AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 18, 1998
REGISTRATION STATEMENT NO. 333-48077
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------
NEFF CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<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:
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<S> <C>
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
</TABLE>
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 MAY , 1998
6,700,000 SHARES
[NEFF LOGO]
CLASS A COMMON STOCK
---------------
OF THE 6,700,000 SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY, 5,360,000
SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE
U.S. UNDERWRITERS AND 1,340,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE
THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES 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 $14 AND $16 PER SHARE. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
---------------
THE CLASS A COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "NFF."
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 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.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $700,000.
(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
1,005,000 ADDITIONAL SHARES AT THE PRICE TO PUBLIC LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, 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 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
<TABLE>
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PAGE
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<S> <C>
Prospectus Summary ............................. 4
Risk Factors ................................... 11
Use of Proceeds ................................ 18
Dividend Policy ................................ 18
Capitalization ................................. 19
Dilution ....................................... 20
Unaudited Pro Forma Consolidated
Financial Data .............................. 21
Selected Consolidated Financial Data ........... 26
Management's Discussion and Analysis
of Financial Condition and
Results of Operations ....................... 28
Business ....................................... 35
</TABLE>
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PAGE
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Management ..................................... 45
Principal Stockholders ......................... 53
Certain Relationships and Transactions ......... 54
Description of Certain Indebtedness ............ 55
Description of Capital Stock ................... 56
Shares Eligible for Future Sale ................ 64
Underwriters ................................... 66
Certain United States Tax Considerations for
Non-United States Holders ................... 70
Legal Matters .................................. 73
Experts ........................................ 73
Additional Information ......................... 74
Index to Financial Statements .................. F-1
</TABLE>
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 70 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 70 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 March 31, 1998, the Company
increased its equipment rental locations from eight
4
<PAGE>
to 70 and expanded its rental fleet from $62 million to $346 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 March 31, 1998, the average age of the Company's rental
fleet was approximately 21 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. The Mas family, the majority owner of the Company, is also the
majority owner of MasTec, Inc., a public company engaged in the
telecommunications construction business with operations in South America.
Management believes the Mas family and GE Capital, the Company's other major
stockholder, will be valuable to the Company in identifying and evaluating
acquisitions in both North and South America.
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 25 start-up rental equipment locations including
11 locations in 1997 and four locations in the first quarter of 1998.
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.
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 acquisition, 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 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 15 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 earn-out payments equal to 65% of S.A.
Argentina's net income for 1998 and 1999, with 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; its revenues for the first quarter of
1998 were approximately $13.2 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--Risks Associated with the
Argentina Acquisition," and "Business--Acquisition Strategy."
In addition, 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.
7
<PAGE>
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 principal executive offices are located at 3750 N.W. 87th
Avenue, Miami, Florida, 33178 and its telephone number is (305) 513-3350.
THE OFFERING
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Class A Common Stock Offered by the Company
U.S. Offering ........................... 5,360,000 shares
International Offering .................. 1,340,000 shares
Total .................................. 6,700,000 shares
Common Stock to be outstanding immediately
after the Offering
Class A Common Stock .................... 16,065,350 shares(1)
Class B Common Stock(2) ................. 5,100,000 shares(2)
Total .................................. 21,165,350 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".
New York Stock Exchange Symbol ............ NFF
</TABLE>
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(1) Excludes (i) 240,000 additional shares of Class A Common Stock reserved for
issuance in connection with options granted pursuant to the Company's
Incentive Stock Plan; (ii) 657,220 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,
(688,299 shares if the U.S. Underwriters' over-allotment option is
exercised); 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. See "Management--Options
Grants and Exercises."
(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
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SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
PRO FORMA AS
ADJUSTED(2)
--------------
1993(1) 1994 1995 1996 1997 1997
------------ ------------ ----------- ----------- ------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE AND LOCATION DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ........................ $ 36,659 $ 49,526 $ 67,254 $ 95,013 $ 142,019 $255,633
Gross profit(4) ....................... 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 47,541
Officer stock option
compensation(5) ...................... -- -- -- -- 4,400 4,400
Income from operations ................ 3,857 5,993 6,100 5,410 6,197 21,193
Income (loss) before
extraordinary items(6) ............... 1,663 2,712 1,834 (1,388) (6,393) (4,448)
Income (loss) before
extraordinary items per
common share ......................... ( .21)
Weighted average common shares
outstanding(7) ....................... 21,165
BALANCE SHEET DATA
(END OF PERIOD):
Net book value of rental
equipment ............................ $ 17,846 $ 29,602 $ 45,596 $ 76,794 $ 184,787
Total assets .......................... 29,263 46,851 68,816 109,118 280,790
Total debt ............................ 25,378 37,983 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(8) .................... $ 10,255 $ 15,129 $ 18,763 $ 26,695 $ 37,635 $ 77,592
Adjusted EBITDA margin(9) ............. 28.0% 30.5% 27.9% 28.1% 26.5% 30.4%
Rental equipment purchases ............ $ 21,353 $ 31,185 $ 52,795 $ 86,886 $ 143,999 N/A
Number of rental locations
(end of period) ...................... 5 6 8 16 53 71
<CAPTION>
FIRST QUARTER ENDED
--------------------------------------
PRO FORMA AS
ADJUSTED(3)
-------------
MARCH 25, MARCH 31, MARCH 31,
1997 1998 1998
----------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE AND
LOCATION DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ........................ $ 24,356 $ 62,365 $ 75,564
Gross profit(4) ....................... 6,268 20,081 24,108
Selling, general and administrative
expenses ............................. 3,969 12,025 13,479
Officer stock option
compensation(5) ...................... -- -- --
Income from operations ................ 1,950 6,307 8,748
Income (loss) before
extraordinary items(6) ............... 250 (1,946) (707)
Income (loss) before
extraordinary items per
common share ......................... ( .03)
Weighted average common shares
outstanding(7) ....................... 21,165
BALANCE SHEET DATA
(END OF PERIOD):
Net book value of rental
equipment ............................ $254,403 $273,544
Total assets .......................... 408,276 485,438
Total debt ............................ 345,755 317,251
Redeemable preferred stock ............ 10,950 --
Total common stockholders'
equity (deficit) ..................... 16,113 106,169
OTHER DATA:
Adjusted EBITDA(8) .................... $ 6,742 $ 19,377 $ 23,178
Adjusted EBITDA margin(9) ............. 27.7% 31.1% 30.7%
Rental equipment purchases ............ $ 25,048 $ 47,157 N/A
Number of rental locations
(end of period) ...................... 18 70 73
</TABLE>
(FOOTNOTES ON NEXT PAGE)
9
<PAGE>
- --------------
(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 pro forma as adjusted financial data for the year ended December 31,
1997 are derived from the Company's Unaudited Pro Forma Consolidated
Financial Data for the year ended December 31, 1997 appearing elsewhere in
this Prospectus. The Unaudited Pro Forma Consolidated Financial Data for
the year ended December 31, 1997 were prepared by the Company to
illustrate the estimated effects of the Offering, the Private Debt
Offering (as defined), the Argentina Acquisition, the Buckner Acquisition
and the Richbourg Acquisition as if they had occurred as of January 1,
1997 for purposes of the unaudited pro forma consolidated statements of
operations.
(3) The pro forma as adjusted financial data for the first quarter ended March
31, 1998 are derived from the Company's Unaudited Pro Forma Consolidated
Financial Data for the first quarter ended March 31, 1998 appearing
elsewhere in this Prospectus. The Unaudited Pro Forma Consolidated
Financial Data for the first quarter ended March 31, 1998 were prepared by
the Company to illustrate the estimated effects of the Offering, the
Private Debt Offering and the Argentina Acquisition as if they had
occurred as of January 1, 1998 for purposes of the unaudited pro forma
consolidated statement of operations and as of March 31, 1998 for purposes
of the unaudited pro forma consolidated balance sheet.
(4) 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.
(5) 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 the Option Agreement (as defined).
(6) 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.
(7) Based on the number of shares of Common Stock which will be outstanding
upon completion of the Offering.
(8) 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 generally accepted accounting principles ("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.
(9) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total
revenues.
10
<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.
On May 1, 1998, the Company amended and restated its $250 million
revolving credit facility (the "Senior Credit Facility," and, as amended and
restated, the "New Credit Facility"). The Company's ability to finance future
acquisitions, start-ups and internal growth is limited by the covenants
contained in the New Credit Facility, including a number of covenants that,
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
11
<PAGE>
otherwise restrict corporate activities. The New Credit Facility also contains,
among other covenants, requirements that the Company maintain specified
financial ratios, including minimum cash flow levels and interest coverage. 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 waived this
non-compliance. The Company is in compliance with all of the covenants under
the New Credit Facility.
The Company expects to offer approximately $150 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 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 $317.3 million and would have had approximately $100.1 million of
availability under the New 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, (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.
DEPENDENCE ON EQUIPMENT MANUFACTURERS
The Company sells John Deere, Bomag and Terex Americas construction and
industrial equipment through dealership agreements. The dealership agreements
may be terminated by either party upon 120
12
<PAGE>
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 "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.
In May 1998, the Company and John Deere entered into an agreement
providing that John Deere may terminate the John Deere dealership agreements if
the Mas family, Kevin Fitzgerald, Santos and Santos Capital do not own at least
30% of the equity interests in the Company or if GE Capital attempts to obtain
control of or exercise influence over the Company. To resolve issues with John
Deere relating to the size of GE Capital's equity interest in the Company, GE
Capital and the Company have entered into a standstill agreement dated as of
April 29, 1998 (the "Standstill Agreement") providing that, subject to certain
exceptions, GE Capital and its affiliates will maintain their equity interest
in the Company below 25% during the period ending October 29, 1999, and will
maintain their equity interest below 20% during the period from October 29,
1999 until Neff Machinery is no longer a dealer for John Deere or certain other
conditions are satisfied. Santos has agreed to exercise its option to acquire
Company stock from GE Capital if necessary to reduce GE Capital's equity
ownership to these levels. The Company's operating results could be materially
adversely impacted if the John Deere dealership agreements were terminated for
any reason.
RECENT NET LOSSES
The Company incurred net losses of $2.2 million, $6.8 million and $1.9
million in 1996, 1997 and the first quarter of 1998, 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.
13
<PAGE>
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.
RISKS ASSOCIATED WITH THE ARGENTINA ACQUISITION
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 and incur
additional indebtedness. 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.
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.
In addition, there can be no assurance that the Company will be able to
obtain the financing necessary to consummate the Argentina Acquistion on terms
favorable to the Company or at all.
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
14
<PAGE>
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 46% 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 23% 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, 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 7% of the fully diluted equity of the Company upon completion
of the Offering. As a result, the Mas family, 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. In
accordance with the Standstill Agreement, GE Capital and its Affiliates (as
defined in the Standstill Agreement) must not make any attempt to exercise
control over the Company and all investments in the Company by such entities
must remain solely passive for the duration of such investments. See "Principal
Stockholders" and "Certain Relationships and Transactions--GE Capital, Santos
and Santos Capital."
15
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the consummation of the Offering, the Company will
have outstanding 16,065,350 shares of Class A Common Stock (17,070,350 shares
outstanding if the U.S. Underwriters' over-allotment option is exercised in
full), including 9,365,350 outstanding shares of Class A Common Stock
beneficially owned by existing stockholders. The 6,700,000 shares of Class A
Common Stock to be sold pursuant to the Offering (7,705,000 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 common stockholders 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 April 27, 1998, following the expiration
or waiver of the foregoing restrictions on dispositions and any applicable
holding periods under Rule 144, 9,365,350 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 1,741,870 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 741,870 shares granted to Mr. Fitzgerald and
Mr. Warren and other employees are currently exercisable or will be exercisable
upon completion of the Offering.
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."
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
16
<PAGE>
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. In accordance with the
Standstill Agreement, GE Capital and its affiliates must not make any attempt
to exercise control over the Company and all investments in the Company by such
entities must remain solely passive for the duration of such investments. See
"Management," "Certain Relationships and Transactions--GE Capital, Santos and
Santos Capital" and "Description of Capital Stock--Stockholders' Rights Plan."
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of shares of Class A Common Stock pursuant to the Offering
will experience immediate and substantial dilution of approximately $16.09 in
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, New 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.
17
<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 $92.9 million
assuming an initial public offering price of $15.00 per share ($107.0 million
if the U.S. Underwriters' over-allotment option is exercised in full), after
deducting underwriting discounts and commissions and offering expenses payable
by the Company. The Company intends to use the net proceeds from the Offering
to repay a portion of a loan which the Company incurred to finance the
Richbourg Acquisition (the "Term Loan"); the entire Term Loan, as well as a
portion of the New Credit Facility will be repaid with the net proceeds from
the Offering if the U.S. Underwriters' over-allotment option is exercised in
full. The Term Loan carried interest at LIBOR plus 3.5% for January through
March 1998 and at LIBOR plus 4% for April through June 1998 and matures on
January 31, 1999. The interest rate on the indebtedness under the New Credit
Facility is variable based on the Company's leverage and ranges from Prime rate
or LIBOR plus 1% to Prime plus 1.25% or LIBOR plus 2.25%. The New Credit
Facility terminates on October 31, 1998; however, upon repayment of the Term
Loan, this date will be extended to April 30, 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 New Credit Facility, 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."
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998, (i) on an actual basis, (ii) pro forma for the Argentina
Acquisition and related borrowings under the New Credit Facility and (iii) pro
forma as adjusted to give effect to the Offering assuming an initial public
offering price per share of $15.00 and the Private Debt Offering and the
application of the estimated net proceeds therefrom. 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 MARCH 31, 1998
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- --------------- ------------
Debt (DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Credit facility ....................................................... $ 231,705 $ 259,705 $ 149,899
Term loan ............................................................. 100,000 100,000 --
Notes payable ......................................................... 14,050 31,402(1) 17,352
Senior Subordinated Notes ............................................. -- -- 150,000
--------- ----------- ---------
Total debt ........................................................... 345,755 391,107 317,251
--------- ----------- ---------
Redeemable preferred stock
Series A Cumulative Redeemable Preferred Stock, $.01 par value;
519,503 shares authorized; 340,907 shares issued and outstanding ..... 10,950 10,950 --
--------- ----------- ---------
Total redeemable preferred stock ..................................... 10,950 10,950 --
--------- ----------- ---------
Minority interest ...................................................... -- 14,618 14,618
--------- ----------- ---------
Common stockholders' equity
Class A Common Stock, $.01 par value, 100,000,000 shares authorized;
8,738,350 and 15,438,350 shares issued and outstanding(2) ............ 88 88 154
Class B Common Stock, $.01 par value, liquidation preference $11.67;
20,000,000 shares authorized; 5,727,000 shares issued and outstanding 57 57 57
Additional paid-in capital ............................................ 44,876 44,876 134,866
Accumulated deficit(3) ................................................ (28,908) (28,908) (28,908)
--------- ----------- ---------
Total common stockholders' equity .................................... 16,113 16,113 106,169
--------- ----------- ---------
Total capitalization ................................................ $ 372,818 $ 432,788 $ 438,038
========= =========== =========
</TABLE>
- ---------------
(1) This increase is a result of the consolidation of approximately $17.4
million of debt incurred by S.A. Argentina, however, this debt is solely
the responsibility of S.A. Argentina without recourse to the Company.
(2) Excludes (i) 240,000 additional shares of Class A Common Stock reserved for
issuance in connection with options granted pursuant to the Company's
Incentive Stock Plan; (ii) 657,220 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,
(688,299 shares if the over-allotment option is exercised); (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 and (iv) 627,000 additional shares of Class A Common
Stock which are to be issued upon the anticipated conversion of 627,000
shares of Class B Common Stock into Class A Common Stock prior to the
consummation of the Offering. See "Management--Options Grants and
Exercises."
(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.
19
<PAGE>
DILUTION
As of March 31, 1998, adjusted for the conversion of 627,000 shares of
Class B Common Stock into Class A Common Stock and for the exercise of
additional shares of Class A Common Stock reserved for issuance pursuant to
certain options exercisable upon consummation of the Offering, including (i)
100,000 additional shares of Class A Common Stock reserved for issuance to
Jorge Mas and 100,000 additional shares of Class A Common Stock reserved for
issuance to Kevin P. Fitzgerald in connection with options granted pursuant to
the Company's Incentive Stock Plan for an aggregate purchase price equal to the
initial public offering price set forth on the cover of this Prospectus, (ii)
657,220 additional shares of Class A Common Stock reserved for issuance in
connection with options granted to Mr. Fitzgerald for an aggregate purchase
price of $1.6 million; and (iii) 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, the Company had an
aggregate of 15,407,220 shares of Common Stock outstanding, including
10,307,220 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
and the Class B Common Stock of the Company. After giving effect to the sale of
the Class A Common Stock in the Offering at an assumed initial public offering
price of $15.00 per share and the application of the estimated net proceeds
therefrom, the pro forma net tangible book value as of March 31, 1998 would
have been ($18.5) million or ($1.09) per share. This represents an immediate
increase in net tangible book value of $9.72 per share of Class A Common Stock
to existing stockholders and an immediate dilution in pro forma net tangible
book value of $16.09 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 .................... $ 15.00
Net tangible book value per share before the Offering ............. $ 10.81)
Increase per share attributable to new investors .................. 9.72
--------
Less pro forma net tangible book value per share after the Offering ( 1.09)
--------
Dilution per share to new investors(1) ............................. $ 16.09
========
</TABLE>
- ----------------
(1) Assuming the conversion of the remaining 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 $1.85 and $13.15, respectively.
The following table summarizes, as of March 31, 1998, on a pro forma basis
after giving effect to the Offering, and as adjusted for the conversion of
Class B Common Stock and the exercise of the stock options discussed above, 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 ......... 15,407,220 70% $ 50,121,000 33% $ 3.25
New Investors ................. 6,700,000 30 100,500,000 67 15.00
---------- -- ------------ --
Total ......................... 22,107,220 100% $150,621,000 100%
========== === ============ ===
</TABLE>
The tables above exclude 40,000 additional shares of Class A Common Stock
reserved for issuance in connection with options granted pursuant to the
Company's Incentive Stock Plan which will not be exercisable upon consummation
of the Offering.
20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth the unaudited pro forma consolidated
balance sheet of the Company as of March 31, 1998, adjusted to give effect to
(i) the Argentina Acquisition and the financing of such acquisition; (ii) the
Offering and the application of the estimated net proceeds therefrom; and (iii)
the Private Debt Offering and the application of the estimated net proceeds
therefrom; as if these transactions had occurred as of March 31, 1998. The
second and third tables set forth the unaudited pro forma consolidated
statement of operations of the Company for the year ended December 31, 1997 and
the first quarter ended March 31, 1998, respectively, 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; (iii) the Offering and the application of the estimated net
proceeds therefrom; and (iv) the Private Debt Offering and the application of
the estimated net proceeds therefrom, as if these transactions had occurred on
the beginning of the periods presented. All acquisitions are accounted for
using the purchase method of accounting. 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 future results. 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 SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ARGENTINA ACQUISITION
------------------------------------
HISTORICAL PRO FORMA
COMPANY(A) HISTORICAL(A) ADJUSTMENTS
------------ --------------- --------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ............. $ 2,620 $ 344
Accounts receivable, net .............. 27,792 17,599
Inventories ........................... 14,767 13,832
Rental equipment, net ................. 254,403 19,141
Property and equipment, net ........... 27,738 7,818 $ 29(b)
Goodwill, net ......................... 69,844 -- 12,848 (c)
Intangible assets, net ................ 448 --
Prepaid expenses and other assets ..... 10,664 301
-------- -------
Total assets ........................ $408,276 $59,035
======== =======
LIABILITIES AND COMMON
STOCKHOLDERS' EQUITY
Liabilities
Accounts payable ..................... $ 18,427 $ 9,159
Accrued expenses ..................... 14,885 975 93 (d)
Senior Credit Facility ............... 231,705 -- 28,000 (e)
Term loan payable .................... 100,000 --
Senior subordinated notes ............ -- --
Notes payable ........................ 14,050 17,352
Capitalized lease obligations ........ 2,146 --
Deferred income taxes ................ -- 1,717 (2) (f)
-------- -------
Total liabilities ................... 381,213 29,203
-------- -------
Redeemable preferred stock ............ 10,950 --
-------- -------
Minority interest ..................... -- -- 14,618 (g)
-------- -------
Common stockholders' equity ........... 16,113 29,832 (29,832)(h)
-------- -------
Total liabilities and common
stockholders' equity ............... $408,276 $59,035
======== =======
<CAPTION>
PRIVATE DEBT
OFFERING OFFERING PRO FORMA
ADJUSTMENTS ADJUSTMENTS AS ADJUSTED(B)
--------------------- ------------------- ---------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ............. $ 2,964
Accounts receivable, net .............. 45,391
Inventories ........................... 28,599
Rental equipment, net ................. 273,544
Property and equipment, net ........... 35,585
Goodwill, net ......................... 82,692
Intangible assets, net ................ 448
Prepaid expenses and other assets ..... $ 5,250(j) 16,215
--------
Total assets ........................ $485,438
========
LIABILITIES AND COMMON
STOCKHOLDERS' EQUITY
Liabilities
Accounts payable ..................... $ 27,586
Accrued expenses ..................... 15,953
Senior Credit Facility ............... $ 7,084(i) (116,890)(k) 149,899
Term loan payable .................... (100,000) (i) --
Senior subordinated notes ............ 150,000 (k) 150,000
Notes payable ........................ (14,050)(k) 17,352
Capitalized lease obligations ........ 2,146
Deferred income taxes ................ 1,715
--------
Total liabilities ................... 364,651
--------
Redeemable preferred stock ............ (10,950)(k) --
--------
Minority interest ..................... 14,618
--------
Common stockholders' equity ........... 92,916 (i) (2,860)(k) 106,169
--------
Total liabilities and common
stockholders' equity ............... $485,438
========
</TABLE>
(FOOTNOTES ON NEXT PAGE)
21
<PAGE>
- ---------------
(a) The following table presents the allocation of purchase price for each of
the companies acquired or proposed to be acquired:
<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 15,152,000
Fair Value Adjustments:
Rental Fleet ................ 1,019,000 (4,090,000) --
----------- ------------ -----------
Goodwill ..................... $28,950,000 $ 40,790,000 $12,848,000
=========== ============ ===========
</TABLE>
<TABLE>
<S> <C>
(b) Adjustment for capitalized interest not recorded under Argentine GAAP.
(c) Adjustment reflects the allocation of the Argentina Acquisition purchase price of $28 million to the fair value of
the net assets ac
resulting in an increase of $12.8 million to goodwill. The historical carrying values of net assets acquired
approximate fair value.
(d) Adjustment for vacation accrual not recorded under Argentine GAAP.
(e) Records acquisition consideration funded through the New Credit Facility in connection with the Argentina
Acquisition.
(f) Adjustment for deferred income taxes not recorded under Argentine GAAP.
(g) Records minority interest.
(h) Records elimination of the stockholders' equity related to the Argentina Acquisition.
(i) Records the Offering and the application of the estimated net proceeds therefrom together with the proceeds from
additional borrowin
under the New Credit Facility to repay the Term Loan.
(j) Records deferred financing costs related to the Private Debt Offering.
(k) Records the Private Debt Offering and the application of the estimated net proceeds therefrom to repay the Mortgage,
redeem the
Series A Preferred Stock and reduce borrowings outstanding under the New Credit Facility with remaining proceeds.
</TABLE>
22
<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 59,556
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
Other depreciation and amortization ............ 2,548 855 880 1,372 (c) 5,655
Officer stock option compensation(d) ........... 4,400 -- -- 4,400
-------- ------- ------- ---------
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 (e) 23,601
Amortization of debt issue costs ............... 2,362 21 -- 1,125 (f) 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 (g) 3,804
-------- ------- ------- ---------
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 common share:
Income (loss) before Extraordinary Item ........ $ (2.07)
=========
Weighted average common shares
outstanding .................................... 8,465
=========
<CAPTION>
ARGENTINA ACQUISITION
-----------------------------
PRIVATE DEBT
PRO FORMA OFFERING OFFERING PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
------------ ---------------- ------------------- ---------------- ------------
<S> <C> <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(h) 47,541
Other depreciation and amortization ............ 431 309 (i) 6,395
Officer stock option compensation(d) ........... -- 4,400
-------- --------
Total other operating expenses ................ 5,037 58,336
-------- --------
Income from operations .......................... 8,199 21,193
-------- --------
Other (income) expense
Interest expense ............................... 1,118 2,513 (j) (8,362) (m) 1,177 (n) 20,047
Amortization of debt issue costs ............... -- (600)(o) 2,908
Other (income) expense ......................... 48 168
-------- --------
Total other expense, net ...................... 1,166 23,123
-------- --------
Income (loss) before (provision for)
benefit from income taxes and
extraordinary item ............................. 7,033 (1,930)
(Provision for) benefit from
income taxes ................................... (2,013) 1,070 (k) (3,136) (g) 217 (g) (58)
-------- --------
Income (loss) before extraordinary item and
minority interest .............................. 5,020 (1,988)
Minority interest ............................... -- (2,460)(l) (2,460)
-------- --------
Income (loss) before extraordinary item ......... $ 5,020 $ (4,448)
======== ========
Basic and diluted Earnings
per common share:
Income (loss) before Extraordinary Item ........ $ (.21)
========
Weighted average common shares
outstanding .................................... 21,165
========
</TABLE>
(FOOTNOTES ON PAGE 25)
23
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FIRST QUARTER ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ARGENTINA ACQUISITION
----------------------------
HISTORICAL PRO FORMA
COMPANY HISTORICAL ADJUSTMENTS
------------ ------------ ---------------
<S> <C> <C> <C>
Revenues
Rental revenues ...................................................... $ 29,923 $ 5,751
Equipment sales ...................................................... 23,448 7,448
Parts and service .................................................... 8,994 --
-------- -------
Total revenues ...................................................... 62,365 13,199
-------- -------
Cost of revenues
Cost of equipment sold ............................................... 16,699 5,701
Depreciation of rental equipment ..................................... 11,321 1,228
Maintenance of rental equipment ...................................... 8,268 2,243
Cost of parts and service ............................................ 5,996 --
-------- -------
Total cost of revenues .............................................. 42,284 9,172
-------- -------
Gross profit .......................................................... 20,081 4,027
-------- -------
Other operating expenses(d)
Selling, general and administrative expenses ......................... 12,025 1,148 $ 306(h)
Other depreciation and amortization .................................. 1,749 52 80 (i)
-------- -------
Total other operating expenses ...................................... 13,774 1,200
-------- -------
Income from operations ................................................ 6,307 2,827
-------- -------
Other (income) expense
Interest expense ..................................................... 7,556 316 616 (j)
Amortization of debt issue costs ..................................... 1,865 --
Other income ......................................................... -- (72)
-------- -------
Total other expense, net ............................................ 9,421 244
-------- -------
Income (loss) before (provision for) benefit from income taxes ........ (3,114) 2,583
(Provision for) benefit from income taxes ............................. 1,168 (818) 341 (k)
-------- -------
Income (loss) before minority interest ................................ (1,946) 1,765
Minority interest ..................................................... -- -- (865)(l)
-------- -------
Net income (loss) before extraordinary item ........................... $ (1,946) $ 1,765
======== =======
Basic and diluted earnings per common share
Net income (loss) before extraordinary items per
common share ........................................................
Weighted average common shares outstanding ............................
<CAPTION>
PRIVATE
DEBT
OFFERING OFFERING PRO FORMA
ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
------------------ --------------- -----------------
<S> <C> <C> <C>
Revenues
Rental revenues ...................................................... $ 35,674
Equipment sales ...................................................... 30,896
Parts and service .................................................... 8,994
----------
Total revenues ...................................................... 75,564
----------
Cost of revenues
Cost of equipment sold ............................................... 22,400
Depreciation of rental equipment ..................................... 12,549
Maintenance of rental equipment ...................................... 10,511
Cost of parts and service ............................................ 5,996
----------
Total cost of revenues .............................................. 51,456
----------
Gross profit .......................................................... 24,108
----------
Other operating expenses(d)
Selling, general and administrative expenses ......................... 13,479
Other depreciation and amortization .................................. 1,881
----------
Total other operating expenses ...................................... 15,360
----------
Income from operations ................................................ 8,748
----------
Other (income) expense
Interest expense ..................................................... $ (2,090)(m) $ 294(n) 6,692
Amortization of debt issue costs ..................................... (150)(o) 1,715
Other income ......................................................... (72)
----------
Total other expense, net ............................................ 8,335
----------
Income (loss) before (provision for) benefit from income taxes ........ 413
(Provision for) benefit from income taxes ............................. (1,000)(g) 54 (g) (255)
----------
Income (loss) before minority interest ................................ 158
Minority interest ..................................................... (865)
----------
Net income (loss) before extraordinary item ........................... $ (707)
==========
Basic and diluted earnings per common share
Net income (loss) before extraordinary items per
common share ........................................................ $ (.03)
==========
Weighted average common shares outstanding ............................ 21,165 (p)
==========
</TABLE>
(FOOTNOTES ON NEXT PAGE)
24
<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 Janu
1997.
(c) Records the increase in amortization of goodwill, using an estimated life of 40 years, of $0.4 million and $1.0
million attributable
and Richbourg Acquisitions, respectively.
(d) No effect has been given to the officer stock option compensation expense to be recognized in connection with the
increase in market
the Company resulting from the consummation of the Offering.
(e) Records interest expense related to the portion of the Acquisitions funded through borrowings under the Term Loan and
Senior Credit
using the Company's historical rate of 9.0% per annum and eliminates interest expense related to indebtedness of the
acquired compan
was not assumed by the Company.
(f) Records the amortization of debt issue costs related to the Term Loan.
(g) Adjusts historical income taxes expense to reflect an estimated rate of 38%.
(h) Adjustment for vacation accrual not recorded under Argentine GAAP.
(i) Records the increase in amortization of goodwill, using an estimated life of 40 years, attributable to the Argentina
Acquisition.
(j) Adjustment for capitalized interest not recorded under Argentine GAAP and records interest expense related to the
portion of the Arg
Acquisition funded through borrowings under the Senior Credit Facility, using the Company's historical rate of 9.0%
per annum.
(k) Adjustment for deferred income taxes not recorded under Argentine GAAP and records a provision for income taxes at an
estimated rate
38%.
(l) Records minority interest.
(m) Eliminates interest expense resulting from a reduction of debt outstanding from the use of proceeds of the Offering.
(n) Records interest expense related to the Private Debt Offering at an assumed rate of 8.75%.
(o) Eliminates deferred financing costs that would not have been incurred and records deferred financing costs related to
the Private De
(p) Assumes exchange by GE Capital of the Series B and Series C Cumulative Convertible Preferred Stock for Class B Common
Stock, liquida
value $11.67, as if this transaction had occurred on January 1, 1998.
</TABLE>
25
<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 and the first
quarters ended March 25, 1997 and March 31, 1998. 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 selected consolidated
financial data for the first quarters ended March 25, 1997 and March 31, 1998
is derived from the unaudited consolidated financial statements of the Company,
which, 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
---------- ---------- ---------- --------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues
Rental revenue .................................. $ 10,305 $ 16,226 $ 20,019 $ 35,808 $ 68,056
Equipment sales ................................. 17,207 22,996 33,943 44,160 50,578
Parts and service ............................... 9,147 10,304 13,292 15,045 23,385
-------- -------- -------- ---------- ----------
Total revenues ................................. 36,659 49,526 67,254 95,013 142,019
-------- -------- -------- ---------- ----------
Cost of revenues
Cost of equipment sold .......................... 14,075 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 ................. 260 2,806 3,469 8,092 19,748
Cost of parts and service ....................... 5,991 5,987 7,504 8,143 13,741
-------- -------- -------- ------------ ------------
Total cost of revenues ......................... 26,110 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 expense .................................... 1,175 1,669 3,090 6,337 14,338
-------- -------- -------- ------------ ------------
Income (loss) before (provision for) benefit
from 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 common share (basic and diluted) ............ $ .20 $ .32 $ .22 $ (.56) $ (1.64)
Weighted average common shares outstanding........ 8,465 8,465 8,465 8,465 8,465
<CAPTION>
FIRST QUARTER ENDED
------------------------
MARCH 25, MARCH 31,
1997 1998
----------- ------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues
Rental revenue .................................. $ 8,892 $ 29,923
Equipment sales ................................. 10,505 23,448
Parts and service ............................... 4,959 8,994
------- --------
Total revenues ................................. 24,356 62,365
------- --------
Cost of revenues
Cost of equipment sold .......................... 8,814 16,699
Depreciation of rental equipment ................ 4,443 11,321
Maintenance of rental equipment ................. 1,830 8,268
Cost of parts and service ....................... 3,001 5,996
------- --------
Total cost of revenues ......................... 18,088 42,284
------- --------
Gross profit ..................................... 6,268 20,081
------- --------
Selling, general and administrative expenses ..... 3,969 12,025
Other depreciation and amortization .............. 349 1,749
Officer stock option compensation(2) ............. -- --
------- --------
Income from operations ........................... 1,950 6,307
------- --------
Other expense .................................... 1,550 9,421
------- --------
Income (loss) before (provision for) benefit
from income taxes and extraordinary items ....... 400 (3,114)
(Provision for) benefit from income taxes(3) ..... (150) 1,168
------- --------
Income (loss) before extraordinary items ......... 250 (1,946)
Net income (loss) ................................ $ 250 $ (1,946)
======= ========
Net income (loss) before extraordinary items
per common share (basic and diluted) ............ (.19) (.46)
Weighted average common shares outstanding........ 8,465 8,865
</TABLE>
(FOOTNOTES ON NEXT PAGE)
26
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, FIRST QUARTER ENDED
------------------------------------------------------------- -------------------------
MARCH 25, MARCH 31,
1993 1994 1995 1996 1997 1997 1998
------------ ------------ ----------- ----------- ----------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD)
Net book value of rental equipment ...... $ 17,846 $ 29,602 $ 45,596 $ 76,794 $ 184,787 $ 254,403
Total assets ............................ 29,263 46,851 68,816 109,118 280,790 408,276
Total debt .............................. 25,378 37,983 48,345 58,250 226,203 345,755
Redeemable preferred stock .............. -- -- 11,430 46,299 53,747 10,950
Total common stockholders' equity
(deficit) .............................. 571 4,205 (1,931) (7,508) (24,735) 16,113
OTHER DATA
Adjusted EBITDA(4) ...................... $ 10,255 $ 15,129 $ 18,763 $ 26,695 $ 37,635 $ 6,742 $ 19,377
Adjusted EBITDA margin(5) ............... 28.0% 30.5% 27.9% 28.1% 26.5% 27.7% 31.1%
Rental equipment purchases .............. $ 21,353 $ 31,185 $ 52,795 $ 86,886 $ 143,999 $25,048 $ 47,157
Number of locations (end of period) ..... 5 6 8 16 53 18 70
</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 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.
(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) 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.
(5) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total
revenues.
27
<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 70, as of
March 31, 1998. 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 25 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 March 1, 1995, the Company has opened 25 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 25 start-up locations opened since March 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 demand for such equipment, price and
general economic conditions. The age, quality and mix of the
28
<PAGE>
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). Since January 1, 1996, the Company has 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."
29
<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, FIRST QUARTER ENDED
------------------------------------ ------------------------
MARCH 25, MARCH 31,
1995 1996 1997 1997 1998
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues
Rental revenue .................................. 29.8% 37.7% 47.9% 36.5% 48.0%
Equipment sales ................................. 50.5 46.5 35.6 43.1 37.6
Parts and service ............................... 19.7 15.8 16.5 20.4 14.4
----- ----- ----- ----- -----
Total revenues ................................. 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Cost of revenues
Cost of equipment sold .......................... 39.5 35.4 28.7 36.3 26.7
Depreciation of rental equipment ................ 17.5 20.9 17.2 18.2 18.2
Maintenance of rental equipment ................. 5.2 8.5 13.9 7.5 13.3
Cost of parts and service ....................... 11.1 8.6 9.7 12.3 9.6
----- ----- ----- ----- -----
Total cost of revenues ......................... 73.3 73.4 69.5 74.3 67.8
----- ----- ----- ----- -----
Gross profit ..................................... 26.7 26.6 30.5 25.7 32.2
Selling, general and administrative expenses..... 16.3 19.4 21.2 16.3 19.3
Other depreciation and amortization ............. 1.4 1.5 1.8 1.4 2.8
Officer stock option compensation ............... -- -- 3.1 -- --
----- ----- ----- ----- -----
Income from operations ........................... 9.0% 5.7% 4.4% 8.0% 10.1%
----- ----- ----- ----- -----
</TABLE>
- ----------------
FIRST QUARTER ENDED MARCH 31, 1998 COMPARED TO FIRST QUARTER ENDED MARCH 25,
1997
REVENUES. Total revenues for the quarter ended March 31, 1998 increased
156% to $62.4 million from $24.4 million for the quarter ended March 25, 1997.
This growth in revenues primarily resulted from an increase in revenues of (i)
approximately $7.3 million attributable to the continued maturation of existing
rental locations; (ii) approximately $20.5 million attributable to the Buckner
Acquisition and Richbourg Acquisition which occurred in August 1997 and January
1998, respectively; and (iii) approximately $2.8 million from the opening of 13
new rental locations since April 1, 1997.
GROSS PROFIT. Gross profit for the quarter ended March 31, 1998 increased
220% to $20.1 million or 32.2% of total revenues from $6.3 million or 25.7% of
total revenues for the quarter ended March 25, 1997. This increase is primarily
attributable to an increase in gross profit of (i) approximately $2.0 million
associated with the continued maturation of existing rental locations; (ii)
approximately $8.5 million associated with the growth in revenues arising from
the Acquisitions; and (iii) approximately $0.9 million from the opening of 13
new rental locations since April 1, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the quarter ended March 31, 1998 increased 203% to
$12.0 million or 19.3% of total revenues from $4.0 million or 16.3% of total
revenues for the quarter ended March 25, 1997. The increase in selling, general
and administrative expenses as a percentage of revenues is primarily
attributable to the opening of 13 new rental locations since April 1, 1997 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 revenues are expected to decline.
OTHER DEPRECIATION AND AMORTIZATION. Other depreciation and amortization
expense for the quarter ended March 31, 1998 increased 401% to $1.7 million or
2.8% of total revenues from $0.3
30
<PAGE>
million or 1.4% of total revenues. The increase is primarily attributable to
amortization of goodwill resulting from the Acquisitions and to increased
expenditures on computer equipment, management information systems and property
and equipment needed to support the Company's expansion.
INTEREST EXPENSE. Interest expense for the quarter ended March 31, 1998
increased 454% to $7.6 million or 12.1% of total revenues from $1.4 million or
5.6% of total revenues. The increase is primarily attributable to the Company's
borrowings related to the Acquisitions and to additional borrowings related to
the Company's continued investment in rental equipment.
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 $0.5 million, net of related income taxes.
31
<PAGE>
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.
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 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. For the quarter ended March
31, 1998, net cash flows provided by operating activities amounted to $8.5
million as compared to net cash used in operating activities of $2.0 million
for the quarter ended March 25, 1997. These increases are 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 $173.8 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,
32
<PAGE>
increased expenditures for fleet, computer equipment and other property and
equipment necessary to support the Company's expansion. Net cash used in
investing activities for the quarter ended March 31, 1998 was $125.8 million as
compared to $16.5 million for the quarter ended March 25, 1997. This increase
is primarily attributable to the Richbourg Acquisition.
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 a term loan used to finance the Buckner Acquisition and
capital expenditures supporting the Company's expansion. Net cash provided by
financing activities for the quarter ended March 31, 1998 was $117.1 million as
compared to $17.4 million for the quarter ended March 25, 1997. This increase
is primarily attributable to borrowings under the Term Loan used to finance the
Richbourg Acquisition.
On May 1, 1998, the Company amended and restated its $250 million credit
facility (the "New Credit Facility"). The New Credit Facility allows borrowings
based upon eligible accounts receivable, rental fleet and inventory amounts.
The interest rates on balances outstanding under the New Credit Facility 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 anticipated leverage ratio upon completion of the Offering, the
interest rate would be Prime plus .875% or LIBOR plus 1.875%. The New Credit
Facility terminates on October 31, 1998; however, upon repayment of the Term
Loan, this date will be extended to April 30, 2003. The New Credit Facility is
secured by substantially all of the Company's assets and contains restrictive
covenants which, among other things, place restrictions on indebtedness,
require the Company to maintain certain interest coverage and leverage ratios
and place certain restrictions on the payment of dividends.
The Company plans to use the net proceeds from the Offering to repay a
portion of the Term Loan; the entire Term Loan, as well as a portion of the New
Credit Facility, will be repaid with the net proceeds from the Offering if the
U.S. Underwriters' over-allotment option is exercised in full. As of March 31,
1998, on a pro forma basis after giving effect to the Offering and the Private
Debt Offering and the application of proceeds therefrom, and the Argentina
Acquisition, the Company would have had approximately $100.1 million available
under the New Credit Facility. Based upon current expectations, the Company
believes that cash flow from operations, together with amounts which may be
borrowed under the New Credit Facility will be adequate for it to meet its
capital requirements and pursue its business strategy for the next twelve
months.
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 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
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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.
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<PAGE>
BUSINESS
GENERAL
Neff is one of the largest and fastest growing equipment rental companies
in the United States, with 70 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 70 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 March 31, 1998, the Company
increased its equipment rental locations from eight to 70 and expanded its
rental fleet from $62 million to $346 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 March 31, 1998 the average age of the Company's rental
fleet was approximately 21 months. The Company makes ongoing capital investment
in new equipment, engages in regular sales of new equipment and conducts
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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. The Mas family, the majority owner of the Company, is also the
majority owner of MasTec, Inc., a public company engaged in the
telecommunications construction business with operations in South America.
Management believes the Mas family and GE Capital, the Company's other major
stockholder, 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 25 start-up rental equipment locations including
11 locations in 1997 and four locations in the
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<PAGE>
first quarter of 1998. 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 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.
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.
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 are used to 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 and sells industrial and
construction equipment throughout South America, including Argentina, Brazil,
37
<PAGE>
Uruguay, Paraguay, Chile and Bolivia. S.A. Argentina's revenues for 1997 were
approximately $57.3 million, its revenues for the first quarter of 1998 were
approximately $13.2 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 and incur additional indebtedness.
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--Risks Associated with the Argentina Acquisiton."
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 70 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 on a
pro forma basis for the Richbourg Acquisition:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL RENTAL FLEET
MAJOR EQUIPMENT CATEGORY (BASED ON ORIGINAL COST)
- ------------------------------ ---------------------------------
<S> <C>
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
</TABLE>
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 March 31,
1998, the Company's equipment rental fleet had an original cost of
approximately $346 million and an average age of 21 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
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<PAGE>
preventative maintenance program. This program increases fleet utilization,
extends the useful life of equipment and produces higher resale values.
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
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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 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. Pro forma for the Acquisitions,
during 1997 the Company served over 75,000 customers. Pro forma for the
Acquisitions, the Company's top 10 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
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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.
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
41
<PAGE>
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 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.
In May 1998, the Company and John Deere entered into an agreement
providing that John Deere may terminate the John Deere dealership agreements if
the Mas family, Kevin Fitzgerald, Santos and Santos Capital do not own at least
30% of the equity interests in the Company or if GE Capital attempts to obtain
control of or exercise influence over the Company. To resolve issues with John
Deere relating to the size of GE Capital's equity interest in the Company, GE
Capital and the Company entered into the Standstill Agreement which provides
that, subject to certain exceptions, GE Capital and its affiliates will
maintain their equity interest in the Company below 25% during the period
ending October 29, 1999, and will maintain their equity interest below 20%
during the period from October 29, 1999 until Neff Machinery is no longer a
dealer for John Deere or certain other conditions are satisfied. Santos has
agreed to exercise its option to acquire Company stock from GE Capital if
necessary to reduce GE Capital's equity ownership to these levels.
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
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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 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 April 27, 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 in the Richbourg Acquisition.
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
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<PAGE>
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.
44
<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 May 1, 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 .................... 35 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 ............. 41 Senior Vice President--Neff Machinery
Bonnie S. Biumi .............. 36 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 has
been Chairman of MasTec, Inc. since November 1997. 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 boards 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.
45
<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 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 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 one independent director within 90 days after the
date of this Prospectus and an additional independent director within one year
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,
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<PAGE>
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
March 25, 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
(i) 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; (ii) the director is
dismissed from the Board of Directors for cause, in which case all options will
terminate immediately; (iii) 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 (iv) the director dies, in
which case the director's estate will have one year to exercise vested options.
Jorge Mas, the Chairman of the Board of Directors, will receive an option
to purchase 100,000 shares of Class A Common Stock at the initial public
offering price per share to the public as set forth on the cover of this
Prospectus. These options will be currently exercisable and have a 10 year
term.
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
47
<PAGE>
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."
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 -- 150,000
President and Chief Executive 1996 150,000 $ 75,000 300,000
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.
48
<PAGE>
Pursuant to an option agreement, dated December 1, 1997 between the
Company and Mr. Fitzgerald (the "Option Agreement"), options to purchase shares
of Class A Common Stock representing 3% 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. Upon consummation of the Offering,
Mr. Fitzgerald will receive options to purchase an additional 207,220 shares of
Class A Common Stock (238,299 if the over-allotment option is exercised), in
order to maintain Mr. Fitzgerald's 3% ownership interest in the Company.
Thereafter no further options will be granted to Mr. Fitzgerald pursuant to the
Option Agreement. 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. These options are not intended to qualify as incentive
stock options. In 1998, options to purchase 100,000 shares of Class A Common
Stock at the initial offering price set forth on the front cover of the
Prospectus were granted to Mr. Fitzgerald. These options have a 10 year term.
These options are intended to qualify as incentive stock options. All of Mr.
Fitzgerald's 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.
Pursuant to the Stock Incentive Plan, options to purchase 10,000 shares of
Class A Common Stock will be granted to each of Mr. Gladis and Ms. Biumi and
options to purchase 20,000 shares of Class A Common Stock will be granted to
Mr. Warren, at the initial offering price set forth on the front cover of this
Prospectus. These options will have a ten year term and are intended to qualify
as incentive stock options. These options will vest in equal installments over
three years. The Company intends to issue additional options to purchase shares
of Class A Common Stock under the Stock Incentive Plan to other employees.
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 ............. 450,000 -- $5,146,990 --
Robert G. Warren,
Senior Vice President,
Neff Machinery ............ 84,650 -- $ 767,568 --
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 $15.00, 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.
49
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS
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 improvements 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 greater of
either (i) 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 or (ii) the average closing price of the Class A Common Stock as
quoted on the New York Stock Exchange for the previous 30 trading days, 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.
The following table sets forth awards made in 1997 under the Phantom Stock
Plan to the officers named in the Summary Compensation Table above.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERIOD UNTIL
PHANTOM MATURATION OR
NAME SHARES PAYOUT
- --------------------------------- --------------- ---------------
<S> <C> <C>
Kevin P. Fitzgerald,
Chief Executive Officer
and President ................... -- --
Robert G. Warren,
Senior Vice President,
Neff Machinery .................. -- --
Peter A. Gladis, Phantom Shares
vest in equal
Senior Vice President,
installments
Neff Rental ..................... 25,000(1) over 5 years
Phantom Shares
vest in equal
Bonnie S. Biumi,
installments
Chief Financial Officer ......... 25,000(2) over 3 years
</TABLE>
- ----------------
(1) Phantom Share assigned value as of the date of grant of $9.00.
(2) Phantom Share assigned value as of the date of grant of $10.50.
The Company made an additional grant of 25,000 Phantom Shares to Mr.
Gladis in 1998. These Phantom Shares vest in equal installments over three
years and have an assigned value of $11.50 per Phantom Share as of the date of
grant.
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
50
<PAGE>
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.
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, no individual 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 such Class A 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 Class A 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
51
<PAGE>
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 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; and (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.
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 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.
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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of April 27, 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, (i) each such stockholder has sole voting and investment power with
respect to the shares beneficially owned by such stockholder and (ii) has the
same address as the Company.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
BEFORE THE OFFERING
---------------------------------------------------------------
NUMBER OF NUMBER OF
SHARES OF PERCENT SHARES OF PERCENT
CLASS A OF CLASS B OF
COMMON CLASS COMMON CLASS
STOCK OWNED STOCK OWNED
------------------------ --------- ------------------ ---------
<S> <C> <C> <C> <C>
Jorge Mas .................... 3,802,744(1)(2) 26.1% -- --
Juan Carlos Mas .............. 2,381,303(1) 16.5 -- --
Jose Ramon Mas ............... 2,381,303(1) 16.5 -- --
GE Capital ................... 5,100,000(3) 35.2 5,100,000(3) 100%
Santos ....................... 900,000(4) 6.2 -- --
Santos Capital ............... 1,500,000(5) 10.4 -- --
Kevin P. Fitzgerald .......... 550,000(1)(6) 3.7 -- --
Robert G. Warren ............. 104,650(7) * -- --
Peter A. Gladis .............. 10,000(8) * -- --
Bonnie S. Biumi .............. 10,000(9) * -- --
All executive officers and
directors as a group
(7 persons) ................. 9,240,000 60.6 -- --
<CAPTION>
SHARES BENEFICIALLY OWNED
AFTER THE OFFERING
--------------------------------------------------------------
NUMBER OF NUMBER OF
SHARES OF PERCENT SHARES OF PERCENT
CLASS A OF CLASS B OF
COMMON CLASS COMMON CLASS
STOCK OWNED STOCK OWNED
------------------------ --------- ------------------ --------
<S> <C> <C> <C> <C>
Jorge Mas .................... 3,802,744(1)(2) 17.9% -- --
Juan Carlos Mas .............. 2,381,303(1) 11.3 -- --
Jose Ramon Mas ............... 2,381,303(1) 11.3 -- --
GE Capital ................... 5,100,000(3) 24.1 5,100,000(3) 100%
Santos ....................... 900,000(4) 4.3 -- --
Santos Capital ............... 1,500,000(5) 7.1 -- --
Kevin P. Fitzgerald .......... 757,220(1)(6) 3.5 -- --
Robert G. Warren ............. 104,650(7) * -- --
Peter A. Gladis .............. 10,000(8) * -- --
Bonnie S. Biumi .............. 10,000(9) * -- --
All executive officers and
directors as a group
(7 persons) ................. 9,447,220 42.7 -- --
</TABLE>
- ----------------
* Less than 1%.
(1) Does not include shares beneficially owned through Santos or Santos
Capital.
(2) The amount shown includes shares covered by options the Company intends to
grant to Mr. Mas and which will be immediately exercisable by Mr. Mas.
(3) The amount shown includes shares owned by GECFS, Inc., an affiliate of GE
Capital. All of these shares are convertible into Class A Common Stock.
The amount shown includes 1,500,000 shares of Class B Common Stock subject
to an option held by Santos Capital. Santos Capital 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.
(4) Santos is beneficially owned by Jorge Mas, Juan Carlos Mas, Jose Ramon Mas
and Kevin P. Fitzgerald.
(5) 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.
(6) The amount shown consists of shares covered by options currently
exercisable by Mr. Fitzgerald.
(7) The amount shown consists of 84,650 shares covered by options currently
exercisable by Mr. Warren and 20,000 shares covered by options which the
Company intends to grant to Mr. Warren and which will not be immediately
exercisable upon grant.
(8) The amount shown consists of 10,000 shares covered by options which the
Company intends to grant to Mr. Gladis. These options will not be
immediately exercisable upon grant.
(9) The amount shown consists of 10,000 shares covered by options which the
Company intends to grant to Ms. Biumi. These options will not be
immediately exercisable upon grant.
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<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 million 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.
The Company does not intend to acquire any other assets owned by the Mas
family.
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.
In response to concerns raised by John Deere regarding the size of GE
Capital's equity interest in the Company, GE Capital and the Company have
entered into the Standstill Agreement which provides that, subject to certain
exceptions, GE Capital and its affiliates will maintain their equity interest
in the Company below 25% during the period ending October 29, 1999, and will
maintain their equity interest below 20% during the period from October 29,
1999 until Neff Machinery is no longer a dealer for John Deere or certain other
conditions are satisfied. Santos has agreed to exercise its option to acquire
Company stock from GE Capital if necessary to reduce GE Capital's equity
ownership to these levels. GE Capital has also agreed that it will not seek to
obtain control of or exercise influence over the Company.
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.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITIES
The Company has established the New Credit Facility with a syndicate of
Lenders and Bankers Trust Company, as agent, dated May 1, 1998, 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 New Credit Facility terminates on October 31, 1998;
however, upon repayment of the Term Loan, this date will be extended to April
30, 2003. 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 New Credit Facility allows borrowings 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 1.00% to Prime plus 1.25% or LIBOR plus 2.25%. Based upon the Company's
anticipated leverage ratio upon completion of the Offering, the interest rate
would be Prime plus .875% or LIBOR plus 1.875%. The New Credit Facility is
secured by substantially all of the Company's assets and contains various
restrictive covenants which, among other things, place restrictions on
indebtedness, require the Company to maintain certain interest coverage and
leverage ratios and place certain restrictions on payment of dividends.
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
above 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."
PRIVATE DEBT OFFERING
The Company expects to consummate the Private Debt Offering for estimated
gross proceeds of approximately $150 million, and estimated net proceeds of
$144.75 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 (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.
55
<PAGE>
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 16,065,350 shares of Class A Common Stock, 5,100,000
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,
1,741,870 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
5,100,000 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 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
56
<PAGE>
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 15,122,570 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 New
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.
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
57
<PAGE>
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 1,000,000 shares. The
Series B Junior Preferred is reserved for issuance in connection with the
Stockholder Rights Plan. See "--Stockholder Rights Plan."
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<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 11 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 18,350,000 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,
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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 except for certain transactions by Grandfathered
Stockholders (as defined in the Rights Agreement) including the Mas Family, Mr.
Fitzgerald, Santos, Santos Capital or GE Capital, and certain of their
affiliates) 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
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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 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
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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 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
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redeemed; (ii) a substantial number of Rights being acquired; or (iii) that the
offer will be deemed a "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.
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the consummation of the Offering, the Company will
have outstanding 16,065,350 shares of Class A Common Stock (17,070,350 shares
outstanding if the Underwriters' over-allotment option is exercised in full),
including 9,365,350 outstanding shares of Class A Common Stock beneficially
owned by existing stockholders. In addition, immediately following the
consummation of Offering, the Company will have 5,100,000 shares of Class B
Common Stock outstanding, all of which are convertible into shares of Class A
Common Stock. The 6,700,000 shares of Class A Common Stock to be sold pursuant
to the Offering (7,705,000 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 common stockholders 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 April 27, 1998, following the expiration or waiver of
the foregoing restrictions on dispositions and any applicable holding periods
under Rule 144, 9,365,350 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 1,741,870 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 741,870 shares of
Class A Common Stock are currently exercisable or will be exercisable upon
completion of the Offering.
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
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then outstanding shares of Class A Common Stock (approximately 16,065,350
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.
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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:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAME -----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated ...........................
BT Alex. Brown Incorporated .................................
Donaldson, Lufkin & Jenrette Securities Corporation .........
Subtotal ................................................... 5,360,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited ..................
BT Alex. Brown International, a division of
Bankers Trust International PLC ...........................
Donaldson, Lufkin & Jenrette International ..................
Subtotal ................................................... 1,340,000
---------
Total ..................................................... 6,700,000
=========
</TABLE>
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' over-allotment 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
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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
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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
1,005,000 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 over-allotments, 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.
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 Class A Common Stock has been approved for listing on the New York
Stock Exchange under the symbol "NFF."
The Company and the directors, executive officers and certain other
stockholders of the Company have 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 (i) the
sale of Shares to the Underwriters; (ii) 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 (iii) 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
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the Class A Common Stock for their own account. In addition, to cover
over-allotments 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, acts
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
receive 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 will serve in such
role and will recommend 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.
69
<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 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 graduated rates, but are
70
<PAGE>
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."
71
<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
72
<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), Washington, D.C. 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), New York, New York.
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.
73
<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 Class A Common
Stock has been approved for listing on the New York Stock Exchange under the
symbol "NFF." 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.
74
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
NEFF CORP.
Independent Auditors' Report ......................................................... F-3
Consolidated Balance Sheets as of December 31, 1996 and 1997 ......................... F-4
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1997 .............................................. F-5
Consolidated Statements of Common Stockholders' Deficit
for each of the three years in the period ended December 31, 1997 .................. F-6
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1997 .............................................. F-7
Notes to Consolidated Financial Statements ........................................... F-8
Consolidated Balance Sheets as of December 31, 1997 and March 31, 1998 (unaudited) ... F-23
Consolidated Statements of Operations for the first quarter ended
March 25, 1997 and March 31, 1998 (unaudited) ...................................... F-24
Consolidated Statement of Common Stockholders' Equity (Deficit)
for the first quarter ended March 31, 1998 (unaudited) ............................. F-25
Consolidated Statements of Cash Flows for the first quarter ended
March 25, 1997 and March 31, 1998 (unaudited) ...................................... F-26
Notes to Consolidated Financial Statements (unaudited) ............................... F-27
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
Report of Independent Public Accountants ............................................. F-30
Consolidated Balance Sheets as of July 31, 1996 and 1997 ............................. F-31
Consolidated Statements of Operations for each of the three years
in the period ended July 31, 1997 .................................................. F-32
Consolidated Statements of Stockholders' Equity for each of the three years
in the period ended July 31, 1997 .................................................. F-33
Consolidated Statements of Cash Flows for each of the three years
in the period ended July 31, 1997 .................................................. F-34
Notes to Consolidated Financial Statements ........................................... F-35
RICHBOURG'S SALES AND RENTALS, INC.
Independent Auditors' Report ......................................................... F-46
Balance Sheets as of December 31, 1996 and 1997 ...................................... F-47
Statements of Income for each of the three years
in the period ended December 31, 1997 .............................................. F-48
Statements of Common Stockholders' Equity for each of the three years
in the period ended December 31, 1997 .............................................. F-49
Statements of Cash Flows for each of the three years
in the period ended December 31, 1997 .............................................. F-50
Notes to Financial Statements ........................................................ F-51
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SULLAIR ARGENTINA SOCIEDAD ANONIMA AND ITS SUBSIDIARY
SULLAIR SAN LUIS SOCIEDAD ANONIMA
Report of Independent Accountants .................................................... F-55
Consolidated Balance Sheets as of December 31, 1997 and 1996 ......................... F-56
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995 ................................................... F-57
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995 ................................................... F-58
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 ................................................... F-59
Notes to the Consolidated Financial Statements ....................................... F-60
Consolidated Balance Sheets as of March 31, 1998 (unaudited) ......................... F-78
Consolidated Statements of Income for the three months ended March 31, 1998 and 1997
(unaudited) ........................................................................ F-79
Consolidated Statement of Changes in Shareholders' Equity for the three months ended
March 31, 1998 (unaudited) ......................................................... F-80
Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1997 (unaudited) ................................................ F-81
Notes to Consolidated Financial Statements (unaudited) ............................... F-82
</TABLE>
F-2
<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 third
paragraph of Note 5 and the fourth paragraph
of Note 1 as to which the dates are April 23, 1998
and May , 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 May 18, 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
May 14, 1998
F-3
<PAGE>
NEFF CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents ................................................................ $ 4,989 $ 2,885
Accounts receivable, net of allowance for doubtful accounts of $375 in 1996 and $1,092 in
1997 .................................................................................... 10,313 25,007
Inventories .............................................................................. 7,429 6,072
Rental equipment, net .................................................................... 76,794 184,787
Property and equipment, net .............................................................. 4,304 23,737
Goodwill, net ............................................................................ 667 29,444
Intangible assets, net ................................................................... 200 622
Prepaid expenses and other assets ........................................................ 4,422 8,236
-------- ---------
Total assets .......................................................................... $109,118 $ 280,790
======== =========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities
Accounts payable ........................................................................ $ 7,291 $ 10,871
Accrued expenses ........................................................................ 1,068 11,248
Senior credit facility .................................................................. 58,250 161,825
Term loan payable ....................................................................... -- 49,916
Notes payable ........................................................................... -- 14,462
Capitalized lease obligations ........................................................... 1,454 2,320
Deferred income taxes ................................................................... 2,264 1,136
-------- ---------
Total liabilities ..................................................................... 70,327 251,778
-------- ---------
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
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
-------- ---------
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
Additional paid-in capital .............................................................. -- --
Accumulated deficit ..................................................................... (7,593) (24,820)
-------- ---------
Total common stockholders' deficit .................................................... (7,508) (24,735)
-------- ---------
Total liabilities and common stockholders' equity (deficit) ........................... $109,118 $ 280,790
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<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 expense
Interest expense ................................................ 3,090 6,012 11,976
Amortization of debt issue costs ................................ -- 325 2,362
-------- -------- --------
Total other expense ........................................... 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 common share (pro forma for 1995)
Income (loss) before extraordinary item .......................... $ .22 $ (.56) $ (1.64)
Extraordinary loss, net .......................................... -- (.10) ( .05)
-------- -------- --------
Net income (loss) ................................................ $ .22 $ (.66) $ (1.69)
======== ======== ========
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-5
<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 ......................................................... -- -- -- (2,197) (2,197)
Preferred stock dividend ......................................... -- -- -- (980) (980)
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-6
<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)
Cash paid for acquisitions ....................................... -- -- (63,605)
--------- --------- ----------
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-7
<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.
ACQUISITION
In August 1997, the Company purchased the common stock of Industrial
Equipment Rentals, Inc. ("IER") for approximately $63.6 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-8
<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 $162,906
======== ========
(Loss) income before (provision for) benefit from income taxes and
extraordinary item .............................................. $ (63) $ (8,625)
======== ========
Net (loss) income ................................................ $ (1,895) $ (6,797)
======== ========
Basic and diluted earnings per common share
Basic ........................................................... $ (.62) $ (1.68)
======== ========
Diluted ......................................................... $ (.62) $ (1.68)
======== ========
</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-9
<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-10
<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-11
<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):
<TABLE>
<CAPTION>
1997
---------
<S> <C>
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
======
</TABLE>
F-12
<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-13
<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)
<TABLE>
<S> <C>
1998 ............... $212,077
1999 ............... 312
2000 ............... 274
2001 ............... 140
2002 ............... 2,680
Thereafter ......... 10,720
--------
$226,203
========
</TABLE>
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-14
<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-15
<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:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1995 1996
---------- ------------
<S> <C> <C>
Pro forma net loss (in thousands) ......... $ (189) $ (2,439)
====== ========
Pro forma earnings per share
Basic ................................... $ (.02) $ (.69)
====== ========
Diluted ................................. $ (.02) $ (.69)
====== ========
</TABLE>
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-16
<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):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------
1995 1996 1997
=========== ============ =========
<S> <C> <C> <C>
Current .......... $ -- $ (1,057) $ --
Deferred ......... (2,860) 596 1,748
-------- -------- ------
Total ............ $ (2,860) $ (461) $1,748
======== ======== ======
</TABLE>
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-17
<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-18
<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 .............. -- -- 980 980 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 (5,577) (5,577) (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-19
<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.
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-20
<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):
<TABLE>
<S> <C>
1998 ............... $ 2,400
1999 ............... 2,192
2000 ............... 1,999
2001 ............... 1,549
2002 ............... 957
Thereafter ......... 2,029
-------
$11,126
=======
</TABLE>
NOTE 14--SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------------
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
====== ====== =======
Cash paid for taxes ............................................... $ -- $ -- $ 711
====== ====== =======
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 15 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 $100 million in proceeds from the Public Offering. The Company
intends to use the net proceeds to repay the Richbourg Term Loan.
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
F-21
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--SUBSEQUENT EVENTS--(CONTINUED)
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.
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-22
<PAGE>
NEFF CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents ..................................................... $ 2,885 $ 2,620
Accounts receivable, net of allowance for doubtful accounts of
$1,342 in 1998 and $1,092 in 1997............................................. 25,007 27,792
Inventories ................................................................... 6,072 14,767
Rental equipment, net ......................................................... 184,787 254,403
Property and equipment, net ................................................... 23,737 27,738
Goodwill, net ................................................................. 29,444 69,844
Intangible assets, net ........................................................ 622 448
Prepaid expenses and other assets ............................................. 8,236 10,664
--------- ---------
Total assets ............................................................... 280,790 408,276
========= =========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities
Accounts payable ............................................................. $ 10,871 $ 18,427
Accrued expenses ............................................................. 11,248 14,885
Senior credit facility ....................................................... 161,825 231,705
Term loan payable ............................................................ 49,916 100,000
Notes payable ................................................................ 14,462 14,050
Capitalized lease obligations ................................................ 2,320 2,146
Deferred income taxes ........................................................ 1,136 --
--------- ---------
Total liabilities .......................................................... 251,778 381,213
--------- ---------
Redeemable preferred stock
Series A Cumulative Redeemable Preferred Stock, $.01 par value;
520 shares authorized; 341 shares issued and outstanding ................... 10,649 10,950
Series B Cumulative Convertible Redeemable Preferred Stock,
$.01 par value; 800 shares authorized, issued and outstanding in 1997....... 8,336 --
Series C Cumulative Convertible Redeemable Preferred Stock,
$.01 par value; 800 shares authorized, issued and outstanding in 1997....... 31,562 --
Preferred stock dividend payable--Series B and C ............................. 3,200 --
--------- ---------
Total redeemable preferred stock ........................................... 53,747 10,950
--------- ---------
Commitments and contingencies -- --
Common stockholders' equity (deficit)
Class A Common Stock, $.01 par value; 100,000 shares authorized; 8,465 and
8,738 shares issued and outstanding in 1997 and 1998, respectively ......... 85 88
Class B Special Common Stock, $.01 par value, liquidation preference
$11.67; 20,000 shares authorized; 5,727 shares issued and outstanding....... -- 57
Additional paid-in capital .................................................... -- 44,876
Accumulated deficit ........................................................... (24,820) (28,908)
--------- ---------
Total common stockholders' equity (deficit) ................................. (24,735) 16,113
--------- ---------
Total liabilities and common stockholders' equity (deficit) ................. $ 280,790 $ 408,276
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE>
NEFF CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FIRST QUARTER ENDED
---------------------------
MARCH 25, MARCH 31,
1997 1998
----------- ------------
<S> <C> <C>
Revenues
Rental revenue ........................................................ $ 8,892 $ 29,923
Equipment sales ....................................................... 10,505 23,448
Parts and service ..................................................... 4,959 8,994
------- --------
Total revenues ...................................................... 24,356 62,365
------- --------
Cost of revenues
Cost of equipment sold ................................................ 8,814 16,699
Depreciation of rental equipment ...................................... 4,443 11,321
Maintenance of rental equipment ....................................... 1,830 8,268
Cost of parts and service ............................................. 3,001 5,996
------- --------
Total cost of revenues .............................................. 18,088 42,284
------- --------
Gross profit ........................................................... 6,268 20,081
------- --------
Other operating expenses
Selling, general and administrative expenses .......................... 3,969 12,025
Other depreciation and amortization ................................... 349 1,749
------- --------
Total other operating expenses ...................................... 4,318 13,774
------- --------
Income from operations ................................................. 1,950 6,307
------- --------
Other expense
Interest expense ...................................................... 1,363 7,556
Amortization of debt issue costs ...................................... 187 1,865
------- --------
Total other expense ................................................. 1,550 9,421
------- --------
Income (loss) before (provision for) benefit from income taxes ......... 400 (3,114)
(Provision for) Benefit from income taxes .............................. (150) 1,168
------- --------
Net income (loss) ...................................................... $ 250 $ (1,946)
======= ========
Basic and diluted earnings per common share
Net income (loss) ...................................................... $ (.19) $ (.46)
======= ========
Weighted average common shares outstanding
(basic and diluted) ................................................... 8,465 8,865
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
NEFF CORP.
STATEMENT OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE FIRST QUARTER ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK A COMMON STOCK B ADDITIONAL
----------------- ----------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------- -------- -------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 ............ 8,465 $85 $ (24,820) $ (24,735)
Net loss .............................. (1,946) (1,946)
Preferred stock dividends accrued--
Series B and C ....................... (736) (736)
Accretion of Series A, B and C
Preferred Stock ...................... (1,236) (1,236)
Exchange of Preferred Stock
Series B and C for Class B
Common Stock ......................... 6,000 $60 $44,876 44,936
Conversion of Class B
Common Stock to
Class A Common Stock ................. 273 3 (273) (3) -- -- --
Dividend accrued--Series A
Preferred Stock ...................... (170) (170)
--------- ---------
Balance, March 31, 1998 ............... 8,738 $88 5,727 $57 $44,876 $ (28,908) $ 16,113
===== === ===== ===== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE>
NEFF CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FIRST QUARTER ENDED
---------------------------
MARCH 25, MARCH 31,
1997 1998
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ................................................ $ 250 $ (1,946)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities
Depreciation and amortization .................................. 4,979 14,935
Gain on sale of rental equipment ............................... (1,246) (3,714)
Provision (benefit) for/(from) deferred income taxes ........... 150 (1,168)
Change in operating assets and liabilities
Accounts receivable ............................................ (1,630) 341
Inventories .................................................... (445) (8,275)
Other assets ................................................... (1,202) (1,927)
Accounts payable and accrued expenses .......................... (2,892) 10,263
--------- ----------
Net cash (used in) provided by operating activities ........... (2,036) 8,509
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of rental equipment .................................... (25,048) (47,157)
Proceeds from sale of rental equipment ........................... 10,505 23,448
Purchases of property and equipment .............................. (1,950) (2,118)
Cash paid for acquisitions ....................................... -- (100,000)
--------- ----------
Net cash used in investing activities ......................... (16,493) (125,827)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issue costs ................................................. (124) (2,325)
Net borrowings (repayments) under Senior Credit Facility ......... 17,510 69,880
Repayments under notes payable ................................... -- (412)
Repayments under capitalized lease obligations ................... -- (174)
Borrowings under term loan ....................................... -- 100,000
Repayments under term loan ....................................... -- (49,916)
--------- ----------
Net cash provided by financing activities ..................... 17,386 117,053
--------- ----------
Net decrease in cash and cash equivalents ........................ (1,143) (265)
Cash and cash equivalents, beginning of quarter .................. 4,989 2,885
--------- ----------
Cash and cash equivalents, end of quarter ........................ $ 3,846 $ 2,620
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1997 AND MARCH 31, 1998
(UNAUDITED)
NOTE 1--UNAUDITED INTERIM INFORMATION
The accompanying interim consolidated financial data are unaudited;
however, in the opinion of management, the interim data include all adjustments
necessary for a fair presentation of the results for the interim periods. 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 revenue and expenses during
the reporting period. Actual results could differ from those estimates.
The results of operations for the three months ended March 31, 1998 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1998.
The interim unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for
the year ended December 31, 1997 appearing elsewhere in this Prospectus.
NOTE 2--FISCAL QUARTERS
Effective October 1, 1997, the Company changed to calendar quarters. Prior
to October 1997, the Company's fiscal quarters were based on three four-week
periods.
NOTE 3--CHANGE IN ACCOUNTING POLICIES
During the first quarter of 1998, the Company adopted Statement No. 130
("SFAS 130"), Reporting Comprehensive Income, which establishes 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. The adoption of SFAS 130 had no effect on
the Company's consolidated financial statements for the quarter ended March 31,
1998.
NOTE 4--ACQUISITIONS
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 15 locations in three states. In connection with this acquisition, the
Company amended its Senior Credit Facility and executed a $100 million term
loan (the "Richbourg Term Loan") with terms and requirements similar to the
Company's Senior Credit Facility. This transaction was accounted for under the
purchase method. In connection with this purchase, goodwill of approximately
$40.8 million was recorded.
In March 1998, the Company entered into a letter of intent to acquire 51%
of the outstanding stock of Sullair Argentina Sociedad Anonima ("S.A.
Argentina") 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.
F-27
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 25, 1997 AND MARCH 31, 1998
(UNAUDITED)
NOTE 4--ACQUISITIONS--(CONTINUED)
The following pro forma information has been prepared to reflect the
Industrial Equipment Rentals, Inc. (August 1997) and Richbourg (January 1,
1998) acquisitions as if they were consummated on January 1, 1997, after giving
effect to certain pro forma adjustments described below (in thousands):
<TABLE>
<CAPTION>
MARCH 25, 1997
---------------
<S> <C>
Revenues .................................. $41,159
=======
Net (loss) income ......................... $ 1,117
=======
Basic and diluted earnings per common share
Basic .................................... $ (.13)
=======
Diluted .................................. $ (.13)
=======
</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 5--EARNINGS PER SHARE
The treasury stock method was used to determine the dilutive effect of
options and warrants on earnings per share data. For 1998 and 1997, common
stock equivalents were excluded since the effect would be anti-dilutive.
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>
FIRST QUARTER ENDED
----------------------------------
MARCH 25, 1997 MARCH 31, 1998
---------------- ---------------
<S> <C> <C>
Net income (loss) $ 250 $ (1,946)
Deduct:
Preferred stock dividend .......................... 964 906
Accretion of preferred stock ...................... 898 1,236
-------- --------
Income (loss) per share computations ............... $ (1,612) $ (4,088)
Number of shares:
Weighted average common shares oustanding ......... 8,465 8,865
Add:
Net additional common shares issued(1) ............ -- --
Weighted average common shares used in the
per share computations .......................... 8,465 8,865
======== ========
Net income (loss) per common share ................. $ (.19) $ (.46)
======== ========
</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.
F-28
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 25, 1997 AND MARCH 31, 1998
(UNAUDITED)
NOTE 6--DEBT
On May 1, 1998, the Company amended and restated its $250 million
revolving credit facility (as amended and restated, the "New Credit Facility").
Borrowings under the New Credit Facility are 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%. The New Credit Facility terminates on
October 31, 1998; however, upon repayment of the Richbourg Term Loan, this date
will be extended to April 30, 2003.
NOTE 7--PREFERRED STOCK
Effective March 25, 1998, General Electric Capital Corporation exchanged
their Series B and Series C Cumulative Convertible Redeemable Preferred Stock
for Class B Common Stock, liquidation preference $11.67.
NOTE 8--SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
------------------------
MARCH 25, MARCH 31,
1997 1998
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash paid for interest ........................ $1,224 $6,752
====== ======
Cash paid for taxes ........................... $ 507 $ --
====== ======
</TABLE>
F-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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-38
<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):
<TABLE>
<CAPTION>
1996 1997
---------- ------------
<S> <C> <C>
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
======== =========
</TABLE>
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-39
<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-40
<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-41
<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):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31 OPERATING LEASES
- -------------------- -----------------
<S> <C>
1998 .......... $ 698
1999 .......... 403
2000 .......... 367
2001 .......... 148
2002 .......... 48
------
$1,664
======
</TABLE>
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):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31 CAPITAL LEASE OBLIGATIONS
- --------------------------------------- --------------------------
<S> <C>
1998 ............................. $ 85
1999 ............................. --
2000 ............................. --
2001 ............................. --
2002 ............................. --
-----
85
Less: Interest ..................... (11)
-----
Capital Lease Obligations .......... $ 74
=====
</TABLE>
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-42
<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):
<TABLE>
<CAPTION>
1995 1996 1997
------ --------- -------
<S> <C> <C> <C>
Current
Federal ......... $ -- $ -- $ --
State ........... 8 -- --
---- ------ ----
8 -- --
---- ------ ----
Deferred
Federal ......... 233 (117) 266
State ........... 26 (13) 29
---- ------ ----
259 (130) 296
---- ------ ----
$267 $ (130) $296
==== ====== ====
</TABLE>
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):
<TABLE>
<CAPTION>
1995 1996 1997
------ ---------- -------
<S> <C> <C> <C>
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
==== ====== ====
</TABLE>
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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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 $100.0
million cash. In addition, the purchaser assumed certain liabilities, as
defined in the purchase agreement, which consist principally of accounts
payable and accrued expenses. After the sale, the Company's assets consist of
cash, marketable securities, land, buildings and leasehold improvements. The
Company or other affiliated entities will rent certain real estate to Neff
Corp. under operating lease agreements.
The sale of net assets resulted in a significant gain, which will be
recorded in 1998. Subsequent to receipt of the sale proceeds the Company paid
off the entire balance of borrowings under its revolving loan agreement with
bank (see Note 3).
********
F-54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Sullair Argentina Sociedad Anonima
1. We have audited the accompanying consolidated balance sheets of Sullair
Argentina Sociedad Anonima and its subsidiary Sullair San Luis Sociedad Anonima
as of December 31, 1997 and 1996, and the related consolidated statements of
income and of changes in shareholders' equity and in financial position (cash
flows) for the years ended December 31, 1997, 1996 and 1995, all expressed in
constant Argentine pesos--P$--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.
<TABLE>
<S> <C>
Buenos Aires, Argentina PRICE WATERHOUSE & CO.
March 25, 1998 Daniel A. Lopez Lado (Partner)
</TABLE>
F-55
<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 payables .......................................... 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-56
<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$349,537 (Gain) corresponding to the effect of income
taxes.
The accompanying notes are an integral part of these consolidated
financial statements.
F-57
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(EXPRESSED IN CONSTANT PESOS--P$--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$(1) ......... 86,000 12,723 26,708 31,441,365 31,566,796
====== ====== ====== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c).
The accompanying notes are an integral part of these consolidated
financial statements.
F-58
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(EXPRESSED IN CONSTANT PESOS--P$--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-59
<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-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 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.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, HIGH LOW AVERAGE(1) END OF PERIOD
- ------------------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
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
</TABLE>
- ----------------
(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$").
1.4. CASH AND CASH EQUIVALENTS
In the consolidated statements of cash flows, the Company considers cash
and cash equivalents all its highly liquid investments purchased with an
original maturity at three months or less.
F-61
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 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 and other receivables
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. Accounts and other receivables deemed uncollectible by
management are charged against the allowance for doubtful accounts at the time
of such determination.
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-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 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-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 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-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$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 2--ANALYSIS OF CERTAIN BALANCE SHEETS AND STATEMENTS OF INCOME
ACCOUNTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1997 1996
------------- ------------- -------------
US$(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-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$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 2--ANALYSIS OF CERTAIN BALANCE SHEETS AND STATEMENTS OF INCOME
ACCOUNTS--(CONTINUED)
i) Aging breakdown of balance sheet accounts (amounts expressed in P$)
<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-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$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 3--PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------
AVERAGE
USEFUL ANNUAL ORIGINAL ACCUMULATED NET BOOK NET BOOK
LIVES RATE VALUE DEPRECIATION VALUE VALUE
-------- -------- ------------ -------------- ------------ ------------
YEARS % P$ US$(1)
-------- -------- ------------------------------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Fixed assets
Land ................................ -- -- 2,638,964 -- 2,638,964 2,638,964
Buildings ........................... 50 2 3,740,035 713,284 3,026,751 3,026,751
Fixtures ............................ 50 2 273,077 38,650 234,427 234,427
Vehicles ............................ 5 20 1,917,016 1,308,577 608,439 608,439
Machines and equipment .............. 10 10 1,119,784 771,071 348,713 348,713
Office and equipment ................ 10 10 1,004,644 558,161 446,483 446,483
Other ............................... 4 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 ......... 5 20 17,838,062 8,161,271 9,676,791 9,676,791
Fixed assets investment Petrolera
Argentina San Jorge S.A. ............ 12.5 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$126,498 to "Selling expenses".
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------
AVERAGE
USEFUL ANNUAL ORIGINAL ACCUMULATED NET BOOK
LIVES RATE VALUE DEPRECIATION VALUE
-------- -------- ------------ -------------- ------------
YEARS % P$
-------- -------- -----------------------------
<S> <C> <C> <C> <C> <C>
Fixed assets
Land .................................... -- -- 2,638,964 -- 2,638,964
Buildings ............................... 50 2 3,348,076 638,484 2,709,592
Fixtures ................................ 50 2 265,812 33,189 232,623
Vehicles ................................ 5 20 1,632,683 1,079,824 552,859
Machines and equipment .................. 10 10 962,189 685,937 276,252
Office and equipment .................... 10 10 780,130 481,577 298,553
Other ................................... 4 25 1,212,486 1,010,100 202,386
--------- --------- ---------
Subtotal .................................. 10,840,340 3,929,111 6,911,229
Rental machines and equipment ............. 7 14 12,178,247 4,675,613 7,502,634
Fixed assets investment Petrolera Argentina
San Jorge S.A. .......................... 12.5 8 11,725,018 1,436,022 10,288,996
---------- --------- ----------
Total ..................................... 34,743,605 10,040,746 24,702,859
========== ========== ==========
</TABLE>
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 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
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1997 1996
----------- ----------- --------
US$(1) P$
----------- ----------------------
<S> <C> <C> <C>
Sullair Corporation(2)
Accounts payable ......... 1,109,854 1,109,854 758,958
========= ========= =======
</TABLE>
- ----------------
(1) See Note 1.2.c).
(2) Sullair Argentina Sociedad Anonima and Sullair San Luis Sociedad Anonima
buy Sullair Corporation machines and equipment.
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 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 are currently ruled by 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.
Accordingly, these benefits are accounted for under the accrual basis once
the Company complies with the obligations that produce the benefit. During the
year ended December 31, 1997 Sullair San Luis Sociedad Anonima has used
US$629,000 from the computerized current account, accounted in the consolidated
statement of income under the "Other non-operating income net" line, and
"current other receivable--recoverable taxes" (Note 2.b.).
b) In accordance with Decree No. 2054/92, the companies which were exempt
from payment of VAT on purchases until Decree No. 435/90 was annulled were
granted a tax credit for an amount equivalent to the tax paid to suppliers of
raw material and semi-manufactured products from April 1, 1990 up to November
30, 1992. Decree No. 2054/92 also established the maximum amount of the tax
credit to be recognized which cannot be exceeded. Despite the total amount of
the VAT credit paid during the abovementioned period by Sullair San Luis
Sociedad Anonima amounted to US$ 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. This amount is shown as a receivable (see
Note 2d) and was charged to income in previous years, as the benefits were
accrued.
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$1,721,770.
F-69
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--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-70
<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-71
<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) 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.
j) 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.
F-72
<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$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 11--RECONCILIATION OF NET INCOME (LOSS) AND SHAREHOLDERS' EQUITY TO US
GAAP
The following is a summary of the significant adjustments to net income
and shareholders' equity for the years ended December 31, 1997, 1996 and 1995,
which would be required if US GAAP were applied instead of Argentine GAAP in
the financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1997
----------------------------- -----------------------------
US$(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).
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 --
Fixed assets ............................ 11,686 11,686 11,686 46,870
------ ------ ------ ------
11,686 11,686 20,102 46,870
Deferred tax liabilities
Other receivables ....................... (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).
F-73
<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$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 12--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS--(CONTINUED)
The provision for income taxes computed in accordance with US GAAP differs
from that computed at the statutory tax rate (December 31, 1997 and 1996: 33%;
December 31, 1995: 30%) as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1997 1996 1995
------------- ------------- ------------- -------------
US$(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 --
Fixed assets(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)).
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.
F-74
<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$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 12--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS--(CONTINUED)
Breakdown of amounts paid during the years is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1997 1996
-------- -------- -------
US$(1) P$
-------- ------------------
<S> <C> <C> <C>
Income tax ......... 14,646 14,646 43,820
====== ====== ======
</TABLE>
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).
Main investing activities
Proceeds from investments other than cash equivalents are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1997 1996 1995
-------- --------- --------- --------
US$(1) P$
-------- --------------------------------
<S> <C> <C> <C> <C>
Current investments .......... -- -- 504,387 --
1998 Argentina Bond ......... 33,000 33,000 33,000 --
------ ------ ------- -------
Total ........................ 33,000 33,000 537,387 --
====== ====== ======= =======
</TABLE>
- ----------------
(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.
F-75
<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)
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.
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.
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
F-76
<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 13--IMPACT OF NEW ACCOUNTING STANDARD NOT YET ADOPTED--(CONTINUED)
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.
* * * * * *
F-77
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA AND ITS
SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED BALANCE SHEETS
(Expressed in constant pesos -P$- of August 31, 1995 and in nominal pesos
thereafter--Note 1.2.)
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1998 1998
------------- ------------
US$ (1) P$
------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and banks .......................................... 344,123 344,123
Accounts receivable (Note 2.a)........................... 14,498,228 14,498,228
Other receivables (Note 2.b)............................. 2,442,660 2,442,660
Inventories (Note 2.c)................................... 13,831,892 13,831,892
---------- ----------
Total current assets .................................... 31,116,903 31,116,903
---------- ----------
NON-CURRENT ASSETS
Other receivables (Note 2.d)............................. 657,658 657,658
Long-term investments (Note 2.e)......................... 233,756 233,756
Property and equipment, net (Note 3) .................... 26,959,096 26,959,096
Other ................................................... 67,374 67,374
Total non-current assets ................................ 27,917,884 27,917,884
---------- ----------
Total assets ............................................ 59,034,787 59,034,787
========== ==========
LIABILITIES
CURRENT LIABILITIES
Accounts payable (Note 2.f).............................. 9,157,739 9,157,739
Short-term bank borrowings (Note 2.g).................... 12,899,000 12,899,000
Taxes payables .......................................... 1,716,578 1,716,578
Payroll and social security ............................. 159,339 159,339
Dividends payable........................................ 787,500 787,500
Other ................................................... 28,659 28,659
---------- ----------
Total current liabilities ............................... 24,748,815 24,748,815
---------- ----------
NON-CURRENT LIABILITIES
Long-term bank borrowings (Note 2.h)..................... 4,453,067 4,453,067
---------- ----------
Total non-current liabilities ........................... 4,453,067 4,453,067
---------- ----------
Total liabilities ....................................... 29,201,882 29,201,882
---------- ----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY ............ 758 758
---------- ----------
SHAREHOLDERS' EQUITY (as per related statement) ......... 29,832,147 29,832,147
---------- ----------
Total liabilities and shareholders' equity .............. 59,034,787 59,034,787
========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c)
The accompanying notes are an integral part of these consolidated financial
statements.
F-78
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA AND ITS
SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENTS OF INCOME
for the three-month periods ended March 31, 1998 and 1997
(Expressed in constant pesos -P$- of August 31, 1995 and in nominal pesos
thereafter--Note 1.2.)
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1998 1998 1997
--------------- --------------- ---------------
US$ (1) P$
--------------- ---------------------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net sales, rentals and services (Note 2.j)......................... 13,199,362 13,199,362 11,855,620
Operating costs
Cost of sales, rentals and services (Note 2.k).................... (9,171,586) (9,171,586) (8,720,234)
Administrative expenses .......................................... (397,671) (397,671) (316,800)
Selling expenses ................................................. (728,005) (728,005) (634,734)
Other ............................................................ (75,000) (75,000) (67,271)
---------- ---------- ----------
Operating income .................................................. 2,827,100 2,827,100 2,116,581
Non-operating income (expenses) ...................................
Financial expenses (Note 2.l)...................................... (315,942) (315,942) (350,567)
Other non-operating income, net (Note 7) .......................... 72,126 72,126 52,154
---------- ---------- ----------
Income before taxes and minority interest ......................... 2,583,284 2,583,284 1,818,168
Income tax ........................................................ (817,902) (817,902) (578,800)
---------- ---------- ----------
Income before minority interest ................................... 1,765,382 1,765,382 1,239,368
Minority interest in results of consolidated subsidiaries ......... (31) (31) (38)
---------- ---------- ----------
Net income for the period ......................................... 1,765,351 1,765,351 1,239,330
========== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c)
The accompanying notes are an integral part of these consolidated financial
statements.
F-79
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA AND ITS
SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the three-month period ended March 31, 1998
(Expressed in constant pesos -P$- of August 31, 1995 and in nominal pesos
thereafter--Note 1.2.)
<TABLE>
<CAPTION>
EARNINGS
ADJUSTMENTS ---------------------------------
TO CAPITAL UNAPPROPRIATED TOTAL
CAPITAL STOCK RETAINED SHAREHOLDERS'
STOCK (NOTE 1.5 I) LEGAL RESERVE EARNINGS EQUITY
--------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
At January 1, 1998 ................... 86,000 12,723 26,708 31,441,365 31,566,796
Dividends ............................ -- -- -- (3,500,000) (3,500,000)
Net income for the period ............ -- -- -- 1,765,351 1,765,351
------ ------ ------ ---------- ----------
At March 31, 1998 .................... 86,000 12,723 26,708 29,706,716 29,832,147
====== ====== ====== ========== ==========
At March 31, 1998 in US$ (1) ......... 86,000 12,723 26,708 29,706,716 29,832,147
====== ====== ====== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c)
The accompanying notes are an integral part of these consolidated
financial statements.
F-80
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA AND ITS
SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENT OF CASH FLOWS
for the three-month periods ended March 31, 1998 and 1997
(Expressed in constant pesos -P$- of August 31, 1995 and in nominal pesos
thereafter--Note 1.2.)
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the period............................................ 1,765,351 1,239,330
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation ...................................................... 1,278,168 1,374,746
Allowance for doubtful accounts ................................... 75,000 75,000
Minority interest ................................................. 31 38
Fixed assets disposals ............................................ 181,685 385,231
Taxes on income ................................................... 817,902 578,800
Financial and holding results on assets other than cash or cash
equivalents and on liabilities .................................. 181,394 349,414
Decrease (increase) in assets:
Accounts receivable .............................................. (611,857) (2,477,502)
Other receivables ................................................ (121,443) 1,794,357
Inventories ...................................................... (1,144,253) 946,477
Increase (decrease) in liabilities:
Accounts payable ................................................. (2,580,030) (1,244,816)
Payroll and social security ...................................... (115,656) (94,485)
Other liabilities ................................................ 28,659 5,515
Taxes payable .................................................... (160,527) (268,844)
Advances from customers .......................................... (116,978) (593,339)
---------- ----------
Cash provided by operations ......................................... (522,554) 2,069,922
---------- ----------
CASH FLOWS FROM INVESTMENT ACTIVITIES
Purchases of property and equipment ................................. (1,941,266) (3,766,639)
---------- ----------
Cash used in investment activities .................................. (1,941,266) (3,766,639)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans ............................................ 11,007,769 5,160,668
Repayments of bank loans ............................................ (5,689,308) (3,621,068)
Interest and related cost payments .................................. (103,894) --
Cash dividends ...................................................... (2,712,500) --
---------- ----------
Cash provided by financing activities ............................... 2,502,067 1,539,600
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................... 38,247 (157,117)
Cash and cash equivalents at the beginning of the period............. 305,876 542,989
---------- ----------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD................... 344,123 385,872
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-81
<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
The 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 and 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 the Company
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 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, the Company is required to reflect the
effects of inflation on its financial statements through August 31, 1995, but
is not permitted to do so for the four-month period ended December 31, 1995 or
for subsequent periods. For the three-month period ended March 31, 1998 and
1997, as the change in the WPI since August 31, 1995 has been less than eight
percent, 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
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 conversion 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.
F-82
<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)
The following table shows, for the periods 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.
<TABLE>
<CAPTION>
MARCH 31 HIGH LOW AVERAGE(1) END OF PERIOD
- ---------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
1997 1.0000 1.0000 1.0000 1.0000
1998 1.0000 1.0000 1.0000 1.0000
</TABLE>
- ----------------
(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 March 31, 1998, 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 March 31,
1998. Balances have been translated at the exchange rate at March 31, 1998,
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 ("Ps").
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.
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
period-end exchange rates. Exchange differences have been included in the
determination of the net income.
b) Accounts and other receivables
Receivables 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.
Accounts and other receivables deemed uncollectible by management are charged
against the allowance for doubtful accounts at the time of such determination.
F-83
<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)
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 period-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 period-end exchange rate plus expenses incurred since the date
of origin through each period-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.
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.: see 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.
F-84
<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)
h) Income tax
Income taxes are those estimated to be paid for each period. The income
tax has been estimated by applying the 33% statutory tax rate to taxable income
of the periods ended March 31, 1998 and 1997. 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 the period (see 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
Revenues 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 period
(revenues, direct operating costs and non-operating expenses) have been
restated as from the month when the transaction took place.
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>
MARCH 31,
1998
-------------
<S> <C>
BALANCE SHEETS
CURRENT ASSETS
a) Accounts receivable
Trade receivable ...................................... 12,305,126
Notes receivable ...................................... 1,580,562
Export letters receivable ............................. 959,264
Less: Allowance for doubtful account (Note 4) ......... (346,724)
----------
14,498,228
==========
</TABLE>
F-85
<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>
MARCH 31,
1998
-------------
<S> <C>
CURRENT ASSETS (Contd.)
b) Other receivables
Recoverable taxes ................................................... 1,466,154
Advances to employees ............................................... 130,378
Prepaid expenses .................................................... 290,269
Commissions receivable .............................................. 247,677
Prepaid insurance ................................................... 130,186
Loans to Directors .................................................. --
Others .............................................................. 177,996
Export credit bonds ................................................. --
----------
2,442,660
==========
c) Inventories
Finished goods ...................................................... 7,067,156
Manufactured materials .............................................. 3,544,087
Supplies in transit ................................................. 3,147,505
Advances to suppliers ............................................... 73,144
----------
13,831,892
==========
NON-CURRENT ASSETS
d) Other receivables
Receivables due to the partial suspension of the tax credit ......... 41,396
Credits Decree No. 2054/92--VAT Purchases ........................... 608,604
----------
Subtotal (Note 7) ................................................... 650,000
Other tax credits ................................................... 7,658
----------
657,658
==========
e) Long-term investments
Bahian S.A. ......................................................... 199,756
Argentina Bond ...................................................... 34,000
----------
233,756
==========
CURRENT LIABILITIES
f) Accounts payable
Trade
Suppliers .......................................................... 8,066,565
Related companies .................................................. 1,091,174
----------
9,157,739
==========
</TABLE>
F-86
<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>
MARCH 31,
1998
-------------
<S> <C>
CURRENT LIABILITIES (Contd.)
g) Short-term bank borrowings (Note 5)
Banks
Overdrafts ......................... 877,620
Unsecured notes .................... 12,021,380
----------
12,899,000
==========
NON-CURRENT LIABILITIES
h) Long-term bank borrowings
Banks
Unsecured notes ................... 4,453,067
==========
</TABLE>
i) Aging breakdown of balance sheet accounts
<TABLE>
<CAPTION>
NOT DUE
----------------------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER 2 YEAR TOTAL
ITEMS ------------- ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Accounts receivable ............ 8,843,919 5,219,362 781,671 -- -- 14,844,952
Other receivables .............. 1,016,697 1,192,208 233,755 -- 657,658 3,100,318
--------- --------- ------- -- ------- ----------
Total assets ................... 9,860,616 6,411,570 1,015,426 -- 657,658 17,945,270
========= ========= ========= == ======= ==========
LIABILITIES
Accounts payable ............... 4,304,137 4,853,602 -- -- -- 9,157,739
Notes payable to banks (1) ..... 5,178,608 4,475,467 1,673,373 1,571,552 4,453,067 17,352,067
Social security charges ........ 159,339 -- -- -- -- 159,339
Accrued taxes .................. 307,245 685,333 -- -- 724,000 1,716,578
Other .......................... 816,159 -- -- -- -- 816,159
--------- --------- --------- --------- --------- ----------
Total liabilities .............. 10,765,488 10,014,402 1,673,373 1,571,552 5,177,067 29,201,882
---------- ---------- --------- --------- --------- ----------
</TABLE>
- ----------------
(1) Corresponding to an annual rate of 7.70%
F-87
<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>
THREE-MONTH PERIOD ENDED
MARCH 31,
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
STATEMENTS OF INCOME
j) Net revenues
Sales, rentals and services
Sales ............................. 7,723,831 6,700,158
Rentals and services .............. 5,751,513 5,317,859
Discounts ......................... (275,982) (162,397)
--------- ---------
13,199,362 11,855,620
========== ==========
k) Cost of sales, rentals and services
Sales .............................. (5,761,536) (5,773,951)
Rentals and services ............... (3,410,050) (2,946,283)
---------- ----------
(9,171,586) (8,720,234)
========== ==========
l) Financial expenses
On assets .......................... 99,745 70,141
On liabilities ..................... (415,687) (420,708)
---------- ----------
(315,942) (350,567)
========== ==========
</TABLE>
NOTE 3--PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31, 1998
USEFUL AVERAGE ------------------------------------------------
LIVES ANNUAL RATE ACCUMULATED NET BOOK
YEARS % ORIGINAL VALUE DEPRECIATION VALUE
-------- ------------ ---------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Fixed assets
Land ..................................... -- -- 2,638,964 -- 2,638,964
Buildings ................................ 50 2 4,015,114 772,010 3,243,104
Fixtures ................................. 50 2 864,944 760,177 104,767
Vehicles ................................. 5 20 1,917,017 1,389,556 527,461
Machines and equipment ................... 10 10 1,472,735 1,092,846 379,889
Office and equipment ..................... 10 10 1,034,458 576,491 457,967
Work in progress ......................... 4 25 887,805 -- 887,805
--------- --------- ---------
Subtotal .................................. 12,831,037 4,591,080 8,239,957
Rental, machines and equipment ............ 5 20 18,605,103 8,728,903 9,876,200
Fixed assets investment San Jorge ......... 12.5 8 11,911,362 3,068,423 8,842,939
---------- --------- ---------
Total ..................................... 43,347,502 16,388,406 26,959,096
========== ========== ==========
</TABLE>
F-88
<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$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 4--ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
MARCH 31,
1998
----------
<S> <C>
Balance at the beginning of the period ......... 271,724
Increase ....................................... 75,000
Write off ...................................... --
-------
Balance at the end of the period ............... 346,724
=======
</TABLE>
NOTE 5--SHORT-TERM BANK BORROWINGS
<TABLE>
<CAPTION>
MARCH 31,
1998
---------------
<S> <C>
Credit balance with banks .............. 877,620
Loans .................................. 12,021,380
----------
12,899,000
==========
Weighted average interest rate ......... 12.00%
</TABLE>
NOTE 6--TRANSACTIONS WITH RELATED PARTIES
<TABLE>
<CAPTION>
MARCH 31,
1998
----------
<S> <C>
Sullair Corporation
Accounts payable ......... 2,309,326
=========
</TABLE>
NOTE 7--SUBSTITUTION OF THE INDUSTRIAL PROMOTION REGIME IN SULLAIR SAN LUIS
SOCIEDAD ANONIMA
a) The fiscal benefits obtained by Sullair San Luis Sociedad Anonima under
the industrial promotion regime were substituted as established by Decree No.
2054/92 of the National Government
These benefits are currently ruled by a DGI (tax authorities) computerized
current account which can be applied, up to a maximum per year, to the payment
of tax obligations corresponding to the remaining years of the project
Accordingly, these benefits are accounted for under the accrual basis once
the Company complies with the obligations that produce the benefit. During the
three-month period ended March 31, 1998 Sullair San Luis Sociedad Anonima has
used US$ 72,126 from the computerized current account, accounted in the
consolidated statement of income under the "'Other non-operating income net"
line, and "current--other receivables--recoverable taxes" (Note 2.b.)
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,
F-89
<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$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 7--SUBSTITUTION OF THE INDUSTRIAL PROMOTION REGIME IN SULLAIR SAN LUIS
SOCIEDAD ANONIMA--(CONTINUED)
1990 up to November 30, 1992. Decree No. 2054/92 also established the maximum
amount of the tax credit to be recognized which cannot be exceeded. Despite the
total amount of the VAT credit paid during the abovementioned period by Sullair
San Luis Sociedad Anonima amounted to US$ 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. This amount is shown as a receivable (see
Note 2d) and was charged to income in previous years, as the benefits were
accrued.
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.
NOTE 9--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 three-month periods ended March
31, 1998 and 1997 are reflected in the reconciliations provided in Note 10 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 period
F-90
<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--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA--(CONTINUED)
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.
c) Capitalized interest
Argentine GAAP do not require capitalization of interest on working
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 10.
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 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 10.
F-91
<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--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA--(CONTINUED)
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 10.
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
period-end. Accordingly, the reconciling difference for the item is presented
in the quantitative reconciliation in Note 10.
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
F-92
<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--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA--(CONTINUED)
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) 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 differences between the replacement cost
and the US GAAP cost. As a result, no adjustment has been made in the US GAAP
reconciliation.
NOTE 10--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 three-month periods ended March 31, 1998 and
1997, which would be required if US GAAP had been applied instead of Argentine
GAAP in the financial statements.
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED MARCH 31,
------------------------------------------------------------
1998 1997
----------------------------- ----------------------------
NET SHAREHOLDERS' NET SHAREHOLDERS'
INCOME EQUITY INCOME EQUITY
----------- --------------- ----------- --------------
<S> <C> <C> <C> <C>
AMOUNTS PER ACCOMPANYING FINANCIAL
STATEMENTS ...................... 1,765,351 29,832,147 1,239,330 27,786,208
US GAAP ADJUSTMENTS
Deferred income tax .............. 81,464 2,277 102,538 (51,560)
Vacation accrual ................. 305,823 (93,210) 286,626 (82,669)
Capitalized interest ............. 12,798 28,902 131 8,749
--------- ---------- --------- ----------
AMOUNTS UNDER US GAAP ............ 2,165,436 29,770,116 1,628,625 27,660,728
========= ========== ========= ==========
</TABLE>
F-93
<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 11--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS
a) Income taxes
The Company's deferred income taxes under US GAAP are comprised as
follows:
<TABLE>
<CAPTION>
MARCH 31,
1998
------------
<S> <C>
Deferred tax assets
Other receivables ............................ 27,406
Fixed assets ................................. 2,921
------
30,327
------
Deferred tax liabilities
Inventories .................................. (28,050)
Accrued payable .............................. --
-------
(28,050)
-------
Net deferred tax assets (liabilities) ......... 2,277
=======
</TABLE>
The provision for income taxes computed in accordance with US GAAP differs
from that computed at the statutory tax rate as follows:
<TABLE>
<CAPTION>
MARCH 31,
1998
-------------
<S> <C>
Income tax expense (benefit) at statutory tax rate on pretax income
in accordance with US GAAP ....................................... 957,618
Fixed assets (1) .................................................. (197,420)
Permanent differences (2) ......................................... (23,760)
--------
Income tax expense (benefit) in accordance with US GAAP ........... 736,438
========
</TABLE>
- ----------------
(1) Effects of differing price-level adjustments for tax and financial
statement purposes.
(2) Fiscal benefits obtained by Sullair San Luis Sociedad Anonima (see Note 7).
b) Supplementary cash flow information
Cash and cash equivalents at the end of each period comprises:
<TABLE>
<CAPTION>
MARCH 31,
1998
----------
<S> <C>
Cash and banks .......................... 344,123
-------
Total cash and cash equivalents ......... 344,123
=======
</TABLE>
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 period with the cash flow provided by operating activities.
F-94
<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 11--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS--(CONTINUED)
Breakdown of amounts paid during the periods:
<TABLE>
<CAPTION>
MARCH 31,
1998
----------
<S> <C>
Income tax ......... 92,034
======
</TABLE>
The Company has no cash balances in currency other than U.S. dollars.
Since the exchange rates remained unchanged for the three-month periods ended
March 31, 1998 and 1997, 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 March 31, 1998 and 1997 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 are considered to
approximate their respective carrying values due to their short-term nature.
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.
F-95
<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--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.
In June 1997, Statement No. 131 ("SFAS 131"), "Disclosures about segment
of an Enterprise and Related Information" was issued. SFAS 131 establishes
Standards for the way that public companies disclose select 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 series, 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.
F-96
<PAGE>
[NEFF LOGO]
<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 MAY , 1998
6,700,000 SHARES
[NEFF LOGO]
CLASS A COMMON STOCK
---------------
OF THE 6,700,000 SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY, 1,340,000
SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA
BY THE INTERNATIONAL UNDERWRITERS AND 5,360,000 SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES 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 $14 AND $16 PER SHARE. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
---------------
THE CLASS A COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "NFF."
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 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.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $700,000.
(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
1,005,000 ADDITIONAL SHARES AT THE PRICE TO PUBLIC LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, 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 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.
<TABLE>
<CAPTION>
AMOUNT
--------------
<S> <C>
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 ........................................ $
=============
</TABLE>
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 25, 1998, GE Capital exchanged 800,000 shares of Series B
Preferred Stock and 800,000 shares of Series C Preferred Stock for 6 million
shares of Class B Common Stock, pursuant to the terms of the Securities
Exchange Agreement dated as of March 25, 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 Bankers Trust Company, as Agent, dated as of May 1, 1998.
10.2 John Deere Light Industrial Equipment Dealer Agreement by and between John Deere
Construction Equipment Company and Neff Machinery, Inc., dated May 6, 1998.
10.3 John Deere Light Industrial Equipment Dealer Security Agreement by and between John
Deere Construction Equipment Company and Neff Machinery, Inc., dated May 6, 1998.
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.*
10.9 Standstill Agreement by and among Neff Corp., General Electric Capital Corporation,
GECFS, Inc. and Santos Capital Advisors, Inc.
10.10 Neff Corp. 1998 Incentive Stock Plan.
10.11 Letter Agreement by and among John Deere Construction Equipment Company, Neff Corp.,
Neff Machinery, Inc. and Santos Capital Advisors, Inc., dated April 29, 1998.
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,
II-3
<PAGE>
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.
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 Amendment No. 3 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Miami, State of Florida, on May 18, 1998.
NEFF CORP.
By:
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 May 18, 1998
Jorge Mas
/s/ KEVIN P. FITZGERALD President and Chief Executive Officer May 18, 1998
Kevin P. Fitzgerald (Principal Executive Officer)
/s/ JOSE RAMON MAS Director May 18, 1998
Jose Ramon Mas
/s/ BONNIE S. BIUMI Chief Financial Officer May 18, 1998
Bonnie S. Biumi (Principal Financial Officer and
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, except for the third paragraph of Note 5 and the fourth
paragraph of Note 1 as to which the dates are April 23, 1998 and May , 1998,
respectively, (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
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>
10.1 Amended and Restated Credit Agreement, by and among Neff Corp., Neff
Machinery, Inc. and Neff Rental, Inc., and Bankers Trust Company, as Agent,
dated as of May 1, 1998.
10.2 John Deere Light Industrial Equipment Dealer Agreement by and between
John Deere Construction Equipment Company and Neff Machinery, Inc., dated
May 6, 1998.
10.3 John Deere Light Industrial Equipment Dealer Security Agreement by and
between John Deere Construction Equipment Company and Neff Machinery,
Inc., dated May 6, 1998.
10.9 Standstill Agreement by and among Neff Corp., General Electric Capital
Corporation, GECFS, Inc. and Santos Capital Advisors, Inc.
10.10 Neff Corp. 1998 Incentive Stock Plan.
10.11 Letter Agreement by and among John Deere Construction Equipment
Company, Neff Corp., Neff Machinery, Inc. and Santos Capital Advisors, Inc.,
dated April 29, 1998.
23.1 Consents of Deloitte & Touche LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Price Waterhouse & Co.
</TABLE>
EXHIBIT 10.1
================================================================================
CREDIT AGREEMENT
among
NEFF CORP.,
NEFF RENTAL, INC.,
NEFF MACHINERY, INC.,
VARIOUS LENDERS,
and
BANKERS TRUST COMPANY,
as AGENT
----------------------------------
Dated as of May 1, 1998
----------------------------------
================================================================================
<PAGE>
CREDIT AGREEMENT, dated as of May 1, 1998, among NEFF
CORPORATION, a Delaware corporation (the "Company"), NEFF RENTAL, INC., a
Florida corporation ("Neff Rental"), NEFF MACHINERY, INC., a Florida corporation
("Neff Machinery", and together with the Company and Neff Rental, the
"Borrowers", and each a "Borrower"), the Lenders from time to time party hereto,
and BANKERS TRUST COMPANY, as Agent (all capitalized terms used herein and
defined in Section 11 are used herein as therein defined).
W I T N E S S E T H :
WHEREAS, the Borrowers, certain financial institutions party
thereto, General Electric Capital Corporation, as agent, and Bankers Trust
Company, as syndication agent, are party to an Amended Credit Agreement, dated
as of December 31, 1997 (as further amended, modified or supplemented up to, but
not including, the Restatement Effective Date, the "Existing Credit Agreement");
and
WHEREAS, the Borrowers have requested that the Existing Credit
Agreement be amended and restated in its entirety, and the Lenders and the Agent
are willing to amend and restate the same, upon the terms and conditions set
forth herein;
NOW, THEREFORE, the parties hereto agree that, on the
Restatement Effective Date, the Existing Credit Agreement shall be and is hereby
amended and restated in its entirety as follows:
SECTION 1. AMOUNT AND TERMS OF CREDIT.
1.01 THE COMMITMENTS. (a) Subject to and upon the terms and
conditions set forth herein, each Lender severally agrees to make, at any time
and from time to time on and after the Restatement Effective Date and prior to
the Final Maturity Date, a revolving loan or revolving loans (each a "Revolving
Loan" and, collectively, the "Revolving Loans") to the respective Borrowers,
which Revolving Loans (i) shall, at the option of the respective Borrower, be
incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar
Loans, PROVIDED that, except as otherwise specifically provided in Section
1.10(b), all Revolving Loans comprising the same Borrowing shall at all times be
of the same Type, (ii) may be repaid and reborrowed in accordance with the
provisions hereof, (iii) shall not exceed for any Lender at any time outstanding
that aggregate principal amount which, when added to the product of (x) such
Lender's Percentage and (y) the sum of (I) the aggregate amount of all Letter of
Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the
proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) at such time and (II) the aggregate principal
amount of all Swingline Loans (exclusive of Swingline Loans which are repaid
with the proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) then outstanding, equals the Commitment of such
Lender at such time and (iv) shall not exceed for all Lenders at any time
outstanding that aggregate principal amount which, when added to the sum of (I)
the aggregate amount of all Letter of Credit Outstandings (exclusive of Unpaid
Drawings which are repaid with the proceeds of, and simultaneously with the
incurrence of, the respective incurrence of Revolving Loans) at such time and
(II) the aggregate principal amount of all Swingline Loans (exclusive of
Swingline Loans which are repaid with the proceeds
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of, and simultaneously with the incurrence of, the respective incurrence of
Revolving Loans) then outstanding, equals the lesser of (x) the Borrowing Base
at such time (based on the Borrowing Base Certificate last delivered) and (y)
the Total Commitment at such time.
(b) Subject to and upon the terms and conditions set forth
herein, the Swingline Lender agrees to make, at any time and from time to time
on and after the Restatement Effective Date and prior to the Swingline Expiry
Date, a revolving loan or revolving loans (each a "Swingline Loan" and,
collectively, the "Swingline Loans") to the respective Borrowers, which
Swingline Loans (i) shall be made and maintained as Base Rate Loans, (ii) may be
repaid and reborrowed in accordance with the provisions hereof, (iii) shall not
exceed in aggregate principal amount at any time outstanding, when combined with
the sum of (I) the aggregate principal amount of all Revolving Loans then
outstanding and (II) the aggregate amount of all Letter of Credit Outstandings
at such time, an amount equal to the lesser of (A) the Borrowing Base at such
time (based on the Borrowing Base Certificate last delivered) and (B) the Total
Commitment at such time, and (iv) shall not exceed in aggregate principal amount
at any time outstanding the Maximum Swingline Amount. Notwithstanding anything
to the contrary contained in this Section 1.01(b), (x) the Swingline Lender
shall not be obligated to make any Swingline Loans at a time when a Lender
Default exists unless the Swingline Lender has entered into arrangements
satisfactory to it and the Company to eliminate the Swingline Lender's risk with
respect to the Defaulting Lender's or Lenders' participation in such Swingline
Loans, including by cash collateralizing such Defaulting Lender's or Lenders'
Percentage of the outstanding Swingline Loans and (y) the Swingline Lender shall
not make any Swingline Loan after it has received written notice from any
Borrower or the Required Lenders stating that a Default or an Event of Default
exists and is continuing until such time as the Swingline Lender shall have
received written notice (I) of rescission of all such notices from the party or
parties originally delivering such notice or (II) of the waiver of such Default
or Event of Default by the Required Lenders.
(c) On any Business Day, the Swingline Lender may, in its sole
discretion, give notice to the Lenders that the Swingline Lender's outstanding
Swingline Loans shall be funded with one or more Borrowings of Revolving Loans
(PROVIDED that such notice shall be deemed to have been automatically given upon
the occurrence of a Default or an Event of Default under Section 10.05 or upon
the exercise of any of the remedies provided in the last paragraph of Section
10), in which case one or more Borrowings of Revolving Loans constituting Base
Rate Loans (each such Borrowing, a "Mandatory Borrowing") shall be made on the
immediately succeeding Business Day by all Lenders PRO RATA based on each
Lender's Percentage (determined before giving effect to any termination of the
Commitments pursuant to the last paragraph of Section 10) and the proceeds
thereof shall be applied directly by the Swingline Lender to repay the Swingline
Lender for such outstanding Swingline Loans. Each Lender hereby irrevocably
agrees to make Revolving Loans upon one Business Day's notice pursuant to each
Mandatory Borrowing in the amount and in the manner specified in the preceding
sentence and on the date specified in writing by the Swingline Lender
notwithstanding (i) the amount of the Mandatory Borrowing may not comply with
the Minimum Borrowing Amount otherwise required hereunder, (ii) whether any
conditions specified in Section 6 are then satisfied, (iii) whether a Default or
an Event of Default then exists, (iv) the date of such Mandatory Borrowing and
(v) the amount of the Borrowing Base or the Total Commitment at such time. In
the event that any Mandatory Borrowing cannot for any reason be made on the date
otherwise required above (including, without limitation, as a result of the
commencement of a proceeding under the Bankruptcy Code with respect to any
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Borrower), then each Lender hereby agrees that it shall forthwith purchase (as
of the date the Mandatory Borrowing would otherwise have occurred, but adjusted
for any payments received from the respective Borrower on or after such date and
prior to such purchase) from the Swingline Lender such participations in the
outstanding Swingline Loans as shall be necessary to cause the Lenders to share
in such Swingline Loans ratably based upon their respective Percentages
(determined before giving effect to any termination of the Commitments pursuant
to the last paragraph of Section 10), PROVIDED that (x) all interest payable on
the Swingline Loans shall be for the account of the Swingline Lender until the
date as of which the respective participation is required to be purchased and,
to the extent attributable to the purchased participation, shall be payable to
the participant from and after such date and (y) at the time any purchase of
participations pursuant to this sentence is actually made, the purchasing Lender
shall be required to pay the Swingline Lender interest on the principal amount
of participation purchased for each day from and including the day upon which
the Mandatory Borrowing would otherwise have occurred to but excluding the date
of payment for such participation, at the overnight Federal Funds Rate for the
first three days and at the rate otherwise applicable to Base Rate Loans
hereunder for each day thereafter.
1.02 MINIMUM AMOUNT OF EACH BORROWING. The aggregate principal
amount of each Borrowing of Revolving Loans or Swingline Loans shall not be less
than the Minimum Borrowing Amount applicable thereto. More than one Borrowing
may occur on the same date, but at no time shall there be outstanding more than
fifteen Borrowings of Eurodollar Loans.
1.03 NOTICE OF BORROWING. (a) Whenever a Borrower desires to
incur (x) Eurodollar Loans hereunder, such Borrower shall give the Agent at the
Notice Office at least three Business Days' prior notice of each Eurodollar Loan
to be incurred hereunder and (y) Base Rate Loans hereunder (excluding Swingline
Loans), such Borrower shall give the Agent at the Notice Office at least one
Business Day's prior notice of each Base Rate Loan to be incurred hereunder,
PROVIDED that (in each case) any such notice shall be deemed to have been given
on a certain day only if given before 11:00 A.M. (New York time) on such day.
Each such notice (each a "Notice of Borrowing"), except as otherwise expressly
provided in Section 1.10, shall be irrevocable and shall be given by such
Borrower in writing, or by telephone promptly confirmed in writing, in the form
of Exhibit A, appropriately completed to specify the aggregate principal amount
of the Revolving Loans to be incurred pursuant to such Borrowing, the date of
such Borrowing (which shall be a Business Day), the Borrowing Base at such time,
and whether the Revolving Loans being incurred pursuant to such Borrowing are to
be initially maintained as Base Rate Loans or, to the extent permitted
hereunder, Eurodollar Loans and, if Eurodollar Loans, the initial Interest
Period to be applicable thereto. The Agent shall promptly give each Lender
notice of such proposed Borrowing, of such Lender's proportionate share thereof
and of the other matters required by the immediately preceding sentence to be
specified in the Notice of Borrowing.
(b)(i) Whenever a Borrower desires to incur Swingline Loans
hereunder, such Borrower shall give the Swingline Lender no later than 2:00 P.M.
(New York time) on the date that a Swingline Loan is to be incurred hereunder,
written notice or telephonic notice promptly confirmed in writing of each
Swingline Loan to be incurred hereunder. Each such notice shall be irrevocable
and specify in each case (A) the date of Borrowing (which shall be a Business
Day),
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(B) the aggregate principal amount of the Swingline Loans to be incurred
pursuant to such Borrowing and (C) the Borrowing Base at such time.
(ii) Mandatory Borrowings shall be made upon the notice
specified in Section 1.01(c), with the respective Borrower irrevocably agreeing,
by its incurrence of any Swingline Loan, to the making of the Mandatory
Borrowings as set forth in Section 1.01(c).
(c) Without in any way limiting the obligation of any Borrower
to confirm in writing any telephonic notice of any Borrowing or prepayment of
Loans, the Agent or the Swingline Lender, as the case may be, may act without
liability upon the basis of telephonic notice of such Borrowing or prepayment,
as the case may be, believed by the Agent or the Swingline Lender, as the case
may be, in good faith to be from the Chairman of the Board, the Chief Executive
Officer, the President, the Chief Financial Officer, the Treasurer or any
Assistant Treasurer of such Borrower, or from any other authorized officer of
such Borrower designated in writing by any of the foregoing officers of such
Borrower to the Agent as being authorized to give such notices, prior to receipt
of written confirmation. In each such case, such Borrower hereby waives the
right to dispute the Agent's or Swingline Lender's record of the terms of such
telephonic notice of such Borrowing or prepayment of Loans, as the case may be,
absent manifest error.
1.04 DISBURSEMENT OF FUNDS. No later than 12:00 Noon (New York
time) on the date specified in each Notice of Borrowing (or (x) in the case of
Swingline Loans, no later than 3:00 P.M. (New York time) on the date specified
pursuant to Section 1.03(b)(i) or (y) in the case of Mandatory Borrowings, no
later than 1:00 P.M. (New York time) on the date specified in Section 1.01(c)),
each Lender will make available its PRO RATA portion (determined in accordance
with Section 1.07) of each such Borrowing requested to be made on such date (or
in the case of Swingline Loans, the Swingline Lender will make available the
full amount thereof). All such amounts will be made available in Dollars and in
immediately available funds at the Payment Office, and, except for Revolving
Loans made pursuant to a Mandatory Borrowing, the Agent will make available to
the respective Borrower at the Payment Office the aggregate of the amounts so
made available by the Lenders. Unless the Agent shall have been notified by any
Lender prior to the date of Borrowing that such Lender does not intend to make
available to the Agent such Lender's portion of any Borrowing to be made on such
date, the Agent may assume that such Lender has made such amount available to
the Agent on such date of Borrowing and the Agent may (but shall not be
obligated to), in reliance upon such assumption, make available to the Borrower
a corresponding amount. If such corresponding amount is not in fact made
available to the Agent by such Lender, the Agent shall be entitled to recover
such corresponding amount on demand from such Lender. If such Lender does not
pay such corresponding amount forthwith upon the Agent's demand therefor, the
Agent shall promptly notify the respective Borrower and such Borrower shall
immediately pay such corresponding amount to the Agent. The Agent also shall be
entitled to recover on demand from such Lender or such Borrower, as the case may
be, interest on such corresponding amount in respect of each day from the date
such corresponding amount was made available by the Agent to such Borrower until
the date such corresponding amount is recovered by the Agent, at a rate per
annum equal to (i) if recovered from such Lender, at the overnight Federal Funds
Rate and (ii) if recovered from such Borrower, the rate of interest applicable
to the respective Borrowing, as determined pursuant to Section 1.08. Nothing in
this Section 1.04 shall be deemed to relieve any Lender from its obligation to
make Loans hereunder
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or to prejudice any rights which the respective Borrower may have against any
Lender as a result of any failure by such Lender to make Loans hereunder.
1.05 NOTES. (a) Each Borrower's obligation to pay the
principal of, and interest on, the Loans made by each Lender to such Borrower
shall be evidenced in the Register maintained by the Agent pursuant to Section
13.15 and shall, if requested by such Lender, also be evidenced (i) if Revolving
Loans, by a promissory note duly executed and delivered by such Borrower
substantially in the form of Exhibit B-1, with blanks appropriately completed in
conformity herewith (each a "Revolving Note" and, collectively, the "Revolving
Notes") and (ii) if Swingline Loans, by a promissory note duly executed and
delivered by such Borrower substantially in the form of Exhibit B-2, with blanks
appropriately completed in conformity herewith (each a "Swingline Note" and,
collectively, the "Swingline Notes").
(b) The Revolving Note issued to each Lender shall (i) be
executed by each Borrower, (ii) be payable to such Lender or its registered
assigns and be dated the Restatement Effective Date (or, if issued after the
Restatement Effective Date, be dated the date of the issuance thereof), (iii) be
in a stated principal amount equal to the Commitment of such Lender (or, if
issued after the termination thereof, be in a stated principal amount equal to
the outstanding Revolving Loans of such Lender at such time) and be payable in
the outstanding principal amount of the Revolving Loans evidenced thereby, (iv)
mature on the Final Maturity Date, (v) bear interest as provided in the
appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to
voluntary prepayment as provided in Section 4.01, and mandatory repayment as
provided in Section 4.02, and (vii) be entitled to the benefits of this
Agreement and the other Credit Documents.
(c) The Swingline Note issued to the Swingline Lender shall
(i) be executed by each Borrower, (ii) be payable to the Swingline Lender or its
registered assigns and be dated the Restatement Effective Date, (iii) be in a
stated principal amount equal to the Maximum Swingline Amount and be payable in
the outstanding principal amount of the Swingline Loans evidenced thereby from
time to time, (iv) mature on the Swingline Expiry Date, (v) bear interest as
provided in the appropriate clause of Section 1.08 in respect of the Base Rate
Loans evidenced thereby, (vi) be subject to voluntary prepayment as provided in
Section 4.01, and mandatory repayment as provided in Section 4.02, and (vii) be
entitled to the benefits of this Agreement and the other Credit Documents.
(d) Each Lender will note on its internal records the amount
of each Loan made by it and each payment in respect thereof and will prior to
any transfer of any of its Notes endorse on the reverse side thereof the
outstanding principal amount of Loans evidenced thereby. Failure to make any
such notation or any error in such notation shall not affect any Borrower's
obligations in respect of such Loans.
1.06 CONVERSIONS. Each Borrower shall have the option to
convert, on any Business Day, all or a portion equal to at least the Minimum
Borrowing Amount of the outstanding principal amount of Revolving Loans made to
such Borrower pursuant to one or more Borrowings of one or more Types of
Revolving Loans into a Borrowing of another Type of Revolving Loan, PROVIDED
that, (i) except as otherwise provided in Section 1.10(b), Eurodollar Loans may
be converted into Base Rate Loans only on the last day of an Interest Period
applicable to the Revolving Loans being converted and no such partial conversion
of Eurodollar Loans
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shall reduce the outstanding principal amount of such Eurodollar Loans made
pursuant to a single Borrowing to less than the Minimum Borrowing Amount
applicable thereto, (ii) Base Rate Loans may only be converted into Eurodollar
Loans if no Default or Event of Default is in existence on the date of such
conversion, and (iii) no conversion pursuant to this Section 1.06 shall result
in a greater number of Borrowings of Eurodollar Loans than is permitted under
Section 1.02. Each such conversion shall be effected by the respective Borrower
by giving the Agent at the Notice Office prior to 11:00 A.M. (New York time) at
least three Business Days' prior notice (each a "Notice of Conversion")
specifying the Revolving Loans to be so converted, the Borrowing or Borrowings
pursuant to which such Revolving Loans were made and, if to be converted into
Eurodollar Loans, the Interest Period to be initially applicable thereto. The
Agent shall give each Lender prompt notice of any such proposed conversion
affecting any of its Revolving Loans. Upon any such conversion the proceeds
thereof will be deemed to be applied directly on the day of such conversion to
prepay the outstanding principal amount of the Revolving Loans being converted.
Swingline Loans may not be converted pursuant to this Section 1.06.
1.07 PRO RATA BORROWINGS. All Borrowings of Revolving Loans
under this Agreement shall be incurred from the Lenders PRO RATA on the basis of
their Commitments, PROVIDED that all Mandatory Borrowings shall be incurred from
the Lenders PRO RATA on the basis of their Percentages. It is understood that no
Lender shall be responsible for any default by any other Lender of its
obligation to make Revolving Loans hereunder and that each Lender shall be
obligated to make the Revolving Loans provided to be made by it hereunder,
regardless of the failure of any other Lender to make its Revolving Loans
hereunder.
1.08 INTEREST. (a) Each Borrower agrees to pay interest in
respect of the unpaid principal amount of each Base Rate Loan made to such
Borrower from the date of Borrowing thereof until the earlier of (i) the
maturity thereof (whether by acceleration or otherwise) and (ii) the conversion
of such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.06 or 1.09, as
applicable, at a rate per annum which shall be equal to the Applicable Base Rate
Margin plus the Base Rate in effect from time to time.
(b) Each Borrower agrees to pay interest in respect of the
unpaid principal amount of each Eurodollar Loan made to such Borrower from the
date of Borrowing thereof until the earlier of (i) the maturity thereof (whether
by acceleration or otherwise) and (ii) the conversion of such Eurodollar Loan to
a Base Rate Loan pursuant to Section 1.06, 1.09, 1.10, as applicable, at a rate
per annum which shall, during each Interest Period applicable thereto, be equal
to the sum of the Applicable Eurodollar Rate Margin plus the Eurodollar Rate for
such Interest Period.
(c) Overdue principal and, to the extent permitted by law,
overdue interest in respect of each Loan and any other overdue amount payable
hereunder shall, in each case, bear interest at a rate per annum equal to the
greater of (x) the rate which is 2% in excess of the rate then borne by such
Loans and (y) the rate which is 2% in excess of the rate otherwise applicable to
Base Rate Loans from time to time. Interest which accrues under this Section
1.08(c) shall be payable on demand.
(d) Accrued (and theretofore unpaid) interest shall be payable
(i) in respect of each Base Rate Loan, quarterly in arrears on each Quarterly
Payment Date, (ii) in respect of each Eurodollar Loan, on the last day of each
Interest Period applicable thereto and, in the case of an Interest Period in
excess of three months, on each date occurring at three month intervals after
the
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first day of such Interest Period and (iii) in respect of each Loan, on any
repayment or prepayment (on the amount repaid or prepaid), at maturity (whether
by acceleration or otherwise) and, after such maturity, on demand.
(e) Upon each Interest Determination Date, the Agent shall
determine the Eurodollar Rate for each Interest Period applicable to the
respective Eurodollar Loans and shall promptly notify the respective Borrower
and the Lenders thereof. Each such determination shall, absent manifest error,
be final and conclusive and binding on all parties hereto.
1.09 INTEREST PERIODS. At the time any Borrower gives any
Notice of Borrowing or Notice of Conversion in respect of the making of, or
conversion into, any Eurodollar Loan (in the case of the initial Interest Period
applicable thereto) or on the third Business Day prior to the expiration of an
Interest Period applicable to such Eurodollar Loan (in the case of any
subsequent Interest Period), such Borrower shall have the right to elect, by
giving the Agent notice thereof, the interest period (each an "Interest Period")
applicable to such Eurodollar Loan, which Interest Period shall, at the option
of such Borrower, be a one, two, three or six-month period (or, with the consent
of the Agent, such other period between seven days and one month as may be
generally available to the Banks), PROVIDED that:
(i) all Eurodollar Loans comprising a Borrowing shall at all
times have the same Interest Period;
(ii) the initial Interest Period for any Eurodollar Loan shall
commence on the date of Borrowing of such Eurodollar Loan (including
the date of any conversion thereto from a Base Rate Loan) and each
Interest Period occurring thereafter in respect of such Eurodollar Loan
shall commence on the day on which the next preceding Interest Period
applicable thereto expires;
(iii) if any Interest Period for a Eurodollar Loan begins on a
day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period, such Interest Period shall
end on the last Business Day of such calendar month;
(iv) if any Interest Period for a Eurodollar Loan would
otherwise expire on a day which is not a Business Day, such Interest
Period shall expire on the next succeeding Business Day; PROVIDED,
HOWEVER, that if any Interest Period for a Eurodollar Loan would
otherwise expire on a day which is not a Business Day but is a day of
the month after which no further Business Day occurs in such month,
such Interest Period shall expire on the next preceding Business Day;
(v) no Interest Period may be selected at any time when a
Default or an Event of Default is then in existence; and
(vi) no Interest Period in respect of any Borrowing of
Eurodollar Loans shall be selected which extends beyond the Final
Maturity Date.
If upon the expiration of any Interest Period applicable to a
Borrowing of Eurodollar Loans, the respective Borrower has failed to elect, or
is not permitted to elect, a new Interest Period to be applicable to such
Eurodollar Loans as provided above, such Borrower shall
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be deemed to have elected to convert such Eurodollar Loans into Base Rate Loans
effective as of the expiration date of such current Interest Period.
1.10 INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that
any Lender shall have determined (which determination shall, absent manifest
error, be final and conclusive and binding upon all parties hereto but, with
respect to clause (i) below, may be made only by the Agent):
(i) on any Interest Determination Date that, by reason of any
changes arising after the date of this Agreement affecting the
interbank Eurodollar market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in
the definition of Eurodollar Rate; or
(ii) at any time, that such Lender shall incur increased costs
or reductions in the amounts received or receivable hereunder with
respect to any Eurodollar Loan because of (x) any change since the
Restatement Effective Date in any applicable law or governmental rule,
regulation, order, guideline or request (whether or not having the
force of law) or in the interpretation or administration thereof and
including the introduction of any new law or governmental rule,
regulation, order, guideline or request, such as, for example, but not
limited to: (A) a change in the basis of taxation of payment to any
Lender of the principal of or interest on the Notes or any other
amounts payable hereunder (except for changes in the rate of tax on, or
determined by reference to, the net income or profits of such Lender
pursuant to the laws of the jurisdiction in which it is organized or in
which its principal office or applicable lending office is located or
any subdivision thereof or therein) or (B) a change in official reserve
requirements, but, in all events, excluding reserves required under
Regulation D to the extent included in the computation of the
Eurodollar Rate and/or (y) other circumstances since the Restatement
Effective Date affecting such Lender, the interbank Eurodollar market
or the position of such Lender in such market; or
(iii) at any time, that the making or continuance of any
Eurodollar Loan has been made (x) unlawful by any law or governmental
rule, regulation or order, (y) impossible by compliance by any Lender
in good faith with any governmental request (whether or not having
force of law) or (z) impracticable as a result of a contingency
occurring after the Restatement Effective Date which materially and
adversely affects the interbank Eurodollar market;
then, and in any such event, such Lender (or the Agent, in the case of clause
(i) above) shall promptly give notice (by telephone promptly confirmed in
writing) to the respective Borrower and, except in the case of clause (i) above,
to the Agent of such determination (which notice the Agent shall promptly
transmit to each of the other Lenders). Thereafter (x) in the case of clause (i)
above, Eurodollar Loans shall no longer be available until such time as the
Agent notifies the Borrowers and the Lenders that the circumstances giving rise
to such notice by the Agent no longer exist, and any Notice of Borrowing or
Notice of Conversion given by any Borrower with respect to Eurodollar Loans
which have not yet been incurred (including by way of conversion) shall be
deemed rescinded by such Borrower, (y) in the case of clause (ii) above, the
respective Borrower shall pay to such Lender, upon such Lender's written request
therefor, such additional amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Lender in its
sole discretion shall determine) as shall be required to compensate such Lender
for such increased costs or reductions in amounts received or receivable
hereunder (a
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written notice as to the additional amounts owed to such Lender, showing in
reasonable detail the basis for the calculation thereof, submitted to such
Borrower by such Lender shall, absent manifest error, be final and conclusive
and binding on all the parties hereto) and (z) in the case of clause (iii)
above, the respective Borrower shall take one of the actions specified in
Section 1.10(b) as promptly as possible and, in any event, within the time
period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the respective Borrower
may (and in the case of a Eurodollar Loan affected by the circumstances
described in Section 1.10(a)(iii) such Borrower shall) either (x) if the
affected Eurodollar Loan is then being made initially or pursuant to a
conversion, cancel such Borrowing by giving the Agent telephonic notice
(confirmed in writing) on the same date that such Borrower was notified by the
affected Lender or the Agent pursuant to Section 1.10(a)(ii) or (iii) or (y) if
the affected Eurodollar Loan is then outstanding, upon at least three Business
Days' written notice to the Agent, require the affected Lender to convert such
Eurodollar Loan into a Base Rate Loan, PROVIDED that, if more than one Lender is
affected at any time, then all affected Lenders must be treated the same
pursuant to this Section 1.10(b).
(c) If any Lender determines that after the Restatement
Effective Date the introduction of or any change in any applicable law or
governmental rule, regulation, order, guideline, directive or request (whether
or not having the force of law) concerning capital adequacy, or any change in
interpretation or administration thereof by the NAIC or any governmental
authority, central bank or comparable agency, will have the effect of increasing
the amount of capital required or expected to be maintained by such Lender or
any corporation controlling such Lender based on the existence of such Lender's
Commitment hereunder or its obligations hereunder, then the Borrowers shall pay
to such Lender, upon its written demand therefor, such additional amounts as
shall be required to compensate such Lender or such other corporation for the
increased cost to such Lender or such other corporation or the reduction in the
rate of return to such Lender or such other corporation as a result of such
increase of capital. In determining such additional amounts, each Lender will
act reasonably and in good faith and will use averaging and attribution methods
which are reasonable, PROVIDED that such Lender's determination of compensation
owing under this Section 1.10(c) shall, absent manifest error, be final and
conclusive and binding on all the parties hereto. Each Lender, upon determining
that any additional amounts will be payable pursuant to this Section 1.10(c),
will give prompt written notice thereof to the Borrowers, which notice shall
show in reasonable detail the basis for calculation of such additional amounts.
1.11 COMPENSATION. Each Borrower shall compensate each Lender,
upon its written request (which request shall set forth in reasonable detail the
basis for requesting such compensation), for all losses, expenses and
liabilities (including, without limitation, any loss, expense or liability
incurred by reason of the liquidation or reemployment of deposits or other funds
required by such Lender to fund its Eurodollar Loans but excluding loss of
anticipated profits) which such Lender may sustain: (i) if for any reason (other
than a default by such Lender or the Agent) a Borrowing of, or conversion from
or into, Eurodollar Loans does not occur on a date specified therefor in a
Notice of Borrowing or Notice of Conversion (whether or not withdrawn by such
Borrower or deemed withdrawn pursuant to Section 1.10); (ii) if any repayment
(including any repayment made pursuant to Section 4.01, Section 4.02 or as a
result of an acceleration of the Loans pursuant to Section 10) or conversion of
any of its Eurodollar Loans
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occurs on a date which is not the last day of an Interest Period with respect
thereto; (iii) if any prepayment of any of its Eurodollar Loans is not made on
any date specified in a notice of prepayment given by such Borrower; or (iv) as
a consequence of (x) any other default by such Borrower to repay its Loans when
required by the terms of this Agreement or any Note held by such Lender or (y)
any election made pursuant to Section 1.10(b).
1.12 CHANGE OF LENDING OFFICE. Each Lender agrees that upon
the occurrence of any event giving rise to the operation of Section 1.10(a)(ii)
or (iii), Section 1.10(c), Section 2.06 or Section 4.04 with respect to such
Lender, it will, if requested by the Company, use reasonable efforts (subject to
overall policy considerations of such Lender) to designate another lending
office for any Loans or Letters of Credit affected by such event, PROVIDED that
such designation is made on such terms that such Lender and its lending office
suffer no economic, legal or regulatory disadvantage, with the object of
avoiding the consequence of the event giving rise to the operation of such
Section. Nothing in this Section 1.12 shall affect or postpone any of the
obligations of any Borrower or the right of any Lender provided in Sections
1.10, 2.06 and 4.04.
1.13 REPLACEMENT OF LENDERS. (x) If any Lender becomes a
Defaulting Lender or otherwise defaults in its obligations to make Loans, (y)
upon the occurrence of an event giving rise to the operation of Section
1.10(a)(ii) or (iii), Section 1.10(c), Section 2.06 or Section 4.04 with respect
to any Lender which results in such Lender charging to any Borrower increased
costs in excess of those being generally charged by the other Lenders or (z) in
the case of a refusal by a Lender to consent to certain proposed changes,
waivers, discharges or terminations with respect to this Agreement which have
been approved by the Required Lenders as (and to the extent) provided in Section
13.12(b), the Company shall have the right, if no Default or Event of Default
then exists (or, in the case of preceding clause (z), no Default or Event of
Default will exist immediately after giving effect to such replacement), to
replace such Lender (the "Replaced Lender") with one or more other Eligible
Transferees, none of whom shall constitute a Defaulting Lender at the time of
such replacement (collectively, the "Replacement Lender") and each of whom shall
be required to be reasonably acceptable to the Agent, PROVIDED that (i) at the
time of any replacement pursuant to this Section 1.13, the Replacement Lender
shall enter into one or more Assignment and Assumption Agreements pursuant to
Section 13.04(b) (and with all fees payable pursuant to said Section 13.04(b) to
be paid by the Replacement Lender) pursuant to which the Replacement Lender
shall acquire the entire Commitment and outstanding Revolving Loans of, and
participations in Letters of Credit by, the Replaced Lender and, in connection
therewith, shall pay to (x) the Replaced Lender in respect thereof an amount
equal to the sum of (I) an amount equal to the principal of, and all accrued
interest on, all outstanding Revolving Loans of the Replaced Lender, (II) an
amount equal to all Unpaid Drawings that have been funded by (and not reimbursed
to) such Replaced Lender, together with all then unpaid interest with respect
thereto at such time and (III) an amount equal to all accrued, but theretofore
unpaid, Fees owing to the Replaced Lender pursuant to Section 3.01, (y) each
Issuing Lender an amount equal to such Replaced Lender's Percentage of any
Unpaid Drawing (which at such time remains an Unpaid Drawing) to the extent such
amount was not theretofore funded by such Replaced Lender to such Issuing Lender
and (z) the Swingline Lender an amount equal to such Replaced Lender's
Percentage of any Mandatory Borrowings to the extent such amount was not
theretofore funded by such Replaced Lender to the Swingline Lender and (ii) all
obligations of the Borrowers due and owing to the Replaced Lender at such time
(other than those specifically described in clause (i) above in respect of which
the assignment purchase price has been, or is
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concurrently being, paid) shall be paid in full to such Replaced Lender
concurrently with such replacement. Upon the execution of the respective
Assignment and Assumption Agreement, the payment of amounts referred to in
clauses (i) and (ii) above and, if so requested by the Replacement Lender,
delivery to the Replacement Lender of the appropriate Revolving Notes executed
by the Borrowers, the Replacement Lender shall become a Lender hereunder and the
Replaced Lender shall cease to constitute a Lender hereunder, except with
respect to indemnification provisions under this Agreement (including, without
limitation, Sections 1.10, 1.11, 2.06, 4.04, 12.06 and 13.01), which shall
survive as to such Replaced Lender.
SECTION 2. LETTERS OF CREDIt.
2.01 LETTERS OF CREDIT. (a) Subject to and upon the terms and
conditions set forth herein, any Borrower may request that an Issuing Lender
issue, at any time and from time to time on and after the Restatement Effective
Date and prior to the 30th day prior to the Final Maturity Date, (x) for the
account of such Borrower and for the benefit of any holder (or any trustee,
agent or other similar representative for any such holders) of L/C Supportable
Obligations of such Borrower or any of its Subsidiaries, an irrevocable standby
letter of credit, in a form customarily used by such Issuing Lender or in such
other form as has been approved by such Issuing Lender and (y) for the account
of such Borrower and for the benefit of sellers of goods to such Borrower or any
of its Subsidiaries, an irrevocable trade letter of credit, in a form
customarily used by such Issuing Lender or in such other form as has been
approved by such Issuing Lender (each such letter of credit, a "Letter of
Credit," and, collectively, the "Letters of Credit"). All Letters of Credit
shall be denominated in Dollars and shall be issued on a sight basis only.
(b) Subject to and upon the terms and conditions set forth
herein, each Issuing Lender agrees that it will, at any time and from time to
time on and after the Restatement Effective Date and prior to the 30th day prior
to the Final Maturity Date, following its receipt of the respective Letter of
Credit Request, issue for the account of the respective Borrower, one or more
Letters of Credit as are permitted to remain outstanding hereunder without
giving rise to a Default or an Event of Default, PROVIDED that no Issuing Lender
shall be under any obligation to issue any Letter of Credit of the types
described above if at the time of such issuance:
(i) any order, judgment or decree of any governmental
authority or arbitrator shall purport by its terms to enjoin or
restrain such Issuing Lender from issuing such Letter of Credit or any
requirement of law applicable to such Issuing Lender or any request or
directive (whether or not having the force of law) from any
governmental authority with jurisdiction over such Issuing Lender shall
prohibit, or request that such Issuing Lender refrain from, the
issuance of letters of credit generally or such Letter of Credit in
particular or shall impose upon such Issuing Lender with respect to
such Letter of Credit any restriction or reserve or capital requirement
(for which such Issuing Lender is not otherwise compensated) not in
effect on the Restatement Effective Date, or any unreimbursed loss,
cost or expense which was not applicable or in effect with respect to
such Issuing Lender as of the date hereof and which such Issuing Lender
reasonably and in good faith deems material to it; or
(ii) such Issuing Lender shall have received notice from any
Borrower or the Required Lenders prior to the issuance of such Letter
of Credit of the type described in the second sentence of Section
2.03(b).
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(c) Each Issuing Lender agrees to provide to the Agent by
facsimile promptly on the first Business Day of each week the daily aggregate
Stated Amount of all Letters of Credit issued by such Issuing Lender and
outstanding during the immediately preceding week.
2.02 MAXIMUM LETTER OF CREDIT OUTSTANDINGS; FINAL MATURITIES.
Notwithstanding anything to the contrary contained in this Agreement, (i) no
Letter of Credit shall be issued the Stated Amount of which, when added to the
Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid on
the date of, and prior to the issuance of, the respective Letter of Credit) at
such time would exceed either (x) $20,000,000 or (y) when added to the sum of
(I) the aggregate principal amount of all Revolving Loans then outstanding and
(II) the aggregate principal amount of all Swingline Loans then outstanding, an
amount equal to the lesser of (A) the Borrowing Base at such time (based on the
Borrowing Base Certificate last delivered) and (B) the Total Commitment at such
time and (ii) each Letter of Credit shall by its terms terminate on or before
the earlier of (x) (A) in the case of standby Letters of Credit, the date which
occurs 12 months after the date of the issuance thereof (although any such
standby Letter of Credit may be extendible for successive periods of up to 12
months, but not beyond the third Business Day prior to the Final Maturity Date,
on terms acceptable to such Issuing Lender) and (B) in the case of trade Letters
of Credit, the date which occurs 180 days after the date of the issuance thereof
and (y) three Business Days (or 30 days in the case of a trade Letter of Credit)
prior to the Final Maturity Date.
2.03 LETTER OF CREDIT REQUESTS; MINIMUM STATED AMOUNT. (a)
Whenever any Borrower desires that a Letter of Credit be issued for its account,
such Borrower shall give the Agent and the respective Issuing Lender at least
three Business Days' (or such shorter period as is acceptable to such Issuing
Lender) written notice thereof. Each notice shall be in the form of Exhibit C
(each a "Letter of Credit Request").
(b) The making of each Letter of Credit Request shall be
deemed to be a representation and warranty by the respective Borrower that such
Letter of Credit may be issued in accordance with, and will not violate the
requirements of, Section 2.02. Unless the respective Issuing Lender has received
notice from any Borrower or the Required Lenders before it issues a Letter of
Credit that one or more of the conditions specified in Section 5 or 6 are not
then satisfied, or that the issuance of such Letter of Credit would violate
Section 2.02, then such Issuing Lender shall, subject to the terms and
conditions of this Agreement, issue the requested Letter of Credit for the
account of the respective Borrower in accordance with such Issuing Lender's
usual and customary practices. Upon its issuance of or amendment to any standby
Letter of Credit, the respective Issuing Lender shall promptly notify the
respective Borrower, each Participant and the Agent of such issuance or
amendment and such notification shall be accompanied by a copy of the issued
standby Letter of Credit or amendment. Notwithstanding anything to the contrary
contained in this Agreement, in the event that a Lender Default exists, no
Issuing Lender shall be required to issue any Letter of Credit unless such
Issuing Lender has entered into arrangements satisfactory to it and the Company
to eliminate such Issuing Lender's risk with respect to the participation in
Letters of Credit by the Defaulting Lender or Lenders, including by cash
collateralizing such Defaulting Lender's or Lenders' Percentage of the Letter of
Credit Outstandings.
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(c) The initial Stated Amount of each Letter of Credit shall
not be less than $25,000 or such lesser amount as is acceptable to the
respective Issuing Lender.
2.04 LETTER OF CREDIT PARTICIPATIONS. (a) Immediately upon the
issuance by each Issuing Lender of any Letter of Credit, such Issuing Lender
shall be deemed to have sold and transferred to each Lender, other than such
Issuing Lender (each such Lender, in its capacity under this Section 2.04, a
"Participant"), and each such Participant shall be deemed irrevocably and
unconditionally to have purchased and received from such Issuing Lender, without
recourse or warranty, an undivided interest and participation, to the extent of
such Participant's Percentage, in such Letter of Credit, each drawing or payment
made thereunder and the obligations of the respective Borrower under this
Agreement with respect thereto, and any security therefor or guaranty pertaining
thereto. Upon any change in the Commitments or Percentages of the Lenders
pursuant to Section 1.13 or 13.04, it is hereby agreed that, with respect to all
outstanding Letters of Credit and Unpaid Drawings, there shall be an automatic
adjustment to the participations pursuant to this Section 2.04 to reflect the
new Percentages of the assignor and assignee Lender, as the case may be.
(b) In determining whether to pay under any Letter of Credit
issued by it, no Issuing Lender shall have an obligation relative to the other
Lenders other than to confirm that any documents required to be delivered under
such Letter of Credit appear to have been delivered and that they appear to
substantially comply on their face with the requirements of such Letter of
Credit. Any action taken or omitted to be taken by any Issuing Lender under or
in connection with any Letter of Credit issued by it if taken or omitted in the
absence of gross negligence or willful misconduct (as finally determined by a
court of competent jurisdiction), shall not create for such Issuing Lender any
resulting liability to any Borrower, any other Credit Party, any Lender or any
other Person.
(c) In the event that any Issuing Lender makes any payment
under any Letter of Credit issued by it and the respective Borrower shall not
have reimbursed such amount in full to such Issuing Lender pursuant to Section
2.05(a), such Issuing Lender shall promptly notify the Agent, which shall
promptly notify each Participant of such failure, and, except as provided in the
proviso of the immediately succeeding sentence, each Participant shall promptly
and unconditionally pay to such Issuing Lender the amount of such Participant's
Percentage of such unreimbursed payment in Dollars and in same day funds. If the
Agent so notifies, prior to 11:00 A.M. (New York time) on any Business Day, any
Participant required to fund a payment under a Letter of Credit, such
Participant shall make available to the respective Issuing Lender in Dollars
such Participant's Percentage of the amount of such payment on such Business Day
in same day funds; PROVIDED, HOWEVER, that no Participant shall be obligated to
pay to the respective Issuing Lender its Percentage of such unreimbursed amount
for any wrongful payment made by such Issuing Lender under a Letter of Credit
issued by it as a result of acts or omissions constituting willful misconduct or
gross negligence on the part of such Issuing Lender (as finally determined by a
court of competent jurisdiction). If and to the extent such Participant shall
not have so made its Percentage of the amount of such payment available to the
respective Issuing Lender, such Participant agrees to pay to such Issuing
Lender, forthwith on demand such amount, together with interest thereon, for
each day from such date until the date such amount is paid to such Issuing
Lender at the overnight Federal Funds Rate for the first three days and at the
interest rate applicable to Base Rate Loans for each day thereafter. The failure
of any Participant to make
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available to the respective Issuing Lender its Percentage of any payment under
any Letter of Credit shall not relieve any other Participant of its obligation
hereunder to make available to such Issuing Lender its Percentage of any Letter
of Credit on the date required, as specified above, but no Participant shall be
responsible for the failure of any other Participant to make available to such
Issuing Lender such other Participant's Percentage of any such payment.
(d) Whenever an Issuing Lender receives a payment of a
reimbursement obligation as to which it has received any payments from the
Participants pursuant to clause (c) above, such Issuing Lender shall pay to each
Participant which has paid its Percentage thereof, in Dollars and in same day
funds, an amount equal to such Participant's share (based upon the proportionate
aggregate amount originally funded by such Participant to the aggregate amount
funded by all Participants) of the principal amount of such reimbursement
obligation and interest thereon accruing after the purchase of the respective
participations.
(e) Upon the request of any Participant, each Issuing Lender
shall furnish to such Participant copies of any standby Letter of Credit issued
by it and such other documentation as may reasonably be requested by such
Participant.
(f) The obligations of the Participants to make payments to
each Issuing Lender with respect to Letters of Credit issued by it shall be
irrevocable and not subject to any qualification or exception whatsoever (except
as otherwise provided in the proviso to the second sentence of Section 2.04(c))
and shall be made in accordance with the terms and conditions of this Agreement
under all circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this Agreement
or any of the other Credit Documents;
(ii) the existence of any claim, setoff, defense or other
right which any Borrower or any of its Subsidiaries may have at any
time against a beneficiary named in a Letter of Credit, any transferee
of any Letter of Credit (or any Person for whom any such transferee may
be acting), the Agent, any Issuing Lender, any Participant, or any
other Person, whether in connection with this Agreement, any Letter of
Credit, the transactions contemplated herein or any unrelated
transactions (including any underlying transaction between such
Borrower or any Subsidiary of such Borrower and the beneficiary named
in any such Letter of Credit);
(iii) any draft, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents; or
(v) the occurrence of any Default or Event of Default.
2.05 AGREEMENT TO REPAY LETTER OF CREDIT DRAWINGS. (a) Each
Borrower agrees to reimburse each Issuing Lender, by making payment to the Agent
in Dollars and in immediately
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available funds at the Payment Office, for any payment or disbursement made by
such Issuing Lender under any Letter of Credit issued by it (each such amount,
so paid until reimbursed, an "Unpaid Drawing"), not later than one Business Day
following receipt by such Borrower of notice of such payment or disbursement
(provided that no such notice shall be required to be given if a Default or an
Event of Default under Section 10.05 shall have occurred and be continuing, in
which case the Unpaid Drawing shall be due and payable immediately without
presentment, demand, protest or notice of any kind (all of which are hereby
waived by each Borrower)), with interest on the amount so paid or disbursed by
such Issuing Lender, to the extent not reimbursed prior to 12:00 Noon (New York
time) on the date of such payment or disbursement, from and including the date
paid or disbursed to but excluding the date such Issuing Lender was reimbursed
by such Borrower therefor at a rate per annum which shall be the Base Rate in
effect from time to time plus the Applicable Base Rate Margin; PROVIDED,
HOWEVER, to the extent such amounts are not reimbursed prior to 12:00 Noon (New
York time) on the third Business Day following the receipt by such Borrower of
notice of such payment or disbursement or following the occurrence of a Default
or an Event of Default under Section 10.05, interest shall thereafter accrue on
the amounts so paid or disbursed by such Issuing Lender (and until reimbursed by
such Borrower) at a rate per annum which shall be the Base Rate in effect from
time to time plus the Applicable Base Rate Margin plus 2%, in each such case,
with interest to be payable on demand. Each Issuing Lender shall give the
respective Borrower prompt written notice of each Drawing under any Letter of
Credit issued by it, PROVIDED that the failure to give any such notice shall in
no way affect, impair or diminish such Borrower's obligations hereunder.
(b) The obligations of each Borrower under this Section 2.05
to reimburse each Issuing Lender with respect to Unpaid Drawings (including, in
each case, interest thereon) shall be absolute and unconditional under any and
all circumstances and irrespective of any setoff, counterclaim or defense to
payment which such Borrower may have or have had against any Lender (including
in its capacity as issuer of the Letter of Credit or as Participant), including,
without limitation, any defense based upon the failure of any drawing or payment
under a Letter of Credit (each a "Drawing") to conform to the terms of the
Letter of Credit or any nonapplication or misapplication by the beneficiary of
the proceeds of such Drawing; PROVIDED, HOWEVER, that such Borrower shall not be
obligated to reimburse the respective Issuing Lender for any wrongful payment
made by such Issuing Lender under a Letter of Credit issued by it as a result of
acts or omissions constituting willful misconduct or gross negligence on the
part of such Issuing Lender (as finally determined by a court of competent
jurisdiction).
2.06 INCREASED COSTS. If at any time after the Restatement
Effective Date, the introduction of or any change in any applicable law, rule,
regulation, order, guideline or request or in the interpretation or
administration thereof by the NAIC or any governmental authority charged with
the interpretation or administration thereof, or compliance by any Issuing
Lender or any Participant with any request or directive by the NAIC or by any
such authority (whether or not having the force of law), shall either (i)
impose, modify or make applicable any reserve, deposit, capital adequacy or
similar requirement against letters of credit issued by any Issuing Lender or
participated in by any Participant, or (ii) impose on any Issuing Lender or any
Participant any other conditions relating, directly or indirectly, to this
Agreement; and the result of any of the foregoing is to increase the cost to any
Issuing Lender or any Participant of issuing, maintaining or participating in
any Letter of Credit, or reduce the amount of any sum received or receivable by
any Issuing Lender or any Participant hereunder or reduce the rate of return on
its capital with
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respect to Letters of Credit (except for changes in the rate of tax on, or
determined by reference to, the net income or profits of such Issuing Lender or
such Participant pursuant to the laws of the jurisdiction in which it is
organized or in which its principal office or applicable lending office is
located or any subdivision thereof or therein), then, upon the delivery of the
certificate referred to below to the Borrowers by such Issuing Lender or such
Participant (a copy of which certificate shall be sent by such Issuing Lender or
such Participant to the Agent), the Borrowers shall pay to such Issuing Lender
or such Participant such additional amount or amounts as will compensate such
Issuing Lender or such Participant for such increased cost or reduction in the
amount receivable or reduction on the rate of return on its capital. Each
Issuing Lender or Participant, upon determining that any additional amounts will
be payable to it pursuant to this Section 2.06, will give prompt written notice
thereof to the Borrowers, which notice shall include a certificate submitted to
the Borrowers by such Issuing Lender or such Participant (a copy of which
certificate shall be sent by such Issuing Lender or such Participant to the
Agent), setting forth in reasonable detail the basis for the calculation of such
additional amount or amounts necessary to compensate such Issuing Lender or such
Participant. The certificate required to be delivered pursuant to this Section
2.06 shall, absent manifest error, be final and conclusive and binding on the
Borrowers.
SECTION 3. COMMITMENT COMMISSION; FEES; REDUCTIONS OF
COMMITMENT.
3.01 FEES. (a) The Borrowers jointly and severally agree to
pay to the Agent for distribution to each Non-Defaulting Lender, a commitment
commission (the "Commitment Commission") for the period from and including the
Restatement Effective Date to but excluding the Final Maturity Date (or such
earlier date on which the Total Commitment shall have been terminated), computed
at a rate per annum equal to the Applicable Commitment Commission Percentage on
the daily average Unutilized Commitment of such Non-Defaulting Lender. Accrued
Commitment Commission shall be due and payable quarterly in arrears on each
Quarterly Payment Date and on the Final Maturity Date (or such earlier date on
which the Total Commitment shall have been terminated).
(b) Each Borrower agrees to pay to the Agent for distribution
to each Lender (based on each such Lender's respective Percentage) a fee in
respect of each Letter of Credit issued hereunder for the account of such
Borrower (the "Letter of Credit Fee") for the period from and including the date
of issuance of such Letter of Credit to and including the date of termination or
expiration of such Letter of Credit, computed at a rate per annum equal to the
Applicable Eurodollar Rate Margin then in effect on the daily Stated Amount of
such Letter of Credit. Accrued Letter of Credit Fees shall be due and payable
quarterly in arrears on each Quarterly Payment Date and on the first day after
the termination of the Total Commitment upon which no Letters of Credit remain
outstanding.
(c) Each Borrower agrees to pay to each Issuing Lender, for
its own account, a facing fee in respect of each Letter of Credit Issued by it
hereunder for the account of such Borrower (the "Facing Fee"), for the period
from and including the date of issuance of such Letter of Credit to and
including the date of the termination of such Letter of Credit, computed at a
rate equal to 1/8 of 1% per annum on the daily Stated Amount of such Letter of
Credit, provided that in any event the minimum amount of the Facing Fee payable
in any 12 month period for each Letter of Credit shall be $500; it being agreed
that, on the date of issuance of any Letter
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of Credit and on each anniversary thereof prior to the termination of such
Letter of Credit, if $500 will exceed the amount of Facing Fees that will accrue
with respect to such Letter of Credit for the immediately succeeding 12 month
period, the full $500 shall be payable on the date of issuance of such Letter of
Credit and each such anniversary thereof. Except as otherwise provided in the
proviso to the immediately preceding sentence, accrued Facing Fees shall be due
and payable quarterly in arrears on each Quarterly Payment Date and upon the
first day after the termination of the Total Commitment upon which no Letters of
Credit remain outstanding.
(d) Each Borrower agrees to pay to each Issuing Lender, for
its own account, upon each payment under, issuance of, or amendment to, any
Letter of Credit issued for the account of such Borrower, such amount as shall
at the time of such event be the administrative charge and the reasonable
expenses which such Issuing Lender is generally imposing in connection with such
occurrence with respect to letters of credit.
(e) The Company agrees to pay to the Agent, for its own
account, such other fees as have been agreed to in writing by the Company and
the Agent.
3.02 VOLUNTARY TERMINATION OF UNUTILIZED COMMITMENTS. (a) Upon
at least one Business Day's prior written notice to the Agent at the Notice
Office (which notice the Agent shall promptly transmit to each of the Lenders),
the Company shall have the right, at any time or from time to time, without
premium or penalty, to terminate the Total Unutilized Commitment, in whole or in
part, pursuant to this Section 3.02(a), in an integral multiple of $1,000,000,
in the case of partial reductions to the Total Unutilized Commitment, PROVIDED
that each such reduction shall apply proportionately to permanently reduce the
Commitment of each Lender.
(b) In the event of a refusal by a Lender to consent to
certain proposed changes, waivers, discharges or terminations with respect to
this Agreement which have been approved by the Required Lenders as (and to the
extent) provided in Section 13.12(b), the Borrowers may, subject to its
compliance with the requirements of Section 13.12(b), upon five Business Days'
prior written notice to the Agent at the Notice Office (which notice the Agent
shall promptly transmit to each of the Lenders) terminate the Commitment of such
Lender, so long as all Revolving Loans, together with accrued and unpaid
interest, Fees and all other amounts, owing to such Lender are repaid
concurrently with the effectiveness of such termination pursuant to Section
4.01(b) (at which time Schedule I shall be deemed modified to reflect such
changed amounts), and at such time, such Lender shall no longer constitute a
"Lender" for purposes of this Agreement, except with respect to indemnifications
under this Agreement (including, without limitation, Sections 1.10, 1.11, 2.06,
4.04, 12.06 and 13.01), which shall survive as to such repaid Lender.
3.03 MANDATORY REDUCTION OF COMMITMENTS. (a) The Total
Commitment (and the Commitment of each Lender) shall terminate in their entirety
on April 30, 1998 unless the Restatement Effective Date has occurred on or
before such date, and in the event of such termination this Agreement shall
cease to be of any force or effect and the Existing Credit Agreement shall
continue to be effective, as the same may have been, or may thereafter be,
amended, modified or supplemented from time to time.
(b) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, on each date on or after the Restatement
Effective Date on which the Company or
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any of its Subsidiaries receives proceeds from any Asset Sale, the Total
Commitment shall be permanently reduced on such date by an amount equal to 100%
of the Net Sale Proceeds from such Asset Sale, PROVIDED, HOWEVER, that such Net
Sale Proceeds shall not give rise to a reduction to the Total Commitment
pursuant to this Section 3.03(b) on such date so long as (i) no Default or Event
of Default then exists and (ii) such Net Sale Proceeds shall be used to purchase
assets used or to be used in the businesses permitted pursuant to Section 9.13
(including, without limitation (but only to the extent permitted by Section
9.02) the purchase of the assets or 100% of the capital stock of a Person
engaged in such businesses) within 270 days following the date of receipt of
such Net Sale Proceeds from such Asset Sale, and PROVIDED FURTHER, that if all
or any portion of such Net Sale Proceeds are not so used within such 270 day
period (or such earlier date, if any, as the Company or such Subsidiary, as the
case may be, decides not to reinvest such Net Sale Proceeds), the Total
Commitment shall be permanently reduced on the last day of such period (or such
earlier date, as the case may be) by an amount equal to such remaining portion.
Notwithstanding the foregoing, prior to the repayment of all outstanding loans
under the Existing Term Loan Agreement, in the event that any Net Sale Proceeds
from any Asset Sale shall be required to be applied to repay any outstanding
loans under the Existing Term Loan Agreement, such Net Sale Proceeds shall be
applied to reduce the Total Commitment (or, if same has been terminated, repay
outstanding Loans) and repay any outstanding loans under the Existing Term Loan
Agreement on a PRO-RATA basis based upon the relative amount of the Total
Commitment (or the outstanding principal amount of the Loans, as the case may
be) and the principal amount of such outstanding loans, PROVIDED, however, 100%
of the Net Sale Proceeds of any Asset Sales of any Eligible Accounts, Eligible
Financed Equipment or Eligible Parts Inventory shall only be applied to reduce
the Total Commitment (and shall not be applied to repay any outstanding loans
under the Existing Term Loan Agreement) as provided above.
(c) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, on each date on or after the Restatement
Effective Date on which the Company or any of its Subsidiaries receives any cash
proceeds from any incurrence of Indebtedness for borrowed money (other than
Indebtedness permitted to be incurred pursuant to Section 9.04 (other than
pursuant to clause (viii)(v) thereof) as such Section 9.04 is in effect on the
Restatement Effective Date) by the Company or any of its Subsidiaries, the Total
Commitment shall be permanently reduced on such date by an amount equal to 100%
of the Net Debt Proceeds of the respective incurrence of Indebtedness.
(d) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, within 10 days following each date on or after
the Restatement Effective Date on which the Company or any of its Subsidiaries
receives any cash proceeds from any Recovery Event, the Total Commitment shall
be permanently reduced on such date by an amount equal to 100% of the Net
Insurance Proceeds of such Recovery Event, PROVIDED that so long as (i) no
Default or Event of Default then exists and (ii) the Net Insurance Proceeds from
such Recovery Event do not exceed $5,000,000, such proceeds shall not give rise
to a reduction to the Total Commitment pursuant to this Section 3.03(d) on such
date to the extent that the Company has delivered a certificate to the Agent on
or prior to such date stating that such proceeds shall be used to replace or
restore any properties or assets in respect of which such proceeds were paid
within 270 days following the date of receipt of such proceeds (which
certificate shall set forth the estimates of the proceeds to be so expended),
and PROVIDED FURTHER, that (i) if the amount of such Net Insurance Proceeds
exceeds $5,000,000, then the Total Commitment shall be reduced by the
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entire amount of such Net Insurance Proceeds and not just the portion in excess
of $5,000,000 as provided above in this Section 3.03(d) and (ii) if all or any
portion of such Net Insurance Proceeds are not so used within such 270 day
period (or such earlier date, if any, as the Company or such Subsidiary, as the
case may be, decides not to reinvest such Net Insurance Proceeds), the Total
Commitment shall be permanently reduced on the last day of such period (or such
earlier date, as the case may be) by an amount equal to such remaining portion.
(e) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Commitment (and the Commitment of each
Lender) shall terminate in its entirety on the earlier of (i) the date on which
a Change of Control occurs and (ii) the Final Maturity Date.
(f) Each reduction to the Total Commitment pursuant to this
Section 3.03 shall apply proportionately to permanently reduce the Commitment of
each Lender.
SECTION 4. PREPAYMENTS; PAYMENTS; TAXES.
4.01 VOLUNTARY PREPAYMENTS. (a) Each Borrower shall have the
right to prepay the Loans made to it, without premium or penalty, in whole or in
part at any time and from time to time on the following terms and conditions:
(i) such Borrower shall give the Agent prior to 12:00 Noon (New York time) at
the Notice Office (x) at least one Business Day's prior written notice (or
telephonic notice promptly confirmed in writing) of its intent to prepay Base
Rate Loans (or same day notice in the case of a prepayment of Swingline Loans)
and (y) at least three Business Days' prior written notice (or telephonic notice
promptly confirmed in writing) of its intent to prepay Eurodollar Loans, the
amount of such prepayment and the Types of Loans to be prepaid and, in the case
of Eurodollar Loans, the specific Borrowing or Borrowings pursuant to which
made, which notice the Agent shall, except in the case of Swingline Loans,
promptly transmit to each of the Lenders; (ii) each prepayment of Revolving
Loans pursuant to this Section 4.01(a) shall be in an aggregate principal amount
of at least $1,000,000 and each prepayment of Swingline Loans pursuant to this
Section 4.01(a) shall be in an aggregate principal amount of at least $100,000,
PROVIDED that if any partial prepayment of Eurodollar Loans made pursuant to any
Borrowing shall reduce the outstanding principal amount of Eurodollar Loans made
pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount
applicable thereto, then such Borrowing may not be continued as a Borrowing of
Eurodollar Loans and any election of an Interest Period with respect thereto
given by the Borrower shall have no force or effect; and (iii) each prepayment
pursuant to this Section 4.01(a) in respect of any Revolving Loans made pursuant
to a Borrowing shall be applied PRO RATA among such Revolving Loans, PROVIDED
that at the respective Borrower's election in connection with any prepayment of
Revolving Loans pursuant to this Section 4.01(a), such prepayment shall not, so
long as no Default or Event of Default then exists, be applied to any Revolving
Loan of a Defaulting Lender.
(b) In the event of a refusal by a Lender to consent to
certain proposed changes, waivers, discharges or terminations with respect to
this Agreement which have been approved by the Required Lenders as (and to the
extent) provided in Section 13.12(b), the Borrowers may, upon five Business
Days' prior written notice to the Agent at the Notice Office (which notice the
Agent shall promptly transmit to each of the Lenders), repay all Revolving Loans
of such Lender, together with accrued and unpaid interest, Fees and other
amounts owing to such Lender in accordance with, and subject to the requirements
of, said Section 13.12(b) so long as (A) the
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Commitment of such Lender is terminated concurrently with such repayment
pursuant to Section 3.02(b) (at which time Schedule I shall be deemed modified
to reflect the changed Commitments) and (B) the consents, if any, required under
Section 13.12(b) in connection with the repayment pursuant to this clause (b)
have been obtained.
4.02 MANDATORY REPAYMENTS. (a) On any day on which the sum of
(I) the aggregate outstanding principal amount of all Revolving Loans (after
giving effect to all other repayments thereof on such date), (II) the aggregate
outstanding principal amount of all Swingline Loans (after giving effect to all
other repayments thereof on such date) and (III) the aggregate amount of all
Letter of Credit Outstandings exceeds either (A) the Borrowing Base at such time
(based on the Borrowing Base Certificate last delivered) or (B) the Total
Commitment as then in effect, the Borrowers shall prepay on such day the
principal of Swingline Loans and, after all Swingline Loans have been repaid in
full or if no Swingline Loans are outstanding, Revolving Loans in an amount
equal to such excess. If, after giving effect to the prepayment of all
outstanding Swingline Loans and Revolving Loans, the aggregate amount of the
Letter of Credit Outstandings exceeds either (A) the Borrowing Base at such time
(based on the Borrowing Base Certificate last delivered) or (B) the Total
Commitment as then in effect, the Borrowers shall pay to the Agent at the
Payment Office on such day an amount of cash and/or Cash Equivalents equal to
the amount of such excess (up to a maximum amount equal to the Letter of Credit
Outstandings at such time), such cash and/or Cash Equivalents to be held as
security for all obligations of the Borrowers to the Issuing Lenders and the
Lenders hereunder in a cash collateral account to be established by the Agent.
(b) With respect to each repayment of Revolving Loans required
by this Section 4.02, the respective Borrower may designate the Types of
Revolving Loans which are to be repaid and, in the case of Eurodollar Loans, the
specific Borrowing or Borrowings pursuant to which made, PROVIDED that: (i)
repayments of Eurodollar Loans pursuant to this Section 4.02 may only be made on
the last day of an Interest Period applicable thereto unless all Eurodollar
Loans with Interest Periods ending on such date of required repayment and all
Base Rate Loans have been paid in full; (ii) if any repayment of Eurodollar
Loans made pursuant to a single Borrowing shall reduce the outstanding
Eurodollar Loans made pursuant to such Borrowing to an amount less than the
Minimum Borrowing Amount applicable thereto, such Borrowing shall be converted
at the end of the then current Interest Period into a Borrowing of Base Rate
Loans; and (iii) each repayment of any Revolving Loans made pursuant to a
Borrowing shall be applied PRO RATA among such Revolving Loans. In the absence
of a designation by any Borrower as described in the preceding sentence, the
Agent shall, subject to the above, make such designation in its sole discretion.
(c) Notwithstanding anything to the contrary contained in this
Agreement or in any other Credit Document, (i) all then outstanding Revolving
Loans shall be repaid in full on the Final Maturity Date, (ii) all then
outstanding Swingline Loans shall be repaid in full on the Swingline Expiry Date
and (iii) all then outstanding Loans shall be repaid in full on the date on
which a Change of Control occurs.
4.03 METHOD AND PLACE OF PAYMENT. Except as otherwise
specifically provided herein, all payments under this Agreement or under any
Note shall be made to the Agent for the account of the Lender or Lenders
entitled thereto not later than 12:00 Noon (New York time) on
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the date when due and shall be made in Dollars in immediately available funds at
the Payment Office. Whenever any payment to be made hereunder or under any Note
shall be stated to be due on a day which is not a Business Day, the due date
thereof shall be extended to the next succeeding Business Day and, with respect
to payments of principal, interest shall be payable at the applicable rate
during such extension.
4.04 NET PAYMENTS. (a) All payments made by each Borrower
hereunder or under any Note will be made without setoff, counterclaim or other
defense. Except as provided in Section 4.04(b), all such payments will be made
free and clear of, and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature now or hereafter imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein with respect to such payments
(but excluding, except as provided in the second succeeding sentence, any taxes,
levies, imposts, duties, fees, assessments or other charges, and all interest,
charges or similar liabilities with respect thereto imposed on or measured by
the net income or net profits of a the Agent or any Lender pursuant to the laws
of the jurisdiction in which it is organized or the jurisdiction in which the
principal office or applicable lending office of such Agent or Lender is located
or any subdivision thereof or therein) and all interest, penalties or similar
liabilities with respect to such non-excluded taxes, levies, imposts, duties,
fees, assessments or other charges (all such non-excluded taxes, levies,
imposts, duties, fees, assessments or other charges being referred to
collectively as "Taxes"). If any Taxes are so levied or imposed, the respective
Borrower agrees to pay the full amount of such Taxes, and such additional
amounts as may be necessary so that every payment of all amounts due under this
Agreement or under any Note, after withholding or deduction for or on account of
any Taxes, will not be less than the amount provided for herein or in such Note.
If any amounts are payable in respect of Taxes pursuant to the preceding
sentence, the respective Borrower agrees to reimburse each Lender, upon the
written request of such Lender, for taxes imposed on or measured by the net
income or net profits of such Lender pursuant to the laws of the jurisdiction in
which such Lender is organized or in which the principal office or applicable
lending office of such Lender is located or under the laws of any political
subdivision or taxing authority of any such jurisdiction in which such Lender is
organized or in which the principal office or applicable lending office of such
Lender is located and for any withholding of taxes as such Lender shall
determine are payable by, or withheld from, such Lender, in respect of such
amounts so paid to or on behalf of such Lender pursuant to the preceding
sentence and in respect of any amounts paid to or on behalf of such Lender
pursuant to this sentence. The respective Borrower will furnish to the Agent
within 45 days after the date the payment of any Taxes is due pursuant to
applicable law certified copies of tax receipts evidencing such payment by such
Borrower or other evidence reasonably satisfactory to the Agent. Each Borrower
agrees to indemnify and hold harmless each Lender, and reimburse such Lender
upon its written request, for the amount of any Taxes so levied or imposed and
paid by such Lender.
(b) Each Lender that is not a United States person (as such
term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax
purposes agrees to deliver to the Borrowers and the Agent on or prior to the
Restatement Effective Date, or in the case of a Lender that is an assignee or
transferee of an interest under this Agreement pursuant to Section 1.13 or 13.04
(unless the respective Lender was already a Lender hereunder immediately prior
to such assignment or transfer), on the date of such assignment or transfer to
such Lender, (i) two accurate and complete original signed copies of Internal
Revenue Service Form 4224 or 1001 (or
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successor forms) certifying to such Lender's entitlement as of such date to a
complete exemption from United States withholding tax with respect to payments
to be made under this Agreement and under any Note, or (ii) if the Lender is not
a "Bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot
deliver either Internal Revenue Service Form 1001 or 4224 (or any successor
forms) pursuant to clause (i) above, (x) a certificate substantially in the form
of Exhibit D (any such certificate, a "Section 4.04(b)(ii) Certificate") and (y)
two accurate and complete original signed copies of Internal Revenue Service
Form W-8 (or successor form) certifying to such Lender's entitlement to a
complete exemption from United States withholding tax with respect to payments
of interest to be made under this Agreement and under any Note. In addition,
each Lender agrees that from time to time after the Restatement Effective Date,
when a lapse in time or change in circumstances renders the previous
certification obsolete or inaccurate in any material respect, such Lender will
deliver to the Borrowers and the Agent two new accurate and complete original
signed copies of Internal Revenue Service Form 4224 or 1001 (or successor
forms), or Form W-8 (or successor form) and a Section 4.04(b)(ii) Certificate,
as the case may be, and such other forms and the requisite number of copies of
such forms as may be required in order to confirm or establish the entitlement
of such Lender to a continued exemption from or reduction in United States
withholding tax with respect to payments under this Agreement and any Note, or
such Lender shall immediately notify the Borrowers and the Agent of its
inability to deliver any such Form or Certificate, in which case such Lender
shall not be required to deliver any such Form or Certificate pursuant to this
Section 4.04(b). Notwithstanding anything to the contrary contained in Section
4.04(a), but subject to Section 13.04(b) and the immediately succeeding
sentence, (x) each Borrower shall be entitled, to the extent it is required to
do so by law, to deduct or withhold income or similar taxes imposed by the
United States (or any political subdivision or taxing authority thereof or
therein) from interest, Fees or other amounts payable hereunder for the account
of any Lender which is not a United States person (as such term is defined in
Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes to the
extent that such Lender has not provided to such Borrower U.S. Internal Revenue
Service Forms or certificates that establish a complete exemption from such
deduction or withholding and (y) no Borrower shall be obligated pursuant to
Section 4.04(a) hereof to gross-up payments to be made to a Lender in respect of
income or similar taxes imposed by the United States if (I) such Lender has not
provided to the Borrowers the Internal Revenue Service Forms or certificates
required to be provided to the Borrowers pursuant to this Section 4.04(b) or
(II) in the case of a payment, other than interest, to a Lender described in
clause (ii) above, to the extent that such Forms or certificates do not
establish a complete exemption from withholding of such taxes. Notwithstanding
anything to the contrary contained in the preceding sentence or elsewhere in
this Section 4.04 and except as set forth in Section 13.04(b), each Borrower
agrees to pay any additional amounts and to indemnify each Lender in the manner
set forth in Section 4.04(a) (without regard to the identity of the jurisdiction
requiring the deduction or withholding) in respect of any Taxes deducted or
withheld by it as described in the immediately preceding sentence as a result of
any changes that are effective after the Restatement Effective Date in any
applicable law, treaty, governmental rule, regulation, guideline or order, or in
the interpretation thereof, relating to the deducting or withholding of such
Taxes.
(c) If any Borrower pays any additional amounts under this
Section 4.04 to a Lender and such Lender determines in its sole discretion that
it has actually received or realized in connection therewith any refund or any
reduction of, or credit against, its Tax liabilities in or with respect to the
taxable year in which the additional amount is paid (a "Tax Benefit"), such
Lender
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shall pay to such Borrower an amount that such Lender shall, in its sole
discretion, determine is equal to the net benefit, after tax, which was obtained
by such Lender in such year as a consequence of such Tax Benefit; PROVIDED,
HOWEVER, that (i) any Lender may determine, in its sole discretion, whether to
seek a Tax Benefit, (ii) any Taxes that are imposed on a Lender as a result of
disallowance or reduction (including through the expiration of any tax credit
carryover or carryback of such Lender that otherwise would not have expired) of
any Tax Benefit with respect to which such Lender has made a payment to such
Borrower pursuant to this Section 4.04(c) shall be treated as a Tax for which
such Borrower is obligated to indemnify such Lender pursuant to this Section
4.04(c) without any exclusions or defenses and (iii) nothing in this Section
4.04(c) shall require any Lender to disclose any confidential information to any
Borrower (including, without limitation, its tax returns).
(d) Each Lender that is a United States person (as such term
is defined in Section 7701(a)(30) of the Code) and that is not treated as a
corporation (in each case) for U.S. Federal income tax purposes agrees to
deliver to the Borrowers and the Agent, upon the request of the Borrowers, two
accurate and complete original signed copies of Internal Revenue Service Form
W-9 (or successor form).
SECTION 5. CONDITIONS PRECEDENT TO THE RESTATEMENT EFFECTIVE
DATE. The occurrence of the Restatement Effective Date pursuant to Section 13.10
is subject to the satisfaction of the following conditions:
5.01 EXECUTION OF AGREEMENT; NOTES. On or prior to the
Restatement Effective Date, (i) this Agreement shall have been executed and
delivered as provided in Section 13.10 and (ii) there shall have been delivered
to the Agent for the account of each of the Lenders that has requested same the
appropriate Revolving Notes executed by the respective Borrowers and to the
Swingline Lender, to the extent requested by the Swingline Lender, the
appropriate Swingline Notes executed by such Borrowers, in each case, in the
amount, maturity and as otherwise provided herein.
5.02 OFFICER'S CERTIFICATE. On the Restatement Effective Date,
the Agent shall have received a certificate from each Borrower, dated the
Restatement Effective Date and signed on behalf of each such Borrower by the
Chairman of the Board, the Chief Executive Officer, the President or any Vice
President of such Borrower, certifying that all of the conditions in Sections
5.06, 5.07 and 6.02 have been satisfied on such date.
5.03 OPINIONS OF COUNSEL. On the Restatement Effective Date,
the Agent shall have received from Fried, Frank, Harris, Shriver & Jacobson,
special counsel to the Credit Parties, an opinion addressed to the Agent, the
Collateral Agent and each of the Lenders and dated the Restatement Effective
Date covering the matters set forth in Exhibit E and such other matters incident
to the transactions contemplated herein as the Agent may reasonably request.
5.04 CORPORATE DOCUMENTS; PROCEEDINGS; etc. (a) On the
Restatement Effective Date, the Agent shall have received a certificate from
each Credit Party, dated the Restatement Effective Date, signed on behalf of
each such Credit Party by the Chairman of the Board, the Chief Executive
Officer, the President or any Vice President of such Credit Party, and attested
to by the Chief Financial Officer, the Secretary or any Assistant Secretary of
such Credit Party, in the form of Exhibit F with appropriate insertions,
together with copies of the certificate or articles of
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incorporation (or equivalent organizational document) and by-laws of such Credit
Party and the resolutions of such Credit Party referred to in such certificate,
and the foregoing shall be in form and substance reasonably acceptable to the
Agent.
(b) All corporate and legal proceedings and all instruments
and agreements in connection with the transactions contemplated by this
Agreement and the other Credit Documents shall be reasonably satisfactory in
form and substance to the Agent and the Required Lenders, and the Agent shall
have received all information and copies of all documents and papers, including
records of corporate proceedings, governmental approvals, good standing
certificates and bring-down telegrams or facsimiles, if any, which the Agent
reasonably may have requested in connection therewith, such documents and papers
where appropriate to be certified by proper corporate or governmental
authorities.
5.05 EXISTING CREDIT AGREEMENT. On the Restatement Effective
Date and concurrently with the initial incurrence of Loans hereunder, (i) the
total commitments in respect of the Indebtedness under the Existing Credit
Agreement shall have been terminated, all Existing Loans shall have been repaid
in full in cash, together with accrued but unpaid interest thereon, and all
letters of credit issued thereunder shall have been terminated, it being
understood and agreed, however, that any Continuing Lender may net fund any
Loans required to be made by it on the Restatement Effective Date by permitting
the principal amount of the Existing Loans made by such Continuing Lender to
remain outstanding on the Restatement Effective Date to satisfy such Continuing
Lender's obligation to fund a like principal amount of Loans to be incurred
hereunder by the respective Borrowers on the Restatement Effective Date, and for
purposes of this Section 5.05 only such outstanding principal amount shall be
deemed outstanding as Revolving Loans under this Agreement and such
corresponding Existing Loans shall be deemed to have been so repaid in full,
(ii) there shall have been paid in cash in full all accrued but unpaid interest
and fees under the Existing Credit Agreement (including, without limitation, any
commitment fees, letter of credit fees and facing fees) due prior to but
excluding the Restatement Effective Date and all other amounts, costs and
expenses (including, without limitation, breakage costs, if any, with respect to
eurodollar rate loans) then owing to any of the Existing Lenders and/or the
Existing Agent under the Existing Credit Agreement, regardless of whether or not
such amounts would otherwise be due and payable at such time pursuant to the
terms of the Existing Credit Agreement, (iii) all outstanding Notes (as defined
in the Existing Credit Agreement) issued by the Borrowers to the Existing
Lenders under the Existing Credit Agreement shall be deemed cancelled and (iv)
the Agent shall have received from the Existing Agent a letter, in form and
substance satisfactory to the Agent, stating that the Existing Agent has
resigned as Existing Agent under the Existing Credit Agreement.
5.06 ADVERSE CHANGE, ETC. (a) Since December 31, 1997, nothing
shall have occurred (and neither the Agent nor the Lenders shall have become
aware of any facts or conditions not previously known) which the Agent or the
Required Lenders shall reasonably determine (a) has had, or could reasonably be
expected to have, a material adverse effect on the rights or remedies of the
Lenders or the Agent, or on the ability of any Credit Party to perform its
obligations to the Lenders or the Agent hereunder or under any other Credit
Document or (b) has had, or could reasonably be expected to have, a material
adverse effect on the business, operations, property, assets, liabilities,
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries taken as a whole.
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(b) On or prior to the Restatement Effective Date, all
necessary governmental (domestic and foreign) and third party approvals and/or
consents in connection with the transactions contemplated by this Agreement and
the other Credit Documents and otherwise referred to herein or therein shall
have been obtained and remain in effect (including all such consents, if any,
required under the Existing Term Loan Agreement), and all applicable waiting
periods with respect thereto shall have expired without any action being taken
by any competent authority which restrains, prevents or imposes materially
adverse conditions upon the consummation of the transactions contemplated by
this Agreement and the other Credit Documents or otherwise referred to herein or
therein. Additionally, there shall not exist any judgment, order, injunction or
other restraint issued or filed or a hearing seeking injunctive relief or other
restraint pending or notified prohibiting or imposing materially adverse
conditions upon the transactions contemplated by this Agreement and the other
Credit Documents or otherwise referred to herein or therein.
5.07 LITIGATION. Except as set forth on Schedule III, on the
Restatement Effective Date, there shall be no actions, suits or proceedings
pending or, to the best knowledge of any Borrower, threatened (i) with respect
to this Agreement or any other Credit Document or (ii) which the Agent or the
Required Lenders shall reasonably determine could reasonably be expected to have
a material adverse effect on (a) the business, operations, property, assets,
liabilities, condition (financial or otherwise) or prospects of the Company and
its Subsidiaries taken as a whole, (b) the rights or remedies of the Lenders or
the Agent hereunder or under any other Credit Document or (c) the ability of any
Credit Party to perform its respective obligations to the Lenders or the Agent
hereunder or under any other Credit Document.
5.08 PLEDGE AGREEMENTS. On the Restatement Effective Date, (i)
each Credit Party shall have duly authorized, executed and delivered an amended
and restated Company/Sub Pledge Agreement in the form of Exhibit G (as amended,
modified or supplemented from time to time, the "Company/Sub Pledge Agreement")
and shall have delivered to the Collateral Agent, as Pledgee thereunder, all of
the Pledged Securities, if any, referred to therein and then owned by such
Credit Party, (x) endorsed in blank in the case of promissory notes constituting
Pledged Securities and (y) together with executed and undated stock powers in
the case of capital stock constituting Pledged Securities and (ii) each of the
Mas Shareholders shall have duly authorized, executed and delivered an amended
and restated Shareholders Pledge Agreement in the form of Exhibit H (as amended,
modified or supplemented from time to time, the "Shareholders Pledge Agreement")
and shall have delivered to the Collateral Agent as Pledgee thereunder all of
the Pledge Stock, if any, referred to therein and then owned by the Mas
Shareholders, together with executed and undated stock powers.
5.09 SECURITY AGREEMENT. On the Restatement Effective Date,
each Credit Party shall have duly authorized, executed and delivered an amended
and restated Security Agreement in the form of Exhibit I (as modified,
supplemented or amended from time to time, the "Security Agreement") covering
all of such Credit Party's present and future Security Agreement Collateral,
together with:
(i) proper Financing Statements (Form UCC-1 or the equivalent)
fully executed for filing under the UCC or other appropriate filing
offices of each jurisdiction as may be necessary or, in the reasonable
opinion of the Collateral Agent, desirable to perfect the security
interests purported to be created by the Security Agreement;
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(ii) certified copies of Requests for Information or Copies
(Form UCC-11), or equivalent reports, listing all effective financing
statements that name any Credit Party as debtor and that are filed in
the jurisdictions referred to in clause (i) above, together with copies
of such other financing statements that name any Credit Party as debtor
(none of which shall cover the Collateral except to the extent
evidencing Permitted Liens or in respect of which the Collateral Agent
shall have received termination statements (Form UCC-3 or the
equivalent) as shall be required by local law fully executed for
filing);
(iii) evidence of the completion of all other recordings and
filings of, or with respect to, the Security Agreement as may be
necessary to perfect the security interests intended to be created by
the Security Agreement; and
(iv) evidence that all other actions necessary to perfect and
protect the security interests purported to be created by the Security
Agreement have been taken.
5.10 COMPANY/SUB GUARANTY. On the Restatement Effective Date,
each Guarantor shall have duly authorized, executed and delivered an amended and
restated Company/Sub Guaranty in the form of Exhibit J (as amended, modified or
supplemented from time to time, the "Company/Sub Guaranty").
5.11 COLLATERAL ASSIGNMENT OF LEASES; ETC. On the Restatement
Effective Date, the Collateral Agent shall have received:
(i) fully executed counterparts of Collateral Assignments of
Leases, in form and substance reasonably satisfactory to the Agent,
which Collateral Assignment of Leases shall cover the Leaseholds of the
Credit Parties on the Restatement Effective Date as designated on
Schedule IV; and
(ii) such landlord waivers and/or estoppel certificates as the
Agent may have reasonably requested, which landlord waivers and/or
estoppel certificates shall be in form and substance reasonably
satisfactory to the Agent.
5.12 INTERCREDITOR AGREEMENT. On the Restatement Effective
Date, the Existing Term Loan Lenders, the Existing Term Loan Agent, each Credit
Party and the Collateral Agent, on behalf of the Lenders, shall have entered
into an amended and restated Intercreditor Agreement in the form of Exhibit K
(as amended, modified or supplemented from time to time, the "Intercreditor
Agreement").
5.13 FINANCIAL STATEMENTS; PRO FORMA BALANCE SHEET;
PROJECTIONS. On or prior to the Restatement Effective Date, the Agent shall have
received true and correct copies of the historical financial statements, the PRO
FORMA balance sheet and the Projections referred to in Sections 7.05(a) and (d),
which historical financial statements, PRO FORMA balance sheet and Projections
shall be in form and substance reasonably satisfactory to the Agent and the
Required Lenders.
5.14 SOLVENCY CERTIFICATE. On the Restatement Effective Date,
the Company shall have delivered to the Agent a solvency certificate from the
Chief Financial Officer of the Company in the form of Exhibit L.
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5.15 INITIAL BORROWING BASE CERTIFICATE. On the Restatement
Effective Date, the Agent shall have received the initial Borrowing Base
Certificate meeting the requirements of Section 8.01(j).
5.16 FEES, ETC. On the Restatement Effective Date, the
Borrowers shall have paid to the Agent and each Lender all costs, fees and
expenses (including, without limitation, reasonable legal fees and expenses)
payable to the Agent and such Lender to the extent then due.
SECTION 6. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS. The
obligation of each Lender to make Loans (including Loans made on the Restatement
Effective Date), and the obligation of each Issuing Lender to issue Letters of
Credit (including Letters of Credit issued on the Restatement Effective Date),
is subject, at the time of each such Credit Event (except as hereinafter
indicated), to the satisfaction of the following conditions:
6.01 RESTATEMENT EFFECTIVE DATE. The Restatement Effective
Date shall have occurred.
6.02 NO DEFAULT; REPRESENTATIONS AND WARRANTIES. At the time
of each such Credit Event and also after giving effect thereto (i) there shall
exist no Default or Event of Default and (ii) all representations and warranties
contained herein and in the other Credit Documents shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on the date of such Credit Event (it being understood
and agreed that any representation or warranty which by its terms is made as of
a specified date shall be required to be true and correct in all material
respects only as of such specified date).
6.03 NOTICE OF BORROWING; LETTER OF CREDIT REQUEST. (a) Prior
to the making of each Revolving Loan (other than a Revolving Loan made pursuant
to a Mandatory Borrowing), the Agent shall have received a Notice of Borrowing
meeting the requirements of Section 1.03(a). Prior to the making of each
Swingline Loan, the Swingline Lender shall have received the notice referred to
in Section 1.03(b)(i).
(b) Prior to the issuance of each Letter of Credit, the Agent
and the respective Issuing Lender shall have received a Letter of Credit Request
meeting the requirements of Section 2.03.
The occurrence of the Restatement Effective Date and the
acceptance of the benefits of each Credit Event shall constitute a
representation and warranty by each Borrower to the Agent and each of the
Lenders that all the conditions specified in Section 5 and in this Section 6 and
applicable to such Credit Event have been satisfied as of that time. All of the
Notes, certificates, legal opinions and other documents and papers referred to
in Section 5 and in this Section 6, unless otherwise specified, shall be
delivered to the Agent at the Notice Office for the account of each of the
Lenders and, except for the Notes, in sufficient counterparts or copies for each
of the Lenders and shall be in form and substance reasonably satisfactory to the
Agent and the Required Lenders.
SECTION 7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. In
order to induce the Lenders to enter into this Agreement and to make the Loans,
and issue (or participate in) the Letters of Credit as provided herein, each
Borrower makes the following representations, warran-
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ties and agreements, in each case after giving effect to the Restatement
Effective Date, all of which shall survive the execution and delivery of this
Agreement and the Notes and the making of the Loans and issuance of the Letters
of Credit, with the occurrence of the Restatement Effective Date and the
occurrence of each Credit Event on or after the Restatement Effective Date being
deemed to constitute a representation and warranty that the matters specified in
this Section 7 are true and correct in all material respects on and as of the
Restatement Effective Date and on the date of each such Credit Event (it being
understood and agreed that any representation or warranty which by its terms is
made as of a specified date shall be required to be true and correct only as of
such specified date).
7.01 CORPORATE STATUS. Each of the Company and each of its
Subsidiaries (i) is a duly organized and validly existing corporation,
partnership or limited liability company, as the case may be, in good standing
under the laws of the jurisdiction of its organization, (ii) has the corporate,
partnership or limited liability company power and authority, as the case may
be, to own its property and assets and to transact the business in which it is
engaged and presently proposes to engage and (iii) is duly qualified and is
authorized to do business and is in good standing in each jurisdiction where the
ownership, leasing or operation of its property or the conduct of its business
requires such qualifications except for failures to be so qualified which,
individually or in the aggregate, could not reasonably be expected to have a
material adverse effect on the business, operations, property, assets,
liabilities, condition (financial or otherwise) or prospects of the Company and
its Subsidiaries taken as a whole.
7.02 CORPORATE AND OTHER POWER AND AUTHORITY. Each Credit
Party has the corporate, partnership or limited liability company power and
authority, as the case may be, to execute, deliver and perform the terms and
provisions of each of the Credit Documents to which it is party and has taken
all necessary corporate action to authorize the execution, delivery and
performance by it of each of such Credit Documents. Each Credit Party has duly
executed and delivered each of the Credit Documents to which it is party, and
each of such Credit Documents constitutes its legal, valid and binding
obligation enforceable in accordance with its terms, except to the extent that
the enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws generally affecting creditors'
rights and by equitable principles (regardless of whether enforcement is sought
in equity or at law).
7.03 NO VIOLATION. Neither the execution, delivery or
performance by any Credit Party of the Credit Documents to which it is a party,
nor compliance by it with the terms and provisions thereof, (i) will contravene
any provision of any law, statute, rule or regulation or any order, writ,
injunction or decree of any court or governmental instrumentality, (ii) will
conflict with or result in any breach of any of the terms, covenants, conditions
or provisions of, or constitute a default under, or result in the creation or
imposition of (or the obligation to create or impose) any Lien (except pursuant
to the Security Documents) upon any of the property or assets of the Company or
any of its Subsidiaries pursuant to the terms of any indenture, mortgage, deed
of trust, credit agreement or loan agreement, or any other material agreement,
contract or instrument, to which the Company or any of its Subsidiaries is a
party or by which it or any of its property or assets is bound or to which it
may be subject or (iii) will violate any provision of the certificate or
articles of incorporation or by-laws (or equivalent organizational documents) of
the Company or any of its Subsidiaries.
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7.04 APPROVALS. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with
(except for those that have otherwise been obtained or made on or prior to the
Restatement Effective Date and which remain in full force and effect on the
Restatement Effective Date), or exemption by, any governmental or public body or
authority, or any subdivision thereof, is required by any Credit Party to
authorize, or is required in connection with, (i) the execution, delivery and
performance of any Credit Document by any Credit Party or (ii) the legality,
validity, binding effect or enforceability of any such Credit Document against
any Credit Party.
7.05 FINANCIAL STATEMENTS; FINANCIAL CONDITION; UNDISCLOSED
LIABILITIES; PROJECTIONS; ETC. (a) The consolidated balance sheet of the Company
and its Subsidiaries for the fiscal year ended on December 31, 1997, and the
related consolidated statements of income, cash flows and shareholders' equity
of the Company and its Subsidiaries for the fiscal year ended on such date,
copies of which have been furnished to the Lenders on or prior to the
Restatement Effective Date, present fairly in all material respects the
consolidated financial position of the Company and its Subsidiaries at the date
of such balance sheet and the consolidated results of the operations of the
Company and its Subsidiaries for the periods covered thereby. All of the
foregoing financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied. The PRO FORMA consolidated
balance sheet of the Company and its Subsidiaries as of December 31, 1997 and
after giving effect to the Restatement Effective Date, a copy of which has been
furnished to the Lenders on or prior to the Restatement Effective Date, presents
fairly in all material respects the PRO FORMA consolidated financial position of
the Company and its Subsidiaries as of December 31, 1997. Since December 31,
1997, there has been no material adverse change in the business, operations,
property, assets, liabilities, condition (financial or otherwise) or prospects
of the Company and its Subsidiaries taken as a whole.
(b) On and as of the Restatement Effective Date and after
giving effect thereto, (a) the sum of the assets, at a fair valuation, of each
Borrower on a stand-alone basis and of the Company and its Subsidiaries taken as
a whole will exceed its debts; (b) each Borrower on a stand-alone basis and the
Company and its Subsidiaries taken as a whole has not incurred and does not
intend to incur, and does not believe that it will incur, debts beyond its
ability to pay such debts as such debts mature; and (c) each Borrower on a stand
alone basis and the Company and its Subsidiaries taken as a whole will have
sufficient capital with which to conduct its business. For purposes of this
Section 7.05(b), "debt" means any liability on a claim, and "claim" means (i)
right to payment, whether or not such a right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured or (ii) right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured. The amount of contingent liabilities at any time shall be computed
as the amount that, in the light of all the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability.
(c) Except as fully disclosed in the financial statements
delivered pursuant to Section 7.05(a) or with respect to the Investment by the
Company or any Wholly-Owned Subsidiary thereof in Sullair Argentina as
contemplated in Section 9.05(xiii), there were as of the Restatement Effective
Date no liabilities or obligations with respect to the Company or any of its
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Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether or not due) which, either individually or in aggregate,
could reasonably be expected to be material to the Company and its Subsidiaries
taken as a whole. As of the Restatement Effective Date, no Borrower knows of any
basis for the assertion against it or any of its Subsidiaries of any liability
or obligation of any nature whatsoever that is not fully disclosed in the
financial statements delivered pursuant to Section 7.05(a) which, either
individually or in the aggregate, could reasonably be expected to be material to
the Company and its Subsidiaries taken as a whole.
(d) On and as of the Restatement Effective Date, the
Projections delivered to the Agent and the Lenders prior to the Restatement
Effective Date have been prepared in good faith and are based on reasonable
assumptions, and there are no statements or conclusions in the Projections which
are based upon or include information known to any Borrower to be misleading in
any material respect or which fail to take into account material information
known to any Borrower regarding the matters reported therein. On the Restatement
Effective Date, each Borrower believes that the Projections are reasonable and
attainable, it being recognized by the Lenders, however, that projections as to
future events are not to be viewed as facts and that the actual results during
the period or periods covered by the Projections may differ from the projected
results and that the differences may be material.
7.06 LITIGATION. Except as set forth in Schedule III, there
are no actions, suits or proceedings pending or, to the best knowledge of any
Borrower, threatened (i) with respect to this Agreement or any other Credit
Document, (ii) with respect to any material Indebtedness of any Borrower or any
of its Subsidiaries or (iii) that are reasonably likely to materially and
adversely affect the business, operations, property, assets, liabilities,
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries taken as a whole.
7.07 TRUE AND COMPLETE DISCLOSURE. All factual information
(taken as a whole) furnished by or on behalf of any Credit Party in writing to
the Agent or any Lender for purposes of or in connection with this Agreement,
the other Credit Documents or any transaction contemplated herein or therein is,
and all other such factual information (taken as a whole) hereafter furnished by
or on behalf of any Credit Party in writing to the Agent or any Lender will be,
true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
fact necessary to make such information (taken as a whole) not misleading in any
material respect at such time in light of the circumstances under which such
information was provided.
7.08 USE OF PROCEEDS; MARGIN REGULATIONS. (a) All proceeds of
the Revolving Loans and the Swingline Loans shall be used for the working
capital and general corporate purposes of the Company and its Subsidiaries
(including, without limitation, for Permitted Acquisitions).
(b) No part of any Credit Event (or the proceeds thereof) will
be used to purchase or carry any Margin Stock. Neither the making of any Loan
nor the use of the proceeds thereof nor the occurrence of any other Credit Event
will violate or be inconsistent with the provisions of Regulation T, U or X of
the Board of Governors of the Federal Reserve System.
7.09 TAX RETURNS AND PAYMENTS. Each of the Company and each of
its Subsidiaries has filed all federal and state income tax returns and all
other material tax returns, domestic
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and foreign, required to be filed by it and has paid all taxes and assessments
payable by it which have become due, except for those contested in good faith
and adequately disclosed and fully provided for in the financial statements of
the Company and its Subsidiaries in accordance with generally accepted
accounting principles. The Company and each of its Subsidiaries have paid, or
have provided adequate reserves (in the good faith judgment of the management of
the Company) for the payment of, all federal, state and other material income
taxes applicable for all prior fiscal years and for the current fiscal year to
date. There is no material action, suit, proceeding, investigation, audit, or
claim now pending or, to the knowledge of any Borrower threatened, by any
authority regarding any taxes relating to the Company or any of its
Subsidiaries. As of the Restatement Effective Date, neither the Company nor any
of its Subsidiaries has entered into an agreement or waiver or been requested to
enter into an agreement or waiver extending any statute of limitations relating
to the payment or collection of taxes of the Company or any of its Subsidiaries,
or is aware of any circumstances that would cause the taxable years or other
taxable periods of the Company or any of its Subsidiaries not to be subject to
the normally applicable statute of limitations.
7.10 COMPLIANCE WITH ERISA. (i) Each Plan (and each related
trust, insurance contract or fund) is in compliance with its terms and with all
applicable laws, including without limitation ERISA and the Code, except for any
such instances of noncompliance as could not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, liabilities, condition (financial or otherwise)
or prospects of the Company and its Subsidiaries taken as a whole; each Plan
(and each related trust, if any) which is intended to be qualified under Section
401(a) of the Code has received a determination letter from the Internal Revenue
Service to the effect that it meets the requirements of Sections 401(a) and
501(a) of the Code; no Reportable Event has occurred and is continuing; no Plan
which is a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) is
insolvent or in reorganization; no Plan has an Unfunded Current Liability; no
Plan which is subject to Section 412 of the Code or Section 302 of ERISA has an
accumulated funding deficiency, within the meaning of such sections of the Code
or ERISA, or has applied for or received a waiver of an accumulated funding
deficiency or an extension of any amortization period, within the meaning of
Section 412 of the Code or Section 303 or 304 of ERISA; except as could not
reasonably be expected to result in any material liability to the Company or any
of its Subsidiaries, all contributions required to be made with respect to a
Plan have been timely made; neither the Company nor any Subsidiary of the
Company nor any ERISA Affiliate has incurred any material liability (including
any indirect, contingent or secondary liability) to or on account of a Plan
pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204
or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or, to the
knowledge of any executive officer of the Company, expects to incur any such
material liability under any of the foregoing sections with respect to any Plan;
no condition exists which presents a material risk to the Company or any
Subsidiary of the Company or any ERISA Affiliate of incurring a material
liability to or on account of a Plan pursuant to the foregoing provisions of
ERISA and the Code; no proceedings have been instituted to terminate or appoint
a trustee to administer any Plan which is subject to Title IV of ERISA; no
material action, suit, proceeding, hearing, audit or investigation with respect
to the administration, operation or the investment of assets of any Plan (other
than routine claims for benefits) is pending or, to the knowledge of any
executive officer of the Company, expected or threatened; using actuarial
assumptions and computation methods consistent with Part 1 of subtitle E of
Title IV of ERISA, the aggregate liabilities of the Company and its Subsidi-
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aries and its ERISA Affiliates to all Plans which are multiemployer plans (as
defined in Section 4001(a)(3) of ERISA) in the event of a complete withdrawal
therefrom, as of the close of the most recent fiscal year of each such Plan
ended prior to the date of the most recent Credit Event, would not exceed an
amount that is material to the Company and its Subsidiaries taken as a whole; no
material lien imposed under the Code or ERISA on the assets of the Company or
any Subsidiary of the Company or any ERISA Affiliate exists or, to the knowledge
of any executive officer of the Company, is likely to arise on account of any
Plan; and the Company and its Subsidiaries may cease contributions to or
terminate any employee benefit plan maintained by any of them without incurring
any material liability.
(ii) Each Foreign Pension Plan has been maintained in material
compliance with its terms and with the requirements of any and all applicable
laws, statutes, rules, regulations and orders and has been maintained, where
required, in good standing with applicable regulatory authorities. All
contributions required to be made with respect to a Foreign Pension Plan have
been made and no material liability has occurred as a result of any failure to
make any such contribution in a timely manner. Neither the Company nor any of
its Subsidiaries has incurred any material obligation in connection with the
termination of or withdrawal from any Foreign Pension Plan. The present value of
the accrued benefit liabilities (whether or not vested) under each Foreign
Pension Plan, determined as of the end of the Company's most recently ended
fiscal year on the basis of actuarial assumptions, each of which is reasonable,
did not exceed the current value of the assets of such Foreign Pension Plan
allocable to such benefit liabilities.
7.11 THE SECURITY DOCUMENTS. (a) The security interests
created in favor of the Collateral Agent, as Pledgee, for the benefit of the
Secured Creditors, under each Pledge Agreement constitute first priority
perfected security interests in the Pledged Securities described in such Pledge
Agreement, subject to no security interests of any other Person. No filings or
recordings are required in order to perfect (or maintain the perfection or
priority of) the security interests created in the Pledged Securities under the
Pledge Agreements.
(b) The provisions of the Security Agreement are effective to
create in favor of the Collateral Agent for the benefit of the Secured Creditors
a legal, valid and enforceable security interest in all right, title and
interest of the Credit Parties party thereto in the Security Agreement
Collateral described therein, and the Collateral Agent, for the benefit of the
Secured Creditors, has a fully perfected first lien on, and security interest
in, all right, title and interest in all of the Security Agreement Collateral
described therein, subject to no other Liens other than Permitted Liens.
(c) Upon the execution and delivery thereof, the Mortgages
create, for the obligations purported to be secured thereby, a valid and
enforceable perfected security interest in and mortgage lien on all of the
Mortgaged Properties in favor of the Collateral Agent (or such other trustee as
may be required or desired under local law) for the benefit of the Secured
Creditors, superior to and prior to the rights of all third Persons (except that
the security interest and mortgage lien created in the Mortgage Properties may
be subject to Permitted Encumbrances related thereto) and subject to no other
Liens (other than Liens permitted under Section 9.01).
(d) The provisions of the Collateral Assignments of Leases are
effective to create in favor of the Collateral Agent for the benefit of the
Secured Creditors a legal, valid and enforceable security interest in all right,
title and interest of the Credit Parties party thereto in the Lease-
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holds described herein, and the Collateral Agent, for the benefit of the Secured
Creditors, has a fully perfected first lien on, and security interest in, all
right, title and interest in all of the Leaseholds described therein, subject to
no other Liens other than Permitted Liens.
7.12 PROPERTIES. All Real Property owned or leased by the
Company or any of its Subsidiaries as of the Restatement Effective Date, and the
nature of the interest therein, is correctly set forth in Schedule IV. The
Company and each of its Subsidiaries have good and marketable title to all
material properties owned by them, including all property reflected in Schedule
IV and in the balance sheets referred to in Section 7.05(a) (except as sold or
otherwise disposed of since the date of such balance sheet in the ordinary
course of business or as permitted by the terms of this Agreement or the
Existing Credit Agreement), free and clear of all Liens, other than Permitted
Liens.
7.13 CAPITALIZATION. On the Restatement Effective Date, the
authorized capital stock of the Company consists of (i) 100,000,000 shares of
Class A common stock, $.01 par value per share, of which 103,225 shares are
issued and outstanding, (ii) 20,000,000 shares of Class B special common stock,
$.01 par value per share, of which 67,649 shares are issued and outstanding,
(iii) 519,503 shares of Series A preferred stock ("Series A Preferred Stock"),
$.01 par value per share, of which 340,907 shares are issued and outstanding,
(iv) 800,000 shares of Series B preferred stock, $.01 par value per share, of
which no shares are issued and outstanding, (v) 800,000 shares of Series C
preferred stock, $.01 par value per share, of which no shares are issued and
outstanding and (vi) 17,880,497 shares of blank-check preferred stock, $.01 par
value per share, of which no shares are issued and outstanding. All outstanding
shares of capital stock of the Company have been duly and validly issued and are
fully paid and non-assessable and are free of preemptive rights. Except as set
forth on Schedule V, the Company does not have outstanding any securities
convertible into or exchangeable for its capital stock or outstanding any rights
to subscribe for or to purchase, or any options for the purchase of, or any
agreement providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to, its capital stock, except
for options or warrants to purchase shares of the Company's common stock which
may be issued from time to time, including options under the Company's stock
incentive plan.
7.14 SUBSIDIARIES. As of the Restatement Effective Date, the
Company has no Subsidiaries other than those Subsidiaries listed on Schedule VI.
Schedule VI correctly sets forth, as of the Restatement Effective Date, the
percentage ownership (direct or indirect) of the Company in each class of
capital stock or other equity of each of its Subsidiaries and also identifies
the direct owner thereof.
7.15 COMPLIANCE WITH STATUTES, ETC. Each of the Company and
each of its Subsidiaries is in compliance with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property (including applicable statutes,
regulations, orders and restrictions relating to environmental standards and
controls), except such noncompliances as could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
business, operations, property, assets, liabilities, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries taken as a whole.
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7.16 INVESTMENT COMPANY ACT. Neither the Company nor any of
its Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
7.17 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company
nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
7.18 ENVIRONMENTAL MATTERS. (a) The Company and each of its
Subsidiaries have complied with, and on the date of each Credit Event are in
compliance with, all applicable Environmental Laws and the requirements of any
permits issued under such Environmental Laws. There are no pending or, to the
best knowledge of any Borrower, threatened Environmental Claims against the
Company or any of its Subsidiaries (including any such claim arising out of the
ownership, lease or operation by the Company or any of its Subsidiaries of any
Real Property no longer owned or operated by the Company or any of its
Subsidiaries) or any Real Property owned, leased or operated by the Company or
any of its Subsidiaries. There are no facts, circumstances, conditions or
occurrences with respect to the business or operations of the Company or any of
its Subsidiaries, or any Real Property owned, leased or operated by the Company
or any of its Subsidiaries (including any Real Property formerly owned, leased
or operated by the Borrower or any of its Subsidiaries but no longer owned,
leased or operated by the Company or any of its Subsidiaries) or any property
adjoining or adjacent to any such Real Property that could be expected (i) to
form the basis of an Environmental Claim against the Company or any of its
Subsidiaries or any Real Property owned, leased or operated by the Company or
any of its Subsidiaries or (ii) to cause any Real Property owned, leased or
operated by the Company or any of its Subsidiaries to be subject to any
restrictions on the ownership, lease, occupancy or transferability of such Real
Property by the Company or any of its Subsidiaries under any applicable
Environmental Law.
(b) Notwithstanding anything to the contrary in this Section
7.18, the representations made in this Section 7.18 shall only be untrue if the
effect of any or all violations, claims, restrictions, failures and
noncompliances of the types described above could, either individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
business, operations, property, assets, liabilities, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries taken as a whole.
7.19 LABOR RELATIONS. Neither the Company nor any of its
Subsidiaries is engaged in any unfair labor practice that could reasonably be
expected to have a material adverse effect on the Company and its Subsidiaries
taken as a whole. There is (i) no unfair labor practice complaint pending
against the Company or any of its Subsidiaries or, to the best of knowledge of
any Borrower, threatened against any of them, before the National Labor
Relations Board, and no grievance or arbitration proceeding arising out of or
under any collective bargaining agreement is so pending against the Company or
any of its Subsidiaries or, to the best knowledge of any Borrower, threatened
against any of them, (ii) no strike, labor dispute, slowdown or stoppage pending
against the Company or any of its Subsidiaries or, to the best knowledge of any
Borrower, threatened against the Company or any of its Subsidiaries and (iii) no
union representation question exists with respect to the employees of the
Company or any of its Subsidiaries,
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except (with respect to any matter specified in clause (i), (ii) or (iii) above,
either individually or in the aggregate) such as could not reasonably be
expected to have a material adverse effect on the business, operations,
property, assets, liabilities, condition (financial or otherwise) or prospects
of the Company and its Subsidiaries taken as a whole.
7.20 PATENTS, LICENSES, FRANCHISES AND FORMULAS. Each of the
Company and each of its Subsidiaries owns or has the right to use all the
patents, trademarks, permits, service marks, trade names, copyrights, licenses,
franchises, proprietary information (including but not limited to rights in
computer programs and databases) and formulas, or rights with respect to the
foregoing, and has obtained assignments of all leases and other rights of
whatever nature, necessary for the present conduct of its business, without any
known conflict with the rights of others which, or the failure to obtain which,
as the case may be, could reasonably be expected to result in a material adverse
effect on the business, operations, property, assets, liabilities, condition
(financial or otherwise) or prospects of the Company and its Subsidiaries taken
as a whole.
7.21 INDEBTEDNESS. Schedule VII sets forth a true and complete
list of all Indebtedness (including Contingent Obligations) of the Company and
its Subsidiaries as of the Restatement Effective Date (excluding the Loans, the
Letters of Credit and Indebtedness under the Existing Term Loan Agreement, the
"Existing Indebtedness"), in each case showing the aggregate principal amount
thereof and the name of the respective borrower and any Credit Party or any of
its Subsidiaries which directly or indirectly guarantees such debt.
7.22 SENIOR SUBORDINATED NOTES. On and after the issuance of
any Senior Subordinated Notes, the subordination provisions contained in the
Senior Subordinated Notes and in the other Senior Subordinated Note Documents
are enforceable against the respective Credit Parties party thereto and the
holders of the Senior Subordinated Notes, and all Obligations and Guaranteed
Obligations (as defined in the Company/Sub Guaranty) are within the definition
of "Senior Debt" or "Guarantor Senior Debt," as the case may be, included in
such subordination provisions.
SECTION 8. AFFIRMATIVE COVENANTS. Each Borrower hereby
covenants and agrees that on and after the Restatement Effective Date and until
the Total Commitment and all Letters of Credit have terminated and the Loans,
Notes and Unpaid Drawings, together with interest, Fees and all other
Obligations incurred hereunder and thereunder, are paid in full:
8.01 INFORMATION COVENANTS. The Company will furnish to each
Lender:
(a) MONTHLY REPORTS. Within 30 days after the end of each
fiscal month of the Company (commencing with its fiscal month ending April 30,
1998), the consolidated and consolidating balance sheets of the Company and its
Subsidiaries as at the end of such fiscal month and the related consolidated and
consolidating statements of income and retained earnings and statement of cash
flows for such fiscal month and for the elapsed portion of the fiscal year ended
with the last day of such fiscal month, in each case setting forth comparative
figures for the corresponding fiscal month in the prior year and the budgeted
figures for such fiscal month as set forth in the respective budget delivered
pursuant to Section 8.01(e).
(b) QUARTERLY FINANCIAL STATEMENTS. Within 45 days after the
close of the first three quarterly accounting periods in each fiscal year of the
Company, the consolidated and
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consolidating balance sheets of the Company and its Subsidiaries as at the end
of such quarterly accounting period and the related consolidated and
consolidating statements of income and retained earnings and statement of cash
flows for such quarterly accounting period and for the elapsed portion of the
fiscal year ended with the last day of such quarterly accounting period, in each
case setting forth comparative figures for the related periods in the prior
fiscal year, all of which shall be certified by the Chief Financial Officer of
the Borrower, subject to normal year-end audit adjustments and the absence of
footnotes.
(c) ANNUAL FINANCIAL STATEMENTS. Within 90 days after the
close of each fiscal year of the Company, (i) the consolidated and consolidating
balance sheets of the Company and its Subsidiaries as at the end of such fiscal
year and the related consolidated and consolidating statements of income and
retained earnings and statement of cash flows for such fiscal year setting forth
comparative figures for the preceding fiscal year and (x) in the case of the
consolidated financial statements, certified by Deloitte & Touche LLP or such
other independent certified public accountants of recognized national standing
reasonably acceptable to the Agent, together with a report of such accounting
firm stating that in the course of its regular audit of the financial statements
of the Company and its Subsidiaries, which audit was conducted in accordance
with generally accepted auditing standards, such accounting firm obtained no
knowledge of any Default or an Event of Default which has occurred and is
continuing or, if in the opinion of such accounting firm such a Default or Event
of Default has occurred and is continuing, a statement as to the nature thereof
and (y) in the case of the consolidating financial statements, certified by the
Chief Financial Officer of the Company and (ii) management's discussion and
analysis of the important operational and financial developments during such
fiscal year.
(d) MANAGEMENT LETTERS. Promptly after the Company's or any of
its Subsidiaries' receipt thereof, a copy of any "management letter" received
from its certified public accountants and management's response thereto.
(e) BUDGETS. No later than 30 days following the first day of
each fiscal year of the Company, a budget in form reasonably satisfactory to the
Agent (including budgeted statements of income and sources and uses of cash and
balance sheets) prepared by the Company for (i) each of the twelve months of
such fiscal year prepared in detail and (ii) for each of the immediately two
succeeding fiscal years prepared in summary form, in each case setting forth,
with appropriate discussion, the principal assumptions upon which such budgets
are based.
(f) OFFICER'S CERTIFICATES. At the time of the delivery of the
financial statements provided for in Sections 8.01(b) and (c), a certificate of
the Chief Financial Officer of the Company to the effect that, to the best of
such officer's knowledge, no Default or Event of Default has occurred and is
continuing or, if any Default or Event of Default has occurred and is
continuing, specifying the nature and extent thereof, which certificate shall
set forth in reasonable detail the calculations required to establish (A)
whether the Company and its Subsidiaries were in compliance with the provisions
of Sections 3.03(b), 3.03(d), 9.04, 9.05 and 9.07 through 9.09, inclusive, at
the end of such fiscal quarter or year, as the case may be and (B) the
Applicable Base Rate Margin, the Applicable Eurodollar Rate Margin and the
Applicable Commitment Commission Percentage, in each case for the Applicable
Margin Period commencing with the date of the delivery of such financial
statements.
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(g) NOTICE OF DEFAULT OR LITIGATION. Promptly upon, and in any
event within five Business Days after, an officer of any Credit Party obtains
knowledge thereof, notice of (i) the occurrence of any event which constitutes a
Default or an Event of Default and/or (ii) any litigation or governmental
investigation or proceeding pending (x) against the Company or any of its
Subsidiaries which could reasonably be expected to have a material adverse
effect on the business, operations, property, assets, liabilities, condition
(financial or otherwise) or prospects of the Company and its Subsidiaries taken
as a whole, (y) with respect to any material Indebtedness of the Company or any
of its Subsidiaries or (z) with respect to any Credit Document.
(h) OTHER REPORTS AND FILINGS. Promptly after the filing or
delivery thereof, copies of all financial information, proxy materials and
reports, if any, which the Company or any of its Subsidiaries shall (i) publicly
file with the Securities and Exchange Commission or any successor thereto (the
"SEC") or (ii) deliver to the holders (or any trustee for such holders) of its
other material Indebtedness.
(i) ENVIRONMENTAL MATTERS. Promptly after any officer of any
Credit Party obtains knowledge thereof, notice of one or more of the following
environmental matters, unless such environmental matters could not, individually
or when aggregated with all other such environmental matters, be reasonably
expected to materially and adversely affect the business, operations, property,
assets, liabilities, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries taken as a whole:
(i) any pending or threatened Environmental Claim against the
Company or any of its Subsidiaries or any Real Property owned, leased
or operated by the Company or any of its Subsidiaries;
(ii) any condition or occurrence on or arising from any Real
Property owned, leased or operated by the Company or any of its
Subsidiaries that (a) results in noncompliance by the Company or any of
its Subsidiaries with any applicable Environmental Law or (b) could be
expected to form the basis of an Environmental Claim against the
Company or any of its Subsidiaries or any such Real Property;
(iii) any condition or occurrence on any Real Property owned,
leased or operated by the Company or any of its Subsidiaries that could
be expected to cause such Real Property to be subject to any
restrictions on the ownership, lease, occupancy, use or transferability
by the Company or any of its Subsidiaries of such Real Property under
any Environmental Law; and
(iv) the taking of any removal or remedial action in response
to the actual or alleged presence of any Hazardous Material on any Real
Property owned, leased or operated by the Company or any of its
Subsidiaries as required by any Environmental Law or any governmental
or other administrative agency; PROVIDED, that in any event the Company
shall deliver to each Lender all notices received by the Company or any
of its Subsidiaries from any government or governmental agency under,
or pursuant to, CERCLA which identify the Company or any of its
Subsidiaries as potentially responsible parties for remediation costs
or which otherwise notify the Company or any of its Subsidiaries of
potential liability under CERCLA.
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All such notices shall describe in reasonable detail the
nature of the claim, investigation, condition, occurrence or removal or remedial
action and the Company's or such Subsidiary's response thereto.
(j) BORROWING BASE CERTIFICATE. (x) On the Restatement
Effective Date and (y) not later than 3:00 P.M. (New York time) on the fifteenth
day of each fiscal month of the Company thereafter, a borrowing base certificate
in the form of Exhibit M (each, a "Borrowing Base Certificate"), which shall be
prepared (A) as of March 31, 1998 in the case of the initial Borrowing Base
Certificate and (B) as of the last Business Day of the preceding fiscal month in
the case of each subsequent monthly Borrowing Base Certificate.
(k) OTHER INFORMATION. From time to time, such other
information or documents (financial or otherwise) with respect to the Company or
any of its Subsidiaries as the Agent or any Lender may reasonably request.
8.02 BOOKS, RECORDS AND INSPECTIONS; ANNUAL MEETINGS. (a) The
Company will, and will cause each of its Subsidiaries to, keep proper books of
record and accounts in which full, true and correct entries in conformity with
generally accepted accounting principles and all requirements of law shall be
made of all dealings and transactions in relation to its business and
activities. The Company will, and will cause each of its Subsidiaries to, permit
officers and designated representatives of the Agent or any Lender to visit and
inspect, under guidance of officers of the Company or such Subsidiary, any of
the properties of the Company or such Subsidiary, and to examine the books of
account of the Company or such Subsidiary and discuss the affairs, finances and
accounts of the Company or such Subsidiary with, and be advised as to the same
by, its and their officers and independent accountants, all at such reasonable
times and intervals and to such reasonable extent as the Agent or such Lender
may reasonably request. In addition, the Company will, and will cause each of
the other Credit Parties to, permit upon reasonable prior notice to the Company,
the Agent (or an independent consultant retained by the Agent) to conduct, at
the Company's expense, an audit of the accounts receivable, equipment and
inventory of the Credit Parties and an appraisal of the Financed Equipment, in
each case at such times (but no more frequently than once a year unless an Event
of Default shall have occurred and be continuing) as the Agent or the Required
Lenders shall reasonably require.
(b) At a date to be mutually agreed upon between the Agent and
the Company occurring on or prior to the 120th day after the close of each
fiscal year of the Company, the Company shall, at the request of the Agent, hold
a meeting with all of the Lenders at which meeting shall be reviewed the
financial results of the Company and its Subsidiaries for the previous fiscal
year and the budget presented for the current fiscal year of the Company.
8.03 MAINTENANCE OF PROPERTY; INSURANCE. (a) The Company will,
and will cause each of its Subsidiaries to, (i) keep all property necessary to
the business of the Company and its Subsidiaries in reasonably good working
order and condition, ordinary wear and tear excepted, (ii) maintain insurance in
at least such amounts and against at least such risks as is consistent and in
accordance with industry practice for companies similarly situated owning
similar properties in the same general areas in which the Company or any of its
Subsidiaries operates, and (iii) furnish to the Agent or any Lender, upon
written request, full information as to the insurance carried. At any time that
insurance at or above the levels described on Schedule VIII is not being
maintained by the Company or any Subsidiary of the Company, the Company will, or
will cause one of its
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Subsidiaries to, promptly notify the Agent in writing and, if thereafter
reasonably requested by the Agent or the Required Lenders to do so, the Company
or any such Subsidiary, as the case may be, shall obtain such insurance at such
levels and coverage which are at least as great as those levels described in
Schedule VIII to the extent such insurance is reasonably available at a
reasonable expense.
(b) The Company will, and will cause each of its Subsidiaries
to, at all times keep its property insured in favor of the Collateral Agent, and
all policies (including Mortgage Policies) or certificates (or certified copies
thereof) with respect to such insurance (and any other insurance maintained by
the Company and/or such Subsidiaries) (i) shall be endorsed to the Collateral
Agent's satisfaction for the benefit of the Collateral Agent (including, without
limitation, by naming the Collateral Agent as loss payee and/or additional
insured), (ii) shall state that such insurance policies shall not be cancelled
without at least 30 days' prior written notice thereof by the respective insurer
to the Collateral Agent (or such shorter period of time as a particular
insurance company policy generally provides), (iii) shall provide that the
respective insurers irrevocably waive any and all rights of subrogation with
respect to the Collateral Agent and the Secured Creditors, (iv) shall contain
the standard non-contributing mortgage clause endorsement in favor of the
Collateral Agent with respect to hazard liability insurance, (v) shall, except
in the case of public liability insurance, provide that any losses shall be
payable notwithstanding (A) any act or neglect of the Company or any of its
Subsidiaries, (B) the occupation or use of the properties for purposes more
hazardous than those permitted by the terms of the respective policy if such
coverage is obtainable at commercially reasonable rates and is of the kind from
time to time customarily insured against by Persons owning or using similar
property and in such amounts as are customary, (C) any foreclosure or other
proceeding relating to the insured properties or (D) any change in the title to
or ownership or possession of the insured properties and (vi) shall be deposited
with the Collateral Agent.
(c) If the Company or any of its Subsidiaries shall fail to
insure its property in accordance with this Section 8.03, or if the Company or
any of its Subsidiaries shall fail to so endorse and deposit all policies or
certificates with respect thereto, the Collateral Agent shall have the right
(but shall be under no obligation) to procure such insurance and the Company
agrees to reimburse the Collateral Agent for all reasonable costs and expenses
of procuring such insurance.
8.04 CORPORATE FRANCHISES. The Company will, and will cause
each of its Subsidiaries to, do or cause to be done, all things necessary to
preserve and keep in full force and effect its existence and its material
rights, franchises, licenses and patents; PROVIDED, HOWEVER, that nothing in
this Section 8.04 shall prevent (i) sales of assets and other transactions by
the Company or any of its Subsidiaries in accordance with Section 9.02 or (ii)
the withdrawal by the Company or any of its Subsidiaries of its qualification as
a foreign corporation in any jurisdiction where such withdrawal could not
reasonably be expected to have a material adverse effect on the business,
operations, property, assets, liabilities, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries taken as a whole.
8.05 COMPLIANCE WITH STATUTES, ETC. The Company will, and will
cause each of its Subsidiaries to, comply with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property (including applicable statutes,
regulations, orders
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and restrictions relating to environmental standards and controls), except such
noncompliances as could not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the business, operations,
property, assets, liabilities, condition (financial or otherwise) or prospects
of the Company and its Subsidiaries taken as a whole.
8.06 COMPLIANCE WITH ENVIRONMENTAL LAWS. The Company will, and
will cause each of its Subsidiaries to, comply with all Environmental Laws
applicable to the ownership, lease or use of its Real Property now or hereafter
owned, leased or operated by the Company or any of its Subsidiaries, will
promptly pay or cause to be paid all costs and expenses incurred in connection
with such compliance, and will keep or cause to be kept all such Real Property
free and clear of any Liens imposed pursuant to such Environmental Laws. Neither
the Company nor any of its Subsidiaries will generate, use, treat, store,
Release or dispose of, or permit the generation, use, treatment, storage,
Release or disposal of Hazardous Materials on any Real Property now or hereafter
owned, leased or operated by the Company or any of its Subsidiaries, or
transport or permit the transportation of Hazardous Materials to or from any
such Real Property, except in each case for Hazardous Materials generated, used,
treated, stored, Released or disposed of at any such Real Properties in
compliance with all applicable Environmental Laws and reasonably required in
connection with the operation, use and maintenance of the business or operations
of the Company or its Subsidiaries. Notwithstanding anything to the contrary
contained above in this Section 8.06, no default in the due performance or
observance of any covenant contained in this Section 8.06 shall occur unless the
effect of any or all violations, claims, restrictions, failures and
noncompliances of the types described above could reasonably be expected to,
individually or in the aggregate, have a material adverse effect on the
business, operations, property, assets, liabilities, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries taken as a whole.
8.07 ERISA. As soon as possible and, in any event, within ten
(10) days after the Company, any Subsidiary of the Company or any ERISA
Affiliate knows of the occurrence of any of the following, the Company will
deliver to each of the Lenders a certificate of the Chief Financial Officer of
the Company setting forth the full details as to such occurrence and the action,
if any, that the Company, such Subsidiary or such ERISA Affiliate is required or
proposes to take, together with any notices required or proposed to be given to
or filed with or by the Company, the Subsidiary, the ERISA Affiliate, the PBGC,
a Plan participant or the Plan administrator with respect thereto: that a
Reportable Event has occurred (except to the extent that the Company has
previously delivered to the Lenders a certificate and notices (if any)
concerning such event pursuant to the next clause hereof); that a contributing
sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title
IV of ERISA is subject to the advance reporting requirement of PBGC Regulation
Section 4043.61 (without regard to subparagraph (b)(1) thereof), and an event
described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation
Section 4043 is reasonably expected to occur with respect to such Plan within
the following 30 days; that an accumulated funding deficiency, within the
meaning of Section 412 of the Code or Section 302 of ERISA, has been incurred or
an application may be or has been made for a waiver or modification of the
minimum funding standard (including any required installment payments) or an
extension of any amortization period under Section 412 of the Code or Section
303 or 304 of ERISA with respect to a Plan; except as could not reasonably be
expected to result in a material liability the Company or any of its
Subsidiaries, that any contribution required to be made with respect to a Plan
or Foreign Pension Plan has not been timely made; that a Plan has
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been or may be terminated, reorganized, partitioned or declared insolvent under
Title IV of ERISA; that a Plan has an Unfunded Current Liability; that
proceedings may be or have been instituted to terminate or appoint a trustee to
administer a Plan which is subject to Title IV of ERISA; that a proceeding has
been instituted pursuant to Section 515 of ERISA to collect a delinquent
contribution to a Plan; that the Company, any Subsidiary of the Company or any
ERISA Affiliate will or may incur any material liability (including any
indirect, contingent, or secondary liability) to or on account of the
termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069,
4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 401(a)(29),
4971, 4975 or 4980 of the Code or Section 409 or 502(i) or 502(l) of ERISA or
with respect to a group health plan (as defined in Section 607(1) of ERISA or
Section 4980B(g)(2) of the Code) under Section 4980B of the Code; or that the
Company or any Subsidiary of the Company may incur any material liability
pursuant to any employee welfare benefit plan (as defined in Section 3(1) of
ERISA) that provides benefits to retired employees or other former employees
(other than as required by Section 601 of ERISA) or any Plan or any Foreign
Pension Plan. Upon the request of the Agent, the Company will deliver to each of
the Lenders a complete copy of the annual report (on Internal Revenue Service
Form 5500-series) of each Plan (including, to the extent required, the related
financial and actuarial statements and opinions and other supporting statements,
certifications, schedules and information) required to be filed with the
Internal Revenue Service. In addition to any certificates or notices delivered
to the Lenders pursuant to the first sentence hereof, copies of any records,
documents or other information that must be furnished to the PBGC with respect
to any Plan pursuant to Section 4010 of ERISA, and any material notices received
by the Company, any Subsidiary of the Company or any ERISA Affiliate with
respect to any Plan or Foreign Pension Plan shall be delivered to the Lenders no
later than ten (10) days after the date such records, documents and/or
information has been furnished to the PBGC or such notice has been received by
the Company, the Subsidiary or the ERISA Affiliate, as applicable.
8.08 END OF FISCAL YEARS; FISCAL QUARTERS. The Company will
cause (i) each of its, and each of its Subsidiaries', fiscal years to end on
December 31, and (ii) each of its, and each of its Subsidiaries', fiscal
quarters to end on March 31, June 30, September 30 and December 31.
8.09 PERFORMANCE OF OBLIGATIONS. The Company will, and will
cause each of its Subsidiaries to, perform all of its obligations under the
terms of each mortgage, indenture, security agreement, loan agreement or credit
agreement and each other material agreement, contract or instrument by which it
is bound, except such non-performances as could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
business, operations, property, assets, liabilities, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries taken as a whole.
8.10 PAYMENT OF TAXES. The Company will pay and discharge, and
will cause each of its Subsidiaries to pay and discharge, all taxes, assessments
and governmental charges or levies imposed upon it or upon its income or
profits, or upon any properties belonging to it, prior to the date on which
penalties attach thereto, and all lawful claims for sums that have become due
and payable which, if unpaid, might become a Lien not otherwise permitted under
Section 9.01(i); PROVIDED, that neither the Company nor any of its Subsidiaries
shall be required to pay any such tax, assessment, charge, levy or claim which
is being contested in good faith and by proper pro-
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ceedings if it has maintained adequate reserves with respect thereto in
accordance with generally accepted accounting principles.
8.11 FOREIGN SUBSIDIARIES SECURITY, ETC. If following a change
in the relevant sections of the Code or the regulations, rules, rulings, notice
or other official pronouncements issued or promulgated thereunder, counsel for
the Company reasonably acceptable to the Agent does not within 30 days after a
request from the Agent or the Required Lenders deliver evidence, in form and
substance mutually satisfactory to the Agent and the Company, with respect to
any Foreign Subsidiary of the Company which has not already had all of its stock
pledged by any Credit Party pursuant to the Company/Sub Pledge Agreement that
(i) a pledge of 66-2/3% or more of the total combined voting power of all
classes of capital stock of such Foreign Subsidiary entitled to vote, (ii) the
entering into by such Foreign Subsidiary of a guaranty in substantially the form
of the Company/Sub Guaranty and (iii) the entering into by such Foreign
Subsidiary of a security agreement in substantially the form of the Security
Agreement, in any such case could reasonably be expected to cause (I) the
undistributed earnings of such Foreign Subsidiary as determined for federal
income tax purposes to be treated as a deemed dividend to such Foreign
Subsidiary's United States parent for federal income tax purposes or (II) other
material adverse federal income tax consequences to the Credit Parties, and in
the case of a failure to deliver the evidence described in clause (i) above,
that portion of such Foreign Subsidiary's outstanding capital stock owned by any
Credit Party and not theretofore pledged pursuant to the Company/ Sub Pledge
Agreement shall be pledged to the Collateral Agent for the benefit of the
Secured Creditors pursuant to the Company/Sub Pledge Agreement and in the case
of a failure to deliver the evidence described in clause (ii) or (iii) above,
such Foreign Subsidiary to the extent that same is a Wholly-Owned Subsidiary
shall execute and deliver (x) a counterpart of the Company/Sub Guaranty (or
another guaranty in substantially similar form if needed), guaranteeing the
Obligations of the Borrowers under the Credit Documents and under any Interest
Rate Protection Agreement or Other Hedging Agreement, (y) a counterpart of the
Company/Sub Pledge Agreement (or another pledge agreement in substantially
similar form if needed) securing such Foreign Subsidiary's obligations under the
Company/Sub Guaranty and (z) a counterpart of the Security Agreement (or another
security agreement in substantially similar form if needed) securing such
Foreign Subsidiary's obligations under the Company/Sub Guaranty, in each case to
the extent that the entering into of the Company/Sub Guaranty, the Company/Sub
Pledge Agreement and the Security Agreement is permitted by the laws of the
respective foreign jurisdiction and with all documents delivered pursuant to
this Section 8.11 to be in form and substance reasonably satisfactory to the
Agent.
8.12 ADDITIONAL SECURITY; FURTHER ASSURANCES. (a) The Company
will, and will cause each of the other Credit Parties to, grant to the
Collateral Agent security interests and Mortgages in or Collateral Assignment of
Leases of such Real Property acquired by the Company or such other Credit
Parties after the Restatement Effective Date (or at the time of the acquisition
or creation, after the Restatement Effective Date, of any Subsidiary having an
ownership or leasehold interest in such Real Property) and as may be reasonably
requested from time to time by the Agent or the Required Lenders, it being
understood and agreed that, in any event, upon the termination of the existing
Liens encumbering the Atlantic Properties, Neff Machinery shall grant mortgages
to the Collateral Agent in respect of such Atlantic Properties. All such
security interests, mortgages and/or Collateral Assignment of Leases shall be
granted pursuant to documentation reasonably satisfactory in form and substance
to the Agent and shall constitute valid
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and enforceable perfected security interests superior to and prior to the rights
of all third Persons and subject to no other Liens except for Permitted Liens.
Such Security Documents or instruments related thereto shall have been duly
recorded or filed in such manner and in such places as are required by law to
establish, perfect, preserve and protect the Liens in favor of the Collateral
Agent required to be granted pursuant to such Security Documents and all taxes,
fees and other charges payable in connection therewith shall have been paid in
full.
(b) The Company will, and will cause each of the other Credit
Parties to, at the expense of the Company, make, execute, endorse, acknowledge,
file and/or deliver to the Collateral Agent from time to time such vouchers,
invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, real
property surveys, reports and other assurances or instruments and take such
further steps relating to the Collateral covered by any of the Security
Documents as the Collateral Agent may reasonably require. Furthermore, the
Company will cause to be delivered to the Collateral Agent such opinions of
counsel, mortgage policies, title insurance and other related documents as may
be reasonably requested by the Collateral Agent to assure itself that this
Section 8.12 has been complied with.
(c) If the Agent or the Required Lenders reasonably determine
that they are required by law or regulation to have appraisals prepared in
respect of the Mortgaged Properties, the Company will provide, at its own
expense, to the Agent appraisals which satisfy the applicable requirements of
the Real Estate Appraisal Reform Amendments of the Financial Institution Reform,
Recovery and Enforcement Act of 1989, as amended, and which otherwise shall be
in form and substance reasonably satisfactory to the Agent and the Required
Lenders.
(d) The Company agrees that each action required above by this
Section 8.12 shall be completed as soon as possible, but in no event later than
75 days after such action is either requested to be taken by the Agent or the
Required Lenders or required to be taken by the Company and/or its Subsidiaries
pursuant to the terms of this Section 8.12; PROVIDED that, in no event will the
Company or any of its Subsidiaries be required to take any action, other than
using its best efforts, to obtain consents from third parties with respect to
its compliance with this Section 8.12.
8.13 IPO. Upon the consummation of the IPO, 100% of the Net
Equity Proceeds therefrom (or such lesser amount necessary to make the repayment
described below) shall be applied to repay all then outstanding loans under the
Existing Term Loan Agreement.
8.14 CASH MANAGEMENT SYSTEM. The Company will, and will cause
each of its Domestic Subsidiaries to, establish and maintain the cash management
system described in Schedule XI or such other cash management system as is
acceptable to the Agent.
8.15 LANDLORD WAIVERS. The Company will, and will cause each
of the other Credit Parties to, use its best efforts to obtain landlord waivers
from time to time, in form and substance reasonably satisfactory to the Agent,
with respect to its Financed Equipment located on any existing or future
premises which are Leaseholds.
SECTION 9. NEGATIVE COVENANTS. Each Borrower hereby covenants
and agrees that on and after the Restatement Effective Date and until the Total
Commitment and all Letters
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of Credit have terminated and the Loans, Notes and Unpaid Drawings, together
with interest, Fees and all other Obligations incurred hereunder and thereunder,
are paid in full:
9.01 LIENS. The Company will not, and will not permit any of
its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or
with respect to any property or assets (real or personal, tangible or
intangible) of the Company or any of its Subsidiaries, whether now owned or
hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable with recourse to the Company
or any of its Subsidiaries), or assign any right to receive income or permit the
filing of any financing statement under the UCC or any other similar notice of
Lien under any similar recording or notice statute; PROVIDED that the provisions
of this Section 9.01 shall not prevent the creation, incurrence, assumption or
existence of the following (Liens described below are herein referred to as
"Permitted Liens"):
(i) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or
governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves have been
established in accordance with generally accepted accounting
principles;
(ii) Liens in respect of property or assets of the Company or
any of its Subsidiaries imposed by law, which were incurred in the
ordinary course of business and do not secure Indebtedness for borrowed
money, such as carriers', warehousemen's, materialmen's and mechanics'
liens and other similar Liens arising in the ordinary course of
business, and (x) which do not in the aggregate materially detract from
the value of the Company's or such Subsidiary's property or assets or
materially impair the use thereof in the operation of the business of
the Company or such Subsidiary or (y) which are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to
any such Lien;
(iii) Liens in existence on the Restatement Effective Date
which are listed, and the property subject thereto described, in
Schedule IX, but only to the respective date, if any, set forth in such
Schedule IX for the removal, replacement and termination of any such
Liens, plus renewals, replacements and extensions of such Liens to the
extent set forth on Schedule IX, PROVIDED that (x) the aggregate
principal amount of the Indebtedness, if any, secured by such Liens
does not increase from that amount outstanding at the time of any such
renewal, replacement or extension and (y) any such renewal, replacement
or extension does not encumber any additional assets or properties of
the Company or any of its Subsidiaries, it being understood and agreed
that, in any event, (i) the Liens securing the Existing Term Loan
Agreement shall only be permitted on the Collateral and then only on a
subordinated basis on the terms set forth in the Intercreditor
Agreement and no refinancings thereof shall be permitted and (ii) no
refinancings of the Liens encumbering the Atlantic Properties shall be
permitted;
(iv) Liens created pursuant to the Security Documents;
(v) leases or subleases granted to other Persons not
materially interfering with the conduct of the business of the Company
or any of its Subsidiaries;
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(vi) Liens upon assets of the Company or any of its
Subsidiaries subject to Capitalized Lease Obligations to the extent
such Capitalized Lease Obligations are permitted by Section 9.04(iv),
PROVIDED that (x) such Liens only serve to secure the payment of
Indebtedness arising under such Capitalized Lease Obligation and (y)
the Lien encumbering the asset giving rise to the Capitalized Lease
Obligation does not encumber any other asset of the Company or any
Subsidiary of the Company;
(vii) Liens placed upon equipment, machinery or wholegoods
inventory (including Parts Inventory) acquired after the Restatement
Effective Date and used in the ordinary course of business of the
Company or any of its Subsidiaries at the time of the acquisition
thereof by the Company or any such Subsidiary or within 90 days
thereafter to secure Indebtedness incurred to pay all or a portion of
the purchase price thereof or to secure Indebtedness incurred solely
for the purpose of financing the acquisition of any such equipment,
machinery or wholegoods inventory or extensions, renewals or
replacements of any of the foregoing for the same or a lesser amount,
PROVIDED that (x) such Indebtedness is permitted by Section 9.04(iv)
and (y) in all events, the Lien encumbering the equipment, machinery or
wholegoods inventory so acquired does not encumber any other asset
(including any other Equipment or Inventory (including Parts
Inventory), whether or not provided by the supplier of the specific
item of equipment, machinery or wholegoods inventory being so financed)
of the Company or such Subsidiary;
(viii) easements, rights-of-way, restrictions, encroachments
and other similar charges or encumbrances, and minor title
deficiencies, in each case not securing Indebtedness and not materially
interfering with the conduct of the business of the Company or any of
its Subsidiaries;
(ix) Liens arising from precautionary UCC financing statement
filings regarding operating leases;
(x) Liens arising out of the existence of judgments or awards
in respect of which the Company or any of its Subsidiaries shall in
good faith be prosecuting an appeal or proceedings for review in
respect of which there shall have been secured a subsisting stay of
execution pending such appeal or proceedings, provided that the
aggregate amount of any cash and the fair market value of any property
subject to such Liens do not exceed $1,000,000 at any time outstanding;
(xi) statutory and common law landlords' liens under leases to
which the Company or any of its Subsidiaries is a party;
(xii) Liens (other than Liens imposed under ERISA) incurred in
the ordinary course of business in connection with workers compensation
claims, unemployment insurance and social security benefits;
(xiii) Liens securing (x) the performance of bids, tenders,
leases and contracts in the ordinary course of business and (y)
statutory obligations, surety bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business (exclusive of obligations in respect of the payment for
borrowed money), PROVIDED that the aggregate outstanding amount of
obligations secured by Liens permitted by this clause (xiii) (and the
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value of all cash and property encumbered by Liens permitted pursuant
to this clause (xiii)) shall not at any time exceed $1,000,000;
(xiv) Liens on property or assets acquired pursuant to a
Permitted Acquisition or on property or assets of a Subsidiary of the
Company in existence at the time such Subsidiary is acquired pursuant
to a Permitted Acquisition, PROVIDED that (x) any Indebtedness that is
secured by such Liens is permitted to exist under Section 9.04(ix), and
(y) such Liens are not incurred in connection with, or in contemplation
or anticipation of, such Permitted Acquisition, and do not attach to
any other asset of the Company or any of its Subsidiaries and
(xv) Liens granted by Neff Machinery in favor of John Deere on
any John Deere Property, subject, however, to the John Deere
Subordination Agreement pursuant to which John Deere shall subordinate
its Liens to the Lien of the Collateral Agent for the benefit of the
Lenders in all but such of the assets of Neff Machinery in which John
Deere has provided purchase money financings and shall have a properly
perfected security interest therein and for which the purchase price of
the specific equipment shall remain unpaid, in each case so long as the
obligations secured by any Liens permitted by this clause (xv) are
otherwise permitted under this Agreement.
Notwithstanding anything to the contrary contained above in
this Section 9.01, in no event shall the Company or any other Credit Party
create or permit any Lien to exist on any Pledged Stock or on any of their
Accounts (other than, in each case, Liens described in clause (iv) above and
existing Liens subject to the Intercreditor Agreement in favor of the lenders
under the Existing Term Loan Agreement).
9.02 CONSOLIDATION, MERGER, PURCHASE OR SALE OF ASSETS, ETC.
The Company will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of all or any part of
its property or assets, or enter into any sale-leaseback transactions, or
purchase or otherwise acquire (in one or a series of related transactions) any
part of the property or assets (other than purchases or other acquisitions of
inventory, materials and equipment in the ordinary course of business) of any
Person (or agree to do any of the foregoing at any future time), except that:
(i) Capital Expenditures by the Company and its Subsidiaries
shall be permitted to the extent not in violation of Section 9.07;
(ii) each of the Company and its Subsidiaries may make sales
of inventory in the ordinary course of business;
(iii) each of the Company and its Subsidiaries may rent or
lease Inventory to retail customers in the ordinary course of business;
PROVIDED that:
(a) all such rental or lease arrangements are
evidenced by a written, fully executed agreement by and
between the Company or the applicable Subsidiary, as the case
may be, and the Person to whom such Inventory is rented or
leased (the "Rental Account Party");
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(b) each such rental or lease arrangement provides
for the rental or lease of such Inventory on market terms,
consistent with industry standards (including, without
limitation, purchase by the Rental Account Party of
appropriate property, casualty and liability insurance with
respect to the Inventory rented or leased);
(c) such rental or lease arrangement, to the extent
that same provides the Rental Account Party with the option to
purchase the Inventory which is the subject of such rental or
lease arrangement, shall provide for a purchase price which is
no less than a price reasonably determined by the Company or
the applicable Subsidiary, as the case may be, at the
origination of such agreement to be consistent with industry
standards and then prevailing market conditions;
(d) the agreement evidencing each such rental or
lease agreement shall, if required by the Collateral Agent, be
conspicuously marked with a legend in form and substance
satisfactory to the Collateral Agent, to the effect that such
agreement is subject to the Lien of the Collateral Agent
pursuant to the respective Security Documents;
(e) such rental or lease arrangement shall comply in
all material respects with all applicable laws and
regulations, including, without limitation, any applicable
usury law; and
(f) in respect of each such rental or lease
arrangement, the Company or the applicable Subsidiary, as the
case may be, shall file and maintain any and all financing
statements, notices to owner and other filings and notices
which are necessary or appropriate to insure and protect all
of the Company's or such Subsidiary's right, title and
interest in and to such Inventory against the creditors of and
other claimants against the Rental Account Party and any other
Person;
(iv) each of the Company and its Subsidiaries may sell or assign
to Associates Commercial Corporation, The CIT Group or any other Person
reasonably acceptable to the Agent installment sales contracts
originated by the Company or any such Subsidiary in connection with the
sale of Inventory of such Person in the ordinary course of business,
PROVIDED that the Company or any such Subsidiary shall receive cash
proceeds and/or trade-ins therefor equal to no less than the entire
outstanding principal balance of such contract as of the date of such
sale, together with all accrued and unpaid interest thereon and all
other sums then due and owing the Company or the applicable Subsidiary
thereunder, and each such sale and assignment shall be without recourse
to, or representation or warranty by, the Company or any such
Subsidiary;
(v) each of the Company and its Subsidiaries may sell obsolete
or worn-out assets in the ordinary course of business and fixtures
which are no longer useful in the business of the Company or any of its
Subsidiaries;
(vi) each of the Company and its Subsidiaries may sell or
discount, in each case without recourse and in the ordinary course of
business, accounts receivable arising in the
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ordinary course of business, but only in connection with the compromise
or collection thereof and not as part of any financing transaction;
(vii) each of the Company and its Subsidiaries may sell other
assets (other than the capital stock of a Subsidiary Guarantor) so long
as (i) no Default or no Event of Default then exists or would result
therefrom, (ii) each such sale is in an arm's-length transaction and
the Company or the respective Subsidiary receives at least fair market
value (as determined in good faith by the Company or such Subsidiary,
as the case may be), (iii) the total consideration received by the
Company or such Subsidiary is cash and is paid at the time of the
closing of such sale, (iv) the Net Sale Proceeds therefrom are applied
and/or reinvested as (and to the extent) required by Section 3.03(b)
and (v) the aggregate amount of the proceeds received from all assets
sold pursuant to this clause (vii) shall not exceed $10,000,000 in any
fiscal year of the Company;
(viii) Investments may be made to the extent permitted by Section
9.05;
(ix) each of the Company and its Subsidiaries may lease (as
lessee) real or personal property (so long as any such lease does not
create a Capitalized Lease Obligation except to the extent permitted by
Section 9.04(iv));
(x) the Company and its Wholly-Owned Subsidiaries may acquire
all or substantially all of the assets of any Person (or all or
substantially all of the assets of a product line or division of any
Person) or 100% of the capital stock of any Person (including by
purchasing the remaining portion of the capital stock of any Person in
which the Company or a Wholly-Owned Subsidiary thereof already has an
ownership interest and as a result of which such Person shall become a
Wholly-Owned Subsidiary of the Company) (any such acquisition permitted
by this clause (x), a "Permitted Acquisition"), so long as (i) no
Default or Event of Default then exists or would result therefrom, (ii)
each of the representations and warranties contained in Section 7 shall
be true and correct in all material respects both before and after
giving effect to such Permitted Acquisition, (iii) any Liens or
Indebtedness assumed, incurred or issued in connection with such
Permitted Acquisition are otherwise permitted under Section 9.01 or
9.04, as the case may be, (iv) the only consideration paid by the
Company or any of its Wholly-Owned Subsidiaries in connection with any
Permitted Acquisition consists solely of cash, common stock of the
Company and/or Qualified Preferred Stock of the Company, (v) at least
10 Business Days prior to the consummation of any Permitted
Acquisition, the Company shall deliver to the Agent and each of the
Lenders (x) notice of such Permitted Acquisition, which notice shall
include (to the extent available) any historical and PRO FORMA
financial statements and projections with respect to such Permitted
Acquisition, a summary of the material terms and conditions of such
Permitted Acquisition and any other material information with respect
to such Permitted Acquisition (including without limitation any
offering memoranda or other similar material prepared in connection
therewith), (y) a certificate of the Company's Chief Financial Officer
certifying (and showing the calculations therefor in reasonable detail)
that the Company would have been in compliance with the financial
covenants set forth in Sections 9.08 and 9.09 for the Test Period then
most recently ended prior to the date of the consummation of such
Permitted Acquisition, in each case with such financial covenants to be
determined on a PRO FORMA basis as if such Permitted Acquisition had
been
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consummated on the first day of such Test Period (and assuming that any
Indebtedness incurred, issued or assumed in connection therewith had
been incurred, issued or assumed on the first day of, and had remained
outstanding throughout, such Test Period) and (z) projections (in
reasonable detail) prepared by a the Chief Financial Officer of the
Company for the period from the date of the consummation of such
Permitted Acquisition to the date which is one year thereafter
calculated after giving effect to the respective Permitted Acquisition,
demonstrating that the level of financial performance measured by the
financial covenants set forth in Sections 9.08 and 9.09 shall be better
than or equal to such level as would be required to provide that no
Default or Event of Default will exist under such financial covenants,
as compliance with such financial covenants will be required through
the date which is one year from the date of the consummation of the
respective Permitted Acquisition, it being understood, however, that
with respect to each Permitted Acquisition, the Borrower's PRO FORMA
and projected Leverage Ratio for the respective Test Period shall be at
least .25 below the maximum permitted Leverage Ratio for such Test
Period as set forth in Section 9.09, (vi) the aggregate consideration
paid in connection with all Permitted Acquisitions effected after the
Restatement Effective Date (including, without limitation, any
earn-out, non-compete or deferred compensation arrangements (in each
case as determined in good faith by the Company), the aggregate
principal amount of any Indebtedness incurred, issued or assumed in
connection therewith and the fair market value of any capital stock of
the Company issued in connection therewith (as determined in good faith
by the Company) does not exceed $100,000,000, PROVIDED, HOWEVER, until
all outstanding loans under the Existing Term Loan Agreement have been
repaid and same has been terminated, no more than $7,000,000 in the
aggregate may be paid in connection with all such Permitted
Acquisitions, (vii) the Total Unutilized Commitment immediately after
giving effect to any Permitted Acquisition is at least $25,000,000,
(viii) the Borrowing Base at such time (based on the Borrowing Base
Certificate last delivered) would permit the Borrowers to incur at
least $25,000,000 of additional Revolving Loans, (ix) any Person or
assets so acquired are employed in a business permitted by Section
9.13, (x) the total consideration (calculated as described in clause
(vi) above) in respect of all Permitted Acquisitions of any Persons or
assets employed in a business principally located outside of the
continental United States (excluding the purchase by the Company of the
remaining ownership interest in Sullair Argentina not otherwise
purchased pursuant to Section 9.05(xiii)) does not exceed $10,000,000
in the aggregate and (xi) to the extent that the total consideration of
any individual Permitted Acquisition (calculated as described in clause
(vi) above) exceeds $25,000,000, the Company shall (in addition to the
requirements of clauses (i) through (x) above) deliver to the Agent and
each of the Lenders (x) an appraisal of the Person or assets so
acquired, (y) any information with respect to such Permitted
Acquisition required to be delivered by the Company to the SEC and (z)
any other information with respect to such Permitted Acquisition
reasonably requested by the Agent;
(xi) each of the Company and its Subsidiaries may grant leases
or subleases to other Persons not materially interfering with the
conduct of the business of the Company or any of its Subsidiaries;
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(xii) any Subsidiary of the Company may be merged or consolidated
with or into the Company so long as the Company is the surviving
corporation of such merger or consolidation;
(xiii) any Subsidiary of the Company may be merged or consolidated
with or into any Subsidiary Guarantor so long as (i) the Subsidiary
Guarantor is the surviving corporation of such merger or consolidation
and (ii) in addition to the requirements of preceding clause (i), (x)
in the case of any such merger or consolidation involving a
Wholly-Owned Subsidiary of the Company, the Wholly-Owned Subsidiary is
the surviving corporation of such merger or consolidation and (y) in
the case of any such merger or consolidation involving Neff Machinery
or Neff Rental, Neff Machinery or Neff Rental, as the case may be, is
the surviving corporation of such merger or consolidation; and
(xiv) any Subsidiary of the Company that is not a Subsidiary
Guarantor may be merged or consolidated with or into any other
Subsidiary of the Company that is not a Subsidiary Guarantor so long as
in the case of any such merger or consolidation involving a
Wholly-Owned Subsidiary of the Company, the Wholly-Owned Subsidiary is
the surviving corporation of such merger or consolidation.
To the extent the Required Lenders waive the provisions of
this Section 9.02 with respect to the sale of less than all or substantially all
of the Collateral, or any Collateral is sold as permitted by this Section 9.02
(other than to the Company or a Subsidiary thereof), such Collateral shall be
sold free and clear of the Liens created by the respective Security Documents
and the Agent and the Collateral Agent shall be authorized to take any actions
deemed appropriate in order to effect the foregoing.
9.03 DIVIDENDS. The Company will not, and will not permit any
of its Subsidiaries to, authorize, declare or pay any Dividends with respect to
the Company or any of its Subsidiaries, except that:
(i) any Subsidiary of the Company may pay cash Dividends to
the Company or to any Wholly-Owned Subsidiary of the Company;
(ii) any non-Wholly-Owned Subsidiary of the Company may pay
cash Dividends to its shareholders generally so long as the Company or
its respective Subsidiary which owns the equity interest in the
Subsidiary paying such Dividends receives at least its proportionate
share thereof (based upon its relative holding of the equity interest
in the Subsidiary paying such Dividends and taking into account the
relative preferences, if any, of the various classes of equity
interests of such Subsidiary);
(iii) so long as no Default or Event of Default then exists or
would result therefrom, the Company may repurchase outstanding shares
of its common stock (or options to purchase such common stock)
following the death, disability or termination of employment of
officers or employees of the Company or any of its Subsidiaries,
provided that the aggregate amount of Dividends paid by the Company
pursuant to this clause (iii) shall not exceed $1,000,000 in any fiscal
year of the Company;
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(iv) prior to the redemption by the Company of its Series A
Preferred Stock as contemplated in Section 9.03(v), the Company may pay
cash Dividends on its Series A Preferred Stock so long as (i) no
Default or Event of Default then exists or would result therefrom and
(ii) the aggregate amount of such Dividends paid by the Company
pursuant to this clause (iv) does not exceed $1,000,000 in any fiscal
year of the Company;
(v) the Company may redeem its Series A Preferred Stock so long
as such redemption is made with the proceeds received by the Company
from the initial issuance of the Senior Subordinated Notes; and
(vi) the Company may pay Dividends on its Qualified Preferred
Stock solely through the issuance of additional shares of such
Qualified Preferred Stock.
9.04 INDEBTEDNESS. The Company will not, and will not permit
any of its Subsidiaries to, contract, create, incur, assume or suffer to exist
any Indebtedness, except:
(i) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
(ii) Existing Indebtedness outstanding on the Restatement
Effective Date, without giving effect to any subsequent extension,
renewal or refinancing thereof except to the extent expressly permitted
on Schedule VII, PROVIDED that the aggregate principal amount of the
Indebtedness to be extended, renewed or refinanced does not increase
from that amount outstanding at the time of any such extension, renewal
or refinancing;
(iii) Indebtedness under Interest Rate Protection Agreements
entered into with respect to other Indebtedness permitted under this
Section 9.04;
(iv) Indebtedness of the Company and its Subsidiaries
evidenced by Capitalized Lease Obligations and purchase money
Indebtedness subject to Liens permitted under Section 9.01(vii) or
under Section 9.01(xv), PROVIDED that in no event shall the sum of (I)
the aggregate principal amount of all Capitalized Lease Obligations and
(II) the aggregate principal amount of all purchase money Indebtedness
exceed $20,000,000 at any time outstanding;
(v) intercompany Indebtedness among the Company and its
Subsidiaries to the extent permitted by Sections 9.05(ix), (xi) and
(xiv);
(vi) Indebtedness consisting of guaranties by the Company and
its Subsidiaries of other Indebtedness of the Company and its
Subsidiaries otherwise permitted to be incurred under this Section
9.04;
(vii) Indebtedness under Other Hedging Agreements providing
protection against fluctuations in currency values in connection with
the Company's or any of its Subsidiaries' operations so long as
management of the Company or such Subsidiary, as the case may be, has
determined that the entering into of such Other Hedging Agreements are
BONA FIDE hedging activities and are not for speculative purposes;
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(viii) Indebtedness of the Company and the Subsidiary
Guarantors under the Senior Subordinated Notes and the other Senior
Subordinated Note Documents in an aggregate principal amount not to
exceed $400,000,000 (as reduced by any repayments of principal thereof)
so long as (i) no Default or Event of Default then exists or would
result therefrom, (ii) all of the terms and conditions thereof, and the
documentation therefor, shall be satisfactory to the Agent and the
Required Lenders, (iii) at least 5 Business Days prior to the issuance
of any Senior Subordinated Notes, the Company shall deliver to the
Agent and each of the Lenders a certificate from the Company's Chief
Financial Officer certifying (and showing the calculations therefor in
reasonable detail) that the Company would be in compliance with the
financial covenants set forth in Sections 9.08 and 9.09 for the Test
Period then most recently ended prior to the date of the issuance of
such Senior Subordinated Notes, in each case with such financial
covenants to be determined on a PRO FORMA basis as if the issuance of
such Senior Subordinated Notes had occurred on the first day of, and
had remained outstanding throughout, such Test Period, (iv) the Net
Debt Proceeds from the initial issuance of Senior Subordinated Notes
are applied to repay the Existing Indebtedness then encumbering the
Atlantic Properties and to redeem all outstanding shares of Series A
Preferred Stock, and with any amounts in excess thereof to be used for
the Company's and its Subsidiaries' working capital and general
corporate purposes, PROVIDED that the aggregate principal amount of the
initial Senior Subordinated Notes shall not exceed $200,000,000, (v)
the Net Debt Proceeds from the issuance of any subsequent Senior
Subordinated Notes are applied to reduce the Total Commitment pursuant
to Section 3.03(c) and (vi) prior to the issuance of any subsequent
Senior Subordinated Notes, the Company shall deliver evidence
satisfactory to the Agent, including an officers' certificate of the
Company (accompanied by any required financial calculations in
reasonable detail) and an opinion of counsel for the Company, that the
issuance of such subsequent Senior Subordinated Notes are permitted by
the terms of the initial Senior Subordinated Notes and the other Senior
Subordinated Note Documents;
(ix) Indebtedness of a Subsidiary acquired pursuant to a
Permitted Acquisition (or Indebtedness assumed at the time of a
Permitted Acquisition of an asset securing such Indebtedness), PROVIDED
that (x) such Indebtedness was not incurred in connection with, or in
anticipation or contemplation of, such Permitted Acquisition and (y) at
the time of such Permitted Acquisition such Indebtedness does not
exceed 15% of the total value of the assets of the Subsidiary so
acquired or of the asset so acquired, as the case may be;
(x) Indebtedness of the Credit Parties pursuant to the
Existing Term Loan Agreement in an aggregate principal amount not to
exceed $100,000,000 (as reduced by any repayments of principal
thereof); and
(xi) additional unsecured Indebtedness of the Company and its
Subsidiaries not otherwise permitted under this Section 9.04 in an
aggregate principal amount not to exceed $10,000,000 at any time
outstanding.
9.05 ADVANCES, INVESTMENTS AND LOANS. The Company will not,
and will not permit any of its Subsidiaries to, directly or indirectly, lend
money or credit or make advances to any Person, or purchase or acquire any
stock, obligations or securities of, or any other interest in, or make any
capital contribution to, any other Person, or purchase or own a futures contract
or
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otherwise become liable for the purchase or sale of currency or other
commodities at a future date in the nature of a futures contract, or hold any
cash or Cash Equivalents (each of the foregoing an "Investment" and,
collectively, "Investments"), except that the following shall be permitted:
(i) the Company and its Subsidiaries may acquire and hold
accounts receivables owing to any of them, if created or acquired in
the ordinary course of business and payable or dischargeable in
accordance with customary trade terms of the Company or such
Subsidiary;
(ii) the Company and its Subsidiaries may acquire and hold
cash and Cash Equivalents, provided that during any time that Revolving
Loans or Swingline Loans are outstanding the aggregate amount of cash
and Cash Equivalents permitted to be held by the Company and its
Subsidiaries shall not exceed $10,000,000 for any period of five
consecutive Business Days;
(iii) the Company and its Subsidiaries may hold the
Investments held by them on the Restatement Effective Date and
described on Schedule X, PROVIDED that any additional Investments made
with respect thereto shall be permitted only if independently justified
under the other provisions of this Section 9.05;
(iv) the Company and its Subsidiaries may acquire and own
investments (including debt obligations) received in connection with
the bankruptcy or reorganization of suppliers and customers and in good
faith settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business;
(v) the Company and its Subsidiaries may make loans and
advances in the ordinary course of business to their respective
employees so long as the aggregate principal amount thereof at any time
outstanding (determined without regard to any write-downs or write-offs
of such loans and advances) shall not exceed $500,000;
(vi) the Company may acquire and hold obligations of one or
more officers or other employees of the Company or any of its
Subsidiaries in connection with such officers' or employees'
acquisition of shares of common stock of the Company so long as no cash
is paid by the Company or any of its Subsidiaries to such officers or
employees in connection with the acquisition of any such obligations;
(vii) the Borrowers may enter into Interest Rate Protection
Agreements to the extent permitted by Section 9.04(iii);
(viii) the Company and its Subsidiaries may enter into Other
Hedging Agreements to the extent permitted by Section 9.04(vii);
(ix) the Company and the Subsidiary Guarantors may make
Intercompany Loans between or among one another, so long as each
Intercompany Loan shall be evidenced by an Intercompany Note that is
pledged to the Collateral Agent pursuant to the Pledge Agreement;
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(x) the Company and the Subsidiary Guarantors may make cash
common equity contributions to the capital of the respective
Subsidiaries that are Subsidiary Guarantors;
(xi) the Company and the Subsidiary Guarantors may make
additional Intercompany Loans and/or cash equity contributions to
Wholly-Owned Foreign Subsidiaries of the Company which are not
Subsidiary Guarantors in an aggregate amount not to exceed $5,000,000
at any time outstanding (determined without regard to any write-downs
or write-offs thereof), so long as each such Investment that is made as
an Intercompany Loan shall be evidenced by an Intercompany Note that is
pledged to the Collateral Agent pursuant to the Pledge Agreement;
(xii) Permitted Acquisitions shall be permitted pursuant to
Section 9.02(x);
(xiii) the Company or a Wholly-Owned Subsidiary thereof may
acquire at least 51% of the outstanding capital stock of Sullair
Argentina for a purchase price not to exceed $28,000,000 (plus up to
$10,000,000 in the aggregate of earn-out payments to be paid to the
existing shareholders of Sullair Argentina in an amount equal to 65% of
the audited net income of Sullair Argentina for each of the years 1998
and 1999) so long as (i) no Default or Event of Default then exists or
would result therefrom, (ii) each of the representations and warranties
contained in Section 7 shall be true and correct in all material
respects both before and after giving effect to such acquisition, (iii)
any Liens or Indebtedness assumed, incurred or issued in connection
with such acquisition are otherwise permitted under Section 9.01 or
9.04, as the case may be, (iv) at least 10 Business Days prior to the
consummation of such acquisition, the Company shall deliver to the
Agent and each of the Lenders (x) a certificate of the Company's Chief
Financial Officer certifying (and showing the calculations therefor in
reasonable detail) that the Company would have been in compliance with
the financial covenants set forth in Sections 9.08 and 9.09 for the
Test Period then most recently ended prior to the date of the
consummation of such acquisition, in each case with such financial
covenants to be determined on a PRO FORMA basis as if such acquisition
had been consummated on the first day of such Test Period (and assuming
that any Indebtedness incurred, issued or assumed in connection
therewith had been incurred, issued or assumed on the first day of, and
had remained outstanding throughout, such Test Period), and (y)
projections (in reasonable detail) prepared by a the Chief Financial
Officer of the Company for the period from the date of the consummation
of such acquisition to the date which is one year thereafter calculated
after giving effect to such acquisition, demonstrating that the level
of financial performance measured by the financial covenants set forth
in Sections 9.08 and 9.09 shall be better than or equal to such level
as would be required to provide that no Default or Event of Default
will exist under such financial covenants, as compliance with such
financial covenants will be required through the date which is one year
from the date of the consummation of the acquisition, (v) the Total
Unutilized Commitment immediately after giving effect to such
acquisition is at least $25,000,000 and the Borrowing Base at such time
(based on the Borrowing Base Certificate last delivered) would permit
the Borrowers to incur at least $25,000,000 of additional Revolving
Loans; and
(xiv) so long as the Company has received (x) gross cash
proceeds of at least $100,000,000 from the consummation of the IPO and
(y) gross cash proceeds of at least
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$125,000,000 from the initial issuance of the Senior Subordinated
Notes, the Company and its Subsidiaries may make additional Investments
not otherwise permitted under this Section 9.05 in an aggregate amount
not to exceed $20,000,000 at any time outstanding (determined without
regard to any write-downs or write-offs thereof).
9.06 TRANSACTIONS WITH AFFILIATES. The Company will not, and
will not permit any of its Subsidiaries to, enter into any transaction or series
of related transactions, whether or not in the ordinary course of business, with
any Affiliate of the Company or any of its Subsidiaries, other than in the
ordinary course of business and on terms and conditions substantially as
favorable to the Company or such Subsidiary as would reasonably be obtained by
the Company or such Subsidiary at that time in a comparable arm's-length
transaction with a Person other than an Affiliate, except that the following in
any event shall be permitted:
(i) Dividends may be paid to the extent provided in Section
9.03;
(ii) loans may be made and other transactions may be entered
into by the Company and its Subsidiaries to the extent permitted by
Sections 9.02, 9.04 and 9.05; and
(iii) customary fees may be paid to non-officer directors of
the Company and its Subsidiaries.
9.07 CAPITAL EXPENDITURES. (a) The Company will not, and will
not permit any of its Subsidiaries to, make any Capital Expenditures, except
that (i) during the period from the Restatement Effective Date through and
including the last day of the Borrower's fiscal year ending December 31, 1998,
the Borrower and its Subsidiaries (other than Sullair Argentina) may make
Capital Expenditures in an aggregate amount not to exceed $118,000,000 and (ii)
during any fiscal year of the Company set forth below (taken as one accounting
period), the Company and its Subsidiaries (other than Sullair Argentina) may
make Capital Expenditures so long as the aggregate amount of all Capital
Expenditures does not exceed in any fiscal year of the Company set forth below
the respective amount set forth opposite such fiscal year below:
FISCAL YEAR ENDING AMOUNT
------------------ ------
December 31, 1999 $ 80,000,000
December 31, 2000 $ 85,000,000
December 31, 2001 $106,000,000
December 31, 2002 $105,000,000
December 31, 2003 $105,000,000
(b) In addition to the foregoing, in the event that the amount
of Capital Expenditures, permitted to be made by the Company and its
Subsidiaries pursuant to clause (a) above in any fiscal year of the Company
(before giving effect to any increase in permitted Capital Expenditure amount
pursuant to this clause (b)) is greater than the amount of such Capital
Expenditures actually made by the Company and its Subsidiaries during such
fiscal year, the lesser
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of (x) such excess and (y) 25% of the applicable scheduled Capital Expenditure
amount as set forth in such clause (a) above may be carried forward and utilized
to make additional Capital Expenditures in the immediately succeeding fiscal
year, provided that no amounts once carried forward pursuant to this Section
9.07(b) may be carried forward to any fiscal year thereafter and such amounts
may only be utilized after the Company and its Subsidiaries have utilized in
full the permitted Capital Expenditure amount for such fiscal year as set forth
in the table in clause (a) above (without giving effect to any increase in such
amount by operation of this clause (b)).
(c) In addition to the foregoing, the Company and its
Subsidiaries may make Capital Expenditures with the amount of Net Sale Proceeds
received by the Company or any of its Subsidiaries from any Asset Sale so long
as such Net Sale Proceeds are reinvested in replacement assets within 270 days
following the date of such Asset Sale to the extent such Net Sale Proceeds are
not otherwise required to be applied to reduce the Total Commitment pursuant to
Section 3.03(b).
(d) In addition to the foregoing, the Company and its
Subsidiaries may make Capital Expenditures with the amount of Net Insurance
Proceeds received by the Company or any of its Subsidiaries from any Recovery
Event so long as such Net Insurance Proceeds are used to replace or restore any
properties or assets in respect of which such Net Insurance Proceeds were paid
within 270 days following the date of receipt of such Net Insurance Proceeds
from such Recovery Event to the extent such Net Insurance Proceeds are not
otherwise required to be applied to reduce the Total Commitment pursuant to
Section 3.03(d).
(e) In addition to the foregoing, the Company and its
Wholly-Owned Subsidiaries may consummate Permitted Acquisitions to the extent
permitted by Section 9.02(x).
(f) In addition to the foregoing, Sullair Argentina may make
Capital Expenditures.
9.08 CONSOLIDATED INTEREST COVERAGE RATIO. The Company will
not permit the Consolidated Interest Coverage Ratio for any Test Period ending
on the last day of a fiscal quarter of the Company set forth below to be less
than the ratio set forth opposite such fiscal quarter below:
FISCAL QUARTER ENDING RATIO
--------------------- -----
June 30, 1998 2.50:1.00
September 30, 1998 2.50:1.00
December 31, 1998 3.00:1.00
March 31, 1999 3.00:1.00
June 30, 1999 3.00:1.00
September 30, 1999 3.00:1.00
December 31, 1999 3.25:1.00
March 31, 2000 3.25:1.00
June 30, 2000 3.25:1.00
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September 30, 2000 3.25:1.00
December 31, 2000 3.50:1.00
March 31, 2001 3.50:1.00
June 30, 2001 3.50:1.00
September 30, 2001 3.50:1.00
December 31, 2001 3.75:1.00
March 31, 2002 4.00:1.00
June 30, 2002 4.00:1.00
September 30, 2002 4.00:1.00
December 31, 2002 4.00:1.00
March 31, 2003
and the last day of each
fiscal quarter thereafter 4.50:1.00
9.09 MAXIMUM LEVERAGE RATIO. The Company will not permit the
Leverage Ratio at any time during a period set forth below to be greater than
the ratio set forth opposite such period below:
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C>
The last day of the fiscal quarter ending June 30, 1998
through and including the day before the last day of the
fiscal quarter ending September 30, 1998 5.50:1.00
The last day of the fiscal quarter ending September 30, 1998
through and including the day before the last day of the
fiscal quarter ending December 31, 1998 5.25:1.00
The last day of the fiscal quarter ending December 31, 1998
through and including the day before the last day of the
fiscal quarter ending December 31, 1999 4.25:1.00
The last day of the fiscal quarter ending December 31, 1999
through and including the day before the last day of the
fiscal quarter ending December 31, 2000 4.00:1.00
The last day of the fiscal quarter ending December 31, 2000
through and including the day before the last day of the
fiscal quarter ending December 31, 2001 3.75:1.00
The last day of the fiscal quarter ending December 31,
2001 and thereafter 3.50:1.00
</TABLE>
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9.10 LIMITATION ON PAYMENTS OF CERTAIN INDEBTEDNESS;
MODIFICATIONS OF CERTAIN INDEBTEDNESS; MODIFICATIONS OF CERTIFICATE OF
INCORPORATION AND BY-LAWS; ETC. The Company will not, and will not permit any of
its Subsidiaries to, (i) make (or give any notice in respect of) any voluntary
or optional payment or prepayment on or redemption or acquisition for value of,
or any prepayment or redemption as a result of any asset sale, change of control
or similar event of (including in each case, without limitation, by way of
depositing with the trustee with respect thereto or any other Person money or
securities before due for the purpose of paying when due), any Senior
Subordinated Notes or the loans outstanding under the Existing Term Loan
Agreement, PROVIDED that (A) the Company may repurchase outstanding Senior
Subordinated Notes so long as (x) no Default or Event of Default then exists or
would result therefrom, (y) such repurchases are made with proceeds received by
the Company from cash capital contributions and/or from the issuance of shares
of its common stock (other than from the IPO) and/or Qualified Preferred Stock
and (z) the aggregate amount expended in respect of all such repurchases does
not exceed $25,000,000 (exclusive of amounts paid in respect of regularly
accrued interest) and (B) the Company may repay outstanding loans under the
Existing Term Loan Agreement with proceeds received by the Company from cash
capital contributions and issuance of shares of its common stock, (ii) amend or
modify, or permit the amendment or modification of, any provision of the Senior
Subordinated Notes or any other Senior Subordinated Note Document, (iii) amend
or modify, or permit the amendment or modification of, any provision of the
Existing Term Loan Agreement or any other Loan Document (as defined therein),
(iv) amend, modify or change its certificate of incorporation (including,
without limitation, by the filing or modification of any certificate of
designation) or by-laws (or equivalent organizational documents) or any
agreement entered into by it with respect to its capital stock, or enter into
any new agreement with respect to its capital stock, unless such amendment,
modification, change or other action contemplated by this clause (iv) could not
reasonably be adverse to the interests of the Lenders in any material respect,
or (v) enter into any tax sharing agreement, tax allocation agreement or similar
agreements without the prior written consent of the Agent.
9.11 LIMITATION ON CERTAIN RESTRICTIONS ON SUBSIDIARIES. The
Company will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any such Subsidiary to (a) pay
dividends or make any other distributions on its capital stock or any other
interest or participation in its profits owned by the Company or any Subsidiary
of the Company, or pay any Indebtedness owed to the Company or any Subsidiary of
the Company, (b) make loans or advances to the Company or any Subsidiary of the
Company or (c) transfer any of its properties or assets to the Company or any
Subsidiary of the Company, except for such encumbrances or restrictions existing
under or by reason of (i) applicable law, (ii) this Agreement and the other
Credit Documents, (iii) customary provisions restricting subletting or
assignment of any lease governing a leasehold interest of the Company or any
Subsidiary of the Company, (iv) customary provisions restricting assignment of
any licensing agreement or agreements for the provision of services entered into
by the Company or any Subsidiary of the Company in the ordinary course of
business, (v) restrictions on the transfer of any asset subject to a Lien
permitted by Section 9.01, (vi) restrictions set forth in the Existing Term Loan
Agreement and (vii) restrictions set forth in the Senior Subordinated Note
Documents.
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9.12 LIMITATION ON ISSUANCE OF CAPITAL STOCK. (a) The Company
will not, and will not permit any of its Subsidiaries to, issue (i) any
preferred stock (other than Qualified Preferred Stock of the Company, it being
understood and agreed that the Company shall not issue any additional shares of
Series A Preferred Stock except to the extent that the Company is required
pursuant to the terms of its Certificate of Incorporation to pay Dividends
thereon through the issuance of additional shares of Series A Preferred Stock)
or (ii) any redeemable common stock (other than common stock that is redeemable
at the sole option of the Company or such Subsidiary).
(b) The Company will not permit any of its Subsidiaries to
issue any capital stock (including by way of sales of treasury stock) or any
options or warrants to purchase, or securities convertible into, capital stock,
except (i) for transfers and replacements of then outstanding shares of capital
stock, (ii) for stock splits, stock dividends and issuances which do not
decrease the percentage ownership of the Company or any of its Subsidiaries in
any class of the capital stock of such Subsidiary, (iii) to qualify directors to
the extent required by applicable law or (iv) for issuances by newly created or
acquired Subsidiaries in accordance with the terms of this Agreement.
9.13 BUSINESS. The Company and its Subsidiaries will not
engage in any businesses other than the businesses engaged in by the Company and
its Subsidiaries as of the Restatement Effective Date and reasonable extensions
thereof. (including the business currently engaged in by Sullair Argentina).
9.14 LIMITATION ON CREATION OF SUBSIDIARIES. Notwithstanding
anything to the contrary contained in this Agreement, the Company will not, and
will not permit any of its Subsidiaries to, establish, create or acquire after
the Restatement Effective Date any Subsidiary, PROVIDED that the Company and its
Wholly-Owned Subsidiaries shall be permitted to establish, create or, to the
extent permitted by the Agreement, acquire (x) Subsidiaries so long as (i) the
capital stock or other equity interests of each such new Subsidiary (to the
extent owned by a Credit Party) is pledged pursuant to, and to the extent
required by, the Pledge Agreement, (ii) each such new Wholly-Owned Domestic
Subsidiary and, to the extent required by Section 8.11, Wholly-Owned Foreign
Subsidiary, executes a counterpart of the Company/Sub Guaranty, the Pledge
Agreement and the Security Agreement, and (iii) each such new Wholly-Owned
Domestic Subsidiary and, to the extent required by Section 8.11, Wholly-Owned
Foreign Subsidiary, executes and delivers, or causes to be executed and
delivered, all other relevant documentation of the type described in Section 5
as such new Wholly-Owned Subsidiary would have had to deliver if such new
Wholly-Owned Subsidiary were a Credit Party on the Restatement Effective Date
and (y) non-Wholly-Owned Subsidiaries so long as the capital stock or other
equity interest of each such new non-Wholly-Owned Subsidiary (to the extent
owned by a Credit Party) is pledged pursuant to, and to the extent required by,
the Pledge Agreement.
SECTION 10. EVENTS OF DEFAULT. Upon the occurrence of any of
the following specified events (each an "Event of Default"):
10.01 PAYMENTS. Any Borrower shall (i) default in the payment
when due of any principal of any Loan or any Note or (ii) default, and such
default shall continue unremedied for five or more Business Days, in the payment
when due of any interest on any Loan or Note, any
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Unpaid Drawing (or any interest thereon) or any Fees or any other amounts owing
hereunder or thereunder; or
10.02 REPRESENTATIONS, ETC. Any representation, warranty or
statement made (or deemed made) by any Credit Party herein or in any other
Credit Document or in any certificate delivered to the Agent or any Lender
pursuant hereto or thereto shall prove to be untrue in any material respect on
the date as of which made or deemed made; or
10.03 COVENANTS. Any Credit Party shall (i) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 8.01(g)(i) or 8.08 or Section 9 or (ii) default in the due performance
or observance by it of any other term, covenant or agreement contained in this
Agreement or any other Credit Document (other than those set forth in Sections
10.01 and 10.02) and such default shall continue unremedied for a period of 30
days after written notice thereof to the defaulting party by the Agent or the
Required Lenders; or
10.04 DEFAULT UNDER OTHER AGREEMENTS. (i) The Company or any
of its Subsidiaries shall (x) default in any payment of any Indebtedness (other
than the Notes) beyond the period of grace, if any, provided in the instrument
or agreement under which such Indebtedness was created or (y) default in the
observance or performance of any agreement or condition relating to any
Indebtedness (other than the Notes) or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is to
cause, or to permit the holder or holders of such Indebtedness (or a trustee or
agent on behalf of such holder or holders) to cause (determined without regard
to whether any notice is required), any such Indebtedness to become due prior to
its stated maturity, or (ii) any Indebtedness (other than the Notes) of the
Company or any of its Subsidiaries shall be declared to be (or shall become) due
and payable, or required to be prepaid other than by a regularly scheduled
required prepayment, prior to the stated maturity thereof, PROVIDED that it
shall not be a Default or an Event of Default under this Section 10.04 unless
the aggregate principal amount of all Indebtedness as described in preceding
clauses (i) and (ii) is at least $1,000,000; or
10.05 BANKRUPTCY, ETC. The Company or any of its Subsidiaries
shall commence a voluntary case concerning itself under Title 11 of the United
States Code entitled "Bankruptcy," as now or hereafter in effect, or any
successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against the Company or any of its Subsidiaries, and the petition is not
controverted within 10 days, or is not dismissed within 60 days, after
commencement of the case; or a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of the property of
the Company or any of its Subsidiaries; or the Company or any of its
Subsidiaries commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to the Company or any of its Subsidiaries, or there is commenced
against the Company or any of its Subsidiaries any such proceeding which remains
undismissed for a period of 60 days, or the Company or any of its Subsidiaries
is adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the Company or any of its
Subsidiaries suffers any appointment of any custodian or the like for it or any
substantial part of its property to continue undischarged or unstayed for a
period of 60 days; or the Company or any of its Subsidiaries makes a general
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assignment for the benefit of creditors; or any corporate action is taken by the
Company or any of its Subsidiaries for the purpose of effecting any of the
foregoing; or
10.06 ERISA. An event described in each of clause (a), (b) and
(c) below shall have occurred: (a) Any Plan shall fail to satisfy the minimum
funding standard required for any plan year or part thereof under Section 412 of
the Code or Section 302 of ERISA or a waiver of such standard or extension of
any amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a
contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA shall be subject to the advance reporting
requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph
(b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66,
.67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur
with respect to such Plan within the following 30 days, any Plan which is
subject to Title IV of ERISA shall have had or is likely to have a trustee
appointed to administer such Plan, any Plan which is subject to Title IV of
ERISA is, shall have been or is likely to be terminated or to be the subject of
termination proceedings under ERISA, any Plan shall have an Unfunded Current
Liability, a contribution required to be made with respect to a Plan or a
Foreign Pension Plan has not been timely made, the Company or any Subsidiary of
the Company or any ERISA Affiliate has incurred or is likely to incur any
liability to or on account of a Plan under Section 409, 502(i), 502(l), 515,
4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971
or 4975 of the Code or on account of a group health plan (as defined in Section
607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the
Code, or the Company or any Subsidiary of the Company has incurred or is likely
to incur liabilities pursuant to one or more employee welfare benefit plans (as
defined in Section 3(1) of ERISA) that provide benefits to retired employees or
other former employees (other than as required by Section 601 of ERISA) or Plans
or Foreign Pension Plans; (b) there shall result from any such event or events
the imposition of a lien, the granting of a security interest, or a liability or
a material risk of incurring a liability; and (c) such lien, security interest
or liability, individually, and/or in the aggregate, has had, or could
reasonably be expected to have, a material adverse effect on the business,
operations, properties, assets, liabilities, condition (financial or otherwise)
or prospects of the Company and its Subsidiaries taken as a whole; or
10.07 SECURITY DOCUMENTS. At any time after the execution and
delivery thereof, any of the Security Documents shall cease to be in full force
and effect, or shall cease to give the Collateral Agent for the benefit of the
Secured Creditors the Liens, rights, powers and privileges purported to be
created thereby (including, without limitation, a perfected first priority
security interest in all of the Collateral (subject to such limitations as are
permitted under this Agreement)), in favor of the Collateral Agent, superior to
and prior to the rights of all third Persons); or
10.08 COMPANY/SUB GUARANTY. At any time after the execution
and delivery thereof, the Company/Sub Guaranty or any provision thereof shall
cease to be in full force or effect as to any Guarantor, or any Guarantor or any
Person acting by or on behalf of such Guarantor shall deny or disaffirm such
Guarantor's obligations under the Company/Sub Guaranty or any Guarantor shall
default in the due performance or observance of any term, covenant or agreement
on its part to be performed or observed pursuant to the Company/Sub Guaranty; or
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10.09 JUDGMENTS. One or more judgments or decrees shall be
entered against the Company or any Subsidiary of the Company involving in the
aggregate for the Company and its Subsidiaries a liability (not paid or fully
covered by a reputable and solvent insurance company) and such judgments and
decrees either shall be final and non-appealable or shall not be vacated,
discharged or stayed or bonded pending appeal for any period of 30 consecutive
days, and the aggregate amount of all such judgments equals or exceeds
$1,000,000; or
10.10 CHANGE OF CONTROL. A Change of Control shall occur;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Agent, upon the written request of the Required
Lenders, shall by written notice to the Borrowers, take any or all of the
following actions, without prejudice to the rights of any Agent, any Lender or
the holder of any Note to enforce its claims against any Credit Party (PROVIDED,
that, if an Event of Default specified in Section 10.05 shall occur with respect
to any Borrower, the result which would occur upon the giving of written notice
by the Agent as specified in clauses (i) and (ii) below shall occur
automatically without the giving of any such notice): (i) declare the Total
Commitment terminated, whereupon the Commitment of each Lender shall forthwith
terminate immediately and any Commitment Commission shall forthwith become due
and payable without any other notice of any kind; (ii) declare the principal of
and any accrued interest in respect of all Loans and the Notes and all
Obligations owing hereunder and thereunder to be, whereupon the same shall
become, forthwith due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by each Credit Party; (iii)
terminate any Letter of Credit which may be terminated in accordance with its
terms; (iv) direct the Borrowers to pay (and the Borrowers jointly and severally
agree that upon receipt of such notice, or upon the occurrence of an Event of
Default specified in Section 10.05 with respect to any Borrower, they will pay)
to the Collateral Agent at the Payment Office such additional amount of cash or
Cash Equivalents, to be held as security by the Collateral Agent, as is equal to
the aggregate Stated Amount of all Letters of Credit issued for the account of
the Borrowers and then outstanding; (v) enforce, as Collateral Agent, all Liens,
rights and remedies created pursuant to any of the Security Documents; and (vi)
apply any cash collateral held by the Agent pursuant to Section 4.02 to the
repayment of the Obligations.
SECTION 11. DEFINITIONS AND ACCOUNTING TERMS.
11.01 DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Account Debtor" shall mean any Person who may become
obligated to any Credit Party under, with respect to, or on account of, an
Account, Chattel Paper or General Intangibles.
"Accounts" shall mean all "accounts," as such term is defined
in the New York UCC, now owned or hereafter acquired by any Credit Party and, in
any event, including, without limitation, (a) all accounts receivable, other
receivables, book debts and other forms of obligations (other than forms of
obligations evidenced by Chattel Paper, Documents or Instruments) now owned or
hereafter received or acquired by or belonging or owing to such Credit Party,
whether arising out of goods sold or leased or services rendered by it or from
any other transaction (including, without limitation, any such obligations which
may be characterized as an account or
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contract right under the New York UCC), (b) all of such Credit Party's rights
in, to and under all purchase orders or receipts now owned or hereafter acquired
by it for goods or services, (c) all of such Credit Party's right to any goods
represented by any of the foregoing (including, without limitation, unpaid
sellers' rights to recission, replevin, reclamation and stoppage in transit and
rights to returned, reclaimed or repossessed goods), (d) all monies due or to
become due to such Credit Party under all purchase orders and contracts for the
sale or lease of goods or the performance of services or both by such Credit
Party or in connection with any other transaction (whether or not yet earned by
performance on the part of such Credit Party) now or hereafter in existence,
including, without limitation, the right to receive the proceeds of said
purchase orders and contracts, and (e) all collateral security and guarantees of
any kind, now or hereafter in existence, given by any Person with respect to any
of the foregoing.
"Acquired Entity or Business" shall have the meaning provided
in the definition of "Consolidated Net Income."
"Adjusted Net Book Value" shall mean the Net Book Value
multiplied by the Net Book Value Applicable Margin.
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. A Person shall be deemed to control
another Person if such Person possesses, directly or indirectly, the power (i)
to vote 10% or more of the securities having ordinary voting power for the
election of directors of such corporation or (ii) to direct or cause the
direction of the management and policies of such other Person, whether through
the ownership of voting securities, by contract or otherwise.
"Agent" shall mean BTCo, in its capacity as Agent for the
Lenders hereunder, and shall include any successor to the Agent appointed
pursuant to Section 12.09.
"Agreement" shall mean this Credit Agreement, as modified,
supplemented, amended, restated (including any amendment and restatement
hereof), extended, renewed, refinanced or replaced from time to time.
"Applicable Base Rate Margin" shall mean (i) for the period
from the Restatement Effective Date through but not including the first Start
Date after the Restatement Effective Date, 1.250% and (ii) from and after any
Start Date to and including the corresponding End Date, the respective
percentage per annum set forth in clause (A), (B), (C), (D), (E) or (F) below
if, but only if, as of the Test Date for such Start Date the applicable
condition set forth in clause (A), (B), (C), (D), (E) or (F) below, as the case
may be, is met:
(A) 1.250% if, but only if, as of the Test Date for such Start
Date the Leverage Ratio for the Test Period ended on such Test Date
shall be greater than 4.00:1:00;
(B) .875% if, but only if, as of the Test Date for such Start
Date the Leverage Ratio for the Test Period ended on such Test Date
shall be less than or equal to 4.00:1.00 and greater than 3.50:1.00;
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(C) .625% if, but only if, as of the Test Date for such Start
Date the Leverage Ratio for the Test Period ended on such Test Date
shall be less than or equal to 3.50:1.00 and greater than 3.00:1.00;
(D) .375% if, but only if, as of the Test Date for such Start
Date the Leverage Ratio for the Test Period ended on such Test Date
shall be less than or equal to 3.00:1.00 and greater than 2.50:1:00;
(E) .250% if, but only if, as of the Test Date for such Start
Date the Leverage Ratio for the Test Period ended on such Test Date
shall be less than or equal to 2.50:1.00 and greater than 2.00:1.00;
and
(F) 0% if, but only if, as of the Test Date for such Start
Date the Leverage Ratio for the Test Period ended on such Test Date
shall be less than or equal to 2.00:1.00.
Notwithstanding anything to the contrary above in this definition, the
Applicable Base Rate Margin shall be 1.250% at all times when a Default or an
Event of Default shall exist.
"Applicable Commitment Commission Percentage" shall mean (i)
for the period from the Restatement Effective Date through but not including the
first Start Date after the Restatement Effective Date, .500% and (ii) from and
after any Start Date to and including the corresponding End Date, the respective
percentage per annum set forth in clause (A), (B), (C) or (D) below if, but only
if, as of the Test Date for such Start Date the applicable condition set forth
in clause (A), (B), (C) or (D) below, as the case may be, is met:
(A) .500% if, but only if, as of the Test Date for such Start
Date the Leverage Ratio for the Test Period ended on such Test Date
shall be greater than 4.00:1:00;
(B) .375% if, but only if, as of the Test Date for such Start
Date the Leverage Ratio for the Test Period ended on such Test Date
shall be less than or equal to 4.00:1.00 and greater than 3.00:1.00;
(C) .250% if, but only if, as of the Test Date for such Start
Date the Leverage Ratio for the Test Period ended on such Test Date
shall be less than or equal to 3.00:1.00 and greater than 2.00:1.00;
and
(D) .200% if, but only if, as of the Test Date for such Start
Date the Leverage Ratio for the Test Period ended on such Test Date
shall be less than or equal to 2.00:1.00.
Notwithstanding anything to the contrary contained above in this definition, the
Applicable Commitment Commission Percentage shall be .500% at all times when a
Default or an Event of Default shall exist.
"Applicable Eurodollar Rate Margin" shall mean (i) for the
period from the Restatement Effective Date through but not including the first
Start Date after the Restatement Effective Date, 2.250% and (ii) from and after
any Start Date to and including the corresponding End Date, the respective
percentage per annum set forth in clause (A), (B), (C), (D), (E) or (F)
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below if, but only if, as of the Test Date for such Start Date the applicable
condition set forth in clause (A), (B), (C), (D), (E) or (F) below, as the case
may be, is met:
(A) 2.250% if, but only if, as of the Test Date for such Start
Date the Leverage Ratio for the Test Period ended on such Test Date
shall be greater than 4.00:1.00;
(B) 1.875% if, but only if, as of the Test Date for such Start
Date the Leverage Ratio for the Test Period ended on such Test Date
shall be less than or equal to 4.00:1.00 and greater than 3.50:1.00;
(C) 1.625% if, but only if, as of the Test Date for such Start
Date the Leverage Ratio for the Test Period ended on such Test Date
shall be less than or equal to 3.50:1.00 and greater than 3.00:1.00;
(D) 1.375% if, but only if, as of the Test Date for such Start
Date the Leverage Ratio for the Test Period ended on such Test Date
shall be less than or equal to 3.00:1.00 and greater than 2.50:1.00;
(E) 1.250% if, but only if, as of the Test Date for such Start
Date the Leverage Ratio for the Test Period ended on such Test Date
shall be less than or equal to 2.50:1.00 and greater than 2.00:1.00;
and
(F) 1.000% if, but only if, as of the Test Date for such Start
Date the Leverage Ratio for the Test Period ended on such Test Date
shall be less than or equal to 2.00:1.00.
Notwithstanding anything to the contrary above in this definition, the
Applicable Eurodollar Rate Margin shall be 2.250% at all times when a Default or
an Event of Default shall exist.
"Applicable Margin Period" shall mean each period which shall
commence on the date on which the financial statements are delivered pursuant to
Section 8.01(b) or (c), as the case may be, and which shall end on the earlier
of (i) the date of actual delivery of the next financial statements pursuant to
Section 8.01(b) or (c) as the case may be, and (ii) the latest date on which the
next financial statements are required to be delivered pursuant to Section
8.01(b) or (c), as the case may be.
"Asset Sale" shall mean any sale, transfer or other
disposition by the Company or any of its Subsidiaries to any Person (including
by-way-of redemption by such Person) other than to the Company or a Wholly-Owned
Subsidiary of the Company of any asset (including, without limitation, any
capital stock or other securities of, or equity interests in, another Person)
other than sales of assets pursuant to Sections 9.02(ii), (iii), (iv), (v), (vi)
and (xi).
"Assignment and Assumption Agreement" shall mean an Assignment
and Assumption Agreement substantially in the form of Exhibit N (appropriately
completed).
"Atlantic Properties" shall mean each of the properties owned
by Neff Machinery located in Dade County, Florida, Broward County, Florida, Palm
Beach County, Florida, Orange County, Florida, Lee County, Florida and
Hillsborough County, Florida.
"Bankruptcy Code" shall have the meaning provided in Section
10.05.
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"Base Rate" shall mean, at any time, the higher of (i) the
Prime Lending Rate and (ii) 1/2 of 1% in excess of the Federal Funds Rate.
"Base Rate Loan" shall mean (i) each Swingline Loan and (ii)
each Revolving Loan designated or deemed designated as such by the respective
Borrower at the time of the incurrence thereof or conversion thereto.
"Borrower" shall have the meaning provided in the first
paragraph of this Agreement.
"Borrowing" shall mean (i) the borrowing of Swingline Loans
from the Swingline Lender on a given date and (ii) the borrowing of one Type of
Revolving Loan from all the Lenders on a given date (or resulting from a
conversion or conversions on such date) having in the case of Eurodollar Loans
the same Interest Period, PROVIDED that Base Rate Loans incurred pursuant to
Section 1.10(b) shall be considered part of the related Borrowing of Eurodollar
Loans.
"Borrowing Base" shall mean, at any time, an amount determined
from the Borrowing Base Certificate most recently delivered pursuant to Section
8.01(j) to be equal to the sum of: (I) for Eligible Financed Equipment, the Net
Book Value or Adjusted Net Book Value, whichever is less at the time of any
determination thereof, (II) 85% of Eligible Accounts of the Credit Parties and
(III) 60% of Eligible Parts Inventory of the Credit Parties.
"Borrowing Base Certificate" shall have the meaning provided
in Section 8.01(j).
"BTCo" shall mean Bankers Trust Company, in its individual
capacity, and any successor corporation thereto by merger, consolidation or
otherwise.
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day except Saturday, Sunday and any day which
shall be in New York City, New York, a legal holiday or a day on which banking
institutions are authorized or required by law or other government action to
close and (ii) with respect to all notices and determinations in connection
with, and payments of principal and interest on, Eurodollar Loans, any day which
is a Business Day described in clause (i) above and which is also a day for
trading by and between banks in the New York interbank Eurodollar market.
"Capital Expenditures" shall mean, with respect to any Person,
all expenditures by such Person which should be capitalized in accordance with
generally accepted accounting principles, including, without duplication, the
amount of all Capitalized Lease Obligations incurred by such Person.
"Capitalized Lease Obligations" shall mean, with respect to
any Person, all rental obligations of such Person which, under generally
accepted accounting principles, are or will be required to be capitalized on the
books of such Person, in each case taken at the amount thereof accounted for as
indebtedness in accordance with such principles.
"Cash Equivalents" shall mean, as to any Person, (i)
securities issued or directly and fully guaranteed or insured by the United
States or any agency or instrumentality thereof
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(PROVIDED that the full faith and credit of the United States is pledged in
support thereof) having maturities of not more than one year from the date of
acquisition, (ii) Dollar denominated time deposits and certificates of deposit
of any commercial bank having, or which is the principal banking subsidiary of a
bank holding company having, a long-term unsecured debt rating of at least "A"
or the equivalent thereof from Standard & Poor's Ratings Services or "A2" or the
equivalent thereof from Moody's Investors Service, Inc. with maturities of not
more than one year from the date of acquisition by such Person, (iii) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (ii) above, (iv) commercial paper issued by
any Person incorporated in the United States rated at least A-1 or the
equivalent thereof by Standard & Poor's Ratings Services or at least P-1 or the
equivalent thereof by Moody's Investors Service, Inc. and in each case maturing
not more than one year after the date of acquisition by such Person, (v)
marketable direct obligations issued by the District of Columbia or any State of
the United States or any political subdivision of any such State or any public
instrumentality thereof maturing within one year from the date of acquisition
and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Ratings Services or Moody's Investors
Service, Inc. and (vi) investments in money market funds substantially all of
whose assets are comprised of securities of the types described in clauses (i)
through (v) above.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.C. ss. 9601 ET SEQ.
"Change of Control" shall mean (a) (i) prior to a Qualified
Public Equity Offering, the Permitted Holders shall cease to own on a fully
diluted basis in the aggregate at least 51% of the economic and voting interest
in the Company's capital stock and (ii) from and after the consummation of a
Qualified Public Equity Offering, (x) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that any "person" (as such term is defined in Section 13(d)(3) of the
Securities Exchange Act) or group of related persons, together with any
Affiliates thereof (other than the Permitted Holders or General Electric Capital
Corporation and/or its Affiliates), becomes the "beneficial owner" (as such term
is defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act),
directly or indirectly, of more than 25% of the voting stock of the Company (as
determined on a fully diluted basis and measured by voting power rather than
number of shares) or (y) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors, except as a
result of the provisions regarding the election of members of the Board of
Directors of the Company by holders of the Series A Preferred Stock in the event
of dividend arrearages with respect thereto or (b) a "change of control" or
similar event shall occur under the Existing Term Loan Agreement or the Senior
Subordinated Note Documents.
"Chattel Paper" shall mean any "chattel paper," as such term
is defined in the New York UCC, now owned or hereafter acquired by any Credit
Party, wherever located.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to the Code are to the Code, as in effect on the
Restatement Effective Date and any subsequent provisions of the Code, amendatory
thereof, supplemental thereto or substituted therefor.
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"Collateral" shall mean the Pledge Agreement Collateral, the
Security Agreement Collateral, the Mortgaged Properties, the Leaseholds subject
to the Collateral Assignment of Leases and all cash and Cash Equivalents
delivered as collateral pursuant to Section 4.02 or 10.
"Collateral Agent" shall mean the Agent acting as collateral
agent for the Secured Creditors pursuant to the Security Documents.
"Collateral Assignment of Lease" shall mean each collateral
assignment of lease pursuant to which any Credit Party shall have granted to the
Collateral Agent an assignment of such Credit Party's Leasehold interest
described therein.
"Commitment" shall mean, for each Lender, the amount set forth
opposite such Lender's name in Schedule I directly below the column entitled
"Commitment," as same may be (x) reduced from time to time pursuant to Sections
3.02, 3.03 and/or 10 or (y) adjusted from time to time as a result of
assignments to or from such Lender pursuant to Section 1.13 or 13.04(b).
"Commitment Commission" shall have the meaning set forth in
Section 3.01.
"Company/Sub Guaranty" shall have the meaning provided in
Section 5.10.
"Company/Sub Pledge Agreement" shall have the meaning provided
in Section 5.08.
"Consolidated EBIT" shall mean, for any period, Consolidated
Net Income for such period before Consolidated Interest Expense and provision
for taxes for such period and without giving effect (x) to any extraordinary
gains or losses and (y) to any gains or losses from sales of assets other than
from sales or rentals of inventory or equipment in the ordinary course of
business.
"Consolidated EBITDA" shall mean, for any period, Consolidated
EBIT for such period, adjusted by (x) adding thereto the amount of all
amortization of intangibles, depreciation and other non-cash charges (net of
non-cash credits) that were deducted (or added, in the case of non-cash credits)
in arriving at Consolidated EBIT for such period (including deferred financing,
legal and accounting costs associated with the Existing Credit Agreement, this
Agreement, the IPO and the issuance of the Senior Subordinated Notes) and (y)
subtracting therefrom the amount of all cash payments, cash charges or cash
expenses in such period arising from any non-cash expenses or non-cash items
that were added back in arriving to Consolidated EBIT in a previous period,
PROVIDED that for the purposes of determining compliance with Sections 9.08 and
9.09, Consolidated EBITDA for each fiscal quarter of the Company ending on or
prior to September 30, 1998 shall be increased by the amount set forth on
Schedule XII opposite such fiscal quarter.
"Consolidated Indebtedness" shall mean, at any time, the
principal amount of all Indebtedness of the Company and its Subsidiaries at such
time as determined on a consolidated basis.
"Consolidated Interest Coverage Ratio" shall mean, for any
period, the ratio of Consolidated EBITDA to Consolidated Interest Expense for
such period.
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"Consolidated Interest Expense" shall mean, for any period,
the total consolidated interest expense of the Company and its Subsidiaries for
such period (calculated without regard to any limitations on the payment
thereof) plus, without duplication, that portion of Capitalized Lease
Obligations of the Company and its Subsidiaries representing the interest factor
for such period; PROVIDED that the amortization of deferred financing costs with
respect to this Agreement the Existing Original Credit Agreement and the Senior
Subordinated Notes shall be excluded from Consolidated Interest Expense to the
extent same would otherwise have been included therein.
"Consolidated Net Income" shall mean, for any period, the net
income (or loss) of the Company and its Subsidiaries for such period, determined
on a consolidated basis (and after deductions for minority interests), provided
that (i) the net income of any other Person which is not a Subsidiary of the
Company or is accounted for by the Company by the equity method of accounting
shall be included only to the extent of the payment of dividends or
distributions by such other Person to the Company or a Subsidiary thereof during
such period, (ii) the net income of any Subsidiary of the Company shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Subsidiary of that net income is not at the time permitted
by operation of the terms of its charter or any agreement, instrument or law
applicable to such Subsidiary and (iii) the net income (or loss) of any Person
accrued prior to the date it becomes a Subsidiary of the Company or is merged or
consolidated with the Company or any of its Subsidiaries shall (in each case) be
excluded; PROVIDED that for purposes of determining the Leverage Ratio under
this Agreement, there shall be included (to the extent not already included) in
determining Consolidated Net Income for any period the net income (or loss) of
any Person, business, property or asset acquired during such period pursuant to
a Permitted Acquisition and not subsequently sold or otherwise disposed of by
the Company or one of its Subsidiaries during such period (each such Person,
business, property or asset acquired and not subsequently disposed of during
such period, an "Acquired Entity or Business"), in each case based on the actual
net income (or loss) of such Acquired Entity or Business for the entire period
(including the portion thereof occurring prior to such acquisition).
"Contingent Obligation" shall mean, as to any Person, any
obligation of such Person as a result of such Person being a general partner of
the other Person, unless the underlying obligation is expressly made
non-recourse as to such general partner, and any obligation of such Person
guaranteeing or intended to guarantee any Indebtedness, leases, dividends or
other obligations ("primary obligations") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of such Person, whether or not contingent, (i) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (x) for the purchase
or payment of any such primary obligation or (y) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation or (iv) otherwise to assure or hold harmless the holder of such
primary obligation against loss in respect thereof; PROVIDED, HOWEVER, that the
term Contingent Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability
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in respect thereof (assuming such Person is required to perform thereunder) as
determined by such Person in good faith.
"Continuing Directors" shall mean the directors of the Company
on the Restatement Effective Date and each other director if such director's
nomination for election to the Board of Directors of the Company is recommended
by a majority of the then Continuing Directors.
"Continuing Lender" shall mean each Existing Lender with a
Commitment under this Agreement.
"Contracts" shall mean all the contracts, undertakings or
agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which any Credit Party may now or hereafter have right,
title or interest, including any agreement relating to the terms of payment or
the terms of performance of any Account.
"Copyrights" shall mean any U.S. copyright to which any Credit
Party now or hereafter has title, as well as any application for a U.S.
copyright hereafter made by any Credit Party.
"Cost" shall mean, in respect of the cost of acquisition by
any Credit Party of any Financed Equipment, the net cost of such Financed
Equipment to such Credit Party after all cash and other discounts, premiums,
rebates, advertising and other allowances and all other discounts or other
allowances which may be allowed or taken by such Credit Party against the
purchase price for such Financed Equipment .
"Credit Documents" shall mean this Agreement and, after the
execution and delivery thereof pursuant to the terms of this Agreement, each
Note, the Company/Sub Guaranty and each Security Document.
"Credit Event" shall mean the making of any Loan or the
issuance of any Letter of Credit.
"Credit Party" shall mean the Company and each Subsidiary
Guarantor (including Neff Rental and Neff Machinery).
"Default" shall mean any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" shall mean any Lender with respect to
which a Lender Default is in effect.
"Dividend" shall mean, with respect to any Person, that such
Person has declared or paid a dividend or returned any equity capital to its
stockholders or partners or authorized or made any other distribution, payment
or delivery of property (other than common stock of such Person) or cash to its
stockholders or partners as such, or redeemed, retired, purchased or otherwise
acquired, directly or indirectly, for consideration any shares of any class of
its capital stock or any partnership interests outstanding on or after the
Restatement Effective Date (or any
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options or warrants issued by such Person with respect to its capital stock), or
set aside any funds for any of the foregoing purposes, or shall have permitted
any of its Subsidiaries to purchase or otherwise acquire for a consideration any
shares of any class of the capital stock or any partnership interests of such
Person outstanding on or after the Restatement Effective Date (or any options or
warrants issued by such Person with respect to its capital stock). Without
limiting the foregoing, "Dividends" with respect to any Person shall also
include all payments made or required to be made by such Person with respect to
any stock appreciation rights plans, equity incentive or achievement plans or
any similar plans or setting aside of any funds for the foregoing purposes.
"Dollars" and the sign "$" shall each mean freely transferable
lawful money of the United States.
"Domestic Subsidiary" shall mean each Subsidiary of the
Company that is incorporated under the laws of the United States or any State or
territory thereof.
"Drawing" shall have the meaning provided in Section 2.05(b).
"Eligible Accounts" shall mean such Accounts of each of the
Credit Parties which are not determined by the Agent, in its judgment, to be
ineligible as the basis for extensions of credit under this Agreement, based on
the criteria set forth below. In determining whether an Account of any of the
Credit Parties constitutes an Eligible Account, the Agent shall not include (and
the term "Eligible Accounts" shall not include) any Account of any Credit Party:
(a) that does not arise from the sale or lease of goods or
rendition of services by such Borrower in the ordinary course of its
business;
(b) upon which (i) such Credit Party's right to receive
payment is not absolute or is contingent upon the fulfillment of any
condition whatsoever or (ii) such Credit Party is not able to bring
suit or otherwise enforce its remedies against the Account Debtor
through judicial process;
(c) against which, or against any contract or agreement
pursuant to which such Account arises, is asserted or may be asserted
any defense, counterclaim or set-off, whether well-founded or
otherwise;
(d) that is not a true and correct statement of a bona fide
indebtedness incurred in the amount of the Account for merchandise sold
or leased or service rendered and accepted by the Account Debtor
obligated upon such Account;
(e) with respect to which an invoice complying with the terms
of the Security Documents has not been sent to the Account Debtor;
(f) that is not owned by such Borrower or is subject to any
right, claim or interest of another, other than the Lien in favor of
Collateral Agent for the benefit of the Secured Creditors and the
junior Lien in favor of the lenders under the Existing Term Loan
Agreement;
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(g) that arises from a sale of goods to, or performance of
services for, an employee, Affiliate or Subsidiary of any Credit Party,
or an entity which has common officers or directors with any Credit
Party (including, without limitation, any Intercompany Loans) other
than Accounts that arise from the sale or lease of goods to, or the
performance of services for, MasTec, Inc. and/or Church & Tower, Inc.,
PROVIDED that (i) such sale or lease or performance of services is in
the ordinary course of business and on terms an conditions
substantially as favorable to such Credit Party as would reasonably be
obtained by such Credit Party in a comparable arm's length transaction
with a Person other than an Affiliate, (ii) such Account otherwise
constitutes an Eligible Account, and (iii) as of the date of any
determination thereof, the aggregate amount of all such Accounts owing
by MasTec, Inc. and/or Church & Tower, Inc. does not exceed the lesser
of (i) 10% or (ii) $2,000,000 of all Eligible Accounts of such Credit
Party;
(h) that is the obligation of an Account Debtor that is the
federal government or a political subdivision thereof or any state or
local government or any political subdivision thereof unless the Agent
or the Required Lenders have agreed to the contrary and such Credit
Party has complied with the Federal Assignment of Claims Acts of 1940,
and any amendments thereto, with respect to such obligation or any
other applicable law or regulation regarding the assignment of such
obligation;
(i) that is the obligation of an Account Debtor located in a
foreign country unless the sale of goods giving rise to the Account is
on a letter of credit or other credit support satisfactory to Agent and
the Agent's security interest in or assignment of such Account and
letter of credit support is duly and properly created and/or perfected
to the Agent's satisfaction, or the sale represented by such Account is
denominated in other than Dollars or is payable outside the United
States;
(j) that is the obligation of an Account Debtor to whom such
Credit Party is or may become liable for goods sold or services
rendered by the Account Debtor to such Credit Party;
(k) that arises with respect to goods which are delivered on a
cash-on-delivery basis or placed on consignment, guaranteed sale or
other terms by reason of which the payment by the Account Debtor may be
conditional;
(l) that is in default, it being understood and agreed that an
Account shall be deemed in default upon the occurrence of any of the
following:
(i) the Account is not paid within the earlier of 90
days from its due date or 120 days from the date of the
original invoice therefor;
(ii) the sale represented by such Account is subject
to any material claim or dispute by the Person to whom or to
which it was made;
(iii) if any Account Debtor obligated upon such
Account suspends its business, becomes insolvent, makes a
general assignment for the benefit of its creditors, or fails
to pay its debts generally as they come due; or
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(iv) if any petition is filed by or against any
Account Debtor obligated upon such Account under any
bankruptcy law or any other national, state or provincial
receivership, insolvency relief or other law or laws for the
relief of debtors;
(m) which is the obligation of an Account Debtor as to which
50% or more of the dollar value of the Accounts owed by such Account
Debtor, in the aggregate, to any or all of the Credit Parties have
become, or have been determined by Agent to be, ineligible;
(n) the sale represented by such Account is on terms longer
than 90 days from the date of invoice;
(o) which arises from any bill-and-hold or other sale of goods
which remain in such Credit Party's possession or under such Credit
Party's control.
(p) as to which the Lien of the Collateral Agent therein is
not a first priority perfected security interest;
(q) to the extent such Account exceeds any credit limit
established by the Agent with respect to any Account Debtor from time
to time (it being understood that any reduction in a credit limit for
an Account Debtor shall be based upon such Account Debtor's financial
and business condition at such time as reasonably determined by the
Agent);
(r) that fails to meet or violates any of such Credit Party's
representations, warranties or covenants contained in this Agreement or
any other Credit Document;
(s) with respect to which the Account Debtor is located in any
state in which the applicable Credit Party must be qualified to do
business or file or maintain an effective Notice of Business Activities
Report in order for such Credit Party to enforce and collect such
Account against such Account Debtor, unless such Credit Party has
qualified to do business in such state or filed and maintained
effective a Notice of Business Activities Report with the appropriate
office or agency in such state for the then current year; or
(t) that is not otherwise acceptable in the reasonable
judgment of the Agent, based upon such credit and collateral
considerations as the Agent may deem appropriate from time to time.
"Eligible Financed Equipment" shall mean such Financed
Equipment of any Credit Party which is not determined by the Agent, in its
judgment to be, ineligible as the basis for extensions of credit under this
Agreement based on the criteria set forth below. In determining whether any
Financed Equipment of any Credit Party constitutes Eligible Financed Equipment,
the Agent shall not include (and the term "Eligible Financed Equipment" shall
not include) any Financed Equipment of such Credit Party:
(a) which is not owned solely by such Credit Party or as to
which such Credit Party does not have good, valid and marketable title
thereto.
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(b) as to which the Lien of the Collateral Agent therein is
not a first priority perfected security interest;
(c) which is not located in the United States;
(d) which is obsolete, unmerchantable or slow moving;
(e) that fails to meet or violates any of such Credit Party's
representations, warranties or covenants contained in this Agreement or
in any other Credit Document; and
(f) which does not meet such additional standards of
eligibility for Eligible Financed Equipment as shall be imposed by the
Agent in its reasonable discretion or which is not otherwise acceptable
to the Agent in its reasonable discretion.
"Eligible Parts Inventory" shall mean such Parts Inventory of
the Credit Parties which are not determined by the Agent, in its judgment to be,
ineligible as the basis for extensions of credit under this Agreement based on
the criteria set forth below. In determining whether Parts Inventory of any
Credit Party constitutes Eligible Parts Inventory, the Agent shall not include
(and the term "Eligible Parts Inventory" shall not include) any Parts Inventory
of such Credit Party:
(a) which is not owned solely by such Credit Party or as to
which such Credit Party does not have good, valid and marketable title;
(b) as to which the Lien of the Collateral Agent therein is
not a first priority perfected security interest;
(c) which Parts Inventory is not located in the United States;
(d) which Parts Inventory is obsolete, unmerchantable or slow
moving;
(e) that fails to meet or violates any of such Credit Party's
representations, warranties or covenants contained in this Agreement or
any other Credit Document; and
(f) which Parts Inventory does not meet such additional
standards of eligiblity for Eligible Parts Inventory as shall be
imposed by the Agent in its reasonable discretion or which is not
otherwise acceptable to the Agent in its reasonable discretion.
"Eligible Transferee" shall mean and include a commercial
bank, financial institution, any fund that invests in loans or any other
"accredited investor" (as defined in Regulation D of the Securities Act).
"End Date" shall mean, for any Applicable Margin Period, the
last day of such Applicable Margin Period.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, notices of noncompliance or violation, investigations or
proceedings (of which the Borrower or any of its Subsidiaries has notice)
relating in any way to any Environmental Law or any permit issued, or any
approval given, under any such Environmental Law (hereafter, "Claims"),
including, without limitation, (a) any
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and all Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law, and (b) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief in connection with alleged injury or threat of injury to
health, safety or the environment due to the presence of Hazardous Materials.
"Environmental Law" shall mean any applicable Federal, state,
foreign or local statute, law, rule, regulation, ordinance, code, guideline,
written and binding policy and rule of common law now or hereafter in effect and
in each case as amended, and any judicial or administrative interpretation
thereof, including any judicial or administrative order, consent decree or
judgment, relating to the environment, employee health and safety or Hazardous
Materials, including, without limitation, CERCLA; RCRA; the Federal Water
Pollution Control Act, 33 U.S.C. ss. 1251 ET SEQ.; the Toxic Substances Control
Act, 15 U.S.C. ss. 2601 ET SEQ.; the Clean Air Act, 42 U.S.C. ss. 7401 ET SEQ.;
the Safe Drinking Water Act, 42 U.S.C. ss. 3803 ET SEQ.; the Oil Pollution Act
of 1990, 33 U.S.C. ss. 2701 ET SEQ.; the Emergency Planning and the Community
Right-to-Know Act of 1986, 42 U.S.C. ss. 11001 ET SEQ.; the Hazardous Material
Transportation Act, 49 U.S.C. ss. 1801 ET SEQ.; and the Occupational Safety and
Health Act, 29 U.S.C. ss. 651 ET SEQ.; and any state and local or foreign
counterparts or equivalents (to the extent applicable), in each case as amended
from time to time.
"Equipment" shall mean any "equipment" as such term is defined
in the New York UCC, and, in any event, shall include, but shall not be limited
to, all machinery, equipment, furnishings, fixtures and vehicles and any and all
additions, accessions, substitutions and replacements of any of the foregoing,
wherever located, together with all attachments, components, parts, equipment
and accessories installed thereon or affixed thereto.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder. Section references to ERISA are to ERISA, as in
effect on the Restatement Effective Date and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in
Section 3(9) of ERISA) which together with the Company or a Subsidiary of the
Company would be deemed to be a "single employer" (i) within the meaning of
Section 414(b), (c), (m) or (o) of the Code or (ii) as a result of the Company
or a Subsidiary of the Company being or having been a general partner of such
person.
"Eurodollar Loan" shall mean each Revolving Loan designated as
such by the respective Borrower at the time of the incurrence thereof or
conversion thereto.
"Eurodollar Rate" shall mean (a) the offered quotation to
first-class banks in the New York interbank Eurodollar market by BTCo for Dollar
deposits of amounts in immediately available funds comparable to the outstanding
principal amount of the Eurodollar Loan of BTCo with maturities comparable to
the Interest Period applicable to such Eurodollar Loan commencing two Business
Days thereafter as of 11:00 A.M. (New York time) on the date which is two
Business Days prior to the commencement of such Interest Period, divided (and
rounded upward to the nearest 1/16 of 1%) by (b) a percentage equal to 100%
minus the then stated maximum rate
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of all reserve requirements (including, without limitation, any marginal,
emergency, supplemental, special or other reserves required by applicable law)
applicable to any member bank of the Federal Reserve System in respect of
Eurocurrency funding or liabilities as defined in Regulation D (or any successor
category of liabilities under Regulation D).
"Event of Default" shall have the meaning provided in Section
10.
"Existing Agent" shall mean the Agent under, and as defined
in, the Existing Credit Agreement.
"Existing Credit Agreement" shall have the meaning provided in
the recitals to this Agreement.
"Existing Indebtedness" shall have the meaning provided in
Section 7.21.
"Existing Lenders" shall mean each Person which was a Lender
under, and as defined in, the Existing Credit Agreement.
"Existing Loans" shall mean shall mean the Advances under, and
as defined in, the Existing Credit Agreement.
"Existing Revolving Loans" shall mean the "Revolving Credit
Loans" under, and as defined in, the Existing Credit Agreement.
"Existing Swingline Loans" shall mean the "Swingline Loans"
under, and as defined in, the Existing Credit Agreement.
"Existing Term Loan Agent" shall mean the Agent under, and as
defined in, the Existing Term Loan Agreement.
"Existing Term Loan Agreement" shall mean the Credit
Agreement, dated as of December 31, 1997, among the Company, Neff Machinery,
Neff Rental, the financial institutions party thereto, General Electric Capital
Corporation, as agent, and BTCo, as syndication agent.
"Existing Term Loan Lenders" shall mean each Person which is a
Lender under, and as defined in, the Existing Term Loan Agreement.
"Facing Fee" shall have the meaning provided in Section
3.01(c).
"Federal Funds Rate" shall mean, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal Funds brokers of
recognized standing selected by the Agent.
"Fees" shall mean all amounts payable pursuant to or referred
to in Section 3.01.
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"Final Maturity Date" shall mean October 31, 1998, provided,
in the event that all loans, together with all accrued and unpaid interest and
fees thereon, under the Existing Term Loan Agreement are repaid in full with the
proceeds received by the Company in connection with the IPO prior to October 31,
1998, the Final Maturity Date shall instead mean April 30, 2003, PROVIDED,
HOWEVER, in any event, if any Series A Preferred Stock is outstanding on June
30, 2002, the Final Maturity Date shall instead be June 30, 2002.
"Financed Equipment" shall mean New or Used Equipment which is
of a type offered for sale or lease by any Credit Party in the ordinary course
of business as conducted by such Credit Party at the Restatement Effective Date.
"Foreign Pension Plan" shall mean any plan, fund (including,
without limitation, any superannuation fund) or other similar program
established or maintained outside the United States of America by the Company or
any one or more of its Subsidiaries primarily for the benefit of employees of
the Company or such Subsidiaries residing outside the United States of America,
which plan, fund or other similar program provides, or results in, retirement
income, a deferral of income in contemplation of retirement or payments to be
made upon termination of employment, and which plan is not subject to ERISA or
the Code.
"Foreign Subsidiary" shall mean each Subsidiary of the Company
which is not a Domestic Subsidiary.
"General Intangibles" shall mean any "general intangibles," as
such term is defined in the New York UCC, now owned or hereafter acquired by any
Credit Party and, in any event, including, without limitation, all right, title
and interest which such Credit Party may now or hereafter have in or under any
Contract, all customer lists, Intellectual Property, interests in partnerships,
joint ventures and other business associations, permits, proprietary or
confidential information, inventions (whether or not patented or patentable),
technical information, procedures, designs, knowledge, know-how, software, data
bases, data, skill, expertise, experience, processes, models, drawings,
materials and records, goodwill (including, without limitation, the goodwill
associated with any Intellectual Property but excluding any excess of cost over
purchased net assets), all rights and claims in or under insurance policies
(including, without limitation, insurance for fire, damage, loss, and casualty,
whether covering personal property, real property, tangible rights or intangible
rights, all liability, life, key man, and business interruption insurance, and
all unearned premiums), uncertificated securities, choses in action, and other
bank accounts, rights to receive tax refunds and other payments and rights of
indemnification.
"Guarantor" shall mean each of the Company and each Subsidiary
Guarantor.
"Hazardous Materials" shall mean (a) any petroleum or
petroleum products, radioactive materials, asbestos in any form that is friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
(b) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous waste," "hazardous materials,"
"extremely hazardous substances," "restricted hazardous waste," "toxic
substances," "toxic pollutants," "contaminants," or "pollutants," or words of
similar import, under any applicable Environmental Law; and (c) any other
chemical, material or substance, the Release of which is prohibited, limited or
regulated by any governmental authority.
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"Indebtedness" shall mean, as to any Person, without
duplication, (i) all indebtedness (including principal, interest, fees and
charges) of such Person for borrowed money or for the deferred purchase price of
property or services, (ii) the maximum amount available to be drawn under all
letters of credit issued for the account of such Person and all unpaid drawings
in respect of such letters of credit, (iii) all Indebtedness of the types
described in clause (i), (ii), (iv), (v), (vi) or (vii) of this definition
secured by any Lien on any property owned by such Person, whether or not such
Indebtedness has been assumed by such Person (PROVIDED, that, if the Person has
not assumed or otherwise become liable in respect of such Indebtedness, such
Indebtedness shall be deemed to be in an amount equal to the fair market value
of the property to which such Lien relates as determined in good faith by such
Person), (iv) the aggregate amount required to be capitalized under leases under
which such Person is the lessee, (v) all obligations of such person to pay a
specified purchase price for goods or services, whether or not delivered or
accepted, I.E., take-or-pay and similar obligations, (vi) all Contingent
Obligations of such Person and (vii) all obligations under any Interest Rate
Protection Agreement, any Other Hedging Agreement or under any similar type of
agreement. Notwithstanding the foregoing, Indebtedness shall not include trade
payables and accrued expenses incurred by any Person in accordance with
customary practices and in the ordinary course of business of such Person.
"Instruments" shall mean any "instrument," as such term is
defined in the New York UCC, now owned or hereafter acquired by any Credit
Party, wherever located and in any event all certificated securities,
certificates of deposit and all notes and other, without limitation, evidences
of indebtedness, other than instruments that constitute, or are a part of
writings that constitute, Chattel Paper.
"Intellectual Property" shall mean, collectively, all
Trademarks, all Patents, all Copyrights and all Licenses now held or hereafter
acquired by any Credit Party, together with all franchises, tax refund claims,
rights of indemnification, payments under insurance, indemnities, warranties and
guarantees payable with respect to the foregoing.
"Intercompany Loan" shall mean any intercompany loan or
advance between or among the Company and its Subsidiaries.
"Intercompany Note" shall mean a promissory note, in the form
of Exhibit O or such other form as may be reasonably acceptable to the Agent, in
either case evidencing Intercompany Loans, PROVIDED that any Intercompany Note
in which any Credit Party is the obligor and the obligee is not a Credit Party
shall contain the subordination provisions set forth in Annex A to Exhibit O.
"Intercreditor Agreement" shall have the meaning provided in
Section 5.12.
"Interest Determination Date" shall mean, with respect to any
Eurodollar Loan, the second Business Day prior to the commencement of any
Interest Period relating to such Eurodollar Loan.
"Interest Period" shall have the meaning provided in Section
1.09.
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"Interest Rate Protection Agreement" shall mean any interest
rate swap agreement, interest rate cap agreement, interest collar agreement,
interest rate hedging agreement or other similar agreement or arrangement.
"Inventory" shall mean any "inventory," as such term is
defined in the New York UCC, now or hereafter owned or acquired by, any Credit
Party, wherever located, and, in any event, including, without limitation,
inventory, merchandise, goods and other personal property which are held by or
on behalf of such Credit Party for sale or lease or are furnished or are to be
furnished under a contract of service or which constitute raw materials, work in
process or materials used or consumed or to be used or consumed in any Credit
Party's business or in the processing, production, packaging, promotion,
delivery or shipping of the same, including, without limitation, other supplies,
and all accessions and additions thereto and all documents of title covering any
of the foregoing.
"Investments" shall have the meaning provided in Section 9.05.
"IPO" shall mean the consummation by the Company of a
registered initial public offering of its Class A common stock under the
Securities Act.
"Issuing Lender" shall mean BTCo and any other Lender which at
the request of the Company and with the consent of the Agent agrees, in such
Lender's sole discretion, to become an Issuing Lender for the purpose of issuing
Letters of Credit pursuant to Section 2.
"John Deere" shall mean any of John Deere Industrial Equipment
Company, John Deere Company, Deere & Com., or any subsidiary, parent, affiliate
or division of any such entity.
"John Deere Property" shall mean (i) machines manufactured
and/or distributed by John Deere which bear the trademark or tradename "John
Deere" or "Deere" and (ii) attachments manufactured and/or distributed by John
Deere and which bear the trademark or tradename "John Deere" or "Deere".
"John Deere Subordination Agreement" shall mean that certain
Subordination Agreement between John Deere and BTCo (as successor in interest to
General Electric Capital Corporation), as such agreement is in efffect on the
date hereof, and as the same may be amended from time to time with the consent
of the Required Lenders.
"L/C Supportable Obligations" shall mean (i) obligations of
the Company or any of its Subsidiaries incurred in the ordinary course of
business and (ii) such other obligations of the Company or any of its
Subsidiaries as are reasonably acceptable to the respective Issuing Lender and
otherwise permitted to exist pursuant to the terms of this Agreement.
"Leaseholds" of any Person shall mean all the right, title and
interest of such Person as lessee in, to and under leases of land, improvements
and/or fixtures.
"Lender" shall mean each financial institution listed on
Schedule I, as well as any Person which becomes a "Lender" hereunder pursuant to
Section 1.13 or 13.04(b).
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"Lender Default" shall mean (i) the refusal (which has not
been retracted) or the failure of a Lender to make available its portion of any
Borrowing required to be made available by it hereunder (including any Mandatory
Borrowing) or to fund its portion of any unreimbursed payment under Section
2.04(c) or (ii) a Lender having notified in writing the respective Borrower
and/or the Agent that such Lender does not intend to comply with its obligations
under Section 1.01(a), 1.01(c) or 2, in the case of either clause (i) or (ii) as
a result of any takeover or control (including, without limitation, as a result
of the occurrence of any event of the type described in Section 10.05 with
respect to such Lender) of such Lender by any regulatory authority or agency.
"Letter of Credit" shall have the meaning provided in Section
2.01(a).
"Letter of Credit Fee" shall have the meaning provided in
Section 3.01(b).
"Letter of Credit Outstandings" shall mean, at any time, the
sum of (i) the aggregate Stated Amount of all outstanding Letters of Credit at
such time and (ii) the amount of all Unpaid Drawings at such time.
"Letter of Credit Request" shall have the meaning provided in
Section 2.03(a).
"Leverage Ratio" shall mean, at any time, the ratio of
Consolidated Indebtedness at such time to Consolidated EBITDA for the Test
Period then most recently ended.
"License" shall mean any Patent License, Trademark License or
other license of rights or interests now held or hereafter acquired by any
Credit Party.
"Lien" shall mean any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
preference, priority or other security agreement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing or similar statement or notice filed under
the UCC or any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
"Loan" shall mean each Revolving Loan and each Swingline Loan.
"Mandatory Borrowing" shall have the meaning provided in
Section 1.01(c).
"Margin Stock" shall have the meaning provided in Regulation
U.
"Mas Shareholders" shall mean Jorge Mas, Juan Mas and Jose
Mas.
"Maximum Swingline Amount" shall mean $10,000,000.
"Minimum Borrowing Amount" shall mean (i) for Revolving Loans,
$2,500,000 and (ii) for Swingline Loans, $250,000.
"Mortgage" shall mean each mortgage, deed to secure debt or
deed of trust pursuant to which any Credit Party shall have granted to the
Collateral Agent a mortgage lien on such Credit Party's Mortgaged Property.
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"Mortgage Policies" shall have the meaning provided in Section
5.11.
"Mortgaged Property" shall mean each parcel of Real Property
owned or leased by any Credit Party which in encumbered by a Mortgage.
"NAIC" shall mean the National Association of Insurance
Commissioners.
"Neff Machinery" shall have the meaning provided in the first
paragraph of this Agreement.
"Neff Rental" shall have the meaning provided in the first
paragraph of this Agreement.
"Net Book Value" shall mean Cost minus accumulated
depreciation that is calculated (i) in accordance with generally accepted
accounting principles and (ii) consistently with the applicable Credit Party's
accounting practices in place on the Replacement Effective Date.
"Net Book Value Applicable Margin" shall mean the lesser of
(i) to the extent the Orderly Liquidation Value is less than the Net Book Value
as determined by a Test Sample, an amount equal to the aggregate Orderly
Liquidation Value of the Test Sample divided by the Net Book Value of the same
Test Sample or (ii) one.
"Net Debt Proceeds" shall mean, with respect to any incurrence
of Indebtedness for borrowed money, the cash proceeds (net of underwriting
discounts and commissions and other reasonable costs associated therewith)
received by the respective Person from the respective incurrence of such
Indebtedness for borrowed money.
"Net Equity Proceeds" shall mean, with respect to each
issuance or sale of any equity by any Person or any capital contribution to such
Person, the cash proceeds (net of underwriting discounts and commissions and
other costs associated therewith) received by such Person from the respective
sale or issuance of its equity or from the respective capital contribution.
"Net Insurance Proceeds" shall mean, with respect to any
Recovery Event, the cash proceeds (net of reasonable costs and taxes incurred in
connection with such Recovery Event) received by the respective Person in
connection with the respective Recovery Event.
"Net Sale Proceeds" shall mean, for any Asset Sale, the gross
cash proceeds (including any cash received by way of deferred payment pursuant
to a promissory note, receivable or otherwise, but only as and when received)
received from such Asset Sale, net of the reasonable costs of such sale
(including fees and commissions, payments of unassumed liabilities relating to
the assets sold and required payments of any Indebtedness which is secured by
the respective assets which were sold), and the incremental taxes paid or
payable as a result of such Asset Sale.
"New" shall mean, when used with reference to any item of
Inventory, Inventory which has not been sold, leased or otherwise disposed of
since its original shipment to the respective Credit Party and, upon its
original shipment to such Credit Party, such items had not been
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used for demonstration or rental in excess of an aggregate of 200 hours. Once
any item of Inventory has been designated as New, the item of Inventory shall
remain designated New for the purpose of calculating the Borrowing Base until
otherwise disposed.
"New Lender" shall mean each of the Persons listed on Schedule
I hereto which is not a Continuing Lender.
"Non-Defaulting Lender" shall mean and include each Lender
other than a Defaulting Lender.
"Note" shall mean each Revolving Note and the Swingline Note.
"Notice of Borrowing" shall have the meaning provided in
Section 1.03(a).
"Notice of Conversion" shall have the meaning provided in
Section 1.06.
"Notice Office" shall mean the office of the Agent located at
130 Liberty Street, New York, New York 10006, Attention: Virag Patel or such
other office as the Agent may hereafter designate in writing as such to the
other parties hereto.
"Obligations" shall mean all amounts owing to the Agent, the
Collateral Agent, any Issuing Lender or any Lender pursuant to the terms of this
Agreement or any other Credit Document.
"Orderly Liquidation Value" of any asset shall mean, as
determined by a desk top professional opinion of Max Rouse & Sons, Inc. or other
appraisal company of similar qualifications and standing acceptable to the
Agent, an expected gross dollar amount to be realized at an orderly negotiated
sale of such asset held within a reasonable period of time as of the date of
such opinion.
"Other Hedging Agreement" shall mean any foreign exchange
contracts, currency swap agreements, commodity agreements or other similar
agreements or arrangements designed to protect against the fluctuations in
currency values.
"Participant" shall have the meaning provided in Section
2.04(a).
"Parts Inventory" shall mean Inventory owned by any Credit
Party which is comprised of parts for Inventory sold or leased by such Credit
Party in the ordinary course of its business, which parts are not incorporated
or installed in or on, or affixed or appurtenant to, any such Inventory or to
any other property and which parts are new, unused, in good condition and are
resalable as new products without repackaging or reconditioning.
"Patent License" shall mean rights under any written agreement
now or hereafter acquired by any Credit Party granting any right with respect to
any invention on which a Patent is in existence.
"Patents" shall mean all of the following in which any Credit
Party now holds or hereafter acquires any interest: (i) all letters patent of
the United States or any other country, all registrations and recordings
thereof, and all applications for letters patent of the United States or
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any other country, including registrations, recordings and applications in the
United States Patent and Trademark Office or in any similar office or agency of
the United States, any State or Territory thereof, or any other country, and
(ii) all reissues, divisions, continuations, continuations-in-part or extensions
thereof.
"Payment Office" shall mean the office of the Agent located at
130 Liberty Street, New York, New York 10006, or such other office as the Agent
may hereafter designate in writing as such to the other parties hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
"Percentage" of any Lender at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Commitment of such
Lender at such time and the denominator of which is the Total Commitment at such
time, PROVIDED that if the Percentage of any Lender is to be determined after
the Total Commitment has been terminated, then the Percentages of the Lenders
shall be determined immediately prior (and without giving effect) to such
termination.
"Permitted Acquisition" shall have the meaning provided in
Section 9.02(x).
"Permitted Encumbrances" shall mean, with respect to any
Mortgaged Property, such exceptions to title as are set forth in the Mortgage
Policy delivered with respect thereto, all of which exceptions must be
reasonably acceptable to the Agent in its reasonable discretion.
"Permitted Holders" shall mean (x) Santos Fund L.L.P., Santos
Capital Advisors, Inc. and/or their respective Affiliates and/or (y) (a) the Mas
Shareholders and Kevin Fitzgerald, or any one or more of them, or members of any
such Person's respective immediate family (including parents, spouse, children
and siblings) or (b) a trust for the benefit of the Mas Shareholders or Kevin
Fitzgerald, or any one of them, or members of their respective immediate family,
which trust is under the control of the Mas Shareholders or Kevin Fitzgerald, as
the case may be, or any one or more of them, or members of their respective
immediate family.
"Permitted Liens" shall have the meaning provided in Section
9.01.
"Person" shall mean any individual, partnership, joint
venture, firm, corporation, association, limited liability company, trust or
other enterprise or any government or political subdivision or any agency,
department or instrumentality thereof.
"Plan" shall mean any pension plan as defined in Section 3(2)
of ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) the Company or a Subsidiary of the Company or an
ERISA Affiliate, and each such plan for the five year period immediately
following the latest date on which the Company, or a Subsidiary of the Company
or an ERISA Affiliate maintained, contributed to or had an obligation to
contribute to such plan.
"Pledge Agreement" shall mean and include each of the
Company/Sub Pledge Agreement and the Shareholders Pledge Agreement.
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"Pledge Agreement Collateral" shall mean all "Collateral" as
defined in the respective Pledge Agreement.
"Pledged Securities" shall mean, in the case of (x) the
Company/Sub Pledge Agreement, all "Pledged Securities" as defined in the
Company/Sub Pledge Agreement and (y) the Shareholders Pledge Agreement, all
Pledged Stock.
"Pledgee" shall have the meaning provided in the respective
Pledge Agreement.
"Pledged Stock" shall mean all "Pledged Stock" as defined in
the respective Pledge Agreement.
"Prime Lending Rate" shall mean the rate which BTCo announces
from time to time as its prime lending rate, the Prime Lending Rate to change
when and as such prime lending rate changes. The Prime Lending Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. BTCo may make commercial loans or other loans
at rates of interest at, above or below the Prime Lending Rate.
"Projections" shall mean the projections which were prepared
by the Company for the period ending on December 31, 2002 and which were
delivered to the Lenders on or about March 31, 1998.
"Qualified Preferred Stock" shall mean (x) any preferred stock
of the Company so long as the terms of any such preferred stock (i) do not
contain any mandatory put, redemption, repayment, sinking fund or other similar
provision occurring before December 31, 2004, (ii) do not require the cash
payment of dividends, (iii) do not contain any covenants, (iv) do not grant the
holders thereof any voting rights except for (x) voting rights required to be
granted to such holders under applicable law and (y) limited customary voting
rights on fundamental matters such as mergers, consolidations, sales of all or
substantially all of the assets of the Company, or liquidations involving the
Company, and (v) are otherwise reasonably satisfactory to the Agent and (y) the
Company's Series A Preferred Stock as constituted on the Restatement Effective
Date.
"Qualified Public Equity Offering" means a bona fide
underwritten sale to the public of common stock of the Company pursuant to a
registration statement (other than on Form S-8 or any other form relating to
securities issuable under any benefit plan of the Company or any of its
Subsidiaries, as the case may be) that is declared effective by the SEC and such
offering results in gross cash proceeds to the Company (exclusive of
underwriter's discounts and commissions and other expenses) of at least
$35,000,000.
"Quarterly Payment Date" shall mean the last Business Day of
each June, September, December and March occurring after the Restatement
Effective Date.
"RCRA" shall mean the Resource Conservation and Recovery Act,
as the same may be amended from time to time, 42 U.S.C.ss. 6901 ET SEQ.
"Real Property" of any Person shall mean all the right, title
and interest of such Person in and to land, improvements and fixtures, including
Leaseholds.
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"Recovery Event" shall mean the receipt by the Company or any
of its Subsidiaries of any cash insurance proceeds or condemnation awards
payable (i) by reason of theft, loss, physical destruction, damage, taking or
any other similar event with respect to any property or assets of the Company or
any of its Subsidiaries and (ii) under any policy of insurance required to be
maintained under Section 8.03.
"Register" shall have the meaning provided in Section 13.15.
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing reserve requirements.
"Regulation T" shall mean Regulation T of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof.
"Regulation U" shall mean Regulation U of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof.
"Regulation X" shall mean Regulation X of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof.
"Release" shall mean the disposing, discharging, injecting,
spilling, pumping, leaking, leaching, dumping, emitting, escaping, emptying,
pouring or migrating, into or upon any land or water or air, or otherwise
entering into the environment.
"Rental Account Party" shall have the meaning provided in
Section 9.02(iii).
"Replaced Lender" shall have the meaning provided in Section
1.13.
"Replacement Lender" shall have the meaning provided in
Section 1.13.
"Reportable Event" shall mean an event described in Section
4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA
other than those events as to which the 30-day notice period is waived under
subsection .22, .23, .25, .27 or .28 of PBGC Regulation Section 4043.
"Required Lenders" shall mean Non-Defaulting Lenders the sum
of whose Commitments (or after the termination thereof, outstanding Revolving
Loans and Percentages of outstanding Swingline Loans and Letter of Credit
Outstandings) represent an amount greater than 50% of the sum of the Total
Commitment less the Commitments of all Defaulting Lenders (or after the
termination thereof, the sum of the then total outstanding Revolving Loans of
Non-Defaulting Lenders and the aggregate Percentages of Non-Defaulting Lenders
of the total outstanding Swingline Loans and Letter of Credit Outstandings at
such time).
"Restatement Effective Date" shall have the meaning provided
in Section 13.10.
"Revolving Loan" shall have the meaning provided in Section
1.01(a).
"Revolving Note" shall have the meaning provided in Section
1.05(a).
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"SEC" shall have the meaning provided in Section 8.01(h).
"Section 4.04(b)(ii) Certificate" shall have the meaning
provided in Section 4.04(b)(ii).
"Secured Creditors" shall have the meaning assigned that term
in the respective Security Documents.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"Securities Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
"Security Agreement" shall have the meaning provided in
Section 5.09.
"Security Agreement Collateral" shall mean all "Collateral" as
defined in the Security Agreement.
"Security Document" shall mean and include each of the
Security Agreement, each Pledge Agreement, each Collateral Assignment of Lease,
the Intercreditor Agreement and, after the execution and delivery thereof, each
Mortgage.
"Senior Subordinated Note Documents" shall mean the Senior
Subordinated Notes, any indenture or purchase agreement pursuant to which such
notes are issued and the other documents associated therewith.
"Senior Subordinated Notes" shall mean unsecured subordinated
debt securities of the Company issued pursuant to a registration statement under
the Securities Act or pursuant to Rule 144A thereunder.
"Series A Preferred Stock" shall have the meaning provided in
Section 7.13.
"Shareholders Pledge Agreement" shall have the meaning
provided in Section 5.08.
"Start Date" shall mean, with respect to any Applicable Margin
Period, the first day of such Applicable Margin Period.
"Stated Amount" of each Letter of Credit shall mean, at any
time, the maximum amount available to be drawn thereunder (in each case
determined without regard to whether any conditions to drawing could then be
met).
"Subsidiary" shall mean, as to any Person, (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any 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 owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, limited liability
company, association, joint venture
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or other entity in which such Person and/or one or more Subsidiaries of such
Person has more than a 50% equity interest at the time.
"Subsidiary Guarantor" shall mean each Wholly-Owned Domestic
Subsidiary of the Company and, to the extent required by Section 8.11, each
Wholly-Owned Foreign Subsidiary of the Company.
"Sullair Argentina" shall mean Sullair Argentina S.A., a
corporation organized under the Republic of Argentina.
"Supermajority Lenders" shall mean those Non-Defaulting
Lenders which would constitute the Required Lenders under, and as defined in,
this Agreement if the percentage "50%" contained therein were changed to "66
2/3%".
"Swingline Expiry Date" shall mean that date which is five
Business Days prior to the Final Maturity Date.
"Swingline Lender" shall mean BTCo.
"Swingline Loan" shall have the meaning provided in Section
1.01(b).
"Swingline Note" shall have the meaning provided in Section
1.05(a).
"Taxes" shall have the meaning provided in Section 4.04(a).
"Tax Benefit" shall have the meaning provided in Section
4.04(c).
"Test Date" shall mean, with respect to any Start Date, the
last day of the most recent fiscal quarter of the Company ended immediately
prior to such Start Date.
"Test Period" shall mean the four consecutive fiscal quarters
of the Company then last ended (in each case taken as one accounting period).
"Test Sample" shall mean a sampling of Eligible Financed
Equipment in which (i) the Company provides the Agent with a list of all
Eligible Financed Equipment five Business Days prior to the submission of each
quarterly Borrowing Base calculation, (ii) the Agent selects 100 pieces of
Equipment from such list, (iii) the Company provides supporting evidence
supporting evidence as to the component breakdown on such Equipment (e.g.,
attachments) and (iv) the Agent determines the Orderly Liquidation Value of such
Equipment for the purposes of determining the Net Book Value Applicable Margin.
"Total Commitment" shall mean, at any time, the sum of the
Commitments of each of the Lenders.
"Total Unutilized Commitment" shall mean, at any time, an
amount equal to the remainder of (x) the Total Commitment then in effect less
(y) the sum of the aggregate principal amount of all Revolving Loans and
Swingline Loans then outstanding plus the then aggregate amount of all Letter of
Credit Outstandings.
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"Trademark License" shall mean any rights under any written
agreement now owned or hereafter acquired by any Credit Party granting any right
to use any Trademark or Trademark registration.
"Trademarks" shall mean all of the following now owned or
hereafter acquired by any Credit Party: (i) all common law and statutory
trademarks, trade names, corporate names, business names, trade styles, service
marks, logos, other source or business identifiers prints and labels on which
any of the foregoing have appeared or appear, designs and general intangibles of
like nature, now existing or hereafter adopted or acquired, all registrations
and recordings thereof, and all applications in connection therewith, including
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar agency of the United States, and State or
Territory thereof, or any other country or any political subdivision thereof,
(ii) all reissues, extensions or renewals thereof, and (iii) all licenses
thereunder and together with the goodwill associated with and symbolized by such
trademark.
"Type" shall mean the type of Revolving Loan determined with
regard to the interest option applicable thereto, I.E., whether a Base Rate Loan
or a Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as from time to
time in effect in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan shall mean the
amount, if any, by which the actuarial present value of the accumulated plan
benefits under the Plan as of the close of its most recent plan year, determined
in accordance with actuarial assumptions at such time consistent with Statement
of Financial Accounting Standards No. 87, exceeds the sum of (i) the market
value of the assets allocable thereto and (ii) $100,000.
"United States" and "U.S." shall each mean the United States
of America.
"Unpaid Drawing" shall have the meaning provided for in
Section 2.05(a).
"Unutilized Commitment" shall mean, with respect to any Lender
at any time, such Lender's Commitment at such time less the sum of (i) the
aggregate outstanding principal amount of all Revolving Loans made by such
Lender at such time and (ii) such Lender's Percentage of the Letter of Credit
Outstandings at such time.
"Used" shall mean, when used with reference to any item of
Inventory, Inventory which has been taken in trade by any Credit Party for any
new Inventory sold by such Credit Party and which has been previous to such
trade-in, sold, leased or otherwise disposed of since its original shipment from
the manufacturer to any Credit Party or any other party. Once any item of
Inventory has been designated as Used, the item of Inventory shall remain
designated as Used for the purpose of calculating the Borrowing Base until
otherwise disposed.
"Wholly-Owned Domestic Subsidiary" shall mean each Domestic
Subsidiary of the Company that is also a Wholly-Owned Subsidiary of the Company.
"Wholly-Owned Foreign Subsidiary" shall mean each Foreign
Subsidiary of the Company that is also a Wholly-Owned Subsidiary of the Company.
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"Wholly-Owned Subsidiary" shall mean, as to any Person, (i)
any corporation 100% of whose capital stock (other than director's qualifying
shares) is at the time owned by such Person and/or one or more Wholly-Owned
Subsidiaries of such Person and (ii) any partnership, limited liability company,
association, joint venture or other entity in which such Person and/or one or
more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such
time.
SECTION 12. THE AGENT.
12.01 APPOINTMENT. The Lenders hereby irrevocably designate
BTCo as Agent (for purposes of this Section 12, the term "Agent" also shall
include BTCo in its capacity as Collateral Agent pursuant to the Security
Documents) to act as specified herein and in the other Credit Documents. Each
Lender hereby irrevocably authorizes, and each holder of any Note by the
acceptance of such Note shall be deemed irrevocably to authorize, the Agent to
take such action on their behalf under the provisions of this Agreement, the
other Credit Documents and any other instruments and agreements referred to
herein or therein and to exercise such powers and to perform such duties
hereunder and thereunder as are specifically delegated to or required of the
Agent by the terms hereof and thereof and such other powers as are reasonably
incidental thereto. The Agent may perform any of its duties hereunder by or
through its officers, directors, agents, employees or affiliates.
12.02 NATURE OF DUTIES. The Agent shall not have any duties or
responsibilities except those expressly set forth in this Agreement and in the
other Credit Documents. Neither the Agent nor any of its officers, directors,
agents, employees or affiliates shall be liable for any action taken or omitted
by them hereunder or under any other Credit Document or in connection herewith
or therewith, unless caused by its or their gross negligence or willful
misconduct. The duties of the Agent shall be mechanical and administrative in
nature; the Agent shall not have by reason of this Agreement or any other Credit
Document a fiduciary relationship in respect of any Lender or the holder of any
Note; and nothing in this Agreement or any other Credit Document, expressed or
implied, is intended to or shall be so construed as to impose upon the Agent any
obligations in respect of this Agreement or any other Credit Document except as
expressly set forth herein or therein.
12.03 LACK OF RELIANCE ON THE AGENT. Independently and without
reliance upon the Agent, each Lender and the holder of each Note, to the extent
it deemed or deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of the Company
and its Subsidiaries in connection with the making and the continuance of the
Loans and the taking or not taking of any action in connection herewith and (ii)
its own appraisal of the creditworthiness of the Company and its Subsidiaries
and, except as expressly provided in this Agreement, the Agent shall not have
any duty or responsibility, either initially or on a continuing basis, to
provide any Lender or the holder of any Note with any credit or other
information with respect thereto, whether coming into its possession before the
making of the Loans or at any time or times thereafter. The Agent shall not be
responsible to any Lender or the holder of any Note for any recitals,
statements, information, representations or warranties herein or in any
document, certificate or other writing delivered in connection herewith or for
the execution, effectiveness, genuineness, validity, enforceability, perfection,
collectibility, priority or sufficiency of this Agreement or any other Credit
Document or the financial condition of the Company or any of its Subsidiaries or
be required to make any inquiry concerning either the
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performance or observance of any of the terms, provisions or conditions of this
Agreement or any other Credit Document, or the financial condition of the
Company or any of its Subsidiaries or the existence or possible existence of any
Default or Event of Default.
12.04 CERTAIN RIGHTS OF THE AGENT. If the Agent shall request
instructions from the Required Lenders or all of the Lenders, as applicable,
with respect to any act or action (including failure to act) in connection with
this Agreement or any other Credit Document, the Agent shall be entitled to
refrain from such act or taking such action unless and until the Agent shall
have received instructions from the Required Lenders or all of the Lenders, as
applicable; and the Agent shall not incur liability to any Lender by reason of
so refraining. Without limiting the foregoing, no Lender or the holder of any
Note shall have any right of action whatsoever against the Agent as a result of
the Agent acting or refraining from acting hereunder or under any other Credit
Document in accordance with the instructions of the Required Lenders or all of
the Lenders, as applicable.
12.05 RELIANCE. The Agent shall be entitled to rely, and shall
be fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
any Person that the Agent believed to be the proper Person, and, with respect to
all legal matters pertaining to this Agreement and any other Credit Document and
its duties hereunder and thereunder, upon advice of counsel selected by the
Agent.
12.06 INDEMNIFICATION. To the extent the Agent is not
reimbursed and indemnified by the Company or any of its Subsidiaries, the
Lenders will reimburse and indemnify the Agent in proportion to their respective
"percentage" as used in determining the Required Lenders for and against any and
all liabilities, obligations, losses, damages, penalties, claims, actions,
judgments, costs, expenses or disbursements of whatsoever kind or nature which
may be imposed on, asserted against or incurred by the Agent in performing its
duties hereunder or under any other Credit Document or in any way relating to or
arising out of this Agreement or any other Credit Document; PROVIDED that no
Lender shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
to the extent resulting from the Agent's gross negligence or willful misconduct
(as finally determined by a court of competent jurisdiction).
12.07 THE AGENT IN ITS INDIVIDUAL CAPACITY. With respect to
its obligation to make Loans, or issue or participate in Letters of Credit,
under this Agreement, the Agent shall have the rights and powers specified
herein for a "Lender" and may exercise the same rights and powers as though it
were not performing the duties specified herein; and the term "Lenders,"
"Required Lenders," "Supermajority Lenders," "holders of Notes" or any similar
terms shall, unless the context clearly otherwise indicates, include the Agent
in its individual capacity. The Agent and its affiliates may accept deposits
from, lend money to, and generally engage in any kind of banking, investment
banking, trust or other business with, or provide debt financing, equity capital
or other services (including financial advisory services) to, any Credit Party
or any Affiliate of any Credit Party (or any Person engaged in a similar
business with any Credit Party or any Affiliate thereof) as if they were not
performing the duties specified herein, and may accept fees and other
consideration from any Credit Party or any Affiliate of any Credit Party for
services in connection with this Agreement and otherwise without having to
account for the same to the Lenders.
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12.08 HOLDERS. The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes hereof unless and until a written
notice of the assignment, transfer or endorsement thereof, as the case may be,
shall have been filed with the Agent. Any request, authority or consent of any
Person who, at the time of making such request or giving such authority or
consent, is the holder of any Note shall be conclusive and binding on any
subsequent holder, transferee, assignee or indorsee, as the case may be, of such
Note or of any Note or Notes issued in exchange therefor.
12.09 RESIGNATION BY THE AGENT. (a) The Agent may resign from
the performance of all its respective functions and duties hereunder and/or
under the other Credit Documents at any time by giving 15 Business Days' prior
written notice to the Lenders. Such resignation shall take effect upon the
appointment of a successor Agent pursuant to clauses (b) and (c) below or as
otherwise provided below.
(b) Upon any such notice of resignation by the Agent, the
Required Lenders shall appoint a successor Agent hereunder or thereunder who
shall be a commercial bank or trust company reasonably acceptable to the
Company, which acceptance shall not be unreasonably withheld or delayed
(provided that the Company's approval shall not be required if an Event of
Default then exists).
(c) If a successor Agent shall not have been so appointed
within such 15 Business Day period, the Agent with the consent of the Company
(which consent shall not be unreasonably withheld or delayed), shall then
appoint a successor Agent who shall serve as Agent hereunder or thereunder until
such time, if any, as the Required Lenders appoint a successor Agent as provided
above.
(d) If no successor Agent has been appointed pursuant to
clause (b) or (c) above by the 20th Business Day after the date such notice of
resignation was given by the Agent, the Agent's resignation shall become
effective and the Required Lenders shall thereafter perform all the duties of
the Agent hereunder and/or under any other Credit Document until such time, if
any, as the Required Lenders appoint a successor Agent as provided above.
SECTION 13. MISCELLANEOUS.
13.01 PAYMENT OF EXPENSES, ETC. The Borrowers jointly and
severally shall: (i) whether or not the transactions herein contemplated are
consummated, pay all reasonable out-of-pocket costs and expenses of the Agent
(including, without limitation, the reasonable fees and disbursements of White &
Case LLP and local counsel) in connection with the preparation, execution and
delivery of this Agreement and the other Credit Documents and the documents and
instruments referred to herein and therein and any amendment, waiver or consent
relating hereto or thereto, of the Agent in connection with its syndication
efforts with respect to this Agreement and of the Agent and, after the
occurrence of an Event of Default, each of the Lenders in connection with the
enforcement of this Agreement and the other Credit Documents and the documents
and instruments referred to herein and therein or in connection with any
refinancing or restructuring of the credit arrangements provided under this
Agreement in the nature of a "work-out" or pursuant to any insolvency or
bankruptcy proceedings (including, without limitation, in each case, the
reasonable fees and disbursements of counsel for the Agent and, after the
occurrence of an Event of Default, for each of the Lenders); (ii) pay and hold
each of the Lenders
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harmless from and against any and all present and future stamp, excise and other
similar documentary taxes with respect to the foregoing matters and save each of
the Lenders harmless from and against any and all liabilities with respect to or
resulting from any delay or omission (other than to the extent attributable to
such Lender) to pay such taxes; and (iii) indemnify the Agent and each Lender,
and each of their respective officers, directors, employees, representatives and
agents from and hold each of them harmless against any and all liabilities,
obligations (including removal or remedial actions), losses, damages, penalties,
claims, actions, judgments, suits, costs, expenses and disbursements (including
reasonable attorneys' and consultants' fees and disbursements) incurred by,
imposed on or assessed against any of them as a result of, or arising out of, or
in any way related to, or by reason of, (a) any investigation, litigation or
other proceeding (whether or not the Agent or any Lender is a party thereto and
whether or not such investigation, litigation or other proceeding is brought by
or on behalf of any Credit Party) related to the entering into and/or
performance of this Agreement or any other Credit Document or the use of any
Letter of Credit or the proceeds of any Loans hereunder or the consummation of
any of the transactions contemplated herein or in any other Credit Document or
the exercise of any of their rights or remedies provided herein or in the other
Credit Documents, or (b) the actual or alleged presence of Hazardous Materials
in the air, surface water or groundwater or on the surface or subsurface of any
Real Property owned, leased or at any time operated by the Company or any of its
Subsidiaries, the generation, storage, transportation, handling or disposal of
Hazardous Materials by the Company or any of its Subsidiaries at any location,
whether or not owned, leased or operated by the Company or any of its
Subsidiaries, the non-compliance of any Real Property with foreign, federal,
state and local laws, regulations, and ordinances (including applicable permits
thereunder) applicable to any Real Property, or any Environmental Claim asserted
against the Company, any of its Subsidiaries or any Real Property owned, leased
or at any time operated by the Company or any of its Subsidiaries, including, in
each case, without limitation, the reasonable fees and disbursements of counsel
and other consultants incurred in connection with any such investigation,
litigation or other proceeding (but excluding any losses, liabilities, claims,
damages or expenses to the extent incurred by reason of the gross negligence,
bad faith or willful misconduct of the Person to be indemnified (as finally
determined by a court of competent jurisdiction)). To the extent that the
undertaking to indemnify, pay or hold harmless the Agent or any Lender set forth
in the preceding sentence may be unenforceable because it is violative of any
law or public policy, the Borrowers shall make the maximum contribution to the
payment and satisfaction of each of the indemnified liabilities which is
permissible under applicable law.
13.02 RIGHT OF SETOFF. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance of
an Event of Default, each Lender is hereby authorized at any time or from time
to time, without presentment, demand, protest or other notice of any kind to any
Credit Party or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and apply any and all deposits (general or
special) and any other Indebtedness at any time held or owing by such Lender
(including, without limitation, by branches and agencies of such Lender wherever
located) to or for the credit or the account of any Credit Party against and on
account of the Obligations and liabilities of the Credit Parties to such Lender
under this Agreement or under any of the other Credit Documents, including,
without limitation, all interests in Obligations purchased by such Lender
pursuant to Section 13.06(b), and all other claims of any nature or description
arising out of or connected with this Agreement or any other Credit
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Document, irrespective of whether or not such Lender shall have made any demand
hereunder and although said Obligations, liabilities or claims, or any of them,
shall be contingent or unmatured.
13.03 NOTICES. Except as otherwise expressly provided herein,
all notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered: if to any Credit Party,
at the address specified opposite its signature below or in the other relevant
Credit Documents; if to any Lender, at its address specified on Schedule II; and
if to the Agent, at the Notice Office; or, as to any Credit Party or the Agent,
at such other address as shall be designated by such party in a written notice
to the other parties hereto and, as to each Lender, at such other address as
shall be designated by such Lender in a written notice to the Borrowers and the
Agent. All such notices and communications shall, when mailed, telegraphed,
telexed, telecopied, or cabled or sent by overnight courier, be effective when
deposited in the mails, delivered to the telegraph company, cable company or
overnight courier, as the case may be, or sent by telex or telecopier, except
that notices and communications to the Agent and any Borrower shall not be
effective until received by the Agent or such Borrower, as the case may be.
13.04 BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS. (a)
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;
PROVIDED, HOWEVER, no Borrower may assign or transfer any of its rights,
obligations or interest hereunder without the prior written consent of each of
the Lenders and, PROVIDED FURTHER, that, although any Lender may transfer,
assign or grant participations in its rights hereunder, such Lender shall remain
a "Lender" for all purposes hereunder (and may not transfer or assign all or any
portion of its Commitment hereunder except as provided in Section 1.13 or
13.04(b)) and the transferee, assignee or participant, as the case may be, shall
not constitute a "Lender" hereunder and, PROVIDED FURTHER, that no Lender shall
transfer or grant any participation under which the participant shall have
rights to approve any amendment to or waiver of this Agreement or any other
Credit Document except to the extent such amendment or waiver would (i) extend
the final scheduled maturity of any Revolving Loan, Note or Letter of Credit
(unless such Letter of Credit is not extended beyond the Final Maturity Date) in
which such participant is participating, or reduce the rate or extend the time
of payment of interest or Fees thereon (except in connection with a waiver of
applicability of any post-default increase in interest rates) or reduce the
principal amount thereof (it being understood that any amendment or modification
to the financial definitions in this Agreement or to Section 13.07(a) shall not
constitute a reduction in the rate of interest or Fees for purposes of this
clause (i)), or increase the amount of the participant's participation over the
amount thereof then in effect (it being understood that a waiver of any Default
or Event of Default or of a mandatory reduction in the Total Commitment, shall
not constitute a change in the terms of such participation, and that an increase
in any Commitment or Revolving Loan shall be permitted without the consent of
any participant if the participant's participation is not increased as a result
thereof), (ii) consent to the assignment or transfer by any Borrower of any of
its rights and obligations under this Agreement or (iii) release all or
substantially all of the Collateral (except as expressly provided in the Credit
Documents) supporting the Revolving Loans hereunder in which such participant is
participating. In the case of any such participation, the participant shall not
have any rights under this Agreement or any of the other Credit Documents (the
participant's rights against such Lender in respect of such participation to be
those set forth in the agreement executed by such Lender in
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favor of the participant relating thereto) and all amounts payable by the
Borrowers hereunder shall be determined as if such Lender had not sold such
participation.
(b) Notwithstanding the foregoing, any Lender (or any Lender
together with one or more other Lenders) may (x) assign all or a portion of its
Commitment and related outstanding Obligations hereunder to (i) its parent
company and/or any affiliate of such Lender which is at least 50% owned by such
Lender or its parent company or to one or more Lenders or (ii) in the case of
any Lender that is a fund that invests in loans, any other fund that invests in
loans and is managed or advised by the same investment advisor of such Lender or
by an Affiliate of such investment advisor or (y) assign all, or if less than
all, a portion equal to at least $5,000,000 in the aggregate for the assigning
Lender or assigning Lenders, of such Commitment or Commitments and related
outstanding Obligations hereunder to one or more Eligible Transferees (treating
any fund that invests in loans and any other fund that invests in loans and is
managed or advised by the same investment advisor of such fund or by an
Affiliate of such investment advisor as a single Eligible Transferee), each of
which assignees shall become a party to this Agreement as a Lender by execution
of an Assignment and Assumption Agreement, PROVIDED that, (i) at such time
Schedule I shall be deemed modified to reflect the Commitments of such new
Lender and of the existing Lenders, (ii) upon the surrender of the relevant
Revolving Note by the assigning Lender (or, upon such assigning Lender's
indemnifying the respective Borrower for any lost Revolving Note pursuant to a
customary indemnification agreement) a new Revolving Note will be issued, at the
respective Borrower's expense, to such new Lender and to the assigning Lender
upon the request of such new Lender or assigning Lender, such new Revolving Note
to be in conformity with the requirements of Section 1.05 (with appropriate
modifications) to the extent needed to reflect the revised Commitments and/or
outstanding Revolving Loans, as the case may be, (iii) the consent of the Agent
shall be required in connection with any assignment to an Eligible Transferee
pursuant to clause (y) above (which consent shall not be unreasonably withheld
or delayed), (iv) the Agent shall receive at the time of each such assignment,
from the assigning or assignee Lender, the payment of a non-refundable
assignment fee of $3,500 and (v) no such transfer or assignment will be
effective until recorded by the Agent on the Register pursuant to Section 13.15.
To the extent of any assignment pursuant to this Section 13.04(b), the assigning
Lender shall be relieved of its obligations hereunder with respect to its
assigned Commitment and outstanding Revolving Loans. At the time of each
assignment pursuant to this Section 13.04(b) to a Person which is not already a
Lender hereunder and which is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the
respective assignee Lender shall, to the extent legally entitled to do so,
provide to the Company the appropriate Internal Revenue Service Forms (and, if
applicable, a Section 4.04(b)(ii) Certificate) described in Section 4.04(b). To
the extent that an assignment of all or any portion of a Lender's Commitment and
related outstanding Obligations pursuant to Section 1.13 or this Section
13.04(b) would, at the time of such assignment, result in increased costs under
Section 1.10, 2.06 or 4.04 from those being charged by the respective assigning
Lender prior to such assignment, then the Borrowers shall not be obligated to
pay such increased costs (although the Borrowers, in accordance with and
pursuant to the other provisions of this Agreement, shall be obligated to pay
any other increased costs of the type described above resulting from changes
after the date of the respective assignment).
(c) Nothing in this Agreement shall prevent or prohibit any
Lender from pledging its Revolving Loans and Revolving Note hereunder to a
Federal Reserve Bank in support of
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<PAGE>
borrowings made by such Lender from such Federal Reserve Bank and, with the
consent of the Agent, any Lender which is a fund may pledge all or any portion
of its Revolving Loans and Revolving Note to its trustee in support of its
obligations to its trustee. No pledge pursuant to this clause (c) shall release
the transferor Lender from any of its obligations hereunder.
13.05 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on
the part of the Agent, the Collateral Agent, any Issuing Lender or any Lender in
exercising any right, power or privilege hereunder or under any other Credit
Document and no course of dealing between the Borrowers or any other Credit
Party and the Agent, the Collateral Agent, any Issuing Lender or any Lender
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or under any other Credit Document
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder or thereunder. The rights, powers and
remedies herein or in any other Credit Document expressly provided are
cumulative and not exclusive of any rights, powers or remedies which the Agent,
the Collateral Agent, any Issuing Lender or any Lender would otherwise have. No
notice to or demand on any Credit Party in any case shall entitle any Credit
Party to any other or further notice or demand in similar or other circumstances
or constitute a waiver of the rights of the Agent, the Collateral Agent, any
Issuing Lender or any Lender to any other or further action in any circumstances
without notice or demand.
13.06 PAYMENTS PRO RATA. (a) Except as otherwise provided in
this Agreement, the Agent agrees that promptly after its receipt of each payment
from or on behalf of a Borrower in respect of any Obligations hereunder, the
Agent shall distribute such payment to the Lenders (other than any Lender that
has consented in writing to waive its PRO RATA share of any such payment) PRO
RATA based upon their respective shares, if any, of the Obligations with respect
to which such payment was received.
(b) Each of the Lenders agrees that, if it should receive any
amount hereunder (whether by voluntary payment, by realization upon security, by
the exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise), which is applicable to the payment of the principal of, or interest
on, the Revolving Loans, Unpaid Drawings, Commitment Commission or Letter of
Credit Fees, of a sum which with respect to the related sum or sums received by
other Lenders is in a greater proportion than the total of such Obligation then
owed and due to such Lender bears to the total of such Obligation then owed and
due to all of the Lenders immediately prior to such receipt, then such Lender
receiving such excess payment shall purchase for cash without recourse or
warranty from the other Lenders an interest in the Obligations of the respective
Credit Party to such Lenders in such amount as shall result in a proportional
participation by all the Lenders in such amount; PROVIDED that if all or any
portion of such excess amount is thereafter recovered from such Lender, such
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, but without interest.
(c) Notwithstanding anything to the contrary contained herein,
the provisions of the preceding Sections 13.06(a) and (b) shall be subject to
the express provisions of this Agreement which require, or permit, differing
payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders.
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13.07 CALCULATIONS; COMPUTATIONS; ACCOUNTING TERMS. (a) The
financial statements to be furnished to the Lenders pursuant hereto shall be
made and prepared in accordance with generally accepted accounting principles in
the United States consistently applied throughout the periods involved (except
as set forth in the notes thereto or as otherwise disclosed in writing by the
Company to the Lenders); provided that, except as otherwise specifically
provided herein, all computations and all definitions used in determining
compliance with Sections 9.07 through 9.09, inclusive, and all computations used
in determining the interest rates and fees hereunder, shall utilize accounting
principles and policies in conformity with those used to prepare the historical
financial statements of the Company referred to in Section 7.05(a).
(b) All computations of interest, Commitment Commission and
other Fees hereunder shall be made on the basis of a year of 360 days for the
actual number of days (including the first day but excluding the last day;
except that in the case of Letter of Credit Fees and Facing Fees, the last day
shall be included) occurring in the period for which such interest, Commitment
Commission or Fees are payable.
13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER
OF JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT
MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES
FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT, EACH BORROWER HEREBY IRREVOCABLY ACCEPTS
FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. EACH BORROWER HEREBY FURTHER IRREVOCABLY
WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK PERSONAL JURISDICTION OVER IT, AND
AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENTS BROUGHT IN ANY OF THE
AFOREMENTIONED COURTS, THAT SUCH COURTS LACK PERSONAL JURISDICTION OVER IT. EACH
BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF
THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS
ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE
30 DAYS AFTER SUCH MAILING. EACH BORROWER HEREBY IRREVOCABLY WAIVES ANY
OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES
NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER OR UNDER
ANY OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR
INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT, ANY LENDER OR
THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY BORROWER IN ANY
OTHER JURISDICTION.
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<PAGE>
(b) EACH BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE
AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN
CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT
ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
13.09 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. A set of
counterparts executed by all the parties hereto shall be lodged with the
Borrowers and the Agent.
13.10 EFFECTIVENESS. (a) This Agreement shall become effective
on the date (the "Restatement Effective Date") on which (i) each Borrower, the
Agent and each of the Lenders shall have signed a counterpart hereof (whether
the same or different counterparts) and shall have delivered the same to the
Agent at the Notice Office or, in the case of the Lenders, shall have given to
the Agent telephonic (confirmed in writing), written or telex notice (actually
received) at such office that the same has been signed and mailed to it and (ii)
the conditions set forth in Section 5 are met to the reasonable satisfaction of
the Agent and the Required Lenders. Unless the Agent has received actual notice
from any Lender that the conditions contained in Section 5 have not been met to
its reasonable satisfaction, upon the satisfaction of the condition described in
clause (i) of the immediately preceding sentence and upon the Agent's good faith
determination that the conditions described in clause (ii) of the immediately
preceding sentence have been met, then the Restatement Effective Date shall have
been deemed to have occurred, regardless of any subsequent determination that
one or more of the conditions thereto had not been met (although the occurrence
of the Restatement Effective Date shall not release any Borrower from any
liability for failure to satisfy one or more of the applicable conditions
contained in Section 5). The Agent will give each Borrower and each Lender
prompt written notice of the occurrence of the Restatement Effective Date.
(b) On the Restatement Effective Date, each New Lender and
each Continuing Lender shall have delivered to the Agent for the account of the
respective Borrower an amount equal to (i) in the case of each New Lender, the
Revolving Loans to be made by such New Lender on the Restatement Effective Date
and (ii) in the case of each Continuing Lender, the amount by which the
principal amount of Revolving Loans to be made by such Continuing Lender on the
Restatement Effective Date exceeds the amount of the Existing Loans of such
Continuing Lender outstanding on the Restatement Effective Date. Notwithstanding
anything to the contrary con-
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tained in this Section 13.10(b), in satisfying the foregoing condition, unless
the Agent shall have been notified by any Lender prior to the occurrence of the
Restatement Effective Date that such Lender does not intend to make available to
the Agent such Lender's Revolving Loans required to be made by it on such date,
then the Agent may in reliance on such assumption, make available to the
respective Borrower the corresponding amounts in accordance with the provisions
of Section 1.04, and the making available by the Agent of such amounts shall
satisfy the condition in this Section 12.10(b).
13.11 HEADINGS DESCRIPTIVE. The headings of the several
sections and subsections of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.
13.12 AMENDMENT OR WAIVER; ETC. (a) Neither this Agreement nor
any other Credit Document nor any terms hereof or thereof may be changed,
waived, discharged or terminated unless such change, waiver, discharge or
termination is in writing signed by the respective Credit Parties party thereto
and the Required Lenders, PROVIDED that no such change, waiver, discharge or
termination shall, without the consent of each Lender (other than a Defaulting
Lender), (i) extend the final scheduled maturity of any Loan or Note or extend
the stated expiration date of any Letter of Credit beyond the Final Maturity
Date, or reduce the rate or extend the time of payment of interest or Fees
thereon, or reduce the principal amount thereof (except to the extent repaid in
cash) (it being understood that any amendment or modification to the financial
definitions in this Agreement or to Section 13.07(a) shall not constitute a
reduction in the rate of interest or Fees for the purposes of this clause (i)),
(ii) release all or substantially all of the Collateral or release any Borrower
from its obligations under the Company/Sub-Guaranty (except, in each case, as
expressly provided in the Credit Documents), (iii) amend, modify or waive any
provision of this Section 13.12 to the extent that any such amendment, or
modification or waiver would alter any of the voting provisions set forth in the
other provisions of this Section 13.12, (iv) reduce the percentage specified in
the definition of Required Lenders (it being understood that, with the consent
of the Required Lenders, additional extensions of credit pursuant to this
Agreement may be included in the determination of the Required Lenders on
substantially the same basis as the Commitments are included on the Restatement
Effective Date), (v) consent to the assignment or transfer by any Borrower of
any of its rights and obligations under this Agreement or (vi) amend or modify
the definition of Eligible Financed Equipment, Eligible Accounts, Eligible Parts
Inventory or Borrowing Base, in each case to the extent that any such amendment
or modification would have the effect of increasing the amount of the Borrowing
Base by more than $15,000,000 immediately after giving effect to such amendment
or modification; PROVIDED FURTHER, that no such change, waiver, discharge or
termination shall (u) increase the Commitment of any Lender over the amount
thereof then in effect without the consent of such Lender (it being understood
that waivers or modifications of conditions precedent, covenants, Defaults or
Events of Default or of a mandatory reduction in the Total Commitment shall not
constitute an increase of the Commitment of any Lender, and that an increase in
the available portion of any Commitment of any Lender shall not constitute an
increase of the Commitment of such Lender), (v) without the consent of any
Issuing Lender, amend, modify or waive any provision of Section 2 or alter its
rights or obligations with respect to Letters of Credit, (w) without the consent
of the Swingline Lender, alter the Swingline Lender's rights or obligations with
respect to Swingline Loans, (x) without the consent of the Agent, amend, modify
or waive any provision of Section 12 or any other provision as same relates to
the rights or
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obligations of the Agent, (y) without the consent of the Collateral Agent,
amend, modify or waive any provision relating to the rights or obligations of
the Collateral Agent or (z) without the consent of the Supermajority Lenders,
(A) amend or modify the definition of Eligible Finance Equipment, Eligible
Accounts, Eligible Parts Inventory or Borrowing Base, in each case to the extent
that any such amendment or modification would have the effect of increasing the
amount of the Borrowing Base by no more than $15,000,000 immediately after
giving effect to such amendment or modification or (B) reduce the percentage
specified in the definition of Supermajority Lenders (it being understood that,
with the consent of the Required Lenders, additional extensions of credit
pursuant to this Agreement may be included in the determination of the
Supermajority Lenders on substantially the same basis as the Commitments are
included on the Restatement Effective Date).
(b) If, in connection with any proposed change, waiver,
discharge or termination to any of the provisions of this Agreement as
contemplated by clauses (i) through (vi), inclusive, of the first proviso to
Section 13.12(a), the consent of the Required Lenders is obtained but the
consent of one or more of such other Lenders whose consent is required is not
obtained, then the Company shall have the right, so long as all non-consenting
Lenders whose individual consent is required are treated as described in either
clauses (A) or (B) below, to either (A) replace each such non-consenting Lender
or Lenders with one or more Replacement Lenders pursuant to Section 1.13 so long
as at the time of such replacement, each such Replacement Lender consents to the
proposed change, waiver, discharge or termination or (B) terminate such
non-consenting Lender's Commitment and/or repay the outstanding Revolving Loans
of such Lender and cash collateralize its applicable Percentage of the Letter of
Credit Outstandings in accordance with Sections 3.02(b) and 4.01(b), PROVIDED
that, unless the Commitment that is terminated, and Revolving Loans repaid,
pursuant to preceding clause (B) are immediately replaced in full at such time
through the addition of new Lenders or the increase of the Commitments and/or
outstanding Revolving Loans of existing Lenders (who in each case must
specifically consent thereto), then in the case of any action pursuant to
preceding clause (B) the Required Lenders (determined after giving effect to the
proposed action) shall specifically consent thereto, PROVIDED FURTHER, that in
any event the Company shall not have the right to replace a Lender, terminate
its Commitment or repay its Revolving Loans solely as a result of the exercise
of such Lender's rights (and the withholding of any required consent by such
Lender) pursuant to the second proviso to Section 13.12(a).
13.13 SURVIVAL. All indemnities set forth herein including,
without limitation, in Sections 1.10, 1.11, 2.06, 4.04, 12.06 and 13.01 shall
survive the execution, delivery and termination of this Agreement and the Notes
and the making and repayment of the Obligations.
13.14 DOMICILE OF LOANS. Each Lender may transfer and carry
its Loans at, to or for the account of any office, Subsidiary or Affiliate of
such Lender. Notwithstanding anything to the contrary contained herein, to the
extent that a transfer of Loans pursuant to this Section 13.14 would, at the
time of such transfer, result in increased costs under Section 1.10, 1.11, 2.06
or 4.04 from those being charged by the respective Lender prior to such
transfer, then the Borrowers shall not be obligated to pay such increased costs
(although the Borrowers shall be obligated to pay any other increased costs of
the type described above resulting from changes after the date of the respective
transfer).
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13.15 REGISTER. The Borrowers hereby designate the Agent to
serve as the Borrowers' agent, solely for purposes of this Section 13.15, to
maintain a register (the "Register") of which it will record the Commitments
from time to time of each of the Lenders, the Loans made by each of the Lenders
and each repayment in respect of the principal amount of the Loans of each
Lender. Failure to make any such recordation, or any error in such recordation
shall not affect the Borrowers' obligations in respect of such Loans. With
respect to any Lender, the transfer of the Commitment of such Lender and the
rights to the principal of, and interest on, any Revolving Loan made pursuant to
such Commitment shall not be effective until such transfer is recorded on the
Register maintained by the Agent with respect to ownership of such Commitment
and Revolving Loans and prior to such recordation all amounts owing to the
transferor with respect to such Commitment and Revolving Loans shall remain
owing to the transferor. The registration of assignment or transfer of all or
part of any Commitments and Revolving Loans shall be recorded by the Agent on
the Register only upon the acceptance by the Agent of a properly executed and
delivered Assignment and Assumption Agreement pursuant to Section 13.04(b).
Coincident with the delivery of such an Assignment and Assumption Agreement to
the Agent for acceptance and registration of assignment or transfer of all or
part of a Revolving Loan, or as soon thereafter as practicable, the assigning or
transferor Lender shall surrender any Revolving Note evidencing such Revolving
Loan, and thereupon one or more new Revolving Notes in the same aggregate
principal amount shall be issued to the assigning or transferor Lender and/or
the new Lender if requested by any such Lender. The Borrowers jointly and
severally agree to indemnify the Agent from and against any and all losses,
claims, damages and liabilities of whatsoever nature which may be imposed on,
asserted against or incurred by the Agent in performing its duties under this
Section 13.15.
13.16 CONFIDENTIALITY. (a) Subject to the provisions of clause
(b) of this Section 13.16, each Lender agrees that it will use its reasonable
efforts not to disclose without the prior consent of the Company (other than to
its employees, auditors, advisors or counsel or to another Lender if the Lender
or such Lender's holding or parent company in its sole discretion determines
that any such party should have access to such information, provided such
Persons shall be subject to the provisions of this Section 13.16 to the same
extent as such Lender) any information with respect to the Company or any of its
Subsidiaries which is now or in the future furnished pursuant to this Agreement
or any other Credit Document and which is designated by the Company to the
Lenders in writing as confidential, PROVIDED that any Lender may disclose any
such information (i) as has become generally available to the public other than
by virtue of a breach of this Section 13.16(a) by such Lender, (ii) as may be
required or appropriate in any report, statement or testimony submitted to any
municipal, state or Federal regulatory body having or claiming to have
jurisdiction over such Lender or to the Federal Reserve Board, the NAIC or the
Federal Deposit Insurance Corporation or similar organizations (whether in the
United States or elsewhere) or their successors, (iii) as may be required or
appropriate in respect to any summons or subpoena or in connection with any
litigation, PROVIDED that in such event such Lender shall use its reasonable
best efforts to give the Company prior notice thereof (to the extent prior
notice is reasonably practicable under the circumstances), although the failure
to give any such notice shall not result in any liability against such Lender,
(iv) in order to comply with any law, order, regulation or ruling applicable to
such Lender, (v) to the Agent or the Collateral Agent and (vi) to any
prospective or actual transferee or participant in connection with any
contemplated transfer or participation of any of the Revolving Notes or
Commitments or any interest therein by such
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<PAGE>
Lender, PROVIDED that such prospective transferee or participant agrees to be
bound by the confidentiality provisions contained in this Section 13.16.
(b) Each Borrower hereby acknowledges and agrees that each
Lender may share with any of its affiliates any information related to the
Borrower or any of its Subsidiaries (including, without limitation, any
nonpublic customer information regarding the creditworthiness of the Company and
its Subsidiaries), provided such Persons shall be subject to the provisions of
this Section 13.16 to the same extent as such Lender.
13.17 INCREASES OF REVOLVING LOAN COMMITMENTS. So long as no
Default or Event of Default then exists or would result therefrom, the Company
shall have the right at any time and from time to time after the repayment of
all outstanding loans under the Existing Term Loan Agreement to request one or
more Lenders to increase their respective Commitments, it being understood and
agreed, however, that (i) no Lender shall be obligated to increase its
Commitment as a result of any request by the Company, (ii) any Lender may so
increase its Commitment without the consent of any other Lender but with the
consent of the Agent, (iii) any increase in the Total Commitment pursuant to
this Section 13.17 shall be in a minimum amount of at least $20,000,000 and in
integral multiples of $1,000,000 in excess thereof, (iv) the Total Commitment
may not be increased by more than $100,000,000 pursuant to this Section 13.17
and (v) any increase in the Commitment of any Lender pursuant to this Section
13.17 shall be done in coordination with the Agent. At the time of any increase
in the Total Commitment pursuant to this Section 13.17, (i) the Borrowers shall,
in coordination with the Agent, repay outstanding Revolving Loans of certain
Lenders and, if necessary, incur additional Revolving Loans from other Lenders
in each case so that the Lenders continue to participate in each Borrowing of
Revolving Loans PRO RATA on the basis of their Commitments (after giving effect
to any such increase in the Total Commitment pursuant to this Section 13.17) and
with the Borrowers being jointly and severally obligated to pay to the
respective Lenders the costs of the type referred to in Section 1.11 in
connection with any such repayment and/or Borrowing, (ii) Schedule I shall be
deemed modified to reflect the revised Commitments of the affected Lenders,
(iii) upon surrender of any old Revolving Notes by those Lenders that have
increased their Commitments pursuant to this Section 13.17, to the extent
requested by such Lenders, new Revolving Notes will be issued, at the Borrowers'
expense, to such Lenders to be in conformity with the requirements of Section
1.05 (with appropriate modifications) to the extent needed to reflect the
revised Commitments and (iv) the Company shall deliver evidence satisfactory to
the Agent, including an officer's certificate of the Company (accompanied by any
required financial calculations in reasonable detail) and an opinion of counsel
for the Company, that the increase in the Total Commitment is permitted under,
or satisfied by, the terms of the Senior Subordinated Note Documents (if any).
* * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
ADDRESS:
3750 N.W. 87th Avenue NEFF CORP.
Miami, Florida 33178
Attention: Kevin Fitzgerald
Telephone: (305) 513-3350 By:
Telecopier: (305) 513-4255 ---------------------------------------
Name:
Title:
3750 N.W. 87th Avenue NEFF RENTAL, INC.
Miami, Florida 33178
Attention: Kevin Fitzgerald
Telephone: (305) 513-3350 By:
Telecopier: (305) 513-4255 ----------------------------------------
Name:
Title:
3750 N.W. 87th Avenue NEFF MACHINERY, INC.
Miami, Florida 33178
Attention: Kevin Fitzgerald
Telephone: (305) 513-3350 By:
Telecopier: (305) 513-4255 ----------------------------------------
Name:
Title:
<PAGE>
BANKERS TRUST COMPANY,
Individually and as Agent
By:
-----------------------------------------------
Name:
Title:
DEUTSCHE FINANCIAL SERVICES
By:
-----------------------------------------------
Name:
Title:
LASALLE BUSINESS CREDIT, INC.
By:
-----------------------------------------------
Name:
Title:
IBJ SCHRODER BUSINESS CREDIT
CORPORATION
By:
-----------------------------------------------
Name:
Title:
CIT GROUP/BUSINESS CREDIT, INC.
By:
-----------------------------------------------
Name:
Title:
<PAGE>
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By:
-----------------------------------------------
Name:
Title:
GCB INVESTMENT PORTFOLIO
By: Citibank, N.A.
By:
-----------------------------------------------
Name:
Title:
OSPREY INVESTMENTS PORTFOLIO
By: Citibank, N.A., as Manager
By:
-----------------------------------------------
Name:
Title:
PILGRIM AMERICA PRIME RATE TRUST
By:
-----------------------------------------------
Name:
Title:
<PAGE>
SCHEDULE I
COMMITMENTS
LENDER COMMITMENT
- ------ ----------
Bankers Trust Company $98,750,000
Deutsche Financial Services $43,750,000
Transamerica Business Credit $25,000,000
Pilgrim America Prime Rate Trust $20,000,000
LaSalle Business Credit, Inc. $17,500,000
CIT Group/Business Credit, Inc. $15,000,000
GCB Investment Portfolio $15,000,000
IBJ Schroder Business Credit Corporation $15,000,000
TOTAL $250,000,000
===========
<PAGE>
SCHEDULE II
LENDER ADDRESSES
LENDER ADDRESS
------ -------
Bankers Trust Company One Bankers Trust Plaza
130 Liberty Street
New York, NY 10006
Attn: Andrew Keith
Tel. No.: 212-250-8617
Fax No.: 212-250-7218
Deutsche Financial Services 2859 Paces Ferry Road
Suite 1140
Atlanta, GA 30339
Attn: Katherine Cowan
Tel. No.: 770-435-6264
Fax No.: 770-384-1438
CIT Group/Business Credit, Inc. 1211 Avenue of the Americas
New York, NY 10036
Attn: Mitchell Drucker
Tel. No.: 212-536-1277
Fax No.: 212-454-2942
IBJ Schroder Business Credit Corporation One State Street
New York, NY 10004
Attn: Tom Bayer
Tel. No.: 212-858-2188
Fax No.: 212-858-2151
Attn: John Butera
Tel. No.: 212-858-2575
Fax No.: 212-858-2151
LaSalle Business Credit, Inc. 135 South LaSalle Street
Chicago, IL 60603
Attn: Scott Busch
Tel. No.: 312-904-5308
Fax No.: 312-904-7425
<PAGE>
Schedule II
Page 2
Pilgrim America Prime Rate Trust Two Renaissance Square
40 North Central Avenue
Suite 1200
Phoenix, AZ 85004-3444
Attn: Howard Tiffan
Tel. No.: 602-417-8259
Fax No.: 602-417-8327
Transamerica Business Credit Corporation 555 Theodore Fremd Avenue
Suite C-301
Rye, NY 10580
Attn: Ron Walker
Tel. No.: 914-925-7218
Fax No.: 914-921-0110
GCB Investment Portfolio 599 Lexington Avenue
26th Floor zone 10
New York, NY 10043
Attn: Steven Kaufman
Tel. No.: 212-559-7086
Fax No.: 212-793-1871
<PAGE>
SCHEDULE III
LITIGATION
<PAGE>
SCHEDULE IV
REAL PROPERTY
<PAGE>
SCHEDULE V
CONVERTIBLE STOCK
<PAGE>
SCHEDULE VI
SUBSIDIARIES
<PAGE>
SCHEDULE VII
EXISTING INDEBTEDNESS
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SCHEDULE VIII
INSURANCE
<PAGE>
SCHEDULE IX
EXISTING LIENS
FILING ORIGINAL DESCRIPTION
LOCATION DEBTOR SECURED PARTY FILE NUMBER FILE DATE OF COLLATERAL
- -------- ------ ------------- ----------- --------- -------------
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SCHEDULE X
EXISTING INVESTMENTS
<PAGE>
SCHEDULE XI
CASH MANAGEMENT SYSTEM
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SCHEDULE XII
CONSOLIDATED EBITDA ADDBACK
COMPANY'S FISCAL QUARTER ENDING AMOUNT
------------------------------- ------
March 31, 1998 $20,000,000
June 30, 1998 $13,000,000
September 30, 1998 $6,500,000
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. Amount and Terms of Credit.........................................1
1.01 The Commitments.................................................1
1.02 Minimum Amount of Each Borrowing................................3
1.03 Notice of Borrowing.............................................3
1.04 Disbursement of Funds...........................................4
1.05 Notes...........................................................5
1.06 Conversions.....................................................5
1.07 Pro Rata Borrowings.............................................6
1.08 Interest........................................................6
1.09 Interest Periods................................................7
1.10 Increased Costs, Illegality, etc................................8
1.11 Compensation...................................................10
1.12 Change of Lending Office.......................................10
1.13 Replacement of Lenders.........................................10
SECTION 2. Letters of Credit.................................................11
2.01 Letters of Credit..............................................11
2.02 Maximum Letter of Credit Outstandings; Final Maturities........12
2.03 Letter of Credit Requests; Minimum Stated Amount...............12
2.04 Letter of Credit Participations................................13
2.05 Agreement to Repay Letter of Credit Drawings...................15
2.06 Increased Costs................................................16
SECTION 3. Commitment Commission; Fees; Reductions of Commitment.............16
3.01 Fees...........................................................16
3.02 Voluntary Termination of Unutilized Commitments................17
3.03 Mandatory Reduction of Commitments.............................18
SECTION 4. Prepayments; Payments; Taxes......................................19
4.01 Voluntary Prepayments..........................................19
4.02 Mandatory Repayments...........................................20
4.03 Method and Place of Payment....................................21
4.04 Net Payments...................................................21
SECTION 5. Conditions Precedent to the Restatement Effective Date............23
5.01 Execution of Agreement; Notes..................................23
5.02 Officers Certificate...........................................24
5.03 Opinions of Counsel............................................24
5.04 Corporate Documents; Proceedings; etc..........................24
5.05 Existing Credit Agreement......................................24
(i)
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5.06 Adverse Change, etc............................................25
5.07 Litigation.....................................................25
5.08 Pledge Agreements..............................................26
5.09 Security Agreement.............................................26
5.10 Company/Sub Guaranty...........................................26
5.11 Collateral Assignment of Leases; etc...........................27
5.12 Intercreditor Agreement........................................27
5.13 Financial Statements; Pro Forma Balance Sheet; Projections.....27
5.14 Solvency Certificate...........................................27
5.15 Initial Borrowing Base Certificate.............................27
5.16 Fees, etc......................................................27
SECTION 6. Conditions Precedent to All Credit Events.........................27
6.01 Restatement Effective Date.....................................28
6.02 No Default; Representations and Warranties.....................28
6.03 Notice of Borrowing; Letter of Credit Request..................28
SECTION 7. Representations, Warranties and Agreements........................28
7.01 Corporate Status...............................................28
7.02 Corporate and Other Power and Authority........................29
7.03 No Violation...................................................29
7.04 Approvals......................................................29
7.05 Financial Statements; Financial Condition;
Undisclosed Liabilities; Projections; etc......................29
7.06 Litigation.....................................................31
7.07 True and Complete Disclosure...................................31
7.08 Use of Proceeds; Margin Regulations............................31
7.09 Tax Returns and Payments.......................................31
7.10 Compliance with ERISA..........................................32
7.11 The Security Documents.........................................33
7.12 Properties.....................................................34
7.13 Capitalization.................................................34
7.14 Subsidiaries...................................................34
7.15 Compliance with Statutes, etc..................................34
7.16 Investment Company Act.........................................34
7.17 Public Utility Holding Company Act.............................35
7.18 Environmental Matters..........................................35
7.19 Labor Relations................................................35
7.20 Patents, Licenses, Franchises and Formulas.....................36
7.21 Indebtedness...................................................36
7.22 Senior Subordinated Notes......................................36
(ii)
<PAGE>
SECTION 8. Affirmative Covenants.............................................36
8.01 Information Covenants..........................................36
8.02 Books, Records and Inspections; Annual Meetings................39
8.03 Maintenance of Property; Insurance.............................39
8.04 Corporate Franchises...........................................40
8.05 Compliance with Statutes, etc..................................41
8.06 Compliance with Environmental Laws.............................41
8.07 ERISA..........................................................41
8.08 End of Fiscal Years; Fiscal Quarters...........................42
8.09 Performance of Obligations.....................................42
8.10 Payment of Taxes...............................................43
8.11 Foreign Subsidiaries Security, etc.............................43
8.12 Additional Security; Further Assurances........................43
8.13 IPO............................................................44
8.14 Cash Management System.........................................45
8.15 Landlord Waivers...............................................45
SECTION 9. Negative Covenants................................................45
9.01 Liens..........................................................45
9.02 Consolidation, Merger, Purchase or Sale of Assets, etc.........47
9.03 Dividends......................................................51
9.04 Indebtedness...................................................52
9.05 Advances, Investments and Loans................................54
9.06 Transactions with Affiliates...................................56
9.07 Capital Expenditures...........................................56
9.08 Consolidated Interest Coverage Ratio...........................58
9.09 Maximum Leverage Ratio.........................................59
9.10 Limitation on Payments of Certain Indebtedness;
Modifications of Certain Indebtedness;
Modifications of Certificate of Incorporation
and By-Laws; etc...............................................59
9.11 Limitation on Certain Restrictions on Subsidiaries.............60
9.12 Limitation on Issuance of Capital Stock........................60
9.13 Business.......................................................61
9.14 Limitation on Creation of Subsidiaries.........................61
SECTION 10. Events of Default................................................61
10.01 Payments......................................................61
10.02 Representations, etc..........................................61
10.03 Covenants.....................................................61
10.04 Default Under Other Agreements................................62
10.05 Bankruptcy, etc...............................................62
10.06 ERISA.........................................................62
10.07 Security Documents............................................63
(iii)
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10.08 Company/Sub Guaranty..........................................63
10.09 Judgments.....................................................63
10.10 Change of Control.............................................63
SECTION 11. Definitions and Accounting Terms.................................64
11.01 Defined Terms.................................................64
SECTION 12. The Agent........................................................91
12.01 Appointment....................................................91
12.02 Nature of Duties...............................................91
12.03 Lack of Reliance on the Agent..................................92
12.04 Certain Rights of the Agent....................................92
12.05 Reliance.......................................................92
12.06 Indemnification................................................92
12.07 The Agent in its Individual Capacity...........................93
12.08 Holders........................................................93
12.09 Resignation by the Agent.......................................93
SECTION 13. Miscellaneous....................................................94
13.01 Payment of Expenses, etc......................................94
13.02 Right of Setoff...............................................95
13.03 Notices.......................................................95
13.04 Benefit of Agreement; Assignments; Participations.............95
13.05 No Waiver; Remedies Cumulative................................97
13.06 Payments Pro Rata.............................................98
13.07 Calculations; Computations; Accounting Terms..................98
13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE;
WAIVER OF JURY TRIAL..........................................98
13.09 Counterparts.................................................100
13.10 Effectiveness................................................100
13.11 Headings Descriptive.........................................100
13.12 Amendment or Waiver; etc.....................................100
13.13 Survival.....................................................102
13.14 Domicile of Loans............................................102
13.15 Register.....................................................102
13.16 Confidentiality..............................................103
13.17 Increases of Revolving Loan Commitments......................103
(iv)
<PAGE>
SCHEDULE I Commitments
SCHEDULE II Lender Addresses
SCHEDULE III Litigation
SCHEDULE IV Real Property
SCHEUDLE V Convertible Stock
SCHEDULE VI Subsidaries
SCHEDULE VII Existing Indebtedness
SCHEDULE VIII Insurance
SCHEDULE IX Existing Liens
SCHEDULE X Existing Investments
SCHEDULE XI Cash Management System
SCHEDULE XII Consolidated EBITDA Addback
EXHIBIT A Notice of Borrowing
EXHIBIT B-1 Revolving Note
EXHIBIT B-2 Swingline Note
EXHIBIT C Letter of Credit Request
EXHIBIT D Section 4.04(b)(ii) Certificate
EXHIBIT E Opinion of Fried, Frank, Harris,
Schriver & Jacobson, Counsel to the Credit Parties
EXHIBIT F Officers' Certificate
EXHIBIT G Company/Sub Pledge Agreement
EXHIBIT H Shareholders Pledge Agreement
EXHIBIT I Security Agreement
EXHIBIT J Company/Sub Guaranty
EXHIBIT K Intercreditor Agreement
EXHIBIT L Solvency Certificate
EXHIBIT M Borrowing Base Certificate
EXHIBIT N Assignment and Assumption Agreement
EXHIBIT O Intercompany Note
(v)
EXHIBIT 10.2
JOHN DEERE
CONSTRUCTION EQUIPMENT
DEALER AGREEMENT
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JOHN DEERE
CONSTRUCTION EQUIPMENT COMPANY
AUTHORIZED CONSTRUCTION EQUIPMENT
DEALER AGREEMENT
The Dealer identified below hereby applies to JDCEC for appointment as a JDCEC
Dealer for the area of responsibility designated in Exhibit 1. Dealer agrees
that the relationship between Dealer and JDCEC will be governed by the Terms of
Appointment set forth in this Agreement. When it executes this Agreement, JDCEC
accepts the Dealer's application and also agrees to be bound by the Terms of
Appointment. This Agreement shall be effective upon execution by JDCEC and shall
as of that date supersede any prior John Deere Dealer Agreement between the
parties hereto (including without limitation any prior John Deere Industrial
Dealer Agreement between Dealer and John Deere Industrial Equipment Company).
<TABLE>
<CAPTION>
<S> <C>
Dealer (Firm Name): NEFF MACHINERY, INC.
----------------------------------------------
Address: 4343 NORTHWEST 76TH AVENUE, MIAMI, FLORIDA 33166
----------------------------------------------------------
X Corporation
X C
___ S
___ Limited Liability Company By: /S/ KEVIN P. FITZGERALD
----------------------------
___ Partnership
___ General Title: PRESIDENT
----------------------------------------
___ Limited (Authorized officer, owner, or partner)
___ Proprietorship
___ Other: Date: MAY 6, 1998
--------------------------------------------------
Signatures of Other _____________________________________________________________________________
Partners, Owners, or _____________________________________________________________________________
Shareholders: _____________________________________________________________________________
Signature of JORGE MAS, JR. /S/ JORGE MAS, JR.
Guarantors: -----------------------------------------------------------------------------
JOSE MAS /S/ JOSE MAS
-----------------------------------------------------------------------------
J.C. MAS /S/ J.C. MAS
-----------------------------------------------------------------------------
NEFF CORP. /S/ KEVIN P. FITZGERALD
-----------------------------------------------------------------------------
Accepted: By: /S/ BOB B. BROCK
----------------------------------------------------------------------
John Deere Construction Title: DIRECTOR, COMMERCIAL OPERATIONS
Equipment Company ---------------------------------------------------------------------
Moline, IL 61265 Date: MAY 6, 1998
---------------------------------------------------------------------
</TABLE>
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<PAGE>
TERMS OF APPOINTMENT
PREAMBLE
JDCEC and Dealer acknowledge that the ultimate objective to which each
party will strive is the satisfaction of the customer. Satisfaction of customers
results from providing quality products and excellent product support and
otherwise exceeding customers' needs and expectations. JDCEC relies on Dealer to
promote aggressively the sale, lease, and rental of Goods in Dealer's AOR and to
provide a level of service and support of Goods that exceeds customers' needs
and expectations. The environment necessary for achieving the mutual objectives
of Dealer and JDCEC is enhanced by a relationship between JDCEC and Dealer that
is based on cooperation, mutual respect, and a commitment to continuous
improvement.
The Terms of Appointment set forth in this Agreement are necessary to
ensure that:
\bullet\ the Goods are actively and aggressively promoted by Dealer for
sale, lease, and rental to customers and prospective customers in
Dealer's AOR in order to achieve the Performance Standards;
\bullet\ the Goods are supported by Dealer in a prompt and effective
manner in order to achieve a high level of customer acceptance;
and
\bullet\ customers' needs are anticipated and met faster, better, and more
consistently by Dealer than they are by the competition.
Dealer and JDCEC agree as follows:
1. PROVISIONS OF APPOINTMENT. During the period of Dealer's
appointment as a JDCEC Dealer, the following provisions shall apply:
a) Dealer's AOR
In authorizing Dealer to distribute Goods, JDCEC is
relying on Dealer to effectively market Goods against
competing products in Dealer's AOR and to enhance the
reputation JDCEC and its dealer organization have
developed over many years. Achieving a high degree of
customer satisfaction in Dealer's AOR requires that
Dealer concentrate its efforts in Dealer's AOR.
i) Dealer is assigned Dealer's AOR for the
purpose of marketing, servicing, and
supporting Goods. Dealer's AOR is not an
exclusive territory. JDCEC and others may
market, service, and support Goods in
Dealer's AOR. Without limiting the
foregoing,
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JDCEC may sell, loan, lease, or
rent Goods, without restriction or
limitation, to any person or entity,
including without limitation:
a) federal, state, and local
governments;
b) accounts classified by JDCEC as
direct or national accounts;
c) purchasers for export;
d) educational institutions;
e) competitors of JDCEC;
f) equipment manufacturers; and
g) employees of JDCEC.
ii) JDCEC may assign all or any portion of
Dealer's AOR to other persons or entities
for the purpose of marketing, servicing, and
supporting products other than Goods. Such
an assignment may include Parts.
iii) Dealer will concentrate its efforts in
Dealer's AOR.
iv) JDCEC shall have no obligation to support,
through its programs or other forms of
dealer support, activities of Dealer outside
Dealer's AOR, and JDCEC may exclude
activities of Dealer outside Dealer's AOR
from JDCEC's programs and other forms of
dealer support.
v) Whenever a sale, lease, or rental of Whole
Goods by Dealer is subject to JDCEC's AOR
service fee policy, as in effect from time
to time, Dealer will pay a service fee in
accordance with the terms of JDCEC's service
fee bulletin in effect when the sale, lease,
or rental occurs.
b) Locations; Other Product Lines
The authorized Dealer locations specified in Exhibit 3 are
necessary to ensure (1) superior product support, (2)
aggressive sales, leasing, and rental coverage
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of Dealer's AOR, and (3) a high degree of customer
satisfaction. Locations may need to be added, relocated, or
discontinued in the future to meet changing market needs.
i) Dealer will maintain JDCEC dealership operations at
each location listed in Exhibit 3 for the purposes
specified in Exhibit 3. Dealer will not open any new
Dealer location, relocate or discontinue a Dealer
location, or change the purposes of a Dealer location
without obtaining JDCEC's prior written approval.
Dealer and Affiliates will not, either directly or
indirectly, establish, maintain, or operate at any
other location a place of business of any kind where
(or from which) any Goods are displayed, sold,
leased, rented, or serviced.
ii) Neither Dealer nor any Affiliate will sell, lease, or
rent parts or whole goods that compete with JDCEC's
products. Dealer will separate, in a manner
acceptable to JDCEC, other business activities and/or
product lines from Dealer's JDCEC dealership
operations if, in JDCEC's sole discretion, such
activities and/or product lines are likely to detract
from Dealer's representation of JDCEC's products.
Dealer and Affiliates will not open any new location
or relocate a location where Dealer or an Affiliate
engages in the sale, lease, rental, or servicing of
construction, utility, or forestry equipment (or
parts for such equipment) other than Goods, or in a
related business, without obtaining JDCEC's prior
written approval.
iii) To ensure compliance with this Section l.b., Dealer
and Affiliates will permit JDCEC to inspect, during
normal business hours, all locations of Dealer and
any Affiliate engaged in the sale, lease, rental, or
servicing of equipment or vehicles (or parts for
equipment or vehicles), or in a related business.
c) Dealer's Business Plans and Promotional Efforts; Achievement
of Meaningful Progress and the Performance Standards
The reputation and mutual success of JDCEC and JDCEC Dealers
depend to a large degree upon how effectively each JDCEC
Dealer conducts its operations.
i) Each year, by the date specified by JDCEC, Dealer
will submit and secure JDCEC's approval of a business
plan covering one or, if requested by JDCEC, more
years and containing, for each year covered by the
plan:
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a) an objective for each Performance Criterion
that represents, at a minimum, Meaningful
Progress for the Performance Criterion;
b) action plans designed to achieve the
Performance Criteria objectives specified in
the plan and, within a reasonable period of
time, performance at or above the
Performance Standards; and
c) such other elements as JDCEC may request of
JDCEC Dealers generally.
Dealer may base its business plan on the calendar
year or on Dealer's fiscal year, provided all periods
are covered by a Dealer business plan approved by
JDCEC.
ii) Dealer will actively and aggressively promote the
sale, lease, and rental of Whole Goods. Dealer's
compliance with this commitment will be evaluated
based on performance in Dealer's AOR and not on
performance outside Dealer's AOR.
Dealer will maintain:
a) highly qualified management and sales
personnel;
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b) sales training and personnel development
programs;
c) inventories of Whole Goods and related
attachments available for demonstration,
sale, lease, and rental; and
d) sales facilities
that in each case are sufficient to achieve the
Performance Criteria objectives contained in Dealer's
JDCEC-approved business plans and, within a
reasonable period of time, performance at or above
the Performance Standards.
iii) Dealer will actively and aggressively promote the
sale of Parts and services. Dealer's compliance with
this commitment will be evaluated based on
performance in Dealer's AOR and not on performance
outside Dealer's AOR.
Dealer will maintain:
a) highly qualified parts and service
personnel;
b) parts sales and service training and
personnel development programs;
c) inventories of Parts;
d) service equipment, field service vehicles,
and tools; and
e) parts and service facilities
that in each case are sufficient to achieve the
Performance Criteria objectives contained in Dealer's
JDCEC-approved business plans and, within a
reasonable period of time, performance at or above
the Performance Standards.
iv) Dealer will achieve Meaningful Progress with respect
to each Performance Criterion in each fiscal or
calendar year (whichever is used as the basis for
Dealer's JDCEC-approved business plans). In addition,
Dealer will, within a reasonable period of time,
achieve performance at or above the Performance
Standards. Dealer's compliance with these commitments
will be evaluated based on performance in Dealer's
AOR and not on performance outside Dealer's AOR.
d) Preparation of Goods, Warranty, and Post-Delivery Service
i) The Manual and/or bulletins issued from time to time
by JDCEC designate the JDCEC Warranties. In making
sales, leases, and rentals of Goods, Dealer will
follow instructions contained in the Manual and
JDCEC's bulletins and will complete with true and
accurate information the retail purchase orders,
delivery receipts, lease agreements, and other forms
specified therein. Dealer will be solely responsible
for any warranties given by Dealer that exceed the
applicable JDCEC Warranty, if any, and for any
liability in cases where Dealer has failed to use the
forms prescribed by JDCEC in the manner specified by
JDCEC.
ii) To ensure the proper operation of Goods, Dealer will
properly assemble and prepare all Goods sold, leased,
or rented by Dealer and will perform such
inspections, adjustments, and service prior to
delivery to users as are required in the Manual.
Dealer will instruct users in the proper use and
maintenance of Goods and will furnish each user with
the appropriate operator's manuals furnished by
JDCEC. Dealer will also perform the post-delivery
inspections and adjustments prescribed for Goods in
the Manual.
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iii) Dealer is authorized to and will perform prompt and
effective warranty service on Goods in Dealer's AOR
for which JDCEC becomes obligated pursuant to a JDCEC
Warranty, including without limitation Goods not
sold, leased, or rented by Dealer, if presented with
proper evidence that the Goods are entitled to
warranty service under a JDCEC Warranty.
iv) Dealer will perform prompt and effective non-warranty
service on Goods in Dealer's AOR, including without
limitation Goods not sold, leased, or rented by
Dealer.
v) Dealer will perform product improvement programs that
JDCEC may from time to time require for Goods in
Dealer's AOR, including without limitation Goods not
sold, leased, or rented by Dealer. Dealer will
complete such programs as expeditiously as possible
and, in any event, within the time frame specified by
JDCEC.
vi) Dealer will perform warranty service and product
improvement programs in the manner and for the
compensation specified in the Manual in effect at the
time the service or program is performed. Dealer will
notify JDCEC of all warranty and product improvement
program claims in accordance with the Manual.
e) Sales to Re-sellers
Dealer will not sell Goods to any person or entity that
re-sells or intends to re-sell such Goods, provided, however,
that this Section l.e. shall not prevent Dealer from:
i) selling Parts to a person or entity in Dealer's AOR
that uses such Parts in providing repair or
maintenance services in Dealer's AOR for products
owned by others;
ii) selling Used Goods to a person or entity that is
engaged in the business of selling used equipment;
iii) selling Goods to ERS;
iv) selling Goods to another JDCEC Dealer; or
v) selling Goods to a person or entity that is primarily
engaged in the business of renting equipment to end
users.
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<PAGE>
f) Equity
i) Dealer will maintain its Equity at a level sufficient
to achieve Dealer's commitments under this Agreement,
which shall be not less than the Minimum Equity
Level.
ii) Dealer will not pay any dividends, effect any stock
repurchase, repay or otherwise discharge its
indebtedness for any loans from its owners, or make
any other distributions to owners if Dealer's Equity
is below the Equity Performance Standard or would
fall below the Equity Performance Standard as a
result of such action. If Dealer is a subchapter S
corporation or similar entity, Dealer may make a
distribution to a shareholder, without regard to the
preceding sentence, in an amount equal to the income
tax owed by the shareholder as a result of Dealer's
dealership operations.
iii) Dealer will not make any acquisitions or initiate new
business activities if Dealer's Equity is below the
Equity Performance Standard or would fall below the
Equity Performance Standard as a result of such
action.
If the financial statements of another entity or a combination of
entities are used for the purpose of calculating Dealer's Equity,
Section l.f.i. will apply to that entity or combination as well as to
Dealer.
g) JDCEC's Acceptance of Orders
JDCEC will accept orders placed by Dealer for Goods in JDCEC's
then-current product line, provided that JDCEC contemplates
the Goods will be shipped during the period of Dealer's
appointment as a JDCEC Dealer. JDCEC shall have no liability
for delay, failure, or refusal to accept Dealer's orders or to
ship Goods to Dealer if the delay, failure, or refusal results
from:
i) capacity constraints, demand in excess of available
supply, labor strikes or lockouts;
ii) a default under a security agreement between Dealer
and JDCEC;
iii) termination of Dealer's appointment;
iv) any cause beyond JDCEC's control; or
v) JDCEC's determination, in its sole discretion, that:
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a) Dealer's financial condition does not justify the
extension of additional credit or the addition of
inventory;
b) limitations in Dealer's market potential, marketing
capabilities, or product support capabilities for the
particular Goods involved are likely to lead to
customer dissatisfaction with the Goods or excessive
warranty expense;
c) Dealer has consistently failed to perform its
obligations under this Agreement;
d) Dealer's inventory of Goods is excessive or with
additional shipments would become excessive, or
shipment would result in larger JDCEC Dealer
inventories than JDCEC is willing to finance; or
e) shipment would result in larger JDCEC Dealer
inventories than warranted based on expected market
demand.
All orders, sales, and shipments will be governed by the Conditions of
Sale in effect at the time the order is placed.
h) Availability of JDCEC Programs
i) JDCEC will make available to Dealer finance plans,
lease plans, floor plans, and parts return programs
(and other similar financing or inventory management
plans or programs) comparable to such plans and
programs that JDCEC makes available to JDCEC Dealers
generally. Such plans and programs may contain
conditions for eligibility and are subject to credit
approval. Such plans and programs also may have
varying terms depending on certain dealer financial
or performance criteria or market conditions.
ii) JDCEC may make available to any JDCEC Dealer
marketing programs that JDCEC deems necessary to
compete in the AOR assigned to that JDCEC Dealer
without obligating JDCEC to make similar programs
available to any other JDCEC Dealer or to JDCEC
Dealers generally.
i) Changes in Dealer Ownership or Business Structure
Any change in the ownership, management, or business structure
of Dealer could have serious negative consequences for Dealer
and JDCEC. JDCEC considers the Key Persons to be particularly
vital to Dealer and to a successful working relationship
between JDCEC and Dealer.
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i) No change in the ownership or business structure of
Dealer or any Key Person will occur unless JDCEC has
given its prior written approval of such change. No
event that would eliminate or materially alter the
relationship to Dealer, or the role in Dealer's
affairs, of any Key Person will occur unless JDCEC
has given its prior written approval of such event.
ii) Dealer will execute such agreements or other
documents as JDCEC may deem necessary to preserve
JDCEC's rights under this Agreement or any other
agreement between Dealer and JDCEC in light of a
change or proposed change in Dealer's ownership,
management, or business structure.
iii) If Dealer wishes to sell its business or
substantially all of the assets of its business
(excluding Dealer's JDCEC Dealer appointment and this
Agreement, which are not transferable by Dealer),
Dealer will notify JDCEC before the beginning of any
discussions or negotiations pertaining to the
proposed sale. After giving such notice, Dealer may
enter into negotiations to sell its business or
assets (excluding Dealer's JDCEC Dealer appointment
and this Agreement) to a third party. JDCEC retains
at all times the right to decide, in its sole
discretion, whether to appoint any person or entity
as a JDCEC Dealer for Dealer's AOR, for any portion
thereof, or for any other area.
For purposes of this Agreement, a change in business structure
shall include, without limitation, a change in the legal form
of Dealer (e.g. from partnership to corporation); a change in
the legal form of any Key Person or of any entity that holds,
directly or indirectly, a 1 0% or greater ownership interest
in Dealer; a merger or consolidation involving Dealer; the
creation of a subsidiary, partnership, or other legal entity
by Dealer; and any other change that may affect any right or
obligation under this Agreement or any other agreement between
Dealer and JDCEC.
j) Financial Statements
Dealer will submit to JDCEC's Finance Department offices in
Moline, Illinois, annual financial statements for Dealer, for
any entity or combination of entities that JDCEC may designate
pursuant to the next paragraph, and for such Affiliates as
JDCEC may from time to time request within 1 00 days after
Dealer's fiscal year-end (or, for another entity or
combination of entities, or for an Affiliate, within 1 00 days
after such entity, combination, or Affiliate's fiscal
year-end). Such financial statements shall have been prepared
in accordance with generally
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accepted accounting principles and audited by an independent certified
public accountant approved by JDCEC, which approval shall not be
unreasonably withheld. Dealer also will submit to JDCEC's Finance
Department offices in Moline, Illinois, financial statements, prepared
in accordance with the Financial Information System, for each calendar
month by the end of the following month. Dealer also will provide such
other financial data of Dealer and Affiliates as JDCEC may from time to
time request.
JDCEC will, in its sole discretion:
i) designate, before the beginning of each of Dealer's
fiscal years, the particular entity or combination of
entities whose financial statements JDCEC will use to
determine Dealer's Equity for purposes of Sections
l.f. and 2.c.ii., provided, however, that JDCEC may
amend its designation for a particular fiscal year if
Dealer, the designated entity or combination, or an
Affiliate undergoes a change in ownership or business
structure prior to the end of that fiscal year; and
ii) describe in the Terms Schedule the adjustments to the
financial statement data that JDCEC may make in
determining Dealer's Equity. The adjustments JDCEC
may make in determining Equity from a particular
financial statement shall be those described in the
Terms Schedule in effect on the date that financial
statement is received in JDCEC's Finance Department
offices in Moline, Illinois.
2. TERMINATION OF DEALER'S APPOINTMENT.
a) Termination by Mutual Consent
Dealer's appointment may be terminated by the mutual
consent of Dealer and JDCEC, evidenced by a writing
signed by Dealer and JDCEC, with the effective date
of such termination to be as mutually agreed upon in
writing.
b) Termination by Dealer
Dealer may terminate its appointment for any reason
upon at least 180 days' prior written notice to
JDCEC.
c) Termination by JDCEC
i) JDCEC may terminate Dealer's appointment,
upon at least 180 days' prior written notice
to Dealer, in the event:
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<PAGE>
a) Dealer fails to achieve Meaningful
Progress with respect to a
Performance Criterion in any fiscal
or calendar year (whichever is used
as the basis for Dealer's
JDCEC-approved business plans); or
b) Dealer or any Affiliate fails to
comply with any material provision
of this Agreement.
JDCEC may exercise its termination right under this
Section 2.c.i. with respect to all or any portion of
Dealer's AOR, and with respect to all or any portion
of the Goods, as JDCEC may determine in its sole
discretion.
JDCEC may exercise its termination right under this
Section 2.c.i. without regard to the performance of
other JDCEC Dealers or to the circumstances under
which JDCEC has terminated or refrained from
terminating the appointment of other JDCEC Dealers.
ii) JDCEC may terminate Dealer's appointment,
upon at least 120 days' prior written notice
to Dealer, if JDCEC determines that Dealer's
Equity is less than the Minimum Equity
Level. JDCEC will give Dealer written notice
of termination under this Section 2.c.ii.
within 45 days after the financial
statements on which JDCEC's determination is
based are received at JDCEC's Finance
Department offices in Moline, Illinois. If
Dealer provided the financial statements to
JDCEC within the time required by Section
l.j., Dealer will have the right to increase
its Equity to the Minimum Equity Level,
during the 120 day notice period, through
the addition of new capital in a form
acceptable to JDCEC; if Dealer does increase
its Equity to the Minimum Equity Level in
this manner within such 120-day period, the
notice of termination given under this
Section 2.c.ii. shall become null and void.
JDCEC's prior written approval will be
required if Dealer wishes to increase its
Equity to the Minimum Equity Level in whole
or in part by any other means, including
without limitation reducing its asset levels
or through earnings retained during the
120-day notice period. If Dealer did not
provide the financial statements involved to
JDCEC within the time required by Section
l.j., Dealer will be deemed to have waived
any right to increase its Equity to the
Minimum Equity Level.
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<PAGE>
iii) JDCEC may terminate Dealer's appointment,
upon at least 365 days' prior written notice
to Dealer, if JDCEC determines, in JDCEC's
sole discretion, that Dealer's AOR does not
justify the continuation of a JDCEC Dealer
assigned only Dealer's AOR (regardless of
whether Dealer has been assigned another AOR
under another agreement with JDCEC). If
Dealer's appointment is terminated under
this Section 2.c.iii., Dealer shall have,
for a period of three years commencing with
the effective date of termination, a right
of first refusal to be re-appointed as a
JDCEC Dealer for Dealer's AOR if in that
period JDCEC determines that Dealer's AOR
does justify a JDCEC Dealer assigned only
Dealer's AOR. However, such right of first
refusal shall terminate upon a breach by
Dealer of any agreement with JDCEC or any of
JDCEC's Affiliates, or if Dealer would not
satisfy the Equity Performance Standard at
the time of reappointment.
iv) JDCEC may terminate Dealer's appointment,
effective immediately, by giving written
notice of termination to Dealer at any time
after the happening of any of the following:
a) the death, incapacity, or
dissolution of any Key Person;
b) a default under any security
agreement between Dealer and JDCEC;
c) any noncompliance with Section l.b.,
Section l.c.i., Section l.i.i.,
or Section l.j.;
d) Dealer defrauds anyone, including
without limitation JDCEC, or
misrepresents any material fact in
any communication with or submission
to JDCEC;
e) the cancellation, discontinuance, or
revocation of a guaranty or letter
of credit applicable to Dealer
indebtedness, or a failure to modify
the amount of such a guaranty or
letter of credit when and as
requested by JDCEC or Deere Credit,
Inc.;
f) Dealer substantially closes the
dealership business;
g) Dealer intentionally fails to comply
with any applicable federal, state,
or local law, regulation, or
ordinance relating to the operation
of the dealership; or
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<PAGE>
h) Dealer attempts to assign its rights
or obligations under this Agreement.
3. EFFECT OF TERMINATION OF APPOINTMENT. Termination of Dealer's
appointment hereunder means that the obligations and duties of the parties under
Section 1 no longer apply, and that JDCEC may decline to fill accepted orders
placed before such termination. Orders from Dealer that JDCEC contemplates will
be shipped after the effective date of termination may be accepted in JDCEC's
sole discretion. Such orders will be subject to the Conditions of Sale in effect
at the time the order is placed or to such other conditions that JDCEC may
prescribe. Submission or acceptance of orders and shipment or acceptance of
Goods does not have the effect of renewing or reinstating the obligations of
Section 1 and shall not be construed as an extension or renewal of Dealer's
appointment or as a rescission of any notice of termination. If Dealer's
appointment is terminated, neither Dealer, Affiliates, or JDCEC shall be
entitled to any compensation or reimbursement for loss of prospective profits,
anticipated sales, or other losses occasioned by the termination, except as
provided in this Agreement.
4. REPURCHASE OF GOODS ON TERMINATION. Upon termination of Dealer's
appointment, JDCEC will buy and Dealer will sell (or, with respect to JDM
products, may sell subject to Section 4.c.), free and clear of all liens and
encumbrances, the following Goods, provided they were originally purchased by
Dealer from JDCEC (or from another JDCEC Dealer with the written approval of
JDCEC) and are listed in JDCEC's published price list in effect on the effective
date of termination of Dealer's appointment, according to the following terms:
a) All unsold current Whole Goods and attachments in Dealer's
possession that are new, unused, complete, and in good
condition. The prices to be paid for such items will be the
invoice prices (but not more than current JDCEC Dealer prices)
plus freight from the factory to Dealer's location, less any
discounts from invoice price that have been allowed, and less
any reduction in value that may be required due to
deterioration.
b) All unsold current Parts in Dealer's possession that are new,
unused, complete, in good condition, and re-salable as new
without repackaging or reconditioning. The prices to be paid
for such items will be JDCEC's then current wholesale price,
as listed in the John Deere Parts Price List in effect on the
effective date of termination, less a discount of:
i) 15% on items listed as returnable under JDCEC's
then-current parts return policy; and
ii) 50% on all other items.
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<PAGE>
c) Such unsold current JDM products in Dealer's possession that
Dealer may elect to sell to JDCEC and that are new, unused,
complete, in good condition, and re-salable as new without
repackaging or reconditioning. JDCEC shall have no obligation
to repurchase such products unless Dealer furnishes JDCEC with
a list of the products that it wishes to sell to JDCEC within
thirty days after the effective date of the termination of
Dealer's appointment. The price to be paid for such products
will be the then-current wholesale price, as listed in the JDM
Price List in effect on the effective date of termination,
less a discount of:
i) 50% on products identified by an asterisk in the JDM
Price List;
ii) 15% on items listed as returnable under JDCEC's
then-current parts return policy; and
iii) 25% on all other JDM products.
At the written request of JDCEC, Dealer will, at Dealer's expense,
list, tag, pack, load, and transport all repurchased Goods to the nearest
location regularly maintained by JDCEC for the storage of such Goods (or to such
closer location as may be designated by JDCEC) or pay for the cost of
transportation to such location. The risk of loss shall be on Dealer until the
vehicle transporting such Goods reaches the designated destination. Should
Dealer fail to fulfill the above obligation within 60 days after JDCEC has
requested that it do so, JDCEC or its designee may enter Dealer's premises,
perform these duties, and charge Dealer's account for any expenses incurred in
so doing.
Amounts payable to Dealer under this Section 4 will not be paid until
Dealer has complied with all applicable laws governing bulk transfers of
inventory.
JDCEC shall be relieved of its obligations under this Section 4 if a
default occurs or has occurred under any security agreement between Dealer and
JDCEC, and JDCEC elects to exercise its rights under such security agreement to
take possession of the Goods.
JDCEC shall be relieved of its obligations under this Section 4 if
Dealer has defrauded JDCEC or if Dealer misrepresents a material fact pertaining
to the repurchase of Goods in any communication with or submission to JDCEC.
5. RESOLUTION OF DISPUTES. Although Dealer and JDCEC are entering into
this Agreement in a spirit of cooperation and mutual respect, it is possible
that Disputes may arise. Dealer, Affiliates (including without limitation
guarantors of Dealer), JDCEC, Deere Credit, Inc., and ERS agree that any Dispute
shall be finally resolved by binding arbitration pursuant to the terms set forth
in Exhibit 5. The duty to arbitrate shall extend to any officer, employee,
shareholder, principal, agent, partner, trustee (in bankruptcy or otherwise), or
subsidiary of Dealer or an Affiliate as to any Dispute that is subject to this
Section 5.
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<PAGE>
6. COMPUTER SYSTEMS
a) During the period of Dealer's appointment, Dealer
will, at Dealer's expense:
i) install and maintain in good working order
a computerized business system that
is compatible with, and in communication
with, the John Deere Network;
ii) maintain the hardware and software necessary
to supply electronically to JDCEC (a)
monthly trial balance information in
accordance with the Financial Information
System; (b) product delivery and warranty
claim information in accordance with the
Service Information System; and (c) such
other information as JDCEC may from time to
time request Dealer to submit
electronically;
iii) conform to any modifications made to the
John Deere Network (provided JDCEC gives
Dealer at least 60 days' prior notice of the
modification);
iv) input into the John Deere Network, in
accordance with JDCEC's instructions, such
information as Deere may from time to time
request, and furnish such computer files and
reports as JDCEC may from time to time
request; and
v) pay all costs associated with Dealer's use
of the John Deere Network, as well as all
costs incurred in obtaining and maintaining
Dealer's computerized business system and in
communicating with the John Deere Network.
b) Dealer will keep confidential any information
contained in the John Deere Network and not use such
information for purposes unrelated to Dealer's
dealership appointment hereunder.
c) JDCEC shall not be liable for any losses incurred by
Dealer in connection with Dealer's computerized
business system or the John Deere Network.
7. AMENDMENT OF AGREEMENT. This Agreement cannot be altered or amended,
or any of its provisions waived, on behalf of JDCEC except in a writing signed
by a duly authorized officer of JDCEC. Dealer and JDCEC recognize that this
Agreement does not have an expiration date. Because market and business
practices and conditions are likely to change with the passage
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<PAGE>
of time and such changes or other circumstances could necessitate a change in
this Agreement, JDCEC may amend these Terms of Appointment at any time, without
the consent of Dealer, if the same amendment is made to the Terms of Appointment
of all other JDCEC Dealers whose dealer agreements are in the form of this
Agreement and may be amended in this manner pursuant to applicable law. Any such
amendment shall be made by issuance of a JDCEC Dealer bulletin or other written
notice to such JDCEC Dealers and shall be effective on the date specified in the
bulletin or other written notice, which date shall be at least 120 days
following the date of such bulletin or other written notice.
8. USE OF TRADEMARKS, NAMES, AND SIGNS. JDCEC grants Dealer the
non-exclusive right to use the Trademarks (including without limitation the JOHN
DEERE trademark, the trademark comprising a leaping deer design within a frame,
and the trademark comprising the leaping deer design and JOHN DEERE within a
frame), during the period of Dealer's appointment, in connection with the
advertising and sale of Goods bearing one or more of the Trademarks, and in
connection with the providing of services by Dealer relating to the sale or
servicing of Goods identified by the Trademarks. Such use of the Trademarks
shall be in a manner and form approved by JDCEC. Dealer agrees not to use any of
the Trademarks as part of Dealer's corporate or business name and to cease all
use of the Trademarks if Dealer ceases to be a JDCEC Dealer, including without
limitation the removal from Dealer's premises and vehicles of all signs and
distinctive identification that might associate Dealer with JDCEC. Dealer also
agrees not to sell or distribute any goods bearing any of the Trademarks, unless
the goods originated from JDCEC, JDCEC's Affiliates, or licensees authorized to
use the Trademarks on the goods. Dealer also agrees not to use the Trademarks to
promote goods not originating from JDCEC, JDCEC's Affiliates, or their
licensees.
9. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of JDCEC and, to the extent the terms
hereof bind or benefit Deere Credit, Inc. or ERS, their respective successors
and assigns. Dealer's rights and obligations under this Agreement may not be
assigned or transferred. Any attempt by Dealer to assign its rights or
obligations under this Agreement shall be null and void.
10. CHANGES IN OR DISCONTINUANCE OF GOODS.
(a) JDCEC may, at any time and with out notice, make
changes in or discontinue any Goods without incurring
any liability.
(b) This Agreement extends only to Goods. JDCEC reserves
the right to offer any other products to selected
JDCEC Dealers or others under existing or separate
new agreements. As new products, other than those
designated by JDCEC as direct successors of Goods,
are developed, acquired, or marketed by JDCEC, they
may or may not be added to the Goods covered under
this Agreement.
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<PAGE>
11. DEALER GUARANTY. To the extent requested by JDCEC, Key Persons,
Affiliates, and other partners in, or owners of, Dealer have executed or
concurrently herewith will execute in favor of JDCEC one or more guaranties of
Dealer's indebtedness to JDCEC. Dealer will obtain, and Key Persons, Affiliates,
and other partners in, or owners of, Dealer will execute, such additional
guaranties and amendments and additions to guaranties as JDCEC may from time to
time request.
For purposes of this Section 11 and Section 12, JDCEC shall include
Deere Credit, Inc. in addition to John Deere Construction Equipment Company.
12. SECURITY IN GOODS. Dealer has executed or concurrently herewith
will execute in favor of JDCEC one or more security agreements covering Dealer's
inventory of Goods and certain other items. Dealer will execute such additional
security agreements and financing statements, and amendments and additions
thereto or to existing instruments, as JDCEC may from time to time request, in
order that JDCEC may have at all times a first lien on Goods and other
collateral securing Dealer's indebtedness to JDCEC.
13. RELATIONSHIP OF THE PARTIES.
a) Dealer acknowledges that it is an independent retail
merchant which purchases Goods for resale for the
principal benefit of Dealer. Dealer further
acknowledges and agrees that it is an independent
contractor. In performing service work Dealer assumes
full responsibility for such work. Dealer also
acknowledges and agrees that it is not an employee,
agent, representative, franchisee, partner, or joint
venturer of or with JDCEC, has not paid and will not
pay a franchise fee to JDCEC, and is free to operate
its business in accordance with its independent
business judgment, provided that such operation is in
accordance with this Agreement and any other
agreement between Dealer and JDCEC. Dealer has no
authority to bind JDCEC by representations,
statements, agreements, conduct, or in any manner
whatsoever. JDCEC shall not be liable for any debts,
accounts, obligations, or other liabilities of
Dealer, its agents, employees, or representatives. It
is expressly recognized that no fiduciary
relationship exists between the parties.
b) Except as provided in Sections 5, 9, and 17, this
Agreement is not enforceable by any third party and
is not intended to benefit, or convey any rights to,
anyone other than Dealer and JDCEC.
c) Dealer obtains no rights by virtue of this Agreement
or its dealership appointment to acquire additional
dealerships or to obtain additional dealership
appointments or AOR assignments from JDCEC.
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<PAGE>
14. USE OF PRICE LISTS, CATALOGS, AND MANUALS. The Manual and any
bulletins, price lists, catalogs, and service manual pages furnished to Dealer
by JDCEC must be kept in good condition and returned to JDCEC upon termination
of Dealer's appointment. If such items have been purchased by Dealer, JDCEC will
repurchase them for the price paid. Dealer will not disclose, directly or
indirectly, the contents of such Manual, bulletins, price lists, catalogs, and
service manual pages to a person or entity that is a competitor of JDCEC or a
JDCEC Dealer.
15. ADVERTISING MATERIAL; MAILING LISTS. During the period of Dealer's
appointment:
a) JDCEC will furnish to Dealer, in quantities deemed
appropriate by JDCEC for Dealer's AOR, promotional
materials and printed advertising matter that JDCEC
prepares for use by other JDCEC Dealers in connection
with the sale, lease, rental, or servicing of Goods
and that JDCEC deems appropriate for Dealer's AOR;
and
b) Dealer will (i) create, maintain, and keep current a
list of the names and addresses of all purchasers and
prospective purchasers of Goods in Dealer's AOR, (ii)
provide JDCEC with the current list, and (iii)
promptly notify JDCEC of all changes to the list.
The list contemplated by Section 15.b shall be the sole property of
JDCEC. JDCEC may use the list at any time for any purpose it deems appropriate,
provided, however, that JDCEC will advise Dealer in advance of any use it makes
of the list (other than for the purpose of sending Dealer's direct mail
solicitations to purchasers and prospective purchasers on the list) during the
period of Dealer's appointment. Dealer will reimburse JDCEC for handling and
postage expenses for all direct mailings made at Dealer's request to prospective
purchasers in Dealer's AOR.
16. NO WAIVER. The failure of JDCEC to take any action or require full
and strict compliance with any provision of this Agreement or any provision of
any agreement with other JDCEC Dealers shall not affect JDCEC's right to take
any action or require full and strict compliance at any time prior or subsequent
thereto and shall not constitute a waiver of a breach of the provision or
nullify the effectiveness of such provision.
17. LIMITATION ON DAMAGES; JURY WAIVER; TIME TO INITIATE
PROCEEDINGS.
(a) No party to a Dispute shall be entitled to an award
of multiple, punitive, or exemplary damages, or any
damages excluded by, or in excess of any damage
limitation expressed in, this Agreement.
(b) Dealer, Affiliates (including without limitation
guarantors of Dealer), JDCEC, Deere Credit, Inc., and
ERS each hereby knowingly, voluntarily,
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<PAGE>
and intentionally waive any right he, she, or it may
have to a trial by jury in respect of any litigation
pertaining to any Dispute, and each agrees not to
request a jury in any such litigation.
c) No party to a Dispute may commence litigation or
arbitration proceedings with respect to such Dispute
more than one year after that party's cause of action
accrues.
18. NOTICES. In addition to other available means of giving notice,
notices required or permitted under this Agreement (including without limitation
notices in connection with any arbitration under Section 5) may be given to the
person indicated on Exhibit 6, by personal delivery or by certified U.S. mail,
Federal Express or other reputable overnight delivery service, or facsimile to
the address or facsimile number indicated on Exhibit 6. Notices given by
personal delivery shall be deemed given when delivered. Notices given by
certified U.S. mail, reputable overnight delivery service, or facsimile shall be
deemed given when sent.
19. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the substantive laws of the State of Illinois without regard to
Illinois' conflict of laws rules.
20. SEVERABILITY. Any provision of this Agreement or portion thereof
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remainder of the provision or the
remaining provisions of this Agreement and without affecting the validity or
enforceability of such provision in any other jurisdiction. Any provision herein
found to be prohibited or unenforceable in a jurisdiction shall, by agreement of
the parties hereto, be replaced for such jurisdiction by a provision that
ensures that the economic and/or business objectives of the prohibited or
unenforceable provision are preserved insofar as it is possible to do so under
the applicable law in such jurisdiction.
21. PAYMENTS ON TERMINATION. If Dealer's appointment hereunder is
terminated, all indebtedness of Dealer to JDCEC which does not become due prior
to the effective date of the termination will be due and payable as of the
effective date of the termination. JDCEC may pay any sums owing to Dealer on
termination (including without limitation any sums owing to Dealer for
repurchased Goods) in cash or by giving Dealer credit to be applied to any
indebtedness then owed by Dealer to JDCEC or to any of JDCEC's Affiliates,
regardless of whether such indebtedness is then due and payable.
22. SURVIVAL. The termination of Dealer's appointment shall not affect
any rights or obligations that have accrued hereunder as of the effective date
of such termination. Such termination also shall not affect any rights or
obligations, except those expressly limited to the period of Dealer's
appointment, under Sections 3, 4, 5, 6.b., 6.c., 7, 8, 9, 10, 11, 12, 13, 14,
15, 16, 17, 18, 19, 20, 21, 22, and 23, which rights and obligations, except
those expressly limited to the period of Dealer's appointment, shall survive
termination of Dealer's appointment.
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<PAGE>
23. ENTIRE AGREEMENT. This Agreement is and shall be deemed to be the
complete and final expression of the agreement between the parties as to the
subject matters contained herein. This Agreement supersedes all previous dealer
agreements and representations between the parties. It is acknowledged and
agreed by Dealer and JDCEC that no promise or representation not contained
herein (including without limitation Exhibit 7) was an inducement to either
party or was relied on by either party in entering into this Agreement. Any
prior or contemporaneous promises, agreements, or representations, whether oral,
written, or created through custom, usage, or course of dealing, except for
those listed on Exhibit 7, are also superseded by this Agreement. Dealer
understands that, except as provided in Section 7, no agent or employee of JDCEC
has authority to vary or add to the provisions of this Agreement, or to make any
representation altering or going beyond the terms of this Agreement.
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EXHIBIT 1
DEALER'S AOR
Dealer's Area of Responsibility shall consist of the
following counties:
State of Florida
Counties:
Brevard
Broward
Charlotte
Collier
Dade
DeSoto
Glades
Hardee
Hendry
Hernando
Highlands
Hillsborough
Indian River
Lee
Manatee
Martin
Monroe
Okeechobee
Orange
Osceola
Palm Beach
Pasco
Pinellas
Polk
St. Lucie
Sarasota
Seminole
Volusia
and
Lake County, FL, South of Rt. 44
Sumter County, Fl, South of Rt. 476
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 2
A. WHOLE GOODS
Backhoes Crawler 4WD Loaders Excavators Motor Graders
<S> <C> <C> <C> <C>
|X|300 |X|450 |X|244 |X|190 |X|570
|X|310 |X|455 |X|344 |X|290 |X|670
|X|315 |X|550 |X|444 |X|490 |X|672
|X|410 |X|555 |X|544 |X|590 |X|770
|X|510 |X|650 |X|624 |X|595 |X|772
|X|710 |X|750 |X|644 |X|200
|X|850 |X|744 |X|690
|X|790
|X|792
|X|892
|X|992
Skidders Feller Bunchers Scrapers Forklifts Landscape Loaders
|_|540 |_|643 |X|762 |X|485 |X|210
|_|548 |_|653 |X|862 |X|486
|_|640 |_|843 |X|488
|_|648
|_|740
|_|748
</TABLE>
<TABLE>
<CAPTION>
B. PARTS
COMPETITIVE PARTS
<S> <C> <C> <C>
|X|Bucket Teeth |X|Engine Parts |X|Filters |X|Undercarriage Products
|X|Cutting Edges |X|All-Makes Parts |X|Oil |X|Re-manufactured Components
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 3
LOCATIONS
ADDRESS PURPOSE/STORE TYPE
WHOLE PARTS SERVICE OTHER
GOODS
<S> <C> <C> <C> <C>
4343 NORTHWEST 76TH AVENUE - MIAMI, FL 33166 |X| |X| |X| |_|
- -----------------------------------------------------
2995 HANSON STREET - FORT MYERS, FL 33916 |X| |X| |X| |_|
- -----------------------------------------------------
4333 JOHN YOUNG PARKWAY - ORLANDO, FL 32804 |X| |X| |X| |_|
- -----------------------------------------------------
2611 HAMMONDVILLE ROAD - POMPANO BEACH, FL 33069 |X| |X| |X| |_|
- -----------------------------------------------------
3933 BEELINE HIGHWAY - W. PALM BEACH, FL 33404-0905 |X| |X| |X| |_|
- -----------------------------------------------------
1562 TAMIAMI TRAIL SO. - VENICE, FL 34293 |X| |X| |X| |_|
- -----------------------------------------------------
5102 NORTH 56TH STREET - TAMPA, FL 33610 |X| |X| |X| |_|
- -----------------------------------------------------
|_| |_| |_| |_|
|_| |_| |_| |_|
|_| |_| |_| |_|
|_| |_| |_| |_|
|_| |_| |_| |_|
|_| |_| |_| |_|
|_| |_| |_| |_|
|_| |_| |_| |_|
|_| |_| |_| |_|
|_| |_| |_| |_|
|_| |_| |_| |_|
|_| |_| |_| |_|
|_| |_| |_| |_|
|_| |_| |_| |_|
</TABLE>
-25-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 4
KEY PERSONS
RELATIONSHIP TO DEALER/
NAME OWNERSHIP INTEREST ROLE IN DEALER'S AFFAIRS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jorge Mas, Jr. Shareholder of Neff Corp. Chairman/Guarantor
Jose Mas Shareholder of Neff Corp. Guarantor
J. C. Mas Shareholder of Neff Corp. Guarantor
Neff Corp. 100% Owner Parent
Santos Fund I, LP Shareholder of Neff Corp. Affiliate
Santos Capital Advisors, Owner of Stock Option Affiliate
Inc. to purchase Neff Corp.
Common Stock
</TABLE>
-26-
<PAGE>
EXHIBIT 5
DISPUTE RESOLUTION
1. If the parties to a Dispute agree, the Dispute will be submitted to
non-binding mediation.
2. If the parties to a Dispute do not agree to mediation of the Dispute, or if
mediation does not resolve the Dispute, the Dispute shall be finally resolved by
binding arbitration in accordance with the arbitration rules of JAMS/Endispute,
as amended by this Exhibit. The party seeking arbitration shall submit a written
notice of arbitration to the other party and to JAMS/Endispute. The arbitration
shall be held at such location as required by applicable law or, if no location
is required by applicable law, at Chicago, Illinois or such other city as the
parties to the Dispute may agree in writing. The arbitration shall be held
before a panel of three arbitrators each of whom is affiliated with
JAMS/Endispute and is part of the pool of arbitrators selected by JAMS/Endispute
as available to arbitrate Disputes. Each arbitrator in the pool shall:
a) be a current or former practicing attorney or former judge;
b) have at least fifteen years experience in litigation, arbitration,
and/or mediation of commercial disputes;
c) have prior experience as an arbitrator (through award) of at least
three manufacturer/dealer or franchisor/franchisee disputes; and
d) be recommended as a commercial arbitrator by at least two major
manufacturers or franchisors and at least two dealers or franchisees.
The arbitration panel shall consist of one arbitrator from the pool designated
by Dealer, one arbitrator from the pool designated by JDCEC, and a third
arbitrator from the pool designated by the two other arbitrators, which person
shall be the Chairperson of the arbitration panel. A decision and award joined
by at least two members of the arbitration panel shall constitute the award and
shall be binding on the parties. The arbitration panel shall provide written
reasons for their decision and award, which shall be final and binding and may
be entered by any court having jurisdiction thereof.
3. Except as provided herein, any action or decision joined by two arbitrators
from the arbitration panel shall constitute the action of the arbitration panel.
The arbitration panel may consider and grant dispositive motions, including
without limitation motions to dismiss or for summary judgment. In order to
prevent irreparable harm, the arbitration panel may consider and grant requests
for temporary or permanent injunctive relief or other equitable relief.
4. Unless contrary to applicable law, this Agreement shall be interpreted in
accordance with and the arbitration panel shall apply and be bound to follow the
substantive laws of the State of
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<PAGE>
Illinois. Where there is a conflict between the terms of this Agreement and the
laws of the State of Illinois, the terms of this Agreement shall control.
5. Each party shall bear its costs associated with the arbitration, including
its attorneys' fees, and the parties shall share equally the fees and expenses
of JAMS/Endispute and the arbitrators', provided, however, that if court
proceedings to stay litigation, compel arbitration, or enforce the award are
necessary, the party who unsuccessfully opposes such proceedings shall pay all
associated costs, expenses, and attorneys' fees that are reasonably incurred by
the other party.
6. The Chairperson of the arbitration panel shall decide all matters relating to
discovery as well as all procedural or nondispositive matters that shall come
before the arbitration panel. Subject to privileges recognized under applicable
law, the Chairperson shall require such discovery as is necessary for the
parties to be adequately prepared for the arbitration. Discovery may include the
exchange of documents, depositions, interrogatories, and the exchange of
exhibits, expert reports, and witness lists.
7. The parties, witnesses, and arbitrators shall not disclose the contents or
results of the arbitration without the prior written consent of all parties to
the Dispute, except to the extent necessary to enforce the award or as necessary
for financial and tax reporting purposes.
8. Notwithstanding anything to the contrary in this Exhibit 5 or Section 5, in
the event of an alleged violation of a party's intellectual property rights,
that party may seek temporary injunctive relief from any court of competent
jurisdiction pending appointment of the arbitration panel. The party requesting
such relief shall also promptly file a notice of arbitration and a request that
the arbitration panel provide temporary relief. Such actions shall not
constitute a waiver of the party's rights or a breach of the party's obligations
under this Exhibit 5 and Section 5. Any temporary injunctive relief entered by a
court shall continue in effect only until the arbitration panel has issued a
decision on temporary relief.
9. Notwithstanding anything to the contrary in this Exhibit 5 or Section 5,
JDCEC and Deere Credit, Inc. may seek judicial remedies, such as (but not
limited to) attachment, replevin, and garnishment, deemed necessary by JDCEC or
Deere Credit, Inc. in its sole discretion for the enforcement of JDCEC's or
Deere Credit, Inc.'s rights regarding any security for indebtedness of Dealer,
and such action by JDCEC or Deere Credit, Inc. shall not constitute a waiver of
JDCEC's or Deere Credit, Inc.'s rights or a breach of JDCEC's or Deere Credit,
Inc.'s obligations under this Exhibit 5 and Section 5.
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<PAGE>
EXHIBIT 6
NOTICES
To Dealer or Affiliates:
NEFF MACHINERY, INC.
4343 NORTHWEST 76TH AVE.
MIAMI, FL 33166
facsimile: 305/477-3207
To JDCEC, Deere Credit, Inc. or ERS:
1515 - 5TH AVE.
MOLINE, IL 61265
facsimile: 309/748-0123
Dealer or JDCEC may amend the addressee, address, or facsimile number indicated
for its group on this Exhibit 6 BY giving written notice of such amendment to
the other party, provided, however, that no more than one addressee, address,
and facsimile number may be indicated at any given time.
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<PAGE>
EXHIBIT 7
PROMISES AND REPRESENTATIONS
Dealer and JDCEC agree that the following are the only promises, agreements, or
representations, oral, written, or created through custom, usage, or course of
dealing, not contained elsewhere in this Agreement and that were an inducement
to or relied upon by any party hereto in entering into this Agreement or that
were made prior to or contemporaneous with this Agreement and are not superseded
by this Agreement:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________ No promises, agreements or representations
_____________________________ ____________________
Dealer Signature JDCEC Signature
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<PAGE>
-34-
DEFINED TERMS
For purposes of this Agreement, the following terms shall be defined as follows:
ABSORPTION -The percentage of Dealer's fixed expenses and interest covered by
Dealer's parts and service department contribution margin. JDCEC will specify
the method used to measure Absorption in bulletins issued from time to time to
JDCEC Dealers.
AFFILIATES - (1) each of the Key Persons, (2) their spouses and children, (3)
each guarantor of Dealer, (4) any other person or entity that holds, directly or
indirectly, a 1 0% or greater ownership interest in Dealer, and (5) any entity
owned 1 0% or more, directly or indirectly, individually or in combination, by
(a) Dealer, (b) a Key Person, (c) their spouses or children, (d) a guarantor of
Dealer, or (e) any other person or entity that holds, directly or indirectly, a
1 0% or greater ownership interest in Dealer.
AGREEMENT - This agreement.
AOR - An area of responsibility assigned to a JDCEC Dealer under a JDCEC dealer
agreement.
CONDITIONS OF SALE - JDCEC's published U.S. Dealer Conditions of Sale, as in
effect from time to time.
CORE PRODUCT GROUP - Any group of products that JDCEC may designate from time to
time as a core product group.
CUSTOMER SATISFACTION - The extent to which Dealer fulfills the needs and
expectations of customers in Dealer's AOR. JDCEC will specify the method used to
measure Customer Satisfaction in bulletins issued from time to time to JDCEC
Dealers.
DEALER - The dealer identified in this Agreement.
DEALER'S AOR - The area of responsibility assigned to Dealer under this
Agreement.
DISPUTE - Any dispute, controversy, or claim between Dealer or an Affiliate and
JDCEC, Deere Credit, Inc., or ERS, whether based on contract, tort, statute, or
other legal theory.
EQUITY - The Dealer's equity to assets percentage, determined by JDCEC based
upon the most recent fiscal year-end audited financial statements designated by
JDCEC pursuant to Section l.j., with adjustments, if any, as provided in Section
l.j., and calculated as of the end of the fiscal year covered by such financial
statements.
EQUITY PERFORMANCE STANDARD - The equity to assets percentage Performance
Standard specified by JDCEC from time to time in JDCEC Dealer bulletins for
JDCEC Dealers generally.
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<PAGE>
ERS - Equipment Remarketing Services, a division of Deere Marketing Services,
Inc.
FINANCIAL INFORMATION SYSTEM - JDCEC's Financial Information System (or
successor system).
GOODS - Whole Goods and Parts, as well as those JDM products that JDCEC may
offer for sale to Dealer.
JDCEC - John Deere Construction Equipment Company.
JDCEC DEALER- An authorized JDCEC dealer.
JDCEC WARRANTIES - The JDCEC warranties (including, in some cases, extended
warranties) applicable to the sale and, in some cases, to the lease or rental of
various types of Goods.
JDCEC'S AFFILIATES - Deere & Company, its divisions, and its subsidiaries,
whether direct or indirect.
JDM - John Deere Merchandise.
JOHN DEERE NETWORK - The network of computers, communications equipment,
computer networking equipment, computer software, application software, and data
used by JDCEC for the purpose of gathering and communicating information and
conducting business.
KEY PERSONS - The persons and entities listed in Exhibit 4.
MANUAL - JDCEC's published Service Administration Manual (or successor
document), as in effect from time to time.
MARKET SHARE - The market penetration achieved for Goods, or a subset thereof
(e.g. Core Products, models, Parts), in Dealer's AOR during a specified time
period. JDCEC will specify the method used to measure Market Share in bulletins
issued from time to time to JDCEC Dealers.
MEANINGFUL PROGRESS - A level of performance for each Performance Criterion for
the first 12-month period covered by the Dealer's annual JDCEC-approved business
plan, which level of performance shall be as agreed upon between Dealer and
JDCEC each year in connection with the preparation of Dealer's annual business
plan. If for any such period Dealer and JDCEC do not reach agreement upon
Meaningful Progress with respect to a particular Performance Criterion, JDCEC
will determine in its sole discretion what will constitute Meaningful Progress
for that Performance Criterion for that period.
MINIMUM EQUITY LEVEL - The minimum equity to assets percentage level specified
by JDCEC from time to time in JDCEC Dealer bulletins for JDCEC Dealers
generally.
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<PAGE>
PARTS - (1) the products indicated by a check mark in Section B of Exhibit 2 and
(2) attachments and parts available from JDCEC for the Whole Goods.
PERFORMANCE CRITERIA - Market Share, Absorption, Customer Satisfaction, and
Equity, as well as other criteria specified by JDCEC from time to time in JDCEC
Dealer bulletins for JDCEC Dealers generally.
PERFORMANCE STANDARD - A level of performance (for a particular Performance
Criterion) specified by JDCEC from time to time in JDCEC Dealer bulletins for
JDCEC Dealers generally.
SERVICE INFORMATION SYSTEM - JDCEC's Service Information System (or successor
system).
TERMS SCHEDULE - JDCEC's published U.S. Dealer Terms Schedule, as in effect from
time to time.
TRADEMARKS - The trademarks owned by JDCEC or any of JDCEC's Affiliates.
USED GOODS Whole Goods that do not have any SECURE Standard Warranty remaining.
WHOLE GOODS - (1) the products indicated by a check mark in Section A of Exhibit
2, (2) their predecessors, and (3) their JDCEC-designated successors.
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JOHN DEERE
CONSTRUCTION EQUIPMENT
DEALER SECURITY AREEMENT
<PAGE>
SECURITY AGREEMENT
The John Deere Construction Equipment Company (the "Company") as
secured party and the undersigned (the "Dealer") as debtor hereby agree as
follows:
1. INDEBTEDNESS SECURED. The Dealer agrees to pay all indebtedness
which is now owed by the Dealer to the Company, all additional indebtedness
hereafter incurred by the Dealer to the Company for or incident to the purchase
of Goods (as herein defined), and all other indebtedness which may at any time
be owing by the Dealer to the Company or any company affiliated with the
Company, whether pursuant to an Authorized Dealer Agreement, the Company's
Conditions of Sale, or otherwise, and whether evidenced by notes, open accounts,
or otherwise.
2. GRANT OF SECURITY. To secure the above indebtedness, the Dealer
hereby grants a security interest to the Company in the following collateral.
(A) GOODS AND PROCEEDS. The Dealer's entire inventory of: (i)
John Deere products; (ii) service parts therefor; (iii) other items of a make
and kind offered for sale by the Company; (iv) used machines sold by the Company
to the Dealer; (v) used machines which are the subject of a retail installment
contract or loan contract which has been returned to the Dealer under the
provisions of any Finance Agreement between the Company and the Dealer; (vi)
machines purchased by the Dealer from others with the assistance of financing
provided by the Company; and (vii) items purchased by the Dealer from or through
Equipment Remarketing Services, a Division of Deere Marketing Services, Inc.
(all of the foregoing being collectively called "Goods"), as it may from time to
time be constituted, located either at the Dealer's authorized locations) or at
any other location, in transit or on lease, rental or demonstration. Such
security interest shall extend to all Goods now in the Dealer's possession and
all Goods subsequently acquired as additions or replacements. Such security
interest shall also extend to all proceeds (as defined in the Uniform Commercial
Code) of the sale, lease, or rental of such inventory, including proceeds of
proceeds, and all proceeds now in the Dealer's possession.
(B) RESERVE ACCOUNT AND CONTINGENT EARNINGS ACCOUNT. The
Dealer's reserve account and contingent earnings account, if any, under any
Finance Agreement between the Company and the Dealer.
3. SALE OF GOODS. The Dealer may sell Goods at retail to users in the
ordinary course of its business, and may sell machines taken in trade for Goods
("trade-ins") to users or otherwise in the ordinary course of its business. The
Dealer may also lease or rent Goods or trade-ins to users in the ordinary course
of its business, provided that the Company's security interest shall continue in
the machine subject to the rights of the lessee. The Dealer shall not use or
dispose of Goods or trade-ins except as provided herein, or allow any lien or
encumbrance to be created or remain thereon without the written permission of
the Company.
4. PAID FOR GOODS. As to each item of collateral, the security interest
provided for above secures the entire indebtedness described in Section 1 hereof
from time to time outstanding. All of the Goods shall remain security for the
unpaid balance of such indebtedness even if the purchase price of some of such
Goods may have been paid.
5. USE OF PROCEEDS. Unless prohibited under another agreement between
the Company and the Dealer, the Dealer may use, commingle or dispose of
proceeds, other than trade-ins, in
<PAGE>
the normal operation of its business or by way of distributions of earnings and
profits to the owners of the business. Any such use, commingling or disposition
shall not affect the Company's security interest in any such proceeds which at
any time remain in the Dealer's possession, or the Company's right to require
cash, notes, leases, rental agreements, checks or accounts in the Dealer's
possession to be turned over to the Company as provided in Section 14 hereof.
The liberty provided for herein to use or dispose of proceeds of collateral does
not include the right or power to pledge or encumber such proceeds to secure a
debt or other obligation of the Dealer, and any attempted pledge of such
proceeds or the creation or continuance of any such encumbrance without the
written permission of the Company constitutes a default hereunder. It is
provided, however, that outright sale to a financing agency for new value of
retail installment contracts accepted in full or part payment for Goods or
trade-ins, or the assignment for new value of the Dealer's rights as lessor of
Goods, is not deemed to be a pledge or encumbrance of such contracts or rights
even if such sale or assignment is with full or partial recourse against the
Dealer, and the Dealer's liberty to use or dispose of proceeds includes the
right to make such sales or assignments. If the Dealer assigns its rights as
lessor of Goods to a financing agency for new value, the sale may include title
to the machine subject to the lease.
6. ACTS NOT A WAIVER. The acceptance of a note or notes and renewals
thereof for the whole or any part of the Dealer's indebtedness hereunder, or the
institution of legal action or the recovery of a judgment for the whole or a
part of such indebtedness or on any note given therefor, shall not be deemed a
waiver of any part of the security interest granted hereby.
7. DEFAULT. The following shall constitute events of default by the
Dealer:
(A) ACTS OF DEFAULT. (i) The Dealer defaults in the payment or
performance of any obligation to the Company; (ii) The Dealer fails, upon
request, to turn over proceeds, provide information, or furnish additional
collateral in accordance with the provisions of Section 14 hereof; (iii) The
Dealer, in violation of Section 3 or 5 hereof, or in violation of any other
agreement between the Company and the Dealer, sells or disposes of Goods or
proceeds, including trade-ins, or allows any lien or encumbrance to be created
or remain thereon; (iv) The Dealer (or any member of the Dealer's firm if a
partnership) becomes insolvent, makes an assignment for the benefit of
creditors, institutes or has instituted against it proceedings under any
bankruptcy or insolvency law, or the Dealer has its stock in trade or any part
thereof levied upon or attached; (v) Closeout or sale of a substantial part of
the Dealer's business related to the handling of Goods, or commencement of
dissolution or liquidation of the Dealer if a partnership or corporation; (vi)
The cancellation, discontinuance, or revocation of a guaranty or letter of
credit applicable to Dealer indebtedness, or a failure to modify the amount of
such a guaranty or letter of credit when and as requested by the Company; (vii)
The Dealer fails to tender promptly any Goods which it becomes obligated to
resell to the Company under any Dealer Agreement between the Dealer and the
Company; (viii) The falsification of records, contracts, reports or any other
documents which the Dealer has submitted to the Company; (ix) Any
misrepresentation as to the direct or indirect ownership of the Dealer or as to
the financial status of the Dealer, the Dealer principals or a guarantor of the
Dealer's present or future obligations to the Company; (x) The removal of Goods,
which have never been and are not being rented, leased, or sold at retail, from
the Dealer's regular place of business or Company-approved storage location
(except for the purpose of a Company-approved demonstration), or the personal
use of such Goods by the Dealer.
(B) UNSAFE DEBT OR SECURITY. If in good faith the Company is
of the opinion that the debt or security is unsafe due to (i) Any dispute,
disagreement or controversy between or among principals, partners, managers,
officers or stockholders of the Dealer; (ii) Conviction of the Dealer principal,
partner, major shareholder, general manager or any officer of an incorporated
dealership of any
-2-
<PAGE>
crime or offense; (iii) The fraudulent conduct of the Dealer or of the persons
listed in Section 7(b) (ii); (iv) A continuing situation, sequence of events, or
course of conduct which causes the Company to be concerned for the safety of the
debt or security, which the Company has called to the attention of the Dealer
and which the Dealer has failed to correct; (v) insolvency or the filing of a
bankruptcy action by or against a Guarantor.
8. RIGHTS ON DEFAULT. If default occurs or continues, the Company may:
(A) ACCELERATION AND SUIT. Declare immediately due and payable
all indebtedness secured hereby and collect the same, together with court costs
and reasonable attorney's fees, except that any indebtedness which does not have
a fixed maturity date and which is for Goods which have never been rented,
leased, or sold at retail may be declared due and payable only after the Goods
subject to such indebtedness have been resold pursuant to the Company's rights
under Section 9 (a) hereof using the procedure outlined in Sections 11(a), (b)
or (d) hereof or disposed of in another commercially reasonable manner which
involves the sale or rental of Goods;
(B) RESTRICT SHIPMENTS. Discontinue or withhold the delivery
of Goods to the Dealer, or make further deliveries only on a cash or C.O.D.
basis;
(C) REPOSSESS. Take possession of any or all Goods and
trade-ins, unless a bankruptcy action has been filed by or against the Dealer
and the taking of possession is subject to an automatic stay which has not been
terminated;
(D) ACCELERATION OF INSTALLMENTS. Discontinue deferral of any
unpaid portion of the purchase price of Goods which has become due and payable.
Notice of (a) or (d) shall be given to the Dealer in such manner and at such
time as the Company may see fit. No notice of any other action taken or to be
taken by the Company hereunder shall be necessary, such notice being hereby
expressly waived by the Dealer.
9. REPOSSESSION OF COLLATERAL. If the Company elects to take possession
of any Goods or trade-ins, it shall have the right, to the full extent allowed
by law, to enter any premises occupied by or under the control of the Dealer for
that purpose. The Dealer shall, when requested to do so by the Company, gather
at the Dealer's principal place of business any Goods or trade-ins which are not
already located there. After taking possession, the Company may at its election
take any one of the following actions or a combination of (a) and (b), or of (b)
and (c):
(A) SALE. Sell all or any part of such Goods or trade-ins at
one or more public and/or private sales. It is agreed that requirements of
reasonable notice of such sale shall be met if such notice is mailed, postage
prepaid, addressed to the Dealer at the address shown herein, at least 5 days
before such sale.
(B) RETURN. Return freight collect, to the address designated
by the Dealer, any part of Goods or trade-ins when the Company, in its sole
discretion, determines:
(i) There is sufficient other collateral available to
satisfy the Dealer's indebtedness and costs, or
(ii) Such Goods or trade-ins are not of
sufficient value, because of obsolescence, wear and tear or any other reason
which the Company deems sufficient, to justify the trouble and expense of
attempting to dispose of them other than as scrap.
-3-
<PAGE>
If the Company does not receive from the Dealer a written designation of the
address to which such Goods or trade-ins should be sent, within thirty days
after the Company has made a request for such address, the Company may sell such
Goods or trade-ins as scrap.
(C) FULL SATISFACTION. Propose to accept all or a part of the
Goods, trade-ins and other collateral held by it in full satisfaction of the
Dealer's indebtedness as provided by law.
10. APPLICATION OF PROCEEDS. The proceeds of sales of Goods and
trade-ins pursuant to Section 9 (a) and/or 9 (b) hereof shall be applied first
to expenses of repossession and realization on the Goods and tradeins, including
all reasonable attorney's fees and legal expenses, and second, to the
satisfaction of the Dealer's indebtedness as required by law. If after such
application there are excess proceeds, the Company will pay them over as
provided by law, and if there is a deficiency, the Dealer shall be liable for it
and shall pay it forthwith. Any excess proceeds which would otherwise be payable
to the Dealer may, at the Company's option, be applied to the indebtedness of
the Dealer to any company affiliated with the Company or be paid to the Dealer.
11. PROCEDURES FOR DISPOSITION. Without suggesting that other
procedures may not also be commercially reasonable, or that any of the following
procedures is mandatory in any particular case, it is agreed that the following
are all commercially reasonable methods of disposing of Goods and trade-ins
repossessed hereunder should the Company decide to follow one or more of them as
to all or a part of the collateral:
(A) NEW EQUIPMENT. Sale of complete machines and attachments
by units or in one or more parcels by private sale to another dealer or dealers
at current dealer price, taking into account any discounts which may then be
available from the Company on sales by it, together with increased value, if
any, negotiated with the buying dealer resulting from the fact that freight from
the factory has been paid. (This procedure will be reasonable only if the Goods
are equivalent to new, unused machines of current production).
(B) USED OR DEPRECIATED GOODS. Sale of Goods (including parts)
and trade-ins by units or in one or more parcels at private sale at the best
price submitted in sealed bids taken from three or more dealers, provided that
in the Company's judgment such best bid represents a reasonable price. (This
procedure is in conformity with reasonable industry practices in disposing of
complete inventories of goods, or of items coming into the possession of
manufacturers or distributors which are not salable as new, unused machines of
current production.)
(C) PARTS. Sale of current parts and attachments in good
condition for which there is a ready market to dealers through the Company's
regular parts distribution facilities at regular prices and terms. The Company
may commingle such parts with its regular inventory of parts and account for the
sale of the parts repossessed hereunder on the assumption that the first parts
sold after such commingling are those repossessed. The Company's expenses of
reinventorying and merchandising returned and repossessed parts (exclusive of
costs incurred in listing, tagging, packing, and loading them at the Dealer's
place of business, and of transportation expenses from the Dealer's place of
business to the Company's parts distribution facility) are considerably in
excess of 15% of their invoice price, and it is agreed that a 15% charge for
such services may be made without further itemization or analysis of such
expenses.
(D) PUBLIC SALE. Public sale at auction of all Goods and
trade-ins or any portion thereof not disposed of by some other method. Either
the publication once of the time and place of such
-4-
<PAGE>
sale and of the property to be sold at least five days prior thereto in a
newspaper circulating in the city or county where the sale is to be held, or the
posting of such notice in at least three public places in such city or county at
least five days prior to the sale, constitutes sufficient notice thereof.
12. BOOKS AND RECORDS. The Dealer shall keep complete and accurate
books and records of account, in a form recommended by the Company, in
accordance with recognized accounting practices, including stock and sales
records of Goods. At the end of the Dealer's fiscal year, and at such other
times as the Company may request, the Dealer shall furnish the Company with full
and complete financial and operating statements in the form prescribed by the
Company. The Dealer shall also furnish the Company, at any time upon request,
full information regarding inventory on hand, inventory sold, the proceeds
thereof, and any contracts or agreements affecting such inventory. The Company
shall have the right at any reasonable time during the Dealer's regular business
hours to inspect the Dealer's books and records, and to examine and take
inventory of any Goods and proceeds in which the Company has a security
interest.
13. PROTECTION OF GOODS. The Dealer shall:
(A) STORAGE. Unless a different storage location is approved
by the Company in writing, properly Storage store all Goods in his possession at
his authorized location(s) and protect the same from injury or damage of any
kind;
(B) INSURANCE. Continuously keep all Goods insured with
all-risk type coverage satisfactory to the Company and with insurers
satisfactory to the Company, in an amount equal to one hundred per cent (100%)
of the invoice price thereof. Such insurance may be issued in the name of the
Dealer who may retain possession of the policies, but each policy shall include
a loss payable clause to the Company as its interest may appear, in form
satisfactory to the Company. The Dealer shall immediately furnish the Company
with the name of the insurer and the number, amount, effective date and
expiration date of each policy issued; and upon request of the Company shall
furnish it with copies of each such policy or certificate of insurance issued by
the insurer;
(C) TAXES. Pay when due all taxes, license fees and charges of
any kind whatsoever that may be assessed or charged on or against any Goods, or
the sale or use thereof, at any time on or after the date of the delivery of
Goods to the Dealer.
(D) LIENS AND ENCUMBRANCES. Keep all Goods free and clear of
all liens and encumbrances however arising, except with the written permission
of the Company.
PAYMENT BY COMPANY. If the Dealer fails to insure or to pay said taxes
and charges or allows any lien or encumbrance to attach to Goods, the Company,
without obligation to do so, may obtain such insurance, pay such taxes and
charges, or discharge such lien, and the Dealer shall reimburse the Company
promptly for all money so paid out together with interest at the highest
contract rate permitted by law but not in excess of the Past-due Interest Rate
as determined by the then-current Dealer Terms Schedule. The amounts so paid by
the Company shall be deemed conclusive as to the amounts properly payable, and
such amounts shall be secured hereunder.
14. DELIVERY OF PROCEEDS. The Dealer will at any time upon request
deliver to the Company all proceeds of goods and trade-ins which are in the
Dealer's possession, in cash or in the form of customers' notes, leases, rental
agreements or checks, together with appropriate endorsement thereof to the
Company, and will provide the Company with information concerning proceeds in
the form of customers' accounts sufficient to enable the Company to collect such
accounts directly, and the
-5-
<PAGE>
Company may collect such accounts. As additional security the Dealer shall, upon
request, pledge, assign and deliver to the Company other good and collectible
customers' notes, leases, rental agreements and accounts acceptable to the
Company and in an amount satisfactory to the Company.
15. CASH PROCEEDS. In the event of insolvency proceedings instituted by
or against the Dealer, the Company's security interest hereunder in proceeds
shall include the following proceeds:
(a) identifiable non-cash proceeds and separate deposit
accounts containing only proceeds;
(b) identifiable cash proceeds in the form of money which is
neither commingled with other money nor deposited in a deposit account
containing money other than proceeds prior to the insolvency proceedings;
(c) identifiable cash proceeds in the form of checks and the
like which are not deposited in a deposit account prior to the insolvency
proceedings; and
(d) all cash and deposit accounts of the Dealer in which
proceeds have been commingled with other funds up to an amount not greater than
the amount of any cash proceeds received by the Dealer within ten days before
the institution of the insolvency proceedings, less the sum of (i) the payments
to the Company on account of cash proceeds received by the Dealer during such
period and (ii) the cash proceeds received by the Dealer during such period to
which the Company is entitled under Subsections (a) through (c) of this Section
15.
16. COLLECTION OF NOTES AND ACCOUNTS. The provisions of this Section 16
and all references herein to "notes and accounts" shall apply to any notes and
accounts pledged with the Company pursuant to Section 14 hereof and to any
proceeds in the form of notes of which the Company has taken possession and
accounts which the Company desires to collect directly, but not including notes
or other evidence of indebtedness accepted by the Company for credit under any
Finance Agreement or Leasing Agreement in effect between the parties.
At any time and regardless of whether the Dealer is in default, the
Company is authorized to reduce open accounts to notes, renew or extend the time
of payment of any note or account or any securities securing the same, any such
renewal to be in its own or the Dealer's name as the Company may elect, take,
waive, release or exchange any security therefor, make such compromise
settlements thereof as it deems advisable, and take such steps for the
enforcement, collection, securing, renewing, extending, or compromising of any
note or account, or any part thereof, or any security therefor, as it deems
advisable. Any proceeds realized from the collection or enforcement of said
notes and accounts or any security therefor shall be applied on the indebtedness
of the Dealer. The Company may return said notes and accounts to the Dealer at
any time. After any default by the Dealer the Company may sell the whole or any
part of said notes and accounts at one or more public or private sales, applying
the proceeds to expenses, including all reasonable attorney's fees, and to the
satisfaction of the Dealer's indebtedness as required by law.
17. INVALIDITY OF PROVISION. The invalidity or unenforceability of any
one or more of the provisions of this agreement shall in no way affect the
validity or enforceability of any of the other provisions hereof, and any
provisions hereof which are prohibited under the laws of any state shall be
ineffective in such state to the extent of such prohibition only and shall not
invalidate or in any way affect the other provisions hereof.
-6-
<PAGE>
18. RIGHTS CUMULATIVE. The rights of the Company hereunder are
cumulative, and the exercise of any one right is not an election or waiver of
the power to exercise any other right. Waiver of any default hereunder is not a
waiver of any prior or subsequent default. Action against a guarantor is not an
election or waiver of the right to proceed against the Dealer.
19. PLACE OF PERFORMANCE. The place of performance of the Dealer's
obligations hereunder shall be the Company's address stated below or such other
address as may be designated in writing by the Company and all payments to the
Company shall be made at such location.
20. ACCOUNTS OWED BY OTHERS. To further secure the indebtedness
described in Section 1 the Dealer hereby assigns to the Company any and all
accounts or contract rights, including rights to insurance proceeds, owed to the
Dealer by other companies having a corporate affiliation with the Company.
Dealer (Firm Name): NEFF MACHINERY, INC.
------------------------------------------------------------
Address: 4343 NORTHWEST 76TH AVE. - MIAMI, FL 33166
---------------------------------------------------------------------
X Corporation
X C
___ S
___ Limited Liability Company By: /S/ KEVIN P. FITZGERALD
-----------------------
___ Partnership
___ General Title:PRESIDENT
---------------------
___ Limited (Authorized officer, owner or partner)
___ Proprietorship
___ Other: ______________ Date: APRIL 30, 1998
---------------------
Signatures of Other ___________________________________________________________
Partners, Owners,______________________________________________________________
or Shareholders:_______________________________________________________________
Accepted: By: /S/ BOB B. BROCK
---------------------------------------
John Deere Construction Title: DIRECTOR, COMMERCIAL OPERATIONS
------------------------------------
Equipment Company
Moline, IL 61265 Date: 06, MAY 1998
--------------
-7-
EXHIBIT 10.9
STANDSTILL AGREEMENT
STANDSTILL AGREEMENT dated as of April __, 1998 among Neff
Corp., a Delaware corporation (the "Company"), Santos Capital Advisors, Inc., a
Florida corporation ("Santos"), General Electric Capital Corporation, a New York
corporation ("GECC") and GECFS, Inc., a Nevada corporation ("GECFS," and
together with GECC, "GE Capital").
WHEREAS, the parties hereto desire to enter into this
Standstill Agreement (the "Agreement");
NOW, THEREFORE, for due and valuable consideration, the
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
"Affiliate" means with respect to any Person, each Person that
directly or indirectly controls, is controlled by or is under common control
with such Person or any Affiliate of such Person. 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.
"Beneficial Ownership" shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules issued thereunder.
"Equity Interest" shall mean the greater of the percentage of
the interest in the voting power in the election of directors of the Company or
the percentage of the earnings of the Company represented by any securities
issued by the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and any succeeding law.
"Initial Public Offering" means the first underwritten public
offering of Class A Common Stock, par value $.01 per share, of the Company, that
is effected pursuant to a registration statement filed with, and declared
effective by, the Securities and Exchange Commission under the Securities Act of
1933, as amended.
"John Deere" shall mean John Deere Construction Equipment
Company.
"John Deere Competitor" shall mean any Person who, directly or
through an Affiliate, manufacturers, sells or distributes forestry, industrial,
construction or utility equipment, generally comparable to one or more models of
equipment manufactured or sold, or proposed to
<PAGE>
be manufactured or sold, now or in the future, by John Deere, either as whole
goods or parts thereof, including any dealer or distributor of such equipment or
parts at any level of distribution.
"Liquidation Value" of any share of Series A Preferred Stock
as of any particular date will be equal to $40.00.
"Mortgaged Properties" shall mean the six parcels of real
estate purchased by Neff Machinery, Inc., a Florida Corporation ("Neff
Machinery"), from Atlantic Real Estate Holding Corporation and physically
located at the following street addresses: (i) 4343 N.W. 76 Avenue, Miami, FL,
(ii) 3933 Martin Luther King Blvd., West Palm Beach, FL, (iii) 4333 John Young
Parkway, Orlando, FL, (iv) 2995 Hanson Street, Ft. Myers, FL, (v) 2611
Hammonville Road, Pompano Beach, FL and (vi) 5102 North 56 Street, Tampa, FL.
"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.
"Private Bond Offering" means the private placement by the
Company of subordinated notes in the principal amount of approximately $100
million or more, which the Company expects to close simultaneously with the
Initial Public Offering and in any event no later than June 30, 1998.
"Sale Transaction" shall mean a transaction pursuant to which
GE Capital decreases its Beneficial Ownership of Equity Interests to less than
20% of Equity Interests either by (i) selling Common Stock to Santos pursuant to
the Stock Option Agreement by and between GECFS and Santos, dated March 26, 1998
or (ii) selling Common Stock to a Person other than Santos; PROVIDED, HOWEVER,
that such Person shall not be an Affiliate of GE Capital, a John Deere
Competitor or an Affiliate of a John Deere Competitor.
"Series A Preferred Stock" shall mean the Series A Cumulative
Preferred Stock, par value $0.01 per share, of the Company.
ARTICLE II
STANDSTILL PROVISIONS
2.1. GE Capital will not, and will cause its Affiliates not
to, directly or indirectly:
(a) until the consummation of the Initial Public
Offering, increase their Beneficial Ownership of Equity Interests, through the
acquisition, by purchase or otherwise, of Equity Interests;
-2-
<PAGE>
(b) following the consummation of the Initial
Public Offering, increase their combined Beneficial Ownership of Equity
Interests above 25% of Equity Interests, through the acquisition, by purchase or
otherwise, of Equity Interests;
(c) following a Sale Transaction, as long as Neff
Machinery or any of their Affiliates is a dealer of equipment manufactured by
John Deere, increase their combined Beneficial Ownership of Equity Interests
above 20% of Equity Interests, by purchase or otherwise, of Equity Interests;
(d) following the consummation of the Initial
Public Offering, appoint any director to the Company's board of directors;
PROVIDED, HOWEVER, that if GE and its Affiliates sell 15% or more of the Common
Stock of the Company to a Person who is neither a GE Capital Affiliate or a
Deere Competitor, Neff may provide that such Person shall have the right to
appoint a director to the Company's board of directors;
(e) following the consummation of the Initial
Public Offering and payment of existing indebtedness to GE Capital under (i) the
Credit Agreement, dated December 31, 1997, by and among the Company, Neff
Machinery, Neff Rental, Inc., GECC as Agent, and the lenders party thereto; (ii)
the Amended Credit Agreement, dated December 31, 1997, by and among the Company,
Neff Machinery, Neff Rental, Inc., GECC as Agent, and the lenders party thereto;
(iii) the Mortgage Loan Note for the Mortgaged Properties, dated May 28, 1997,
issued by GECC to Neff Machinery and (iv) the Series A Preferred Stock, provide
new financing to the Company (except in connection with trade accounts payable
arising in the ordinary course of business upon the sale of goods or services to
the Company);
(f) following the consummation of the Initial
Public Offering and the redemption of the Series A Preferred Stock, retain
rights, vested or contingent, to exercise any control over the Company;
(g) following the consummation of the Initial
Public Offering and the redemption of the Series A Preferred Stock, make any
attempt to exercise control over the Company, directly or indirectly, either
alone or in conjunction with other shareholders of the Company;
(h) make, or in any way participate, in any
"solicitation" of "proxies" (as such terms are defined in Regulation 14A under
the Exchange Act) with respect to any voting securities of the Company
(including any actions by written consent);
(i) initiate, propose or otherwise solicit, or
participate in the solicitation of, stockholders of the Company for the approval
of one or more stockholder proposals with respect to the Company as described in
Rule 14a-8 under the Exchange Act or induce any other individual or entity to
initiate any stockholder proposals relating to the Company; or
(j) enter into any contract with any third party
with respect to any of the foregoing.
-3-
<PAGE>
2.2. So long as the investment in the Company by a pension
plan or other employee benefit plan of GE Capital and/or Affiliates that GE
Capital controls remains solely passive for the duration of such investment, the
restrictions contained in Section 2.1(a), (b) and (c) shall not apply to the
acquisition of Equity Interests by such a pension plan or other employee benefit
plan provided (i) such plan is administered by trustees who are independent of
GE Capital and its Affiliates or by trustees who, due to fiduciary obligations
applicable to them in their capacity as plan trustees, are not subject to the
control or influence of GE Capital or its Affiliates with respect to the
administration of the plan and investment decisions and (ii) such trustees do
not acquire shares of the Company or exercise voting rights of such shares in
coordination or agreement with GE Capital or its Affiliates.
2.3 The restrictions contained in Section 2.1(a), (b) and (c)
shall not apply to:
(i) the acquisition of Equity Interests by GE
Capital and/or Affiliates that it controls in
transactions involving investments, either as
principal or as agent on behalf of third
parties, in the ordinary course of business,
including without limitation, transactions in
which such entities are acting as an investment
banking organization providing advisory
services, an investment advisor, an investment
company, or a broker or dealer in securities;
(ii) the acquisition of Equity Interests by GE
Capital and/or Affiliates that it controls in
the ordinary course of their insurance
business;
(iii) the acquisition of Equity Interests by the
General Electric Company and/or any of its
Affiliates except GE Capital and Affiliates
that GE Capital controls; and
(iv) other acquisitions not intended to result in
the exercise of control over the Company
that inadvertently cause the combined Beneficial Ownership of Equity Interests
of GE Capital and its Affiliates to exceed 25% (after the consummation of the
Initial Public Offering and before October 29, 1999) or 20% (on or after October
29, 1999) of Equity Interests. PROVIDED, HOWEVER, that such investments must
remain solely passive for the duration of such investment, and (A) after the
consummation of the Initial Public Offering and before October 29, 1999, if GE
Capital learns that the combined Beneficial Ownership of Equity Interests of GE
Capital and its Affiliates (other than investments permitted by Section 2.2)
exceeds 25% of Equity Interests, then during the period beginning no later than
the fifth business day and ending no later than the fifteenth business day
thereafter, GE Capital will effect the orderly divestment of a sufficient number
of shares so that the combined Beneficial Ownership of Equity Interests is equal
to or less than 25% of Equity Interests; and (B) on or after October 29, 1999,
if GE Capital learns that the Combined Beneficial Ownership of Equity Interests
of GE Capital and its Affiliates exceeds 20% of Equity Interests, then during
the period beginning no later than the fifth business day and
-4-
<PAGE>
ending no later than the fifteenth business day thereafter, GE Capital will
effect the divestment of a sufficient number of shares so that the combined
Beneficial Ownership of Equity Interests is equal to or less than 20% of Equity
Interests.
2.4. It is the intention of GE Capital and the Company that GE
Capital's Beneficial Ownership of Equity Interests be less than 20% of Equity
Interests not later than October 29, 1999. If GE Capital has not consummated a
Sale Transaction by October 29, 1999, Santos shall, no later than October 29,
1999, exercise the option to purchase Common Stock granted to it by GECFS
pursuant to the Stock Option Agreement by and between GECFS and Santos, dated
March 26, 1998.
ARTICLE III
REDEMPTION OF SERIES A PREFERRED STOCK
The Company hereby covenants that on the day of the
consummation of the Private Bond Offering the Company will redeem in cash all of
the issued and outstanding shares of the Series A Preferred Stock, at a price
per share equal to the Liquidation Value thereof (plus all accrued and unpaid
dividends thereon).
ARTICLE IV
MORTGAGED PROPERTIES
The Company hereby covenants that on the day of the
consummation of the Private Bond Offering the Company will repay all of the
outstanding principal amount of indebtedness, together with any accrued
interest, secured by liens on the Mortgaged Properties.
ARTICLE V
TERMINATION
This Agreement shall terminate on the earlier of (i) the date
Neff Machinery is no longer a dealer of equipment manufactured by John Deere;
(ii) 4 years after the date GE Capital and its Affiliates no longer have more
than 5% of the Equity Interests in the Company or (iii) the sale by the Company
of its entire ownership interest in Neff Machinery as long as (a) John Deere is
provided, in advance of the sale, complete access to the full details of the
proposed sale and gave its written approval of the sale and (b) upon
consummation of the sale, no interdependence remains between Neff Machinery, on
the one hand, and the Company, Neff Rental, Inc., GE Capital or any GE Capital
Affiliates, on the other.
-5-
<PAGE>
ARTICLE VI
MISCELLANEOUS
6.1. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect.
6.2. SPECIFIC ENFORCEMENT. GE Capital hereby acknowledges and
agrees that, if a court determines, after a hearing, that irreparable damage
would occur to the Company in the event that any provision of Article II of this
Agreement was not performed by GE Capital in accordance with its specific terms
or was otherwise breached by GE Capital, the Company shall be entitled to obtain
specific performance of any provision of this Agreement and injunctive or other
equitable relief to prevent or cure breaches of any provision of this Agreement,
this being in addition to any other remedy to which the Company may be entitled
by law or equity.
6.3. 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 non-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 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 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.
6.4. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties hereto with respect to the matters covered hereby
and this Agreement may be amended only by an agreement in writing executed by
the parties hereto.
6.5. 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 recipient party 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
-6-
<PAGE>
business day after deposit with a reputable overnight courier service. The
addresses for such communications shall be:
If to the Company:
Neff Corp.
3750 N.W. 87th Avenue
Miami, Florida 33178
Attn.: Kevin P. Fitzgerald
Facsimile: (305) 513-4255
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
Suite 800
1001 Pennsylvania Avenue
Washington, DC 2004
Attn.: Stephen I. Glover, Esq.
Facsimile: (202) 639-7003
If to GE Capital:
General Electric Capital Corporation
777 Long Ridge Road
Building B First Floor
Stamford, Connecticut 06927
Attn.: Risk Manager
Facsimile: (203) 316-7989
with a copy to:
General Electric Capital Corporation
777 Long Ridge Road
Building B First Floor
Stamford, Connecticut 06927
Attn.: Counsel
Facsimile: (203) 703-1777
-7-
<PAGE>
If to GECFS:
GECFS, Inc.
c/o General Electric Capital Corporation
777 Long Ridge Road, Building B
First Floor
Stamford, CT 06927
Attention: Risk Manager
Telecopy: (203) 316-7989
With a copy to:
General Electric Capital Corporation
777 Long Ridge Road, Building B
First Floor
Stamford, CT 06927
Attention: Counsel
Telecopy: (203) 703-1777
6.6. WAIVERS. No waiver by either party of any breach of any
provision hereof shall be deemed to be a continuing waiver in the future thereof
or a waiver of any other provision hereof; nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
6.7. HEADINGS. The headings herein are for convenience only,
do not constitute a part of this Agreement, and shall not be deemed to limit or
affect any of the provisions hereof.
6.8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their successors and
legal representatives. Neither the Company nor GE Capital or any of their
respective affiliates shall assign this Agreement or any rights hereunder
without the prior written consent of the other parties hereto.
6.9. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same instrument. This Agreement
shall become effective when original counterparts of this Agreement shall have
been duly executed and delivered by all parties hereto.
* * *
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Standstill Agreement on the day and year first above written.
NEFF CORP.
By:/S/ KEVIN P. FITZGERALD
------------------------------------------------
Name: Kevin P. Fitzgerald
Title: President and Chief Executive Officer
GENERAL ELECTRIC CAPITAL CORPORATION
By:/S/ KIM TANNER
------------------------------------------------
Name: Kim Tanner
Title:
GECFS, INC.
By:/S/ KIM TANNER
------------------------------------------------
Name: Kim Tanner
Title:
SANTOS CAPITAL ADVISORS, INC.
By:/S/ KEVIN FITZGERALD
------------------------------------------------
Name: Kevin Fitzgerald
Title:
-9-
EXHIBIT 10.10
NEFF CORP.
1998 STOCK INCENTIVE PLAN
(As Adopted __________, 1998)
<PAGE>
NEFF CORP.
1998 STOCK INCENTIVE PLAN
1. PURPOSE.
The purpose of this Plan is to strengthen Neff Corp., a Delaware
corporation (the "Company"), by providing an incentive to its directors,
employees, officers and consultants and thereby encouraging them to devote their
abilities and industry to the success of the Company's business enterprise. It
is intended that this purpose be achieved by extending to directors, employees,
officers and consultants of the Company and its Subsidiaries an added long-term
incentive for high levels of performance and unusual efforts through the grant
of Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation
Rights, Dividend Equivalent Rights, Performance Awards and Restricted Stock (as
each term is herein defined).
2. DEFINITIONS.
For purposes of the Plan:
2.1 "100% Affiliate" means with respect to any Person, (i) each other
Person that, directly or indirectly, owns or controls one hundred percent (100%)
of the stock having ordinary voting power in the election of directors of such
Person, (ii) each other Person of which the stock having ordinary voting power
in the election of its directors is owned or controlled one hundred percent
(100%) by such Person, or (iii) each other Person of which the stock having
ordinary voting power in the election of its directors is owned or controlled
one hundred percent (100%) by any Person defined in clause (i) above or any of
its 100% Affiliates.
2.2 "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.
2.3 "Affiliate" means any entity, directly or indirectly, controlled
by, controlling or under common control with the Company or any corporation or
other entity acquiring, directly or indirectly, all or substantially all the
assets and business of the Company, whether by operation of law or otherwise.
<PAGE>
2.4 "Agreement" means the written agreement between the Company and an
Optionee or Grantee evidencing the grant of an Option or Award and setting forth
the terms and conditions thereof.
2.5 "Award" means a grant of Restricted Stock, a Stock Appreciation
Right, a Performance Award, a Dividend Equivalent Right or any or all of them.
2.6 "Board" means the Board of Directors of the Company.
2.7 "Cause" means:
(a) in the case of an Optionee or Grantee whose employment
with the Company or a Subsidiary is subject to the terms of an employment
agreement between such Optionee or Grantee and the Company or Subsidiary, which
employment agreement includes a definition of "Cause", the term "Cause" as used
in this Plan or any Agreement shall have the meaning set forth in such
employment agreement during the period that such employment agreement remains in
effect or, in the absence thereof;
(b) (i) intentional failure to perform reasonably assigned
duties, (ii) dishonesty or willful misconduct in the performance of duties,
(iii) involvement in a transaction in connection with the performance of duties
to the Company or any of its Subsidiaries which transaction is adverse to the
interests of the Company or any of its Subsidiaries and which is engaged in for
personal profit or (iv) willful violation of any law, rule or regulation in
connection with the performance of duties (other than traffic violations or
similar offenses).
2.8 "Change in Capitalization" means any increase or reduction in the
number of Shares, or any change (including, but not limited to, a change in
value) in the Shares or exchange of Shares for a different number or kind of
shares or other securities of the Company or another corporation, 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.
2.9 A "Change in Control" shall mean the occurrence during the term of
the Plan of:
(a) An acquisition (other than directly from the Company) 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
2
<PAGE>
thirty percent (30%) or more of the then outstanding Shares or the combined
voting power of the Company's then outstanding Voting Securities; PROVIDED,
HOWEVER, that Beneficial Ownership by any of Jorge Mas, Juan Carlos Mas, Jose
Ramon Mas, or aggregate Beneficial Ownership by General Electric Capital
Corporation and any of its 100% Affiliates, of thirty percent (30%) or more of
the then outstanding Shares or the combined voting power of the Company's then
outstanding Voting Securities shall not constitute a Change in Control; PROVIDED
FURTHER, however, in determining whether a Change in Control has occurred,
Shares or 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) Except as a result of the provisions regarding the
election of directors by holders of the Company's Series A Redeemable Preferred
Stock in the event of dividend arrerages with respect thereto, the individuals
who, as of the date of adoption of this plan 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,
3
<PAGE>
consolidation or reorganization, at least
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 "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) that, immediately prior to
such merger, consolidation or
reorganization, was maintained by the
Company, 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 or Shares, has Beneficial
Ownership of fifty percent (50%) or more of
the combined voting power of the Surviving
Corporation's then outstanding voting
securities or its common stock.
(ii) A complete liquidation or dissolution
of the Company; or
(iii) 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 solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding Shares or
Voting Securities as a result of the acquisition of Shares or Voting Securities
by the Company which, by reducing the number of Shares or Voting Securities then
outstanding, increases the proportional number of shares Beneficially Owned by
the Subject Persons, provided that if a Change
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in Control would occur (but for the operation of this sentence) as a result of
the acquisition of Shares or Voting Securities by the Company, and after such
share acquisition by the Company, the Subject Person becomes the Beneficial
Owner of any additional Shares or Voting Securities which increases the
percentage of the then outstanding Shares or Voting Securities Beneficially
Owned by the Subject Person, then a Change in Control shall occur.
If an Eligible Individual's employment is terminated by the Company
without Cause prior to the date of a Change in Control but the Eligible
Individual reasonably demonstrates that the termination (A) was at the request
of a third party who has indicated an intention or taken steps reasonably
calculated to effect a change in control or (B) otherwise arose in connection
with, or in anticipation of, a Change in Control which has been threatened or
proposed, such termination shall be deemed to have occurred after a Change in
Control for purposes of this Plan provided a Change in Control shall actually
have occurred.
2.10 "Code" means the Internal Revenue Code of 1986, as amended.
2.11 "Committee" means a committee, as described in Section 3.1,
appointed by the Board from time to time to administer the Plan and to perform
the functions set forth herein.
2.12 "Common Stock" means the Class A Common Stock, par value $.01 per
share, of the Company.
2.13 "Company" means Neff Corp. and its Subsidiaries.
2.14 "Director" means a director of the Company.
2.15 "Director Option" means an Option granted to a Nonemployee
Director pursuant to Section 6.
2.16 "Disability" means:
(a) in the case of an Optionee or Grantee whose employment
with the Company or a Subsidiary is subject to the terms of an employment
agreement between such Optionee or Grantee and the Company or Subsidiary, which
employment agreement includes a definition of "Disability", the term
"Disability" as used in this Plan or any Agreement shall have the meaning set
forth in such employment agreement during the period that such employment
agreement remains in effect; and
(b) in all other cases, the term "Disability" as used in this
Plan or any Agreement shall mean a physical or mental infirmity which impairs
the Optionee's or
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Grantee's ability to perform substantially his or her duties for a period of
one hundred eighty (180) consecutive days.
2.17 "Division" means any of the operating units or divisions of the
Company designated as a Division by the Committee.
2.18 "Dividend Equivalent Right" means a right to receive all or some
portion of the cash dividends that are or would be payable with respect to
Shares.
2.19 "Eligible Individual" means any director, officer or employee of
the Company or a Subsidiary, or any consultant or advisor who is receiving cash
compensation from the Company or a Subsidiary, designated by the Committee as
eligible to receive Options or Awards subject to the conditions set forth
herein.
2.20 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.21 "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 average 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
and, in the case of an Incentive Stock Option, in accordance with Section 422 of
the Code.
2.22 "Grantee" means a person to whom an Award has been granted under
the Plan.
2.23 "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee as an
Incentive Stock Option.
2.24 "Initial Public Offering" means the consummation of the first
public offering of Shares pursuant to a registration statement (other than on
Form S-8 or successor forms) filed with, and declared effective by, the
Securities and Exchange Commission.
2.25 "Nonemployee Director" means a director of the Company who is a
"nonemployee director" within the meaning of Rule 16b-3 promulgated under the
Exchange Act.
2.26 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
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2.27 "Option" means a Nonqualified Stock Option, an Incentive Stock
Option, a Director Option, or any or all of them.
2.28 "Optionee" means a person to whom an Option has been granted under
the Plan.
2.29 "Outside Director" means a director of the Company who is an
"outside director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
2.30 "Parent" means any corporation which is a parent corporation
(within the meaning of Section 424(e) of the Code) with respect to the Company.
2.31 "Performance Awards" means Performance Units, Performance Shares
or either or both of them.
2.32 "Performance Cycle" means the time period specified by the
Committee at the time Performance Awards are granted during which the
performance of the Company, a Subsidiary or a Division will be measured.
2.33 "Performance Objectives" has the meaning set forth in Section 11.
2.34 "Performance Shares" means Shares issued or transferred to an
Eligible Individual under Section 11.
2.35 "Performance Units" means Performance Units granted to an Eligible
Individual under Section 11.
2.36 "Plan" means the Neff Corp. 1998 Stock Incentive Plan, as amended
and restated from time to time.
2.37 "Pooling Transaction" means an acquisition of the Company in a
transaction which is intended to be treated as a "pooling of interests" under
generally accepted accounting principles.
2.38 "Restricted Stock" means Shares issued or transferred to an
Eligible Individual pursuant to Section 10.
2.39 "Shares" means the Class A Common Stock, par value $0.01 per
share, of the Company.
2.40 "Stock Appreciation Right" means a right to receive all or some
portion of the increase in the value of the Shares as provided in Section 8
hereof.
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2.41 "Subsidiary" means any corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) with respect to
the Company.
2.42 "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes a stock option in a transaction to which Section 424(a) of the
Code applies.
2.43 "Ten-Percent Stockholder" means an Eligible Individual, who, at
the time an Incentive Stock Option is to be granted to him or her, owns (within
the meaning of Section 422(b)(6) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company, or of a Parent or a Subsidiary.
3. ADMINISTRATION.
3.1 The Plan shall be administered by the Committee, which shall hold
meetings at such times as may be necessary for the proper administration of the
Plan. The Committee shall keep minutes of its meetings. A quorum shall consist
of not fewer than two members of the Committee and a majority of a quorum may
authorize any action. Any decision or determination reduced to writing and
signed by a majority of all of the members of the Committee shall be as fully
effective as if made by a majority vote at a meeting duly called and held. Prior
to the date of an Initial Public Offering, the Committee shall consist of at
least two (2) directors of the Company and may consist of the entire Board. From
and after the date of an Initial Public Offering, the Committee shall consist of
at least two (2) directors of the Company and may consist of the entire Board;
PROVIDED, HOWEVER, that (A) if the Committee consists of less than the entire
Board, each member shall be a Nonemployee Director and (B) to the extent
necessary for any Option or Award intended to qualify as performance-based
compensation under Section 162(m) of the Code to so qualify, each member of the
Committee, whether or not it consists of the entire Board, shall be an Outside
Director. No member of the Committee shall be liable for any action, failure to
act, determination or interpretation made in good faith with respect to this
Plan or any transaction hereunder, except for liability arising from his or her
own willful misfeasance, gross negligence or reckless disregard of his or her
duties. The Company hereby agrees to indemnify each member of the Committee for
all costs and expenses and, to the extent permitted by applicable law, any
liability incurred in connection with defending against, responding to,
negotiating for the settlement of or otherwise dealing with any claim, cause of
action or dispute of any kind arising in connection with any actions in
administering this Plan or in authorizing or denying authorization to any
transaction hereunder.
3.2 Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time to:
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(a) determine those Eligible Individuals to whom Options shall
be granted under the Plan and the number of such Options to be granted and to
prescribe the terms and conditions (which need not be identical) of each such
Option, including the purchase price per Share subject to each Option, and make
any amendment or modification to any Option Agreement consistent with the terms
of the Plan;
(b) select those Eligible Individuals to whom Awards shall be
granted under the Plan and to determine the number of Stock Appreciation Rights,
Performance Awards, Shares of Restricted Stock and/or Dividend Equivalent Rights
to be granted pursuant to each Award, the terms and conditions of each Award,
including the restrictions or Performance Objectives relating to Shares, the
maximum value of each Performance Share and make any amendment or modification
to any Award Agreement consistent with the terms of the Plan;
(c) to construe and interpret the Plan and the Options and
Awards granted hereunder and to establish, amend and revoke rules and
regulations for the administration of the Plan, including, but not limited to,
correcting any defect or supplying any omission, or reconciling any
inconsistency in the Plan or in any Agreement, in the manner and to the extent
it shall deem necessary or advisable so that the Plan complies with applicable
law, including Rule 16b-3 under the Exchange Act and the Code to the extent
applicable, and otherwise to make the Plan fully effective. All decisions and
determinations by the Committee in the exercise of this power shall be final,
binding and conclusive upon the Company, its Subsidiaries, the Optionees and
Grantees, and all other persons having any interest therein;
(d) to determine the duration and purposes for leaves of
absence which may be granted to an Optionee or Grantee on an individual basis
without constituting a termination of employment or service for purposes of the
Plan;
(e) to exercise its discretion with respect to the powers and
rights granted to it as set forth in the Plan; and
(f) generally, to exercise such powers and to perform such
acts as are deemed necessary or advisable to promote the best interests of the
Company with respect to the Plan.
4. STOCK SUBJECT TO THE PLAN.
4.1 The maximum number of Shares that may be made the subject of
Options and Awards granted under the Plan is 1,000,000; PROVIDED, HOWEVER, that
during the term of the Plan no Eligible Individual may be granted Options and
Awards in the aggregate in respect of more than 300,000 Shares. Upon a Change in
Capitalization, the maximum number of Shares referred to in the preceding
sentence shall be adjusted in number and kind pursuant to Section 14. The
Company shall reserve for the purposes of the Plan, out
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of its authorized but unissued Shares or out of Shares held in the Company's
treasury, or partly out of each, such number of Shares as shall be determined by
the Board.
4.2 Upon the granting of an Option or an Award, the number of Shares
available under Section 4.1 for the granting of further Options and Awards shall
be reduced as follows:
(a) In connection with the granting of an Option or an Award
(other than the granting of a Performance Unit denominated in dollars), the
number of Shares shall be reduced by the number of Shares in respect of which
the Option or Award is granted or denominated.
(b) In connection with the granting of a Performance Unit
denominated in dollars, the number of Shares shall be reduced by an amount equal
to the quotient of (i) the dollar amount in which the Performance Unit is
denominated, divided by (ii) the Fair Market Value of a Share on the date the
Performance Unit is granted.
4.3 Whenever any outstanding Option or Award or portion thereof
expires, is canceled or is otherwise terminated for any reason without having
been exercised or payment having been made in respect of the entire Option or
Award, the Shares allocable to the expired, canceled or otherwise terminated
portion of the Option or Award may again be the subject of Options or Awards
granted hereunder.
4.4 UNEXERCISED OPTIONS, GRANT FORFEITURES AND OPTIONS EXERCISED WITH
COMMON STOCK. All Common Stock (i) under Options granted under this Plan which
expire or are canceled or surrendered or (ii) which is forfeited under this Plan
shall be available for further awards under this Plan upon such expiration,
cancellation, surrender and forfeiture. In addition, any Common Stock granted or
purchased under this Plan which is used by an Optionee as full or partial
payment to the Company of the purchase price of Common Stock acquired upon
exercise of an Option granted under this Plan or for the payment of taxes
withheld in connection with such exercise shall be available for further awards
under this Plan upon such payment.
5. OPTION GRANTS FOR ELIGIBLE INDIVIDUALS.
5.1 AUTHORITY OF COMMITTEE. Subject to the provisions of the Plan, the
Committee shall have full and final authority to select those Eligible
Individuals who will receive Options, and the terms and conditions of the grant
to such Eligible Individuals shall be set forth in an Agreement.
5.2 PURCHASE PRICE. The purchase price or the manner in which the
purchase price is to be determined for Shares under each Option shall be
determined by the Committee and set forth in the Agreement; PROVIDED, HOWEVER,
that the purchase price per Share under each Incentive Stock Option shall not be
less than 100% of the Fair Market
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Value of a Share on the date the Option is granted (110% in the case of an
Incentive Stock Option granted to a Ten-Percent Stockholder).
5.3 MAXIMUM DURATION. Options granted hereunder shall be for such term
as the Committee shall determine, provided that an Incentive Stock Option shall
not be exercisable after the expiration of ten (10) years from the date it is
granted (five (5) years in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder) and a Nonqualified Stock Option shall not be
exercisable after the expiration of ten (10) years from the date it is granted.
The Committee may, subsequent to the granting of any Option, extend the term
thereof, but in no event shall the term as so extended exceed the maximum term
provided for in the preceding sentence.
5.4 VESTING. Subject to Section 7.4, each Option shall become
exercisable in such installments (which need not be equal) and at such times as
may be designated by the Committee and set forth in the Agreement. To the extent
not exercised, installments shall accumulate and be exercisable, in whole or in
part, at any time after becoming exercisable, but not later than the date the
Option expires. The Committee may accelerate the exercisability of any Option or
portion thereof at any time.
5.5 MODIFICATION. No modification of an Option shall adversely alter or
impair any rights or obligations under the Option without the Optionee's
consent.
6. OPTION GRANTS TO NONEMPLOYEE DIRECTORS.
6.1 GRANT. Options shall be granted to any Nonemployee Director who
becomes a member of the Board after adoption of the Plan upon election or
appointment as follows (such Option, a "Director Option"):
(a) GRANT. Each Nonemployee Director who becomes a Director
after adoption of the Plan shall, upon becoming a Director, be granted a
Director Option in respect of ______ Shares.
(b) AGREEMENT. All Director Options shall be evidenced by an
Agreement containing such other terms and conditions not inconsistent with the
provisions of this Plan as determined by the Board; PROVIDED, HOWEVER, that such
terms shall not vary the price, amount or timing of Director Options provided
under this Section 6, including provisions dealing with vesting, forfeiture and
termination of such Director Options.
6.2 PURCHASE PRICE. The purchase price for Shares under each Director
Option shall be equal to 100% of the Fair Market Value of such Shares on the
date the Director Option is granted.
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6.3 VESTING. Subject to Section 6.4, each Director Option shall become
fully vested and exercisable with respect to 20% of the Shares subject thereto
on each of the first, second, third, fourth and fifth anniversaries of the date
of grant; PROVIDED, HOWEVER, that the Optionee continues to serve as a Director
as of such date. If an Optionee ceases to serve as a Director for any reason,
the Optionee shall have no rights with respect to any Director Option which has
not then vested pursuant to the preceding sentence and the Optionee shall
automatically forfeit any Director Option which remains unvested.
6.4 DURATION. Each Director Option shall terminate on the date which is
the tenth anniversary of the date of grant, unless terminated earlier as
follows:
(a) If an Optionee's service as a Director terminates for any
reason other than Disability, death or Cause, the Optionee may for a period of
three (3) months after such termination exercise his or her Option to the
extent, and only to the extent, that such Option or portion thereof was vested
and exercisable as of the date the Optionee's service as a Director terminated,
after which time the Option shall automatically terminate in full.
(b) If an Optionee's service as a Director terminates by
reason of the Optionee's resignation or removal from the Board due to
Disability, the Optionee may, for a period of one (1) year after such
termination, exercise his or her Option to the extent, and only to the extent,
that such Option or portion thereof was vested and exercisable, as of the date
the Optionee's service as Director terminated, after which time the Option shall
automatically terminate in full.
(c) If an Optionee's service as a Director terminates for
Cause, the Option granted to the Optionee hereunder shall immediately terminate
in full and no rights thereunder may be exercised.
(d) If an Optionee dies while a Director or within three (3)
months after termination of service as a Director as described in clause (a) of
this Section 6.4 or within one (1) year after termination of service as a
Director as described in clause (b) of this Section 6.4, the Option granted to
the Optionee may be exercised at any time within one (1) year after the
Optionee's death by the person or persons to whom such rights under the Option
shall pass by will, or by the laws of descent or distribution, after which time
the Option shall terminate in full; PROVIDED, HOWEVER, that an Option may be
exercised to the extent, and only to the extent, that the Option or portion
thereof was exercisable on the date of death or earlier termination of the
Optionee's services as a Director.
7. TERMS AND CONDITIONS APPLICABLE TO ALL OPTIONS.
7.1 NON-TRANSFERABILITY. Unless set forth in the Agreement evidencing
the Option at the time of grant or at any time thereafter, an Option granted
hereunder shall not be transferable by the Optionee to whom it was granted
except by will or the laws of descent and distribution or pursuant to a domestic
relations order (within the meaning of
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Rule 16a-12 promulgated under the Exchange Act), and an Option may be exercised
during the lifetime of such Optionee only by the Optionee or his or her guardian
or legal representative. The terms of such Option shall be final, binding and
conclusive upon the beneficiaries, executors, administrators, heirs and
successors of the Optionee.
7.2 METHOD OF EXERCISE. The exercise of an Option shall be made only by
a written notice delivered in person or by mail to the Secretary of the Company
at the Company's principal executive office, specifying the number of Shares to
be purchased and accompanied by payment therefor and otherwise in accordance
with the Agreement pursuant to which the Option was granted. The purchase price
for any Shares purchased pursuant to the exercise of an Option shall be paid, as
determined by the Committee in its discretion, in either of the following forms
(or any combination thereof): (i) cash or (ii) the transfer of Shares to the
Company upon such terms and conditions as determined by the Committee. In
addition, Options may be exercised through a registered broker-dealer pursuant
to such cashless exercise procedures which are, from time to time, deemed
acceptable by the Committee, and the Committee may authorize that the purchase
price payable upon exercise of an Employee Option may be paid by having Shares
withheld that otherwise would be acquired upon such exercise. Any Shares
transferred to the Company (or withheld upon exercise) as payment of the
purchase price under an Option shall be valued at their Fair Market Value on the
day preceding the date of exercise of such Option. The Optionee shall deliver
the Agreement evidencing the Option to the Secretary of the Company who shall
endorse thereon a notation of such exercise and return such Agreement to the
Optionee. No fractional Shares (or cash in lieu thereof) shall be issued upon
exercise of an Option and the number of Shares that may be purchased upon
exercise shall be rounded to the nearest number of whole Shares.
7.3 RIGHTS OF OPTIONEES. No Optionee shall be deemed for any purpose to
be the owner of any Shares subject to any Option unless and until (i) the Option
shall have been exercised pursuant to the terms thereof, (ii) the Company shall
have issued and delivered 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.
Thereupon, the Optionee shall have full voting, dividend and other ownership
rights with respect to such Shares, subject to such terms and conditions as may
be set forth in the applicable Agreement.
7.4 EFFECT OF CHANGE IN CONTROL. In the event of a Change in Control,
all Options outstanding on the date of such Change in Control shall become
immediately and fully exercisable. In addition, to the extent set forth in an
Agreement evidencing the grant of an Option, an Optionee will be permitted to
surrender to the Company for cancellation within sixty (60) days after such
Change in Control any Option or portion of an Option to the extent not yet
exercised and the Optionee will be entitled to receive a cash payment in an
amount equal to the excess, if any, of (x) (A) in the case of a Nonqualified
Stock Option, the greater of (1) the Fair Market Value, on the date preceding
the date of surrender, of the Shares subject to the Option or portion thereof
surrendered or (2) the
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Adjusted Fair Market Value of the Shares subject to the Option or portion
thereof surrendered or (B) in the case of an Incentive Stock Option, the Fair
Market Value, on the date preceding the date of surrender, of the Shares subject
to the Option or portion thereof surrendered, over (y) the aggregate purchase
price for such Shares under the Option or portion thereof surrendered. In the
event an Optionee's employment with, or service as a Director of, the Company is
terminated by the Company following a Change in Control, each Option held by the
Optionee that was exercisable as of the date of termination of the Optionee's
employment or service shall remain exercisable for a period ending not before
the earlier of (A) the first anniversary of the termination of the Optionee's
employment or service or (B) the expiration of the stated term of the Option.
8. STOCK APPRECIATION RIGHTS.
The Committee may in its discretion, either alone or in connection with
the grant of an Employee Option, grant Stock Appreciation Rights in accordance
with the Plan, the terms and conditions of which shall be set forth in an
Agreement. If granted in connection with an Option, a Stock Appreciation Right
shall cover the same Shares covered by the Option (or such lesser number of
Shares as the Committee may determine) and shall, except as provided in this
Section 8, be subject to the same terms and conditions as the related Option.
8.1 TIME OF GRANT. A Stock Appreciation Right may be granted (i) at any
time if unrelated to an Option, or (ii) if related to an Option, either at the
time of grant, or at any time thereafter during the term of the Option.
8.2 STOCK APPRECIATION RIGHT RELATED TO AN OPTION.
(a) EXERCISE. Subject to Section 8.7, a Stock Appreciation
Right granted in connection with an Option shall be exercisable at such time or
times and only to the extent that the related Options are exercisable, and will
not be transferable except to the extent the related Option may be transferable.
A Stock Appreciation Right granted in connection with an Incentive Stock Option
shall be exercisable only if the Fair Market Value of a Share on the date of
exercise exceeds the purchase price specified in the related Incentive Stock
Option Agreement.
(b) AMOUNT PAYABLE. Upon the exercise of a Stock Appreciation
Right related to an Option, the Grantee shall be entitled to receive an amount
determined by multiplying (A) the excess of the Fair Market Value of a Share on
the date preceding the date of exercise of such Stock Appreciation Right over
the per Share purchase price under the related Option, by (B) the number of
Shares as to which such Stock Appreciation Right is being exercised.
Notwithstanding the foregoing, the Committee may limit in any manner the amount
payable with respect to any Stock Appreciation Right by including such a limit
in the Agreement evidencing the Stock Appreciation Right at the time it is
granted.
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(c) TREATMENT OF RELATED OPTIONS AND STOCK APPRECIATION RIGHTS
UPON EXERCISE. Upon the exercise of a Stock Appreciation Right granted in
connection with an Option, the Option shall be canceled to the extent of the
number of Shares as to which the Stock Appreciation Right is exercised, and upon
the exercise of an Option granted in connection with a Stock Appreciation Right,
the Stock Appreciation Right shall be canceled to the extent of the number of
Shares as to which the Option is exercised or surrendered.
8.3 STOCK APPRECIATION RIGHT UNRELATED TO AN OPTION. The Committee may
grant to Eligible Individuals Stock Appreciation Rights unrelated to Options.
Stock Appreciation Rights unrelated to Options shall contain such terms and
conditions as to exercisability (subject to Section 8.7), vesting and duration
as the Committee shall determine, but in no event shall they have a term of
greater than ten (10) years. Upon exercise of a Stock Appreciation Right
unrelated to an Option, the Grantee shall be entitled to receive an amount
determined by multiplying (A) the excess of the Fair Market Value of a Share on
the date preceding the date of exercise of such Stock Appreciation Right over
the Fair Market Value of a Share on the date the Stock Appreciation Right was
granted, by (B) the number of Shares as to which the Stock Appreciation Right is
being exercised. Notwithstanding the foregoing, the Committee may limit in any
manner the amount payable with respect to any Stock Appreciation Right by
including such a limit in the Agreement evidencing the Stock Appreciation Right
at the time it is granted.
8.4 METHOD OF EXERCISE. Stock Appreciation Rights shall be exercised by
a Grantee only by a written notice delivered in person or by mail to the
Secretary of the Company at the Company's principal executive office, specifying
the number of Shares with respect to which the Stock Appreciation Right is being
exercised. If requested by the Committee, the Grantee shall deliver the
Agreement evidencing the Stock Appreciation Right being exercised and the
Agreement evidencing any related Option to the Secretary of the Company who
shall endorse thereon a notation of such exercise and return such Agreement to
the Grantee.
8.5 FORM OF PAYMENT. Payment of the amount determined under Sections
8.2(b) or 8.3 may be made in the discretion of the Committee solely in whole
Shares in a number determined at their Fair Market Value on the date preceding
the date of exercise of the Stock Appreciation Right, or solely in cash, or in a
combination of cash and Shares. If the Committee decides to make full payment in
Shares and the amount payable results in a fractional Share, payment for the
fractional Share will be made in cash.
8.6 MODIFICATION. No modification of an Award shall adversely alter or
impair any rights or obligations under the Agreement without the Grantee's
consent.
8.7 EFFECT OF CHANGE IN CONTROL. In the event of a Change in Control,
all Stock Appreciation Rights shall become immediately and fully exercisable. In
addition, to the
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extent set forth in an Agreement evidencing the grant of a Stock Appreciation
Right, a Grantee will be entitled to receive a payment from the Company in cash
or stock, in either case, with a value equal to the excess, if any, of (A) the
greater of (x) the Fair Market Value, on the date preceding the date of
exercise, of the underlying Shares subject to the Stock Appreciation Right or
portion thereof exercised and (y) the Adjusted Fair Market Value, on the date
preceding the date of exercise, of the Shares over (B) the aggregate Fair Market
Value, on the date the Stock Appreciation Right was granted, of the Shares
subject to the Stock Appreciation Right or portion thereof exercised. In the
event a Grantee's employment with the Company is terminated by the Company
following a Change in Control each Stock Appreciation Right held by the Grantee
that was exercisable as of the date of termination of the Grantee's employment
shall remain exercisable for a period ending not before the earlier of the first
anniversary of (A) the termination of the Grantee's employment or (B) the
expiration of the stated term of the Stock Appreciation Right.
9. DIVIDEND EQUIVALENT RIGHTS.
Dividend Equivalent Rights may be granted to Eligible Individuals in
tandem with an Option or Award. The terms and conditions applicable to each
Dividend Equivalent Right shall be specified in the Agreement under which the
Dividend Equivalent Right is granted. Amounts payable in respect of Dividend
Equivalent Rights may be payable currently or deferred until the lapsing of
restrictions on such Dividend Equivalent Rights or until the vesting, exercise,
payment, settlement or other lapse of restrictions on the Option or Award to
which the Dividend Equivalent Rights relate. In the event that the amount
payable in respect of Dividend Equivalent Rights are to be deferred, the
Committee shall determine whether such amounts are to be held in cash or
reinvested in Shares or deemed (notionally) to be reinvested in Shares. If
amounts payable in respect of Dividend Equivalent Rights are to be held in cash,
there may be credited at the end of each year (or portion thereof) interest on
the amount of the account at the beginning of the year at a rate per annum as
the Committee, in its discretion, may determine. Dividend Equivalent Rights may
be settled in cash or Shares or a combination thereof, in a single installment
or multiple installments.
10. RESTRICTED STOCK.
10.1 GRANT. The Committee may grant Awards to Eligible Individuals of
Restricted Stock, which shall be evidenced by an Agreement between the Company
and the Grantee. Each Agreement shall contain such restrictions, terms and
conditions as the Committee may, in its discretion, determine and (without
limiting the generality of the foregoing) such Agreements may require that an
appropriate legend be placed on Share certificates. Awards of Restricted Stock
shall be subject to the terms and provisions set forth below in this Section 10.
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10.2 RIGHTS OF GRANTEE. Shares of Restricted Stock granted pursuant to
an Award hereunder shall be issued in the name of the Grantee as soon as
reasonably practicable after the Award is granted provided that the Grantee has
executed an Agreement evidencing the Award, the appropriate blank stock powers
and, in the discretion of the Committee, an escrow agreement and any other
documents which the Committee may require as a condition to the issuance of such
Shares. If a Grantee shall fail to execute the Agreement evidencing a Restricted
Stock Award, the appropriate blank stock powers and, in the discretion of the
Committee, an escrow agreement and any other documents which the Committee may
require within the time period prescribed by the Committee at the time the Award
is granted, the Award shall be null and void. At the discretion of the
Committee, Shares issued in connection with a Restricted Stock Award shall be
deposited together with the stock powers with an escrow agent (which may be the
Company) designated by the Committee. Unless the Committee determines otherwise
and as set forth in the Agreement, upon delivery of the Shares to the escrow
agent, the Grantee shall have all of the rights of a stockholder with respect to
such Shares, including the right to vote the Shares and to receive all dividends
or other distributions paid or made with respect to the Shares.
10.3 NON-TRANSFERABILITY. Until all restrictions upon the Shares of
Restricted Stock awarded to a Grantee shall have lapsed in the manner set forth
in Section 10.4, such Shares shall not be sold, transferred or otherwise
disposed of and shall not be pledged or otherwise hypothecated, nor shall they
be delivered to the Grantee.
10.4 LAPSE OF RESTRICTIONS.
(a) GENERALLY. Restrictions upon Shares of Restricted Stock
awarded hereunder shall lapse at such time or times and on such terms and
conditions as the Committee may determine. The Agreement evidencing the Award
shall set forth any such restrictions.
(b) EFFECT OF CHANGE IN CONTROL. Unless the Committee shall
determine otherwise at the time of the grant of an Award of Restricted Stock,
the restrictions upon Shares of Restricted Stock shall lapse upon a Change in
Control. The Agreement evidencing the Award shall set forth any such provisions.
10.5 MODIFICATION OR SUBSTITUTION. Subject to the terms of the Plan,
the Committee may modify outstanding Awards of Restricted Stock or accept the
surrender of outstanding Shares of Restricted Stock (to the extent the
restrictions on such Shares have not yet lapsed) and grant new Awards in
substitution for them. Notwithstanding the foregoing, no modification of an
Award shall adversely alter or impair any rights or obligations under the
Agreement without the Grantee's consent.
10.6 TREATMENT OF DIVIDENDS. At the time an Award of Shares of
Restricted Stock is granted, the Committee may, in its discretion, determine
that the payment to the
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Grantee of dividends, or a specified portion thereof, declared or paid on such
Shares by the Company shall be (i) deferred until the lapsing of the
restrictions imposed upon such Shares and (ii) held by the Company for the
account of the Grantee until such time. In the event that dividends are to be
deferred, the Committee shall determine whether such dividends are to be
reinvested in shares of Stock (which shall be held as additional Shares of
Restricted Stock) or held in cash. If deferred dividends are to be held in cash,
there may be credited at the end of each year (or portion thereof) interest on
the amount of the account at the beginning of the year at a rate per annum as
the Committee, in its discretion, may determine. Payment of deferred dividends
in respect of Shares of Restricted Stock (whether held in cash or as additional
Shares of Restricted Stock), together with interest accrued thereon, if any,
shall be made upon the lapsing of restrictions imposed on the Shares in respect
of which the deferred dividends were paid, and any dividends deferred (together
with any interest accrued thereon) in respect of any Shares of Restricted Stock
shall be forfeited upon the forfeiture of such Shares.
10.7 DELIVERY OF SHARES. Upon the lapse of the restrictions on Shares
of Restricted Stock, the Committee shall cause a stock certificate to be
delivered to the Grantee with respect to such Shares, free of all restrictions
hereunder.
11. PERFORMANCE AWARDS.
11.1 (a) PERFORMANCE OBJECTIVES. Performance Objectives for Performance
Awards may be expressed in terms of (i) earnings per Share, (ii) Share price,
(iii) pre-tax profits, (iv) net earnings, (v) return on equity or assets, (vi)
revenues, (vii) EBITDA, (viii) market share or market penetration, (ix)
dividends or (x) any combination of the foregoing and may be determined before
or after accounting changes, special charges, foreign currency effects,
acquisitions, divestitures or other extraordinary events. Performance Objectives
may be in respect of the performance of the Company and its Subsidiaries (which
may be on a consolidated basis), a Subsidiary or a Division. Performance
Objectives may be absolute or relative and may be expressed in terms of a
progression within a specified range. The Performance Objectives with respect to
a Performance Cycle shall be established in writing by the Committee by the
earlier of (i) the date on which a quarter of the Performance Cycle has elapsed
or (ii) the date which is ninety (90) days after the commencement of the
Performance Cycle, and in any event while the performance relating to the
Performance Objectives remains, substantially uncertain.
(b) DETERMINATION OF PERFORMANCE. Prior to the vesting,
payment, settlement or lapsing of any restrictions with respect to any
Performance Award made to a Grantee who is subject to Section 162(m) of the
Code, the Committee shall certify in writing that the applicable Performance
Objectives have been satisfied.
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11.2 PERFORMANCE UNITS. The Committee, in its discretion, may grant
Awards of Performance Units to Eligible Individuals, the terms and conditions of
which shall be set forth in an Agreement between the Company and the Grantee.
Performance Units may be denominated in Shares or a specified dollar amount and,
contingent upon the attainment of specified Performance Objectives within the
Performance Cycle, represent the right to receive payment as provided in Section
11.2(b) of (i) in the case of Share-denominated Performance Units, the Fair
Market Value of a Share on the date the Performance Unit was granted, the date
the Performance Unit became vested or any other date specified by the Committee,
(ii) in the case of dollar-denominated Performance Units, the specified dollar
amount or (iii) a percentage (which may be more than 100%) of the amount
described in clause (i) or (ii) depending on the level of Performance Objective
attainment; PROVIDED, HOWEVER, that, the Committee may at the time a Performance
Unit is granted specify a maximum amount payable in respect of a vested
Performance Unit. Each Agreement shall specify the number of Performance Units
to which it relates, the Performance Objectives which must be satisfied in order
for the Performance Units to vest and the Performance Cycle within which such
Performance Objectives must be satisfied.
(a) VESTING AND FORFEITURE. Subject to Sections 11.1(b) and
11.4, a Grantee shall become vested with respect to the Performance Units to the
extent that the Performance Objectives set forth in the Agreement are satisfied
for the Performance Cycle.
(b) PAYMENT OF AWARDS. Payment to Grantees in respect of
vested Performance Units shall be made as soon as practicable after the last day
of the Performance Cycle to which such Award relates unless the Agreement
evidencing the Award provides for the deferral of payment, in which event the
terms and conditions of the deferral shall be set forth in the Agreement.
Subject to Section 11.4, such payments may be made entirely in Shares valued at
their Fair Market Value as of the last day of the applicable Performance Cycle
or such other date specified by the Committee, entirely in cash, or in such
combination of Shares and cash as the Committee in its discretion shall
determine at any time prior to such payment; PROVIDED, HOWEVER, that if the
Committee in its discretion determines to make such payment entirely or
partially in Shares of Restricted Stock, the Committee must determine the extent
to which such payment will be in Shares of Restricted Stock and the terms of
such Restricted Stock at the time the Award is granted.
11.3 PERFORMANCE SHARES. The Committee, in its discretion, may grant
Awards of Performance Shares to Eligible Individuals, the terms and conditions
of which shall be set forth in an Agreement between the Company and the Grantee.
Each Agreement may require that an appropriate legend be placed on Share
certificates. Awards of Performance Shares shall be subject to the following
terms and provisions:
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(a) RIGHTS OF GRANTEE. The Committee shall provide at the time
an Award of Performance Shares is made the time or times at which the actual
Shares represented by such Award shall be issued in the name of the Grantee;
PROVIDED, HOWEVER, that no Performance Shares shall be issued until the Grantee
has executed an Agreement evidencing the Award, the appropriate blank stock
powers and, in the discretion of the Committee, an escrow agreement and any
other documents which the Committee may require as a condition to the issuance
of such Performance Shares. If a Grantee shall fail to execute the Agreement
evidencing an Award of Performance Shares, the appropriate blank stock powers
and, in the discretion of the Committee, an escrow agreement and any other
documents which the Committee may require within the time period prescribed by
the Committee at the time the Award is granted, the Award shall be null and
void. At the discretion of the Committee, Shares issued in connection with an
Award of Performance Shares shall be deposited together with the stock powers
with an escrow agent (which may be the Company) designated by the Committee.
Except as restricted by the terms of the Agreement, upon delivery of the Shares
to the escrow agent, the Grantee shall have, in the discretion of the Committee,
all of the rights of a stockholder with respect to such Shares, including the
right to vote the Shares and to receive all dividends or other distributions
paid or made with respect to the Shares.
(b) NON-TRANSFERABILITY. Until any restrictions upon the
Performance Shares awarded to a Grantee shall have lapsed in the manner set
forth in Sections 11.3(c) or 11.4, such Performance Shares shall not be sold,
transferred or otherwise disposed of and shall not be pledged or otherwise
hypothecated, nor shall they be delivered to the Grantee. The Committee may also
impose such other restrictions and conditions on the Performance Shares, if any,
as it deems appropriate.
(c) LAPSE OF RESTRICTIONS. Subject to Sections 11.1(b) and
11.4, restrictions upon Performance Shares awarded hereunder shall lapse and
such Performance Shares shall become vested at such time or times and on such
terms, conditions and satisfaction of Performance Objectives as the Committee
may, in its discretion, determine at the time an Award is granted.
(d) TREATMENT OF DIVIDENDS. At the time the Award of
Performance Shares is granted, the Committee may, in its discretion, determine
that the payment to the Grantee of dividends, or a specified portion thereof,
declared or paid on actual Shares represented by such Award which have been
issued by the Company to the Grantee shall be (i) deferred until the lapsing of
the restrictions imposed upon such Performance Shares and (ii) held by the
Company for the account of the Grantee until such time. In the event that
dividends are to be deferred, the Committee shall determine whether such
dividends are to be reinvested in shares of Stock (which shall be held as
additional Performance Shares) or held in cash. If deferred dividends are to be
held in cash, there may be credited at the end of each year (or portion thereof)
interest on the amount of the account at the beginning of the year at a rate per
annum as the Committee, in its discretion, may
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determine. Payment of deferred dividends in respect of Performance Shares
(whether held in cash or in additional Performance Shares), together with
interest accrued thereon, if any, shall be made upon the lapsing of restrictions
imposed on the Performance Shares in respect of which the deferred dividends
were paid, and any dividends deferred (together with any interest accrued
thereon) in respect of any Performance Shares shall be forfeited upon the
forfeiture of such Performance Shares.
(e) DELIVERY OF SHARES. Upon the lapse of the restrictions on
Performance Shares awarded hereunder, the Committee shall cause a stock
certificate to be delivered to the Grantee with respect to such Shares, free of
all restrictions hereunder.
11.4 EFFECT OF CHANGE IN CONTROL. In the event of a Change in Control:
(a) With respect to Performance Units, the Grantee shall (i)
become vested in a percentage of Performance Units as determined by the
Committee at the time of the Award of such Performance Units and as set forth in
the Agreement and (ii) be entitled to receive in respect of all Performance
Units which become vested as a result of a Change in Control a cash payment
within ten (10) days after such Change in Control in an amount as determined by
the Committee at the time of the Award of such Performance Unit and as set forth
in the Agreement.
(b) With respect to Performance Shares, restrictions shall
lapse immediately on all or a portion of the Performance Shares as determined by
the Committee at the time of the Award of such Performance Shares and as set
forth in the Agreement.
(c) The Agreements evidencing Performance Shares and
Performance Units shall provide for the treatment of such Awards (or portions
thereof) which do not become vested as the result of a Change in Control,
including, but not limited to, provisions for the adjustment of applicable
Performance Objectives.
11.5 MODIFICATION OR SUBSTITUTION. Subject to the terms of the Plan,
the Committee may modify outstanding Performance Awards or accept the surrender
of outstanding Performance Awards and grant new Performance Awards in
substitution for them. Notwithstanding the foregoing, no modification of a
Performance Award shall adversely alter or impair any rights or obligations
under the Agreement without the Grantee's consent.
12. EFFECT OF A TERMINATION OF EMPLOYMENT.
The Agreement evidencing the grant of each Option and each Award shall
set forth the terms and conditions applicable to such Option or Award upon a
termination or change in the status of the employment of the Optionee or Grantee
by the Company, a Subsidiary or a Division (including a termination or change by
reason of the sale of a
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Subsidiary or a Division), which, except for Director Options, shall be as the
Committee may, in its discretion, determine at the time the Option or Award is
granted or thereafter.
13. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) In the event of a Change in Capitalization, the Committee shall
conclusively determine the appropriate adjustments, if any, to (i) the maximum
number and class of Shares or other stock or securities with respect to which
Options or Awards may be granted under the Plan, (ii) the maximum number and
class of Shares or other stock or securities with respect to which Options or
Awards may be granted to any Eligible Individual during the term of the Plan,
(iii) the number and class of Shares or other stock or securities which are
subject to outstanding Options or Awards granted under the Plan and the purchase
price therefor, if applicable and (iv) the Performance Objectives.
(b) Any such adjustment in the Shares or other stock or securities
subject to outstanding Incentive Stock Options (including any adjustments in the
purchase price) shall be made in such manner as not to constitute a modification
as defined by Section 424(h)(3) of the Code and only to the extent otherwise
permitted by Sections 422 and 424 of the Code.
(c) If, by reason of a Change in Capitalization, a Grantee of an Award
shall be entitled to, or an Optionee shall be entitled to exercise an Option
with respect to, new, additional or different shares of stock or securities,
such new, additional or different shares shall thereupon be subject to all of
the conditions, restrictions and performance criteria which were applicable to
the Shares subject to the Award or Option, as the case may be, prior to such
Change in Capitalization.
14. EFFECT OF CERTAIN TRANSACTIONS.
Subject to Sections 7.4, 8.7, 10.4(b) and 11.4 or as otherwise provided
in an Agreement, in the event of (i) the liquidation or dissolution of the
Company or (ii) a merger or consolidation of the Company (a "Transaction"), the
Plan and the Options and Awards issued hereunder shall continue in effect in
accordance with their respective terms, except that following a Transaction each
Optionee and Grantee shall be entitled to receive in respect of each Share
subject to any outstanding Options or Awards, as the case may be, upon exercise
of any Option or payment or transfer in respect of any Award, the same number
and kind of stock, securities, cash, property or other consideration that each
holder of a Share was entitled to receive in the Transaction in respect of a
Share; PROVIDED, HOWEVER, that such stock, securities, cash, property, or other
consideration shall remain subject to all of the conditions, restrictions and
performance criteria which were applicable to the Options and Awards prior to
such Transaction.
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15. INTERPRETATION.
Following the required registration of any equity security of the
Company pursuant to Section 12 of the Exchange Act:
(a) The Plan is intended to comply with Rule 16b-3 promulgated
under the Exchange Act and the Committee shall interpret and administer the
provisions of the Plan or any Agreement in a manner consistent therewith. Any
provisions inconsistent with such Rule shall be inoperative and shall not affect
the validity of the Plan.
(b) Unless otherwise expressly stated in the relevant
Agreement, each Option, Stock Appreciation Right and Performance Award granted
under the Plan is intended to be performance-based compensation within the
meaning of Section 162(m)(4)(C) of the Code. The Committee shall not be entitled
to exercise any discretion otherwise authorized hereunder with respect to such
Options or Awards if the ability to exercise such discretion or the exercise of
such discretion itself would cause the compensation attributable to such Options
or Awards to fail to qualify as performance-based compensation.
16. POOLING TRANSACTIONS.
Notwithstanding anything contained in the Plan or any Agreement to the
contrary, in the event of a Change in Control which is also intended to
constitute a Pooling Transaction, the Committee shall take such actions, if any,
as are specifically recommended by an independent accounting firm retained by
the Company to the extent reasonably necessary in order to assure that the
Pooling Transaction will qualify as such, including but not limited to (i)
deferring the vesting, exercise, payment, settlement or lapsing of restrictions
with respect to any Option or Award, (ii) providing that the payment or
settlement in respect of any Option or Award be made in the form of cash, Shares
or securities of a successor or acquirer of the Company, or a combination of the
foregoing, and (iii) providing for the extension of the term of any Option or
Award to the extent necessary to accommodate the foregoing, but not beyond the
maximum term permitted for any Option or Award.
17. TERMINATION AND AMENDMENT OF THE PLAN.
The Plan shall terminate on the day preceding the tenth anniversary of
the date of its adoption by the Board and no Option or Award may be granted
thereafter. The Board may sooner terminate the Plan and the Board may at any
time and from time to time amend, modify or suspend the Plan; PROVIDED, HOWEVER,
that:
(a) no such amendment, modification, suspension or termination
shall impair or adversely alter any Options or Awards theretofore granted under
the Plan, except with the consent of the Optionee or Grantee, nor shall any
amendment,
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modification, suspension or termination deprive any Optionee or Grantee of any
Shares which he or she may have acquired through or as a result of the Plan; and
(b) to the extent necessary under applicable law, no amendment
shall be effective unless approved by the stockholders of the Company in
accordance with applicable law.
18. NON-EXCLUSIVITY OF THE PLAN.
The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved incentive arrangement
or as creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without limitation,
the granting of stock options otherwise than under the Plan, and such
arrangements may be either applicable generally or only in specific cases.
19. LIMITATION OF LIABILITY.
As illustrative of the limitations of liability of the Company, but not
intended to be exhaustive thereof, nothing in the Plan shall be construed to:
(i) give any person any right to be granted an Option or Award
other than at the sole discretion of the Committee;
(ii) give any person any rights whatsoever with respect to Shares
except as specifically provided in the Plan;
(iii) limit in any way the right of the Company to terminate the
employment of any person at any time; or
(iv) be evidence of any agreement or understanding, expressed or
implied, that the Company will employ any person at any
particular rate of compensation or for any particular period
of time.
20. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW.
20.1 Except as to matters of federal law, the Plan and the rights of
all persons claiming hereunder shall be construed and determined in accordance
with the laws of the State of Delaware without giving effect to conflicts of
laws principles thereof.
20.2 The obligation of the Company to sell or deliver Shares with
respect to Options and Awards granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
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20.3 The Board may make such changes as may be necessary or appropriate
to comply with the rules and regulations of any government authority, or to
obtain for Eligible Individuals granted Incentive Stock Options the tax benefits
under the applicable provisions of the Code and regulations promulgated
thereunder.
20.4 Each Option and Award is subject to the requirement that, if at
any time the Committee determines, in its discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan is
required by any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant of an Option or
Award or the issuance of Shares, no Options or Awards shall be granted or
payment made or Shares issued, in whole or in part, unless listing,
registration, qualification, consent or approval has been effected or obtained
free of any conditions as acceptable to the Committee.
20.5 Notwithstanding anything contained in the Plan or any Agreement to
the contrary, in the event that the disposition of Shares acquired pursuant to
the Plan is not covered by a then current registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), and is not otherwise
exempt from such registration, such Shares shall be restricted against transfer
to the extent required by the Securities Act and Rule 144 or other regulations
thereunder. The Committee may require any individual receiving Shares pursuant
to an Option or Award granted under the Plan, as a condition precedent to
receipt of such Shares, to represent and warrant to the Company in writing that
the Shares acquired by such individual are acquired without a view to any
distribution thereof and will not be sold or transferred other than pursuant to
an effective registration thereof under said Act or pursuant to an exemption
applicable under the Securities Act or the rules and regulations promulgated
thereunder. The certificates evidencing any of such Shares shall be
appropriately amended to reflect their status as restricted securities as
aforesaid.
21. MISCELLANEOUS.
21.1 MULTIPLE AGREEMENTS. The terms of each Option or Award may differ
from other Options or Awards granted under the Plan at the same time, or at some
other time. The Committee may also grant more than one Option or Award to a
given Eligible Individual during the term of the Plan, either in addition to, or
in substitution for, one or more Options or Awards previously granted to that
Eligible Individual.
21.2 WITHHOLDING OF TAXES.
(a) At such times as an Optionee or Grantee recognizes taxable
income in connection with the receipt of Shares or cash hereunder (a "Taxable
Event"), the Optionee or Grantee shall pay to the Company an amount equal to the
federal, state and local income taxes and other amounts as may be required by
law to be withheld by the
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Company in connection with the Taxable Event (the "Withholding Taxes") prior to
the issuance, or release from escrow, of such Shares or the payment of such
cash. The Company shall have the right to deduct from any payment of cash to an
Optionee or Grantee an amount equal to the Withholding Taxes in satisfaction of
the obligation to pay Withholding Taxes. In satisfaction of the obligation to
pay Withholding Taxes to the Company, the Optionee or Grantee may make a written
election (the "Tax Election"), which may be accepted or rejected in the
discretion of the Committee, to have withheld a portion of the Shares then
issuable to him or her having an aggregate Fair Market Value equal to the
Withholding Taxes.
(b) If an Optionee makes a disposition, within the meaning of
Section 424(c) of the Code and regulations promulgated thereunder, of any Share
or Shares issued to such Optionee pursuant to the exercise of an Incentive Stock
Option within the two-year period commencing on the day after the date of the
grant or within the one-year period commencing on the day after the date of
transfer of such Share or Shares to the Optionee pursuant to such exercise, the
Optionee shall, within ten (10) days of such disposition, notify the Company
thereof, by delivery of written notice to the Company at its principal executive
office.
21.3 LOANS. The Company shall be entitled, if the Committee in its sole
discretion deems it necessary or desirable, to lend money to an Optionee or
Grantee for purposes of (a) exercising his or her rights under an Option or
Award hereunder or (b) paying any income tax liability related to an Option or
Award; PROVIDED, HOWEVER, that Nonemployee Directors shall not be eligible to
receive such loans. Such a loan shall be evidenced by a promissory note payable
to the order of the Company executed by the Optionee or Grantee and containing
such other terms and conditions as the Committee may deem desirable.
21.4. EFFECTIVE DATE. The effective date of this Plan shall be as
determined by the Board, subject only to the approval by the affirmative vote of
the holders of a majority of the securities of the Company present, or
represented, and entitled to vote at a meeting of stockholders duly held in
accordance with the applicable laws of the State of Delaware within twelve (12)
months of the adoption of the Plan by the Board.
21.5 AWARDS NOT INCLUDABLE FOR BENEFIT PURPOSES. Income recognized by
an Optionee or Grantee pursuant to the provisions of the Plan shall not be
included in the determination of benefits under any employee pension benefit
plan (as such term is defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended) or group insurance or other benefit plans
applicable to the Optionee or Grantee which are maintained by the Company,
except as may be provided under the terms of such plans or determined by
resolution of the Board.
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21.6 NO STRICT CONSTRUCTION. No rule of strict construction shall be
implied against the Company, the Committee, or any other person in the
interpretation of any of the terms of the Plan, any Option or Award or any rule
or procedure established by the Committee.
21.7 CAPTIONS. The captions (i.e., all Section headings) used in this
Plan are for convenience only, do not constitute a part of this Plan, and shall
not be deemed to limit, characterize or affect in any way any provisions of this
Plan, and all provisions of this Plan shall be construed as if no captions have
been used in this Plan.
21.8 SEVERABILITY. Whenever possible, each provision in this Plan and
every Award and Option at any time granted hereunder shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Plan or any Award or Option at any time granted hereunder
shall be held to be prohibited by or invalid under applicable law, then (a) such
provision shall be deemed amended to accomplish the objectives of the provision
as originally written to the fullest extent permitted by law and (b) all other
provisions of this Plan and every other Award and Option at any time granted
hereunder shall remain in full force and effect.
27
AGREEMENT
This Agreement (the "Agreement"), is entered into as of April 29, 1998
among John Deere Construction Equipment Company (formerly known as John Deere
Industrial Equipment Company), a corporation organized under the laws of the
State of Delaware with its principal place of business in Moline, Illinois
("Deere"); Neff Machinery, Inc., a corporation organized under the laws of the
State of Florida with its principal place of business in Miami, Florida
(formerly known as The Mas Group, Inc. d/b/a/ Neff Machinery) ("Neff
Machinery"); Neff Corp., a corporation organized under the laws of the State of
Delaware with its principal place of business in Miami, Florida ("Neff"); Jorge
L. Mas, Jr., Juan Carlos Mas and Jose Ramon Mas, all residents of the State of
Florida and shareholders of Neff (the "Mas shareholders"); Kevin Fitzgerald, a
resident of the State of Florida and a shareholder of Neff ("Fitzgerald");
Santos Fund I, LP, a Texas limited partnership owned by the Mas shareholders and
Kevin Fitzgerald with its principal place of business in Florida ("Santos"); and
Santos Capital Advisors, Inc., a Florida corporation owned by the Mas
shareholders and Kevin Fitzgerald with its principal place of business in
Florida ("Santos Capital") (collectively "the parties").
DEFINITIONS
1. "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 other 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 any Affiliate of such specified Person. For 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. This definition is distinguished from "Affiliate" as that term is
used in connection with Deere's New Dealer Agreement and defined in Recital 8
below as a "Neff Affiliate."
2. "Common Stock" or "Neff Common Stock" means all classes of the
common stock of Neff.
3. "Deere Competitor" means any Person who, directly or through an
Affiliate, manufactures, sells or distributes forestry, industrial, construction
or utility equipment, generally comparable to one or more models of equipment
manufactured or sold, or proposed to be manufactured or sold, now or in the
future, by Deere, either as whole goods or parts thereof, including any dealer
or distributor of such equipment or parts at any level of distribution.
4. "GE Affiliate" means General Electric Capital Corporation ("GE
Capital") and any Affiliate of GE Capital.
<PAGE>
5. "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, municipal or otherwise, including, without limitation,
any instrumentality, division, agency, body or department thereof) or any other
business entity.
6. "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 Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, and any succeeding law), 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).
RECITALS
1. Deere and Neff Machinery executed construction and utility equipment
dealer agreements in 1989 and executed revised agreements in 1994 ("Dealer
Agreements").
2. The Mas shareholders, who had been the sole shareholders of Neff
Machinery since 1994, and Neff, a new company owning all of the stock of Neff
Machinery, entered into certain agreements in December 1995 with GE Capital,
whereby, among other things, GE Capital provided financing to Neff, purchased
preferred stock of Neff ("Series A"); and acquired a warrant allowing it to
purchase 26,667 shares of Common Stock of Neff. Among other rights, the Series A
preferred stock allows GE Capital to elect one of the seven members of Neff's
board of directors and to veto any merger, sale of the company or other change
in control.
3. In March 1996, Deere, Neff Machinery, Neff and the Mas shareholders
executed an agreement addressing, among other things, the change in ownership in
Neff Machinery, the creation of Neff and GE Capital's ownership interest in
Neff, and granting Deere termination rights in addition to those in the Dealer
Agreements in the event of certain further changes in the ownership of Neff
("March 1996 Agreement").
4. In December 1996, the Mas shareholders, Neff, GE Capital and GECFS,
Inc. ("GECFS") (which had acquired the warrant from GE Capital and purchased
Neff's Common Stock), entered into certain additional agreements involving,
among other things, a refinancing and increased financing of Neff; issuance of
two additional classes of Neff preferred stock, respectively, to GECFS ("Series
B") (in exchange for the Neff Common Stock) and to GE Capital ("Series C") (for
cash); and a grant of a control option to GE Capital allowing it to acquire
shares of issued and outstanding Common Stock sufficient to increase its
ownership to fifty-one percent (51 %) of the Common Stock commencing on July 1,
1998.
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5. Among other rights, Series B and Series C of Neff's preferred stock
owned by GE Capital and GECFS allow those companies to convert their stock to
forty percent (40%) of issued and outstanding Common Stock and elect one
additional member of the Neff board of directors.
6. Deere considers the December 1996 agreements to constitute a change
in the ownership in Neff giving rise to a right, under the terms of the March
1996 Agreement, of Deere to terminate Neff Machinery's dealership appointments.
7. Contemporaneously with this Agreement, Deere has entered into a new
dealer agreement with Neff Machinery ("New Dealer Agreement").
8. The New Dealer Agreement defines an affiliate of Neff Machinery
("Neff Affiliate"). By this definition, GE Capital and GECFS are Neff
Affiliates. Under the New Dealer Agreement, Neff Affiliates, among other things,
cannot sell, lease or rent parts or whole goods that compete with Deere's
products.
9. Because of the nature of their financing and investment business, GE
Capital and GECFS are unwilling to accede to the above-mentioned restriction
applicable to a Neff Affiliate under the New Dealer Agreement because either
company may, through default on a loan, investment opportunity or otherwise,
become an owner or part-owner of an entity that Deere would consider to be a
competitor.
10. On or before June 30, 1998, subject to market conditions, Neff
intends to complete an underwritten initial public offering of Common Stock
registered under the Securities Act of 1933 (as amended) ("IPO"), in an amount
of approximately twenty-five to thirty-three percent (25%-33%) of its Common
Stock issued and outstanding after the IPO, which will further change the
ownership of the company.
11. To resolve certain issues under the Dealer Agreements relating to
GE Capital's interest in Neff, Neff, the Mas shareholders, Fitzgerald, GE
Capital and GECFS are taking steps to reduce the interest of GE Capital and
GECFS in Neff. Specifically, they have entered into agreements (the
"Disinvestment Agreements") whereby:
a. GE Capital and GECFS exchanged the Series B and C
Neff preferred stock for Class B Common Stock
representing forty percent (40%) of issued and
outstanding Common Stock of Neff;
b. Santos then purchased shares of Class B Common Stock
from GE Capital and GECFS representing six percent
(6%) of the issued and outstanding Common Stock of
Neff;
c. The Mas shareholders, Neff and GE Capital entered
into a Control Option Agreement dated March 25, 1998
granting GE Capital and any GE Affiliate the right to
acquire shares of Neff Common Stock sufficient to
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increase their ownership to fifty-one percent (51 %)
of the issued and outstanding Common Stock commencing
on July 1, 1998 ("Control Option Agreement");
d. Neff and GE Capital (on behalf of GE Affiliates)
entered into a Standstill Agreement dated April 29,
1998 ("Standstill Agreement"), attached hereto as
Attachment 2, whereby the GE Affiliates have agreed
that, in addition to the obligations accepted by GE
Capital and GECFS as recited above, in the eighteen
months following the date of this Agreement, the GE
Affiliates shall make no attempt to enlarge their
rights or interests in Neff and, after that eighteen
month period, the GE Affiliates shall (i) through
their direct or indirect combined ownership of Neff
Common Stock directly or indirectly own no more than
twenty percent (20%) of the issued and outstanding
Common Stock, (ii) appoint no directors to Neff's
board of directors, provided however, that if the GE
Affiliates sell fifteen percent (15%) or more of Neff
Common Stock issued and outstanding to a Person who
is neither a GE Affiliate, nor a Deere Competitor,
Neff may provide that such Person shall have the
right to appoint a director to Neff's board of
directors, (iii) provide no financing to Neff, (iv)
have no rights, vested or contingent, to exercise any
control over Neff, and (v) make no attempt to
exercise control over Neff directly or indirectly,
either alone or in conjunction with other
shareholders.
e. GE Capital and GECFS have granted Santos Capital an
option to purchase, by September 25, 1999, ten
percent (10%) (before dilution by the IPO) of Neff's
issued and outstanding Common Stock from GE Capital
and GECFS (the "Santos Capital Option");
f. Prior to completion of the IPO, Neff will replace its
existing credit facility with GE Capital with a
credit facility with financial institutions unrelated
to GE Capital so that GE Capital and GE Affiliates
will no longer be lenders or creditors of Neff
pursuant to an amended credit agreement ("Credit
Agreement");
g. Subject to market conditions, Neff intends to
complete an IPO of approximately twenty-five to
thirty-three percent (25%-33%) of its issued and
outstanding Common Stock on or before June 30, 1998;
h. Concurrently with the IPO, the Control Option
Agreement will be terminated, eliminating GE
Capital's and any GE Affiliate's right to acquire
shares of Neff Common Stock sufficient to increase
its ownership to fifty-one percent (51%) of the
issued and outstanding Common Stock;
i. Prior to the completion of the IPO, Neff will
implement a shareholder rights plan, a draft of which
is attached hereto as Attachment 1, which will
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provide, among other things, that if, after September
25, 1999, any combination of GE Affiliates either
directly or indirectly increases their direct or
indirect combined ownership of Neff Common Stock to
an amount in excess of twenty percent (20%) of the
issued and outstanding Common Stock, and such excess
ownership is not divested by the GE Affiliates as
provided in the rights plan, then the "flip-in"
rights provided for in section 11 of the rights plan
will be triggered allowing Neff shareholders other
than GE Affiliates to acquire additional stock, and
the GE Affiliates' interest in Neff will be
significantly diluted ("Neff Shareholder Rights
Plan");
j. Immediately after the date of the IPO, GE Capital
will sell its Series A Neff preferred stock to Neff;
k. Promptly following the IPO, representatives of GE
Capital and GECFS on the board of directors of Neff
will resign their positions on Neff's board of
directors and GE Capital, GECFS and GE Affiliates
will no longer have any rights to appoint such
representatives to the board of directors of Neff;
and
l. After the IPO, GE Capital and GECFS, by September 25,
1999, will sell an amount of Neff Common Stock to
Santos Capital (pursuant to the Santos Capital
Option) or to another buyer (who will be a Neff
Affiliate under the New Dealer Agreement if it has
ten percent (10%) or more of the issued and
outstanding Common Stock of Neff), so that the direct
and indirect combined ownership of GE Capital, GECFS
and all other GE Affiliates in the Common Stock of
Neff will be reduced to no more than twenty percent
(20%) of the total issued and outstanding Common
Stock of Neff after dilution by the IPO.
13. The parties have resolved their concerns regarding ownership and
future potential competition and have contemporaneously entered into the New
Dealer Agreement, all on the terms and subject to the conditions set forth
herein.
COVENANTS
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, terms and conditions set forth herein, the parties hereby agree as
follows:
1. Neff, the Mas shareholders and Fitzgerald covenant that they will
take the steps as provided in the Disinvestment Agreements, the Neff Shareholder
Rights Plan and the Standstill Agreement, including the IPO, so that, within the
time periods provided in the recitals above, GE Affiliates will, directly and
indirectly:
a. own no Neff preferred stock;
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<PAGE>
b. together own no more than twenty percent (20%) of the
total issued and outstanding Neff Common Stock after
dilution by the IPO;
c. have no representative on Neff's board of directors;
d. not be lenders or creditors of Neff (except in
connection with trade accounts payable arising in the
ordinary course of business upon the sale of goods or
services to Neff);
e. have no rights under the Control Option Agreement;
and
f. together not enlarge their ownership, control or
other rights in Neff.
2. Neff, the Mas shareholders and Fitzgerald covenant that, on and
after the date of this Agreement, Neff (i) will not issue or sell Stock (other
than shares of Class A Common Stock issuable upon conversion of Class B Common
Stock) to GE Affiliates, (ii) will not take any steps to revise the attached
draft of the Neff Shareholder Rights Plan except as may be required by good
business judgment, (iii) will cause the Neff Shareholder Rights Plan to be
approved and executed before the completion of the IPO (Neff to provide Deere
with a copy of the final executed plan within fifteen business days of the date
of this Agreement), (iv) will not take any steps to amend the Neff Shareholder
Rights Plan to provide that GE Affiliates would not trigger the flip-in rights
if they were to increase their direct and indirect combined ownership of issued
and outstanding Neff Common Stock to an amount in excess of twenty-five percent
(25%) from the date of the IPO to September 25, 1999 and to an amount in excess
of twenty percent (20%) on and after September 25, 1999, (v) otherwise will take
no action to permit such an increase in ownership to proceed in a manner that
would not trigger the flip-in rights under the Neff Shareholder Rights Plan and
(vi) will not take any steps to amend the Standstill Agreement.
3. The Mas shareholders and Fitzgerald covenant that, unless the GE
Affiliates take action to reduce their ownership in Neff to twenty percent (20%)
or less of the issued and outstanding Neff Common Stock by September 25, 1999
(the "Option Exercise Deadline"), Santos Capital will exercise the Santos
Capital Option on or before the Option Exercise Deadline. If, for any reason,
Santos Capital is unable to exercise the Santos Capital Option, the Mas
shareholders and Fitzgerald further covenant that they shall take whatever steps
are necessary to reduce the GE Affiliates' ownership position in Neff to twenty
percent (20%) or less on or before the Option Exercise Deadline.
4. Neff, the Mas shareholders and Fitzgerald covenant that, upon
completion of the steps as provided in the Disinvestment Agreements:
a. GE Affiliates, with the exception of ownership of
Neff Common Stock allowed under those agreements,
will not, directly or indirectly, have any Stock,
control options, ownership, equity or financial
interest in Neff, or any right, conditional or
unconditional, to acquire the same;
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<PAGE>
b. GE Affiliates will not, directly or indirectly, have
the power to appoint a director or directors to the
board of directors of Neff, or any right, conditional
or unconditional, to acquire the same, provided
however, that if the GE Affiliates sell fifteen
percent (15%) or more of Neff Common Stock issued and
outstanding to a Person who is neither a GE
Affiliate, nor a Deere Competitor, Neff may provide
that such Person shall have the right to appoint a
director to Neff's board of directors;
c. GE Affiliates will not, directly or indirectly, be a
lender or creditor of Neff, or have any right,
conditional or unconditional, to become a lender or
creditor of Neff (except in connection with trade
accounts payable arising in the ordinary course of
business upon the sale of goods or services to Neff);
and
d. GE Affiliates will not, directly or indirectly, have
any management agreements, super-majority rights or
other power, influence or control over the management
or operation of Neff, or any right, conditional or
unconditional, to acquire the same.
5. Neff, the Mas shareholders and Fitzgerald covenant that, on and
after completion of the steps as provided in the Disinvestment Agreements, they
will take no action to allow or permit, and will take all steps necessary to
prohibit and prevent, GE Affiliates from, directly or indirectly:
a. together acquiring more than twenty percent (20%) of
the issued and outstanding Common Stock of Neff;
b. acquiring any other Stock of Neff;
c. acquiring any control option for Neff Stock;
d. acquiring any other equity or financial interest in
Neff;
e. appointing a director to Neff's board of directors;
f. acquiring any super-majority rights in Neff;
g. providing a credit facility or otherwise lending
money to Neff;
h. entering into a management agreement with Neff;
i. entering into any other agreement or relationship
with Neff that has the potential for the exercise of
any power or influence to control the management or
operation of Neff; and
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<PAGE>
j. otherwise exercising any power, influence or control
over the management or operation of Neff.
6. Neff, the Mas shareholders and Fitzgerald covenant that, they will
take all steps necessary (i) to enforce the Neff Shareholder Rights Plan and the
Standstill Agreement, (ii) to require the GE Affiliates to comply with the terms
of the Neff Shareholder Rights Plan and the Standstill Agreement, and (iii) to
assure that the GE Affiliates will be solely passive investors in Neff and will
remain solely passive investors for the duration of their present investment and
any future investment in Neff.
7. Deere will waive and not enforce Section 1.b.ii. of the New Dealer
Agreement with respect to GE Capital and GECFS as Neff Affiliates, so long as,
on and after the completion of the steps as provided in the Disinvestment
Agreements, GE Affiliates (i) do not together own more than twenty percent (20%)
of the total issued and outstanding Neff Common Stock after dilution by the IPO
and (ii) continue to be without the ownership, power and rights identified in
Covenant 4 of this Agreement. Except as may otherwise be agreed by Deere in
writing, Deere reserves the right to (a) enforce all other provisions of the New
Dealer Agreement with respect to GE Capital and GECFS and (b) enforce all
provisions of the New Dealer Agreement with respect to Neff Machinery and all
other Neff Affiliates.
8. Should Neff, Neff Machinery, the Mas shareholders or Fitzgerald
breach any covenant of Sections 1-6 and 13-14 of the Covenants of this
Agreement, should Neff fall to make the IPO as provided herein, should Neff
approve and execute the Neff Shareholder Rights Plan containing terms that Deere
determines, in its sole discretion, are not acceptable, without regard to
whether such terms may be consistent with good business judgment, or should any
GE Affiliate breach the Standstill Agreement, Deere shall have the right to
terminate any or all of Neff Machinery's dealership appointments then existing,
effective immediately.
9. Notwithstanding Section 1.i.i. of the New Dealer Agreement, Neff
may, without further approval by Deere, conduct the IPO, provided, however, that
Neff will execute an Indemnification Agreement, in the form attached hereto as
Attachment 3 ("Indemnification Agreement"), before proceeding with the IPO.
10. When Neff makes its IPO, the provisions of Sections 10 and 11 of
the Covenants of this Agreement shall apply, from and after the IPO, in lieu of
Neff Machinery's covenant, under Section 1.i.i. of the New Dealer Agreement,
that no change in the ownership of Neff will occur unless Deere has given its
prior written approval of such change.
From and after the IPO, none of the following events shall
occur unless Deere has given its prior written approval:
a. The Control Group (Jorge L. Mas, Jr., Jose Ramon Mas,
Juan Carlos Mas, and Kevin Fitzgerald and entities
that they wholly own) shall cease to own or control
in excess of thirty percent (30%) of the outstanding
voting
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power of Neff (or a successor entity in a transaction
not prohibited by subsection 10(c) or 10(d) hereof);
b. The Control Group shall cease to own Common Stock,
issued and outstanding, representing at least thirty
percent (30%) of Neff's shareholders' equity (or the
shareholders' equity of a successor entity in a
transaction not prohibited by subsection 10(c) or
10(d) hereof);
c. Another corporation or other legal person shall be
merged or consolidated or reorganized into or with
Neff, and immediately following such merger,
consolidation or reorganization, the Control Group
shall own, directly or indirectly, in the aggregate,
outstanding securities of the surviving, resulting or
acquiring corporation or other legal person having
less than:
(i) thirty percent (30%) of the voting power of
the surviving, resulting or acquiring
corporation or other legal person; or
(ii) thirty percent (30%) of the shareholders'
equity of such surviving, resulting or
acquiring corporation or other legal person;
d. Neff shall sell or transfer all or substantially all
of its business and/or assets to another corporation
or other legal person; or
e. Individuals who are members of the Control Group;
persons whose election, or nomination for election,
by Neff's shareholders as directors of Neff was
approved by a vote of at least three-quarters of the
members of the Control Group; and persons whose
election, or nomination for election, was previously
so approved, shall cease for any reason to constitute
at least a majority of Neff's directors then in
office.
11. From and after the IPO, Neff will give Deere immediate written
notice whenever Neff:
a. becomes aware of the filing with the Securities and
Exchange Commission of any Schedule 13D, 13G or 14D-1
(or amendment thereto) relating to Neff, or of facts
indicating that such a filing should have been made;
or
b. is considering the signing of any agreement or letter
of intent (i) with any Person, if such agreement or
letter of intent may involve a change in the
ownership or control of Neff, or (ii) with any Deere
Competitor or Affiliate thereof.
12. When Neff makes its IPO, the following provisions (subsection (a)
of this Section 12 of the Covenants of this Agreement) shall apply, from and
after the IPO, in lieu of Deere's right, under Section 2.c.iv.c. of the New
Dealer Agreement, to terminate Neff Machinery's
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dealership appointment in the event a change occurs
in the ownership of Neff without Deere's prior
written approval:
a. In addition to its other rights of termination under
the New Dealer Agreement and this Agreement, Deere
shall have the right to terminate any and all of Neff
Machinery's dealership appointments then existing,
effective immediately:
(i) in the event of any noncompliance with
Sections 9-11 of the Covenants above; or
(ii) if any Person, alone or in combination with
that Person's Affiliates, other than the
members of the Control Group, has or
acquires ownership (including without
limitation beneficial ownership, as
determined under SEC rule 13d-3) or control
of more than twenty percent (20%) of the
outstanding shares of any class of Neff
stock, or, in the case of GE Affiliates
collectively from the date of the IPO to
September 25, 1999, more than twenty-five
percent (25%) of the outstanding shares of
any class of Neff stock and on and after
September 25, 1999, more than twenty percent
(20%) of the outstanding shares of any class
of Neff stock, without Deere's prior written
approval.
13. Neff and the Mas shareholders covenant that Neff, Santos Fund I,
LP, Santos Capital Advisors, Inc., Jorge L. Mas, Jr. and the chief executive
officer of Neff Machinery shall be among those identified as Key Persons in the
New Dealer Agreement, as that term is defined therein.
14. Neff and Neff Machinery will request and obtain Deere's written
approval before soliciting (directly or indirectly) the interest of any Deere
dealer or entering into any negotiations with any Deere dealer concerning a
possible transaction that would add to the area of responsibility assigned to
Neff Machinery under the New Dealer Agreement or constitute a new area of
responsibility for Neff Machinery or a Neff Affiliate. Deere shall have the
right, in its sole discretion, to reject such a request, to disapprove additions
to Neff Machinery's area of responsibility, and to refuse assignment of a new
area of responsibility to Neff Machinery, a Neff Affiliate, or any other person
or entity.
15. Deere covenants that, within five business days of the full
execution of this Agreement, the Standstill Agreement, the New Dealer Agreement
(including Exhibit 7 thereto and the personal guarantees) and the
Indemnification Agreement, it shall withdraw its demand for arbitration, filed
with the Chicago office of the American Arbitration Association ("AAA"), No. 51
168 00016 98, John Deere Construction Equipment Co. and Neff Machinery, Inc.,
Neff Corp., Jorge L. Mas, Jr., Juan Carlos Mas and Jose Ramon Mas, stating in a
letter to the AAA that its dispute has been resolved and that its right to
further arbitration under the March 1996 agreement has been terminated by mutual
agreement.
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16. Neff covenants that on and after the date of this Agreement, it
will provide to Deere a copy of each amendment, modification or supplement to
the Credit Agreement at the time such amendment, modification or supplement is
made or executed.
17. This Agreement, together with the Attachments hereto, and the New
Dealer Agreement, together with the exhibits thereto, set forth the entire
agreement and understanding between the parties, and supersedes, merges,
terminates and otherwise renders null and void any and all prior written and
oral agreements entered into by some or all of the parties with respect to the
subject matter hereof Each party acknowledges that there are no warranties,
representations, covenants, promises or understandings of any kind, nature or
description whatsoever made by either party to the other, except such as are
expressly set forth in this Agreement together with the Attachments hereto, and
the New Dealer Agreement, together with the exhibits thereto, and further agrees
that they shall not be bound by any definition, condition, provision or
understanding except as expressly set forth herein, together with the
Attachments hereto, and the New Dealer Agreement, together with the exhibits
thereto.
18. This Agreement shall be governed by, and construed in accordance
with, the substantive laws of the State of Illinois without regard to Illinois'
conflict of laws rules.
19. The failure of any party at any time to require performance by the
other party of any provision of this Agreement shall in no way affect the right
of such party to require performance of that provision, and any waiver by either
party of any breach of any provision of this Agreement shall not be construed as
a waiver of any continuing or succeeding breach of such provision, a waiver of
the provision itself, or a waiver of any right under this Agreement. The
remedies herein are cumulative and not exclusive of any remedies provided by
law.
20. The parties to this Agreement agree that any dispute pertaining in
any way to Neff, Neff Machinery or Neff Rental, Inc., whether based on contract,
tort, statute or other legal theory, shall be finally resolved by binding
arbitration pursuant to the terms set forth in Exhibit 5 of the New Dealer
Agreement.
21. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original for all purposes and all of which, when taken
together, shall constitute one and the same Agreement.
* * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective, duly authorized officers or individually, as of
the day and year first above written.
JOHN DEERE CONSTRUCTION EQUIPMENT COMPANY
By: /S/ BOB B. BROCK
------------------------------------------
Title: DIRECTOR, COMMERCIAL OPERATIONS
---------------------------------------
NEFF MACHINERY, INC.
By: /S/ KEVIN P. FITZGERALD
------------------------------------------
Title: PRESIDENT
---------------------------------------
NEFF CORP.
By: /S/ KEVIN P. FITZGERALD
------------------------------------------
Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER
---------------------------------------
JORGE L. MAS, JR.
/S/ JORGE MAS
- ----------------------------------------------
JUAN CARLOS MAS
/S/ JUAN CARLOS MAS
- ----------------------------------------------
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JOSE RAMON MAS
/S/ JOSE RAMON MAS
- ----------------------------------------------
KEVIN FITZGERALD
/S/ KEVIN P. FITZGERALD
- ----------------------------------------------
SANTOS FUND I, LLP
By: /S/ KEVIN P. FITZGERALD
------------------------------------------
Title:
---------------------------------------
SANTOS CAPITAL ADVISORS, INC.
By: /S/ KEVIN P. FITZGERALD
------------------------------------------
Title:
---------------------------------------
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement No. 333-48077 of Neff
Corp. on this Amendment No. 3 to Form S-1 of our report dated March 11, 1998,
except for the third paragraph of Note 5 and the fourth paragraph of Note 1 as
to which the dates are April 23, 1998 and May , 1998, respectively, 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
May 14, 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 May 18, 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
May 14, 1998
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement
No. 333-48077 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
May 14, 1998
EXHIBIT 23.2
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
May 14, 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
May 14, 1998
EXHIBIT 23.3
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
May 15, 1998
