE Capital may exercise the option at any time from July 1, 1998
until June 30, 1999.
NOTE 8--RETIREMENT PLAN
In February 1996, the Company adopted a qualified 401(k) profit sharing
plan (the "401(k) Plan"). The 401(k) Plan covers substantially all employees of
the Company. Participating employees may contribute to the 401(k) Plan through
salary reductions. The Company may contribute, at its discretion, matching
contributions equal to 50% of the employee's contribution not to exceed 3% of
the employee's annual salary. The Company contributed approximately $0.2
million and $0.3 million to the 401(k) Plan for the years ended December 31,
1996 and 1997, respectively.
F-15
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--INCOME TAXES
As a result of the contribution by the stockholders of their ownership
interest as described in Note 1, the Company lost its Subchapter S Corporation
status under the provisions of the Internal Revenue Code. The Subchapter S
provisions provide that taxable income be included in the federal income tax
returns of the individual stockholders. As a result, the Company's net income
for the period from January 1, 1994 through December 26, 1995 is included in
the individual tax returns of the stockholders of the Company and therefore a
provision for income taxes related to this period is not included in the
accompanying statements of operations. Additionally, under the provisions of
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES, the Company recorded a deferred tax liability upon losing Subchapter S
status for existing timing differences in the amount of approximately $2.9
million. The components of the (provision for) benefit from income taxes is as
follows (in thousands):
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------
1995 1996 1997
=========== ============ =========
Current .......... $ -- $ (1,057) $ --
Deferred ......... (2,860) 596 1,748
-------- -------- ------
Total ............ $ (2,860) $ (461) $1,748
======== ======== ======
The following table summarizes the tax effects comprising the Company's
net deferred tax liabilities (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards ............................. $ 809 $ 4,347
Alternative minimum tax credits .............................. 247 874
Deferred stock option compensation ........................... -- 1,672
Intangible assets, allowance for bad debts and other ......... 219 1,037
-------- --------
Total deferred tax assets ................................. 1,275 7,930
Valuation allowance ........................................... (809) (1,368)
DEFERRED TAX LIABILITIES--Depreciation ........................ (2,730) (7,698)
-------- --------
NET DEFERRED TAX LIABILITY .................................... $ (2,264) $ (1,136)
======== ========
</TABLE>
As of December 31, 1997, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $11.4 million and
$12.7 million, respectively, expiring in 2012 (includes net operating loss
carryforwards for federal and state income tax purposes of approximately $4.4
million and $5.6 million, respectively, acquired in connection with the
acquisition of IER described in Note 1). IER's net operating loss carryforwards
may only be utilized by Rental. In addition, the Company has reduced the
adjustment to stockholders' equity by $1.8 million related to the tax benefit
of the acquisition of property from a related party (see Note 13).
Current accounting standards require that deferred income taxes reflect
the tax consequences on future years of differences between the tax bases of
assets and liabilities and their bases for financial reporting purposes. In
addition, future tax benefits, such as net operating loss (NOL) carryforwards,
are
F-16
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--INCOME TAXES--(CONTINUED)
required to be recognized to the extent that realization of such benefits is
more likely than not. A valuation allowance is established for those benefits
that do not meet the more likely than not criteria.
Even though the Company has incurred tax losses for the past two years,
management believes that it is more likely than not that the Company will
generate taxable income sufficient to realize the majority of the tax benefits
associated with future deductible temporary differences and NOL carryforwards
prior to their expiration. This belief is based upon, among other factors, the
fact that all of the Company's taxable temporary differences will reverse
within the period that the deductible temporary differences will be realized,
the availability of tax planning strategies, and projection of future taxable
income.
The following table summarizes the differences between the statutory
federal income tax rate and the Company's effective income tax rate (in dollars
thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1995 1996 1997
-------------------------- ------------------------- ------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
----------- ------------ ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax
rate ............................... $ -- -- % $ 315 34.0% $2,768 34.0%
State income tax, net of
federal income tax benefit ......... -- -- 33 3.5 171 2.1
Change in valuation allowance -- -- (809) (87.3) (559) (6.9)
Non-deductible expenses ............. -- -- -- -- (716) (8.8)
Loss of Subchapter S status on
December 26, 1995 .................. (2,860) (95.0) -- -- --
Other ............................... -- -- -- -- 84 1.1
-------- ----- ------ ----- ------ ----
$ (2,860) (95.0)% $ (461) (49.8)% $1,748 21.5%
======== ===== ====== ===== ====== ====
</TABLE>
Pro forma net income is presented in the accompanying statements of
operations to show the effects of income taxes as if the Company had been
subject to federal and applicable state income taxes based on the tax laws and
rates in effect during the applicable period. In addition, pro forma net income
has been adjusted for the effect of the deferred tax liability recognized by
the Company upon Machinery and Rental losing their Subchapter S Corporation
status in December 1995 as if the entities lost their Subchapter S status at
the beginning of each period presented.
F-17
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--EARNINGS PER SHARE
For the years ended December 31, 1995, 1996 and 1997, the treasury stock
method was used to determine the dilutive effect of the options and warrants on
earnings per share data. Net loss from continuing operations per share and the
weighted average number of shares outstanding used in the computations are
summarized as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997
----------------------- ------------------------- -------------------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED
----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) ...................... $ 1,834 $ 1,834 $ (2,197) $ (2,197) $ (6,844) $ (6,844)
Deduct:
Preferred stock dividend .............. -- -- 979 979 3,857 3,857
Accretion of preferred stock .......... -- -- 2,400 2,400 3,590 3,590
------- ------- -------- -------- --------- ---------
Income (loss) per share
computations .......................... 1,834 1,834 (5,576) (5,576) (14,291) (14,291)
Number of shares:
Weighted average common
shares outstanding .................. 8,465 8,465 8,465 8,465 8,465 8,465
Add:
Net additional shares
issued(1) ........................... -- -- -- -- -- --
------- ------- -------- -------- --------- ---------
Weighted average shares used
in the per share computations ......... 8,465 8,465 8,465 8,465 8,465 8,465
======= ======= ======== ======== ========= =========
Net income (loss) ...................... $ .22 $ .22 $ (.66) $ (.66) $ (1.69) $ (1.69)
======= ======= ======== ======== ========= =========
</TABLE>
- ----------------
(1) Assumes exercise of outstanding Common Stock equivalents (options and
warrants) at the beginning of the period, net of 20% limitation, if
applicable, on the assumed repurchase of stock.
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair market value of financial instruments held by the Company at
December 31, 1997 are based on a variety of factors and assumptions and may not
necessarily be representative of the actual gains or losses that will be
realized in the future and do not include expenses that could be incurred in an
actual sale or settlement.
DEBT
The fair value of the Company's credit facility is assumed to be equal to
its carrying value. At December 31, 1996 and 1997 approximately $58.2 million
and $161.8 million was outstanding under the credit facility, respectively.
The Company's Term Loan, mortgage note payable, other notes payable and
capitalized lease obligations are estimated to approximate fair value as
determined based on rates currently available to the Company from other
lenders.
PREFERRED STOCK
Series A, Series B and Series C do not have a quoted market price and the
Company does not believe it is practicable to estimate a fair value different
from each of the security's carrying value because of features unique to these
securities including, but not limited to, the right to appoint two
F-18
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
directors and super majority voting requirements. The amounts due upon
redemption of Series A, Series B and Series C is approximately $13.6 million,
$32.0 million and $32.0 million plus accrued and unpaid dividends,
respectively.
NOTE 12--COMMITMENTS AND CONTINGENCIES
The Company has agreements with certain equipment manufacturers which
appoint the Company, through its subsidiary, as the manufacturer's authorized
dealer in certain defined geographic areas. These agreements may be terminated
by dealers at any time. There can be no assurance that the Company will be able
to continue its current, or obtain additional, dealership agreements. The
Company's operating results could be materially adversely impacted if these
dealership agreements were terminated for any reason.
John Deere has filed a notice of arbitration (the "Notice") with the
American Arbitration Association seeking review of the question of whether Neff
Corp. and Neff Machinery breached their agreements with John Deere by failing
to obtain John Deere's consent to transactions in which GE Capital increased
its equity interest in the Company in 1996. The Company has not filed a
response to the Notice and is actively discussing the issues raised by the
Notice with John Deere. Although the arbitration could result in a finding that
the Company breached its agreement with John Deere and that John Deere has the
right to terminate the dealership agreements, the Company believes that this
matter can be resolved in a manner that does not have a material adverse effect
on its financial condition, results of operations and cash flows.
The Company is a party to certain legal actions arising in the normal
course of business. In the opinion of management, the ultimate outcome of such
litigation is not expected to have a material effect on the financial position,
results of operations or cash flows of the Company.
NOTE 13--RELATED PARTY TRANSACTIONS AND OTHER COMMITMENTS
In May 1997, the Company acquired certain land and buildings used in its
Florida operations for approximately $13.9 million from Atlantic Real Estate
Holdings Corp. ("Atlantic"), an affiliate of the Company through common
ownership ("Atlantic Acquisition"). Prior to the acquisition of these assets,
the Company leased these properties from Atlantic. The Company financed
approximately $13.4 million of the purchase price with a mortgage note payable
(see Note 5). The remaining purchase price consisted of the forgiveness of
approximately $0.5 million in notes receivable from Atlantic. The assets have
been recorded at Atlantic's historical carrying value and approximately $2.9
million, net of income tax benefit of approximately $1.8 million, has been
recorded as a distribution to common stockholders in the accompanying statement
of common stockholders' deficit.
During 1995, 1996, and 1997, revenues from affiliated companies amounted
to approximately $1.7 million, $1.5 million and $0.7 million, respectively.
OPERATING LEASES
Prior to the Atlantic Acquisition the Company leased certain office and
operating facilities from Atlantic and from other unaffiliated entities under
noncancellable operating leases expiring from 2000 through 2007. During 1995,
1996, and 1997, rental expense under operating lease arrangements amounted to
approximately $1.7 million, $2.1 million, and $3.4 million, respectively.
F-19
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--RELATED PARTY TRANSACTIONS AND OTHER COMMITMENTS--(CONTINUED)
As of December 31, 1997, future minimum rental payments under operating
lease arrangements are as follows for the years ending December 31 (in
thousands):
1998 ............... $ 2,400
1999 ............... 2,192
2000 ............... 1,999
2001 ............... 1,549
2002 ............... 957
Thereafter ......... 2,029
-------
$11,126
=======
NOTE 14--SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER31,
----------------------------------
1995 1996 1997
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ............................................ $3,173 $6,012 $10,367
====== ====== =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Purchase of equipment under capitalized lease obligations ......... $ -- $1,235 $ --
------ ------ -------
</TABLE>
NOTE 15--SUBSEQUENT EVENTS
During January 1998, the Company acquired substantially all of the assets
of Richbourg's Sales and Rentals, Inc. ("Richbourg") for approximately $100
million. Richbourg has rental equipment operations similar to the Company's
with 17 locations in three states. In connection with this acquisition, the
Company amended its Senior Credit Facility (see Note 5) and executed a $100
million term loan (the "Richbourg Term Loan") with terms and requirements
similar to the Company's Senior Credit Facility.
In February 1998, the Company entered into letters of intent to acquire
three equipment rental companies. These businesses have a total of three
equipment rental locations in California and Texas. Each of these acquisitions
is subject to a number of closing conditions, including the execution of
definitive purchase agreements, and there can be no assurance that these
acquisitions will be consummated.
The Company plans to commence an initial public offering of its Class A
Common Stock (the "Public Offering"). The Company expects to receive
approximately $125 million in proceeds from the Public Offering. The Company
intends to use the net proceeds to repay the Richbourg Term Loan and reduce
amounts outstanding under the Senior Credit Facility.
Prior to the Public Offering, the Company's Senior Credit Facility is
expected to be amended (the "New Credit Facility"). Borrowings under the New
Credit Facility will continue to be based upon eligible accounts receivable,
rental fleet and inventory amounts. The interest rates on balances outstanding
under the New Credit Facility will vary based upon the leverage ratio
maintained by the Company and range from prime rate or LIBOR plus 1% to prime
plus 1.25% or LIBOR plus 2.25%. In the event the Company repays the Richbourg
Term Loan prior to October 31, 1998, the maturity of the New Credit Facility
will be due in April 2003, otherwise, the New Credit Facility will mature on
October 31, 1998.
F-20
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--SUBSEQUENT EVENTS--(CONTINUED)
In addition, GE Capital is expected to exchange its Series B and Series C
preferred stock for shares of the Company's Class B Common Stock, liquidation
preference $11.67, prior to the Public Offering. It is also contemplated that
the Company will establish an incentive stock plan for officers and employees
concurrent with the Public Offering.
The Company also expects to commence a private debt offering (the "Private
Debt Offering"). Proceeds from the Private Debt Offering will be used to redeem
Series A and reduce amounts outstanding under the New Credit Facility.
There can be no assurance that the Public Offering or Private Debt
Offering will be consummated.
* * * * * *
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The independent auditors' report of Deloitte & Touche LLP related to the
consolidated financial statements of Neff Corp. for the three years in the
period ended December 31, 1997 has not been issued. Deloitte & Touche LLP has
indicated the form of report which will be furnished upon completion of a Neff
Corp. stock split and so long as no other events shall have occurred that would
affect the Neff Corp. consolidated financial statements. After Deloitte &
Touche issues their report on Neff Corp., we expect to be in a position to
render the following audit report so long as no other events shall have
occurred that would affect the Industrial Equipment Rentals, Inc. consolidated
financial statements.
Arthur Andersen LLP
Houston, Texas
September 18, 1997
To the Stockholders of
Industrial Equipment Rentals, Inc.
We have audited the accompanying consolidated balance sheets of Industrial
Equipment Rentals, Inc. (a Delaware corporation), and subsidiary (the Company)
as of July 31, 1996 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended July 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of July 31, 1996 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended July 31, 1997, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements do not reflect any
adjustments associated with the sale of the Company on August 1, 1997 (see Note
2).
Houston, Texas
September 18, 1997
F-22
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
JULY 31,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ............................................... $ 2,160 $ 1,582
Accounts receivable, net ................................................ 5,487 6,058
Inventories ............................................................. 1,321 1,247
Prepaid expenses and other .............................................. 1,006 1,100
--------- ---------
Total Current Assets ................................................... 9,974 9,987
Property, Plant and Equipment, at Cost
Rental equipment ........................................................ 37,890 39,812
Other ................................................................... 4,626 5,100
--------- ---------
42,516 44,912
Less: Accumulated depreciation .......................................... (10,729) (16,779)
--------- ---------
31,787 28,133
Other Assets, net ........................................................ 2,306 1,787
--------- ---------
Total Assets ........................................................... $ 44,067 $ 39,907
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable ........................................................ $ 2,345 $ 1,956
Accrued expenses ........................................................ 1,845 1,602
Current portion of subordinated debentures .............................. 0 8,171
Capital lease obligation ................................................ 103 74
Current portion of long-term debt ....................................... 5,809 22,630
--------- ---------
Total Current Liabilities .............................................. 10,102 34,433
Long-Term Liabilities
Long-term debt, less current portion .................................... 21,288 621
Other long-term liabilities ............................................. 454 225
Subordinated debentures, less current portion ........................... 7,811 0
Deferred taxes .......................................................... 831 1,078
--------- ---------
Total Long-Term Liabilities ............................................ 30,384 1,924
--------- ---------
Total Liabilities ...................................................... 40,486 36,357
--------- ---------
Senior mandatorily redeemable convertible preferred stock, Series A $1
par; 107,500 shares outstanding; $20 per share redemption value......... 1,226 1,347
--------- ---------
Stockholders' Equity
Senior redeemable convertible preferred stock, Series B ................. 495 495
Junior preferred stock .................................................. 19 19
Common stock, $.01 par; 876,500 and 881,500 shares
outstanding, respectively ............................................. 9 9
Paid-in capital ......................................................... 2,806 2,806
Retained deficit ........................................................ (974) (1,126)
--------- ---------
Total Stockholders' Equity ............................................. 2,355 2,203
--------- ---------
Total Liabilities and Stockholders' Equity ............................. $ 44,067 $ 39,907
========= =========
</TABLE>
The following notes are an integral part of these consolidated financial
statements.
F-23
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rentals and related revenues ............................................ $17,522 $26,056 $30,012
Sales revenues .......................................................... 3,841 4,225 3,999
Sales of fixed assets ................................................... 1,798 2,925 1,860
------- ------- -------
Total Revenues ......................................................... 23,161 33,206 35,871
Costs and Expenses:
Rentals and related expenses ............................................ 4,374 6,663 7,019
Cost of sales ........................................................... 2,611 3,353 3,155
Cost of fixed assets disposed ........................................... 748 2,016 1,203
Wages and benefits ...................................................... 6,461 8,671 9,075
Depreciation ............................................................ 3,454 5,961 7,308
Facilities .............................................................. 864 1,400 1,636
Selling and administrative expenses ..................................... 1,446 1,796 1,659
Amortization expense .................................................... 533 596 689
------- ------- -------
Total Costs and Expenses ............................................... 20,491 30,456 31,744
------- ------- -------
Operating Income ......................................................... 2,670 2,750 4,127
Interest expense ........................................................ 2,001 3,057 3,291
Other ................................................................... 97 97 328
------- ------- -------
Income (Loss) Before Taxes ............................................... 572 (404) 508
Income Tax Expense (Benefit) ............................................ 267 (47) 296
------- ------- -------
Net Income (Loss) Before Extraordinary Item .............................. 305 (357) 212
Extraordinary loss on debt refinancing, net of tax benefit of $83........ -- (136) --
------- ------- -------
Net Income (Loss) ........................................................ $ 305 $ (493) $ 212
======= ======= =======
</TABLE>
The following notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SENIOR
REDEEMABLE
CONVERTIBLE
PREFERRED JUNIOR
STOCK PREFERRED COMMON PAID-IN RETAINED
SERIES B STOCK STOCK CAPITAL DEFICIT TOTAL
------------ ----------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1994 .................... $ -- $19 $ 9 $1,490 $ (58) $1,460
Net Income ................................ -- -- -- -- 305 305
Proceeds from Preferred Stock Issuance .... 495 -- -- 1,318 -- 1,813
Dividends ................................. -- -- -- -- (243) (243)
Accretion of Preferred Stock .............. -- -- -- -- (121) (121)
---- --- --- ------ -------- ------
Balance, July 31, 1995 .................... 495 19 9 2,808 (117) 3,214
Net Loss .................................. -- -- -- -- (493) (493)
Cost of Preferred Stock
Issuance ................................ -- -- -- (2) -- (2)
Dividends ................................. -- -- -- -- (243) (243)
Accretion of Preferred Stock .............. -- -- -- -- (121) (121)
---- --- --- ------ -------- ------
Balance, July 31, 1996 .................... 495 19 9 2,806 (974) 2,355
Net Income ................................ -- -- -- -- 212 212
Dividends ................................. -- -- -- -- (243) (243)
Accretion of Preferred Stock .............. -- -- -- -- (121) (121)
---- --- --- ------ -------- ------
Balance, July 31, 1997 .................... $495 $19 $ 9 $2,806 $ (1,126) $2,203
==== === === ====== ======== ======
</TABLE>
The following notes are an integral part of these consolidated
financial statements.
F-25
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31,
----------------------------------------
1995 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) ................................................... $ 305 $ (493) $ 212
Depreciation and amortization expense ............................... 3,987 6,557 7,997
Less: Gain on sale of property and equipment ........................ (966) (909) (657)
Increase (decrease) in deferred tax liability ....................... 259 (192) 247
Increase (decrease) in operating cash flows resulting from:
Accounts receivable ................................................ (1,088) (746) (311)
Inventories ........................................................ (534) 511 73
Prepaid expense and other .......................................... 165 69 151
Accounts payable ................................................... 973 (395) (402)
Accrued expenses ................................................... 309 479 (257)
-------- --------- --------
Net Cash Provided by Operating Activities ............................ 3,410 4,881 7,053
Cash Flows from Investing Activities:
Cost of acquisitions, net ........................................... (96) (3,481) (1,710)
Purchases of property and equipment
Rental equipment ................................................... (4,866) (10,101) (3,376)
Other property and equipment ....................................... (1,070) (1,277) (432)
Proceeds from sale of property and equipment ........................ 1,798 2,925 1,860
-------- --------- --------
Net Cash used for Investing Activities ............................... (4,234) (11,934) (3,658)
Cash Flows from Financing Activities:
Payments of equipment contracts ..................................... (752) (1,924) (2,675)
Retirement of debt on equipment contracts ........................... (397) (1,600) (328)
Payments/principal reductions on term loan .......................... (3,015) (2,166) (995)
Payments of other long-term capital financings ...................... (139) (229) (3,891)
Net borrowings under revolving facility ............................. 1,156 1,818 332
Proceeds from Capex notes ........................................... 4,362 7,151 3,466
Proceeds from issuance of subordinated debentures, including interest
payable ........................................................... 3,666 337 361
Cost relating to issuance of subordinated debentures ................ (42) -- --
Proceeds from issuance of Series B senior redeemable convertible
preferred stock, net .............................................. 1,813 -- --
Cost relating to refinancing of debt agreement ...................... -- 129 --
Dividends paid on preferred stock ................................... (243) (243) (243)
-------- --------- --------
Net Cash Provided by (used for) Financing Activities ................. 6,409 3,273 (3,973)
Net Increase (Decrease) in Cash and cash equivalents ................. 5,585 (3,780) (578)
Cash and cash equivalents at beginning of period .................... 355 5,940 2,160
-------- --------- --------
Cash and cash equivalents at end of period .......................... $ 5,940 $ 2,160 $ 1,582
======== ========= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Vendor financing of equipment purchases ............................. $ 618 $ 8,408 $ 1,430
Business assets acquired through seller financing ................... 90 750 266
Proceeds from capital lease obligations ............................. -- 79 --
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest ........................................................... $ 1,972 $ 3,010 $ 2,926
Income taxes ....................................................... 25 70 48
</TABLE>
The following notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
The accompanying consolidated financial statements include the accounts of
Industrial Equipment Rentals, Inc. ("IER") and its wholly-owned subsidiary,
Buckner Rental Service, Inc. ("BRS," formerly IER Acquisition Corp.). IER and
BRS (the "Company"), were incorporated in the state of Delaware in May 1993.
The Company is a full service equipment rental company servicing industrial,
commercial and construction customers along the Gulf Coast. The Company rents,
sells and services a broad line of construction and industrial equipment at
each of its rental locations.
NOTE 2--SALE OF BUSINESS AND BASIS OF ACCOUNTING
Effective August 1, 1997, the Company shareholders sold their stock in the
Company to Neff Corp. The accompanying consolidated financial statements
present the Company's financial position as of July 31, 1996 and 1997 and the
results of operations and cash flows for the three years in the period ended
July 31, 1997, prior to the sale. Accordingly, the consolidated financial
statements do not include any of the expected purchase price adjustments
associated with the sale of the Company listed below, among others.
a. A pushdown of the buyer's purchase accounting, (including elimination of
existing goodwill) was made immediately following the sale of the Company.
b. In connection with the above transaction, the Company's corporate
structure has been reorganized. As part of the restructuring, IER was
merged into its wholly-owned subsidiary ("BRS"), which has become the
wholly-owned subsidiary of another corporate entity. Shortly after closing
the transaction, the newly merged entity was merged into its new owner.
c. Due to the redemption of the 107,500 shares of non-voting $1 par Series
A Senior Redeemable Convertible Preferred Stock (the "Senior Series A") on
August 1, 1997, there was a charge to retained earnings of $0.8 million to
accrete the stock to its redemption value (see Note 9). A similar charge
of $0.4 million was made for the redemption of the 18,936 shares of
non-voting, $1 par Junior Preferred Stock (the "Junior Series") along with
adjustments for conversion of the 495,000 shares of voting $1 par Series B
Redeemable Convertible Preferred Stock (the "Senior Series B") into one
share of common stock which were redeemed for $10.2 million immediately
upon sale of the Company (see Note 9).
d. On August 1, 1997, substantially all of the Company's long-term debt was
repaid using proceeds from the sale. As a result, the Company was required
to pay approximately $81,000 in prepayment penalties and write off a total
of $0.1 milion in unamortized debt issue costs immediately after the
long-term debt was paid.
e. The Company incurred $1 million in closing fees, including $0.3 million
in closing bonuses, in conjunction with the sale.
f. Due to the change of control and separate return limitations as a result
of the sale of the Company, the deferred tax assets recorded for federal
and state tax net operating losses and alternative minimum tax
carryforwards of approximately $2.1 million as of July 31, 1997 will be
subject to restrictions on use. No adjustment has been reflected in the
accompanying financial statements to allow for such potential
restrictions.
F-27
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and BRS. All significant intercompany accounts and transactions
have been eliminated.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
The Company recognizes revenue on monthly contracts and other open
contracts based on the number of days of equipment usage occurring prior to the
end of the fiscal year. Accounts receivable are net of allowances for doubtful
accounts of $0.2 million at July 31, 1996 and 1997.
INVENTORIES
The Company maintains inventories of equipment for resale, parts,
merchandise and tools. Inventories are valued at the lower of cost (first-in,
first-out) or market. There was no work-in-process inventory at July 31, 1996
or 1997.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets. Rental
equipment with useful lives of five, seven and ten years is depreciated to a 20
percent salvage value at the end of their useful lives. All other property and
equipment is fully depreciated with no salvage value assumed. Prior to August
1, 1994, no salvage values were assumed on rental equipment with useful lives
of five and seven years. The change in estimate reduced depreciation expense by
approximately $0.6 million in the fiscal year ended July 31, 1995. Expenditures
for major additions and improvements are capitalized while minor replacements,
maintenance and repairs are charged to expense as incurred. Sales of the
Company's rental fleet are common but incidental to the Company's primary
rental business and are typically made to rental customers. When property is
retired, sold or otherwise disposed of, the cost and accumulated depreciation
are removed from the related accounts, and any proceeds are recognized as
revenues and included in the statement of operations.
F-28
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
In March 1995, Statement of Financial Accounting Standards SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," was issued. SFAS No. 121, which became effective for fiscal
years beginning after December 15, 1995, requires that certain long-lived
assets be reviewed for impairment whenever events indicate that the carrying
amount of an asset may not be recoverable and that an impairment loss be
recognized under certain circumstances in the amount by which the carrying
value exceeds the fair market value of the asset. The Company adopted SFAS No.
121 in the fiscal year ended July 31, 1997, as required, and the adoption did
not have a material effect on the Company's results of operations or financial
position.
OTHER ASSETS
Other assets consist of the following at July 31 (in thousands):
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD 1996 1997
------------- ----------- -----------
<S> <C> <C> <C>
Long-term portion of note receivable ......... N/A $ 247 $ --
Debt issue costs ............................. 5 yrs 204 204
Goodwill ..................................... 5,20 yrs 775 990
Non-competition agreements ................... 2,5 yrs 2,572 2,772
Other ........................................ N/A 36 38
3,834 4,004
Less: Accumulated amortization ............... (1,528) (2,217)
-------- --------
$ 2,306 $ 1,787
======== ========
</TABLE>
ACCOUNTING FOR INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109
"Accounting for Income Taxes," which requires that deferred income taxes be
computed using the liability method. Under the liability method, deferred
income taxes are recognized for the tax consequences of "temporary differences"
by applying statutory tax rates to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. Under
SFAS No. 109, the effect on deferred taxes of a change in tax rates is
recognized in the consolidated statement of operations in the period of the
enactment date.
RECLASSIFICATIONS
Certain amounts for the prior years have been reclassified to conform with
the current year presentation.
NOTE 4--ACQUISITIONS
A-L RENTAL CENTER
On June 14, 1995, the Company purchased substantially all of the assets of
A-l Rental Center. The acquisition price of $186,000 consisted of $90,000 in
cash, a $90,000 promissory note with 60 equal
F-29
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--ACQUISITIONS--(CONTINUED)
monthly payments with final payment due June 14, 2000, and directly related
acquisition expenses of $6,000. As part of the transaction, the Company entered
into a noncompetition agreement with the seller for the payment of $1,333 per
month commencing on July 14, 1995, with the last payment due and payable on
June 14, 2000. The Company also entered into an agreement to lease a facility
owned by the seller. The lease is an operating lease and requires payments of
$2,200 a month over a period of five years.
RENTAL WORLD
On August 1, 1995, the Company purchased substantially all of the assets
of Rental World of the Valley, Inc. ("Rental World"). The acquisition price of
$4.3 million consisted of $3.5 million in cash, $1.5 million of which was
funded using proceeds of a term loan, a $0.8 million promissory note dated
August 1, 1995 bearing interest at 7%, along with directly related acquisition
expenses of $55,600, of which $52,800 had been incurred as of July 31, 1995.
The promissory note is payable in twenty-four interest-only monthly
installments of $4,375 beginning September 1, 1995, and is equal to the
interest accrued on the principal, and forty-eight consecutive monthly
installments of principal and interest of $17,960 beginning on September 1,
1997. As part of the transaction, the Company entered into a noncompetition
agreement with the seller for the payment of $8,333 per month commencing on
September 1, 1995 with the last payment due and payable on August 1, 2000.
In conjunction with the acquisition, the Company entered into five year
lease agreements, commencing on the purchase date, to lease four of the rental
properties of the previous owner. The yearly rental expense of the four
payments is $0.2 million and is included in facilities expense.
CAMERON
On October 1, 1996, the Company purchased all of the assets of Cameron
Rental and Tank, Inc. (Cameron). The acquisition price of $1.5 million
consisted of $1.2 million in cash, a $0.3 million non-interest bearing
promissory note dated October 1, 1996 and acquisition expenses of $13,500. A
portion of the cash purchase price was funded using proceeds from the Capex
facility. The promissory note matured on January 28, 1997 and the face amount
was reduced by $6,453 in accordance with the terms of the note which required
an adjustment for the amount of cash collected by the Company 90 days after the
closing from accounts receivable and accrued or unbilled revenue of Cameron
above or below $0.3 million. As part of the transaction, the Company entered
into non-competition agreements for a period of two years with the two officers
of Cameron for the payment of $0.1 million to each payable at closing.
In conjunction with the acquisition, the Company entered into an agreement
to lease a facility owned by one of the officers of Cameron. The lease is an
operating lease and requires payments of $2,250 a month over a period of five
years.
The A-1 Rental Center, Rental World and Cameron acquisitions were
accounted for as purchases and accordingly, the purchase prices were allocated
to assets acquired based on their estimated fair market values. The results of
operations of the acquired assets are included in the accompanying financial
statements since the effective date of each acquisition.
The pro forma operating results for these acquisitions have not been
disclosed either because the effect of the acquisitions was not material (in
the case of A-1 Rental Center) or the acquisitions took place at or near the
beginning of the fiscal year.
F-30
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of July 31, 1996 and
1997 (in thousands):
<TABLE>
<CAPTION>
USEFUL LIFE 1996 1997
------------- ------------ ------------
<S> <C> <C> <C>
Rental fleet ...................................... 2-10 yrs $ 37,890 $ 39,812
Autos and trucks .................................. 3, 5, 7yrs 621 678
Buildings ......................................... 31.5 yrs 432 432
Furniture, fixtures and office equipment .......... 5 yrs 1,010 1,091
Leasehold improvements ............................ 5, 10 yrs 1,375 1,572
Land .............................................. N/A 322 322
Shop equipment .................................... 5 yrs 866 1,005
42,516 44,912
Less: Accumulated depreciation .................... (10,729) (16,779)
--------- ---------
$ 31,787 $ 28,133
========= =========
</TABLE>
NOTE 6--LONG-TERM DEBT AND SUBORDINATED DEBT
Substantially all of the Company's debt was repaid subsequent to July 31,
1997 as a result of the sale of the Company and accordingly, is classified as
current liabilities in the accompanying consolidated balance sheet (see Note
2).
Secured and unsecured long-term debt consists of the following at July 31,
1996 and 1997 (in thousands):
1996 1997
---------- -----------
The Credit Agreement:
Term Loan and Revolving Facility ................ $ 11,227 $ 8,417
Capex Facility .................................. 5,897 6,435
-------- ---------
17,124 14,852
Equipment Contracts .............................. 9,149 7,592
Promissory Notes ................................. 824 807
-------- ---------
Senior Secured Borrowings ........................ 27,097 23,251
Less: Current Portion ............................ (5,809) (22,630)
-------- ---------
Total Long-Term Debt ........................... $ 21,288 $ 621
======== =========
9% Subordinated Debentures plus interest ......... $ 4,011 $ 4,371
12% Subordinated Debentures ...................... 3,800 3,800
-------- ---------
Total Subordinated Debentures .................. $ 7,811 $ 8,171
======== =========
THE CREDIT AGREEMENT
On July 31, 1997, the Company had in place a credit facility that
originated on June 18, 1993 under a loan and security agreement (the "Credit
Agreement") with a financial institution (the "Lender") that initially provided
BRS with a borrowing base of up to $12 million which was increased to $18
million on July 21, 1994 ("Amendment No. 1") and $27 million on August 18, 1995
("Amendment No. 3"). The
F-31
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LONG-TERM DEBT AND SUBORDINATED DEBT--(CONTINUED)
Credit Agreement provides for a term loan (the "Term Loan") as well a revolving
line of credit (the "Revolving Facility") and a capital expenditure facility
(the "Capex Facility").
The Credit Agreement was significantly amended through Amendment No. 3 to
include equipment and other eligible inventory held for resale in the borrowing
base and extend the original term of the Credit Agreement to August 31, 2000.
The existing balances as of August 18, 1995, in the Revolving Facility and the
Capex Facility were converted into the Term Loan and an additional $1 million
was funded by the Lender to increase the principal balance in the Term Loan to
$15 million. Borrowing capacity under the Capex Facility was increased to $12
million. In consideration of Amendment No. 3, the Company agreed to pay the
Lender an amendment fee of $90,000 which was paid upon the execution by
Borrower. As of July 31, 1996, the unamortized amount of this fee was $72,000
of which a total of $18,000 was expensed ratably during fiscal year 1997. Due
to the significant modification of the Credit Agreement, the remaining
unamortized balance of previous debt issue costs related to this Credit
Agreement of $0.2 million was expensed during fiscal year ended July 31, 1996
and have been reflected in the Company's consolidated statement of operations
as an extraordinary item net of income tax benefit of $83,355. During fiscal
1996 and 1997, minor modifications were made to the Credit Agreement covenants
by amendments No. 4, No. 5 and No. 6; the associated costs of these minor
amendments were expensed in the respective periods.
The Lender has a security interest in substantially all of the Company's
assets except for otherwise encumbered equipment financed by creditors other
than the Lender. The Credit Agreement requires the maintenance of certain
covenants. As of July 31, 1997, the Company was in compliance with or obtained
waivers for all such covenants. The Credit Agreement restricts BRS from
advancing or paying dividends to IER if BRS is in default under the Credit
Agreement or if its available borrowings under the Revolving Facility are below
a specified amount. Amounts outstanding under the Credit Agreement bear
interest at a rate equal to prime rate plus 2.0 percent (10.75 percent
effective rate) at July 31, 1995 prior to Amendment No. 3 and prime plus 1.5
percent thereafter or, alternatively, at the Company's option, LIBOR plus 4
percent. The Company elected the LIBOR option and as of July 31, 1996 and 1997,
the effective rates were 9.45 percent and 9.63 percent, respectively.
The Revolving Facility may be used by the Company to meet general working
capital requirements, purchase equipment, finance down payments on certain
third-party financed equipment purchases, and issue letters of credit. The
total borrowings available under the Revolving Facility are approximately equal
to 80 percent of the Company's eligible accounts receivable, 65 percent of
eligible inventory of equipment held for sale, and 50 percent of eligible
inventory comprised of all goods (other than equipment) intended for sale,
rental or lease and all work in process and raw materials not to exceed $0.4
million. Additionally, the Revolving Facility is limited to remaining
borrowings under the $27 million total credit facility after subtraction of the
Term Loan and the Capex Facility. As of July 31, 1996 and 1997, there were no
outstanding balances on the Revolving Facility. As calculated, $3.2 million and
$4.7 million of additional borrowing was available as of July 31, 1996 and
1997, respectively.
In accordance with the Credit Agreement, proceeds from the sale of
collateralized rental equipment sold in the ordinary course of business of $1.3
million during fiscal 1996 and $1 million during fiscal 1997 were applied to
the outstanding principal balance of the Term Loan and, as a result, the
scheduled monthly payments of principal were reduced. The outstanding balance
on the Term Loan and Revolving Facility was $11.2 million and $8.4 million as
of July 31, 1996 and 1997, respectively, and was paid in full on August 1, 1997
in conjunction with the sale of the Company (see Note 2).
F-32
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LONG-TERM DEBT AND SUBORDINATED DEBT--(CONTINUED)
The Capex Facility may be used by the Company to finance up to 80 percent
of the purchase price of capital expenditures. At six month intervals, any
outstanding Capex Loan balance is converted into a Capex Note which must be
repaid in sixty ratable monthly payments. During August 1996 and March 1997,
portions of the Capex Loan were converted into Capex Notes in the amount of
$6.1 million and $1.3 million, respectively. During fiscal 1997, $1.2 million
in principal payments were made against these notes. Interest on the Capex Loan
is charged against the Revolving Facility each month.
EQUIPMENT CONTRACTS
The equipment contracts, bearing interest at rates ranging from 7.5
percent to 11 percent, are secured by equipment purchased and are payable in
various monthly principal installments.
SUBORDINATED DEBENTURES
The total amount of subordinated debentures outstanding was $7.8 million
and $8.2 million as of July 31, 1996 and 1997, respectively. These amounts
include $3.8 million as of July 31, 1996 and 1997 of subordinated debentures
that bear interest which is payable quarterly at a rate of 12 percent per annum
(the "12% Subordinated Debentures") and $3.7 million in subordinated debentures
that bear interest at a rate of nine percent per annum (the "9% Subordinated
Debentures") as well as accrued interest payable of $0.3 million at July 31,
1996 and $0.7 million at July 31, 1997 on the 9% Subordinated Debentures. All
debentures are owed to a group of the Company's preferred shareholders and were
paid in full on August 1, 1997 in conjunction with the sale of the Company (see
Note 2). As of July 31, 1996 and 1997, accrued interest payable on the 12%
Subordinated Debentures was $38,000.
DEBT MATURITIES
The aggregate annual maturities of the senior secured subordinated and
unsecured debt as of July 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED CREDIT EQUIPMENT CONTRACTS SUBORDINATED
JULY 31 AGREEMENT AND PROMISSORY NOTES DEBENTURES TOTAL
- ----------------------- ----------- ---------------------- ------------- ----------
<S> <C> <C> <C> <C>
1998 ............. $14,852 $7,778 $8,171 $30,801
1999 ............. -- 200 -- 200
2000 ............. -- 213 -- 213
2001 ............. -- 208 -- 208
2002 ............. -- -- -- --
Thereafter ......... -- -- -- --
------- ------ ------ -------
$14,852 $8,399 $8,171 $31,422
======= ====== ====== =======
</TABLE>
F-33
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--LEASES
At July 31, 1997, the Company had minimum annual lease commitments under
noncancelable operating leases as follows (in thousands):
YEAR ENDED JULY 31 OPERATING LEASES
- -------------------- -----------------
1998 .......... $ 698
1999 .......... 403
2000 .......... 367
2001 .......... 148
2002 .......... 48
------
$1,664
======
The Company leases its facilities at various monthly rental terms which
expire at various dates through September 2006. The above amounts include
commitments from the A-l Rental Center, Rental World, and Cameron acquisitions
(see Note 4). Total rent of $0.4 million, $0.7 million and $0.7 million for the
periods ended July 31, 1995, 1996, and 1997 were charged to facilities expense.
At July 31, 1997, the Company had future payments under capital leases as
follows (in thousands):
YEAR ENDED JULY 31 CAPITAL LEASE OBLIGATIONS
- --------------------------------------- --------------------------
1998 ............................. $ 85
1999 ............................. --
2000 ............................. --
2001 ............................. --
2002 ............................. --
-----
85
Less: Interest ..................... (11)
-----
Capital Lease Obligations .......... $ 74
=====
The Company is party to several capital leases primarily related to
computers and computer-related equipment. These leases have been capitalized
using interest rates ranging from 7 percent to 12 percent. Amortization on the
capitalized amounts is included in depreciation expense. All of the capitalized
leases were repaid subsequent to July 31, 1997 as a result of the sale of the
Company and accordingly, all capital leases payable were classified as current
liabilities in the accompanying consolidated balance sheets.
F-34
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--INCOME TAXES
The provision (benefit) for income taxes consists of the following for the
years ended July 31 (in thousands):
1995 1996 1997
------ --------- -------
Current
Federal ......... $ -- $ -- $ --
State ........... 8 -- --
---- ------ ----
8 -- --
---- ------ ----
Deferred
Federal ......... 233 (117) 266
State ........... 26 (13) 29
---- ------ ----
259 (130) 296
---- ------ ----
$267 $ (130) $296
==== ====== ====
The reconciliation of the tax provision to the tax provision computed at
statutory rates is as follows for the years ended July 31 (in thousands):
1995 1996 1997
------ ---------- -------
Federal tax at statutory rate (34%) ....... $195 $ (212) $173
Nondeductible expenses .................... 42 54 48
State taxes ............................... 22 (25) 20
Valuation allowance and other ............. 8 53 55
---- ------ ----
$267 $ (130) $296
==== ====== ====
The deferred income tax balances consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Property and equipment basis differences .......... $2,694 $3,336
------ ------
Total deferred tax liabilities .................... 2,694 3,336
------ ------
DEFERRED TAX ASSETS:
Net operating loss carryforwards .................. 1,371 1,721
Alternative minimum tax credit .................... 627 627
Other ............................................. 279 324
------ ------
Total deferred tax assets ......................... 2,277 2,672
Valuation allowance for deferred tax assets ......... (177) (226)
------ ------
Net deferred tax assets ............................. 2,100 2,446
------ ------
Net deferred tax liabilities ........................ $ 594 $ 890
====== ======
</TABLE>
Included in prepaid expense and other are current deferred tax assets of
$237 and $188 at July 31, 1996 and 1997, respectively.
F-35
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--INCOME TAXES--(CONTINUED)
The Company had net operating loss carryforwards for federal and state
income tax purposes of approximately $0.8 million and $2.2 million,
respectively, at July 31, 1995, $3.5 million and $4.4 million, respectively, at
July 31, 1996 and $4.4 million and $5.7 million, respectively, at July 31,
1997. The Company also has alternative minimum tax credit carryovers of
approximately $627,000 for federal income tax purposes at July 31, 1995, 1996
and 1997. For financial reporting, the loss and credit carryforwards were
recognized as deferred tax assets and an appropriate valuation allowance was
recorded to reflect the uncertainty about ultimate realization.
NOTE 9--PREFERRED STOCK
SERIES A SENIOR MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
The holders of the 107,500 shares of non-voting, $1 par Senior Series A
are entitled to receive dividends thereon in cash at the rate of 6% per annum
based on a face value of $20 per share when, as and if declared by the
Company's Board of Directors, out of legally available funds. The dividends
compound and accrue quarterly and are cumulative from the date of issuance. As
of July 31, 1996 and 1997, accrued dividends payable for Senior Series A shares
were $10,750. The Senior Series A was recorded at issuance at its estimated
fair market value of $0.9 million ($7.93 per Senior Series A share) and is
being accreted up to its redemption value through charges to retained earnings
over the period from June 18, 1993 to the date it is mandatorily redeemable. As
of July 31, 1996 and 1997, accumulated accretion from June 18, 1993 on Senior
Series A shares were $0.4 million and $0.5 million, respectively. Also,
dividends on the Senior Series A shares are accrued, whether or not declared,
during the period to which they relate since the mandatory redemption amount
includes dividends and are included in accrued expenses in the accompanying
consolidated balance sheets. On August 1, 1997, the holders of the Senior
Series A redeemed their shares upon a change in ownership for $20 per share
(see Note 2).
SERIES B SENIOR REDEEMABLE CONVERTIBLE PREFERRED STOCK
The holders of the 495,000 shares of voting $1 par Senior Series B are not
entitled to receive dividends but have the option to redeem their shares upon a
change in ownership. The Senior Series B is not mandatorily redeemable.
Accretion of the Senior Series B is not necessary as it was recorded at its
redemption value of $3.704 per share not including the share of common stock to
be received upon redemption. The Senior Series B shares were recorded upon
issuance at the amount of net proceeds of $1.8 million which included par value
of $0.5 million with excess proceeds over par recorded as additional paid in
capital. On August 1, 1997 the holders of the Senior Series B converted their
shares into one share of common stock which were redeemed for $10.2 million
immediately upon the sale of the Company (see Note 2).
JUNIOR PREFERRED STOCK
The holders of the 18,936 shares of non-voting, $1 par Junior Series are
entitled to receive dividends in cash at the rate of 6% per annum based on a
face value of $100 per share when, as and if declared by the Board. The
dividends compound and accrue quarterly and are cumulative from the date of
issuance. As of July 31, 1996 and 1997, accrued dividends payable for Junior
Series shares were $9,468. No dividends shall be declared or paid on the Junior
Series unless full cumulative dividends have been declared or paid on the
Senior Series. The Junior Series was recorded at issuance at its
F-36
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--PREFERRED STOCK--(CONTINUED)
estimated fair market value of $1.5 million ($80.75 per Junior Series share).
Since the Junior Series is not mandatorily redeemable, it is not being accreted
up to its redemption value. Also, dividends on the Junior Series are accrued,
whether or not declared, during the period to which they relate and are
included in accrued expenses in the accompanying consolidated balance sheets.
On August 1, 1997, the holders of the Junior Series redeemed for $1.9 million
their shares upon a change in ownership (see Note 2).
NOTE 10--EMPLOYEE BENEFIT PLAN
The Company has a defined contribution profit sharing plan (the "Plan")
covering substantially all of its employees. All employees who are at least
20.5 years old, perform at least 1,000 hours of service annually and have
satisfied the six month service requirement, are eligible to participate.
Participants accumulate ownership in the Plan assets according to a vesting
schedule over a period of six years. Company contributions to the Plan are made
on an annual basis at the discretion of management, and are allocated to
participants' accounts according to annual compensation. No contribution to the
plan was made for the plan years ended July 31, 1995, 1996 or 1997.
Effective January 1, 1994, an amendment was made to the Plan to allow
401(k) contributions by the employee. The employer matches these contributions
at a rate based on a discretionary formula. Since the amendment, the Company
agreed to match 50 percent of the employee's contribution up to 6 percent of
the participants' gross pay. Such employer contributions vest over a period of
six years and totaled $67,263 during fiscal 1995, $86,318 during fiscal 1996
and $104,451 during fiscal 1997. As of July 31, 1995, 1996 and 1997, no
material amounts were outstanding and payable from the Company to the Plan.
NOTE 11--RELATED PARTY TRANSACTIONS
The Company leases eleven facilities from a corporation owned by a
stockholder, director and officer of the Company. Lease costs totaling
approximately $0.3 million for the years ended July 31, 1995, 1996 and 1997
were incurred under these lease agreements. As of July 31, 1997, these lease
agreements require minimum lease payments of approximately $346,800 per year
and expire at various times during the years from 1998 to 2002. No amendments
or terminations of any of these leases have been made as a result of the sale
of the Company (see Note 2).
The Company held one 5.33 percent interest bearing note receivable as of
July 31, 1996 and two 5.33 percent interest bearing notes receivable as of July
31, 1997 totaling approximately $301,000 and $297,000, respectively, from
certain stockholders and officers of the Company. Both notes receivable were
collected by the Company in full subsequent to July 31, 1997.
The Company paid a related party $120,000 for consulting services in
fiscal years ended July 31, 1995, 1996 and 1997, and subsequently, this
agreement was mutually terminated as of August 1, 1997.
NOTE 12--COMMITMENTS AND CONTINGENCIES
The Company is involved in certain claims and lawsuits arising in the
normal course of business. Management does not believe that uninsured losses,
if any, resulting form the ultimate resolution of these matters will have a
material adverse effect on the financial position, results of operations or
liquidity of the Company.
F-37
<PAGE>
INDEPENDENT AUDITORS' REPORT
Richbourg's Sales & Rentals, Inc.:
We have audited the accompanying balance sheets of Richbourg's Sales &
Rentals, Inc. (the "Company") as of December 31, 1996 and 1997, and the related
statements of income, stockholder's equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1996 and
1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Charlotte, North Carolina
February 27, 1998
F-38
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT PAR VALUE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
ASSETS (NOTE 8)
Cash and cash equivalents ...................................................... $ 338 $ 161
Marketable securities--trading (Note 1) ........................................ 670 593
Trade accounts receivable, net of allowance for doubtful accounts of $35 in 1996
and $81 in 1997 .............................................................. 4,214 3,126
Inventories .................................................................... 396 420
Rental fleet, net of accumulated depreciation of $27,856 in 1996 and $34,351 in
1997 (Note 1) ................................................................ 55,029 57,604
Property and equipment, net (Note 2) ........................................... 4,250 3,068
Other assets ................................................................... 171 12
------- -------
TOTAL .......................................................................... $65,068 $64,984
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable--trade and accrued expenses .................................. $ 2,283 $ 930
Accounts payable--equipment purchases ......................................... 6,468 --
Revolving credit loan (Note 3) ................................................ 16,296 26,526
Notes payable (Note 4) ........................................................ 5,054 --
------- -------
Total liabilities ............................................................ 30,101 27,456
------- -------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)
STOCKHOLDER'S EQUITY:
Common stock, $100 par value, 500 shares authorized, 100 shares issued and
outstanding ................................................................. 10 10
Additional paid-in capital .................................................... 20 20
Retained earnings ............................................................. 34,937 37,498
------- -------
Total stockholder's equity ................................................... 34,967 37,528
------- -------
TOTAL .......................................................................... $65,068 $64,984
======= =======
</TABLE>
See notes to financial statements.
F-39
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Rental of equipment ............................................. $ 26,507 $ 29,717 $ 28,894
Sales of equipment .............................................. 5,402 5,305 6,510
-------- -------- --------
Total revenues ................................................. 31,909 35,022 35,404
-------- -------- --------
COST OF REVENUES:
Depreciation of rental fleet .................................... 6,366 7,899 10,928
Maintenance of rental fleet ..................................... 10,063 10,284 10,714
Cost of equipment sold .......................................... 2,416 1,851 1,956
-------- -------- --------
Total cost of revenues ......................................... 18,845 20,034 23,598
-------- -------- --------
GROSS MARGIN ..................................................... 13,064 14,988 11,806
-------- -------- --------
OPERATING EXPENSES:
Selling ......................................................... 1,342 1,403 1,445
General and administrative ...................................... 2,193 2,692 2,715
Other depreciation .............................................. 840 1,006 880
-------- -------- --------
Total operating expenses ....................................... 4,375 5,101 5,040
-------- -------- --------
INCOME FROM OPERATIONS ........................................... 8,689 9,887 6,766
OTHER INCOME (EXPENSE):
Interest expense ................................................ (1,726) (1,749) (2,406)
Investment income ............................................... 127 84 11
Realized gain on sale of marketable securities .................. 13 75 41
Unrealized holding gain (loss) on marketable securities ......... 51 (29) 58
Other ........................................................... 150 90 30
-------- -------- --------
Total other expense, net ....................................... (1,385) (1,529) (2,266)
-------- -------- --------
INCOME BEFORE EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT ......................................... 7,304 8,358 4,500
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF
DEBT (Note 3) .................................................. -- (225) --
-------- -------- --------
NET INCOME (Note 1) .............................................. $ 7,304 $ 8,133 $ 4,500
======== ======== ========
</TABLE>
See notes to financial statements.
F-40
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ ADDITIONAL
OUTSTANDING PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 ........... 100 $10 $20 $ 23,484 $ 23,514
Net income .......................... -- -- -- 7,304 7,304
Distribution to stockholder ......... -- -- -- (1,445) (1,445)
--- --- --- -------- --------
BALANCE, DECEMBER 31, 1995 ........... 100 10 20 29,343 29,373
Net income .......................... -- -- -- 8,133 8,133
Distribution to stockholder ......... -- -- -- (2,539) (2,539)
--- --- --- -------- --------
BALANCE, DECEMBER 31, 1996 ........... 100 10 20 34,937 34,967
Net income .......................... -- -- -- 4,500 4,500
Distribution to stockholder ......... -- -- -- (1,939) (1,939)
--- --- --- -------- --------
BALANCE, DECEMBER 31, 1997 ........... 100 $10 $20 $ 37,498 $ 37,528
=== === === ======== ========
</TABLE>
See notes to financial statements.
F-41
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 7,304 $ 8,133 $ 4,500
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary loss on early extinguishment
of debt .................................................... -- 225 --
Depreciation .................................................. 7,206 8,905 11,808
Gain on sale of rental fleet and equipment .................... (1,385) (1,065) (1,481)
Realized gain on sale of marketable securities ................ (13) (75) (41)
Unrealized (gain) loss on marketable securities ............... (51) 29 (58)
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts
receivable ................................................ (1,143) (121) 1,088
Decrease (increase) in inventories ........................... 807 (287) (24)
(Decrease) increase in accounts payable and accrued
expenses .................................................. 136 1,018 (1,353)
Decrease (increase) in other assets .......................... (663) 543 159
Purchase of trading marketable securities .................... (979) (1,938) (77)
Proceeds from sale of trading marketable securities .......... 1,025 1,711 252
--------- --------- ---------
Net cash provided by operating activities ................... 12,244 17,078 14,773
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental fleet and equipment ......................... (19,309) (20,648) (22,123)
Proceeds from sale of rental fleet and equipment ................ 1,538 3,557 3,937
--------- --------- ---------
(17,771) (17,091) (18,186)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances under revolving credit facility .................... -- 16,296 10,230
Borrowings under notes payable .................................. 19,069 3,136 2,364
Repayment of notes payable ...................................... (11,378) (18,998) (7,419)
Distributions to stockholder .................................... (1,445) (2,539) (1,939)
--------- --------- ---------
Net cash (used in) provided by financing activities ......... 6,246 (2,105) 3,236
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS .................................................... 719 (2,118) (177)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR .............................................. 1,737 2,456 338
--------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF YEAR .................................................... $ 2,456 $ 338 $ 161
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--Cash paid during the year
for interest ................................................... $ 1,599 $ 1,665 $ 2,260
========= ========= =========
</TABLE>
See notes to financial statements.
F-42
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS--Richbourg's Sales & Rentals, Inc. (the "Company")
is engaged in the rental and sale of construction and industrial machinery and
equipment. The Company presently operates from sixteen locations in the
southeastern United States.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS--The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
INVESTMENT IN MARKETABLE SECURITIES--The Company's securities investments
are classified as trading securities and are primarily investments in stocks of
publicly traded companies. Trading securities are recorded at fair value in the
accompanying balance sheets, with the change in fair value during the period
included in earnings. Realized gains or losses in the sale of securities are
based on the specific identification method. The fair value of securities is
based on quoted market prices.
Proceeds from sales of investments for the years ended December 31, 1995,
1996 and 1997 were $1.0 million, $1.7 million and $0.3 million, respectively.
Realized and unrealized gains (losses) on trading securities during 1995, 1996
and 1997 were not significant.
ACCOUNTS RECEIVABLE--The Company carries trade accounts receivable at the
amount it deems to be collectible. Accordingly, the Company provides allowances
for trade accounts receivable it deems to be uncollectible based on
management's best estimates. Recoveries are recognized in the period they are
received. The ultimate amount of accounts receivable that becomes uncollectible
could differ from those estimated. The majority of the Company's customers are
engaged in the construction business. The Company assesses its customers'
credit worthiness prior to extending credit. The collectibility of these
receivables is dependent, in part, on the economic conditions within the
construction industry.
INVENTORIES--Inventories, which consist principally of repair parts and
supplies, are stated at the lower of cost or market (cost is determined on the
first-in, first-out basis).
RENTAL FLEET--Rental fleet is comprised principally of heavy construction
equipment which is leased by the Company to customers under operating leases.
The rental fleet is stated at cost less accumulated depreciation. Depreciation
is computed using the straight-line method over the estimated useful lives of
the related assets, which range from five to seven years, giving effect to an
estimated salvage value of one-tenth of original cost. Routine repairs and
maintenance are expensed as incurred; improvements are capitalized at cost. The
Company sells equipment in its rental fleet as part of its regular operations;
accordingly, a portion of the rental fleet may be sold within one year. The
remaining book value is charged to cost of equipment when sold.
PROPERTY AND EQUIPMENT--Property and equipment, which consists of land,
buildings, service and office equipment utilized in the Company's operations,
is stated at cost less accumulated depreciation.
F-43
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
Depreciation is recorded using the straight-line method over the estimated
useful lives of the related assets. Significant improvements are capitalized at
cost; repairs and maintenance are expensed as incurred.
ADVERTISING COSTS--The Company expenses advertising costs as incurred.
Advertising costs for the years ending December 31, 1995, 1996 and 1997
amounted to $0.1 million each year.
REVENUE RECOGNITION--Rental revenues are recognized over the rental period
using the straight-line method. Sales of assets in the rental fleet are
recognized at the time of shipment.
INCOME TAXES--The Company has elected S Corporation status for income tax
purposes. Accordingly, no provision for federal and state income taxes has been
made in these financial statements because any income tax liability is the
responsibility of the stockholder.
LONG-LIVED ASSETS--Effective January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This standard
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. The adoption of this standard had no effect on the Company's
results of operations or financial position. On an ongoing basis, the Company
will evaluate its long-lived assets. If circumstances suggest that their value
may be impaired, an assessment of recoverability will be performed.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
------------------------- USEFUL LIVES
1996 1997 (IN YEARS)
----------- ----------- -------------
<S> <C> <C> <C>
Land ......................................... $ 428 $ 428 --
Buildings and leasehold improvements ......... 2,529 1,779 7-31
Service equipment ............................ 4,558 4,625 2-5
Office furniture and equipment ............... 583 569 2-5
-------- --------
8,098 7,401
Less accumulated depreciation ................ (3,848) (4,333)
-------- --------
$ 4,250 $ 3,068
======== ========
</TABLE>
NOTE 3. REVOLVING CREDIT LOAN
In September 1996, the Company entered into a revolving credit line
(revolving loan) with a bank. Initial proceeds from this revolving loan were
used to pay off existing notes payable with another bank, as well as to fund
new equipment purchases. In connection with this refinancing, the Company was
charged a penalty of $0.2 million by the former bank lender for early payoff of
the notes payable. This charge is shown as "Extraordinary Loss on Early
Extinguishment of Debt" in the accompanying Statements of Income.
F-44
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
NOTE 3. REVOLVING CREDIT LOAN--(CONTINUED)
The revolving loan provided for maximum borrowings up to $35.0 million
based on qualified machinery and equipment. Outstanding borrowings were due in
September 1999, with interest based on the 90 day LIBOR rate plus 1.85 (7.787%
at December 31, 1997). At December 31, 1996 and 1997, the Company had $16.3
million and $26.5 million, respectively, in outstanding borrowings on the
revolving loan. Subsequent to December 31, 1997, the Company paid off all
borrowings under its revolving credit agreement (see Note 8).
NOTE 4. NOTES PAYABLE
The Company has historically financed a portion of its rental fleet and
other fixed asset purchases through notes payable to banks, equipment vendors,
finance companies and others. In contemplation of sale of the business (see
Note 8), during December 1997 the Company paid off all its outstanding notes
payable.
Notes payable at December 31, 1996 consisted of the following (in
thousands, except payment amounts):
<TABLE>
<S> <C>
Series of 24 installment purchase notes, payable in monthly installments ranging
from $276 to $797, plus interest at 6.9%.............................................. $ 204
6.8% installment purchase note, payable in monthly installments of $7,116, including
interest ............................................................................. 165
7.3% installment purchase note, payable in monthly installments of $9,576, including
interest ............................................................................. 222
6.5% installment purchase note, payable in monthly installments of $4,841, including
interest ............................................................................. 126
6.5% installment purchase note, payable in monthly installments of $4,841, including
interest ............................................................................. 121
7.25%, 10.25% and 10.5% installment purchase notes, payable in monthly
installments ranging from $1,426 to $3,440, including interest........................ 1,755
Installment purchase note, payable in monthly installments of $43,858.................. 570
Series of seven installment purchase notes, payable in monthly installments ranging
from $3,084 to $15,770, including interest (interest rates vary per note from 4.90%
to 7.75%) ............................................................................ 840
Mortgage payable in monthly installments of $5,000 plus interest at prime (81/4% at
December 31, 1996) ................................................................... 445
Mortgage payable in monthly installments of $3,334 plus interest at prime.............. 268
Note payable in monthly installments of $5,000 plus interest at prime.................. 225
Note payable in monthly installments of $1,050 plus interest at prime.................. 113
------
Total notes payable ................................................................... $5,054
======
</TABLE>
NOTE 5. RELATED PARTY TRANSACTIONS
The Company rents certain office and yard space from its sole stockholder
on a month to month basis. During 1995, 1996 and 1997, the Company paid rental
expense to its sole stockholder of approximately $0.4 million, $0.4 million and
$0.5 million, respectively.
F-45
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
NOTE 5. RELATED PARTY TRANSACTIONS--(CONTINUED)
The Company purchases automobiles and receives automotive electric
services from certain companies owned by its sole stockholder. During 1995,
1996 and 1997, the Company paid $0.1 million, $0.1 million and $0.1 million to
these related parties.
NOTE 6. RETIREMENT PLAN
The Company maintains a 401(k) defined contribution plan which covers
substantially all employees. Employees may contribute up to 5% of their
compensation. Employer matching contributions are not mandatory but the Company
is allowed to match employee contributions up to limits specified in the plan.
The Company did not make any contributions in 1995, 1996 or 1997.
NOTE 7. LEGAL MATTERS
The Company is a defendant in legal proceedings arising out of the conduct
of the Company's business. In the opinion of management, the ultimate outcome
of these legal proceedings will not have a material adverse affect on the
financial position or future results of operations and cash flows of the
Company.
NOTE 8. SUBSEQUENT EVENT--SALE OF BUSINESS
Effective January 1, 1998, the Company sold its rental fleet and certain
other tangible and intangible assets to Neff Corp., Miami, Florida, for $100.0
million cash. In addition, the purchaser assumed certain liabilities, as
defined in the purchase agreement, which consist principally of accounts
payable and accrued expenses. After the sale, the Company's assets consist of
cash, marketable securities, land, buildings and leasehold improvements. The
Company or other affiliated entities will rent certain real estate to Neff
Corp. under operating lease agreements.
The sale of net assets resulted in a significant gain, which will be
recorded in 1998. Subsequent to receipt of the sale proceeds the Company paid
off the entire balance of borrowings under its revolving loan agreement with
bank (see Note 3).
********
F-46
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Sullair Argentina Sociedad Anonima
1. We have audited the accompanying consolidated balance sheets of Sullair
Argentina Sociedad Anonima and its subsidiary Sullair San Luis Sociedad Anonima
as of December 31, 1997 and 1996, and the related consolidated statements of
income and of changes in shareholders' equity and in financial position (cash
flows) for the years ended December 31, 1997, 1996 and 1995, all expressed in
constant Argentine pesos--P$--through August 31, 1995 and in nominal pesos
thereafter (see Note 1.2.). These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
2. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statements presentation. We believe that our
audits provide a reasonable basis for our opinion.
3. Accounting principles generally accepted in Argentina require companies
with controlling financial interest in the other companies to present both
parent company, where investments in subsidiaries are accounted for by the
equity method, and consolidated financial statements, as primary and
supplementary information, respectively. Because of the special purpose of
these financial statements, parent company financial statements are not
included. This procedure has been adopted for the convenience of the reader of
the financial statements.
4. In our opinion, the consolidated financial statements audited by us
present fairly, in all material respects, the financial position of Sullair
Argentina Sociedad Anonima and its subsidiary Sullair San Luis Sociedad Anonima
at December 31, 1997 and 1996, and the results of their operations, the changes
in their shareholders' equity and the changes in their financial position (cash
flows) for the years ended December 31, 1997, 1996 and 1995 in conformity with
accounting principles generally accepted in Argentina.
5. Accounting principles generally accepted in Argentina vary in certain
important respects from accounting principles generally accepted in the United
States of America. The application of the latter would have affected the
determination of consolidated net income expressed in constant Argentine pesos
through August 31, 1995 and in nominal pesos thereafter (see Note 1.2.) for
each of the three mentioned years, and the determination of consolidated
shareholders' equity and financial position also expressed in constant
Argentine pesos through August 31, 1995 and in nominal pesos thereafter (see
Note 1.2.) at December 31, 1997, 1996 and 1995 to the extent summarized in
Notes 10, 11, and 12 to the consolidated financial statements.
6. The accompanying consolidated financial statements expressed in
constant Argentine pesos through August 31, 1995 and in nominal pesos
thereafter include a column that gives effect to the translation into U.S.
dollars of the balances at December 31, 1997, on the basis described in Note
1.2.c). This translation should not be construed as representing that the peso
amounts actually represent or have been, or could be, converted into U.S.
dollars.
Buenos Aires, Argentina PRICE WATERHOUSE & CO.
March 25, 1998 Daniel A. Lopez Lado (Partner)
F-47
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1997 1996
------------- ------------- -------------
US$(1) P$
------------- -----------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and banks .......................................... 305,876 305,876 542,989
Accounts receivable (Note 2.a)) ......................... 13,961,371 13,961,371 10,533,229
Other receivables (Note 2.b)) ........................... 2,321,217 2,321,217 4,694,592
Inventories (Note 2.c)) ................................. 12,687,639 12,687,639 11,596,926
---------- ---------- ----------
Total current assets .................................... 29,276,103 29,276,103 27,367,736
---------- ---------- ----------
NON-CURRENT ASSETS
Other receivables (Note 2.d)) ........................... 657,658 657,658 657,658
Long-term investments (Note 2.e)) ....................... 233,756 233,756 266,756
Property and equipment, net (Note 3) .................... 26,477,686 26,477,686 24,702,859
Other ................................................... 67,377 67,377 67,377
---------- ---------- ----------
Total non-current assets ................................ 27,436,477 27,436,477 25,694,650
---------- ---------- ----------
Total assets ............................................ 56,712,580 56,712,580 53,062,386
========== ========== ==========
LIABILITIES
CURRENT LIABILITIES
Accounts payable (Note 2.f)) ............................ 11,737,769 11,737,769 13,138,278
Short-term bank borrowings (Note 2.g)) .................. 6,613,730 6,613,730 8,311,896
Taxes payable ........................................... 1,059,209 1,059,209 181,630
Payroll and social security ............................. 274,995 274,995 238,974
Advances from customers ................................. 116,978 116,978 593,339
Other ................................................... -- -- 490,440
---------- ---------- ----------
Total current liabilities ............................... 19,802,681 19,802,681 22,954,557
---------- ---------- ----------
NON-CURRENT LIABILITIES
Long-term bank borrowings (Note 2.h)) ................... 5,342,376 5,342,376 3,560,501
---------- ---------- ----------
Total non-current liabilities ........................... 5,342,376 5,342,376 3,560,501
---------- ---------- ----------
Total liabilities ....................................... 25,145,057 25,145,057 26,515,058
---------- ---------- ----------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY ............................................. 727 727 450
---------- ---------- ----------
SHAREHOLDERS' EQUITY (as per related statement) ......... 31,566,796 31,566,796 26,546,878
---------- ---------- ----------
Total liabilities and shareholders' equity .............. 56,712,580 56,712,580 53,062,386
========== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c).
The accompanying notes are an integral part of these consolidated
financial statements.
F-48
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENTS OF INCOME
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1997 1996 1995
---------------- ---------------- ---------------- ----------------
US$(1) P$
---------------- --------------------------------------------------
<S> <C> <C> <C> <C>
Net sales, rentals and services (Note 2.j)) ......... 57,322,289 57,322,289 39,368,237 35,297,551
Operating costs
Cost of sales, rentals and services
(Note 2.k)) ...................................... (44,086,860) (44,086,860) (29,151,402) (28,096,627)
Administrative expenses ............................ (1,830,707) (1,830,707) (1,446,250) (1,222,513)
Selling expenses ................................... (3,205,862) (3,205,862) (2,763,704) (2,707,561)
Other .............................................. (676,674) (676,674) (690,775) (778,873)
----------- ----------- ----------- -----------
Operating income .................................... 7,522,186 7,522,186 5,316,106 2,491,977
Non-operating income (expenses)
Financial expenses (Note 2.l)) ..................... (1,118,454) (1,118,454) (1,545,224) (925,601)
Other non-operating income net
(Note 7.a)) ...................................... 629,000 629,000 681,521 628,734
----------- ----------- ----------- -----------
Income before taxes, minority interest and
extraordinary results .............................. 7,032,732 7,032,732 4,452,403 2,195,110
Income tax .......................................... (2,012,537) (2,012,537) (1,128,499) (300,578)
----------- ----------- ----------- -----------
Income before minority interest and
extraordinary results .............................. 5,020,195 5,020,195 3,323,904 1,894,532
Minority interest in results of
consolidated subsidiaries .......................... (277) (277) (172) (161)
----------- ----------- ----------- -----------
Net income before extraordinary results ............. 5,019,918 5,019,918 3,323,732 1,894,371
----------- ----------- ----------- -----------
Extraordinary results (Note 9)(2) ................... -- -- (709,666) --
----------- ----------- ----------- -----------
Net income for the year ............................. 5,019,918 5,019,918 2,614,066 1,894,371
=========== =========== =========== ===========
</TABLE>
- ----------------
(1) See Note 1.2.c).
(2) This amount includes P$349,537 (Gain) corresponding to the effect of income
taxes.
The accompanying notes are an integral part of these consolidated
financial statements.
F-49
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.)
<TABLE>
<CAPTION>
EARNINGS
ADJUSTMENTS ---------------------------
TO CAPITAL UNAPPROPRIATED TOTAL
CAPITAL STOCK LEGAL RETAINED SHAREHOLDERS'
STOCK (NOTE 1.5. I)) RESERVE EARNINGS EQUITY
--------- ---------------- --------- --------------- --------------
<S> <C> <C> <C> <C> <C>
At December 31, 1994 ................... 86,000 12,723 26,708 21,913,010 22,038,441
Net income for the year ................ -- -- -- 1,894,371 1,894,371
------ ------ ------ ---------- ----------
At December 31, 1995 ................... 86,000 12,723 26,708 23,807,381 23,932,812
Net income for the year ................ -- -- -- 2,614,066 2,614,066
------ ------ ------ ---------- ----------
At December 31, 1996 ................... 86,000 12,723 26,708 26,421,447 26,546,878
Net income for the year ................ -- -- -- 5,019,918 5,019,918
------ ------ ------ ---------- ----------
At December 31, 1997 ................... 86,000 12,723 26,708 31,441,365 31,566,796
====== ====== ====== ========== ==========
At December 31, 1997 in US$(1) ......... 86,000 12,723 26,708 31,441,365 31,566,796
====== ====== ====== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c).
The accompanying notes are an integral part of these consolidated
financial statements.
F-50
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1997 1996 1995
--------------- --------------- ----------------- ---------------
US$(1) P$
--------------- -------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the year ................................ 5,019,918 5,019,918 2,614,066 1,894,371
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation ......................................... 6,360,947 6,360,947 3,272,048 2,281,111
Allowance for doubtful accounts ...................... 300,176 300,176 307,633 527,235
Minority interest .................................... 277 277 172 161
Fixed assets disposals ............................... 1,526,084 1,526,084 658,570 966,698
Taxes on income ...................................... 2,012,537 2,012,537 778,962 300,578
Financial and holding results on assets other than
cash or cash equivalents and on liabilities ........ (163,833) (163,833) 281,219 1,831,085
Decrease (increase) in assets:
Accounts receivable ................................. (3,699,866) (3,699,866) (5,097,293) 106,500
Other receivables ................................... 2,643,375 2,643,375 (556,051) (1,926,963)
Other assets ........................................ -- -- (3) 34
Inventories ......................................... (1,090,713) (1,090,713) (1,337,138) (2,079,787)
Increase (decrease) in liabilities:
Accounts payable .................................... (1,400,509) (1,400,509) 5,554,258 385,394
Payroll and social security ......................... 36,021 36,021 14,062 (56,403)
Other liabilities ................................... (490,440) (490,440) 12,143 452,310
Taxes payable ....................................... 848,287 848,287 (48,074) (1,530,653)
Advances from customers ............................. (476,361) (476,361) (106,140) 413,295
---------- ---------- ------------ ----------
Cash provided by operations ............................ 11,425,900 11,425,900 6,348,434 3,564,966
---------- ---------- ------------ ----------
CASH FLOWS FROM INVESTMENT
ACTIVITIES
Purchases of property and equipment .................... (9,580,339) (9,580,339) (4,524,287) (3,405,256)
Investments other than cash equivalents ................ 33,000 33,000 537,384 --
---------- ---------- ------------ ----------
Cash used in investment activities ..................... (9,547,339) (9,547,339) (3,986,903) (3,405,256)
---------- ---------- ------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans ............................... 39,132,529 39,132,529 13,269,291 6,388,024
Repayments of bank loans ............................... (39,476,652) (39,476,652) (13,838,018) (5,617,809)
Interest and related cost payments ..................... (1,771,551) (1,771,551) (1,632,095) (716,609)
----------- ----------- ------------- ----------
Cash (used in) provided by financing activities ........ (2,115,674) (2,115,674) (2,200,822) 53,606
----------- ----------- ------------- ----------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ...................................... (237,113) (237,113) 160,709 213,316
Cash and cash equivalents at the beginning of year ..... 542,989 542,989 382,280 168,964
----------- ----------- ------------- ----------
CASH AND CASH EQUIVALENTS AT THE END
OF YEAR ............................................... 305,876 305,876 542,989 382,280
=========== =========== ============= ==========
</TABLE>
- ----------------
(1) See Note 1.2.c).
The accompanying notes are an integral part of these consolidated financial
statements.
F-51
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
1.1. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
These consolidated financial statements include the accounts of Sullair
Argentina Sociedad Anonima and its subsidiary, Sullair San Luis Sociedad
Anonima. All material intercompany balances, transactions and profits have been
eliminated.
Sullair Argentina Sociedad Anonima holds 99.99% of the shares of Sullair
San Luis Sociedad Anonima. In addition to its participation in Sullair San Luis
Sociedad Anonima, Sullair Argentina Sociedad Anonima holds 100% of the shares
of Bahian S.A., a company located in Uruguay. Bahian S.A. holds 49% of the
shares of Sullair Do Brasil Ltd., a Brazilian company.
The participation in Bahian S.A. has not been consolidated in view of its
low materiality and is shown in the consolidated financial statements under
non-current investments, at its cost value. This situation does not give rise
to any significant distortion that could affect the valuation and disclosure of
the consolidated financial statements.
The preparation of the financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the balance
sheet dates, and the reported amounts of revenues and expenses during the
reporting years. Actual results may differ from these estimates.
1.2. RECOGNITION OF THE EFFECTS OF INFLATION
a) Pursuant to the restatement methodology established under technical
pronouncements issued by the Federacion Argentina de Consejos Profesionales de
Ciencias Economicas (Argentine Federation of Professional Councils in Economic
Sciences, or "FACPCE"), the consolidated financial statements of Sullair
Argentina Sociedad Anonima were stated in constant Argentine pesos through
August 31, 1995. To account for the effects of inflation in Argentina and in
accordance with Argentine GAAP, prior to September 1, 1995, the Company's
financial statements were periodically restated based on the changes in the
Precios Mayoristas Nivel General (General Wholesale Price Index, or "WPI").
However, pursuant to resolutions of the Inspeccion General de Justicia (General
Inspection of Justice or "IGJ"), Argentine companies are not permitted to
reflect the effects of inflation on their financial statements as of any date
or for any period after September 1, 1995.
Accordingly, for fiscal year 1995, Sullair Argentina Sociedad Anonima and
Sullair San Luis Sociedad Anonima are required to reflect the effects of
inflation on their financial statements through August 31, 1995, but are not
permitted to do so for the four-month period ended December 31, 1995 or for
subsequent periods. Except for the portion of the fiscal year ended December
31, 1995 prior to August 31, 1995, which has been restated in constant pesos at
August 31, 1995, financial data at and for such fiscal year has not been
restated in constant pesos. For the years ended December 31, 1997 and 1996, as
the change in the WPI since August 31, 1995 has been less than 8%, financial
statements prepared in accordance with Argentine GAAP need not be adjusted for
inflation after that date. Financial statements that are not restated to
reflect the effects of inflation will not include the
F-52
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
restatement of non-monetary assets and the net gain or loss (holding gains or
losses) on exposure of monetary assets and liabilities to price level changes.
In March 1992, the monetary correction system was discontinued for tax purposes
in Argentina.
b) On January 1, 1992 the peso replaced the austral as Argentina's
official currency at a convertion rate of 10,000 australes per peso. One peso
currently is, and current Argentine law requires that one peso will continue to
be, exchangeable for not less than one dollar.
The following table shows, for the years indicated, certain information
regarding the exchange rates for U.S. dollars, expressed in nominal pesos per
dollar. The Federal Reserve Bank of New York does not report a non-buying rate
for Argentine pesos.
YEAR ENDED
DECEMBER 31, HIGH LOW AVERAGE(1) END OF PERIOD
- ------------------- ----------- ----------- ------------ --------------
1995 ......... 1.0000 0.9990 0.9995 1.0000
1996 ......... 1.0000 1.0000 1.0000 1.0000
1997 ......... 1.0000 1.0000 1.0000 1.0000
- ----------------
(1) Average of month-end rates.
SOURCES: CENTRAL BANK--BANCO DE LA NACION ARGENTINA.
c) The consolidated financial statements of Sullair Argentina Sociedad
Anonima at December 31, 1997, as well as the related notes and exhibits, have
been prepared in Argentine pesos on the basis of accounting records carried in
Argentina in that currency. These financial statements include a column that
gives effect to the translation into U.S. dollars of the balances at December
31, 1997. Balances have been translated at the exchange rate at December 31,
1997, indicated in Note 1.2.b).
1.3. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance
with Argentine GAAP and with the requirements of the IGJ, and are presented in
Argentine pesos ("P$").
1.4. CASH AND CASH EQUIVALENTS
In the consolidated statements of cash flows, the Company considers cash
and cash equivalents all its highly liquid investments purchased with an
original maturity at three months or less.
F-53
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
1.5. VALUATION CRITERIA
The principal valuation criteria used in the preparation of the
consolidated financial statements are as follows:
a) Foreign currency
Assets and liabilities denominated in foreign currency are presented at
the nominal value of the foreign currency converted to local currency at
year-end exchange rates. Exchange differences have been included in the
determination of the net income.
b) Accounts receivable
Accounts receivable are stated at estimated realizable values and an
allowance for doubtful accounts is provided in an amount considered by
management to be sufficient to meet probable future losses related to
uncollectible accounts.
c) Inventories
Inventories are valued at replacement cost which, in the aggregate, is
less than recoverable value on the following basis:
Imported raw materials and supplies: at replacement cost in the currency
of origin converted at the year-end exchange rate plus the percentage of
import duties incurred.
Domestic raw materials and supplies: at replacement cost.
Imports in progress: at their import cost in the currency of origin
converted at the year-end exchange rate plus expenses incurred since the
date of origin through each year end.
d) Property and equipment
Property and equipment are presented at cost restated through August 31,
1995 (Note 1.2.), less accumulated depreciation.
Depreciation commences in the month following acquisition or placement of
the assets in service and is computed on a straight-line basis over the
estimated useful lives of the assets. Aggregate net value does not exceed
recoverable value.
Management considers that there has been no impairment in the carrying
value of property and equipment.
F-54
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
e) Long-term investments
The government bond of "Argentina Bond" has been valued at its cost,
increased on a exponential basis according to the internal rate of return at
the time of its incorporation to assets and time elapsed thereafter.
Equity investment in Bahian S.A. (Note 1.1.)
f) Administrative and selling expenses
Administrative and selling expenses are charged to income when incurred.
g) Employee severance indemnities
Employee severance indemnities are expensed as paid.
h) Income tax
Income taxes are those estimated to be paid for each year. The income tax
has been estimated by applying the 33% statutory tax rate to taxable income of
the years ended December 31, 1997 and 1996 and the 30% statutory tax rate to
taxable income of the year ended December 31, 1995. The resulting amount was
charged to income tax in the consolidated statement of income.
i) Shareholders' equity
Shareholders' equity accounts have been restated in constant pesos as of
the end of each year (Note 1.2.), except for the capital stock account which is
stated at nominal value. The adjustment required to restate such value into
constant pesos is included in the "Adjustment to capital" account.
j) Sales, rentals and services recognition
Sales, rentals and services are recognized on an accrual basis. The
Company's revenues are presented net of sales discounts.
k) Statement of income
These accounts have been restated on a constant Argentine pesos basis
through August 31, 1995 (Note 1.2.), as follows:
--Accounts accumulating monetary transactions throughout the year
(revenues, direct operating costs and non-operating expenses) have been
restated as from the month when the transaction took place.
F-55
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
--Charges to income related to non-monetary assets reflect their adjustment
to restated cost (depreciation of property and equipment), and charges
related to materials reflect their adjustment to replacement cost.
NOTE 2--ANALYSIS OF CERTAIN BALANCE SHEETS AND STATEMENTS OF INCOME ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1997 1996
-------------- -------------- ---------------
US$(1) P$
-------------- --------------------------------
<S> <C> <C> <C>
BALANCE SHEETS
CURRENT ASSETS
a) Accounts receivable
Trade receivable ...................................... 11,359,844 11,359,844 7,577,756
Notes receivable ...................................... 2,009,205 2,009,205 3,099,894
Export letters receivable ............................. 864,046 864,046 1,462,404
Less: Allowance for doubtful account (Note 4) ......... (271,724) (271,724) (1,606,825)
---------- ---------- ----------
13,961,371 13,961,371 10,533,229
========== ========== ==========
b) Other receivables
Recoverable taxes ..................................... 1,399,761 1,399,761 2,055,431
Advances to employees ................................. 132,078 132,078 72,173
Prepaid expenses ...................................... 355,698 355,698 225,731
Commissions receivable ................................ 165,228 165,228 73,917
Prepaid insurance ..................................... 196,362 196,362 106,743
Loans to Directors .................................... 34,651 34,651 1,348,933
Others ................................................ 37,439 37,439 688,848
Export credit bonds ................................... -- -- 122,816
---------- ---------- ----------
2,321,217 2,321,217 4,694,592
========== ========== ==========
c) Inventories
Finished goods ........................................ 7,458,646 7,458,646 7,919,539
Manufactured materials ................................ 2,505,660 2,505,660 1,795,516
Supplies in transit ................................... 2,427,091 2,427,091 1,856,765
Advances to suppliers ................................. 296,242 296,242 25,106
---------- ---------- ----------
12,687,639 12,687,639 11,596,926
========== ========== ==========
</TABLE>
F-56
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 2--ANALYSIS OF CERTAIN BALANCE SHEETS AND STATEMENTS OF INCOME
ACCOUNTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1997 1996
------------- ------------- -------------
US$(1) P$
------------- -----------------------------
<S> <C> <C> <C>
NON-CURRENT ASSETS
d) Other receivables
Receivables due to the partial suspension of the
tax credit ...................................... 41,396 41,396 41,396
Credits Decree No. 2054/92--VAT Purchases ......... 608,604 608,604 608,604
------- ------- -------
Subtotal (Note 7.b)) .............................. 650,000 650,000 650,000
Other tax credits ................................. 7,658 7,658 7,658
------- ------- -------
657,658 657,658 657,658
======= ======= =======
e) Long-term investments
Bahian S.A. ....................................... 199,756 199,756 199,756
Argentina Bond .................................... 34,000 34,000 67,000
------- ------- -------
233,756 233,756 266,756
======= ======= =======
CURRENT LIABILITIES
f) Accounts payable
Trade
Suppliers ........................................ 10,627,915 10,627,915 12,379,320
Related companies ................................ 1,109,854 1,109,854 758,958
---------- ---------- ----------
11,737,769 11,737,769 13,138,278
========== ========== ==========
g) Short-term bank borrowings (Note 5)
Banks
Overdrafts ....................................... 596,176 596,176 211,165
Unsecured notes .................................. 6,017,554 6,017,554 8,100,731
---------- ---------- ----------
6,613,730 6,613,730 8,311,896
========== ========== ==========
NON-CURRENT LIABILITIES
h) Long-term bank borrowings
Banks
Unsecured notes .................................. 5,342,376 5,342,376 3,560,501
========== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c).
F-57
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 2--ANALYSIS OF CERTAIN BALANCE SHEETS AND STATEMENTS OF INCOME
ACCOUNTS--(CONTINUED)
i) Aging breakdown of balance sheet accounts (amounts expressed in P$)
<TABLE>
<CAPTION>
NOT DUE
-------------------------------------------------------------------------
1ST 2ND 3RD 4TH 2ND
ITEMS QUARTER QUARTER QUARTER QUARTER YEAR TOTAL
- -------------------------------------- ----------- ----------- ------------ --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Accounts receivable ............... 8,697,997 5,202,381 332,717 -- -- 14,233,095
Other receivables ................. 731,402 866,588 670,226 53,001 657,658 2,978,875
--------- --------- ------- ------ ------- ----------
Total assets ...................... 9,429,399 6,068,969 1,002,943 53,001 657,658 17,211,970
========= ========= ========= ====== ======= ==========
LIABILITIES
Accounts payable .................. 5,519,884 6,217,885 -- -- -- 11,737,769
Notes payable to banks(1) ......... 3,181,602 1,771,986 889,308 770,834 5,342,376 11,956,106
Social security charges ........... 274,995 -- -- -- -- 274,995
Accrued taxes ..................... 162,041 897,168 -- -- -- 1,059,209
Advances from customers ........... 116,978 -- -- -- -- 116,978
--------- --------- --------- ------- --------- ----------
Total liabilities ................. 9,255,500 8,887,039 889,308 770,834 5,342,376 25,145,057
========= ========= ========= ======= ========= ==========
</TABLE>
- ----------------
(1) Corresponding to an annual rate of 7.70%.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1997 1997 1996 1995
---------------- ---------------- ---------------- ----------------
US$(1) P$
---------------- ------------------------------------------------------
<S> <C> <C> <C> <C>
STATEMENTS OF INCOME
j) Net revenues
Sales, rentals and services
Sales ............................. 37,403,570 37,403,570 25,000,149 25,067,779
Rentals and services .............. 20,673,613 20,673,613 14,927,114 10,433,168
Discounts ......................... (754,894) (754,894) (559,026) (203,396)
---------- ---------- ---------- ----------
57,322,289 57,322,289 39,368,237 35,297,551
========== ========== ========== ==========
k) Cost of sales, rentals and services
Sales .............................. (31,074,571) (31,074,571) (19,739,648) (19,566,701)
Rentals and services ............... (13,012,289) (13,012,289) (9,411,754) (8,529,926)
----------- ----------- ----------- -----------
(44,086,860) (44,086,860) (29,151,402) (28,096,627)
=========== =========== =========== ===========
l) Financial expenses
On assets .......................... 670,402 670,402 998,317 (19,979)
On liabilities ..................... (1,788,856) (1,788,856) (2,543,541) (905,622)
----------- ----------- ----------- -----------
(1,118,454) (1,118,454) (1,545,224) (925,601)
=========== =========== =========== ===========
</TABLE>
- ----------------
(1) See Note 1.2.c).
F-58
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 3--PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------
AVERAGE
ANNUAL ORIGINAL ACCUMULATED NET BOOK NET BOOK
RATE VALUE DEPRECIATION VALUE VALUE
-------- ------------ -------------- ------------ ------------
% P$ US$(1)
-------- ---------------------------------------- ------------
<S> <C> <C> <C> <C> <C>
Fixed assets
Land .............................. -- 2,638,964 -- 2,638,964 2,638,964
Buildings ......................... 2 3,740,035 713,284 3,026,751 3,026,751
Fixtures .......................... 2 273,077 38,650 234,427 234,427
Vehicles .......................... 20 1,917,016 1,308,577 608,439 608,439
Machines and equipment ............ 10 1,119,784 771,071 348,713 348,713
Office and equipment .............. 10 1,004,644 558,161 446,483 446,483
Other ............................. 25 1,393,747 1,050,953 342,794 342,794
--------- --------- --------- ---------
Subtotal ............................ 12,087,267 4,440,696 7,646,571 7,646,571
Rental machines and equipment ....... 20 17,838,062 8,161,271 9,676,791 9,676,791
Fixed assets investment Petrolera
Argentina San Jorge S.A. .......... 8 11,908,436 2,754,112 9,154,324 9,154,324
---------- --------- --------- ---------
Total ............................... 41,833,765 15,356,079 26,477,686 26,477,686
========== ========== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c).
Depreciation for 1997 amounted to P$6,360,947 of which P$6,107,952 was
allocated to "Cost of sales, rentals and services"; P$126,497 to
"Administrative expenses" and P$126,498 to "Selling expenses".
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------
AVERAGE
ANNUAL ORIGINAL ACCUMULATED NET BOOK
RATE VALUE DEPRECIATION VALUE
-------- ------------ -------------- ------------
% P$
-------- --------------------------------------------
<S> <C> <C> <C> <C>
Fixed assets
Land .................................... -- 2,638,964 -- 2,638,964
Buildings ............................... 2 3,348,076 638,484 2,709,592
Fixtures ................................ 2 265,812 33,189 232,623
Vehicles ................................ 20 1,632,683 1,079,824 552,859
Machines and equipment .................. 10 962,189 685,937 276,252
Office and equipment .................... 10 780,130 481,577 298,553
Other ................................... 25 1,212,486 1,010,100 202,386
---------- ---------- ----------
Subtotal .................................. 10,840,340 3,929,111 6,911,229
Rental machines and equipment ............. 14 12,178,247 4,675,613 7,502,634
Fixed assets investment Petrolera Argentina
San Jorge S.A. ........................... 8 11,725,018 1,436,022 10,288,996
---------- ---------- ----------
Total ..................................... 34,743,605 10,040,746 24,702,859
========== ========== ==========
</TABLE>
F-59
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 3--PROPERTY AND EQUIPMENT--(CONTINUED)
Depreciation for 1996 amounted to P$3,272,048; of which P$3,133,470 was
allocated to "Cost of sales, rentals and services"; P$55,491 to "Administrative
expenses" and P$69,140 to "Selling expenses" and P$13,947 to "Other".
NOTE 4--ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 1997 1996
--------------- ----------------------- ------------
US$(1) P$
--------------- --------------------------------------
<S> <C> <C> <C>
Balance at the beginning of the year ......... 1,606,825 1,606,825 1,309,587
Increase ..................................... 300,176 300,176 307,633
Decrease ..................................... (1,635,277) (1,635,277) (2) (10,395)
---------- ---------- ---------
Balance at the end of the year ............... 271,724 271,724 1,606,825
========== ========== =========
</TABLE>
- ----------------
(1) See Note 1.2.c).
(2) Until the year ended December 31, 1996 the Company held in its accounts
receivable an amount of long-outstanding bad debts which was offset by a
corresponding allowance. During 1997 the Company reduced the bad debt
allowance by P$1,635,277 with a corresponding reduction in the related
accounts receivable. This adjustment has had no impact on results for the
year.
NOTE 5--SHORT-TERM BANK BORROWINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1997 1996
-------------- -------------- --------------
US$(1) P$
-------------- -------------------------------
<S> <C> <C> <C>
Credit balances with banks ............. 596,176 596,176 211,165
Loans .................................. 6,017,554 6,017,554 8,100,731
--------- --------- ---------
6,613,730 6,613,730 8,311,896
========= ========= =========
Weighted average interest rate ......... 7.70% 7.70% 9.50%
</TABLE>
- ----------------
(1) See Note 1.2.c).
NOTE 6--TRANSACTIONS WITH RELATED PARTIES
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1997 1996
----------- ----------- --------
US$(1) P$
----------- ----------------------
Sullair Corporation(2)
Accounts payable ......... 1,109,854 1,109,854 758,958
========= ========= =======
- ----------------
(1) See Note 1.2.c).
(2) Sullair Argentina Sociedad Anonima and Sullair San Luis Sociedad Anonima
buy Sullair Corporation machines and equipment.
F-60
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 7--SUBSTITUTION OF THE INDUSTRIAL PROMOTION REGIME IN SULLAIR SAN LUIS
SOCIEDAD ANONIMA
a) The fiscal benefits obtained by Sullair San Luis Sociedad Anonima under
the industrial promotion regime were substituted as established by Decree No.
2054/92 of the National Government. These benefits were replaced by crediting
US$ 5,422,675 to a DGI (tax authorities) computerized current account which can
be applied, up to a maximum per year, to the payment of tax obligations
corresponding to the remaining years of the project.
During the year ended December 31, 1997 Sullair San Luis Sociedad Anonima
has used US$629,000 from the computerized current account, which is shown in
the consolidated statement of income under the "Other non-operating income net"
line, some filings have been made as established by Decree No. 804/96.
b) In accordance with Decree No. 2054/92, the companies which were exempt
from payment of VAT on purchases until Decree No. 435/90 was annulled were
granted a tax credit for an amount equivalent to the tax paid to suppliers of
raw material and semi-manufactured products from April 1, 1990 up to November
30, 1992. Decree No. 2054/92 also established the maximum amount of the tax
credit to be recognized which cannot be exceeded. Despite the total amount of
the VAT credit paid during the abovementioned period by Sullair San Luis
Sociedad Anonima amounted to US$ 1,599,128, the Company management believes
that, although the Company is entitled to file claims, the amount to be
credited by the DGI in accordance with the provisions of the abovementioned
decree will not exceed US$650,000.
During June 1995, in compliance with the terms of DGI Resolutions Nos.
3838 and 3905, Sullair San Luis Sociedad Anonima applied to this authority for
the fiscal credit certificates. The DGI has resolved to grant $232,144.68 as an
anticipated refund without recognizing the origin of the credit requested under
the terms of General Resolution No. 3838, pursuant to the provisions of General
Resolution No. 4182 by virtue of the period of suspension of the promotion
benefits implemented by sections IV and V of Law No. 23697 and complementary
regulations. The DGI has not as yet issued any opinion as regards General
Resolution No. 3905.
NOTE 8--CONTRACT WITH PETROLERA ARGENTINA SAN JORGE S.A.
During March 1995, the Company signed a contract with Petrolera Argentina
San Jorge S.A. for a term of 10 years for the execution of work for the
expansion of the power station located at the "El Trapial" field in the
province of Neuquen, and for the providing of an electricity supply service
that includes the making available of certain turbo-generators and power
plants, as well as their maintenance and commissioning.
In fiscal 1997, income has been generated for approximately US$4,107,113
and costs have been generated for approximately US$1,721,770.
F-61
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 9--EXTRAORDINARY RESULTS
In 1996, during the execution of work carried out under the agreement with
Petrolera Argentina San Jorge S.A., the Company incurred in extraordinary costs
in the amount, net of the effect of income taxes, of P$ 709,666, from the
incorporation of equipment of a higher standard than originally planned to
improve service and client attention, as well as in the absorption of unplanned
expenditure during the construction and development stage of this new business.
NOTE 10--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA
The consolidated financial statements have been prepared in accordance
with Argentine GAAP, which differ in certain significant respects from US GAAP.
The significant differences as at and for the years ended December 31, 1997,
1996 and 1995 are reflected in the reconciliations provided in Note 11 and
principally relate to the items discussed in the following paragraphs:
a) Restatement of financial statements for general price-level changes
The Argentine GAAP consolidated financial statements of the Company were
restated through August 31, 1995 and updated through August 31, 1995
price-levels to reflect the effects of inflation in accordance with specified
rules as more fully explained in Note 1.2.
In most circumstances, US GAAP do not allow for the restatement of
financial statements. Under US GAAP, account balances and transactions are
generally stated in the units of currency of the year when the transactions
originated. This accounting model is commonly known as the historical cost
basis of accounting. However, as the economy of Argentina experienced periods
of significant inflation prior to September 1995, the presentation of the
consolidated financial statements restated for general price-level changes is
substantially similar to the methodology prescribed by Accounting Principles
Board Statement ("APB") No. 3, "Financial Statements Restated for General Price
Level Changes". This statement requires that companies operating in
hyper-inflationary environments in which inflation has exceeded 100% over the
last three years and which report in local currency restate their financial
statements on the basis of a general price-level index. August 1993 was the
first month in which the rate of inflation in Argentina, as measured by the
WPI, was below 100% for the first time in 36 consecutive months since the
release of Statement of Financial Accounting Standards ("SFAS") No. 52 "Foreign
Currency--Translation". The US GAAP reconciliation does not reverse the effects
of the general price-level restatement included in the Argentine GAAP financial
statements through August 31, 1995.
b) Presentation of the parent company financial statements
Argentine GAAP require companies with controlling financial interest in
other companies to present both parent company, where investments in
subsidiaries are accounted for by the equity method, and consolidated financial
statements, as primary and supplementary information, respectively. Because of
the special purpose of these financial statements, parent financial statements
are not included.
F-62
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 10--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA--(CONTINUED)
c) Capitalized interest
Argentine GAAP do not require capitalization of interest on work in
progress. Under US GAAP interest incurred on working progress should be
capitalized as part of the cost of acquiring the assets until placed into
service. Accordingly, the reconciling difference for this item is presented in
the quantitative reconciliation in Note 11.
d) Advances to suppliers
Under Argentine GAAP, funds advanced to suppliers are capitalized and
included under Property and equipment prior to purchase and specific
identification. Under US GAAP these funds are treated as a deposit until the
related assets procured by such funds have been purchased and specifically
identified. Accordingly, such funds are generally classified as "Other assets".
However, due to the nature of such funds and their relative immateriality
to the consolidated financial statements taken as a whole (Note 3), the
quantitative difference between Argentine and US GAAP would be a
reclassification from Property and equipment to Other assets and, accordingly,
it does not affect the reconciliation of net income and shareholders' equity in
Note 11.
e) Recoverability of long-lived assets to be held and used in the business
Management reviews long-lived assets, primarily Property and equipment, to
be held and used in the business, and Long-term investments for the purposes of
determining and measuring impairment. Under US GAAP, SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of", requires a company to review assets for impairment whenever
events or changes in circumstances indicate the carrying amount of an asset may
not be recoverable.
Management estimates that there is no significant impairment of assets.
f) Vacation accrual
Under Argentine GAAP, there are no specific requirements governing the
recognition of accruals for vacations. The accepted practice in Argentina is to
expense vacation when taken and to accrue only the amount of vacation in excess
of normal remuneration.
Under US GAAP, vacation expense is fully accrued in the year the employee
renders service to earn such vacation. Accordingly, the reconciling difference
for this item is presented in the quantitative reconciliation in Note 11.
F-63
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 10--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA--(CONTINUED)
g) Income taxes
Under Argentine GAAP, income tax expense is generally recognized based
upon the estimate of the current income tax liability. When income and expense
recognition for financial statement purposes does not occur in the same period
as income and expense recognition for tax purposes, the resulting temporary
differences are not considered in the computation of income tax expense for the
year.
Under US GAAP, the liability method is used to calculate the income tax
provision. Under the liability method, deferred tax assets or liabilities are
recognized with a corresponding charge or credit to income for differences
between the financial and tax basis of assets and liabilities at each year-end.
Accordingly, the reconciling difference for this item is presented in the
quantitative reconciliation in Note 11.
h) Severance indemnities
US GAAP require the accrual of liability for certain post-employment
benefits if they are related to services already rendered, are related to
rights that accumulate or vest, or are likely to be paid and can be reasonable
estimated.
As described in Note 1.5.g), the Company expenses severance indemnities
when paid. Under Argentine law, the Company is required to pay a minimum
severance indemnity based on years of service and age when an employee is
dismissed without adequate justification. While the Company expects to make
severance payments in the future, it is unable to reasonably estimate the
amount of liability, if any, at the present time. As a result, no adjustment
has been made in the US GAAP reconciliation.
i) Earnings per share
Argentine GAAP do not require disclosure of earnings per share. Under US
GAAP SFAS No. 128, "Earning per share", earnings per share have been calculated
based on the weighted average number of common shares outstanding during the
year. The calculation is presented in Note 11.
j) Inventories
As described in Note 1.5.c) the Company values its inventories at
replacement cost. Under US GAAP inventories are to be valued at the lower of
cost or realizable value. There are no material differences between the
replacement cost and the US GAAP cost. As a result, no adjustment has been made
in the US GAAP reconciliation.
F-64
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 10--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA--(CONTINUED)
k) Extraordinary items
Unplanned expenditures during the construction of the project described in
Note 9 are included as an extraordinary loss under Argentine GAAP.
This concept does not qualify as an extraordinary item under US GAAP.
NOTE 11--RECONCILIATION OF NET INCOME (LOSS) AND SHAREHOLDERS' EQUITY TO US
GAAP
The following is a summary of the significant adjustments to net income
and shareholders' equity for the years ended December 31, 1997, 1996 and 1995,
which would be required if US GAAP were applied instead of Argentine GAAP in
the financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1997
----------------------------- -----------------------------
US$(1) P$
----------------------------- -----------------------------
NET SHAREHOLDERS' NET SHAREHOLDERS'
INCOME EQUITY INCOME EQUITY
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
AMOUNTS PER
ACCOMPANYING
FINANCIAL STATEMENTS ......... 5,019,918 31,566,796 5,019,918 31,566,796
US GAAP ADJUSTMENTS
Deferred income tax ............ 74,911 (79,187) 74,911 (79,187)
Vacation accrual ............... (29,738) (399,033) (29,738) (399,033)
Capitalized interest ........... 7,486 16,104 7,486 16,104
--------- ---------- --------- ----------
AMOUNTS UNDER
US GAAP ...................... 5,072,577 31,104,680 5,072,577 31,104,680
========= ========== ========= ==========
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995
----------------------------- ------------
P$
------------------------------------------
NET SHAREHOLDERS' NET
INCOME EQUITY INCOME
------------- --------------- ------------
<S> <C> <C> <C>
AMOUNTS PER
ACCOMPANYING
FINANCIAL STATEMENTS ......... 2,614,066 26,546,878 1,894,371
US GAAP ADJUSTMENTS
Deferred income tax ............ 134,320 (154,098) 90,063
Vacation accrual ............... 54,092 (369,295) (23,387)
Capitalized interest ........... (11,428) 8,618 20,046
--------- ---------- ---------
AMOUNTS UNDER
US GAAP ...................... 2,791,050 26,032,103 1,981,093
========= ========== =========
</TABLE>
- ----------------
(1) See Note 1.2.c).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1997 1996 1995
---------- ---------- ---------- ----------
US$(1) P$
---------- ------------------------------------
<S> <C> <C> <C> <C>
EARNINGS PER SHARE
US GAAP
Net income per share ......... 58.37 58.37 30.39 22.03
</TABLE>
- ----------------
(1) See Note 1.2.c).
F-65
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 12--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS
a) Income taxes
The Company's deferred income taxes under US GAAP are comprised as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1997 1996 1995
------------ ------------ ------------- -------------
US$(1) P$
------------ --------------------------------------------
<S> <C> <C> <C> <C>
Deferred tax assets
Allowance for doubtful accounts ......... -- -- 8,416 --
Other temporary differences ............. 11,686 11,686 11,686 46,870
------ ------ ------ ------
11,686 11,686 20,102 46,870
Deferred tax liabilities
Other ................................... (90,873) (90,873) (174,200) (335,288)
------- ------- -------- --------
(90,873) (90,873) (174,200) (335,288)
------- ------- -------- --------
Net deferred tax assets ................... (79,187) (79,187) (154,098) (288,418)
======= ======= ======== ========
</TABLE>
- ----------------
(1) See Note 1.2.c).
The provision for income taxes computed in accordance with US GAAP differs
from that computed at the statutory tax rate (December 31, 1997 and 1996: 33%;
December 31, 1995: 30%) as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1997 1996 1995
------------- ------------- ------------- -------------
US$(1) P$
------------- ---------------------------------------------
<S> <C> <C> <C> <C>
Income tax expense (benefit) at statutory
tax rate on pretax income in accordance
with US GAAP ............................... 2,313,367 2,313,367 1,133,778 657,482
Change of statutory income tax rate ......... -- -- 28,842 --
Restatement in constant currency(2) ......... (168,171) (168,171) (293,076) (259,341)
Permanent differences(3) .................... (207,570) (207,570) (224,902) (187,626)
--------- --------- --------- --------
Income tax expense (benefit) in accordance
with US GAAP ............................... 1,937,626 1,937,626 644,642 210,515
========= ========= ========= ========
</TABLE>
- ----------------
(1) See Note 1.2.c).
(2) Effects of differing price-level adjustments for tax and financial
statement purposes.
(3) Fiscal benefits obtained by Sullair San Luis Sociedad Anonima (see Note
7.a)).
F-66
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 12--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS--(CONTINUED)
b) Supplementary cash flow information
Cash and cash equivalents at the end of each year comprises:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1997 1996 1995
--------- --------- --------- --------
US$(1) P$
--------- --------------------------------
<S> <C> <C> <C> <C>
Cash and banks .......................... 305,876 305,876 542,989 382,280
------- ------- ------- -------
Total cash and cash equivalents ......... 305,876 305,876 542,989 382,280
======= ======= ======= =======
</TABLE>
- ----------------
(1) See Note 1.2.c).
The Company has included all highly liquid investments, having an original
maturity which does not exceed 3 months as from the year, in cash and cash
equivalents.
The Company has applied the indirect method in order to reconcile net
income of each year with the cash flow provided by operating activities.
Breakdown of amounts paid during the years is as follows:
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1997 1996
-------- -------- -------
US$(1) P$
-------- ------------------
Income tax ......... 14,646 14,646 43,820
====== ====== ======
Main non-cash transactions
Main non-cash transactions, consequently eliminated in the Statement of
cash flows, are the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1997 1996 1995
----------- ----------- ----------- ----------
US$(1) P$
----------- --------------------------------------
<S> <C> <C> <C> <C>
Fixed assets acquisitions financed by loans and
accounts payable ............................. -- -- 5,763,979 6,081,494
--------- --------- --------- ---------
-- -- 5,763,979 6,081,494
========= ========= ========= =========
</TABLE>
- ----------------
(1) See Note 1.2.c).
F-67
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 12--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS--(CONTINUED)
Main investing activities
Proceeds from investments other than cash equivalents are as follows:
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1997 1996 1995
-------- --------- --------- --------
US$(1) P$
-------- --------------------------------
Current investments .......... -- -- 504,387 --
1998 Argentina Bond ......... 33,000 33,000 33,000 --
------ ------ ------- -------
Total ........................ 33,000 33,000 537,387 --
====== ====== ======= =======
- ----------------
(1) See Note 1.2.c).
The Company has no cash balances in currency other than U.S. dollars.
Since the exchange rates remained unchanged for the years ended December 31,
1997, 1996 and 1995, no foreign exchange gains/losses shall be adjusted for US
GAAP purposes.
c) Fair value of financial instruments
In accordance with SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments", information is provided about the fair value of certain
financial instruments for which it is practicable to estimate that value.
For the purposes of SFAS No. 107, the estimated fair value of a financial
instrument is the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a forced or
liquidation sale. The carrying values of the Companies' financial instruments
as of December 31, 1997, 1996 and 1995 approximate management's best estimate
of their fair values. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments for which it is
practicable to estimate that value:
--The fair value of certain financial assets carried at cost, including
cash, short-term investments, trade receivables and other current assets
is considered to approximate their respective carrying value due to their
short-term nature.
--The fair value of accounts payable and accrued liabilities, short-term
bank borrowings, tax payable and other current liabilities is considered to
approximate their respective carrying value due to their short-term nature.
F-68
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 12--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS--(CONTINUED)
d) Financial instruments with off-balance sheet risk and concentrations of
credit risk
The Company has not used financial instruments to hedge its exposure to
fluctuations in foreign currency exchange or interest rates and, accordingly,
has not entered into transactions that create off-balance sheet risks
associated with such financial instruments.
Accounts receivable substantially comprise balances with a large number of
clients. Management does not believe significant concentrations of credit risk
exist.
NOTE 13--IMPACT OF NEW ACCOUNTING STANDARD NOT YET ADOPTED
In June 1997, the Financial Accounting Board issued its Statement No. 130,
"Reporting Comprehensive Income". Among other provisions, SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. It does not
address issues of recognition or measurement for comprehensive income and its
components. Management does not expect the adoption of SFAS No. 130 to have
material impact on its financial statements.
F-69
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
INTERNATIONAL PROSPECTUS COVER
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED , 1998
SHARES
NEFF CORP.
CLASS A COMMON STOCK
---------------
OF THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY, SHARES
ARE BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND SHARES ARE BEING OFFERED INITIALLY IN
THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." ALL
OF THE SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY ARE BEING
SOLD BY THE COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET
FOR THE CLASS A COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT
THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER SHARE.
SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
---------------
APPLICATION WILL BE MADE TO LIST THE CLASS A COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "NFF."
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
PRICE $ A SHARE
---------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
PER SHARE $ $ $
TOTAL(3) $ $ $
- -------
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITERS."
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT
$ .
(3) THE COMPANY HAS GRANTED U.S. UNDERWRITERS AN OPTION, EXERCISABLE WITHIN
30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF
ADDITIONAL SHARES OF CLASS A COMMON STOCK AT THE PRICE TO PUBLIC LESS
UNDERWRITING DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF COVERING
OVERALLOTMENTS, IF ANY. IF THE U.S. UNDERWRITERS EXERCISE SUCH OPTION IN
FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS
AND PROCEEDS TO COMPANY WILL BE $ , $ AND $
RESPECTIVELY. SEE "UNDERWRITERS."
---------------
THE SHARES OF CLASS A COMMON STOCK ARE OFFERED, SUBJECT TO PRIOR SALE,
WHEN, AS AND IF ACCEPTED BY THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO
APPROVAL OF CERTAIN LEGAL MATTERS BY CAHILL GORDON & REINDEL, COUNSEL FOR THE
UNDERWRITERS. IT IS EXPECTED THAT DELIVERY OF THE SHARES WILL BE MADE ON OR
ABOUT , 1998 AT THE OFFICE OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK,
N.Y., AGAINST PAYMENT THEREFOR IN IMMEDIATELY AVAILABLE FUNDS.
---------------
MORGAN STANLEY DEAN WITTER
BT ALEX. BROWN INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following sets forth expenses and costs payable by the Company (other
than underwriting discounts and commissions) expected to be incurred in
connection with the issuance and distribution of the securities described in
this Registration Statement. All amounts are estimated except for the SEC
registration fee and the NASD filing fee.
AMOUNT
--------------
Registration fee under Securities Act .......... $
NASD filing fee ................................
New York Stock Exchange fees ...................
Legal fees and expenses ........................
Accounting fees and expenses ...................
Blue Sky fees and expenses .....................
Printing and engraving expenses ................
Registrar and transfer agent fees ..............
Miscellaneous expenses .........................
Total ........................................ $
=============
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation provides that the Company shall
indemnify to the fullest extent authorized by the DGCL, each person who is
involved in any litigation or other proceeding because such person is or was a
director or officer of the Company, against all expense, loss or liability
reasonably incurred or suffered in connection therewith. The Company's
Certificate of Incorporation provides that a director or officer may be paid
expenses incurred in defending any proceeding in advance of its final
disposition upon receipt by the Company of an undertaking, by or on behalf of
the director or officer, to repay all amounts so advanced if it is ultimately
determined that such director or officer is not entitled to indemnification.
Section 145 of the DGCL permits a corporation to indemnify any director or
officer of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding brought by reason of
the fact that such person is or was a director or officer of the corporation,
if such person acted in good faith and in a manner that he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, if he had no reason to believe
his conduct was unlawful. In a derivative action, (I.E., one brought by or on
behalf of the corporation), indemnification may be made only for expenses,
actually and reasonably incurred by any director or officer in connection with
the defense or settlement of such an action or suit, if such person acted in
good faith and in a manner that he reasonably believed to be in or not opposed
to the best interests of the corporation, except that no indemnification shall
be made if such person shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which the action
or suit was brought shall determine that the defendant is fairly and reasonably
entitled to indemnity for such expenses despite such adjudication of liability.
Pursuant to Section 102(b)(7) of the DGCL, the Company's Certificate of
Incorporation eliminates the liability of a director to the corporation or its
stockholders for monetary damages for such breach of fiduciary duty as a
director, except for liabilities arising (i) from any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) from acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) from any
transaction from which the director derived an improper personal benefit.
II-1
<PAGE>
The Company intends to obtain primary and excess insurance policies
insuring the directors and officers of the Company and its subsidiaries against
certain liabilities they may incur in their capacity as directors and officers.
Under such policies, the insurer, on behalf of the Company, may also pay
amounts for which the Company has granted indemnification to the directors or
officers.
Additionally, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 hereto, which provide for indemnification by the Underwriters of
the Company, its directors and officers who sign the Registration Statement and
persons who control the Company, under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement,
the Company has issued securities in the following transactions, each of which
was intended to be exempt from the registration requirements of the Securities
Act by virtue of Section 4(2) thereunder.
On December 29, 1995, the Company issued warrants to GE Capital to acquire
2,257,362 shares of Common Stock pursuant to the terms of the Stock Purchase
Warrant dated as of December 29, 1995 between GE Capital and the Company.
On December 22, 1995, the Company issued 300,000 shares of Series A
Preferred Stock to GE Capital in consideration for the receipt of $12,000,000
pursuant to the terms of the Securities Purchase Agreement dated as of December
22, 1995 between GE Capital and the Company.
On December 30, 1996, GE Capital exercised the Stock Purchase Warrant
dated as of December 29, 1995 and acquired 2,257,362 shares of Common Stock,
which it exchanged, pursuant to the terms of the Securities Exchange Agreement
dated as of December 23, 1996 between GE Capital and the Company, for 800,000
shares of Series B Convertible Preferred Stock of the Company. Also, on
December 30, 1996, GE Capital purchased 800,000 shares of Series C Convertible
Preferred Stock of the Company in exchange for consideration of $32,000,000
pursuant to the terms of the Securities Purchase Agreement dated as of December
30, 1996 between GE Capital and the Company.
On March , 1998, GE Capital exchanged 800,000 shares of Series B
Preferred Stock and 800,000 shares of Series C Preferred Stock for shares
of Class B Common Stock, pursuant to the terms of the Securities Exchange
Agreement dated as of March , 1998 between GE Capital and the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as exhibits to this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Company, as amended and restated.*
3.2 By-Laws of the Company, as amended and restated.
4.1 Form of Certificate of Common Stock.*
4.2 Registration Rights Agreement, by and between Neff Corp. and GECFS, Inc., dated as of
March 25, 1998.
4.3 Registration Rights Agreement, by and between Neff Corp. and Santos Fund I, L.P., dated as
of March 25, 1998.
4.4 Registration Rights Agreement, by and between Neff Corp. and Santos Capitol Advisors, Inc.,
dated as of March 25, 1998.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------
<S> <C>
4.5 Amended and Restated Stockholders' Agreement by and among Jorge Mas, Juan Carlos Mas,
Jose Ramon Mas, General Electric Capital Corporation, GECFS, Inc., Kevin P. Fitzgerald,
Santos Fund I, L.P., Santos Capital Advisors, Inc. and Neff Corp., dated as of March 25, 1998.
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson.*
10.1 Amended and Restated Credit Agreement, by and among Neff Corp., Neff Machinery, Inc.
and Neff Rental, Inc., and General Electric Capital Corporation, as Agent, dated as of
December 31, 1997.*
10.2 Form of John Deere Light Industrial Equipment Dealer Agreement.*
10.3 Form of John Deere Light Industrial Equipment Security Agreement.*
10.4 Stock Purchase and Redemption Agreement by and among Neff Corp., Industrial Equipment
Rentals, Inc. and all of the Shareholders and Holders of Subordinated Debentures, dated
July 14, 1997.**
10.5 The Asset Purchase Agreement by and among Richbourg's Sales & Rentals, Inc., Bruce E.
Richbourg and Neff Corp., dated December 23, 1997.**
10.6 Stock Option Agreement, by and between Neff Corp. and Kevin P. Fitzgerald.*
10.7 Stock Option Agreement, by and between Neff Corp. and Robert G. Warren.
10.8 Form of Lock-up Agreement.*
21.1 Subsidiaries of the Company.
23.1 Consents of Deloitte & Touche, LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Price Waterhouse & Co.
23.4 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 5.1 above).
24.1 Power of Attorney (included on Signature Page of this Registration Statement).
27.1 Financial data schedule.**
</TABLE>
- ----------------
* To be filed by amendment.
** Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual reports pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
The undersigned registrant hereby undertakes that:
(1) To provide to the Underwriters at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(3) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miami, State of Florida,
on March 16, 1998.
NEFF CORP.
By: /s/ KEVIN P. FITZGERALD
---------------------------------------
Kevin P. Fitzgerald
President and Chief Executive Officer
The undersigned directors and officers of Neff Corp. hereby constitute and
appoint Kevin P. Fitzgerald and Bonnie S. Biumi and each of them with full
power to act without the other and with full power of substitution and
resubstitution, our true and lawful attorneys-in-fact with full power to
execute in our name and behalf in the capacities indicated below this
Registration Statement on Form S-1 and any and all amendments thereto and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the SEC and hereby ratify and confirm all that such
attorneys-in-fact, or any of them, or their substitutes shall lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- --------------------------------------- ---------------
<S> <C> <C>
/s/ JORGE MAS Chairman of the Board April 27, 1998
- -------------------------------
Jorge Mas
/s/ KEVIN P. FITZGERALD President and Chief Executive Officer April 27, 1998
- ------------------------------- (Principal Executive Officer)
Kevin P. Fitzgerald
/s/ JOSE RAMON MAS Director April 27, 1998
- -------------------------------
Jose Ramon Mas
/s/ BONNIE S. BIUMI Chief Financial Officer April 27, 1998
- ------------------------------- (Principal Financial Officer and
Bonnie S. Biumi Accounting Officer)
</TABLE>
II-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Neff Corp.:
We have audited the financial statements of Neff Corp. and subsidiaries
(the "Company") as of December 31, 1996 and 1997, and for each of the three
years in the period ended December 31, 1997, and have issued our report thereon
dated March 11, 1998 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed in Item 16 of this
Registration Statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Miami, Florida
March 11, 1998, except for the preferred stock exchange
referred to in Note 1 and for the third paragraph of Note 5
as to which the dates are March 25, 1998 and April 23, 1998, respectively
S-1
<PAGE>
SCHEDULE II
NEFF CORP.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
AT BEGINNING COSTS AND AT END
OF PERIOD EXPENSES OTHER DEDUCTIONS(1) OF PERIOD
-------------- ------------ ------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Classification
YEAR ENDED 12/31/95:
Allowance for doubtful accounts ......... $246 $270 $ -- $ (219) $ 297
==== ==== ==== ====== ======
YEAR ENDED 12/31/96:
Allowance for doubtful accounts ......... $297 $520 $ -- $ (442) $ 375
==== ==== ==== ====== ======
YEAR ENDED 12/31/97:
Allowance for doubtful accounts ......... $375 $957 $ -- $ (240) $1,092
==== ==== ==== ====== ======
</TABLE>
- ----------------
(1) Deductions represent bad debt write-offs and adjustments to accumulated
amortization for assets sold.
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- --------- -------------------------------------------------------------------------------- -------------
<S> <C> <C>
3.2 By-Laws of the Company, as amended and restated.
4.2 Registration Rights Agreement, by and between Neff Corp. and GECFS, Inc.,
dated as of March 25, 1998.
4.3 Registration Rights Agreement, by and between Neff Corp. and Santos Fund I,
L.P., dated as of March 25, 1998.
4.4 Registration Rights Agreement, by and between Neff Corp. and Santos Capitol
Advisors, Inc., dated as of March 25, 1998.
4.5 Amended and Restated Stockholders' Agreement by and among Jorge Mas,
Juan Carlos Mas, Jose Ramon Mas, General Electric Capital Corporation,
GECFS, Inc., Kevin P. Fitzgerald, Santos Fund I, L.P., Santos Capital Advisors,
Inc. and Neff Corp., dated as of March 25, 1998.
10.7 Stock Option Agreement, by and between Neff Corp. and Robert G. Warren.
23.1 Consents of Deloitte & Touche, LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Price Waterhouse & Co.
</TABLE>
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
NEFF CORP.
(A Delaware Corporation)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
Corporation within the State of Delaware shall be in the City of Wilmington,
County of New Castle.
SECTION 2. OTHER OFFICES. The Corporation may also have an
office or offices other than said registered office at such place or places,
either within or without the State of Delaware, as the Board of Directors shall
from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders
for the election of directors or for any other purpose shall be held at any such
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of meeting
or in a duly executed waiver thereof.
SECTION 2. ANNUAL MEETING. The annual meeting of stockholders,
commencing with the year 1998, will be held at 10 A.M. on the fifteenth of
September, if not a legal holiday, and if a legal holiday, then on the next
succeeding day not a legal holiday, at 10 A.M., or at such other date and time
as shall be designated from time to time by the Board of Directors and stated in
the notice of meeting or in a duly executed waiver thereof. At such annual
meeting, the stockholders shall elect, by a plurality vote, a Board of Directors
and transact such other business as may properly be brought before the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders,
unless otherwise prescribed by statute, may be called at any time by the Board
of Directors, the Chairman of the Board, if one shall have been elected, or the
President. Such request shall state the purpose or purposes of the proposed
meeting.
SECTION 4. NOTICE OF MEETINGS. Except as otherwise expressly
required by statute, written notice of each annual and special meeting of
stockholders stating the date, place and hour of the meeting, and, in the case
of a special meeting, the purpose or
-1-
<PAGE>
purposes for which the meeting is called, shall be given to each stockholder of
record entitled to vote thereat not less than ten (10) nor more than sixty (60)
days before the date of the meeting. Business transacted at any special meeting
of stockholders shall be limited to the purposes stated in the notice. Notice
shall be given personally or by mail and, if by mail, shall be sent in a postage
prepaid envelope, addressed to the stockholder at his address as it appears on
the records of the Corporation. Notice by mail shall be deemed given at the time
when the same shall be deposited in the United States mail, postage prepaid.
Notice of any meeting shall not be required to be given to any person who
attends such meeting, except when such person attends the meeting in person or
by proxy for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened, or who, either before or after the meeting, shall submit a signed
written waiver of notice, in person or by proxy. Neither the business to be
transacted at, nor the purpose of, an annual or special meeting of stockholders
need be specified in any written waiver of notice.
SECTION 5. LIST OF STOCKHOLDERS. The officer who has charge of
the stock ledger of the Corporation shall prepare and make, at least ten (10)
days before each meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, showing the
address of and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city, town or
village where the meeting is to be held, which place shall be specified in the
notice of meeting, or, if not specified, at the place where the meeting is to be
held. The list shall be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
SECTION 6. QUORUM, ADJOURNMENTS. The holders of a majority of
the voting power of the issued and outstanding stock of the Corporation entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum for the transaction of business at all meetings of stockholders, except
as otherwise provided by statute or by the Amended and Restated Certificate of
Incorporation. If, however, such quorum shall not be present or represented by
proxy at any meeting of stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented by proxy. At such
adjourned meeting at which a quorum shall be present or represented by proxy,
any business may be transacted which might have been transacted at the meeting
as originally called. If the adjournment is for more than thirty (30) days, or,
if after adjournment a new record date is set, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
-2-
<PAGE>
SECTION 7. ORGANIZATION. At each meeting of stockholders, the
Chairman of the Board, if one shall have been elected, or, in his absence or if
one shall not have been elected, the President shall act as chairman of the
meeting. The Secretary or, in his absence or inability to act, the person whom
the chairman of the meeting shall appoint secretary of the meeting shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 8. ORDER OF BUSINESS. The order of business at all
meetings of the stockholders shall be as determined by the chairman of the
meeting.
SECTION 9. VOTING. Except as otherwise provided by statute or
the Amended and Restated Certificate of Incorporation, each stockholder of the
Corporation shall be entitled at each meeting of stockholders to one vote for
each share of capital stock of the Corporation standing in his name on the
record of stockholders of the Corporation:
(a) on the date fixed pursuant to the provisions of
Section 8 of Article V of these Amended and Restated By-Laws
as the record date for the determination of the stockholders
who shall be entitled to notice of and to vote at such
meeting; or
(b) if no such record date shall have been so fixed,
then at the close of business on the day next preceding the
day on which notice thereof shall be given, or, if notice is
waived, at the close of business on the date next preceding
the day on which the meeting is held.
Each stockholder entitled to vote at any meeting of stockholders may authorize
another person or persons to act for him by a proxy signed by such stockholder
or his attorney-in-fact, but no proxy shall be voted after three years from its
date, unless the proxy provides for a longer period. Any such proxy shall be
delivered to the secretary of the meeting at or prior to the time designated in
the order of business for so delivering such proxies. When a quorum is present
at any meeting, the vote of the holders of a majority of the voting power of the
issued and outstanding stock of the Corporation entitled to vote thereon,
present in person or represented by proxy, shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of statute or of the Amended and Restated Certificate of Incorporation or of
these Amended and Restated By-Laws, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Unless required by statute, or determined by the chairman of the meeting to be
advisable, the vote on any question need not be by ballot. On a vote by ballot,
each ballot shall be signed by the stockholder voting, or by his proxy, if there
be such proxy, and shall state the number of shares voted and the number of
votes to which each share is entitled.
-3-
<PAGE>
SECTION 10. INSPECTORS. The Board of Directors may, in advance
of any meeting of stockholders, appoint one or more inspectors to act at such
meeting or any adjournment thereof. If any of the inspectors so appointed shall
fail to appear or act, the chairman of the meeting shall, or if inspectors shall
not have been appointed, the chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the results, and do such acts
as are proper to conduct the election or vote with fairness to all stockholders.
On request of the chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the office
of director shall act as an inspector of an election of directors. Inspectors
need not be stockholders.
SECTION 11. NOTICE OF STOCKHOLDER BUSINESS; NOMINATIONS.
(a) ANNUAL MEETING OF STOCKHOLDERS.
(1) Nominations of persons for election to
the Board of Directors and the proposal of business to be considered by the
stockholders shall be made at an annual meeting of stockholders (A) pursuant to
the Corporation's notice of such meeting, (B) by or at the direction of the
Board of Directors or (C) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of the notice provided for in this
Section 11.
(2) Nominations of persons for election to
the Board of Directors by a stockholder shall set forth (A) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected) and (B) as to the stockholder making the nomination and the
beneficial owner, if any, on whose behalf the nomination is made (1) the name
and address of such stockholder, as they appear on the Corporation's books, and
of such beneficial owner, and (2) the class and number of shares of the
Corporation that are owned beneficially and held of record by such stockholder
and such beneficial owner.
-4-
<PAGE>
For other business to be properly brought before an annual meeting by a
stockholder pursuant to clause (C) of paragraph (a)(1) of this Section 11, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation and such other business must otherwise be a proper matter for
stockholder action. Except as otherwise provided in any Certificate of
Incorporation or Certificate of Designation of the Corporation, to be timely, a
stockholder's notice must be delivered to the principal executive offices of the
Corporation no later than the close of business on the sixtieth (60th) day nor
earlier than the close of business on the ninetieth (90th) day prior to the
first anniversary of the preceding year's annual meeting; PROVIDED, HOWEVER,
that in the event that the date of the annual meeting is more than thirty (30)
days before or more than sixty (60) days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or the close of business on the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made by
the Corporation. Such stockholder's notice shall set forth (A) as to any
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (B) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(1) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner, and (2) the class and number
of shares of the Corporation that are owned beneficially and held of record by
such stockholder and such beneficial owner.
(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only
such business shall be conducted at a special meeting of stockholders as shall
have been brought before the meeting pursuant to the Corporation's notice of
meeting. Nominations of persons for election to the Board of Directors may be
made at a special meeting of stockholders at which directors are to be elected
pursuant to the Corporation's notice of meeting (A) by or at the direction of
the Board of Directors or (B) provided that the Board of Directors has
determined that directors shall be elected at such meeting by any stockholder of
the Corporation who is a stockholder of record at the time of giving of notice
of the special meeting, who shall be entitled to vote at such meeting and who
complies with the notice procedures set forth in this Section 11.
(c) GENERAL.
(1) Only such persons who are nominated in
accordance with the procedures set forth in this Section 11 shall be eligible to
serve as directors and only such business shall be conducted at a meeting of
stockholders as shall have been
-5-
<PAGE>
brought before the meeting in accordance with the procedures set forth in this
Section 11. Except as otherwise provided by law, the Amended and Restated
Certificate of Incorporation or these Amended and Restated By-Laws, the chairman
of the meeting shall have the power and duty to determine whether a nomination
or any business proposed to be brought before the meeting was made or proposed,
as the case may be, in accordance with the procedures set forth in this Section
11 and, if any proposed nomination or business is not in compliance herewith, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 11, "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the forgoing provisions
of this Section 11, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth herein. Nothing in this Section 11 shall be
deemed to affect any rights (A) of stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act or (B) of the holders of any series of Preferred Stock to elect
directors under specified circumstances, (C) of the holders of Class B Special
Common Stock, par value $.01 per share, of the Corporation ("Class B Special
Common Stock") to elect a director under circumstances specified in the Amended
and Restated Certificate of Incorporation of the Corporation or (D) of the
holders of Common Stock purchased from General Electric Capital Corporation
representing at least 10% of the issued and outstanding Common Stock of the
Corporation to elect a director under circumstances specified in the Amended and
Restated Stockholders' Agreement dated as of March 25, 1998 by and among the
Corporation, Jorge Mas, Juan Carlos Mas, Jose Ramon Mas, General Electric
Capital Corporation, GECFS, Inc., Kevin P. Fitzgerald, Santos Fund I, L.P. and
Santos Capital Advisors, Inc.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors. The Board of Directors may exercise all such authority and powers of
the Corporation and do all such lawful acts and things as are not by statute or
the Amended and Restated Certificate of Incorporation directed or required to be
exercised or done by the stockholders.
-6-
<PAGE>
SECTION 2. PLACE OF MEETINGS. Meetings of the Board of
Directors shall be held at such place or places, within or without the State of
Delaware, as the Board of Directors may from time to time determine or as shall
be specified in the notice of any such meeting.
SECTION 3. ANNUAL MEETINGS. The Board of Directors shall meet
for the purpose of organization, the election of officers and the transaction of
other business, as soon as practicable after each annual meeting of
stockholders, on the same day and at the same place where such annual meeting
shall be held. Notice of such meeting need not be given. In the event such
annual meeting is not so held, the annual meeting of the Board of Directors may
be held at such other time or place (within or without the State of Delaware) as
shall be specified in a notice thereof given as hereinafter provided in Section
6 of this Article III.
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such time and place as the Board of Directors may
fix. If any day fixed for a regular meeting shall be a legal holiday at the
place where the meeting is to be held, then the meeting which would otherwise be
held on that day shall be held at the same hour on the next succeeding business
day. Notice of regular meetings of the Board of Directors need not be given
except as otherwise required by statute or these Amended and Restated By-Laws.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, if one shall have been
elected, or by two or more directors of the Corporation or by the President.
SECTION 6. NOTICE OF MEETINGS. Notice of each special meeting
of the Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 6, in which notice shall be stated the time and place of the meeting.
Except as otherwise required by these Amended and Restated By-Laws, such notice
need not state the purposes of such meeting. Notice of each such meeting shall
be mailed, postage prepaid, to each director, addressed to him at his residence
or usual place of business, by first class mail, at least five (5) days before
the day on which such meeting is to be held, or shall be sent addressed to him
at such place by telegraph, cable, telex, telecopier or other similar means, or
be delivered to him personally or be given to him by telephone or other similar
means, at least six hours before the time at which such meeting is to be held.
Notice of any such meeting need not be given to any director who shall, either
before or after the meeting, submit a signed waiver of notice or who shall
attend such meeting, except when he shall attend for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
-7-
<PAGE>
SECTION 7. QUORUM AND MANNER OF ACTING. A majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, and, except as otherwise
expressly required by statute or the Amended and Restated Certificate of
Incorporation or these Amended and Restated By-Laws, the act of a majority of
the directors present at any meeting at which a quorum is present shall be the
act of the Board of Directors. In the absence of a quorum at any meeting of the
Board of Directors, a majority of the directors present thereat may adjourn such
meeting to another time and place. Notice of the time and place of any such
adjourned meeting shall be given to all of the directors unless such time and
place were announced at the meeting at which the adjournment was taken, in which
case such notice shall only be given to the directors who were not present
thereat. At any adjourned meeting at which a quorum is present, any business may
be transacted which might have been transacted at the meeting as originally
called. The directors shall act only as a Board and the individual directors
shall have no power as such.
SECTION 8. ORGANIZATION. At each meeting of the Board of
Directors, the Chairman of the Board, if one shall have been elected, or, in the
absence of the Chairman of the Board or if one shall not have been elected, the
President (or, in his absence, another director chosen by a majority of the
directors present) shall act as chairman of the meeting and preside thereat. The
Secretary or, in his absence, any person appointed by the chairman shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 9. RESIGNATIONS. Any director of the Corporation may
resign at any time by giving written notice of his resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon its receipt. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 10. COMPENSATION. The Board of Directors shall have
authority to fix the compensation, including fees and reimbursement of expenses,
of directors for services to the Corporation in any capacity.
SECTION 11. COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate one
or more committees, including an executive committee, each committee to consist
of one or more of the directors of the Corporation. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
addition, in the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in
-8-
<PAGE>
the place of any such absent or disqualified member. Except to the extent
restricted by statute or the Amended and Restated Certificate of Incorporation,
each such committee, to the extent provided in the resolution creating it, shall
have and may exercise all the powers and authority of the Board of Directors and
may authorize the seal of the Corporation to be affixed to all papers which
require it. Each such committee shall serve at the pleasure of the Board of
Directors and have such name as may be determined from time to time by
resolution adopted by the Board of Directors. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors. In
addition, in the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
SECTION 12. ACTION BY CONSENT. Unless restricted by the
Amended and Restated Certificate of Incorporation, any action required or
permitted to be taken by the Board of Directors or any committee thereof may be
taken without a meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board of Directors
or such committee, as the case may be.
SECTION 13. TELEPHONIC MEETING. Unless restricted by the
Amended and Restated Certificate of Incorporation, any one or more members of
the Board of Directors or any committee thereof may participate in a meeting of
the Board of Directors or such committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation by such means shall constitute
presence in person at a meeting.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER AND QUALIFICATIONS. The officers of the
Corporation shall be elected by the Board of Directors and shall include the
President, one or more Vice-Presidents, the Secretary and the Treasurer. If the
Board of Directors wishes it may also elect as an officer of the Corporation a
Chairman of the Board and may elect other officers (including one or more
Assistant Treasurers and one or more Assistant Secretaries) as may be necessary
or desirable for the business of the Corporation. Any two or more offices may be
held by the same person, and no officer except the Chairman of the Board need be
a director. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified, or until his death, or until he shall
have resigned or have been removed, as hereinafter provided in these Amended and
Restated By-Laws.
-9-
<PAGE>
SECTION 2. RESIGNATIONS. Any officer of the Corporation may
resign at any time by giving written notice of his resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon receipt. Unless otherwise specified therein, the
acceptance of any such resignation shall not be necessary to make it effective.
SECTION 3. REMOVAL. Any officer of the Corporation may be
removed, either with or without cause, at any time, by the Board of Directors at
any meeting thereof.
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board,
if one shall have been elected, shall be a member of the Board, an officer of
the Corporation and, if present, shall preside at each meeting of the Board of
Directors or the stockholders. He shall advise and counsel with the President,
and in his absence with other executives of the Corporation, and shall perform
such other duties as may from time to time be assigned to him by the Board of
Directors.
SECTION 5. THE PRESIDENT. The President shall be the chief
executive officer of the Corporation. He shall, in the absence of the Chairman
of the Board or if a Chairman of the Board shall not have been elected, preside
at each meeting of the Board of Directors or the stockholders. He shall perform
all duties incident to the office of President and chief executive officer and
such other duties as may from time to time be assigned to him by the Board of
Directors.
SECTION 6. VICE-PRESIDENT. Each Vice-President shall perform
all such duties as from time to time may be assigned to him by the Board of
Directors or the President. At the request of the President or in his absence or
in the event of his inability or refusal to act, the Vice-President, or if there
shall be more than one, the Vice-Presidents in the order determined by the Board
of Directors (or if there be no such determination, then the Vice-Presidents in
the order of their election), shall perform the duties of the President, and,
when so acting, shall have the powers of and be subject to the restrictions
placed upon the President in respect of the performance of such duties.
SECTION 7. TREASURER. The Treasurer shall
(a) have charge and custody of, and be responsible
for, all the funds and securities of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
-10-
<PAGE>
(c) deposit all moneys and other valuables to the
credit of the Corporation in such depositaries as may be
designated by the Board of Directors or pursuant to its
direction;
(d) receive, and give receipts for, moneys due and
payable to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and
supervise the investments of its funds, taking proper vouchers
therefore;
(f) render to the Board of Directors, whenever the
Board of Directors may require, an account of the financial
condition of the Corporation; and
(g) in general, perform all duties incident to the
office of Treasurer and such other duties as from time to time
may be assigned to him by the Board of Directors.
SECTION 8. SECRETARY. The Secretary shall
(a) keep or cause to be kept in one or more books
provided for the purpose, the minutes of all meetings of the
Board of Directors, the committees of the Board of Directors
and the stockholders;
(b) see that all notices are duly given in accordance
with the provisions of these Amended and Restated By-Laws and
as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all certificates
for shares of the Corporation (unless the seal of the
Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation
under its seal;
(d) see that the books, reports, statements,
certificates and other documents and records required by law
to be kept and filed are properly kept and filed; and
(e) in general, perform all duties incident to the
office of Secretary and such other duties as from time to time
may be assigned to him by the Board of Directors.
SECTION 9. THE ASSISTANT TREASURER. The Assistant Treasurer,
or if there shall be more than one, the Assistant Treasurers in the order
determined by the Board of
-11-
<PAGE>
Directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
SECTION 10. THE ASSISTANT SECRETARY. The Assistant Secretary,
or if there be more than one, the Assistant Secretaries in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Secretary or in the event
of his inability or refusal to act, perform the duties and exercise the powers
of the Secretary and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
SECTION 11. OFFICERS' BONDS OR OTHER SECURITY. If required by
the Board of Directors, any officer of the Corporation shall give a bond or
other security for the faithful performance of his duties, in such amount and
with such surety as the Board of Directors may require.
SECTION 12. COMPENSATION. The compensation of the officers of
the Corporation for their services as such officers shall be fixed from time to
time by the Board of Directors. An officer of the Corporation shall not be
prevented from receiving compensation by reason of the fact that he is also a
director of the Corporation.
ARTICLE V
STOCK CERTIFICATES AND THEIR TRANSFER
SECTION 1. STOCK CERTIFICATES. Certificates representing stock
in the Corporation shall be signed by, or in the name of the Corporation by, the
Chairman of the Board or the President or a Vice-President and by the Treasurer
or an Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by him in the Corporation. If
the Corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided in Section 202 of
the General Corporation Law of the State of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each stockholder
who so requests the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
-12-
<PAGE>
SECTION 2. UNCERTIFICATED SHARES. Subject to any conditions
imposed by the General Corporation Law of the State of Delaware, the Board of
Directors may provide by resolution or resolutions that some or all of any or
all classes or series of the stock of the Corporation shall be uncertificated
shares. Within a reasonable time after the issuance or transfer of any
uncertificated shares, the Corporation shall send to the registered owner
thereof any written notice prescribed by the General Corporation Law of the
State of Delaware.
SECTION 3. FACSIMILE SIGNATURES. Where a certificate is signed
by a transfer agent or transfer clerk and by a registrar, the signatures of the
Chairman of the Board, President, Vice-President, Treasurer, Assistant
Treasurer, Secretary or Assistant Secretary upon such certificate may be
facsimiles engraved or printed. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 4. LOST CERTIFICATES. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen, or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen, or destroyed certificate or certificates, or his legal
representative, to give the Corporation a bond in such sum as it may direct
sufficient to indemnify it against any claim that may be made against the
Corporation on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
SECTION 5. TRANSFERS OF STOCK. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its records; provided, however, that the Corporation
shall be entitled to recognize and enforce any lawful restriction on transfer.
Whenever any transfer of stock shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of transfer if, when the
certificates are presented to the Corporation for transfer, both the transferor
and the transferee request the Corporation to do so.
SECTION 6. TRANSFER AGENTS AND REGISTRARS. The Board of
Directors may appoint, or authorize any officer or officers to appoint, one or
more transfer agents and one or more registrars.
-13-
<PAGE>
SECTION 7. REGULATIONS. The Board of Directors may make such
additional rules and regulations, not inconsistent with these Amended and
Restated By-Laws, as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of stock of the Corporation.
SECTION 8. FIXING THE RECORD DATE. In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
SECTION 9. REGISTERED STOCKHOLDERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its records
as the owner of shares of stock to receive dividends and to vote as such owner,
shall be entitled to hold liable for calls and assessments a person registered
on its records as the owner of shares of stock, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares of
stock on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VI
RIGHTS IN STOCKHOLDERS' AGREEMENT
The rights of any holders of any Common Stock or Preferred
Stock may be evidenced in a Stockholders' Agreement to the extent not contained
in any Certificate of Incorporation of the Corporation, any Certificate of
Designation of the Corporation or these By-Laws.
-14-
<PAGE>
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to the provisions of statute and
the Amended and Restated Certificate of Incorporation, dividends upon the shares
of capital stock of the Corporation may be declared by the Board of Directors at
any regular or special meeting. Dividends may be paid in cash, in property or in
shares of stock of the Corporation, unless otherwise provided by statute or the
Amended and Restated Certificate of Incorporation.
SECTION 2. RESERVES. Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for dividends such
sum or sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may modify
or abolish any such reserves in the manner in which they were created.
SECTION 3. SEAL. The seal of the Corporation shall be in such
form as shall be approved by the Board of Directors.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation
shall be fixed, and once fixed, may thereafter be changed by resolution of the
Board of Directors.
SECTION 5. CHECKS, NOTES, DRAFTS, ETC. All checks, notes,
drafts or other orders for the payment of money of the Corporation shall be
signed, endorsed or accepted in the name of the Corporation by such officer,
officers, person or persons as from time to time may be designated by the Board
of Directors or by an officer or officers authorized by the Board of Directors
to make such designation.
SECTION 6. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of
Directors may authorize any officer or officers, agent or agents, in the name
and on behalf of the Corporation to enter into or execute and deliver any and
all deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
SECTION 7. VOTING OF STOCK IN OTHER CORPORATIONS. Unless
otherwise provided by resolution of the Board of Directors, the Board of
Directors, or, in the action of absence by the Board of Directors, the Chairman
of the Board of Directors or the President of the Corporation, from time to
time, may (or may appoint one or more attorneys or agents to) cast the votes
which the Corporation may be entitled to cast as a
-15-
<PAGE>
shareholder or otherwise in any other corporation, any of whose shares or
securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other corporation. In the event one or more
attorneys or agents are appointed, the Chairman of the Board or the President
may instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent. The Chairman of the Board or the President may, or
may instruct the attorneys or agents appointed to, execute or cause to be
executed in the name and on behalf of the Corporation and under its seal or
otherwise, such written proxies, consents, waivers or other instruments as may
be necessary or proper in the circumstances.
ARTICLE VIII
AMENDMENTS
These Amended and Restated By-Laws may be amended or repealed
or new by-laws adopted only in accordance with Article TENTH of the Amended and
Restated Certificate of Incorporation.
-16-
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, (the "AGREEMENT"), dated as of March 25,
1998, between Neff Corp., a Delaware corporation (the "COMPANY"), and GECFS,
Inc., a Nevada corporation ("GECFS"). All capitalized terms used herein and not
otherwise defined have the meaning specified in Section 7 hereof.
1. BACKGROUND. The Company is a party to a certain Exchange Agreement,
which governs certain rights and obligations of the Company and GECFS. The
Company and GECFS desire to provide for registration rights relating to the
securities acquired by GECFS pursuant to the Exchange Agreement.
2. REGISTRATION RIGHTS.
2.1 INCIDENTAL (PIGGYBACK) REGISTRATION. If at any time, the Company
proposes to register any of its securities under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), for public offering and sale (other than
registrations with regard to acquisitions of employee stock options, employee
purchase plans or other employee benefit plans on Form S-8 under the Securities
Act or any successor form), the Company shall give notice to GECFS of its
intention to effect such a registration prior to the filing with the Securities
and Exchange Commission (the "SEC") of such registration statement. Upon written
request of GECFS, given within seven business days after receipt from the
Company of such notice, the Company shall use its best efforts to cause the
number of Registrable Securities then held by GECFS and referred to in such
request to be included in such registration statement; PROVIDED, HOWEVER, that
in the event that the offering pursuant to such registration statement shall be
underwritten and the underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
pursuant to this Section 2.1 exceeds the number of securities that can be sold
in the offering without adversely affecting the offering price or the marketing
of the Company's securities, the Company may first include in such registration
all securities the Company proposes to sell, and GECFS shall accept a reduction
(pro rata with any other holders of the Company's equity securities entitled to
register such securities on such registration statement whose registration
rights are not subordinate to GECFS'), on the basis of the proportion that the
market value (Based upon the proposed offering price of such securities or the
mid-point of the range of the proposed offering prices, if any, of such
securities) (the "MARKET VALUE") of each security holder's aggregate securities
requested to be registered bears to the Market Value of the aggregate amount of
all equity securities (other than those to be sold for the Company's account)
as to which registration is sought, in the number of securities to be included
in such registration, which reduction may, if necessary, be total. Nothing in
this Section 2.1 shall limit the Company's ability to withdraw, or temporarily
cease to seek effectiveness of, a registration statement it has filed either
before or after its effectiveness.
2.2 DEMAND REGISTRATION. (a) Except as provided in Section 2.2(b)
below, after the earlier of (i) December 29, 1998 or (ii) the completion by the
Company of an initial public offering under the Securities Act of any of its
securities pursuant to a registration
<PAGE>
statement filed on Form S-1 or any successor form, upon the written request of
GECFS that the Company effect pursuant to this Agreement the registration of
Registrable Securities under the Securities Act (which requested shall specify
the Registrable Securities so requested to be registered, the Proposed amounts
thereof and the intended method of disposition by GECFS), the Company will, as
expeditiously as reasonably possible, use its best efforts to effect the
registration under the Securities Act of the Proposed Amount of Registrable
Securities, for disposition in accordance with the intended method of
disposition stated in such request; PROVIDED, HOWEVER, that (i) if in the good
faith judgment of the board of directors of the Company, such registration would
be detrimental to the Company and the board of directors of the Company
concludes, as a result, that it is in the best interests of the Company to defer
the filing of such registration statement at such time, and (ii) the Company
shall furnish to GECFS a certificated signed by an executive officer of the
Company that the board of directors of the Company has made such a determination
and that it is, therefore, necessary to defer the filing of such registration
statement, then the Company shall have the right to defer such filing for the
period during which such registration would be detrimental, provided that the
Company may not defer the filing for a period of more than 180 days after
receipt of the request of GECFS in the case of an underwritten public offering
or for more than 120 days if such method of disposition is not an underwritten
public offering. The Company shall be entitled to include in any registration
statement filed pursuant to this Section 2.2: (A) securities of the Company held
by any other security holder of the Company, and (B) in an underwritten public
offering, securities of the Company to be sold by the Company for its own
account, except as and to the extent that (X) in the written opinion of the
managing underwriter, which shall be an underwriter of nationally recognized
standing (if such method of disposition shall be an underwritten public
offering), such inclusion would materially and adversely affect the marketing of
the Registrable Securities to be sold by GECFS or (Y) in the written opinion of
an investment banker of nationally recognized standing jointly selected by GECFS
and the Company (if such method of disposition is not an underwritten public
offering), such inclusion would materially adversely affect the price at which
the Registrable Securities may be sold pursuant to the plan of distribution.
(b) The Company shall not be obligated to take any action to effect any
registration requested by GECFS pursuant to Section 2.2(a) hereof (i) after the
Company has effected two such registrations pursuant to this Agreement and each
such registration had been declared or ordered effective, (ii) during the period
starting with the date 30 days prior to the Company's estimate of the date of
filing of, and ending on a date 90 days after the effective date of, a Company
initiated registration, provided that the Company is using all reasonable
efforts to cause such registration statement to become effective, or (iii) for a
period of six months after the Company has effected one such registration
pursuant to this Agreement and such registration has been declared or ordered
effective, such six month period to commence on the date the registration
statement was declared or ordered effective.
-2-
<PAGE>
(c) Notwithstanding any other provision of this Agreement to the
contrary, a registration requested pursuant to this Section 2.2 shall not be
deemed to have been effected (i) unless it has become effective, PROVIDED that a
registration that does not become effective after the Company has filed a
registration statement with respect thereto solely by reason of the refusal of
GECFS to proceed shall be deemed to have been effected by the Company at the
request of GECFS unless GECFS shall have elected to pay all Company Registration
Expenses in connection with such registration, (ii) if after it has become
effective such registration is interfered with by any stop order, injunction or
other order or requirement of the SEC or other governmental agency or court for
any reason other than a misrepresentation or an omission by GECFS, or (iii) if
the conditions to closing specified in the purchase agreement or underwriting
agreement entered into in connection with such registration are not satisfied
other than by reason of some wrongful act or omission, or act or omission in bad
faith, by GECFS.
2.3 REGISTRATION PROCEDURES. Subject to the limitation set forth
elsewhere herein, if and whenever the Company is required by the provision of
this Agreement to use its best efforts to effect or cause the registration of
any Registrable Securities under the Securities Act as provided in this
Agreement, the Company will, as expeditiously as possible:
(a) in the case of a registration under Section 2.2 hereof, prepare and
file with the SEC (such filing to be made within 75 days after the initial
request by GECFS) a registration statement with respect to such Registrable
Securities on a form appropriate to permit GECFS to sell the Proposed Amount in
accordance with GECFS' intended method of distribution and use its best efforts
to cause such registration statement to become and remain effective;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for such period
as shall be requested by GECFS, which period shall not exceed six months and to
comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such registration statement
during such period;
(c) furnish to counsel for GECFS and each underwriter of the securities
being sold by GECFS, at least five days prior to the filing thereof, such number
of copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus included in such registration statement (including each
preliminary prospectus), in conformity with the requirements of the Securities
Act, and such other documents, as such counsel may reasonable request, in
substantially the form in which they are proposed to be filed with the SEC, in
order to facilitate the public sale or other disposition of the Registrable
Securities owned by GECFS;
(d) use its best efforts to register or qualify such Registrable
Securities covered by such registration statement under such other securities or
blue sky laws of such
-3-
<PAGE>
jurisdictions in the United States as each Underwriter of the securities being
sold by GECFS shall reasonable request, and do any and all other acts and things
which may be necessary or advisable to enable GECFS and such underwriter to
consummate the disposition in such jurisdictions in the United States of such
Registrable Securities owned by GECFS, except that the Company shall not for any
purpose be required to qualify generally to do business as a foreign corporation
in any jurisdiction where, but for the requirements of this clause (d), it would
not be obligated to be so qualified, or subject itself to taxation in any such
jurisdiction;
(e) use its best efforts to cause such Registrable Securities covered
by such registration statement to be registered with or approved by such other
governmental agencies or authorities in the United States as may be necessary
to enable GECFS to consummate the disposition of such Registrable Securities;
(f) notify GECFS, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the Company's becoming
aware that the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing, and promptly
prepare and furnish to GECFS and each underwriter a reasonable amount of copies
of a prospectus supplement or amendment so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing;
(g) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, and make available to GECFS, as soon as reasonably
practicable, an earnings statement covering the period of at least twelve
months, but not more than eighteen months, beginning with the first day of the
Company's first calendar quarter after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act;
(h) enter into such agreements (including an underwriting agreement in
customary form) and take such other actions as GECFS shall reasonably request in
order to expedite or facilitate the disposition of such Registrable Securities;
(i) to use its best efforts to furnish to GECFS an opinion from the
Company's counsel and a "cold comfort" letter from the Company's independent
public accountant (in accordance with SAS 72), addressed to GECFS, in customary
form and covering such matters of the type customarily covered by such opinions
and "cold comfort" letters as GECFS shall reasonable request;
-4-
<PAGE>
(j) make available for inspection by GECFS, by any other underwriter
participating in any disposition to be effected pursuant to such registration
statement, and by any attorney, accountant or other agent retained by GECFS or
any such underwriter, all reasonably pertinent financial and other records,
reasonable pertinent corporate documents and properties of the Company, and
cause all of the Company's officers, directors, employees and the independent
public accountants who have audited its financial statements to supply all
information reasonably requested by GECFS or any such underwriter, attorney,
accountant or agent in connection with such registration statement; PROVIDED,
HOWEVER, that GECFS and each such representative of GECFS, underwriter,
attorney, accountant or agent must execute and deliver to the Company a
confidentiality agreement in form and substance reasonable acceptable to the
Company agreeing to keep any such information and records concerning the Company
confidential;
(k) permit GECFS to participate in the preparation of such registration
or comparable statement;
(l) at or prior to the effective date of the registration use
commercially reasonable efforts to (i) secure a CUSIP number for all Registrable
Securities, and (ii) cause the Registrable Securities to be listed on the New
York Stock Exchange, the American Stock Exchange or included for reporting on
the NASDAQ Stock Market, and cause the Registrable Securities to be listed on
each other national securities exchange, if any, on which any other class of the
Company's securities are then listed; and
(m) in the case of an underwritten offering, enable the Registrable
Securities to be in such denominations or such number of shares and registered
in such names as the underwriters may request at least two business days prior
to the sale of the Registrable Securities.
In the case of an underwritten offering, the underwriters shall be
selected by the Company and reasonable acceptable to GECFS.
GECFS shall, upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (f) above, forthwith
discontinue their disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until GECFS' receipt
of the copies of the supplemented or amended prospectus contemplated by said
subdivision and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
GECFS' possession of the prospectus covering such Registrable Securities current
at the time of receipt of such notice. In the event the Company shall give any
such notice, the period mentioned in subdivision (b) above shall be extended by
the number of days during the period from and including the date of the giving
of such notice to and including the date when GECFS shall have received the
copies of the supplemented or amended prospectus contemplated by subdivisions
(f) above.
-5-
<PAGE>
GECFS shall enter into such customary agreements as requested by the
Company in connection with the registration of securities as contemplated by
this Agreement.
GECFS shall furnish to the Company in writing such information and
documents regarding GECFS and the distribution of such securities as may be
required to be disclosed in the registration statement in question by the rules
and regulations under the Securities Act or under any other applicable
securities or blue sky laws of the jurisdictions referred to in Section 2.3(d)
hereof.
If any such registration or comparable statement refers to GECFS by
name or otherwise as the holder of any securities of the Company then GECFS
shall have the right to require (i) the insertion therein of language, in form
and substance satisfactory to GECFS and presented to the Company in writing, to
the effect that the holding by GECFS of such securities is not to be construed
as a recommendation by GECFS of the investment quality of the Company's
securities covered thereby and that such holding does not imply that GECFS will
assist in meeting any future financial requirements of the Company, or (ii) in
the event that such reference to GECFS by name or otherwise is not required by
the Securities Act or any similar federal statute then in force, the deletion of
reference to GECFS.
3. REGISTRATION EXPENSES. In connection with any registration of
Registrable Securities pursuant to this Agreement the Company will, whether or
not any registration pursuant to this Agreement shall become effective, from
time to time promptly upon receipt of bills or invoices relating thereto, pay
all expenses (other than Selling Expenses) incident to its performance of or
compliance with this Agreement (the "COMPANY REGISTRATION EXPENSES"), including
without limitation all registration, filing and NASD fees, fees and expenses of
compliance with securities of blue sky laws, word processing, duplicating and
printing expenses, messenger and delivery expenses, and fees and disbursements
of counsel for the Company and all independent public accountants (including the
expenses of any audit and/or "cold comfort" letter) and other Persons retained
by the Company; PROVIDED, HOWEVER, that in all events, GECFS shall be
responsible for the fees and expenses of its counsel and its accountants. GECFS
shall also be responsible for all Selling Expenses.
4. INDEMNIFICATION. (a) The Company will, and hereby does, indemnify,
to the extent permitted by law, GECFS, their officers and directors, if any, and
each Person, if any, who controls GECFS within the meaning of Section 15 of the
Securities Act, against all losses, claims, damages, liabilities (or proceedings
in respect thereof) and expenses under the Securities Act, joint or several,
caused by an untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus (and as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary prospectus or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities (or proceedings in respect thereof) or
expenses are
-6-
<PAGE>
caused by any untrue statement or alleged untrue statement made in reliance on
or in conformity with any information furnished in writing to the Company by
GECFS or any participating underwriter expressly for use therein. If the
offering pursuant to any registration statement provided for under this
Agreement is made through underwriters, the Company agrees to enter into any
underwriting agreement in customary form with such underwriters and to indemnify
such underwriters, their officers and directors, if any, and each Person, if
any, who controls such underwriters within the meaning of Section 15 of the
Securities Act to the same extent as hereinbefore provided with respect to the
indemnification of GECFS, their officers and directors, if any, and each Person,
if any, who controls GECFS within the meaning of Section 15 of the Securities
Act.
(b) If for any reason the indemnity under Section 4(a) in unavailable,
then the Company shall contribute to the amount paid or payable by the
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (i) in such proportion as is appropriate to reflect the relative fault
of the Company on the one hand and of the indemnified party on the other or (ii)
if the allocation provided by subdivision (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative fault of by the Company on the one hand and the indemnified party on
the other but also the relative benefits received by the Company and the
indemnified party as well as any other relevant equitable considerations. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(c) GECFS will, and hereby does, indemnify, to the extent permitted by
law, the Company, and its officers and directors, if any, and each Person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act, against all losses, claims, damages, liabilities (or proceedings in respect
thereof) and expenses under the Securities Act, joint or several, caused by any
untrue statement or alleged untrue statement of a material fact contained in
any registration statement or prospectus (and as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading but only to the extent that such losses,
claims, damages, liabilities (or proceedings in respect thereof) or expensed are
caused by any untrue statement or alleged untrue statement made in reliance on
or in conformity with any information furnished to the Company by GECFS. If the
offering pursuant to any registration statement provided for under this
Agreement is made through underwriters, GECFS agrees to enter into an
underwriting agreement in customary form with such underwriters and to indemnify
such underwriters, their officers and directors, if any, and each Person who
controls such underwriters within the meaning of Section 15 of the Securities
Act to the same extent as herinbefore provided with respect to the
indemnification of the
-7-
<PAGE>
Company, its officers and directors, if any, and each person, if any,
who controls GECFS within the meaning of Section 15 of the Securities Act.
(d) If for any reason the indemnity under Section 4(a) or (c) is
unavailable, then the Company and GECFS shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to reflect the
relative fault of the parties or (ii) if the allocation provided by subdivision
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative fault of the parties but also the
relative benefits received by the parties as well as any other relevant
equitable considerations. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) GECFS and the Company shall make payments of all amounts required
to be made pursuant to the foregoing provisions of this Section 4 to or for the
account of the indemnified party from time to time promptly upon the receipt of
bills or invoices relating thereto or when otherwise due and payable.
5. LIMITATIONS ON SALE OR DISTRIBUTION OF SECURITIES. If a registration
under this Agreement shall be in connection with an underwritten public offering
of securities for the Company's or any other security holder's account (other
than GECFS), GECFS shall be deemed to have agreed by acquisition of such
Registrable Securities not to effect any public sale or distribution, including
any sale pursuant to Rule 144 under the Securities Act, of any Registrable
Securities, during such period prior and subsequent to the commencement of the
offering of securities pursuant to such registration statement as may be
reasonable requested by the underwriters thereof, and in all cases to otherwise
comply with all applicable rules under the Securities Act and the Exchange Act,
including, without limitation, Regulation M under the Exchange Act or similar
rules thereafter adopted by the SEC.
6. REGISTRATION RIGHTS TO OTHERS. The rights of GECFS hereunder shall
be on a par, pro rata to share holdings, with those granted to the Mas
Shareholders under the Amended and Restated Stockholders' Agreement to be
entered into between the Mas Shareholders, Kevin P. Fitzgerald, Santos Fund I,
L.P., a Texas limited partnership, the Company, General Electric Capital
Corporation, a New York corporation, and GECFS, and with the rights granted to
Kevin P. Fitzgerald under his stock option agreement, dated as of December 1,
1995. If the Company shall at any time hereafter provide to any holder of any
securities of the Company rights with respect to the registration of such
securities under the Securities Act, such rights shall be subordinate to and
shall not be in conflict with or adversely affect any of the rights provided in
this Agreement to GECFS.
7. DEFINITIONS. The following terms have the following respective
meanings for the purpose of this Agreement:
-8-
<PAGE>
"AFFILIATE" shall have the meaning ascribed to such term in the
Securities Purchase Agreement.
"CLASS A COMMON STOCK" means the Company's Class A Ordinary Common
Stock, par value $0.01 per share.
"CLASS B COMMON STOCK" means the Company's Class B Special Common
Stock, par value $0.01 per share, acquired from the Company by GECFS pursuant to
the Exchange Agreement.
"CONTROL OPTION AGREEMENT" means the Control Option Agreement, dated as
of March 25, 1998, between the Mas Shareholders, the Company and General
Electric Capital Corporation, a New York corporation.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute as at the time in effect, and any reference to a
particular Section of such Act shall include a reference to the comparable
Section, if any, of any such similar federal statute.
"EXCHANGE AGREEMENT" means the Exchange Agreement, dated as of March
25, 1998, between the Company and GECFS.
"MAS SHAREHOLDERS" means Jorge Mas, Juan C. Mas and Jose R. Mas.
"PERSON" means any individual, sole proprietorship, partnership
(including a limited partnership), joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
limited liability company, joint stock company, government entity or any other
business entity.
"PROPOSED AMOUNT" means, with respect to the Registrable Securities,
the aggregate amount of shares thereof that GECFS shall request the Company to
register pursuant to Section 2.
"REGISTRABLE SECURITIES" means the shares of Class A Common Stock of
the Company underlying or issued pursuant to the conversion of the Class B
Common Stock or the exercise of the options conferred under the Control Option
Agreement, including any additional securities of the Company issued in respect
of such securities by way of a stock split, dividend or other recapitalization
or exchange of securities with or by the Company. Once issued, such securities
shall cease to be Registrable Securities when (i) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (ii) they shall have been distributed to the
public pursuant to Rule 144 (or any successor provision) under
-9-
<PAGE>
the Securities Act, (iii) they shall have been otherwise transferred and new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company, or (iv) they shall have ceased to be
outstanding.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal statute as at the time in effect, and any reference to a
particular Section of such Act shall include a reference to the comparable
Section, if any, of any such similar federal statute.
"SELLING EXPENSES" means all underwriting discounts, selling
commissions, stock transfer taxes, and fees and disbursements of counsel for,
and any other Person retained by, GECFS, applicable to the securities registered
by GECFS.
8. AMENDMENTS AND WAIVERS. This Agreement may be amended, and any
provision of this Agreement may be waived, by a writing signed by both GECFS and
the Company. GECFS shall be bound by any consent given pursuant to this Section
8, whether or not any affected Registrable Securities shall have been marked to
indicate such consent.
9. NOTICES. All notices, demands and other communications given or
delivered under this Agreement will be in writing and shall be made by hand
delivery, overnight courier, first-class mail, or telecopier and will be deemed
to have been given when personally delivered, four business days after being
mailed by first class mail, return receipt requested, or delivered by express
courier service or telecopied (subject to receipt of confirmation). Notices,
demands and communications to the Company and GECFS will, unless another address
is specified in writing, be sent to the addresses indicated below:
Notices to the Company:
Neff Corp.
3750 N.W. 87th Avenue, Suite 400
Miami, Florida 33178
Attention: Kevin P. Fitzgerald, President
Telecopy: (305) 513-4155
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Ave., N.W., Suite 800
Washington, D.C. 20004-2505
Attention: Stephen I. Glover, Esq.
Telecopy: (202) 639-7003
Notices to GECFS:
-10-
<PAGE>
GECFS, Inc.
880 Grier Drive
Las Vegas, Nevada 89119
with a copy to:
General Electric Capital Corporation
777 Long Bridge Road
Building B, First Floor
Stamford, Connecticut 06927
Attention: Kim Tanner
Telecopy: (203) 316-7989
and:
General Electric Capital Corporation
777 Long Ridge Road
Building B, First Floor
Stamford, Connecticut 06927
Attention: David R. Huet, Esq.
Telecopy: (203) 703-1777
10. SPECIFIC PERFORMANCE. The parties hereto recognize and agree that
money damages may be insufficient to compensate GECFS for breaches by the
Company of the terms hereof and, consequently, that the equitable remedy of
specific performance of the terms hereof will be available in the event of any
such breach.
11. SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any aspect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and priviliges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
12. MISCELLANEOUS. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective successors and assigns of
the parties hereto, whether so expressed or not. GECFS may freely assign all or
a portion of their rights under this agreement. This Agreement embodies the
entire agreement and understanding between the Company and GECFS and supersedes
all prior agreements and understandings relating to the subject matter hereof.
THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED
BY THE LAW OF THE STATE OF NEW YORK. The headings in this Agreement are for
purposes of reference only and shall not limit or
-11-
<PAGE>
otherwise affect the meaning hereof. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
NEFF CORP.
By: /S/ KEVIN P. FITZGERALD
---------------------------
Name: Kevin P. Fitzgerald
Title: President
GECFS, INC.
By: /S/ KIM A. TANNER
---------------------------
Name: Kim Tanner
Title: Operations Manager
-13-
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made as of March
25, 1998, by and between Neff Corp., a Delaware corporation (the "Company") and
Santos Fund I, L.P., a Texas limited partnership ("Santos").
WHEREAS, Santos, GECFS, Inc., a Nevada corporation ("GECFS")
and the Company may enter into one or more Securities Purchase Agreements
pursuant to which Santos shall purchase shares of Class B Common Stock, par
value $.01 per share, of the Company from GECFS, which Santos shall convert into
an equal number of shares of Class A Common Stock, par value $.01 per share, of
the Company (the "Class A Common Stock");
WHEREAS, a condition to the closing of the Securities Purchase
Agreements is that the parties hereto enter into this Agreement providing for
certain registration rights with respect to the Common Stock Santos purchases
from GECFS;
NOW, THEREFORE, in consideration of the foregoing premises and
of the mutual covenants and obligations hereinafter set forth, and for other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. DEFINITIONS.
As used herein, the following terms shall have the following
meanings :
"CLASS A COMMON STOCK" means the Class A Common Stock, par
value $.01 per share, of the Company.
"CLASS B COMMON STOCK" means the Class B Common Stock, par
value $.01 per share, of the Company.
"COMMON STOCK" means all classes of the common stock of the
Company.
"INITIAL PUBLIC OFFERING" means the first underwritten public
offering of Common Stock that is effected pursuant to a registration statement
filed with, and declared effective by, the SEC under the Securities Act.
"PERSON" means any individual, sole proprietorship,
partnership (including a limited partnership), joint venture, trust,
unincorporated organization, association, corporation, institution, public
benefit corporation, limited liability company, joint stock company, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof) or any other business entity.
<PAGE>
"PROPOSED AMOUNT" means, with respect to the Registrable
Securities, the aggregate amount of shares thereof that Santos shall request the
Company to register pursuant to Section 2(b).
"REGISTRABLE SECURITIES" means The shares of Class A Common
Stock owned of record or beneficially by Santos (the "Shares"), including any
additional securities of the Company issued in respect of the Shares, including
by way of a stock split, dividend or other recapitalization or exchange or
securities with or by the Company. Once issued, such securities shall cease to
be Registrable Securities when (i) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (ii) they shall have been Sold pursuant to Rule 144 (or any successor
provision) under the Securities Act, (iii) they shall have been otherwise
transferred and new certificates for them not bearing a legend restricting
further transfer shall have been delivered by the Company, or (iv) they shall
cease to be outstanding.
"SELLING EXPENSES" means all underwriting discounts, selling
commissions, stock transfer taxes, and fees and disbursements of counsel for,
and any other Person retained, by Santos, applicable to the securities
registered by Santos.
Section 2. REGISTRATION RIGHTS.
(a) INCIDENTAL (PIGGYBACK) REGISTRATION. If the Company
proposes to register any of its securities under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), for public offering and sale (other than
registrations with regard to acquisitions of employee stock options, employee
purchase plans or other employee benefit plans on Form S-8 under the Securities
Act or any successor form), the Company shall give notice to Santos of its
intention to effect such a registration prior to the filing with the Securities
and Exchange Commission (the "SEC") of such registration statement. Upon Santos'
written request, given within 7 days after receipt from the Company of such
notice, the Company shall use its best efforts to cause the number of Santos'
Registrable Securities then held by Santos and referred to in such request to be
included in such registration statement; PROVIDED, HOWEVER, that in the event
that the offering pursuant to such registration statement shall be underwritten
and the underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in such registration pursuant to
this Section 2(a) exceeds the number of securities that can be sold in the
offering without adversely affecting the offering price or the marketing of the
Company's securities, the Company may first include in such registration all
securities the Company proposes to sell, and Santos shall accept a reduction
(pro rata with any other holders of the Company's equity securities entitled to
register such securities on such registration statement whose registration
rights are on a par with and not subordinate to Santos') on the basis of the
proportion that the market value (based upon the proposed offering price of such
securities or the mid-point of the range of the proposed offering prices of any
of such securities (the "MARKET VALUE") of each security holder's aggregate
securities requested to be registered bears to the Market Value of the aggregate
amount of all equity securities (other than those to be sold for the Company's
account) as to which registration is sought) in the number of securities to be
included
2
<PAGE>
in such registration, which reduction may, if necessary, be total. Nothing in
this Section 2(a) shall limit the Company's ability to withdraw, or temporarily
cease to seek effectiveness of, a registration statement it has filed whether
before or after its effectiveness.
(b) DEMAND REGISTRATION. (i) After the earlier of (x) December
29, 1998 or (y) the completion by the Company of an Initial Public Offering,
except as provided in Section 2(b)(ii) below, upon Santos' written request that
the Company effect pursuant to this Agreement the registration of Registrable
Securities under the Securities Act (which request shall specify the Registrable
Securities so requested to be registered, the Proposed Amounts thereof and the
intended method of disposition by Santos), the Company will, as expeditiously as
reasonably possible, use its best efforts to effect the registration under the
Securities Act of the Proposed Amount of Registrable Securities, for disposition
in accordance with the intended method of disposition stated in such request;
PROVIDED, HOWEVER, that (A) if in the good faith judgment of the Board of
Directors of the Company, such registration would be detrimental to the Company
and the Board of Directors of the Company concludes, as a result, that it is in
the best interests of the Company to defer the filing of such registration
statement at such time, and (B) the Company shall furnish to Santos a
certificate signed by an executive officer of the Company that the Board of
Directors of the Company has made such a determination and that it is,
therefore, necessary to defer the filing of such registration statement, then
the Company shall have the right to defer such filing for the period during
which such registration would be detrimental, provided that the Company may not
defer the filing for a period of more than 180 days after receipt of Santos'
request in the case of an underwritten public offering or for more than 120 days
if such method of disposition is not an underwritten public offering. The
Company shall be entitled to include in any registration statement filed
pursuant to this Section 2(b): (x) securities of the Company held by any other
securities holder of the Company, and (y) in an underwritten public offering,
securities of the Company to be sold by the Company for its own account, except
as and to the extent that (1) in the written opinion of the managing
underwriter, which shall be an underwriter of nationally recognized standing (if
such method of disposition shall be an underwritten public offering), such
inclusion would materially adversely affect the marketing of the Registrable
Securities to be sold by Santos or (2) in the written opinion of an investment
banker of nationally recognized standing jointly selected by Santos and the
Company (if such method of disposition is not an underwritten public offering),
such inclusion would materially adversely affect the price at which the
Registrable Securities may be sold pursuant to the plan of distribution.
(ii) The Company shall not be obligated to take any
action to effect any registration requested by Santos pursuant to Section
2(b)(i) hereof (A) after the Company has effected two such registrations
pursuant to this Agreement and each such registration has been declared or
ordered effective, (B) during the period starting with the date 30 days prior to
the Company's estimate of the date of filing of, and ending on a date 180 days
after the effective date of, a Company initiated registration, provided that the
Company is using all reasonable efforts to cause such registration statement to
become effective, or (C) for a period of six (6) months after the Company has
effected one such registration pursuant to this Agreement and such registration
has been declared or ordered effective, such 180 day period to commence on the
date the registration statement was declared or ordered effective.
3
<PAGE>
(iii) Notwithstanding any other provision of this
Agreement to the contrary, a registration requested pursuant to this Section
2(b) shall not be deemed to have been effected (A) unless it has become
effective, provided that a registration that does not become effective after the
Company has filed a registration statement with respect thereto solely by reason
of Santos' refusal to proceed shall be deemed to have been effected by the
Company at Santos' request unless Santos shall have elected to pay all Company
Registration Expenses (as defined) in connection with such registration, (B) if
after it has become effective such registration is interfered with by any stop
order, injunction or other order or requirement of the SEC or other governmental
agency or court for any reason other than a misrepresentation or an omission by
Santos, or (C) if the conditions to closing specified in the purchase agreement
or underwriting agreement entered into in connection with such registration are
not satisfied other than by reason of some wrongful act or omission, or act or
omission in bad faith, by Santos.
(c) REGISTRATION PROCEDURES. Subject to the limitations set
forth elsewhere herein, if and whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect or cause the
registration of any Registrable Securities under the Securities Act as provided
in this Agreement, the Company will, as expeditiously as possible:
(i) in the case of a registration under Section 2(b)
hereof, prepare and file with the SEC (such filing to be made within 75 days
after the initial request by Santos) a registration statement with respect to
such Registrable Securities on a form appropriate to permit Santos to sell the
Proposed Amount in accordance with Santos' intended method of distribution and
use its best efforts to cause such registration statement to become and remain
effective;
(ii) prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for such period as shall be requested by Santos, which period shall
not exceed six (6) months, and to comply with the provisions of the Securities
Act with respect to the sale or other disposition of all securities covered by
such registration statement during such period;
(iii) furnish to counsel for Santos and such
underwriter of the securities being sold by Santos, at least 5 days prior to the
filing thereof, such number of copies of such registration statement and of each
such amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus included in such registration statement
(including each preliminary prospectus), in conformity with the requirements of
the Securities Act, and such other documents, as such counsel may reasonably
request, in substantially the form in which they are proposed to be filed with
the SEC, in order to facilitate the public sale or other disposition of the
Registrable Securities owned by Santos;
(iv) use its best efforts to register or qualify such
Registrable Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions in the United States as each
underwriter of the securities being sold by Santos shall reasonably request, and
do any and all other acts and things which may be necessary or advisable to
enable Santos and such underwriter to consummate the disposition in such
jurisdictions in the
4
<PAGE>
United States of such Registrable Securities owned by Santos except that the
Company shall not for any purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction where, but for the
requirements of this clause (iv), it would not be obligated to be so qualified,
or subject itself to taxation in any such jurisdiction;
(v) use its best efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities in the United States
as may be necessary to enable Santos to consummate the disposition of such
Registrable Securities;
(vi) notify Santos, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
Company's becoming aware that the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, and promptly prepare and furnish to Santos and each underwriter a
reasonable amount of copies of a prospectus supplement or amendment so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(vii) otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC, and make available to Santos,
as soon as reasonably practicable, an earnings statement covering the period of
at least twelve months, but not more than eighteen months, beginning with the
first day of the Company's first calendar quarter after the effective date of
the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act;
(viii) enter into such agreements (including an
underwriting agreement in customary form) and take such other actions as Santos
shall reasonably request in order to expedite or facilitate the disposition of
such Registrable Securities;
(ix) use its best efforts to furnish to Santos an
opinion from the Company's counsel and a "cold comfort" letter from the
Company's independent public accountant (in accordance with SAS 72), addressed
to Santos, in customary form and covering such matters of the type customarily
covered by such opinions and "cold comfort" letters as Santos shall reasonably
request;
(x) make available for inspection by Santos, by any
other underwriter participating in any disposition to be effected pursuant to
such registration statement, and by any attorney, accountant or other agent
retained by Santos or any such underwriter, all reasonably pertinent financial
and other records, reasonably pertinent corporate documents and properties of
the Company, and cause all of the Company's officers, directors, employees and
the independent public accountants who have audited its financial statements to
supply all information reasonably requested by Santos or any such underwriter,
attorney, accountant or agent in connection with
5
<PAGE>
such registration statement; PROVIDED, HOWEVER, that Santos and each such
representative of Santos, underwriter, attorney, accountant or agent must
execute and deliver to the Company a confidentiality agreement in form and
substance reasonably acceptable to the Company agreeing to keep any such
information and records concerning the Company confidential;
(xi) permit Santos to participate in the preparation
of such registration or comparable statement;
(xii) at or prior to the effective date of the
registration use commercially reasonably efforts to (i) secure a CUSIP number
for all Registrable Securities, and (ii) cause the Registrable Securities to be
listed on the New York Stock Exchange, the American Stock Exchange or included
for reporting on the NASDAQ Stock Market, and cause the Registrable Securities
to be listed on each other national securities exchange, if any, on which any
other class of the Company's securities are then listed; and
(xiii) in the case of an underwritten offering,
enable the Registrable Securities to be in such denominations or such number of
shares and registered in such names as the underwriters may request at least two
business days prior to the sale of the Registrable Securities.
In the case of an underwritten offering, the underwriters shall be
selected by the Company and reasonably acceptable to Santos.
Santos shall, upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (vi) above,
forthwith discontinue their disposition of Registrable Securities pursuant to
the Registration Statement covering such Registrable Securities until Santos
receives copies of the supplemented or amended prospectus contemplated by said
subdivision and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
Santos' possession of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the period mentioned in subdivision (ii) above shall be
extended by the number of days during the period from and including the date of
the giving of such notice to and including the date when Santos shall have
received the copies of the supplemented or amended prospectus contemplated by
subdivision (vi) above, PROVIDED, HOWEVER, that in no event will the period
mentioned in subdivision (ii) above exceed six months after giving effect to
such extension.
Santos shall enter into such customary agreements as requested by the
Company in connection with the registration of securities as contemplated by
this Agreement.
Santos shall furnish to the Company in writing such information and
documents regarding Santos and the distribution of such securities as may be
required to be disclosed in the registration statement by the rules and
regulations under the Securities Act or under any other applicable securities or
blue sky laws of the jurisdictions referred to in Section 2(c)(iv) hereof.
6
<PAGE>
If any such registration or comparable statement refers to Santos by
name or otherwise as the holders of any securities of the Company then Santos
shall have the right to require (A) the insertion therein of language, in form
and substance satisfactory to Santos and presented to the Company in writing, to
the effect that the holding by Santos of such securities is not to be construed
as a recommendation by Santos of the investment quality of the Company's
securities covered thereby and that such holding does not imply that Santos will
assist in meeting any future financial requirements of the Company, or (B) in
the event that such reference to Santos by name or otherwise is not required by
the Securities Act or any similar federal statute then in force, the deletion of
the reference to Santos.
(d) REGISTRATION EXPENSES. In connection with any registration
on Registrable Securities pursuant to this Agreement the Company will, whether
or not any registration pursuant to this Agreement shall become effective, from
time to time promptly upon receipt of bills or invoices relating thereto, pay
all expenses (other than Selling Expenses) incident to its performance of or
compliance with this Section 2, including, without limitation, all registration,
filing and NASD fees, fees and expenses of compliance with securities or blue
sky laws, word processing, duplicating and printing expenses, messenger and
delivery expenses, and fees and disbursements of counsel for the Company and all
independent public accountants (including the expenses of any audit and/or "cold
comfort" letter) and the other Persons retained by the Company ("Registration
Expenses"); PROVIDED, HOWEVER, that in all events, Santos shall be responsible
for the fees and expenses of its counsel and accountants and for its Selling
Expenses.
(e) INDEMNIFICATION. (i) The Company will, and hereby does,
indemnify, to the extent permitted by law, Santos, its officers and directors,
if any, and each Person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act against all losses, damages, liabilities (or
proceedings in respect thereof) and expenses under the Securities Act, caused by
any untrue statement or alleged untrue statement of a material fact contained in
any registration statement or prospectus (and as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities (or proceedings in respect thereof) or expenses are caused
by any untrue statement or alleged untrue statement made in reliance on or in
conformity with any information furnished in writing to the Company by Santos or
any participating underwriter expressly for use therein. If the offering
pursuant to any registration statement provided for under this Agreement is made
through underwriters, the Company agrees to enter into an underwriting agreement
in customary form with such underwriters and to indemnify such underwriters,
their officers and directors, if any, and each Person, if any, who controls such
underwriters within the meaning of Section 15 of the Securities Act to the same
extent as herein before provided with respect to the indemnification of Santos.
(ii) If for any reason the indemnity under Section
2(e)(i) is unavailable, then the Company shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses (A) in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and of the indemnified
7
<PAGE>
party on the other or (B) if the allocation provided by subdivision (A) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative fault of the Company on the one hand and the indemnified
party on the other but also the relative benefits received by the Company and
the indemnified party as well as any other relevant equitable considerations. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(iii) Santos will, and hereby does, jointly and
severally indemnify, to the extent permitted by law, the Company, its officers
and directors, if any, and each Person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act, against all losses, claims,
damages, liabilities (or proceedings in respect thereof) and expenses under the
Securities Act, caused by any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus (and as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading but only to the
extent that such losses, claims, damages, liabilities (or proceedings in respect
thereof) or expenses are caused by any untrue statement or alleged untrue
statement made in reliance on or in conformity with any information furnished to
the Company by Santos. If the offering pursuant to any registration statement
provided for under this Agreement is made through underwriters, Santos agrees to
enter into an underwriting agreement in customary form with such underwriters
and to indemnify such underwriters, their officers and directors, if any, and
each Person who controls such underwriters within the meaning of Section 15 of
the Securities Act to the same extent as hereinbefore provided with respect to
the indemnification of the Company, its officers and directors, if any, and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act.
(iv) If for any reason the indemnity under Section
2(e)(iii) is unavailable, then Santos shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses (A) in such proportion as is appropriate to reflect the
relative fault of the parties or (B) if the allocation provided by subdivision
(A) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative fault of parties but also the
relative benefits received by the parties as well as any other relevant
equitable considerations. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(v) The Company and Santos shall make payments of all
amounts required to be made pursuant to the foregoing provisions of this Section
2(e) to or for the account of the indemnified party from time to time promptly
upon receipt of bills or invoices relating thereto or when otherwise due and
payable.
(f) LIMITATIONS ON SALE OR DISTRIBUTION OF SECURITIES. If a
registration under this Agreement shall be in connection with an underwritten
public offering of securities for the
8
<PAGE>
Company's or any other security holder's account (other than Santos), Santos
shall not effect any public sale or distribution, including any sale pursuant to
Rule 144 under the Securities Act, of any Registrable Securities, during such
period prior and subsequent to the commencement of the offering of securities
pursuant to such registration statement as may be reasonably requested by the
underwriters thereof, and in all cases to otherwise comply with all applicable
rules under the Securities Act and the Exchange Act, including, without
limitation, Regulation M under the Exchange Act or any similar rules thereafter
adopted by the SEC.
(g) REGISTRATION RIGHTS TO OTHERS. The rights of Santos shall
be on a par, pro rata to share holdings, with those granted to (i) GE Capital
and GECFS under the Registration Rights Agreement, dated as of even date
herewith, between the Company, GE Capital and GECFS, (ii) Kevin P. Fitzgerald
under the Stock Option Agreement, dated as of December 1, 1995, between the
Company and Mr. Fitzgerald, (iii) Santos Capital Advisors, Inc. under the
Registration Rights Agreement, dated as of even date herewith, between the
Company and Santos Capital Advisors, Inc. and (iv) Jorge Mas, Jose Ramon Mas and
Juan Carlos Mas under the Amended and Restated Stockholders' Agreement, dated as
of even date herewith among the Company, Jorge Mas, Jose Ramon Mas, Juan Carlos
Mas, GECFS, Santos, Santos Capital Advisors, Inc., Kevin P. Fitzgerald and
general Electric Capital Corporation. If the Company shall at any time hereafter
provide to any holder of any securities of the Company rights with respect to
the registration of such securities under the Securities Act, such rights shall
be subordinate to and shall not be in conflict with or adversely affect any of
the rights provided in this Agreement to Santos.
Section 3. AMENDMENT AND WAIVER.
Except as otherwise provided herein, no modification, amendment or
waiver of any provision of this Agreement shall be effective against any party
hereto unless such modification, amendment or waiver is approved in writing by
all of the parties hereto. The failure of any party to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of such party thereafter to enforce
each and every provision of this Agreement in accordance with its terms.
Section 4. NOTICES.
Any notice provided for in this Agreement shall be in writing
and shall be either personally delivered, or mailed first class mail (postage
prepaid) or sent by reputable overnight courier service (charges prepaid) to the
Company at the address set forth below and to Santos at the address set forth
below, or at such address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
Notices will be deemed to have been given hereunder when delivered personally,
four business days after deposit in the U.S. mail and one business day after
deposit with a reputable overnight courier service. The Company's address is:
Neff Corp.
3750 N.W. 87th Avenue
9
<PAGE>
Miami, FL 33178
Attention: Kevin P. Fitzgerald
Telecopy: (305) 513-3350
With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue
Washington, DC 20004
Attention: Stephen I. Glover
Telecopy: (202) 639-7003
Santos' address is:
3750 N.W. 87th Avenue
Miami, FL 33178
Attention: Kevin P. Fitzgerald
Telecopy: (305) 513-4255
With a copy to:
Baker & McKenzie
701 Brickell Avenue
Miami, FL 33131
Attention: Andrew Hulsh
Telecopy: (305) 789-8953
Section 5. SEVERABILITY.
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
Section 6. SPECIFIC PERFORMANCE.
The parties hereto recognize and agree that money damages may not be
sufficient to compensate Santos for breaches by the Company of the terms hereof,
and, consequently, that the equitable remedy of specific performance of the
terms hereof will be available in the event of any such breach.
10
<PAGE>
Section 7. MISCELLANEOUS.
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto,
whether so expressed or not. Santos may freely assign all or a portion of its
rights under this Agreement. This Agreement embodies the entire agreement and
understanding between the Company and Santos and supersedes all prior agreements
and understandings relating to the subject matter hereof. THIS AGREEMENT SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK. The headings in this Agreement are for purposes of reference
only and shall not limit or otherwise affect the meaning hereof. This Agreement
may be executed in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first written above.
NEFF CORP.
By: /s/ ILLEGIBLE
------------------------------------------
Name:
Title:
SANTOS FUND I, L.P.
By: SANTOS FUND, Inc.,
its General Partner
By: /s/ ILLEGIBLE
------------------------------------------
Name:
Title:
11
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made as of March
25, 1998, by and between Neff Corp., a Delaware corporation (the "Company") and
Santos Capital Advisors, Inc., a Florida corporation ("Santos").
WHEREAS, Santos and GECFS, Inc., a Nevada corporation
("GECFS") are entering into a Stock Option Agreement pursuant to which Santos
shall have the option to purchase certain shares of Class B Common Stock, par
value $.01 per share, of the Company from GECFS, which Santos shall convert into
an equal number of shares of Class A Common Stock, par value $.01 per share, of
the Company (the "Class A Common Stock");
WHEREAS, a condition to the closing of the Stock Option
Agreement is that the parties hereto enter into this Agreement providing for
certain registration rights with respect to the Common Stock Santos has the
option to purchase from GECFS;
NOW, THEREFORE, in consideration of the foregoing premises and
of the mutual covenants and obligations hereinafter set forth, and for other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. DEFINITIONS.
As used herein, the following terms shall have the following
meanings :
"CLASS A COMMON STOCK" means the Class A Common Stock, par
value $.01 per share, of the Company.
"CLASS B COMMON STOCK" means the Class B Common Stock, par
value $.01 per share, of the Company.
"COMMON STOCK" means all classes of the common stock of the
Company.
"INITIAL PUBLIC OFFERING" means the first underwritten public
offering of Common Stock that is effected pursuant to a registration statement
filed with, and declared effective by, the SEC under the Securities Act.
"PERSON" means any individual, sole proprietorship,
partnership (including a limited partnership), joint venture, trust,
unincorporated organization, association, corporation, institution, public
benefit corporation, limited liability company, joint stock company, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof) or any other business entity.
<PAGE>
"PROPOSED AMOUNT" means, with respect to the Registrable
Securities, the aggregate amount of shares thereof that Santos shall request the
Company to register pursuant to Section 2(b).
"REGISTRABLE SECURITIES" means The shares of Class A Common
Stock owned of record or beneficially by Santos (the "Shares"), including any
additional securities of the Company issued in respect of the Shares, including
by way of a stock split, dividend or other recapitalization or exchange or
securities with or by the Company. Once issued, such securities shall cease to
be Registrable Securities when (i) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (ii) they shall have been Sold pursuant to Rule 144 (or any successor
provision) under the Securities Act, (iii) they shall have been otherwise
transferred and new certificates for them not bearing a legend restricting
further transfer shall have been delivered by the Company, or (iv) they shall
cease to be outstanding.
"SELLING EXPENSES" means all underwriting discounts, selling
commissions, stock transfer taxes, and fees and disbursements of counsel for,
and any other Person retained, by Santos, applicable to the securities
registered by Santos.
Section 2. REGISTRATION RIGHTS.
(a) INCIDENTAL (PIGGYBACK) REGISTRATION. If the Company
proposes to register any of its securities under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), for public offering and sale (other than
registrations with regard to acquisitions of employee stock options, employee
purchase plans or other employee benefit plans on Form S-8 under the Securities
Act or any successor form), the Company shall give notice to Santos of its
intention to effect such a registration prior to the filing with the Securities
and Exchange Commission (the "SEC") of such registration statement. Upon Santos'
written request, given within 7 days after receipt from the Company of such
notice, the Company shall use its best efforts to cause the number of Santos'
Registrable Securities then held by Santos and referred to in such request to be
included in such registration statement; PROVIDED, HOWEVER, that in the event
that the offering pursuant to such registration statement shall be underwritten
and the underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in such registration pursuant to
this Section 2(a) exceeds the number of securities that can be sold in the
offering without adversely affecting the offering price or the marketing of the
Company's securities, the Company may first include in such registration all
securities the Company proposes to sell, and Santos shall accept a reduction
(pro rata with any other holders of the Company's equity securities entitled to
register such securities on such registration statement whose registration
rights are on a par with and not subordinate to Santos') on the basis of the
proportion that the market value (based upon the proposed offering price of such
securities or the mid-point of the range of the proposed offering prices of any
of such securities (the "MARKET VALUE") of each security holder's aggregate
securities requested to be registered bears to the Market Value of the aggregate
amount of all equity securities (other than those to be sold for the Company's
account) as to which registration is sought) in the number of securities to be
included
2
<PAGE>
in such registration, which reduction may, if necessary, be total. Nothing in
this Section 2(a) shall limit the Company's ability to withdraw, or temporarily
cease to seek effectiveness of, a registration statement it has filed whether
before or after its effectiveness.
(b) DEMAND REGISTRATION. (i) After the earlier of (x) December
29, 1998 or (y) the completion by the Company of an Initial Public Offering,
except as provided in Section 2(b)(ii) below, upon Santos' written request that
the Company effect pursuant to this Agreement the registration of Registrable
Securities under the Securities Act (which request shall specify the Registrable
Securities so requested to be registered, the Proposed Amounts thereof and the
intended method of disposition by Santos), the Company will, as expeditiously as
reasonably possible, use its best efforts to effect the registration under the
Securities Act of the Proposed Amount of Registrable Securities, for disposition
in accordance with the intended method of disposition stated in such request;
PROVIDED, HOWEVER, that (A) if in the good faith judgment of the Board of
Directors of the Company, such registration would be detrimental to the Company
and the Board of Directors of the Company concludes, as a result, that it is in
the best interests of the Company to defer the filing of such registration
statement at such time, and (B) the Company shall furnish to Santos a
certificate signed by an executive officer of the Company that the Board of
Directors of the Company has made such a determination and that it is,
therefore, necessary to defer the filing of such registration statement, then
the Company shall have the right to defer such filing for the period during
which such registration would be detrimental, provided that the Company may not
defer the filing for a period of more than 180 days after receipt of Santos'
request in the case of an underwritten public offering or for more than 120 days
if such method of disposition is not an underwritten public offering. The
Company shall be entitled to include in any registration statement filed
pursuant to this Section 2(b): (x) securities of the Company held by any other
securities holder of the Company, and (y) in an underwritten public offering,
securities of the Company to be sold by the Company for its own account, except
as and to the extent that (1) in the written opinion of the managing
underwriter, which shall be an underwriter of nationally recognized standing (if
such method of disposition shall be an underwritten public offering), such
inclusion would materially adversely affect the marketing of the Registrable
Securities to be sold by Santos or (2) in the written opinion of an investment
banker of nationally recognized standing jointly selected by Santos and the
Company (if such method of disposition is not an underwritten public offering),
such inclusion would materially adversely affect the price at which the
Registrable Securities may be sold pursuant to the plan of distribution.
(ii) The Company shall not be obligated to take any
action to effect any registration requested by Santos pursuant to Section
2(b)(i) hereof (A) after the Company has effected two such registrations
pursuant to this Agreement and each such registration has been declared or
ordered effective, (B) during the period starting with the date 30 days prior to
the Company's estimate of the date of filing of, and ending on a date 180 days
after the effective date of, a Company initiated registration, provided that the
Company is using all reasonable efforts to cause such registration statement to
become effective, or (C) for a period of six (6) months after the Company has
effected one such registration pursuant to this Agreement and such registration
has been declared or ordered effective, such 180 day period to commence on the
date the registration statement was declared or ordered effective.
3
<PAGE>
(iii) Notwithstanding any other provision of this
Agreement to the contrary, a registration requested pursuant to this Section
2(b) shall not be deemed to have been effected (A) unless it has become
effective, provided that a registration that does not become effective after the
Company has filed a registration statement with respect thereto solely by reason
of Santos' refusal to proceed shall be deemed to have been effected by the
Company at Santos' request unless Santos shall have elected to pay all Company
Registration Expenses (as defined) in connection with such registration, (B) if
after it has become effective such registration is interfered with by any stop
order, injunction or other order or requirement of the SEC or other governmental
agency or court for any reason other than a misrepresentation or an omission by
Santos, or (C) if the conditions to closing specified in the purchase agreement
or underwriting agreement entered into in connection with such registration are
not satisfied other than by reason of some wrongful act or omission, or act or
omission in bad faith, by Santos.
(c) REGISTRATION PROCEDURES. Subject to the limitations set
forth elsewhere herein, if and whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect or cause the
registration of any Registrable Securities under the Securities Act as provided
in this Agreement, the Company will, as expeditiously as possible:
(i) in the case of a registration under Section 2(b)
hereof, prepare and file with the SEC (such filing to be made within 75 days
after the initial request by Santos) a registration statement with respect to
such Registrable Securities on a form appropriate to permit Santos to sell the
Proposed Amount in accordance with Santos' intended method of distribution and
use its best efforts to cause such registration statement to become and remain
effective;
(ii) prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for such period as shall be requested by Santos, which period shall
not exceed six (6) months, and to comply with the provisions of the Securities
Act with respect to the sale or other disposition of all securities covered by
such registration statement during such period;
(iii) furnish to counsel for Santos and such
underwriter of the securities being sold by Santos, at least 5 days prior to the
filing thereof, such number of copies of such registration statement and of each
such amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus included in such registration statement
(including each preliminary prospectus), in conformity with the requirements of
the Securities Act, and such other documents, as such counsel may reasonably
request, in substantially the form in which they are proposed to be filed with
the SEC, in order to facilitate the public sale or other disposition of the
Registrable Securities owned by Santos;
(iv) use its best efforts to register or qualify such
Registrable Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions in the United States as each
underwriter of the securities being sold by Santos shall reasonably request, and
do any and all other acts and things which may be necessary or advisable to
enable Santos and such underwriter to consummate the disposition in such
jurisdictions in the
4
<PAGE>
United States of such Registrable Securities owned by Santos except that the
Company shall not for any purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction where, but for the
requirements of this clause (iv), it would not be obligated to be so qualified,
or subject itself to taxation in any such jurisdiction;
(v) use its best efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities in the United States
as may be necessary to enable Santos to consummate the disposition of such
Registrable Securities;
(vi) notify Santos, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
Company's becoming aware that the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, and promptly prepare and furnish to Santos and each underwriter a
reasonable amount of copies of a prospectus supplement or amendment so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(vii) otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC, and make available to Santos,
as soon as reasonably practicable, an earnings statement covering the period of
at least twelve months, but not more than eighteen months, beginning with the
first day of the Company's first calendar quarter after the effective date of
the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act;
(viii) enter into such agreements (including an
underwriting agreement in customary form) and take such other actions as Santos
shall reasonably request in order to expedite or facilitate the disposition of
such Registrable Securities;
(ix) use its best efforts to furnish to Santos an
opinion from the Company's counsel and a "cold comfort" letter from the
Company's independent public accountant (in accordance with SAS 72), addressed
to Santos, in customary form and covering such matters of the type customarily
covered by such opinions and "cold comfort" letters as Santos shall reasonably
request;
(x) make available for inspection by Santos, by any
other underwriter participating in any disposition to be effected pursuant to
such registration statement, and by any attorney, accountant or other agent
retained by Santos or any such underwriter, all reasonably pertinent financial
and other records, reasonably pertinent corporate documents and properties of
the Company, and cause all of the Company's officers, directors, employees and
the independent public accountants who have audited its financial statements to
supply all information reasonably requested by Santos or any such underwriter,
attorney, accountant or agent in connection with
5
<PAGE>
such registration statement; PROVIDED, HOWEVER, that Santos and each such
representative of Santos, underwriter, attorney, accountant or agent must
execute and deliver to the Company a confidentiality agreement in form and
substance reasonably acceptable to the Company agreeing to keep any such
information and records concerning the Company confidential;
(xi) permit Santos to participate in the preparation
of such registration or comparable statement;
(xii) at or prior to the effective date of the
registration use commercially reasonably efforts to (i) secure a CUSIP number
for all Registrable Securities, and (ii) cause the Registrable Securities to be
listed on the New York Stock Exchange, the American Stock Exchange or included
for reporting on the NASDAQ Stock Market, and cause the Registrable Securities
to be listed on each other national securities exchange, if any, on which any
other class of the Company's securities are then listed; and
(xiii) in the case of an underwritten offering,
enable the Registrable Securities to be in such denominations or such number of
shares and registered in such names as the underwriters may request at least two
business days prior to the sale of the Registrable Securities.
In the case of an underwritten offering, the underwriters shall be
selected by the Company and reasonably acceptable to Santos.
Santos shall, upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (vi) above,
forthwith discontinue their disposition of Registrable Securities pursuant to
the Registration Statement covering such Registrable Securities until Santos
receives copies of the supplemented or amended prospectus contemplated by said
subdivision and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
Santos' possession of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the period mentioned in subdivision (ii) above shall be
extended by the number of days during the period from and including the date of
the giving of such notice to and including the date when Santos shall have
received the copies of the supplemented or amended prospectus contemplated by
subdivision (vi) above, PROVIDED, HOWEVER, that in no event will the period
mentioned in subdivision (ii) above exceed six months after giving effect to
such extension.
Santos shall enter into such customary agreements as requested by the
Company in connection with the registration of securities as contemplated by
this Agreement.
Santos shall furnish to the Company in writing such information and
documents regarding Santos and the distribution of such securities as may be
required to be disclosed in the registration statement by the rules and
regulations under the Securities Act or under any other applicable securities or
blue sky laws of the jurisdictions referred to in Section 2(c)(iv) hereof.
6
<PAGE>
If any such registration or comparable statement refers to Santos by
name or otherwise as the holders of any securities of the Company then Santos
shall have the right to require (A) the insertion therein of language, in form
and substance satisfactory to Santos and presented to the Company in writing, to
the effect that the holding by Santos of such securities is not to be construed
as a recommendation by Santos of the investment quality of the Company's
securities covered thereby and that such holding does not imply that Santos will
assist in meeting any future financial requirements of the Company, or (B) in
the event that such reference to Santos by name or otherwise is not required by
the Securities Act or any similar federal statute then in force, the deletion of
the reference to Santos.
(d) REGISTRATION EXPENSES. In connection with any registration
on Registrable Securities pursuant to this Agreement the Company will, whether
or not any registration pursuant to this Agreement shall become effective, from
time to time promptly upon receipt of bills or invoices relating thereto, pay
all expenses (other than Selling Expenses) incident to its performance of or
compliance with this Section 2, including, without limitation, all registration,
filing and NASD fees, fees and expenses of compliance with securities or blue
sky laws, word processing, duplicating and printing expenses, messenger and
delivery expenses, and fees and disbursements of counsel for the Company and all
independent public accountants (including the expenses of any audit and/or "cold
comfort" letter) and the other Persons retained by the Company ("Registration
Expenses"); PROVIDED, HOWEVER, that in all events, Santos shall be responsible
for the fees and expenses of its counsel and accountants and for its Selling
Expenses.
(e). INDEMNIFICATION. (i) The Company will, and hereby does,
indemnify, to the extent permitted by law, Santos, its officers and directors,
if any, and each Person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act against all losses, damages, liabilities (or
proceedings in respect thereof) and expenses under the Securities Act, caused by
any untrue statement or alleged untrue statement of a material fact contained in
any registration statement or prospectus (and as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities (or proceedings in respect thereof) or expenses are caused
by any untrue statement or alleged untrue statement made in reliance on or in
conformity with any information furnished in writing to the Company by Santos or
any participating underwriter expressly for use therein. If the offering
pursuant to any registration statement provided for under this Agreement is made
through underwriters, the Company agrees to enter into an underwriting agreement
in customary form with such underwriters and to indemnify such underwriters,
their officers and directors, if any, and each Person, if any, who controls such
underwriters within the meaning of Section 15 of the Securities Act to the same
extent as herein before provided with respect to the indemnification of Santos.
(ii) If for any reason the indemnity under Section
2(e)(i) is unavailable, then the Company shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses (A) in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and of the indemnified
7
<PAGE>
party on the other or (B) if the allocation provided by subdivision (A) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative fault of the Company on the one hand and the indemnified
party on the other but also the relative benefits received by the Company and
the indemnified party as well as any other relevant equitable considerations. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(iii) Santos will, and hereby does, jointly and
severally indemnify, to the extent permitted by law, the Company, its officers
and directors, if any, and each Person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act, against all losses, claims,
damages, liabilities (or proceedings in respect thereof) and expenses under the
Securities Act, caused by any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus (and as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading but only to the
extent that such losses, claims, damages, liabilities (or proceedings in respect
thereof) or expenses are caused by any untrue statement or alleged untrue
statement made in reliance on or in conformity with any information furnished to
the Company by Santos. If the offering pursuant to any registration statement
provided for under this Agreement is made through underwriters, Santos agrees to
enter into an underwriting agreement in customary form with such underwriters
and to indemnify such underwriters, their officers and directors, if any, and
each Person who controls such underwriters within the meaning of Section 15 of
the Securities Act to the same extent as hereinbefore provided with respect to
the indemnification of the Company, its officers and directors, if any, and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act.
(iv) If for any reason the indemnity under Section
2(e)(iii) is unavailable, then Santos shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses (A) in such proportion as is appropriate to reflect the
relative fault of the parties or (B) if the allocation provided by subdivision
(A) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative fault of parties but also the
relative benefits received by the parties as well as any other relevant
equitable considerations. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(v) The Company and Santos shall make payments of all
amounts required to be made pursuant to the foregoing provisions of this Section
2(e) to or for the account of the indemnified party from time to time promptly
upon receipt of bills or invoices relating thereto or when otherwise due and
payable.
(f) LIMITATIONS ON SALE OR DISTRIBUTION OF SECURITIES. If a
registration under this Agreement shall be in connection with an underwritten
public offering of securities for the
8
<PAGE>
Company's or any other security holder's account (other than Santos), Santos
shall not effect any public sale or distribution, including any sale pursuant to
Rule 144 under the Securities Act, of any Registrable Securities, during such
period prior and subsequent to the commencement of the offering of securities
pursuant to such registration statement as may be reasonably requested by the
underwriters thereof, and in all cases to otherwise comply with all applicable
rules under the Securities Act and the Exchange Act, including, without
limitation, Regulation M under the Exchange Act or any similar rules thereafter
adopted by the SEC.
(g) REGISTRATION RIGHTS TO OTHERS. The rights of Santos shall
be on a par, pro rata to share holdings, with those granted to (i) GE Capital
and GECFS under the Registration Rights Agreement, dated as of even date
herewith, between the Company, GE Capital and GECFS, (ii) Kevin P. Fitzgerald
under the Stock Option Agreement, dated as of December 1, 1995, between the
Company and Mr. Fitzgerald, (iii) Santos Capital Advisors, Inc. under the
Registration Rights Agreement, dated as of even date herewith, between the
Company and Santos Capital Advisors, Inc. and (iv) Jorge Mas, Jose Ramon Mas and
Juan Carlos Mas under the Amended and Restated Stockholders' Agreement, dated as
of even date herewith among the Company, Jorge Mas, Jose Ramon Mas, Juan Carlos
Mas, GECFS, Santos, Santos Capital Advisors, Inc., Kevin P. Fitzgerald and
general Electric Capital Corporation. If the Company shall at any time hereafter
provide to any holder of any securities of the Company rights with respect to
the registration of such securities under the Securities Act, such rights shall
be subordinate to and shall not be in conflict with or adversely affect any of
the rights provided in this Agreement to Santos.
Section 3. AMENDMENT AND WAIVER.
Except as otherwise provided herein, no modification, amendment or
waiver of any provision of this Agreement shall be effective against any party
hereto unless such modification, amendment or waiver is approved in writing by
all of the parties hereto. The failure of any party to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of such party thereafter to enforce
each and every provision of this Agreement in accordance with its terms.
Section 4. NOTICES.
Any notice provided for in this Agreement shall be in writing
and shall be either personally delivered, or mailed first class mail (postage
prepaid) or sent by reputable overnight courier service (charges prepaid) to the
Company at the address set forth below and to Santos at the address set forth
below, or at such address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
Notices will be deemed to have been given hereunder when delivered personally,
four business days after deposit in the U.S. mail and one business day after
deposit with a reputable overnight courier service. The Company's address is:
Neff Corp.
3750 N.W. 87th Avenue
9
<PAGE>
Miami, FL 33178
Attention: Kevin P. Fitzgerald
Telecopy: (305) 513-3350
With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue
Washington, DC 20004
Attention: Stephen I. Glover
Telecopy: (202) 639-7003
Santos' address is:
3750 N.W. 87th Avenue
Miami, FL 33178
Attention: Kevin P. Fitzgerald
Telecopy: (305) 513-4255
With a copy to:
Baker & McKenzie
701 Brickell Avenue
Miami, FL 33131
Attention: Andrew Hulsh
Telecopy: (305) 789-8953
Section 5. SEVERABILITY.
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
Section 6. SPECIFIC PERFORMANCE.
The parties hereto recognize and agree that money damages may not be
sufficient to compensate Santos for breaches by the Company of the terms hereof,
and, consequently, that the equitable remedy of specific performance of the
terms hereof will be available in the event of any such breach.
10
<PAGE>
Section 7. MISCELLANEOUS.
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto,
whether so expressed or not. Santos may freely assign all or a portion of its
rights under this Agreement. This Agreement embodies the entire agreement and
understanding between the Company and Santos and supersedes all prior agreements
and understandings relating to the subject matter hereof. THIS AGREEMENT SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK. The headings in this Agreement are for purposes of reference
only and shall not limit or otherwise affect the meaning hereof. This Agreement
may be executed in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first written above.
NEFF CORP.
By: /S/ ILLEGIBLE
------------------------------------------
Name:
Title:
SANTOS CAPITAL ADVISORS, INC.
By: /S/ ILLEGIBLE
------------------------------------------
Name:
Title:
11
AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
BY AND AMONG
JORGE MAS,
JUAN CARLOS MAS,
JOSE RAMON MAS,
GENERAL ELECTRIC CAPITAL CORPORATION,
GECFS, INC.,
KEVIN P. FITZGERALD,
SANTOS FUND I, L.P.,
SANTOS CAPITAL ADVISORS, INC.
AND
NEFF CORP.
DATED AS OF MARCH 25, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. Definitions. 5
Section 2. Board of Directors. 9
Section 3. Actions Requiring Special Board Approval. 13
Section 4. Right of First Refusal. 15
Section 5. Restrictions on Transfers of Stock by Mas Stockholders, Santos,
Santos Capital and Mr. Fitzgerald. 17
Section 6. Restrictions on Transfers and Purchases of Stock by GE Capital. 18
Section 7. Intentionally Omitted. 19
Section 8. Other Restrictions on Sales of Stock. 19
Section 9. Registration Rights. 20
Section 10. Books and Records. 28
Section 11. Legend. 28
Section 12. Representations and Warranties. 29
Section 13. Termination of Agreement. 31
Section 14. Further Assurances. 31
Section 15 Governing Law; Submission to Jurisdiction;
Waiver of Jury Trial. 31
Section 16. Amendment and Waiver. 32
Section 17. No Inconsistent Agreements. 32
Section 18. Transactions with Affiliates. 32
Section 19. Conflict with Articles of Incorporation and/or By-Laws. 32
Section 20. Severability. 32
Section 21. Entire Agreement. 33
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
Section 22. Successors and Assigns 33
Section 23. Remedies. 33
Section 24. Notices. 33
Section 25. Confidentiality. 35
Section 26. Descriptive Headings 36
Section 27. Construction. 36
Section 28. Survival of Representations and Warranties. 36
Section 29. Counterparts. 36
</TABLE>
3
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT ("Agreement") is made as
of March 25, 1998 by and among JORGE MAS, JUAN CARLOS MAS, JOSE RAMON MAS, each
of whom is an individual residing in Florida (Jorge Mas, Juan Carlos Mas and
Jose Ramon Mas sometimes referred to herein individually as a "Mas Stockholder"
and collectively as the "Mas Stockholders"), GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation ("GE Capital"), GECFS, Inc., a Nevada
corporation ("GECFS"), SANTOS FUND I, L.P., a Texas limited partnership
("Santos"), SANTOS CAPITAL ADVISORS, INC., a Florida corporation (`Santos
Capital") and KEVIN P. FITZGERALD (Mr. Fitzgerald, as well as each Mas
Stockholder, GE Capital, GECFS, Santos and Santos Capital referred to herein as
a "Neff Stockholder" and collectively as the "Neff Stockholders") and NEFF
CORP., a Delaware corporation (the "Company").
W I T N E S S E T H :
WHEREAS, the Company, GE Capital, GECFS, the Mas Stockholders
and Mr. Fitzgerald have entered into a Stockholders' Agreement, dated as of
December 31, 1996;
WHEREAS, the Company and GECFS are entering into an Exchange
Agreement pursuant to which GECFS shall exchange 800,000 shares of Series B
Cumulative Preferred Stock, par value $.01 per share, of the Company and 800,000
shares of Series C Cumulative Preferred Stock, par value $.01 per share, of the
Company for 70,877 shares of Class B Special Common Stock, par value $.01 of the
Company (the "Class B Common Stock");
WHEREAS, Santos, GECFS and the Company may enter into one or
more Securities Purchase Agreements pursuant to which Santos shall purchase
shares of Class B Common Stock from GECFS, which it shall convert into an equal
number of shares of Class A Common Stock, par value $.01 per share, of the
Company (the "Class A Common Stock");
WHEREAS, Santos Capital and GECFS are entering into a Stock
Option Agreement pursuant to which Santos Capital shall have the option to
purchase certain shares of Class B Common Stock from GECFS;
WHEREAS, a condition to the closing of each of the Exchange
Agreement and the Securities Purchase Agreements is that the parties hereto
amend and restate the Stockholders' Agreement dated as of December 31, 1996 and
the parties hereto deem it to be in their best interests to amend and restate
the agreement with respect to certain rights and obligations associated with
ownership of shares of capital stock of the Company;
WHEREAS, this Amended and Restated Agreement constitutes the
entire agreement between the parties hereto and supersedes all prior agreements,
if any,
4
<PAGE>
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof;
NOW, THEREFORE, in consideration of the foregoing premises and
of the mutual covenants and obligations hereinafter set forth, and for other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. DEFINITIONS.
As used herein, the following terms shall have the following
meanings :
"AFFILIATE" means with respect to any Person, (i) each other
Person that, directly or indirectly, owns or controls, whether beneficially or,
as a trustee, guardian or other fiduciary, ten percent (10%) or more of the
Stock having ordinary voting power in the election of directors of such Person,
(ii) each Person that directly or indirectly controls, is controlled by or is
under common control with such person or any Affiliate of such Person, (iii)
each of such Person's officers, directors, joint ventures and partners, and (iv)
the spouse, each sibling and each lineal descendant and ascendant of any such
specified Person or Affiliate of such specified Person. In the case of the Mas
Stockholders and Santos, "Affiliate" shall in any event include MasTec, Inc. and
its respective successors and assigns. In the case of GE Capital, "Affiliate"
shall in any event include GECFS and, in the case of GECFS, "Affiliate" shall in
any event include GE Capital. For the purposes of this definition, "control" of
a Person shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of its management or policies, whether through the
ownership of voting securities, by contract or otherwise.
"BOARD" means the Board of Directors of the Company.
"BY-LAWS" means the By-Laws of the Company.
"CERTIFICATE OF INCORPORATION" means the Amended and Restated
Certificate of Incorporation of the Company, as amended from time to time.
"CLASS A COMMON STOCK" means the Class A Common Stock, par
value $.01 per share, of the Company.
"CLASS B COMMON STOCK" means the Class B Special Common Stock,
par value $.01 per share, of the Company.
"COMMON STOCK" means all classes of the common stock of the
Company.
"COMPANY" means Neff Corp., a Delaware corporation.
"COMPETITOR" means (i) any Person included in the most recent
RENTAL EQUIPMENT REGISTER list of the top 100 equipment rental companies or (ii)
any Person who has revenues from construction equipment dealership activities
equal to or exceeding $20 million.
5
<PAGE>
"CONTROL OPTION" means the option provided for under the
Control Option Agreement by and among the Company, the Mas Stockholders and GE
Capital that gives GE Capital the right, under certain circumstances, to
purchase from the Mas Stockholders and/or the Company sufficient shares of
Common Stock so that GE Capital's Equity Ownership of the Company after such
purchase is 51%.
"EQUITY OWNERSHIP" means, as to each Neff Stockholder, the
quotient obtained (expressed as a percentage) by dividing (A) the number of
shares of Common Stock owned by such Neff Stockholder by (B) the total number of
shares of Common Stock issued and outstanding.
"EQUITY SECURITIES" means Common Stock, Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and any other share of
capital stock or other equity security of the Company including, without
limitation, any options, warrants or other rights to subscribe for, purchase or
otherwise acquire any equity security of the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and any succeeding law.
"EXCLUDED SECURITIES" means (a)(i) options issued by the
Company pursuant to any employee stock option or similar plan (and any shares of
Common Stock issuable thereunder) (including, without limitation, any shares of
Common Stock subject to options forfeited under such plan that become subject to
new options reissued by the Company pursuant to such plan) and the shares of
Common Stock issuable upon the exercise of such options; (ii) options issued to
Mr. Fitzgerald pursuant to the Stock Option Agreement between Mr. Fitzgerald and
the Company, dated as of December 1, 1995 (the "Fitzgerald Stock Option
Agreement"), and the shares of Common Stock issuable upon the exercise thereof;
and (iii) options issued to Robert G. Warren pursuant to the Stock Option
Agreement between Mr. Warren and the Company, dated as of June 28, 1996 (the
"Warren Stock Option Agreement") and the shares of Common Stock issuable upon
the exercise thereof, in each of the foregoing clauses (i) - (iii) as and to the
extent set forth in Schedule 12(b) hereto; and (b) shares of Common Stock
issuable upon exercise of the Control Option.
"GE CAPITAL" means General Electric Capital Corporation, a New
York corporation.
"GECFS" means GECFS, Inc., a Nevada corporation.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvement
Act of 1976, as amended.
"INITIAL PUBLIC OFFERING" means the first underwritten public
offering of Class A Common Stock with gross proceeds in excess of $50 million
that is effected pursuant to a registration statement filed with, and declared
effective by, the SEC under the Securities Act.
6
<PAGE>
"MAS STOCKHOLDER" means any of Jorge Mas, Juan Carlos Mas or
Jose Ramon Mas.
"NEFF STOCKHOLDER" means any of the Mas Stockholders, GE
Capital, GECFS, Santos, Santos Capital and Mr. Fitzgerald and their permitted
assignees hereunder.
"PERSON" means any individual, sole proprietorship,
partnership (including a limited partnership), joint venture, trust,
unincorporated organization, association, corporation, institution, public
benefit corporation, limited liability company, joint stock company, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof) or any other business entity.
"PRE-EMPTIVE PERCENTAGE" means, as to each Neff Stockholder,
the quotient obtained (expressed as a percentage) by dividing (A) the number of
shares of Common Stock owned by the Neff Stockholder on the date of the Capital
Increase Notice (as defined in Section 4) by (B) the total number of shares of
Common Stock issued and outstanding on the date of the Capital Increase Notice.
"PROPOSED AMOUNT" means, with respect to the Registrable
Securities, the aggregate amount of shares thereof that the Registering Mas
Stockholders shall request the Company to register pursuant to Section 9(b).
"PUBLIC SALE" means a Sale pursuant to a bona fide
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act or pursuant to Rule 144 under the Securities Act.
"REGISTERING MAS STOCKHOLDER" means any Mas Stockholder who
exercises his registration rights under Section 9(a) or 9(b) of this Agreement.
"REGISTRABLE SECURITIES" means The shares of Class A Common
Stock owned of record or beneficially by a Mas Stockholder (the "Shares"),
including any additional securities of the Company issued in respect of the
Shares, including by way of a stock split, dividend or other recapitalization or
exchange or securities with or by the Company. Once issued, such securities
shall cease to be Registrable Securities when (i) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (ii) they shall have been Sold pursuant to
Rule 144 (or any successor provision) under the Securities Act, (iii) they shall
have been otherwise transferred and new certificates for them not bearing a
legend restricting further transfer shall have been delivered by the Company, or
(iv) they shall cease to be outstanding.
"SANTOS" means Santos Fund I, L.P., a Texas limited
partnership
"SANTOS CAPITAL" means Santos Capital Advisors, Inc., a
Florida corporation.
7
<PAGE>
"SEC" means the United States Securities and Exchange
Commission and any successor to the functions thereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and any succeeding law.
"SELL" means, as to any securities, to sell, or in any other
way directly or indirectly transfer, assign, distribute, issue, pledge, encumber
or otherwise dispose of, such securities, either voluntarily or involuntarily,
and the terms SALE and SOLD shall have meanings correlative to the foregoing.
"SELLING EXPENSES" means all underwriting discounts, selling
commissions, stock transfer taxes, and fees and disbursements of counsel for,
and any other Person retained, by the Registering Mas Stockholders, applicable
to the securities registered by the Registering Mas Stockholders.
"SERIES A PREFERRED STOCK" means the cumulative preferred
stock, Series A, par value $.01 per share of the Company.
"SERIES B PREFERRED STOCK" means the cumulative convertible
preferred stock, Series B, par value $.01 per share of the Company.
"SERIES C PREFERRED STOCK" means the cumulative, convertible
preferred stock, Series C, par value $.01 per share of the Company.
"STOCK" means all shares, options, warrants, general or
limited partnership interests, participations or other equivalents (regardless
of how designated) of or in a Person, whether voting or nonvoting, including,
without limitation, common stock, preferred stock, or any other "equity
security" (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the SEC under the Exchange Act), including, without
limitation, any securities with profit participation features, and any rights,
warrants, options or other securities convertible into or exercisable or
exchangeable for any such shares, equity or profits interests, participations or
other equivalents, or such other securities, directly or indirectly (or any
equivalent ownership interests, in the case of a Person which is not a
corporation).
"SUBSIDIARY" shall mean, with respect to any Person, (i) any
corporation of which an aggregate of more than 50% of the outstanding Stock
having ordinary voting power for the election of directors, managers or trustees
of such corporation (irrespective of whether, at the time, Stock of any other
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time, directly or
indirectly, owned legally or beneficially or controlled, directly or indirectly,
by such Person and/or one or more Subsidiaries of such Person, or any
combination thereof, or with respect to which any such Person has the right to
vote or designate the vote of more than 50% of such Stock whether by proxy,
agreement, operation of law or otherwise, (ii) any partnership, limited
liability company, association or other business entity, in which such Person
and/or one or more Subsidiaries of such Person shall have more than 50% of the
partnership or other
8
<PAGE>
similar ownership interests thereof (whether in the form of voting or
participation in profits or capital contribution), and (iii) all other Persons
from time to time included in the consolidated financial statements of such
Person. For purposes hereof, a Person or Persons shall be deemed to have more
than a 50% ownership interest in a limited liability company, partnership,
association or other business entity if such Person or Persons shall be
allocated more than 50% of limited liability company, partnership, association
or other business entity gains or losses or shall be or control any managing
director or general partner of such limited liability company, partnership,
association or other business entity.
Section 2. BOARD OF DIRECTORS
(a) MEMBERS - PRIOR TO AN INITIAL PUBLIC OFFERING.
(i) Prior to an Initial Public Offering of the
Company, the following shall apply: The Board shall consist of seven directors,
six of whom shall be divided into three classes (I, II and III) of two directors
each serving three year terms and shall be designated initially by the Mas
Stockholders. The seventh director shall be the director whom the holders of a
majority of the outstanding shares of Series A Preferred Stock are entitled to
elect pursuant to Article FOURTH of the Company's Amended and Restated
Certificate of Incorporation and shall be designated initially by GE Capital and
GECFS; this director shall serve one year terms. If and when GE Capital's and
any Affiliate of GE Capital's aggregate Equity Ownership of the Company exceeds
fifty percent, either as a result of the exercise of the Control Option or
purchases of Equity Securities by GE Capital or any Affiliate of GE Capital from
the Company or from the Mas Stockholders, or otherwise, GE Capital and GECFS
shall designate four members of the Board and the Mas Stockholders shall
designate three members of the Board. After GE Capital and GECFS have received
the right to designate four of the members of the Board, if GE Capital's and any
Affiliate of GE Capital's Equity Ownership of the Company is equal to or exceeds
in the aggregate (x) sixty-five percent, then GE Capital and GECFS shall
designate five members of the Board and the Mas Stockholders shall designate two
members of the Board; (y) eighty percent, then GE Capital and GECFS shall
designate six members of the Board and the Mas Stockholders shall designate one
member of the Board; and (z) ninety-five percent, then GE Capital and GECFS
shall designate seven members of the Board; PROVIDED HOWEVER, that if the Mas
Stockholders' Equity Ownership of the Company is equal to or exceeds in the
aggregate fifty, sixty-five, eighty or ninety-five percent, at any time after GE
Capital and GECFS have received the right to designate four of the members of
the Board, then the Mas Stockholders shall designate four, five, six and seven
members of the Board, respectively, and GE Capital and GECFS shall designate
three, two, one and no members of the Board, respectively. For purposes of this
Section 2(a), the Mas Stockholders' Equity Ownership of the Company shall
include Santos' and Santos Capital's Equity Ownership of the Company. A director
designated by the Mas Stockholders is hereinafter referred to as a "MAS
DESIGNEE" and a director designated by GE Capital and GECFS is hereinafter
referred to as a "GE CAPITAL DESIGNEE." At each meeting of the stockholders of
the Company held for the purpose of electing directors, the Neff Stockholders
shall cast their votes so as to cause the Mas Designees and the GE Capital
Designees to be elected as directors.
9
<PAGE>
(ii) GE Capital shall deliver a written notice to the
Company (the "Equity Ownership Notice") promptly after any change in GE
Capital's and any Affiliate of GE Capital's aggregate Equity Ownership of the
Company that would cause the number of GE Capital Designees to increase or
decrease. If there is an increase in GE Capital's and any Affiliate of GE
Capital's aggregate Equity Ownership of the Company sufficient to cause the
number of GE Capital Designees to increase, the Equity Ownership Notice shall
(i) state the number of additional directors to be designated to the Board by GE
Capital and GECFS, (ii) name the GE Capital Designee(s) to be appointed to the
Board and (iii) include evidence reasonably satisfactory to the Company of GE
Capital's and any Affiliate of GE Capital's aggregate Equity Ownership of the
Company. At or before the next regular or special meeting of the Board, the Neff
Stockholders shall take such steps as are necessary to cause the GE Capital
Designees named in the Equity Ownership Notice to be elected as directors and to
replace the corresponding number of Mas Designees. If the Equity Ownership
Notice is provided in connection with the right of GE Capital and GECFS to elect
four members of the Board, such necessary steps shall be taken as soon as
reasonably possible after the delivery of such Equity Ownership Notice and in
any event not less than five business days following the delivery of such Equity
Ownership Notice. If there is a decrease in GE Capital's and any Affiliate of GE
Capital's aggregate Equity Ownership of the Company sufficient to cause the
number of GE Capital Designees to decrease, the Equity Ownership Notice shall
(i) state the number of directors to be removed from the Board by GECFS and GE
Capital, (ii) name the GE Capital Designee(s) to be removed from the Board and
(iii) include evidence reasonably satisfactory to the Company of GE Capital's
and any Affiliate of GE Capital's aggregate Equity Ownership of the Company. At
or before the next regular or special meeting of the Board, the Neff
Stockholders shall take such steps as are necessary to cause the GE Capital
Designees named in the Equity Ownership Notice to be removed from the Board and
to replace such GE Capital Designees with a corresponding number of Mas
Designees. If the Mas Stockholders' Equity Ownership of the Company increases or
decreases, the Mas Stockholders may, at their option, follow the procedures
regarding designation of Board members as set forth in this Section 2(a).
(iii) VOTING REQUIREMENTS. Notwithstanding anything
in the Certificate of Incorporation or the By-Laws to the contrary, except as
set forth under Section 3 below and except the reconfiguration of the Board as
set forth above, all decisions of the Board, including the selection of the
Chairman of the Board and any committee appointed thereby, shall require a
majority vote. In the case of a tie vote, the Chairman of the Board's vote shall
count as two votes.
(iv) VACANCIES. Notwithstanding anything in the
Certificate of Incorporation or the By-Laws to the contrary, each of the Mas
Designees and the GE Capital Designees shall hold office until his or her death,
resignation or removal or until his or her successor shall have been duly
elected and qualified. If any Mas Designee shall cease to serve as a director of
the Company for any reason, the resulting vacancy shall be filled by another
person designated by the Mas Stockholders. If any GE Capital Designee shall
cease to serve as
10
<PAGE>
a director of the Company for any reason, the resulting vacancy shall be filled
by another person designated by GE Capital.
(v) REMOVAL. A director may be removed from office at
any time, with or without cause, at a meeting called for that purpose, and only
by the affirmative vote of the holders of at least 66-2/3% of the voting power
of all shares of the Corporation entitled to vote generally in the election of
directors, voting together as a single class. If the Mas Stockholders wish to
remove a Mas Designee with or without cause, the Neff Stockholders shall vote to
remove such Mas Designee. If GE Capital wishes to remove a GE Capital Designee
with or without cause, the Neff Stockholders shall vote to remove such GE
Capital Designee.
(vi) QUORUM REQUIREMENTS/MEETINGS. A majority of the
entire Board shall be necessary to form a quorum for purposes of Board meetings.
Directors participating by telephone conference in any meeting of the Board
shall be considered in determining whether a quorum of directors is present. The
Board shall meet in accordance with the Certificate and By-Laws.
(vii) SERIES A PREFERRED STOCK. If the holders of
Series A Preferred Stock receive the right, pursuant to Article FOURTH of the
Company's Amended and Restated Certificate of Incorporation, to elect an
additional four directors, the size of the Board shall be increased to eleven
directors and the holders of Series A Preferred Stock shall designate the four
additional members of the Board. These additional directors shall serve one year
terms and shall not be divided into classes.
(viii) COMMITTEES. The composition of any committees
of the Board with respect to the number of members who are Mas Designees and GE
Capital Designees shall reflect the composition of the entire Board to the
greatest extent possible.
(ix) SUBSIDIARIES. The Boards of Directors of any
Subsidiaries of the Company shall either (i) reflect the composition of the
entire Board to the greatest extent possible with respect to the number of
members who are selected by the Mas Stockholders and by GE Capital and GECFS or
(ii) shall consist of one director, who shall be Mr. Fitzgerald.
(b) MEMBERS - SUBSEQUENT TO AN INITIAL PUBLIC OFFERING.
(i) Subsequent to an Initial Public Offering of the
Company, the following shall apply: Subject to Section 2(b)(ii), the Board shall
consist of six directors and shall be divided into three classes of two
directors each (I, II and III). The initial members of Class I shall be Jorge
Mas and Kevin P. Fitzgerald and the initial term of office for members of Class
I shall expire at the annual meeting of stockholders in 2000. The initial
members of Class II shall be Juan Carlos Mas and Jose Ramon Mas and the initial
term of office for members of Class II shall expire at the annual meeting of
stockholders in 1999. The initial members of Class III shall be two
"independent" directors, as such term is defined in the New York Stock Exchange
listing requirements and the initial term of office for members of Class
11
<PAGE>
III shall expire at the annual meeting of stockholders in 1998. At each annual
meeting of stockholders following such initial classification and election,
directors elected to succeed those directors whose terms expire shall be elected
for a term of office to expire at the third succeeding annual meeting of
stockholders after their election, and shall continue to hold office until their
respective successors are elected and qualified or until their death, or until
they shall have resigned, or have been removed.
(ii) If and when any of GE Capital, GECFS or any
Affiliate thereof transfer a block of Equity Securities which equals or exceeds
the lesser of (i) the number of shares of Common Stock held by GE Capital, GECFS
and any Affiliate thereof at the consummation of the Initial Public Offering if
such number equals or exceeds 10% of the Equity Ownership of the Company or (ii)
15% of the Equity Ownership of the Company to a single third party purchaser
other than any of the Neff Stockholders at the time of such transfer and such
single third party purchaser is not a Competitor of the Company (the "GE
TRANSFEREE"), the Board shall adopt a resolution increasing the number of
directors on the Board by one by increasing the number of directors in Class III
to three. The GE Transferee shall designate the additional director (the "GE
TRANSFEREE DESIGNEE") and the Board will appoint the GE Transferee Designee to
fill the vacancy created by increasing the Board to seven directors. Thereafter,
at each meeting of the stockholders of the Company held for the purpose of
electing the class of directors of which the GE Transferee Designee is a member,
the Neff Stockholders shall cast their votes so as to cause the GE Transferee
Designee to be elected as a director. The Neff Stockholders shall no longer be
so required to cast their votes so as to cause the GE Transferee Designee to be
elected as a director if and when the GE Transferee's Equity Ownership of the
Company falls below the lesser of (i) the aggregate number of shares of Common
Stock purchased by the GE Transferee from GE Capital, GECFS and/or any Affiliate
thereof or (ii) 15%.
(iii) VACANCIES. Vacancies in the Board resulting
from death, resignation, retirement, disqualification, removal from office or
any other cause may be filled by the Board, provided that a quorum is then in
office and present, or by a majority of the directors then in office, if less
than a quorum is then in office, or by the sole remaining director. Directors
elected to fill a newly created directorship or other vacancies shall hold
office for the remainder of the full term of the class of directors in which the
new directorship was created or the vacancy occurred and until such director's
successor has been elected and has qualified; PROVIDED, HOWEVER, that directors
elected by the holders of Series A Preferred Stock shall hold office until the
next annual meeting of stockholders when such directors' successors have been
elected and qualified. Notwithstanding the foregoing, or anything in the
Certificate of Incorporation or the By-Laws to the contrary, if the GE
Transferee Designee dies, resigns or is removed, the GE Transferee shall
designate a director to fill the resulting vacancy and the Board of Directors or
the Neff Stockholders, as applicable, shall cast their votes so as to cause such
designee to be elected as a director.
(iv) REMOVAL. A director may be removed from office
at any time, with or without cause, at a meeting called for that purpose, and
only by the affirmative vote of the holders of at least 66-2/3% of the voting
power of all shares of the Corporation entitled to
12
<PAGE>
vote generally in the election of directors, voting together as a single class.
Notwithstanding the foregoing, any directors elected by the holders of Series A
Preferred Stock may only be removed by the holders of a majority of the issued
and outstanding Series A Preferred Stock and the director elected pursuant to
Section 2(c) below, if any, may only be removed with or without cause by the
holders of 66-2/3% of the issued and outstanding Class B Common Stock. If the GE
Transferee wishes to remove the GE Transferee Designee with or without cause,
the Neff Stockholders shall vote to remove the GE Transferee Designee.
(c) RIGHT OF CLASS B COMMON STOCK TO ELECT ONE DIRECTOR. On
March 31, 2000, if the number of issued and outstanding shares of Class B Common
Stock equals or exceeds twenty percent (20%) of the issued and outstanding
Common Stock, Class III of the Board shall be increased by one member and the
holders of a majority of the Class B Common Stock, voting separately as a single
class in the election of directors of the Company, to the exclusion of all other
classes of the Company's capital stock and with each share of Class B Common
Stock entitled to one vote, shall be entitled to elect immediately one director
to serve in Class III of the Board until his successor is duly elected by
holders of a majority of the Class B Common Stock or he is removed from office
by holders of a majority of the Class B Common Stock. If the holders of a
majority of the Class B Common Stock for any reason fail to elect anyone to fill
such directorship, such position shall remain vacant until such time as the
holders of a majority of the Class B Common Stock elect a director to fill such
position and shall not be filled by resolution or vote of the Board or the
Company's other stockholders. If the number of shares of Class B Common Stock
issued and outstanding does not equal or exceed twenty percent (20%) of the
issued and outstanding Common Stock at any time after March 31, 2000, the
director elected by a majority of the holders of Class B Common Stock, if any,
shall be removed from the Board and Class III of the Board shall be decreased by
one member.
(d) POWERS. The Board shall have full power to manage the
Company. The Board may delegate certain powers to certain directors or
committees under its authority. The day-to-day management of the Company shall
be the responsibility of the Company's officers, who shall act in accordance
with the policies and guidelines established or authorized by the Board.
(e) DIRECTORS' INDEMNIFICATION. The Company's Certificate of
Incorporation and By-Laws shall, to the fullest extent permitted by law, provide
for indemnification of, and advancement of expenses to, and limitation of the
personal liability of, the directors of the Company. The Company's Certificate
and By-Laws shall provide that the Company may purchase customary liability
insurance for the directors and officers of the Company, and the Company shall
purchase and maintain such insurance.
(f) WAIVER OF DAMAGES. Directors shall waive any rights to
damages in case of removal without cause by the party that appointed them.
Section 3. ACTIONS REQUIRING SPECIAL BOARD APPROVAL.
13
<PAGE>
Prior to an Initial Public Offering of the Company, the
following actions shall require approval by at least a majority of the Board,
including at least one director who is a Mas Designee and one director who is a
GE Capital Designee or, if the Board is acting by written consent, by the
unanimous consent of the Board:
(a) a change in the corporate form of the Company;
(b) the merger or consolidation of the Company into or with
another Person, or a similar business combination of the Company and another
Person, other than with or into a wholly-owned subsidiary of the Company;
(c) the sale or spin-off of any of the Company's Subsidiaries;
(d) acquisitions or divestitures for consideration (including
assumed liabilities) in excess of an aggregate amount equal to $10,000,000
(directly or indirectly through one or more transactions) during any six month
period, including the sale of Neff Rental, Inc. or Neff Machinery, Inc., other
than acquisitions or divestitures of equipment in the ordinary course of
business;
(e) any amendment to the Certificate of Incorporation or
By-Laws;
(f) the liquidation, dissolution or winding up of the Company
(g) the filing of a petition seeking relief under Title 11 of
the United States Code, as now constituted or hereafter amended, or any other
applicable federal, state or foreign bankruptcy law or the consent to the
institution of proceedings thereunder or to the filing of any such petition or
to the appointment of or taking possession by a custodian, receiver, liquidator,
or trustee of the Company or of any substantial part of the Company's
properties;
(h) entering into contracts or transactions between the
Company and an Affiliate (directly or indirectly through one or more
transactions) for consideration (including assumed liabilities) in excess of an
aggregate amount equal to $1,000,000 during any three month period;
(i) the sale of all or substantially all of the assets of the
Company;
(j) a change in the corporate domicile of the Company;
(k) entering or committing to enter into any joint ventures or
partnerships or establishing any non-wholly-owned subsidiaries, where the
contribution or investment during any six month period by the Company and all of
its Subsidiaries taken together is in excess of an aggregate amount equal to
$10,000,000 in cash or assets or assumed liabilities;
(l) the expansion into new lines of business (it being
understood that "new lines of business" do not include the conduct in additional
states in the United States or in
14
<PAGE>
countries other than the United States of lines of businesses conducted by the
Company or its Subsidiaries as of the date hereof);
(m) the declaration or payment of dividends or the making of
any other distribution in respect of shares of Common Stock or the redemption or
repurchase of Common Stock;
(n) the election of any person as chief executive officer of
the Company;
(o) the selection of the Company's independent certified
public accountants;
(p) any issuance of securities of the Company, except (a)(i)
options issued by the Company pursuant to any stock option or similar plan (and
any shares of Class A Common Stock issuable thereunder) (including, without
limitation, any shares of Common Stock subject to options forfeited under such
plan that become subject to new options reissued by the Company pursuant to such
plan) and the shares of Class A Common Stock issuable upon the exercise of such
options; (ii) options issued to Mr. Fitzgerald pursuant to the Fitzgerald Stock
Option Agreement and the shares of Class A Common Stock issuable upon the
exercise thereof and (iii) options issued to Mr. Warren pursuant to the Warren
Stock Option Agreement and the shares of Class A Common Stock issuable upon the
exercise thereof, in each of the foregoing clauses (i) - (iii) as and to the
extent set forth in Schedule 12(b), PROVIDED HOWEVER, that the Company may issue
options to employees of the Company or its Subsidiaries to purchase Class A
Common Stock where such issuance (together with any shares of Class A Common
Stock to be issued under any existing options granted to such employees) would
not be in excess of 5 percent of the outstanding Common Stock; (b) shares of
Common Stock issuable upon exercise of the Control Option, (c) as part of an
Initial Public Offering of the Company and (d) shares of Class A Common Stock
issuable upon the conversion of Class B Common Stock.
Section 4. RIGHT OF FIRST REFUSAL WITH RESPECT TO COMPANY SALES.
Prior to an Initial Public Offering of the Company, the
Company shall not Sell any Common Stock except in accordance with the following
procedures:
(a) The Company shall deliver to each of the Neff Stockholders
a written notice (a "CAPITAL INCREASE NOTICE"), which shall (i) state the
Company's intention to Sell Common Stock, or securities convertible into Common
Stock, or options to purchase Common Stock, to one or more Persons, the amount
and type of Common Stock, or securities convertible into Common Stock to be
issued (the "SECTION 4 STOCK"), the purchase price therefor and a summary of the
other material terms of the proposed Sale, including the manner of distribution,
and (ii) offer each of the Neff Stockholders the option to acquire all or any
part of the Section 4 Stock (the "Section 4 Offer"). Each Neff Stockholder shall
have the right and option, for a period of 45 days after delivery of the Capital
Increase Notice (the "SECTION 4 OFFER ACCEPTANCE PERIOD"), to accept all or any
part of the Section 4 Stock at the purchase price and on the terms stated in the
Capital Increase Notice. Such acceptance shall be made by delivering a written
notice (the "ACCEPTANCE NOTICE") to the Company within the Section 4 Offer
Acceptance Period
15
<PAGE>
specifying the maximum number of shares of the Section 4 Stock such Neff
Stockholder will purchase (the "ACCEPTED SHARES"). If, upon the expiration of
the Section 4 Acceptance Period, the aggregate amount of Accepted Shares exceeds
the amount of Section 4 Stock, the amount of Section 4 Stock shall be allocated
among the Neff Stockholders as follows: (i) First, each Neff Stockholder shall
be entitled to purchase no more than its Pre-emptive Percentage of Section 4
Stock; (ii) Second, if any shares of Section 4 Stock have not been allocated for
purchase pursuant to (i) above (the "REMAINING SECTION 4 SHARES"), each Neff
Stockholder (an "OVERSUBSCRIBED SECTION 4 STOCKHOLDER") that had offered to
purchase a number of shares of Section 4 Stock in excess of the amount of stock
allocated for purchase to it in accordance with previous allocations of such
shares of Section 4 Stock, shall be entitled to purchase an amount of Remaining
Section 4 Shares equal to no more than its Pre-emptive Percentage (treating only
Oversubscribed Section 4 Stockholders as Stockholders for these purposes) of the
Remaining Section 4 Shares; and (iii) Third, the process set forth in (ii) above
shall be repeated with respect to any shares of Section 4 Stock not allocated
for purchase until all shares of Section 4 Stock are allocated for purchase.
(b) If effective acceptance shall not be received pursuant to
Section 4(a) above with respect to all of the Section 4 Stock offered for Sale
pursuant to the Section 4 Offer Notice, then the Company may Sell all or any
portion of such Section 4 Stock so offered for Sale and not so accepted, at a
price not less than the price, and on terms not more favorable to the purchaser
thereof than the terms, stated in the Section 4 Offer Notice at any time within
120 days after the expiration of the Section 4 Acceptance Period (the "ISSUANCE
PERIOD"), PROVIDED HOWEVER, that if the Company is offering the Section 4 Stock
for Sale pursuant to a public offering, the Issuance Period shall run for a
period of 180 days after the expiration of the Section 4 Acceptance Period. To
the extent the Company Sells all or any portion of the Section 4 Stock so
offered for Sale during the Issuance Period, the Company shall promptly notify
the Neff Stockholders, as to (i) the number of shares of Section 4 Stock, if
any, that the Company has Sold, (ii) the terms of such Sale and (iii) the name
of the owner(s) of any shares of Section 4 Stock so Sold. In the event that all
of the Section 4 Stock is not so Sold by the Company during the Issuance Period,
the right of the Company to Sell such unsold Section 4 Stock shall expire and
the obligations of this Section 4 shall be reinstated and such securities shall
not be offered unless first reoffered to the Stockholders in accordance with
this Section 4.
(c) All Sales of Section 4 Stock to the Neff Stockholders
subject to any Section 4 Offer Notice shall be consummated contemporaneously at
the offices of the Company on the later of (i) a mutually satisfactory business
day within 30 days after the expiration of the Section 4 Acceptance Period or
(ii) the fifth business day following the expiration or termination of all
waiting periods under the HSR Act, applicable to such issuance, or at such other
time and/or place as the Company and the Neff Stockholders purchasing Section 4
Stock may agree. The delivery of certificates or other instruments evidencing
such Section 4 Stock shall be made by the Company on such date against payment
of the purchase price for such Section 4 Stock.
(d) The provisions of this Section 4 shall not apply to the
Sale by the Company of Excluded Securities.
16
<PAGE>
(e) For purposes of this Section 4, "Common Stock" shall
include Common Stock, securities convertible into Common Stock and options to
purchase Common Stock, PROVIDED HOWEVER, that "Common Stock" shall not include
securities convertible into Common Stock and options to purchase Common Stock
for purposes of calculating a stockholder's Pre-emptive Percentage.
Section 5. RESTRICTIONS ON SALE OF STOCK BY THE MAS STOCKHOLDERS, MR.
FITZGERALD, SANTOS AND SANTOS CAPITAL
Prior to an Initial Public Offering of the Company, the Mas
Stockholders, Mr. Fitzgerald, Santos and Santos Capital shall not Sell any
Common Stock except in accordance with the following procedures:
(a) The Mas Stockholders, Mr. Fitzgerald, Santos and Santos
Capital (the "SECTION 5 STOCKHOLDERS") may Sell any shares of Common Stock to
any third party purchasers who are not Competitors of the Company or the
Commercial Equipment Financing division of GE Capital, PROVIDED, HOWEVER, that
prior to such transfer, the Section 5 Stockholder(s) shall provide GE Capital
with a written notice (an "OFFER NOTICE"), which shall (i) specifically identify
the proposed transferee of the Common Stock, the amount of Common Stock proposed
to be Sold, the purchase price therefor and a summary of the other material
terms and conditions of the proposed Sale, and (ii) contain an offer by the
Section 5 Stockholder(s) to sell to GE Capital all (but not less than all) of
such shares of Common Stock upon the terms and subject to the conditions of the
proposed Sale as set forth in the Offer Notice (the "SECTION 5 STOCKHOLDER
OFFER"). GE Capital may accept the Section 5 Stockholder Offer by the delivery
of a written notice to the Section 5 Stockholder(s) within 45 days after receipt
of the Offer Notice (the "OFFER ACCEPTANCE PERIOD"). If GE Capital does not
accept the Section 5 Stockholder Offer, the Section 5 Stockholder(s) may only
Sell the shares of Common Stock which were the subject of the Offer Notice in
accordance with terms no less favorable to the Section 5 Stockholder(s) than
were specified in the Offer Notice, and the Sale of such shares of Common Stock
must occur within 120 days following the date of the Offer Notice.
(b) All Sales of Common Stock to GE Capital subject to any
Offer Notice shall be consummated contemporaneously at the offices of the
Company on the later of (i) a mutually satisfactory business day within 30 days
after the expiration of the Offer Acceptance Period or (ii) the fifth business
day following the expiration or termination of all waiting periods under the HSR
Act, applicable to such issuance, or at such other time and/or place as the
Section 5 Stockholders and GE Capital may agree. The delivery of certificates or
other instruments evidencing such Common Stock Sold to GE Capital subject to any
Offer Notice shall be made by the Section 5 Stockholders on such date against
payment of the purchase price for such Common Stock. To the extent the Section 5
Stockholder(s) Sell all or any portion of the Common Stock that is the subject
of the Offer Notice to buyers other than GE Capital, the Section 5
Stockholder(s) shall promptly notify the Company and the other Neff Stockholders
as to (i) the number of shares of Common Stock, if any, that the Section 5
Stockholder has Sold, (ii) the terms of such Sale and (iii) the name of the
owner(s) of any shares of Common Stock so Sold. In the event that all of the
Common Stock that is the subject of the Offer Notice is not Sold by the
17
<PAGE>
Section 5 Stockholder within 120 days following the date of the Offer Notice,
the right of the Section 5 Stockholder to Sell such unsold Common Stock shall
expire and the obligations of this Section 5 shall be reinstated and such
securities shall not be offered unless first reoffered to GE Capital in
accordance with this Section 5.
(c) Notwithstanding anything to the contrary contained in this
Section 5, any Section 5 Stockholder may, without the prior written approval of
GE Capital and GECFS, pledge or otherwise encumber any of its shares of Common
Stock, PROVIDED, HOWEVER, that the pledgee shall not be a Competitor of the
Company and PROVIDED, FURTHER, that (i) the Section 5 Stockholder agrees to
provide reasonable notice to GE Capital of the proposed pledge of its shares of
Common Stock, including the identity of the proposed pledgee and to pledge its
shares of Common Stock to GE Capital instead of the proposed pledgee if GE
Capital provides the Section 5 Stockholder with financing on the substantially
the same terms as the Section 5 Stockholder was to receive from the proposed
pledgee and (ii) if GE Capital does not provide such financing, the pledgee
agrees that as a condition to taking title to any pledged Common Stock, it will
be bound by this Agreement, as contemplated by Section 8(b).
(d) Any Person other than GE Capital and GECFS who purchases
Common Stock from a Section 5 Stockholder (the "Section 5 Buyer") shall be bound
by the provisions of this Section 5 and shall execute and deliver such
documentation as reasonably required by GE Capital and GECFS to evidence the
Section 5 Buyer's agreement to be so bound.
(e) For purposes of this Section 5, " Common Stock" shall
include Common Stock, securities convertible into Common Stock and options to
purchase Common Stock.
Section 6. RESTRICTIONS ON SALES AND PURCHASES OF STOCK BY GE CAPITAL.
Prior to an Initial Public Offering of the Company, GE Capital
and GECFS shall not Sell any Class A or Class B Common Stock except in
accordance with the procedures described in this Section 6. Subsequent to an
Initial Public Offering of the Company, GE Capital and GECFS shall not Sell any
Class B Common Stock without first converting it to Class A Common Stock.
(a) Prior to an Initial Public Offering of the Company, GE
Capital and GECFS may Sell Common Stock to any third party purchasers who are
not Competitors of the Company, PROVIDED, HOWEVER, that prior to such Sale, GE
Capital shall provide the Section 5 Stockholders with an Offer Notice, which
shall (i) specifically identify the proposed transferee of the Common Stock, the
amount of Common Stock proposed to be Sold, the purchase price therefor and a
summary of the other material terms and conditions of the proposed Sale, and
(ii) contain an offer by GE Capital to Sell to the Section 5 Stockholders all
(but not less than all) of such shares of Common Stock upon the terms and
subject to the conditions of the proposed Sale as set forth in the Offer Notice
(the "GE CAPITAL OFFER"). The GE Capital Offer shall be made to the Section 5
Stockholders collectively. The Section 5 Stockholders shall determine among
themselves how to allocate the purchase, if any, of the Common Stock so offered.
The Section 5 Stockholders may accept the GE Capital Offer by the delivery of a
written notice to GE Capital within the Offer Acceptance Period. If the Section
5 Stockholders do not accept the GE Capital
18
<PAGE>
Offer, GE Capital may only Sell the shares of Common Stock that were the subject
of the Offer Notice in accordance with terms no less favorable to GE Capital
than were specified in the Offer Notice, and the Sale of such shares of Common
Stock must occur within 120 days following the date of the Offer Notice.
(b) All Sales of Common Stock to the Section 5 Stockholders
subject to any Offer Notice shall be consummated contemporaneously at the
offices of the Company on the later of (i) a mutually satisfactory business day
within 30 days after the expiration of the Offer Acceptance Period or (ii) the
fifth business day following the expiration or termination of all waiting
periods under the HSR Act, applicable to such issuance, or at such other time
and/or place as the Section 5 Stockholders and GE Capital may agree. The
delivery of certificates or other instruments evidencing such Common Stock Sold
to the Section 5 Stockholders subject to any Offer Notice shall be made by GE
Capital on such date against payment of the purchase price for such Common
Stock. To the extent GE Capital Sells all or any portion of the Common Stock
that is the subject of the Offer Notice to buyers other than the Section 5
Stockholders, GE Capital shall promptly notify the Company and the other Neff
Stockholders as to (i) the number of shares of Common Stock, if any, that GE
Capital has Sold, (ii) the terms of such Sale and (iii) the name of the owner(s)
of any shares of Common Stock so Sold. In the event that all of the Common Stock
that is the subject of the Offer Notice is not Sold by GE Capital within 120
days following the date of the Offer Notice, the right of GE Capital to Sell
such unsold Common Stock shall expire and the obligations of this Section 6
shall be reinstated and such securities shall not be offered unless first
reoffered to the Section 5 Stockholders in accordance with this Section 6.
(c) Notwithstanding anything to the contrary contained in this
Section 6, GE Capital and GECFS may, without the prior written approval of the
Section 5 Stockholders, pledge or otherwise encumber any of its shares of Common
Stock, PROVIDED that the pledgee shall not be a Competitor of the Company and
PROVIDED, FURTHER, that the pledgee agrees that as a condition to taking title
to any pledged Common Stock, it will be bound by this Agreement, as contemplated
by Section 8(b).
(d) Notwithstanding any provision in this Agreement to the
contrary, GE Capital and any Affiliate of GE Capital shall not acquire shares of
Common Stock pursuant to a tender offer a recommendation with respect to the
consummation of which is rejected by a majority of the disinterested members of
the Board.
(e) Any Person other than a Section 5 Stockholder who
purchases Common Stock from GE Capital or GECFS (the "GE Buyer") shall be bound
by the provisions of this Section 6 and shall execute and deliver such
documentation as reasonably required by the Section 5 Stockholders to evidence
the GE Buyer's agreement to be so bound.
(f) For purposes of this Section 6, "Common Stock" shall
include Common Stock, securities convertible into Common Stock and options to
purchase Common Stock.
Section 7. INTENTIONALLY OMITTED.
19
<PAGE>
Section 8. OTHER RESTRICTIONS ON SALES OF STOCK
(a) Prior to an Initial Public Offering of the Company,
notwithstanding anything in this Agreement to the contrary, the Sale of any
Equity Securities of the Company by any Neff Stockholder shall be made in
compliance with all applicable federal and state laws (including, without
limitation, federal and state securities and "blue sky" laws). Any Neff
Stockholder that proposes to Sell any Equity Securities shall furnish the
Company, at its request, with a written opinion of legal counsel that is
reasonably satisfactory in form and substance to the Company and its counsel to
the effect that the proposed Sale will comply with all applicable federal and
state securities laws and, subsequent to the consummation of such Sale, evidence
that the Sale complied with all applicable federal and state laws.
(b) Prior to an Initial Public Offering of the Company,
notwithstanding anything in this Agreement to the contrary, any Neff Stockholder
that proposes to Sell any Equity Securities to any Person (including an
Affiliate), must obtain the written agreement of such Person to be bound by the
provisions of this Agreement (including but not limited to the restrictions on
transfer) and such agreement must be reasonably satisfactory in form and
substance to the Company (and the other parties hereto) and their counsel,
PROVIDED, HOWEVER, that this Section 8(b) shall not apply to the Sale of Equity
Securities that have been registered under the Securities Act to a Person who is
not an Affiliate of any Neff Stockholder. The parties hereto agree to amend this
Agreement to reflect any additional parties hereto.
(c) Any Sale or attempted Sale of any Equity Securities of the
Company in violation of any provision of this Agreement shall be void, and the
Company shall not record such Sale on its books or treat any purported
transferee of such Equity Securities as the owner thereof for any purpose.
Section 9. REGISTRATION RIGHTS.
(a) INCIDENTAL (PIGGYBACK) REGISTRATION. If the Company
proposes to register any of its securities under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), for public offering and sale (other than
registrations with regard to acquisitions of employee stock options, employee
purchase plans or other employee benefit plans on Form S-8 under the Securities
Act or any successor form), the Company shall give notice to each of the Mas
Stockholders (as defined below) of its intention to effect such a registration
prior to the filing with the Securities and Exchange Commission (the "SEC") of
such registration statement. Upon written request of one or more Registering Mas
Stockholders, given within 7 days after receipt from the Company of such notice,
the Company shall use its best efforts to cause the number of the Registering
Mas Stockholder's Registrable Securities then held by the Registering Mas
Stockholders and referred to in such request to be included in such registration
statement; PROVIDED, HOWEVER, that in the event that the offering pursuant to
such registration statement shall be underwritten and the underwriters advise
the Company in writing that in their opinion the number of securities requested
to be included in such registration pursuant to this Section 9(a) exceeds the
number of securities that can be sold in the offering without adversely
affecting the offering price or the marketing of the Company's
20
<PAGE>
securities, the Company may first include in such registration all securities
the Company proposes to sell, and each Registering Mas Stockholder shall accept
a reduction (pro rata with any other holders of the Company's equity securities
entitled to register such securities on such registration statement whose
registration rights are on a par with and are not subordinate to the Registering
Mas Stockholders') on the basis of the proportion that the market value (based
upon the proposed offering price of such securities or the mid-point of the
range of the proposed offering prices of any of such securities (the "MARKET
VALUE") of each security holder's aggregate securities requested to be
registered bears to the Market Value of the aggregate amount of all equity
securities (other than those to be sold for the Company's account) as to which
registration is sought) in the number of securities to be included in such
registration, which reduction may, if necessary, be total. Nothing in this
Section 9(a) shall limit the Company's ability to withdraw, or temporarily cease
to seek effectiveness of, a registration statement it has filed whether before
or after its effectiveness.
(b) DEMAND REGISTRATION. (i) After the earlier of (x) December
29, 1998 or (y) the completion by the Company of the first underwritten public
offering of Common Stock that is effected pursuant to a registration statement
filed with, and declared effective by the SEC under the Securities Act, except
as provided in Section 9(b)(ii) below, upon the written request of one or more
Registering Mas Stockholders that the Company effect pursuant to this Agreement
the registration of Registrable Securities under the Securities Act (which
request shall specify the Registrable Securities so requested to be registered,
the Proposed Amounts thereof and the intended method of disposition by the
Registering Mas Stockholders), the Company will, as expeditiously as reasonably
possible, use its best efforts to effect the registration under the Securities
Act of the Proposed Amount of Registrable Securities, for disposition in
accordance with the intended method of disposition stated in such request;
PROVIDED, HOWEVER, that (A) if in the good faith judgment of the Board of
Directors of the Company, such registration would be detrimental to the Company
and the Board of Directors of the Company concludes, as a result, that it is in
the best interests of the Company to defer the filing of such registration
statement at such time, and (B) the Company shall furnish to the Registering Mas
Stockholders a certificate signed by an executive officer of the Company that
the Board of Directors of the Company has made such a determination and that it
is, therefore, necessary to defer the filing of such registration statement,
then the Company shall have the right to defer such filing for the period during
which such registration would be detrimental, provided that the Company may not
defer the filing for a period of more than 180 days after receipt of the request
of the Registering Mas Stockholders in the case of an underwritten public
offering or for more than 120 days if such method of disposition is not an
underwritten public offering. The Company shall be entitled to include in any
registration statement filed pursuant to this Section 9(b): (x) securities of
the Company held by any other securities holder of the Company, and (y) in an
underwritten public offering, securities of the Company to be sold by the
Company for its own account, except as and to the extent that (1) in the written
opinion of the managing underwriter, which shall be an underwriter of nationally
recognized standing (if such method of disposition shall be an underwritten
public offering), such inclusion would materially adversely affect the marketing
of the Registrable Securities to be sold by the Registering Mas Stockholders or
(2) in the written opinion of an investment banker of nationally recognized
standing jointly selected by the Registering Mas Stockholder and the
21
<PAGE>
Company (if such method of disposition is not an underwritten public offering),
such inclusion would materially adversely affect the price at which the
Registrable Securities may be sold pursuant to the plan of distribution.
(ii) The Company shall not be obligated to take any
action to effect any registration requested by the Registering Mas Stockholders
pursuant to Section 9(b)(i) hereof (A) after the Company has effected two (2)
such registrations pursuant to this Agreement and each such registration has
been declared or ordered effective, (B) during the period starting with the date
30 days prior to the Company's estimate of the date of filing of, and ending on
a date 180 days after the effective date of, a Company initiated registration,
provided that the Company is using all reasonable efforts to cause such
registration statement to become effective, or (C) for a period of six (6)
months after the Company has effected one such registration pursuant to this
Agreement and such registration has been declared or ordered effective, such 180
day period to commence on the date the registration statement was declared or
ordered effective.
(iii) Notwithstanding any other provision of this
Agreement to the contrary, a registration requested pursuant to this Section
9(b) shall not be deemed to have been effected (A) unless it has become
effective, provided that a registration that does not become effective after the
Company has filed a registration statement with respect thereto solely by reason
of the refusal of the Registering Mas Stockholders to proceed shall be deemed to
have been effected by the Company at the request of the Registering Mas
Stockholders unless the Registering Mas Stockholders shall have elected to pay
all Company Registration Expenses in connection with such registration, (B) if
after it has become effective such registration is interfered with by any stop
order, injunction or other order or requirement of the SEC or other governmental
agency or court for any reason other than a misrepresentation or an omission by
the Registering Mas Stockholders, or (C) if the conditions to closing specified
in the purchase agreement or underwriting agreement entered into in connection
with such registration are not satisfied other than by reason of some wrongful
act or omission, or act or omission in bad faith, by the Registering Mas
Stockholders.
(c) REGISTRATION PROCEDURES. Subject to the limitations set
forth elsewhere herein, if and whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect or cause the
registration of any Registrable Securities under the Securities Act as provided
in this Agreement, the Company will, as expeditiously as possible:
(i) in the case of a registration under Section 9(b)
hereof, prepare and file with the SEC (such filing to be made within 75 days
after the initial request by the Registering Mas Stockholders) a registration
statement with respect to such Registrable Securities on a form appropriate to
permit the Registering Mas Stockholders to sell the Proposed Amount in
accordance with the Registering Mas Stockholders' intended method of
distribution and use its best efforts to cause such registration statement to
become and remain effective;
22
<PAGE>
(ii) prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for such period as shall be requested by the Registering Mas
Stockholders, which period shall not exceed six (6) months, and to comply with
the provisions of the Securities Act with respect to the sale or other
disposition of all securities covered by such registration statement during such
period;
(iii) furnish to counsel for the Registering Mas
Stockholders and such underwriter of the securities being sold by the
Registering Mas Stockholders, at least 5 days prior to the filing thereof, such
number of copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus included in such registration statement (including each
preliminary prospectus), in conformity with the requirements of the Securities
Act, and such other documents, as such counsel may reasonably request, in
substantially the form in which they are proposed to be filed with the SEC, in
order to facilitate the public sale or other disposition of the Registrable
Securities owned by the Registering Mas Stockholders;
(iv) use its best efforts to register or qualify such
Registrable Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions in the United States as each
underwriter of the securities being sold by the Registering Mas Stockholders
shall reasonably request, and do any and all other acts and things which may be
necessary or advisable to enable the Registering Mas Stockholders and such
underwriter to consummate the disposition in such jurisdictions in the United
States of such Registrable Securities owned by the Registering Mas Stockholders
except that the Company shall not for any purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction where, but
for the requirements of this clause (iv), it would not be obligated to be so
qualified, or subject itself to taxation in any such jurisdiction;
(v) use its best efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities in the United States
as may be necessary to enable the Registering Mas Stockholders to consummate the
disposition of such Registrable Securities;
(vi) notify the Registering Mas Stockholders, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the Company's becoming aware that the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing, and promptly prepare and furnish to the
Registering Mas Stockholders and each underwriter a reasonable amount of copies
of a prospectus supplement or amendment so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing;
23
<PAGE>
(vii) otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC, and make available to the
Registering Mas Stockholders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more than
eighteen months, beginning with the first day of the Company's first calendar
quarter after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act;
(viii) enter into such agreements (including an
underwriting agreement in customary form) and take such other actions as the
Registering Mas Stockholders shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;
(ix) use its best efforts to furnish to the
Registering Mas Stockholders an opinion from the Company's counsel and a "cold
comfort" letter from the Company's independent public accountant (in accordance
with SAS 72), addressed to the Registering Mas Stockholders, in customary form
and covering such matters of the type customarily covered by such opinions and
"cold comfort" letters as the Registering Mas Stockholders shall reasonably
request;
(x) make available for inspection by the Registering
Mas Stockholders, by any other underwriter participating in any disposition to
be effected pursuant to such registration statement, and by any attorney,
accountant or other agent retained by the Registering Mas Stockholders or any
such underwriter, all reasonably pertinent financial and other records,
reasonably pertinent corporate documents and properties of the Company, and
cause all of the Company's officers, directors, employees and the independent
public accountants who have audited its financial statements to supply all
information reasonably requested by the Registering Mas Stockholders or any such
underwriter, attorney, accountant or agent in connection with such registration
statement; PROVIDED, HOWEVER, that the Registering Mas Stockholders and each
such representative of the Registering Mas Stockholders, underwriter, attorney,
accountant or agent must execute and deliver to the Company a confidentiality
agreement in form and substance reasonably acceptable to the Company agreeing to
keep any such information and records concerning the Company confidential;
(xi) permit the Registering Mas Stockholders to
participate in the preparation of such registration or comparable statement;
(xii) at or prior to the effective date of the
registration use commercially reasonably efforts to (i) secure a CUSIP number
for all Registrable Securities, and (ii) cause the Registrable Securities to be
listed on the New York Stock Exchange, the American Stock Exchange or included
for reporting on the NASDAQ Stock Market, and cause the Registrable Securities
to be listed on each other national securities exchange, if any, on which any
other class of the Company's securities are then listed; and
24
<PAGE>
(xiii) in the case of an underwritten offering,
enable the Registrable Securities to be in such denominations or such number of
shares and registered in such names as the underwriters may request at least two
business days prior to the sale of the Registrable Securities.
In the case of an underwritten offering, the underwriters shall be
selected by the Company and reasonably acceptable to the Registering Mas
Stockholders.
The Registering Mas Stockholders shall, upon receipt of any notice from
the Company of the happening of any event of the kind described in subdivision
(vi) above, forthwith discontinue their disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until the Registering Mas Stockholders receive copies of the supplemented or
amended prospectus contemplated by said subdivision and, if so directed by the
Company, will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies, then in the Registering Mas Stockholders'
possession of the prospectus covering such Registrable Securities current at the
time of receipt of such notice. In the event the Company shall give any such
notice, the period mentioned in subdivision (ii) above shall be extended by the
number of days during the period from and including the date of the giving of
such notice to and including the date when the Registering Mas Stockholders
shall have received the copies of the supplemented or amended prospectus
contemplated by subdivision (vi) above, PROVIDED, HOWEVER, that in no event will
the period mentioned in subdivision (ii) above exceed six months after giving
effect to the extension.
The Registering Mas Stockholders shall enter into such customary
agreements as requested by the Company in connection with the registration of
securities as contemplated by this Agreement.
The Registering Mas Stockholders shall furnish to the Company in
writing such information and documents regarding the Registering Mas
Stockholders and the distribution of such securities as may be required to be
disclosed in the registration statement by the rules and regulations under the
Securities Act or under any other applicable securities or blue sky laws of the
jurisdictions referred to in Section 9(c)(iv) hereof.
If any such registration or comparable statement refers to the
Registering Mas Stockholders by name or otherwise as the holders of any
securities of the Company then the Registering Mas Stockholders shall have the
right to require (A) the insertion therein of language, in form and substance
satisfactory to the Registering Mas Stockholders and presented to the Company in
writing, to the effect that the holding by the Registering Mas Stockholders of
such securities is not to be construed as a recommendation by the Registering
Mas Stockholders of the investment quality of the Company's securities covered
thereby and that such holding does not imply that the Registering Mas
Stockholders will assist in meeting any future financial requirements of the
Company, or (B) in the event that such reference to the Registering Mas
Stockholders by name or otherwise is not required by the Securities Act or any
similar federal statute then in force, the deletion of the reference to the
Registering Mas Stockholders.
25
<PAGE>
(d) REGISTRATION EXPENSES. In connection with any registration
on Registrable Securities pursuant to this Agreement the Company will, whether
or not any registration pursuant to this Agreement shall become effective, from
time to time promptly upon receipt of bills or invoices relating thereto, pay
all expenses (other than Selling Expenses) incident to its performance of or
compliance with this Section 9, including, without limitation, all registration,
filing and NASD fees, fees and expenses of compliance with securities or blue
sky laws, word processing, duplicating and printing expenses, messenger and
delivery expenses, and fees and disbursements of counsel for the Company and all
independent public accountants (including the expenses of any audit and/or "cold
comfort" letter) and the other Persons retained by the Company; PROVIDED,
HOWEVER, that in all events, the Registering Mas Stockholders shall be
responsible for the fees and expenses of their counsel and accountants and for
their Selling Expenses.
(e) INDEMNIFICATION. (i) The Company will, and hereby does,
indemnify, to the extent permitted by law, the Registering Mas Stockholders
against all losses, damages, liabilities (or proceedings in respect thereof) and
expenses under the Securities Act, caused by any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
prospectus (and as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) or any preliminary prospectus or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities (or proceedings in
respect thereof) or expenses are caused by any untrue statement or alleged
untrue statement made in reliance on or in conformity with any information
furnished in writing to the Company by the Registering Mas Stockholders or any
participating underwriter expressly for use therein. If the offering pursuant to
any registration statement provided for under this Agreement is made through
underwriters, the Company agrees to enter into an underwriting agreement in
customary form with such underwriters and to indemnify such underwriters, their
officers and directors, if any, and each Person, if any, who controls such
underwriters within the meaning of Section 15 of the Securities Act to the same
extent as herein before provided with respect to the indemnification of the
Registering Mas Stockholders.
(ii) If for any reason the indemnity under Section
9(e)(i) is unavailable, then the Company shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses (A) in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and of the indemnified party on
the other or (B) if the allocation provided by subdivision (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative fault of the Company on the one hand and the indemnified party
on the other but also the relative benefits received by the Company and the
indemnified party as well as any other relevant equitable considerations. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
26
<PAGE>
(iii) The Registering Mas Stockholders will, and
hereby do, jointly and severally indemnify, to the extent permitted by law, the
Company, its officers and directors, if any, and each Person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act,
against all losses, claims, damages, liabilities (or proceedings in respect
thereof) and expenses under the Securities Act, caused by any untrue statement
or alleged untrue statement of a material fact contained in any registration
statement or prospectus (and as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) or any preliminary
prospectus or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading but only to the extent that such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses are caused by any
untrue statement or alleged untrue statement made in reliance on or in
conformity with any information furnished to the Company by the Registering Mas
Stockholders. If the offering pursuant to any registration statement provided
for under this Agreement is made through underwriters, the Registering Mas
Stockholders agree to enter into an underwriting agreement in customary form
with such underwriters and to indemnify such underwriters, their officers and
directors, if any, and each Person who controls such underwriters within the
meaning of Section 15 of the Securities Act to the same extent as hereinbefore
provided with respect to the indemnification of the Company, its officers and
directors, if any, and each person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act.
(iv) If for any reason the indemnity under Section
9(e) (iii) is unavailable, then the Registering Mas Stockholders shall
contribute to the amount paid or payable by the indemnified party as a result of
such losses, claims, damages, liabilities or expenses (i) in such proportion as
is appropriate to reflect the relative fault of the parties or (ii) if the
allocation provided by subdivision (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative fault of
parties but also the relative benefits received by the parties as well as any
other relevant equitable considerations. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(v) The Company and the Registering Mas Stockholders
shall make payments of all amounts required to be made pursuant to the foregoing
provisions of this Section 9(e) to or for the account of the indemnified party
from time to time promptly upon receipt of bills or invoices relating thereto or
when otherwise due and payable.
(f) LIMITATIONS ON SALE OR DISTRIBUTION OF SECURITIES. If a
registration under this Agreement shall be in connection with an underwritten
public offering of securities for the Company's or any other security holder's
account (other than the Mas Stockholders), the Mas Stockholders shall not effect
any public sale or distribution, including any sale pursuant to Rule 144 under
the Securities Act, of any Registrable Securities, during such period prior and
subsequent to the commencement of the offering of securities pursuant to such
registration statement as may be reasonably requested by the underwriters
thereof, and in all cases to otherwise comply with all applicable rules under
the Securities Act and the Exchange Act,
27
<PAGE>
including, without limitation, and Regulation M under the Exchange Act or any
similar rules thereafter adopted by the SEC.
(g) REGISTRATION RIGHTS TO OTHERS. The rights of the Mas
Stockholders shall be on a par, pro rata to share holdings, with those granted
to (i) GE Capital and GECFS under the Registration Rights Agreement, dated as of
even date herewith, among the Company, GE Capital and GECFS, (ii) Mr. Fitzgerald
under the Stock Option Agreement, dated as of December 1, 1995, between the
Company and Mr. Fitzgerald, (iii) Santos under the Registration Rights
Agreement, dated as of even date herewith, between the Company and Santos and
(iv) Santos Capital under the Registration Rights Agreement, dated as of even
date herewith, between the Company and Santos. If the Company shall at any time
hereafter provide to any holder of any securities of the Company rights with
respect to the registration of such securities under the Securities Act, such
rights shall be subordinate to and shall not be in conflict with or adversely
affect any of the rights provided in this Agreement to the Registering Mas
Stockholders.
Section 10. BOOKS AND RECORDS.
As of the date hereof, the books and records of the Company
shall be audited by Deloitte & Touche, unless and until a different Big Six
accounting firm is selected by the Board.
Section 11. LEGEND.
Each Neff Stockholder and the Company shall take all such
action necessary (including exchanging with the Company certificates
representing shares of Common Stock issued prior to the date hereof) to cause
each certificate representing outstanding shares of Common Stock or securities
convertible into Common Stock owned by a Neff Stockholder to bear a legend
containing the following words:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED, SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH SUCH ACT."
"IN ADDITION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
RESTRICTIONS ON TRANSFER AND VOTING SET FORTH IN THE AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT DATED AS OF MARCH __, 1998, AS AMENDED FROM TIME TO TIME
BY THE COMPANY AND THE PARTIES THERETO, A COPY OF WHICH IS ON FILE IN THE OFFICE
OF THE COMPANY."
The requirement that the first paragraph of the above
securities legend be placed upon certificates evidencing shares of Common Stock
shall cease and terminate upon the earliest of the following events: (i) when
such shares are transferred in an underwritten public offering, (ii) when such
shares are transferred pursuant to Rule 144 under the Securities Act or (iii)
when
28
<PAGE>
such shares are transferred in any other transaction if the seller delivers to
the Company a written opinion of its counsel, which counsel and opinion shall be
reasonably satisfactory in form and substance to the Company and its counsel, or
a "no-action" letter from the staff of the Securities and Exchange Commission,
in either case to the effect that such legend is no longer necessary in order to
protect the Company against a violation by it of the Securities Act upon any
Sale or other disposition of such shares without registration thereunder. The
requirement that the second paragraph of the above securities legend be placed
upon certificates evidencing shares of Common Stock shall cease and terminate
upon the Sale of such shares of Common Stock pursuant to a Public Sale. Upon the
consummation of any event requiring the removal of a portion of the legend
hereunder, the Company, upon the surrender of certificates containing such
portion of such legend, shall, at its own expense, deliver to the holder of any
such shares as to which the requirement for such portion of such legend shall
have terminated, one or more new certificates evidencing such shares not bearing
such portion of such legend.
Section 12. REPRESENTATIONS AND WARRANTIES.
(a) Each party hereto represents and warrants to the other
parties hereto as follows:
(i) It has full power and authority to execute,
deliver and perform its obligations under this Agreement.
(ii) This Agreement has been duly and validly
authorized, executed and delivered by it, and constitutes a
valid and binding obligation of it, enforceable against it in
accordance with its terms except to the extent that
enforceability may be limited by bankruptcy, insolvency or
other similar laws affecting creditors' rights generally.
(iii) The execution, delivery and performance of this
Agreement by it does not (x) violate, conflict with, or
constitute a breach of or default under its organizational
documents, if any, or any material agreement to which it is a
party or by which it is bound or (y) violate any law,
regulation, order, writ, judgment, injunction or decree
applicable to it.
(iv) Except for expiration or termination of any
applicable waiting periods under the HSR Act, no consent or
approval of, or filing with, any governmental or regulatory
body is required to be obtained or made by it in connection
with the transactions contemplated hereby.
29
<PAGE>
(v) It is not a party to any agreement which is
inconsistent with the rights of any party hereunder or
otherwise conflicts with the provisions hereof.
(b) The Company represents and warrants to the other parties
hereto as follows:
(i) It, its Subsidiaries, its and its Subsidiaries'
respective assets, and its and its Subsidiaries' respective business and record
keeping practices are not in violation of any applicable law, regulation, order,
writ, judgment, injunction or decree (treating, for purposes of this
representation, Section 12(b)(1), Sections 13(b)(2) and 30(A) of the Exchange
Act as if they are applicable to the Company).
(ii) The authorized, issued and outstanding capital
stock of the Company is as set forth on SCHEDULE 12(B). All of the issued and
outstanding shares of capital stock of the Company have been duly authorized,
are validly issued, fully paid and nonassessable, are not subject to, nor were
they issued in violation of, any preemptive rights. Except as set forth on
SCHEDULE 12(B), there are no outstanding or authorized securities with profit
participating features or profit interests, or options, warrants, rights or
other agreements or commitments to which the Company is a party or that are
binding upon the Company providing for the issuance, disposition or acquisition
of any of its capital stock or any such securities or interests (collectively
"Options") (other than this Agreement). Except as set forth on SCHEDULE 12(B)
there are no outstanding or authorized stock appreciation, phantom stock or
similar rights with respect to the Company. Except as set forth on SCHEDULE
12(B) or as contemplated herein, there are no voting trusts, proxies or any
other agreements or understandings with respect to the voting of the capital
stock of the Company. Except as set forth on SCHEDULE 12(B) or as contemplated
herein, the Company is not subject to any obligations (contingent or otherwise)
to repurchase or otherwise acquire or retire any shares of its capital stock or
any Options.
30
<PAGE>
Section 13. TERMINATION OF AGREEMENT.
The rights and obligations of a Neff Stockholder under this
Agreement shall terminate at such time as such Neff Stockholder is no longer the
beneficial owner of Equity Securities. This Agreement shall terminate at any
time upon the mutual written agreement of the Mas Stockholders, Santos, Santos
Capital, GE Capital, GECFS and any Persons who become party to this Agreement
pursuant to Section 8(b). If the Equity Ownership of (i) GE Capital and any
Affiliate of GE Capital in the aggregate, or (ii) the Mas Stockholders and any
Affiliate of the Mas Stockholders in the aggregate is equal to or exceeds
ninety-five percent, this Agreement shall be null and void, except for Section 1
(to the extent certain defined terms contained therein are used in any of the
surviving Sections), Section 9, Sections 15 - 18 and Sections 20 - 29, PROVIDED,
HOWEVER, that Section 25 shall terminate on the fifth anniversary after the
termination of this Agreement pursuant to clause (ii) hereof. Subsequent to an
Initial Public Offering of the Company, this Agreement shall be null and void,
except for Section 1 (to the extent certain defined terms contained therein are
used in any of the surviving Sections), Section 2(b) - (f), the second sentence
of the preamble to Section 6, Sections 9 - 18 and Sections 20 - 29.
Section 14. FURTHER ASSURANCES.
At any time or from time to time after the date hereof, the
parties agree to cooperate with each other, and at the request of any other
party, to execute and deliver any further instruments or documents and to take
all such further action as the other party may reasonably request in order to
evidence or effectuate the consummation of the transactions contemplated hereby
and to otherwise carry out the intent of the parties hereunder.
Section 15. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. Each of the parties hereto
hereby irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of New York and of the United States of
America, in each case located in the Borough of Manhattan, in the City of New
York, for any action or proceeding commenced by another party hereto in any
court ("LITIGATION") arising out of or relating to this Agreement and the
transactions contemplated hereby (and agrees not to commence any Litigation
relating thereto except in such courts), and further agrees that service of any
process, summons, notice or document by U.S. registered mail to its respective
address set forth in this Agreement shall be effective service of process for
any Litigation brought against it in any such court. Each of the parties hereto
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any Litigation arising out of this Agreement or the transactions
contemplated hereby in the courts of the State of New York or the United States
of America, in each case located in the Borough of Manhattan, in the City of New
York, and hereby further irrevocably and unconditionally waives and agrees not
to plead or claim in any such court that any such Litigation brought in any such
court has been brought in an inconvenient forum. Each of the parties irrevocably
and unconditionally waives, to the fullest
31
<PAGE>
extent permitted by applicable law, any and all rights to trial by jury in
connection with any Litigation arising out of or relating to this Agreement or
the transactions contemplated hereby.
Section 16. AMENDMENT AND WAIVER.
Except as otherwise provided herein, no modification,
amendment or waiver of any provision of this Agreement shall be effective
against any party hereto unless such modification, amendment or waiver is
approved in writing by all of the parties hereto. The failure of any party to
enforce any of the provisions of this Agreement shall in no way be construed as
a waiver of such provisions and shall not affect the right of such party
thereafter to enforce each and every provision of this Agreement in accordance
with its terms.
Section 17. NO INCONSISTENT AGREEMENTS.
Neither the Company nor any Neff Stockholder shall take any
action or enter into any agreement which is inconsistent with the rights of any
party hereunder or otherwise conflicts with the provisions hereof.
Section 18. TRANSACTIONS WITH AFFILIATES.
(a) All transactions between the Company and any Board
director, any stockholder of the Company or any Affiliate of the foregoing shall
be conducted on terms no less favorable to the Company than might be obtained in
an arm's length transaction from a Person who is not a Board director or any of
the Neff Stockholders or an Affiliate of any of the foregoing.
(b) In the event the Company proposes to merge, consolidate or
otherwise combine with a Person that is an Affiliate of any director, those
directors who are not Affiliated with such Person shall have the right to cause
the Company to select a nationally recognized investment bank for purposes of
valuing the proposal and determining whether the consideration offered to the
Neff Stockholders is fair from a financial point of view.
Section 19. CONFLICT WITH ARTICLES OF INCORPORATION AND/OR BY-LAWS.
The parties hereto intend that in the event of any conflict or
inconsistency between this Agreement and the Certificate of Incorporation or
By-Laws of the Company, the provisions of this Agreement shall control, and
therefore, in the event that any term or provision of this Agreement is rendered
invalid, illegal or unenforceable by such Certificate of Incorporation or
By-Laws, the Neff Stockholders agree to take all action, including voting their
shares of Common Stock, to amend such Certificate of Incorporation or By-Laws
(as the case may be) so as to render such term or provision valid, legal and
enforceable, if and to the extent legally permitted.
Section 20. SEVERABILITY.
32
<PAGE>
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
Section 21. ENTIRE AGREEMENT.
This Agreement and the other writings referred to herein or
delivered pursuant hereto which form a part hereof contain the entire agreement
and understanding among the parties hereto with respect to the subject matter
hereof and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
Section 22. SUCCESSORS AND ASSIGNS.
Except as otherwise provided herein, this Agreement shall bind
and inure to the benefit of and be enforceable by the Company and its successors
and assigns and each Neff Stockholder and their respective successors, assigns,
heirs and personal representatives, so long as they hold Common Stock.
Section 23. REMEDIES.
Each Neff Stockholder shall be entitled to enforce its rights
under this Agreement specifically to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights existing in
their favor, PROVIDED, HOWEVER, that the parties hereto waive and shall not seek
any claim to consequential or punitive or exemplary damages. The parties hereto
agree and acknowledge that money damages may not be an adequate remedy for any
breach of the provisions of this Agreement and that each party may in its sole
discretion apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive relief (without posting a bond or other
security) in order to enforce or prevent any violation of the provisions of this
Agreement.
Section 24. NOTICES.
Any notice provided for in this Agreement shall be in writing
and shall be either personally delivered, or mailed first class mail (postage
prepaid) or sent by reputable overnight courier service (charges prepaid) to the
Company at the address set forth below and to any Neff Stockholder at the
address set forth below, or at such address or to the attention of such other
person as the recipient party has specified by prior written notice to the
sending party. Notices will be deemed to have been given hereunder when
delivered personally, four business days after deposit in the U.S. mail and one
business day after deposit with a reputable overnight courier service. The
Company's, Mr. Fitzgerald's and each Mas Stockholder's address is:
33
<PAGE>
Neff Corp.
3750 N.W. 87th Avenue
Miami, FL 33178
Attention: Kevin P. Fitzgerald
Telecopy: (305) 513-3350
With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue
Washington, DC 20004
Attention: Stephen I. Glover
Telecopy: (202) 639-7003
GE Capital's address is:
General Electric Capital Corporation
777 Long Ridge Road, Building B
First Floor
Stamford, CT 06927
Attention: Kim Tanner
Telecopy: (203) 316-7989
With a copy to:
General Electric Capital Corporation
777 Long Ridge Road, Building B
First Floor
Stamford, CT 06927
Attention: David R. Huet
Telecopy: (203) 703-1777
GECFS' address is:
GECFS, Inc.
c/o General Electric Capital Corporation
777 Long Ridge Road, Building B
First Floor
Stamford, CT 06927
Attention: Kim Tanner
Telecopy: (203) 316-7989
With a copy to:
General Electric Capital Corporation
34
<PAGE>
777 Long Ridge Road, Building B
First Floor
Stamford, CT 06927
Attention: David R. Huet
Telecopy: (203) 703-1777
Santos' and Santos Capital's address is:
3750 N.W. 87th Avenue
Miami, FL 33178
Attention: Kevin P. Fitzgerald
Telecopy: (305) 513-4255
With a copy to:
Baker & McKenzie
701 Brickell Avenue
Miami, FL 33131
Attention: Andrew Hulsh
Telecopy: (305) 789-8953
Section 25. CONFIDENTIALITY OF INFORMATION.
Each of the parties hereto agrees to treat confidentially and
to use all reasonable efforts to cause each of its employees, agents and
representatives to treat confidentially, all information concerning this
Agreement, the Company and other parties hereto (such information, together with
any analyses, compilations, forecasts, studies or other documents that contain
or otherwise reflect such information, being "Confidential Information")
provided to such party or its employees, agents and representatives and shall
not disclose any Confidential Information to any third party without the prior
written consent of the other parties hereto, except as required to be disclosed
by judicial action or other requirements of law or the rules of any applicable
stock exchange or any applicable regulatory authority (and, prior to disclosing
any Confidential Information, such party shall provide the other parties hereto
with prior written notice of any such requirements and shall provide reasonable
cooperation in giving the other parties hereto an opportunity to present
objections to or requests for limitations of such requirements). Notwithstanding
the provisions of the previous sentence: (i) each of the parties hereto shall
have the right to provide Confidential Information to its Subsidiaries, PROVIDED
that prior to the provision of such information, each such Subsidiary agrees to
be bound by the confidentiality provisions contained herein; (ii) each party
hereto shall have the right to disclose Confidential Information to its
employees, agents and representatives for the purpose of enabling or assisting
such party in enforcing its rights or in performing its obligations under this
Agreement; (iii) each party hereto shall have the right to provide Confidential
Information to potential acquirers of its equity interest in the Company,
PROVIDED that prior to the provision of such information, each such potential
acquirer agrees to be bound by the confidentiality provisions contained herein;
and (iv) each party hereto shall have the right to provide Confidential
Information to potential or
35
<PAGE>
existing financing parties, including, but not limited to lenders that are a
party to the Amended and Restated Credit Agreement, dated as of December 31,
1997, by and among the Company, Neff Machinery, Inc., Neff Rental, Inc., the
Lenders party thereto, GE Capital, as Agent and Bankers Trust as Syndication
Agent, PROVIDED that prior to the provision of such information, each such
potential existing financing party agrees to be bound by the confidentiality
provisions contained herein. Confidential Information shall not include
information that (x) is or becomes part of the public domain (other than as a
result of a violation of this Section 19) or (y) was disclosed to a party
hereto, its employees, agents or representatives, or its Affiliates by a third
party that was not bound by any confidentiality agreement with any other party
hereto.
Section 26. DESCRIPTIVE HEADINGS.
The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
Section 27. CONSTRUCTION.
Where specific language is used to clarify by example a
general statement contained herein, such specific language shall not be deemed
to modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party.
Section 28. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties contained in this Agreement
or made in writing by any party in connection herewith shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby regardless of any investigation made by, or on
behalf of, any Neff Stockholder.
Section 29. COUNTERPARTS.
This Agreement may be executed in separate counterparts each
of which shall be an original and all of which taken together shall constitute
one and the same agreement.
36
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders'
Agreement on the day and year first above written.
/S/ JORGE MAS
--------------------------------------------
JORGE MAS
/S/ JUAN CARLOS MAS
--------------------------------------------
JUAN CARLOS MAS
/S/ JOSE RAMON MAS
--------------------------------------------
JOSE RAMON MAS
GENERAL ELECTRIC CAPITAL CORPORATION
By: /S/ KIM A. TANNER
--------------------------------------------
Name: Kim A. Tanner
Title: Operations Manager
GECFS, INC.
By: /S/ KIM A. TANNER
--------------------------------------------
Name: Kim A. Tanner
Title: Operations Manager
/S/ KEVIN P. FITZGERALD
--------------------------------------------
KEVIN P. FITZGERALD
37
<PAGE>
SANTOS FUND I, L.P.
By: Santos Fund, Inc.
its General Partner
By: /S/ ILLEGIBLE
--------------------------------------------
Name:
Title:
SANTOS CAPITAL ADVISORS, INC.
By: /S/ ILLEGIBLE
--------------------------------------------
Name:
Title:
NEFF CORP.
By: /S/ ILLEGIBLE
--------------------------------------------
Name:
Title:
38
<PAGE>
SCHEDULE 12(b)
Authorized, Issued and Outstanding Stock of Neff Corp.:
Authorized Common Stock: 140,000,000 shares
Issued and Outstanding Class A Common Stock:
Jorge Mas: 43,740 shares
Juan Carlos Mas 28,130 shares
Jose Ramon Mas 28,130 shares
Santos Fund I, L.P. 10,632 shares
The Company has filed a registration statement on form S-1 with the Securities
and Exchange Commission with respect to the Class A Common Stock. This
registration statement has not been declared effective yet.
Issued and Outstanding Class B Common Stock:
GECFS, Inc. 60,245 shares
The Class B Common Stock is convertible into Class A Common Stock.
Common Stock Reserved for Issuance to Employees in Connection with Options
Granted to Employees: 6,666 shares
Issued and Outstanding Options to Purchase Common Stock:
Kevin P. Fitzgerald: 3 % of the Common Stock of the Company on a fully
diluted basis (after giving effect to the exercise of all options to purchase
Common Stock and the conversion or exchange of all securities convertible or
exchangeable into Common Stock).
Robert G. Warren: 1,000 shares
The Company has a phantom stock plan, and intends to implement a stock
incentive plan, the terms and conditions of which will be decided by the Board
of Directors. The Company intends to reserve 1,000,000 shares of Class A Common
Stock for issuance in connection with awards made under the stock incentive
plan.
The Company intends to effect an 84.65 to one stock split with respect
to the Class A and the Class B Common Stock.
Authorized Preferred Stock: 20,000,000 shares
Series A Cumulative Preferred: 519,503 shares
39
<PAGE>
The Company intends to establish a class of Preferred Stock titled
"Series B Junior Preferred Stock" and authorize 1,000,000 shares of Preferred
Stock as Series B Junior Preferred Stock.
Issued and Outstanding Cumulative Preferred Stock
General Electric Capital Corporation: 340,907 shares of Series A Cumulative
Preferred
40
EXHIBIT 10.7
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Agreement"), is made as of the __ day of
May, 1996 (the "Grant Date") between Robert G. Warren (the "Optionee") and NEFF
Corp. (the "Company"), a Delaware corporation.
In consideration of the premises, obligations and agreements contained
herein, and for other valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS.
As used herein, the following terms have the following
respective meanings. Capitalized terms not defined in this Section 1 shall have
the meanings assigned to them in the body of this Agreement.
1.1 "Adjusted Fair Market Value" means, in the event of a
Change in Control, the greater of (i) the highest price per Share paid to
holders of the Shares in any transaction (or series of transactions)
constituting or resulting in a Change in Control or (ii) the highest Fair Market
Value of a Share during the ninety (90) day period ending on the date of a
Change in Control.
1.2 "Affiliate" shall mean, with respect to a Person, any
other Person that directly or indirectly controls, is controlled by, or is under
common control with such Person.
1.3 "Board" means the Board of Directors of the Company.
1.4 "Cause" means:
(a) the commission of an act of fraud or intentional
misrepresentation or an act of embezzlement, misappropriation or conversion of
assets or opportunities of the Company;
(b) dishonesty or willful misconduct in the
performance of duties;
(c) involvement in a transaction in connection with
the performance of duties to the Company which transaction is adverse to the
interests of the Company and which is engaged in for personal profit; or
(d) willful violation of any law, rule or regulation
in connection with the performance of duties (other than traffic violations or
similar offenses).
<PAGE>
1.5 A "Change in Control" shall mean the occurrence during the
term of the Option of:
(a) An acquisition of any voting securities of the
Company, (the "Voting Securities") by any "Person" (as the term person is used
for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), immediately after which such Person has
"Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of fifty percent (50%) or more of the combined voting power of the
Company's then outstanding Voting Securities; PROVIDED, HOWEVER, in determining
whether a Change in Control has occurred, Voting Securities which are acquired
in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A "Non-Control Acquisition"
shall mean an acquisition by (i) an employee benefit plan (or a trust forming a
part thereof) maintained by (A) the Company or (B) any corporation or other
Person of which a majority of its voting power or its voting equity securities
or equity interest is owned, directly or indirectly, by the Company (for
purposes of this definition, a "Subsidiary") (ii) the Company or its
Subsidiaries, or (iii) any Person in connection with a "Non-Control Transaction"
(as hereinafter defined);
(b) The individuals who, as of the date hereof are
members of the Board (the "Incumbent Board"), cease for any reason to constitute
at least two-thirds of the members of the Board; provided, HOWEVER, that if the
election, or nomination for election by the Company's common stockholders, of
any new director was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Plan, be considered as a
member of the Incumbent Board; PROVIDED FURTHER, HOWEVER, that no individual
shall be considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election Contest"
(as described in Rule 14a-11 promulgated under the Exchange Act) or other actual
or threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board (a "Proxy Contest") including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy Contest; or
(c) The consummation of:
(i) A merger, consolidation or
reorganization involving the Company, unless such merger, consolidation or
reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall
mean a merger, consolidation or reorganization of the Company where:
(A) the stockholders of the
Company, immediately before such merger, consolidation or reorganization, own
directly or indirectly immediately following such merger, consolidation or
reorganization, more than fifty percent (50%) of the combined voting power of
the outstanding voting securities of the corporation resulting from such merger
or consolidation or reorganization (the
2
<PAGE>
"Surviving Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation or
reorganization,
(B) the individuals who were
members of the Incumbent Board immediately prior to the execution of the
agreement providing for such merger, consolidation or reorganization constitute
at least two-thirds of the members of the board of directors of the Surviving
Corporation, or a corporation beneficially directly or indirectly owning a
majority of the Voting Securities of the Surviving Corporation, and
(C) no Person other than (i) the
Company, (ii) any Subsidiary, (iii) any employee benefit plan (or any trust
forming a part thereof) maintained by the Company, the Surviving Corporation, or
any Subsidiary or (iv) any Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial Ownership of fifty percent (50%)
or more of the then outstanding Voting Securities), has Beneficial Ownership of
fifty percent (50%) or more of the combined voting power of the Surviving
Corporation's then outstanding voting securities.
(ii) A complete liquidation or dissolution
of the Company; or
(iii) An agreement for the sale or other
disposition of all or substantially all of the assets of the Company to any
Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur (x) because the Company engages in an initial public offering of its
Common Stock, and following such offering less than fifty percent (50%) of the
issued and outstanding stock of the Company is Beneficially Owned in the
aggregate by Jorge Mas, Jr., Juan Carlos Mas, Jose Ramon Mas, General Electric
Capital Corporation and Kevin Fitzgerald, or (y) because General Electric
Capital Corporation acquires beneficial ownership of 50% of the then outstanding
stock of the Company, or (z) because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then outstanding
Voting Securities as a result of the acquisition of Voting Securities by the
Company which, by reducing the number of Voting Securities then outstanding,
increases the proportional number of shares Beneficially Owned by the Subject
Persons, provided that if a Change in Control would occur (but for the operation
of this sentence) as a result of the acquisition of Voting Securities by the
Company, and after such share acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional Voting Securities which increases
the percentage of the then outstanding Voting Securities Beneficially Owned by
the Subject Person, then a Change in Control shall occur.
(d) For the purpose of this definition, the "Company"
shall mean any of Neff Corporation, Neff Machinery or Neff Rental; and the
"Common Stock" shall mean the Common Stock of any of Neff Corporation, Neff
Machinery or Neff Rental.
3
<PAGE>
1.6 "Claim" shall mean any action, assessment, cause of
action, charge, claim, counterclaim, defense, demand, expense, fine, interest,
inquiry, investigation, judgment, legal action, litigation, liability (joint or
several), obligation, payment, penalty, proceeding or suit (including any
punitive damages, any reasonable fees and expenses of attorneys, accountants,
other professional advisors and expert witnesses, and any costs of investigation
and preparation) of any kind or nature whatsoever.
1.7 "Code" means the Internal Revenue Code of 1986, as
amended.
1.8 "EBITDA" for a fiscal year shall mean earnings before
interest, taxes, depreciation and amortization for such year, determined in
accordance with generally accepted accounting principles and the accounting
policies of the Company applied in accordance with past practice, on the basis
of information set forth in the Company's audited income statement and cash flow
statement for such fiscal year.
1.9 "Fair Market Value" on any date means the average of the
high and low sales prices of the Shares on such date on the principal national
securities exchange on which such Shares are listed or admitted to trading, or,
if such Shares are not so listed or admitted to trading, the arithmetic mean of
the per Share closing bid price and per Share closing asked price on such date
as quoted on the National Association of Securities Dealers Automated Quotation
System or such other market in which such prices are regularly quoted, or, if
there have been no published bid or asked quotations with respect to Shares on
such date, the Fair Market Value shall be the value established by the Board in
good faith.
1.10 "Neff Machinery" shall mean Neff Machinery, Inc., a
wholly-owned subsidiary of the Company.
1.11 "Neff Rental" shall mean Neff Rental, Inc., a
wholly-owned subsidiary of the Company.
1.12 "Person" shall mean an association, business trust,
corporation, estate, general partnership, governmental entity (or any agency,
department or political subdivision of a governmental entity), individual, joint
stock company, joint venture, limited liability company, limited partnership,
professional association professional corporation, trust or any other
organization or entity.
1.13 "Securities Act" means the Securities Act of 1933, as
amended.
4
<PAGE>
2. GRANT OF OPTION.
2.1 The Company hereby grants to the Optionee the right and
option to purchase all or any part of 1,000 shares of Common Stock, subject to,
and in accordance with, the terms and conditions set forth herein (the
"Option").
2.2 The number and class of shares and the applicable purchase
price subject to the Option may be adjusted as provided in Section 11.
2.3 The Option is not intended to qualify as an Incentive
Stock Option within the meaning of Section 422 of the Code.
3. PURCHASE PRICE.
The purchase price per share at which the Optionee shall be
entitled to purchase shares of Common Stock upon exercise of the Option shall be
expressed as a fraction, the numerator of which is: 5 x EBITDA for the Company's
fiscal year ended December 31, 1995, [5 x $18,446,621] minus long term debt
[$49,536,813] and current debt (which shall not include accounts payable and
accrued expenses) [$11,247,893] plus cash and cash equivalents [$5,329,303].
Thus, the numerator is $36,777,702. The denominator of the fraction is the
number of shares of Common Stock outstanding, subject to adjustments as provided
in Section 11.
4. DURATION OF OPTIONS.
The Option shall be exercisable to the extent and in the
manner provided herein for a period of ten years from the Grant Date; provided
however, that the Option may be terminated earlier as provided in Section 7.
5. EXERCISABILITY OF OPTIONS.
The Option shall be fully vested (100%) and exercisable as of
the Grant Date.
6. MANNER OF EXERCISABILITY AND PAYMENT.
6.1 Subject to the terms and conditions of this Agreement, the
Option may be exercised in whole at any time, or in part, from time to time, by
delivery of written notice to the Company, at its principal executive office.
Such notice shall state the number of shares in respect of which the Option is
being exercised and shall be signed by the Optionee. If requested by the
Company, the Optionee shall (i) deliver this Agreement to the Secretary of the
Company who shall endorse thereon a notation of such exercise and (ii) provide
satisfactory proof as to the right of the Optionee to exercise the Option.
5
<PAGE>
6.2 The notice of exercise described in Section 6.1 hereof
shall be accompanied by the full purchase price for the shares in respect of
which the Option is being exercised, in cash, by check, or by transferring
shares of Common Stock to the Company having a Fair Market Value on the day
preceding the date of exercise equal to the cash amount for which such shares of
Common Stock are substituted or (ii) subject to the consent of the Company,
instructions from the Optionee to the Company directing the Company to deliver a
specified number of shares of Common Stock directly to a designated broker or
dealer pursuant to a cashless exercise election which is made in accordance with
such requirements and procedures as are acceptable to the Company in its sole
discretion and full payment of all applicable Withholding Taxes (as defined in
Section 13) pursuant to Section 13 hereof.
6.3 Upon receipt of notice of exercise and full payment for
the shares in respect of which the Option is being exercised, the Company shall
take such action as may be necessary to effect the transfer to the Optionee of
the number of shares as to which such exercise was effective.
6.4 The Optionee shall not be deemed to be the holder of, or
to have any of the rights of a holder with respect to any shares subject to the
Option until (i) the Option shall have been exercised pursuant to the terms of
this Agreement and the Optionee shall have paid the full purchase price for the
number of shares in respect of which the Option was exercised, (ii) the Company
shall have issued and delivered the shares to the Optionee, and (iii) the
Optionee's name shall have been entered as a stockholder of record on the books
of the Company, whereupon the Optionee shall have full voting and other
ownership rights with respect to such shares.
7. TERMINATION OF EMPLOYMENT.
7.1 In the event the Optionee's employment is terminated
without Cause or for any reason other than Cause, the Optionee may exercise the
Option or portion thereof, at any time before the earlier of the expiration of
the Option or the first anniversary of the termination of his employment, after
which time the Option shall terminate in full.
7.2 In the event the Optionee's employment is terminated for
Cause, the Optionee may exercise the Option or portion thereof, at any time
before the expiration of ninety (90) days from the date of the termination of
his employment, after which time the Option shall terminate in full.
7.3 In the event of the Optionee's death, the Option shall be
exercisable, to the extent provided in this Agreement, by the legatee or
legatees under the Optionee's will, or by the Optionee's personal
representatives or distributees and such person or persons shall be substituted
for the Optionee each time the Optionee is referred to herein.
6
<PAGE>
8. EFFECT OF CHANGE IN CONTROL.
8.1 Notwithstanding anything contained in this Agreement to
the contrary, in the event of a Change in Control, the Optionee will be
permitted to surrender for cancellation within sixty (60) days after such Change
in Control, the Option or any portion of the Option to the extent not yet
exercised and the Optionee shall be entitled to receive immediately a cash
payment in an amount equal to the excess, if any, of (A) the greater of (x) the
Fair Market Value, on the date preceding the date of the surrender, of the
shares subject to the Option or portion of the Option surrendered or (y) the
Adjusted Fair Market Value of the shares subject to the Option or the portion of
the Option surrendered, over (B) the aggregate purchase price for such shares
under the Option; PROVIDED, HOWEVER, that if the Option was granted within six
(6) months prior to the Change in Control and the Optionee may be subject to
liability under Section 16(b) of the Exchange Act, the Optionee shall be
entitled to surrender for cancellation the Option or any portion of the Option
during the sixty (60) day period following the expiration of six (6) months from
the date of grant of the Option and to receive the amount described above with
respect to such surrender for cancellation.
9. NONTRANSFERABILITY.
The Option shall not be transferable other than by will or by
the laws of descent and distribution. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee.
10. NO RIGHT TO CONTINUED EMPLOYMENT.
Nothing in this Agreement or the Plan shall be interpreted or
construed to confer upon the Optionee any right with respect to continuance of
employment by the Company, nor shall this Agreement or the Plan interfere in any
way with the right of the Company to terminate the Optionee's employment at any
time.
11. ADJUSTMENTS.
In the event of any increase or reduction in the number of
shares of Common Stock, or any change (including, but not limited to, a change
in value) in the Common Stock or exchange of Common Stock for a different number
or kind of securities of the Company, by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, spin-off, split-up,
issuance of warrants or rights or debentures, stock dividend, stock split or
reverse stock split, cash dividend, property dividend, combination or exchange
of shares, repurchase of shares, change in corporate structure or otherwise, the
Company shall make appropriate adjustments to the number and class of shares
subject to the Option and the purchase price for such shares.
7
<PAGE>
12. EFFECT OF A MERGER, CONSOLIDATION OR LIQUIDATION.
Subject to Section 8 hereof, upon the effective date of (i)
the liquidation or dissolution of the Company or (ii) a merger or consolidation
of the Company (a "Transaction"), the Options shall continue in effect in
accordance with their terms and the Optionee shall be entitled to receive in
respect of all shares subject to the Option, upon exercise of the Option, the
same number and kind of stock, securities, cash, property or other consideration
that each holder of shares was entitled to receive in the Transaction.
13. WITHHOLDING OF TAXES.
The Company shall have the right to deduct from any
distribution of cash to the Optionee an amount equal to the federal, state and
local income taxes and other amounts as may be required by law to be withheld
(the "Withholding Taxes") with respect to the Option. If the Optionee is
entitled to receive shares upon exercise of the Option, the Optionee shall pay
the Withholding Taxes to the Company in cash prior to the issuance of such
shares. In satisfaction of the Withholding Taxes, the Optionee may, with respect
to the Option, make a written election (the "Tax Election"), which may be
accepted or rejected in the discretion of the Company, to have withheld a
portion of the shares issuable to him or her upon exercise of the Option, having
an aggregate Fair Market Value, on the date preceding the date of such issuance,
equal to the Withholding Taxes, provided that, with respect to an Option for
which the Optionee is subject to liability under Section 16(b) of the Exchange
Act either: (i) (A) the Tax Election is made at least six (6) months prior to
the date the Option is exercised and (B) the Tax Election is irrevocable with
respect to the exercise of the Option if exercised prior to the expiration of
six (6) months following a revocation of the Tax Election or (ii) (A) the
Optionee makes the Tax Election at least six (6) months after the date the
Option is granted, (B) the Option is exercised during the ten-day period
beginning on the third business day and ending on the twelfth business day
following the release for publication of the Company's quarterly or annual
statement of sales and earnings (a "Window Period") and (C) the Tax Election is
made during the Window Period in which the Option is exercised or prior to such
Window Period and subsequent to the immediately preceding Window Period.
14. LOANS TO THE OPTIONEE
14.1 If the Optionee is required to pay federal income tax on
any income realized by the Optionee as a result of the exercise, in whole or in
part, of the Option, the Company shall loan the Optionee an amount of money
equal to the amount of federal income tax owed by the Optionee as a result of
such exercise (an "Exercise Loan"); PROVIDED HOWEVER, that such loan shall be
made only if permitted under, and will not result in a violation of, any then
applicable credit agreement of the Company.
14.2 Interest shall accrue on the outstanding principal
balance of each Exercise Loan and shall be payable with respect to each Exercise
Loan annually on
8
<PAGE>
December 31 of each year. The interest on an Exercise Loan shall equal the
applicable federal interest rate as set forth in Section 1274(d) of the Code at
the time such Exercise Loan is made to the Optionee.
14.3 In the event of the sale by the Optionee of any
percentage of the total number of shares of Common Stock held by the Optionee,
within ten business days of such sale, the Optionee shall repay the same
percentage of all outstanding Exercise Loans; thus, if the Optionee were to sell
50% of the Common Stock held by the Optionee, he would be required to repay 50%
of all outstanding Exercise Loans.
15. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Optionee
that:
15.1 The Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware.
15.2 The Company has the requisite power and authority to
enter into and perform the terms of this Agreement. The execution and delivery
of this Agreement and the consummation of the transactions contemplated thereby
have been duly authorized by the board of directors of the Company and no other
corporate approval or authorization or other action on the part of the Company
is necessary in order to permit the Company to consummate the transactions
contemplated by this Agreement. This Agreement has been duly and validly
executed and delivered by the Company, and constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.
15.3 Shares of the Common Stock, when issued, delivered and
paid for pursuant to this Agreement will be validly issued, fully paid and
non-assessable.
16. REPRESENTATIONS AND WARRANTIES OF THE OPTIONEE.
The Optionee hereby represents and warrants to the Company
that the Optionee is acquiring the Common Stock to be acquired by him pursuant
to the Option for his own account, for investment and not with a view to the
sale or distribution thereof, nor with any present intention to distribute or
sell the Common Stock.
17. RIGHT OF FIRST REFUSAL.
The shares of Common Stock issued upon exercise of the Option
shall not be sold, assigned, transferred, pledged or otherwise disposed of
except in accordance with each of the following requirements:
9
<PAGE>
17.1 Prior to the initial public offering of the Common Stock
of the Company, the shares of Common Stock issued upon exercise of the Option
may be sold, assigned, transferred, pledged or otherwise disposed of only (a) in
the event of the death of the Optionee, by will or the laws of descent or
distribution, to the Optionee's legatee or legatees or to the Optionee's
personal representatives or distributees, or (b) if the Optionee (or legatee,
personal representative or distributee) obtains the prior written consent of the
Company, which consent may be withheld for any reason.
17.2 The Optionee (or legatee, personal representative or
distributee) may sell, assign, transfer, pledge or otherwise dispose of any of
the Common Stock acquired pursuant to the Option only if such shares are
registered under the Securities Act, and any applicable state securities law, or
an exemption from such registration is available, and only if the Company shall
have received a written opinion from counsel acceptable to the Company that the
disposition is in compliance with the requirements of the Securities Act and
applicable state securities law.
17.3 Each certificate representing Common Stock initially
issued upon exercise of the Option, unless at the time of the exercise the
Company has completed an initial public offering of its Common Stock and such
shares are registered under the Securities Act, shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE OFFERED AND
SOLD ONLY IF SO REGISTERED OR IN A MANNER EXEMPT FROM REGISTRATION UNDER SUCH
ACT. IN ADDITION, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS
SET FORTH IN SECTION 17 OF AN OPTION AGREEMENT DATED --------, 1996 BETWEEN THE
COMPANY AND ROBERT G. WARREN. NO TRANSFER OF THESE SECURITIES SHALL BE EFFECTIVE
UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED.
Certificates issued upon the transfer of any such shares of Common Stock shall
also bear this legend, unless the Company shall have waived the requirement of
such legend.
18. NOTICES.
All notices or other communications which may be or are
required to be given, served or sent by a party pursuant to this Agreement shall
be in writing and shall be hand delivered (including delivery by courier),
mailed by first-class, registered or certified mail, return receipt requested,
postage prepaid, or transmitted by telegram, telex or facsimile transmission,
addressed as follows:
If to the Company: Attn: Kevin P. Fitzgerald
4343 NW 76th Ave.
Miami, Florida 33166
10
<PAGE>
If to the Optionee: 10661 Paris Street
Cooper City, Florida 33026
19. MODIFICATION OF AGREEMENT.
This Agreement may be modified, amended, suspended or
terminated, and any terms or conditions may be waived, but only by a written
instrument executed by the parties hereto.
20. SEVERABILITY.
Should any provision of this Agreement be held by a court of
competent jurisdiction to be unenforceable or invalid for any reason, the
remaining provisions of this Agreement shall not be affected by such holding and
shall continue in full force in accordance with their terms.
21. GOVERNING LAW.
The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of Florida without
giving effect to the conflicts of laws principles thereof.
22. SUCCESSORS IN INTEREST.
This Agreement shall inure to the benefit of and be binding
upon any successor to the Company. This Agreement shall inure to the benefit of
the Optionee's legal representatives. All obligations imposed upon the Optionee
and all rights granted to the Company under this Agreement shall be final,
binding and conclusive upon the Optionee's heirs, executors, administrators and
successors.
23. HEADINGS.
Headings contained in this Agreement are inserted for
convenience of reference only, shall not be deemed to be a part of this
Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
24. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
NEFF CORPORATION
-----------------------------
By: Kevin P. Fitzgerald
Title: President
ROBERT G. WARREN
/S/ ROBERT G. WARREN, V.P.
-----------------------------
12
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Neff Corp. on
this Amendment No. 1 to Form S-1 of our report dated March 11, 1998 on the
financial statements of Neff Corp. and subsidiaries as of December 31, 1996 and
1997 and for each of the three years in the period ended December 31, 1997,
appearing in the Prospectus, which is part of this Registration Statement, and
of our report also dated March 11, 1998 relating to the financial statement
schedule appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE, LLP
Miami, Florida
April 24, 1998
----------------
The consolidated financial statements reflect the 84.65 for one stock
split of the Company's outstanding common stock which is to be effected on or
about April 27, 1998. The above consent is in the form which will be furnished
by Deloitte & Touche LLP upon completion of such stock split, which is
described in Note 1 to the consolidated financial statements and assuming that
from March 11, 1998 to the date of such stock split, no other events shall have
occurred that would affect the accompanying consolidated financial statements
and notes thereto.
DELOITTE & TOUCHE, LLP
Miami, Florida
April 24, 1998
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement of
Neff Corp. on Form S-1 of our report dated February 27, 1998 on the financial
statements of Richbourg's Sales & Rentals, Inc. as of December 31, 1996 and
1997 and for each of the three years in the period ended December 31, 1997,
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Selected
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE, LLP
Charlotte, North Carolina
April 24, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
The independent auditors' report of Deloitte & Touche LLP related to the
consolidated financial statements of Neff Corp. for the three years in the
period ended December 31, 1997 has not been issued. Deloitte & Touche LLP has
indicated the form of report which will be furnished upon completion of a Neff
Corp. stock split and so long as no other events shall have occurred that would
affect the Neff Corp. consolidated financial statements. After Deloitte &
Touche issues their report on Neff Corp. we expect to be in a position to
render the following consent so long as no other events shall have occurred
that would affect the Industrial Equipment Rentals, Inc. consolidated financial
statements.
Arthur Andersen LLP
Houston, Texas
April 22, 1998
As independent public accountants, we hereby consent to the use of our
report dated September 18, 1997 on the financial statements of Industrial
Equipment Rentals, Inc. and subsidiary (and to all references to our Firm)
included in or made a part of this Registration Statement No. 333-48077 filed
by Neff Corp.
Houston, Texas
April 22, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated April 22, 1998, relating
to the consolidated financial statements of Sullair Argentina Sociedad Anonima
and its subsidiary, which appears in such Prospectus. We also consent to the
reference to us under the headings "Experts" in such Prospectus.
PRICE WATERHOUSE & CO.
Buenos Aires, Argentina
April 22, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,885
<SECURITIES> 0
<RECEIVABLES> 25,007
<ALLOWANCES> 1,092
<INVENTORY> 6,072
<CURRENT-ASSETS> 0
<PP&E> 208,524<F1>
<DEPRECIATION> 41,077<F1>
<TOTAL-ASSETS> 280,790
<CURRENT-LIABILITIES> 0
<BONDS> 228,523
53,747
0
<COMMON> 85
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 280,790
<SALES> 142,019
<TOTAL-REVENUES> 142,019
<CGS> 98,745
<TOTAL-COSTS> 98,745
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 957
<INTEREST-EXPENSE> 14,338
<INCOME-PRETAX> (8,141)
<INCOME-TAX> (1,748)
<INCOME-CONTINUING> 6,197
<DISCONTINUED> 0
<EXTRAORDINARY> (451)
<CHANGES> 0
<NET-INCOME> (6,844)
<EPS-PRIMARY> (1.74)
<EPS-DILUTED> (1.74)
<FN>
<F1>Includes Rental Equipment
</FN>
</TABLE>
