AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1998
REGISTRATION STATEMENT NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------
NEFF CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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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
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEFF CORP.
3750 N.W. 87TH AVENUE
MIAMI, FLORIDA 33178
(305) 513-3350
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
STEPHEN I. GLOVER, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
1001 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004
(202) 639-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
--------------
If any of the securities being registered on this Form are being offered
in connection with the formation of a holding company and there is compliance
with General Instruction G, 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. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
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PROPOSED
AMOUNT MAXIMUM PROPOSED AMOUNT OF
TITLE OF EACH CLASS TO BE OFFERING PRICE MAXIMUM REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE(1) FEE
------------------------------ ---------- ----------- ----------------- ---
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10 1/4% Senior Subordinated Notes
due 2008 ....................... $100,000,000 100% $100,000,000 $29,500
Guarantees(2) ................... (3) (3) (3) (3)
</TABLE>
================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended.
(2) The Company's wholly-owned domestic subsidiaries, Neff Rental, Inc. and
Neff Machinery, Inc. (the "Guarantors") have guaranteed on a senior
unsecured basis, jointly and severally, the payment of the principal of,
premium, if any, and interest on the 10 3/4% Senior Subordinated Notes due
2008 being registered hereby (the "Guarantees"). The Guarantors are
registering the Guarantees. Pursuant to Rule 457(n) under the Securities
Act of 1933, as amended, no registration fee is required with respect to
the Guarantees.
(3) Not applicable.
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.
================================================================================
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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.
SUBJECT TO COMPLETION, DATED JULY 17, 1998
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING
10 1/4% SENIOR SUBORDINATED NOTES DUE 2008 FOR
10 1/4% SENIOR SUBORDINATED NOTES DUE 2008 WHICH HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OF
NEFF CORP.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED
----------------
Neff Corp., a Delaware corporation, (the "Company") hereby offers, upon
the terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange up to $100,000,000 aggregate principal amount of 10 1/4%
Senior Subordinated Notes due 2008 (the "New Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount at maturity of the issued and outstanding 10 1/4%
Senior Subordinated Notes due 2008 (the "Old Notes," and, together with the New
Notes, the "Notes") from the holders (the "Holders") thereof. The terms of the
New Notes are identical in all material respects to the Old Notes, except for
certain transfer restrictions and registration rights relating to the Old
Notes. The Company issued $100,000,000 aggregate principal amount of Old Notes
on May 28, 1998, pursuant to exemptions from, or transactions not subject to,
the registration requirements of the Securities Act and applicable state
securities laws (the "Private Debt Offering"). The New Notes will be issued
pursuant to an indenture dated as of May 28, 1998 between the Company and State
Street Bank & Trust Company (the "Trustee") (the "Indenture").
The Notes bear interest at the rate of 10 1/4% per annum, payable
semi-annually in arrears on June 1 and December 1 of each year, commencing on
December 1, 1998. The Notes mature on June 1, 2008. The Notes are redeemable,
in whole or in part, at the option of the Company on or after June 1, 2003 at
the redemption prices set forth herein, plus accrued and unpaid interest to the
date of redemption. In addition, at any time on or prior to June 1, 2001, the
Company, at its option, may redeem, with the net cash proceeds of one or more
Public Equity Offerings (as defined) up to 30% of the sum of (i) the aggregate
principal amount of the Notes originally issued on May 28, 1998 (the "Issue
Date") pursuant to the Indenture and (ii) the respective initial aggregate
principal amount of the Notes issued under the Indenture after the Issue Date,
at a redemption price equal to 110.250% of the principal amount thereof, plus
accrued and unpaid interest to the date of redemption, PROVIDED that at least
70% of the sum of (i) the initial aggregate principal amount of the Notes
issued on the Issue Date and (ii) the respective initial aggregate principal
amount of the Notes issued under the Indenture after the Issue Date remains
outstanding immediately after any such redemption.
Upon a Change in Control (as defined), each Holder will have the right to
require the Company to repurchase such Holder's Notes at a price equal to 101%
of the principal amount thereof, plus accrued and unpaid interest to the
repurchase date. In addition, the Company will be obligated to offer to
repurchase the notes at 100% of the principal amount thereof plus accrued and
unpaid interest to the date of repurchase in the event of certain Asset Sales
(as defined). See "Description of the Notes."
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES IN THE EXCHANGE OFFER.
----------------
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.
----------------
The date of this Prospectus is July , 1998
<PAGE>
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all existing and future Senior Debt (as
defined) of the Company. The Notes rank PARI PASSU with any future senior
subordinated indebtedness of the Company and rank senior in right of payment to
all other subordinated obligations of the Company. The Notes are
unconditionally guaranteed (the "Guarantees") on a senior subordinated basis by
all of the Company's existing and certain future domestic subsidiaries (the
"Guarantors"). The Guarantees are general unsecured obligations of the
Guarantors and are subordinated in right of payment to all existing and future
Guarantor Senior Debt (as defined). The Guarantees rank PARI PASSU with any
future senior subordinated indebtedness of the Guarantors and rank senior in
right of payment to all other subordinated obligations of the Guarantors. As of
March 31, 1998, on a pro forma basis for the Argentina Acquisition (as defined)
and after giving effect to the Private Debt Offering and the Common Stock
Offering (as defined) and the application of the proceeds therefrom, the
Company would have had approximately $203.9 million of Senior Debt (excluding
undrawn capacity of $46.1 million under the New Credit Facility (as defined),
which, if drawn, would constitute Senior Debt of the Company). The Indenture
permits the Company to incur additional indebtedness, including Senior Debt
under the New Credit Facility. See "Description of the Notes."
For each Old Note accepted for exchange, the Holder thereof will receive a
New Note having a principal amount equal to that of the surrendered Old Note.
The New Notes will bear interest from the date of initial issuance of the New
Notes, plus an amount equal to the accrued interest on the Old Notes from the
most recent date to which interest has been paid to the date of exchange
thereof for New Notes. Old Notes accepted for exchange will cease to accrue
interest upon issuance of the New Notes. Holders of Old Notes accepted for
exchange will not receive any payment in respect of accrued interest on such
Old Notes.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement (as
defined). The Company is making the Exchange Offer pursuant to the Registration
Statement of which this Prospectus is a part in reliance upon the position of
the staff of the Securities and Exchange Commission (the "Commission") set
forth in certain no-action letters addressed to other parties in other
transactions. However, the Company has not sought its own no-action letter and
there can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer. Based on the interpretations
by the staff of the Commission set forth in these no-action letters, the
Company believes that the New Notes issued pursuant to the Exchange Offer my be
offered for resale, resold and otherwise transferred by the Holders thereof
(other than (i) any such Holder that is an "affiliate" of the Company or the
Guarantors within the meaning of Rule 405 under the Securities Act; (ii) an
Initial Purchaser (as defined) or Holder of Old Notes who acquired the Old
Notes directly from the Company solely in order to resell pursuant to Rule 144A
of the Securities Act or any other available exemption, under the Securities
Act; or (iii) a broker-dealer who acquired the Old Notes as a result of market
making or other trading activities) without further compliance with the
registration and prospectus delivery requirements of the Securities Act;
PROVIDED that such New Notes are acquired in the ordinary course of such
Holder's business and such Holder is not participating and has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
to make the Prospectus available to any broker-dealer for use in connection
with any such resale for up to 190 days after the Expiration Date (as defined).
See "Plan of Distribution."
Neither the Company nor any Guarantor will receive any proceeds from the
Exchange Offer. The Company will pay all the expenses of the Exchange Offer.
Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn at any
time prior to , 1998, (the "Expiration Date"). The Registration Statement
of which this Prospectus constitutes a part will remain in effect until the
consummation of the
2
<PAGE>
Exchange Offer, which will occur promptly after the Expiration Date. If the
Company terminates the Exchange Offer and does not accept for exchange any Old
Notes, the Company will promptly return the Old Notes to the Holders thereof.
See "The Exchange Offer."
There is no existing trading market for the New Notes and there can be no
assurance regarding the future development of a market for the New Notes. BT
Alex. Brown, Bear, Stearns & Co. Inc. and Morgan Stanley & Co. Incorporated
(collectively, the "Initial Purchasers") have advised the Company that they
currently intend to make a market in the New Notes. The Initial Purchasers are
not obligated to do so, however, and any market-making with respect to the New
Notes may be discontinued at any time without notice. To the extent that a
market for the new Notes does develop, the market value of the New Notes will
depend on market conditions (such as yields on alternative investments),
general economic conditions, the Company's financial condition and other
conditions. Such conditions might cause the New Notes, to the extent that they
are actively traded, to trade at a significant discount from face value. See
"Risk Factors - Absence of Public Market for the Notes." The Company does not
intend to apply for listing or quotation of the New Notes on any securities
exchange or stock market or register or qualify the New Notes for offer and
sale in any jurisdiction (other than the registration of the New Notes under
the Securities Act).
THE EXCHANGE OFFER IS NOT BEING MADE, NOR WILL THE COMPANY ACCEPT OLD
NOTES FOR EXCHANGE FROM HOLDERS OF EXISTING NOTES, IN ANY JURSIDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR "BLUE SKY" LAWS OF SUCH JURISDICTION.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACT INCLUDED IN THIS PROSPECTUS, INCLUDING, WITHOUT
LIMITATION, STATEMENTS REGARDING THE COMPANY'S COMPETITIVE STRENGTHS, BUSINESS
STRATEGY, EXPECTED BENENFITS OF ANY ACQUISITION, FUTURE FINANCIAL POSITION,
BUDGETS, PROJECTED COSTS AND PLANS AND OBJECTIVES OF MANAGEMENT ARE
FORWARD-LOOKING STATEMENTS. IN ADDITION, FORWARD-LOOKING STATEMENTS GENERALLY
CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY,"
"WILL," "EXPECT," "SHOULD," "INTEND," "ESTIMATE," "ANTICIPATE," "BELIEVE," OR
"CONTINUE" OR THE NEGATIVE THEREOF OR VARIATIONS THEREON OR SIMILAR
TERMINOLOGY. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN
SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT
SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS
("CAUTIONARY STATEMENTS") ARE DISCLOSED UNDER "RISK FACTORS" AND ELSEWHERE IN
THIS PROSPECTUS , INCLUDING, WITHOUT LIMITATION, IN CONJUNCTION WITH THE
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSOPECTUS. ALL SUBSEQUENT WRITTEN
AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLBE OF THE COMPANY, OR PERSONS
ACTING ON ITS BEHALF, ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE
CAUTIONARY STATEMENTS. THE COMPANY TAKES NO OBLIGATION TO UPDATE PUBLICLY OR
REVISE ANY FORWARD-LOOKING STATEMENTS.
3
<PAGE>
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form S-4
filed by the Company with the Commission under the Securities Act. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the New Notes offered
hereby, reference is made to the Registration Statement. Any statements made in
this Prospectus concerning the provisions of certain documents are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement otherwise filed
with the Commission. Each such statement is qualified in its entirety by such
reference.
The Company complies with the informational requirements of the Exchange
Act, and, in accordance therewith, is required to file reports, proxy
statements and other information with the Commission. The Registration
Statement, the exhibits forming a part thereof and the reports and other
information filed by the Company with the Commission may be inspected without
charge at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549; and at the
following regional offices of the Commission: 7 World Trade Center, New York,
New York 10048; and 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
at prescribed rates. The Commission also maintains a site on the World Wide Web
that contains reports, proxy statements and other information at
http://www.sec.gov.
The Company has agreed that, whether or not it is required to do so by the
rules and regulations of the Commission, for so long as any of the Notes remain
outstanding, it will furnish to the Holders and file with the Commission
(unless the Commission will not accept such a filing) (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K as if the Company were required to
file such forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants, and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports in
each case within the time periods set forth in the Commission's rules and
regulations. In addition, for so long as any of the Notes remain outstanding,
the Company has agreed to make available to any prospective purchaser of the
Notes or beneficial owner of the Notes in connection with any sale thereof, the
information required by Rule 144A(d)(4) under the Securities Act.
4
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No dealer, salesperson or other individual has been authorized to give any
information or to make any representations other than those contained in this
Prospectus. If given or made, such information or representations must not be
relied upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby, in any jurisdiction where, or to any person to whom,
it is unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
an implication that there has been no change in the facts set forth in this
Prospectus or in the affairs of the Company since the date hereof.
TABLE OF CONTENTS
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PAGE
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Prospectus Summary .................................................................... 6
Risk Factors .......................................................................... 18
Use of Proceeds ....................................................................... 26
Capitalization ........................................................................ 28
Unaudited Pro Forma Consolidated Financial Data ....................................... 29
Selected Consolidated Financial Data .................................................. 33
Management's Discussion and Analysis of Financial Condition and Results of Operations . 35
The Exchange Offer .................................................................... 41
Business .............................................................................. 48
Management ............................................................................ 57
Principal Stockholders ................................................................ 66
Certain Relationships and Transactions ................................................ 67
Description of Capital Stock .......................................................... 68
Description of Credit Facilities ...................................................... 74
Description of the Notes .............................................................. 75
Exchange Offer; Registration Rights ................................................... 105
Book Entry; Delivery and Form ......................................................... 107
Certain United States Tax Considerations for Non-U.S. Holders ......................... 109
Plan of Distribution .................................................................. 111
Legal Matters ......................................................................... 111
Experts ............................................................................... 111
Incorporation of Documents by Reference ............................................... 113
Index to Financial Statements ......................................................... F-1
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5
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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.
THE COMPANY
Neff is one of the largest and fastest growing equipment rental companies
in the United States, with 72 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 72 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
6
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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--Substantial
Leverage," "Risk Factors--Dependence on Additional Capital for Future Growth;
Reliance on Credit Facilities," "Risk Factors--Restrictions Imposed by Terms of
Indebtedness" and "Risk Factors--Risks Inherent in Growth Strategy."
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, pro forma for the Richbourg Acquisition
(as defined), 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, another of the Company's
major stockholders, will be valuable 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
7
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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 several 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 acquired 65% 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 one letter of
intent outstanding to acquire the assets of an additional equipment rental
company 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 26 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.
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.
8
<PAGE>
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 June 1998, the Company acquired 65% of the outstanding stock of S.A.
Argentina (such acquisition, the "Argentina Acquisition") for $36.1 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 $12.6 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. Pursuant to the terms of the Argentina Acquisition, the
Company's lenders have issued a $10 million letter of credit to the holders of
the remaining 35% of the stock of S.A. Argentina (the "Argentina
Stockholders"), which the Argentina Stockholders may draw upon if the Company
defaults on payment of the earn-out payments described above. See "Risk
Factors--Risks Associated with the Argentina Acquisition," and
"Business--Acquisition Strategy"
In addition, the Company acquired the assets of four domestic equipment
rental companies between May and July 1998 for an aggregate purchase price of
$14.6 million. These businesses had aggregate revenues of approximately $19.0
million for 1997 and have a total of 5 locations in California, Florida and
Texas. In June 1998, the Company entered into a letter of intent to acquire the
assets of one equipment rental company with revenues of approximately $2
million for its fiscal year ended February 28, 1998. This business has two
equipment rental locations in Texas. This acquisition is subject to a number of
closing conditions, including the execution of definitive purchase agreements,
and there can be no assurance that this acquisition will be consummated.
COMPANY HISTORY
The Company was founded in 1988 and is owned by the Mas family, GE Capital
and Santos Fund 1, L.R, 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.
9
<PAGE>
THE EXCHANGE OFFER
On May 28, 1998, the Company issued $100 million principal amount of Old
Notes in the Private Debt Offering. The Old Notes were sold pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. As a
condition to their purchase of the Old Notes, the Initial Purchasers requested
that the Company agree to commence the Exchange Offer following the Private
Debt Offering.
SECURITIES OFFERED......... Up to $100,000,000 aggregate principal amount of
10 1/4% Senior Subordinated Notes due 2008, which
have been registered under the Securities Act. The
terms of the New Notes and the Old Notes are
identical in all material respects, except (i)
that the New Notes have been registered under the
Securities Act, (ii) for certain transfer
restrictions and registration rights relating to
the Old Notes and (iii) that the New Notes will
not contain certain provisions relating to
additional interest to be paid to the Holders of
Old Notes under certain circumstances relating to
the timing of the Exchange Offer. See "Exchange
Offer; Registration Rights."
EXCHANGE OFFER............. The Company is offering to exchange $1,000
principal amount of New Notes for each $1,000
principal amount of Old Notes that are properly
tendered and accepted for exchange. The Company
will issue the New Notes promptly after the
Expiration Date. As of June 19, 1998, there was
$100 million aggregate principal amount of Old
Notes outstanding. See "The Exchange Offer."
RESALE OF THE NEW NOTES.... Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, including "Shearman & Sterling"
(available July 2, 1993), "K-III Communications
Corporation" (available May 14, 1993), "Warnaco,
Inc." (available October 11, 1991), "Morgan
Stanley & Co. Incorporated" (available June 5,
1991), "Mary Kay Cosmetics, Inc." (available June
5, 1991) and "Exxon Capital Holdings Corporation"
(available May 13, 1988), the Company believes
that, except as described below, New Notes issued
pursuant to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold and
otherwise transferred by any Holder of such Notes
(other than any such Holder which is a
broker-dealer or an "affiliate" of the Company or
the Guarantors within the meaning of Rule 405
under the Securities Act) without compliance with
the registration and prospectus delivery
provisions of the Securities Act, provided that
(i) such New Notes are acquired in the ordinary
course of such Holder's business, (ii) such Holder
has no arrangement or understanding with any
person to participate in the distribution of such
New Notes and (iii) such Holder is not engaged in,
and does not intend to be engaged in, a
distribution of the New Notes. The Company does
not intend to request the Commission to consider,
and the Commission has not considered, the
Exchange Offer in the context of a no-action
letter and there can be no
10
<PAGE>
assurance that the staff of the Commission would
make a similar determination with respect to the
Exchange Offer as it has in such other
circumstances.
By tendering Old Notes for New Notes, each Holder
will represent to the Company, that (i) the New
Notes acquired pursuant to the Exchange Offer are
being acquired in the ordinary course of business
of the person receiving such New Notes, whether
or not such person is the Holder, (ii) neither
the Holder nor any such other person is engaging
in or intends to engage in a distribution of such
New Notes and if such Holder is not a
broker-dealer, neither the Holder nor any such
other person has an arrangement or understanding
with any person to participate in the
distribution of such New Notes within the meaning
of the Securities Act and (iii) neither the
Holder nor any such person is an affiliate of the
Company or the Guarantors as defined in Rule 405
under the Securities Act. In the event that any
Holder of Old Notes cannot make the requisite
representations to the Company, such Holder can
not rely on such interpretation by the staff of
the Commission as set forth in the no-action
letters referred to above, and must comply with
the registration and prospectus delivery
requirements of the Securities Act in connection
with any secondary resale transaction.
Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes, where
such Old Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus
meeting the requirements under the Securities Act
in connection with any resale of such New Notes
and that it has not entered into any arrangement
or understanding with the Company or an affiliate
of the Company to distribute the New Notes in
connection with any resale of the New Notes. The
Letter of Transmittal states that by so
acknowledging and delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a broker-dealer in connection with
resales of New Notes where the Old Notes
exchanged for such New Notes were acquired by
such broker-dealer as a result of market-making
activities or other trading activities. The
Company has agreed that, starting on the
Expiration Date, and ending on the close of
business 190 days after the Expiration Date or,
if earlier, when all new Notes held by a
participating broker-dealer have been disposed
of, it will make this Prospectus available to any
participating broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
This Exchange Offer is not being made to, nor
will the Company accept surrenders of old Notes
for exchange from,
11
<PAGE>
Holders of Old Notes (i) in any jurisdiction in
which this Exchange Offer or the acceptance
thereof would not be in compliance with the
securities or "blue sky" laws of such
jurisdiction or (ii) if any Holder is engage or
intends to engage in a distribution of the New
Notes.
EXPIRATION DATE;
WITHDRAWAL................. The Exchange Offer will expire at 5:00 p.m. New
York City time, on , 1998 (20 business days
following the commencement of the Exchange Offer),
unless extended by the Company in its sole
discretion, in which case the term "Expiration
Date" shall mean the latest date and time to which
the Exchange Offer is extended. The tender of Old
Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration
Date. Any Old Note not accepted for exchange will
be returned without expense to the tendering
Holder thereof as promptly as practicable after
the expiration or termination of the Exchange
INTEREST ON THE NEW NOTES
AND OLD NOTES............. The New Notes will bear interest at the rate of
101/4% per annum and interest will be payable
semi-annually on June 1 and December 1, commencing
on December 1, 1998, to Holders of record on the
immediately preceding May 15 and November 15.
Holders of New Notes will receive interest on
December 1, 1998 from the date of initial issuance
of the New Notes, plus an amount equal to the
accrued interest on the Old Notes exchanged
therefor from the most recent date to which
interest has been paid to the date of exchange
thereof. Such interest will be paid with the first
interest payment on the New Notes. Interest on the
Old Notes accepted for exchange will cease to
accrue upon issuance of the New Notes.
PROCEDURES FOR TENDERING
OLD NOTES................. Each Holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with either certificates for the Old Notes or a
Book-Entry Confirmation (as defined) of such Old
Notes into the Book-Entry Transfer Facility (as
defined), if such procedure is available, and any
other required documentation, to State Street Bank
& Trust Company, as Exchange Agent (the "Exchange
Agent"), at the address set forth herein and in
the Letter of Transmittal. See "The Exchange
Offer--Procedures for Tendering Old Notes" and
"Plan of Distribution."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS......... Any beneficial owner of Old Notes whose Old
Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee and who wishes to tender such Old Notes
for exchange should contact the registered Holder
12
<PAGE>
promptly and instruct such registered Holder to
tender such Old Notes on the beneficial owner's
behalf. If such beneficial owner wishes to tender
its Old Notes on such owner's own behalf, such
owner must, prior to completing and executing the
Letter of Transmittal and delivering its Old
Notes, either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed bond
power from the registered Holder. The transfer of
registered ownership may take considerable time
and may not be able to be completed prior to the
Expiration Date. See "The Exchange
Offer--Procedures for Tendering Old Notes."
GUARANTEED DELIVERY
PROCEDURES................. Holders of Old Notes who wish to tender their Old
Notes for exchange and whose Old Notes are not
immediately available or who cannot deliver their
Old Notes or any other documents required by the
Letter of Transmittal to the Exchange Agent must
tender their Old Notes according to the delivery
procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS........ The exchange pursuant to the Exchange Offer will
not result in the recognition of income, gain or
loss to the Holders or the Company for federal
income tax purposes. See "Certain Federal Income
Tax Considerations."
USE OF PROCEEDS............ The Company will not receive any proceeds from
the Exchange Offer.
EXCHANGE AGENT............. State Street Bank & Trust Company, the trustee
under the Indenture, is serving as Exchange Agent
in connection with the Exchange Offer. See "The
Exchange Offer--Exchange Agent."
CONSEQUENCES OF NOT EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate
that it will register the Old Notes under the Securities Act. See "Exchange
Offer; Registration Rights."
13
<PAGE>
DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes and except for certain provisions relating to
additional interest to be paid to the Holders of Old Notes under certain
circumstances relating to the timing of the Exchange Offer. The New Notes will
evidence the same debt as the Old Notes and will be entitled to the benefits of
the Indenture. See "Description of the Notes."
ISSUER..................... Neff Corp.
MATURITY DATE.............. June 1, 2008.
INTEREST PAYMENT DATES..... Interest on the new Notes will be payable
semi-annually in arrears on each June 1 and
December 1, commencing December 1, 1998.
RANKING.................... The New Notes will be general unsecured
obligations of the Company and will be
subordinated in right of payment to all existing
and future Senior Debt of the Company. The New
Notes will rank PARI PASSU with any future senior
subordinated indebtedness of the Company and will
rank senior in right of payment to all other
subordinated obligations of the Company. As of
March 31, 1998, on a pro forma basis after giving
effect to the Private Debt Offering and the Common
Stock Offering, and the application of the
proceeds therefrom and the Argentina Acquisition,
the Company would have had approximately $203.9
million of Senior Debt (excluding undrawn capacity
of $46.1 million under the New Credit Facility,
which, if drawn, would constitute Senior Debt of
the Company). See "Unaudited Pro Forma Financial
Data."
GUARANTEES................. The New Notes will be unconditionally guaranteed
on a senior subordinated basis by the Guarantors.
The Guarantees will be general unsecured
obligations of the Guarantors and will be
subordinated in right of payment to all existing
and future Guarantor Senior Debt, which will
include any guarantee by such Guarantors of the
Company's indebtedness under the New Credit
Facility. The Guarantees will rank PARI PASSU with
any future senior subordinated indebtedness of the
Guarantors and will rank senior in right of
payment to all other subordinated obligations of
the Guarantors. As of March 31, 1998, on a pro
forma basis after giving effect to the Private
Debt Offering and the Common Stock Offering and
the application of the proceeds therefrom and the
Argentina Acquisition, the Guarantors would not
have had any Guarantor Senior Debt outstanding
except for the Guarantor's Guarantees of
borrowings under the New Credit Facility.
OPTIONAL REDEMPTION........ The New Notes will be redeemable, in whole or in
part, at the option of the Company on or after
June 1, 2003, at the redemption prices set forth
herein, plus accrued and unpaid interest to the
date of redemption. In addition, at any time on
14
<PAGE>
or prior to June 1, 2001, the Company, at its
option, may redeem up to 30% of the sum of (i)
the aggregate principal amount of the New Notes
and the Old Notes which were not tendered for
exchange and (ii) the respective initial
aggregate principal amount of the Notes issued
under the Indenture after the Issue Date, on one
or more occasions with the net cash proceeds of
one or more Public Equity Offerings, at a
redemption price equal to 110.250% of the
principal amount thereof, plus accrued interest
to the date of redemption; PROVIDed that at least
70% of the sum of (i) the aggregate principal
amount of the New Notes and the Old Notes which
were not tendered for exchange and (ii) the
respective initial aggregate principal amount of
the Notes issued under the Indenture after the
Issue Date remain outstanding immediately after
any such redemption. See "Description of the
Notes--Redemption."
CHANGE OF CONTROL.......... Upon a Change of Control, each holder of the New
Notes will have the right to require the Company
to repurchase such holder's New Notes at a price
equal to 101% of the principal amount thereof,
plus accrued and unpaid interest to the repurchase
date.
CERTAIN COVENANTS.......... The Indenture governing the New Notes will
contain certain covenants that limit the ability
of the Company and its Restricted Subsidiaries (as
defined) to, among other things, incur additional
indebtedness, pay dividends or make certain other
restricted payments, consummate certain asset
sales, enter into certain transactions with
affiliates, incur liens, impose restrictions on
the ability of a subsidiary to pay dividends or
make certain payments to the Company and its
subsidiaries, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of
the assets of the Company. In addition, the
Company will be obligated to offer to repurchase
the New Notes at 100% of the principal amount
thereof plus accrued and unpaid interest to the
date of repurchase in the event of certain Asset
Sales. These restrictions and qualifications are
subject to a number of important qualifications
and exceptions. See "Description of the
Notes--Certain Covenants."
EXCHANGE OFFER;
REGISTRATION RIGHTS....... Holders of New Notes (other than as set forth
below) are not entitled to any registration rights
with respect to the New Notes. Pursuant to the
Registration Rights Agreement among the Company,
the Guarantors and the Initial Purchasers (the
"Registration Rights Agreement"), the Company
agreed to file a registration statement (the
"Exchange Offer Registration Statement") with
respect to an offer to exchange the Old Notes for
the New Notes. The Registration Statement of which
this prospectus is a part constitutes the Exchange
Offer Registration Statement. Under certain
circumstances, certain Holders of Old
15
<PAGE>
Notes (including Holders of Old Notes who may not
participate in the Exchange Offer) may in certain
circumstances require the Company to file, and
cause to become effective, a shelf registration
statement under the Securities Act which would
cover resales of Old Notes by such Holders. See
"Exchange Offer; Registration Rights."
For additional information regarding the Notes, see "Description of the Notes."
RISK FACTORS
Holders of Old Notes should carefully consider the specific matters set
forth under "Risk Factors" as well as the other information and data included
in this Prospectus prior to making a decision to tender their Old Notes in the
Exchange Offer.
16
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993(1) 1994 1995
------------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ........................................................... $36,659 $49,526 $67,254
Gross profit(4) .......................................................... 10,549 14,711 17,972
Selling, general and administrative
expenses ................................................................ 6,078 8,493 10,956
Officer stock option compensation(5) ..................................... -- -- --
Income from operations ................................................... 3,857 5,993 6,100
Income (loss) before extraordinary
items(6) ................................................................ 1,663 2,712 1,834
BALANCE SHEET DATA (END OF PERIOD):
Net book value of rental equipment ....................................... $17,846 $29,602 $45,596
Total assets ............................................................. 29,263 46,851 68,816
Total debt ............................................................... 25,378 37,983 48,345
Redeemable preferred stock ............................................... -- -- 11,430
Total common stockholders' equity
(deficit) ............................................................... 571 4,205 (1,931)
OTHER DATA:
Adjusted EBITDA(7) ....................................................... $10,255 $15,129 $18,763
Adjusted EBITDA margin(8) ................................................ 28.0% 30.5% 27.9%
Ratio of Adjusted EBITDA to
interest expense ........................................................ -- -- --
Rental equipment purchases ............................................... $21,353 $31,185 $52,795
Number of rental locations
(end of period) ......................................................... 5 6 8
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
PRO FORMA AS
ADJUSTED(2)
-------------------
1996 1997 1997
----------- ------------ -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ........................................................... $95,013 $142,019 $255,633
Gross profit(4) .......................................................... 25,320 43,274 79,529
Selling, general and administrative
expenses ................................................................ 18,478 30,129 47,541
Officer stock option compensation(5) ..................................... -- 4,400 4,400
Income from operations ................................................... 5,410 6,197 21,102
Income (loss) before extraordinary
items(6) ................................................................ (1,388) (6,393) (5,667)
BALANCE SHEET DATA (END OF PERIOD):
Net book value of rental equipment ....................................... $76,794 $184,787
Total assets ............................................................. 109,118 280,790
Total debt ............................................................... 58,250 226,203
Redeemable preferred stock ............................................... 46,299 53,747
Total common stockholders' equity
(deficit) ............................................................... (7,508) (24,735)
OTHER DATA:
Adjusted EBITDA(7) ....................................................... $26,695 $ 37,635 $ 77,592
Adjusted EBITDA margin(8) ................................................ 28.1% 26.5% 30.4%
Ratio of Adjusted EBITDA to
interest expense ........................................................ -- -- 3.4x
Rental equipment purchases ............................................... $86,886 $143,999 N/A
Number of rental locations
(end of period) ......................................................... 16 53 71
<CAPTION>
FIRST QUARTER ENDED
------------------------------------------
PRO FORMA AS
ADJUSTED(3)
-----------------
MARCH 25, MARCH 31, MARCH 31,
1997 1998 1998
----------- ------------ -----------------
(DOLLARS IN THOUSANDS)
<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 8,723
Income (loss) before extraordinary
items(6) ................................................................ 250 (1,946) (754)
BALANCE SHEET DATA (END OF PERIOD):
Net book value of rental equipment ....................................... $254,403 $272,519
Total assets ............................................................. 408,276 483,188
Total debt ............................................................... 345,755 321,249
Redeemable preferred stock ............................................... 10,950 --
Total common stockholders' equity
(deficit) ............................................................... 16,113 99,921
OTHER DATA:
Adjusted EBITDA(7) ....................................................... $ 6,742 $ 19,377 $ 23,178
Adjusted EBITDA margin(8) ................................................ 27.7% 31.1% 30.7%
Ratio of Adjusted EBITDA to
interest expense ........................................................ -- -- 3.1x
Rental equipment purchases ............................................... $25,048 $ 47,157 N/A
Number of rental locations
(end of period) ......................................................... 18 70 73
</TABLE>
- ---------------
(1) The consolidated balance sheet data and statement of operations data for
the year ended December 31, 1993 is derived from financial statements of
the Company's two wholly-owned subsidiaries, Neff Rental and Neff
Machinery, each of which was individually audited by independent certified
public accountants.
(2) The 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 Offering Memorandum. 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 Common Stock
Offering, the Argentina Acquisition, the Buckner Acquisition and the
Richbourg Acquisition described in the Notes to the Unaudited Pro Forma
Consolidated Financial Data as if they had occurred as of January 1, 1997
for purposes of the unaudited pro forma consolidated statements of
operations.
(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 Offering Memorandum. 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 Common Stock 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 Offering
Memorandum.
(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) 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.
(8) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total
revenues.
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RISK FACTORS
HOLDERS OF OLD NOTES SHOULD CAREFULLY CONSIDER THE SPECIFIC RISK FACTORS
SET FORTH BELOW AS WELL AS THE OTHER INFORMATION AND DATA INCLUDED IN THIS
PROSPECTUS PRIOR TO MAKING A DECISION TO TENDER THEIR OLD NOTES IN THE EXCHANGE
OFFER.
HOLDERS RESPONSIBLE FOR COMPLIANCE WITH EXCHANGE OFFER PROCEDURES; CONSEQUENCES
OF FAILURE TO EXCHANGE
Issuance of the New Notes in exchange for Old Notes pursuant to this
Exchange Offer will be made only after timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, Holders of Old Notes desiring to tender
such Old Notes in exchange for New Notes should allow sufficient time to ensure
timely delivery. Neither the Exchange Agent nor the Company is under any duty
to give notification of defects or irregularities with respect to the tender of
Old Notes for exchange. Old Notes that are not tendered or are tendered but not
accepted for exchange will, following the consummation of this Exchange Offer,
continue to be subject to the existing restrictions upon transfer thereof. In
general, the Old Notes may not be offered or sold, unless registered under the
Securities Act or except pursuant to an exemption from or in a transaction not
subject to, the Securities Act. In addition, upon consummation of the Exchange
Offer, Holders of Old Notes which remain outstanding will not be entitled to
any rights to have such Old Notes registered under the Securities Act or to any
similar rights under the Registration Rights Agreement (subject to limited
exceptions, if applicable). The Company does not currently anticipate that it
will register the Old Notes under the Securities Act.
The New Notes and any Old Notes which remain outstanding after
consummation of the Exchange Offer will vote together as a single class for
purposes of determining whether Holders of the requisite percentage thereof
have taken certain actions or exercised certain rights under the Indenture.
REQUIREMENTS FOR TRANSFER OF NEW NOTES
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold or otherwise transferred by Holders thereof (other
than any such Holder which is an "affiliate" of the Company or the Guarantors
within the meaning of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
Holders' business and such Holders have no arrangement with any person to
participate in the distribution of such New Notes. However, the Commission has
not considered the Exchange Offer in the context of a no-action letter and
there can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other
circumstances. If any Holder of Old Notes is an affiliate of the Company, is
engaged in or intends to engage in or has any arrangement or understanding with
respect to a distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such Holder (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus meeting the requirements under the Securities Act
in connection with any resale of such New Notes. The Letter of Transmittal
states that by so acknowledging and delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes where the Old Notes exchanged for such New Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, starting on the Expiration Date, and
ending on the close of business 190 days after the Expiration Date or, if
earlier, when all New Notes held by a participating broker-dealer have been
disposed of, it will make this Prospectus available to any participating
broker-dealer for use in connection with any such resale. See "Plan of
Distribution." However, to comply with
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the securities laws of certain jurisdictions, if applicable, the New Notes may
not be offered or sold unless they have been registered or qualified for sale
in such jurisdictions or an exemption from registration or qualification is
available.
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 Private Debt Offering and the Common Stock Offering and the application of
the estimated net proceeds therefrom, the Company would have had total combined
indebtedness of approximately $321.2 million and would have had approximately
$46.1 million of availability under the New Credit Facility.
The degree to which the Company is leveraged could have important
consequences to Holders of the Notes including, but not limited to, the
following, (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, 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. The ability of the Company to pay interest and principal on the
Notes, to satisfy its other debt obligations and to make planned expenditures
will be dependent on the future operating performance of the Company, which
could be affected by changes in economic conditions and other factors,
including factors beyond the control of the Company. A failure to comply with
the covenants and other provisions of its debt instruments could result in
events of default under such instruments, which could permit acceleration of
the debt under such instruments and in some cases acceleration of debt under
other instruments that contain cross-default or cross-acceleration provisions.
Although the Company believes that cash flow from operations will be sufficient
to cover its debt service requirements and other requirements, if the Company
is at any time unable to generate sufficient cash flow to service its
indebtedness, it may be required to renegotiate the terms of the instruments
relating to that indebtedness or seek to refinance all or a portion of that
indebtedness or to obtain additional financing. There can be no assurance that
the Company will be able to successfully renegotiate such terms or that any
such refinancing would be possible or that any additional financing could be
obtained, or obtained on terms that are favorable or acceptable to the Company.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of Credit Facilities."
DEPENDENCE ON ADDITIONAL CAPITAL FOR FUTURE GROWTH; RELIANCE ON CREDIT
FACILITIES
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. The
Company may seek additional financing to improve its liquidity. Although the
Company believes it would be able to obtain such financing, 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.
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"). On June 30, 1998,
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the revolving credit facility was increased to $300 million. 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 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.
The Indenture contains 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 "Description of the Notes--Certain Covenants,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Business-Growth Strategy" and
"Description of Credit Facilities."
SUBORDINATION OF THE NOTES AND THE GUARANTEES; ASSET ENCUMBRANCES
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of the New Notes will be, like the Old Notes,
subordinated to the prior payment in full of all existing and future Senior
Debt of the Company, including the Company's obligations under the New Credit
Facility, and its purchase money indebtedness to equipment manufacturers. In
the event of the bankruptcy, liquidation, dissolution, reorganization or other
winding up of the Company, or the acceleration of indebtedness under the New
Credit Facility, the assets of the Company will be available to pay obligations
on the Notes only after all Senior Debt of the Company has been paid in full,
and there may not be sufficient assets remaining to pay any or all amounts due
on the Notes. In addition, like the Old Notes, under certain circumstances, the
Company may not pay principal of, premium, if any, or interest on, or any other
amounts owing in respect of, the New Notes, or purchase, redeem or otherwise
retire the New Notes, if a payment default or a non-payment default exists with
respect to certain Senior Debt of the Company and, in the case of a non-payment
default, a payment blockage notice has been received by the Trustee. See
"Description of the Notes-Subordination."
Each Guarantor's Guarantee of the New Notes will also be, like the
Guarantees of the Old Notes, subordinated in right of payment to the prior
payment in full of all existing and future Guarantor Senior Debt of such
Guarantors, including guarantees or borrowings under the New Credit Facility.
At March 31, 1998, on a pro forma basis after giving effect to the Argentina
Acquisition and the Private Debt Offering and the Common Stock Offering and the
application of the net proceeds therefrom, the Company would have had
approximately $203.9 million of Senior Debt outstanding and would have had
approximately $46.1 million available to be borrowed under the New Credit
Facility, and excluding the Guarantors' guarantees of borrowings under the New
Credit Facility, the Guarantors would not have had any Guarantor Senior Debt.
The Indenture limits, but not prohibit, the incurrence by the Company and the
Guarantors of additional indebtedness, including Senior Debt or Guarantor
Senior Debt, as the case may be.
The New Notes, like the Old Notes, will not be secured by any of the
Company's assets. The obligations of the Company under the New Credit Facility,
however, are secured by a first priority security interest in a majority of the
Company's assets. If the Company becomes insolvent or is liquidated, or if
payment under the New Credit Facility is accelerated, the lenders under the New
Credit Facility would be entitled to exercise the remedies available to a
secured lender under applicable law and pursuant to instruments governing such
indebtedness. Accordingly, such lenders will have a prior
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claim on such of the Company's assets. In any such event, because the New Notes
will not be secured by any of the Company's assets, it is possible that there
would be no assets remaining from which claims of the Holders of the New Notes
could be satisfied or, if any such assets remained, that such assets might be
insufficient to satisfy such claims fully. See "Capitalization," "'Management's
Discussions and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." "Description of Credit
Facilities," "Description of the Notes" and the Consolidated Financial
Statements and the Notes thereto included elsewhere in this Prospectus.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture restricts, among other things, the Company's ability to:
incur indebtedness; incur liens; pay dividends or make certain restricted
payments; enter into certain transactions with affiliates; incur indebtedness
that is subordinate in right of payment to any Senior Indebtedness and senior
in right of payment to the Notes; impose restrictions on the ability of a
subsidiary to pay dividends or make certain payments to the Company; merge or
consolidate with any other person; or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company. See
"Description of the Notes-Certain Covenants." If the Company fails to comply
with these covenants, it would be in default under the Indenture and the
principal and accrued interest on the New Notes would become due and payable.
In addition, the New Credit Facility contains covenants which, among other
things, impose certain limitations on the ability of the Company and its
subsidiaries to incur additional indebtedness, incur liens, pay dividends or
make certain other restricted payments, consummate certain asset sales, enter
into certain transactions with affiliates, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of their respective assets. In addition, the New Credit
Facility contains restrictive covenants which are generally more restrictive
than those contained in the Indenture, and prohibit the Company from prepaying
its subordinated indebtedness. The New Credit Facility will also require the
Company to maintain specified consolidated financial ratios and satisfy certain
consolidated financial tests. The Company's ability to meet those financial
ratios and financial tests may be affected by events beyond its control, and
there can be no assurance that the Company will meet those tests. A failure to
meet these tests or a breach of any of these covenants could result in a
default under the New Credit Facility, allowing the lenders thereunder to
declare all amounts outstanding thereunder, together with accrued interest, to
be immediately due and payable. If the Company is unable to repay those
amounts, the lenders could proceed against the collateral granted to them to
secure that indebtedness. There can be no assurance that the Company's assets
would be sufficient to repay in full such indebtedness or the Company's other
indebtedness, including the New Notes.
In addition, a default under any of the Indenture or the New Credit
Facility, or certain instruments governing the Company's other Indebtedness
could constitute a cross-default under the Indenture, the New Credit Facility,
or other instruments governing the Company's other indebtedness, as
appropriate. See "Description of the Notes--Certain Covenants" and "Description
of Credit Facilities."
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 involves certain 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
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any acquired businesses will be successfully integrated into the Company's
operations or that any expansion or new location opening will result in
profitability. Generally, start-up locations become profitable in their third
year of operation. 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."
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 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.
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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
Historically, the Company's revenues and operating results have varied
throughout the year and are expected to continue to fluctuate in the future.
These fluctuations have been due to a number of factors, including (i) general
economic conditions in the Company's markets; (ii) the timing of start-up
locations and acquisitions and related costs; (iii) the effectiveness of
integrating start-up locations and acquired businesses; (iv) rental patterns of
the Company's customers; (v) price changes in response to competitive factors
and (vi) changes in manufacturers' incentive programs. The Company incurs
various costs in establishing or integrating start-ups or newly acquired
locations, and the profitability of a new location is generally expected to be
lower in the initial months of its operation.
Construction equipment sales and rental businesses often experience a
slowdown in demand during the winter months when adverse weather conditions
affect construction activity. To date, seasonal demand fluctuations have not
materially affected the Company's operating results. However, as the Company
expands geographically, seasonal demand fluctuations may lower operating
results in the first and fourth quarters.
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
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more stringently in the future. Such future changes or interpretations, or the
identification of adverse environmental conditions currently unknown to the
Company, could result in additional environmental compliance or remediation
costs to the Company. Such compliance and remediation costs could be material
to the Company's financial condition or results of operations. See
"Business--Environmental and Safety Regulation."
DEPENDENCE ON SENIOR MANAGEMENT
The Company is managed by a small number of key executive officers. The
loss of the services of certain of these key executives could have a material
adverse effect on the Company. The Company presently does not maintain any key
man life insurance policies on any of its officers. The Company's success also
depends on its ability to hire and retain additional qualified management
personnel. There can be no assurance that the Company will be able to hire and
retain such personnel. See "Management."
CONTROLLING STOCKHOLDERS
The Company is controlled by the Mas family and GE Capital. Jorge Mas, the
Company's Chairman, his brothers, Juan Carlos Mas and Jose Ramon Mas, and
Santos, a limited partnership controlled by the Mas family and Mr. Fitzgerald,
beneficially own all of the Company's outstanding Class A Common Stock, which
represents 46% of the fully diluted equity of the Company. GE Capital owns
Class B Special Common Stock, par value $..01 per share, of the Company (the
"Class B Common Stock" and together with the Class A Common Stock, the "Common
Stock") which is convertible into Class A Common Stock that represents 23% of
the fully diluted equity of the Company. 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 7% of the fully diluted equity of the Company. 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 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."
FRAUDULENT CONVEYANCE CONSIDERATIONS; AVOIDANCE OF GUARANTEES
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the Notes or
any Guarantee in favor of other existing or future creditors of the Company or
a Guarantor.
The incurrence by the Company and the Guarantors of indebtedness to
refinance outstanding indebtedness would be subject to review under relevant
federal and state fraudulent conveyance laws in a bankruptcy case or a lawsuit
by or on behalf of unpaid creditors of the Company or a representative of such
creditors of the Company or a representative of such creditors, such as a
trustee or the Company as debtor-in-possession. Under such laws, if a court
were to find that, at the time such indebtedness was incurred or the Notes were
issued (the "Transactions"), either (i) the Company incurred such indebtedness
or issued the Notes with the intent of hindering, delaying or defrauding
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creditors, or (ii) the Company received less than a reasonably equivalent value
or fair consideration for incurring such indebtedness or issuing the Notes and
the Company (a) was insolvent or rendered insolvent by reason of the
Transactions, (b) was engaged in business or a transaction, or was about to
engage in business or a transaction, for which any property remaining with the
Company after giving effect to the Transactions constituted an unreasonably
small amount of capital or (c) intended to incur, or believed that it would
incur, debts beyond its ability to pay as they matured, such court could avoid
the Company's obligations under the Notes and direct the repayment of any
amounts paid thereunder to the Company to a fund for the benefit of the
Company's creditors, or take other action detrimental to the Holders of the
Notes. Such other action could include subordinating the Notes to claims of
existing or future creditors of the Company.
Similarly, indebtedness under the Guarantees also may be subject to review
under relevant federal and state fraudulent conveyance laws in a bankruptcy of
a Guarantor or in a lawsuit brought by or on behalf of creditors of a Guarantor
under the same standards described above. Pursuant to the terms of the
Guarantees, the liability of each Guarantor is limited to the maximum amount of
indebtedness permitted to be incurred in compliance with fraudulent conveyance
or similar laws.
To the extent any Guarantee was avoided as a fraudulent conveyance,
limited as described above, or held unenforceable for any other reason, Holders
of the Notes would, to such extent, cease to have a claim in respect of such
Guarantee and, to such extent, would be creditors solely of the Company and any
Guarantor whose Guarantee was not avoided, limited, or held unenforceable. In
such event, the claims of the Holders of the Notes against the Company of an
avoided, limited or unenforceable Guarantee would be subject to the prior
payment of all liabilities of such Guarantor. There can be no assurance that,
after providing for all prior claims, there would be sufficient assets to
satisfy the claims of the Holders of Notes.
CHANGE OF CONTROL
There can be no assurance that the Company will have sufficient funds
available or will be permitted by its other indebtedness agreements to purchase
the Notes upon the occurrence of a Change of Control. In particular, a Change
of Control may cause an acceleration under the New Credit Facility in which
case the subordination provisions of the Notes would require payment in full of
all indebtedness outstanding under the New Credit Facility before repurchase of
the Notes. See "Description of the Notes--Change of Control" and "Description
of the Notes--Subordination." If an offer to purchase is required to be made
and the Company does not have the available funds sufficient to pay for the
Notes tendered for purchase, an event of default could occur under the
Indenture.
RISKS ASSOCIATED WITH THE ARGENTINA ACQUISITION
The Argentina Stockholders have the option to require the Company to
purchase all of the remaining shares of S.A. Argentina (the "Put Option"). The
Put Option is exercisable for a period of 30 months commencing 30 months after
the consummation of the Argentina Acquisition, June 30, 1998 (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 Argentina Stockholders
disagree. The exercisability of the Put Option is 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.
As a result of the Argentina Acquisition, the Company is 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
25
<PAGE>
prospects of the Company may be materially adversely affected by developments
with respect to inflation, interest rates, currency fluctuations, government
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.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The New Notes are being offered to the Holders of the Old Notes. The Old
Notes were issued in May 1998 to the Initial Purchasers and resold in
transactions not requiring registration under the Securities Act or applicable
state securities laws, including sales pursuant to Rule 144A and Regulation S
under the Securities Act. The Old Notes are eligible for trading in the Private
Offering, Resale and Trading through Automated Linkages ("PORTAL") Market, the
National Association of Securities Dealers' screen based, automated market for
trading of securities eligible for resale under Rule 144A. To the extent that
the Old Notes are tendered and accepted in the Exchange Offer, the trading
market for the remaining untendered Old Notes could be adversely affected.
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes, or
the ability of Holders of New Notes to sell their New Notes or the price at
which such Holders may be able to sell their New Notes. If such a market were
to develop, the New Notes could trade at prices that may be higher or lower
than the initial offering price of the Old Notes depending on many factors,
including prevailing interest rates, the Company's operating results and the
market for similar securities. Although the Initial Purchasers have informed
the Company that they intend to make a market in the New Notes, they are not
obligated to do so, and such market making may be discontinued at any time
without notice. In addition, such market making activity will be subject to the
limits imposed by the Securities Act and the Exchange Act and may be limited
during the Exchange Offer and the pendency of any registration statement with
respect to resale of the Notes. Accordingly, there can be no assurance as to
the development or liquidity of any market for the New Notes. The Company does
not intend to apply for listing of the New Notes on any securities exchange or
for quotation through the National Association of Securities Dealers Automated
Quotation System. See "Exchange Offer; Registration Rights" and "Plan of
Distribution."
In addition, the liquidity of and trading markets for the Notes may be
adversely affected by declines in the market for high-yield securities
generally. Such a decline may adversely affect liquidity and trading markets
independent of the financial performance of and prospects for the Company.
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.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
New Notes offered hereby. In consideration for issuing the New Notes as
contemplated herein, the Company will receive in exchange Old Notes in like
principal amount. The Old Notes surrendered in exchange for the New Notes will
be retired and canceled and cannot be reissued. Accordingly, issuance of the
New Notes will not result in any change in the indebtedness of the Company.
26
<PAGE>
The net proceeds to the Company from the Private Debt Offering were
approximately $97.0 million after deducting the Initial Purchasers' discount
and offering expenses. The net proceeds of the Private Debt Offering were used
to (i) repay $13.3 million of a $100 million term loan which the Company used
to finance the Richbourg Acquisition (the "Term Loan"), (ii) redeem the
Company's Series A Cumulative Redeemable Preferred Stock, par value $0.01 per
share (the "Series A Preferred Stock") the proceeds of which were used for
working capital, (iii) repay the note payable on properties the Company owns in
Florida (the "Mortgage") and (iv) reduce outstanding borrowings under the New
Credit Facility by $55.8 million.
27
<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 Offerings and the application of the
estimated net proceeds therefrom and the conversion of 627,000 shares of Class
B Common Stock into Class A Common Stock. This Offering is not conditioned on
the completion of the Common Stock Offering. There can be no assurance that the
Common Stock Offering will be consummated. 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 Offering Memorandum.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- --------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Credit facility ................................................. $ 231,705 $ 259,705 $ 203,897
Term loan ....................................................... 100,000 100,000 --
Notes payable ................................................... 14,050 31,402(1) 17,352
Senior subordinated notes ....................................... -- -- 100,000
--------- ----------- ---------
Total debt ..................................................... 345,755 391,107 321,249
--------- ----------- ---------
Redeemable preferred stock:
Series A 5% 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 16,065,350 shares issued and
outstanding(2) ............................................... 88 88 160
Class B Common Stock; $.01 par value, liquidation preference
$11.67, 20,000,000 shares authorized; 5,727,000 and 5,100,000
shares issued and outstanding ................................ 57 57 51
Additional paid-in capital ...................................... 44,876 44,876 128,618
Accumulated deficit(3) .......................................... (28,908) (28,908) (28,908)
--------- ----------- ---------
Total common stockholders' equity .............................. 16,113 16,113 99,921
--------- ----------- ---------
Total capitalization ......................................... $ 372,818 $ 432,788 $ 435,788
========= =========== =========
</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) 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--Option 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.
28
<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 and (ii)
the Offerings 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; and (iii)
the Offerings 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
(DOLLARS 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 18,116
Property and equipment, net ............................. 27,738 8,843 $ 29(b)
Goodwill, net ........................................... 69,844 -- 16,723 (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 -- 36,052 (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 ....................................... -- -- 10,441 (g)
-------- -------
Common stockholders' equity ............................. 16,113 29,832 (29,832)(h)
-------- -------
Total liabilities and common stockholders' equity ..... $408,276 $59,035
======== =======
<CAPTION>
OFFERINGS PRO FORMA
ADJUSTMENTS AS ADJUSTED(B)
----------------------- ---------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................... $ 2,964
Accounts receivable, net ................................ 45,391
Inventories ............................................. 28,599
Rental equipment, net ................................... 272,519
Property and equipment, net ............................. 36,610
Goodwill, net ........................................... 86,567
Intangible assets, net .................................. 448
Prepaid expenses and other assets ....................... $ 3,000(i) 13,965
--------
Total assets .......................................... $487,063
========
LIABILITIES AND COMMON STOCKHOLDERS'
EQUITY
Liabilities
Accounts payable ....................................... $ 27,586
Accrued expenses ....................................... 15,953
Senior Credit Facility ................................. (55,808)(j) 211,949
Term loan payable ...................................... (100,000)(j) --
Senior subordinated notes .............................. 100,000 (j) 100,000
Notes payable .......................................... (14,050)(j) 17,352
Capitalized lease obligations .......................... 2,146
Deferred income taxes .................................. 1,715
--------
Total liabilities ..................................... 376,701
--------
Redeemable preferred stock .............................. (10,950)(k) --
--------
Minority interest ....................................... 10,441
--------
Common stockholders' equity ............................. 83,808 (i)(k) 99,921
--------
Total liabilities and common stockholders' equity ..... $487,063
========
</TABLE>
(FOOTNOTES ON NEXT PAGE)
29
<PAGE>
- ---------------
(a) The following table presents the allocation of purchase price for each of
the companies acquired or proposed to be acquired:
BUCKNER RICHBOURG ARGENTINA
-------------- --------------- --------------
Purchase Price ............... $63,605,000 $100,000,000 $36,052,000
----------- ------------ -----------
Net Assets Acquired .......... 33,636,000 63,300,000 19,329,000
Fair Value Adjustments:
Rental Fleet ................ 1,019,000 (4,090,000) --
----------- ------------ -----------
Goodwill ..................... $28,950,000 $ 40,790,000 $16,723,000
=========== ============ ===========
(b) Adjustment for capitalized interest not recorded under Argentine GAAP.
(c) Adjustment reflects the allocation of the Argentina Acquisition purchase
price of $36.1 million to the fair value of the net assets resulting in an
increase of $16.7 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 deferred financing costs related to the Offering.
(j) Records the Offerings and the application of the estimated net proceeds
therefrom to repay the Term Loan and Mortgage, and reduce borrowings
outstanding under the New Credit Facility with remaining proceeds.
(k) Records the redemption of the Series A Preferred Stock from the estimated
net proceeds of the Offering.
30
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<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)
======== ======= ======= =========
<CAPTION>
ARGENTINA ACQUISITION
-----------------------------
PRO FORMA OFFERINGS PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
------------ ---------------- ------------------ ------------
<S> <C> <C> <C> <C>
Revenues
Rental revenue .................... $ 19,919 $132,579
Equipment sales ................... 37,404 96,960
Parts and service ................. -- 26,094
-------- --------
Total revenues ................... 57,323 255,633
-------- --------
Cost of revenues
Cost of equipment sold ............ 31,075 75,547
Depreciation of rental
equipment ........................ 6,108 45,604
Maintenance of rental
equipment ........................ 6,904 40,165
Cost of parts and service ......... -- 14,788
-------- --------
Total cost of revenues ........... 44,087 176,104
-------- --------
Gross profit ....................... 13,236 79,529
-------- --------
Other operating expenses
Selling, general and
administrative expenses .......... 4,606 $ 30(h) 47,541
Other depreciation
and amortization ................. 431 400 (i) 6,486
Officer stock option
compensation(d) .................. -- 4,400
-------- --------
Total other operating
expenses ........................ 5,037 58,427
-------- --------
Income from operations ............. 8,199 21,102
-------- --------
Other (income) expense
Interest expense .................. 1,118 3,237 (j) $ (5,038)(m) 22,918
Amortization of debt
issue costs ...................... -- (825)(n) 2,683
Other (income) expense ............ 48 168
-------- --------
Total other expense, net ......... 1,166 25,769
-------- --------
Income (loss) before (provision
for) benefit from income taxes
and extraordinary item ............ 7,033 (4,667)
(Provision for) benefit from
income taxes ...................... (2,013) 1,364 (k) (2,198)(g) 957
-------- --------
Income (loss) before
extraordinary item and
minority interest ................. 5,020 (3,710)
Minority interest .................. -- (1,757)(l) (1,757)
-------- --------
Income (loss) before
extraordinary item ................ $ 5,020 $ (5,667)
======== ========
</TABLE>
(FOOTNOTES ON NEXT PAGE)
31
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FIRST QUARTER ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<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
Selling, general and administrative expenses .......................... 12,025 1,148 $ 306(h)
Other depreciation and amortization ................................... 1,749 52 105 (i)
-------- -------
Total other operating expenses ....................................... 13,774 1,200
-------- -------
Income from operations ................................................. 6,307 2,827
-------- -------
Other (income) expense
Interest expense ...................................................... 7,556 316 798 (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) 338 (k)
-------- -------
Income (loss) before minority interest ................................. (1,946) 1,765
Minority interest ...................................................... -- -- (618)(l)
-------- -------
Net income (loss) before extraordinary item ............................ $ (1,946) $ 1,765
======== =======
<CAPTION>
OFFERINGS PRO FORMA
ADJUSTMENTS AS ADJUSTED
------------------ ------------
<S> <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
Selling, general and administrative expenses .......................... 13,479
Other depreciation and amortization ................................... 1,906
-------
Total other operating expenses ....................................... 15,385
-------
Income from operations ................................................. 8,723
-------
Other (income) expense
Interest expense ...................................................... $ (1,259)(m) 7,411
Amortization of debt issue costs ...................................... (206)(n) 1,659
Other income .......................................................... (72)
-------
Total other expense, net ............................................. 8,998
-------
Income (loss) before (provision for) benefit from income taxes ......... (275)
(Provision for) benefit from income taxes .............................. (549)(g) 139
-------
Income (loss) before minority interest ................................. (136)
Minority interest ...................................................... (618)
-------
Net income (loss) before extraordinary item ............................ $ (754)
=======
</TABLE>
- --------------
(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 Common Stock 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 Common Stock Offering and interest expense
related to the Notes at a rate of 10.25%.
(n) Eliminates deferred financing costs that would not have been incurred and
records deferred financing cost related to the Notes.
32
<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
---------- ---------- ---------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<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)
======== ======== ======== ============ ============
</TABLE>
FIRST QUARTER ENDED
------------------------
MARCH 25, MARCH 31,
1997 1998
----------- ------------
(DOLLARS IN THOUSANDS)
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)
======= ========
(FOOTNOTES ON NEXT PAGE)
33
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Net book value of rental equipment ........ $ 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(4) ........................ $ 10,255 $ 15,129 $ 18,763 $ 26,695 $ 37,635
Adjusted EBITDA margin(5) ................. 28.0% 30.5% 27.9% 28.1% 26.5%
Ratio of earnings to fixed charges(6) ..... 2.7x 3.0x 1.8x 0.9x 0.7x
Rental equipment purchases ................ $ 21,353 $ 31,185 $ 52,795 $ 86,886 $ 143,999
Number of locations (end of period) ....... 5 6 8 16 53
</TABLE>
FIRST QUARTER ENDED
-------------------------
MARCH 25, MARCH 31,
1997 1998
----------- -------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA (END OF PERIOD):
Net book value of rental equipment ........ $ 254,403
Total assets .............................. 408,276
Total debt ................................ 345,755
Redeemable preferred stock ................ 10,950
Total common stockholders' equity
(deficit) ................................ 16,113
OTHER DATA:
Adjusted EBITDA(4) ........................ $ 6,742 $ 19,377
Adjusted EBITDA margin(5) ................. 27.7% 31.1%
Ratio of earnings to fixed charges(6) ..... 1.1x 0.8x
Rental equipment purchases ................ $ 25,048 $ 47,157
Number of locations (end of period) ....... 18 70
- --------------
(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 Offering Memorandum.
(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.
(6) For purposes of computing a ratio of earnings to fixed charges, "earnings"
consist of the consolidated income (loss) before (provision for) benefit
from income taxes and extraordinary items and fixed charges. "Fixed
charges" consist of interest expense, which includes the amortization of
debt issue costs and the interest portion of the Company's rent expense,
and preferred stock dividend and accretion requirements.
34
<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
Offering Memorandum 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 Offering Memorandum.
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 26 start-up rental equipment
locations, 14 of these locations since April 1, 1997. 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 tends to incur costs during the early period of
operations without the benefit of the revenue stream of a mature location. New
rental locations realize significant increases in revenues and cash flow during
the first three years of operation, and generally become profitable in the
third year 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 26 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
35
<PAGE>
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 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 Offering Memorandum).
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."
36
<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.
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 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.
37
<PAGE>
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. 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.
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.
38
<PAGE>
GROSS PROFIT. Gross profit for 1996 increased 40.9% to $25.3 million, or
26.6% of total revenues from $18.0 million or 26.7% of total revenues in 1995.
The increase in gross profit is primarily attributable to (i) the continued
growth of revenues from the two locations opened during 1995; (ii) the growth
in revenues associated with the opening of eight new rental locations during
1996; and (iii) the change in the Company's depreciation policy to recognize
extended service lives of its rental equipment. The increases were offset by
lower margins at new rental locations. As a result, gross profit as a
percentage of total revenues was relatively consistent year to year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1996 increased 68.7% to $18.5 million, or 19.4% of
total revenues from $11.0 million or 16.3% of total revenues in 1995. The
increase in selling, general and administrative expenses is primarily
attributable to the opening of eight new rental locations. In addition, the
Company incurred approximately $0.9 million of expenses related to the
investigation of alternative financing arrangements during 1996. No such costs
were incurred in 1995.
OTHER DEPRECIATION AND AMORTIZATION. Other depreciation and amortization
expense for 1996 increased 56.3% to $1.4 million from $0.9 million in 1995. The
increase in other depreciation and amortization is primarily attributable to
increased expenditures on computer equipment as a result of the Company's new
location expansion.
INTEREST EXPENSE. Interest expense for 1996 increased to $6.0 million from
$3.1 million in 1995. This increase is attributable to additional borrowings
related to the Company's investment in rental equipment for its new locations.
EXTRAORDINARY LOSS. During 1996, as a result of modifications to the
Company's credit facility, the Company recorded extraordinary losses from the
write-off of deferred financing costs associated with the early extinguishment
of debt of $0.8 million, net of related income taxes. There were no such
transactions in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations, acquisitions and new rental
locations primarily through cash flow from operations, proceeds received from
the issuance of preferred stock and borrowings under the credit facilities and
term loans.
During 1997, the Company's operating activities provided net cash flow of
$9.4 million as compared to $7.2 million for 1996. 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, 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.
39
<PAGE>
On May 1, 1998, the Company amended and restated its $250 million credit
facility (the "New Credit Facility"). On June 30, 1998, the revolving credit
facility was increased to $300 million. 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%. As
of May 22, 1998, the interest rate was Prime plus .875% or LIBOR plus 1.875%.
The New Credit Facility terminates on 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 used the proceeds of the Common Stock Offering to repay a
portion of its $100 million Term Loan. The Company used the proceeds of the
Private Debt Offering to repay amounts remaining under the Term Loan, redeem
the Series A Preferred Stock and repay its Mortgage and reduce outstanding
borrowings under the New Credit Facility. There can be no assurance that the
Common Stock Offering will be consummated. As of March 31, 1998, on a pro forma
basis after giving effect to the Offerings and the application of proceeds
therefrom, and the Argentina Acquisition, the Company would have had
approximately $46.1 million available under its 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 12 months. The Company may seek additional financing to
improve its liquidity. Although the Company believes it would be able to obtain
such financing, there can be no assurance that it will be able to do so on
terms favorable to the Company or at all.
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 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.
40
<PAGE>
THE EXCHANGE OFFER
THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on , 1998; provided, however, that if the Company, in
its sole discretion, has extended the period of time for which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended.
As of the date of this Prospectus, $100 million aggregate principal amount
at maturity of the Old Notes is outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about , 1998, to all
Holders of Old Notes known to the Company. The Company's obligation to accept
Old Notes for exchange pursuant to the Exchange Offer is subject to certain
conditions set forth under "--Conditions of the Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to
time, to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the Holders thereof as described below.
During any such extension, all Old Notes previously tendered will remain
subject to the Exchange Offer and may be accepted for exchange by the Company.
Any Old Notes not accepted for exchange for any reason will be returned without
expense to the tendering Holder as promptly as practicable after the expiration
or termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount at maturity of $1,000 and any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Old Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified below under "-Conditions of the Exchange Offer." The
Company will give written or oral notice of any extension, amendment,
non-acceptance or termination to the Holders of the Old Notes as promptly as
practicable, such notice in the case of any extension to be issued by means of
a press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
RESALE OF NEW NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, including "Shearman & Sterling"
(available July 2, 1993), "K-III Communications Corporation" (available May 14,
1993), "Morgan Stanley & Co. Incorporated" (available June 5, 1991), "Mary Kay
Cosmetics, Inc." (available June 5, 1991), "Warnaco, Inc." (available October
11, 1991) and "Exxon Capital Holdings Corporation" (available May 13, 1988),
the Company believes that, except as described below, the New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by any Holder of such Notes (other
than any such Holder which is a broker-dealer or an "affiliate" of the Company
or the Guarantors within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that, (i) such New Notes are acquired in the
ordinary course of such Holder's business, (ii) such Holder has no arrangement
or understanding with any person to participate in the distribution of such New
Notes, and (iii) such Holder is not engaged in, and does not intend to engage
in, a distribution of such New Notes. The Company does not intend to request
the Commission to consider, and the Commission has not considered, the Exchange
Offer in the context of a no-action letter and there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer as it has in such other circumstances. By tendering
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Old Notes for New Notes, each Holder will represent to the Company, that (i)
the New Notes acquired pursuant to the Exchange Offer are being acquired in the
ordinary course of business of the person receiving such New Notes, whether or
not such person is the Holder, (ii) neither the Holder nor any such other
person is engaging in or intends to engage in a distribution of such New Notes
and if such Holder is not a broker-dealer, neither the Holder nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such New Notes within the meaning of the Securities Act
and (iii) neither the Holder nor any such person is an affiliate of the Company
or the Guarantors as defined in Rule 405 under the Securities Act. In the event
that any Holder of Old Notes cannot make the requisite representations to the
Company, such Holder cannot rely on such interpretation by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Unless an exemption from registration is otherwise available, any
such resale transaction should be covered by an effective registration
statement containing the selling security holders information required by Item
507 of Regulation S-K under the Securities Act. This Prospectus may be used for
an offer to resell, resale or other transfer of New Notes only as specifically
set forth herein.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes, and that it has not entered into any arrangements or
understanding with the Company or any affiliate of the Company to distribute
New Notes in connection with any resale of such New Notes. See "Plan of
Distribution." The Letter of Transmittal states that by so acknowledging and
delivering such a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
INTEREST ON THE NEW NOTES
The New Notes will bear interest at 101/4% per annum form the date of
original issue. Interest on the New Notes will be payable semi-annually, in
arrears, on June 1 and December 1 of each year, commencing on December 1, 1998.
Holders of New Notes will receive interest on December 1, 1998 from the date of
initial issuance of the New Notes, plus an amount equal to the accrued interest
on the Old Notes from the most recent date to which interest has been paid to
the date of exchange thereof for New Notes. Interest on the Old Notes accepted
for exchange will cease to accrue upon issuance of the New Notes.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a Holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a Holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal or (in the case of a
book-entry transfer) an Agent's Message (as defined) in lieu of such letter of
Transmittal, to State Street Bank & Trust Company (the "Exchange Agent") at the
address set forth below under "Exchange Agent" on or prior to the Expiration
Date. In addition, either (i) certificates for such Old Notes must be received
by the Exchange Agent along with the Letter of Transmittal, or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if such procedure is available, into the Exchange Agent's account at the
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date with the Letter of Transmittal or
an Agent's Message in lieu of such Letter of Transmittal, or (iii) the Holder
must comply with the guaranteed delivery procedures described below. "Agent's
Message" means a message, transmitted by the Book-Entry Transfer Facility to
and received by the Exchange Agent and forming a part of a Book-Entry
Confirmation, which states that the Book-Entry Transfer Facility has received
an express
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acknowledgment from the tendering participant, which acknowledgment states that
such participant has received and agrees to be bound by the Letter of
Transmittal and that the Company may enforce such Letter of Transmittal against
such participant. THE METHOD OF DELIVERY OF OLD NOTES, LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF
SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD
NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined). In the event that signatures on a Letter
of Transmittal or a notice of withdrawal as the case may be, are required to be
guaranteed, such guarantees must be by a firm which is a member of the National
Association of Securities Dealers, Inc., by a commercial bank or trust company
having an office or correspondent in the United States or by an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange
Act (collectively, "Eligible Institutions"). If Old Notes are registered in the
name of a person other than a signer of the Letter of Transmittal, the Old
Notes surrendered for exchange must be endorsed by, or accompanied by a written
instrument or instruments of transfer or exchange, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered Holder with the signature thereon guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Note not properly tendered or not accept any particular
Old Note which acceptance might, in the judgment of the Company or its counsel,
be unlawful. The Company also reserves the absolute right to waive any defects
or irregularities or conditions of the Exchange Offer as to any particular Old
Note either before or after the Expiration Date (including the right to waive
the ineligibility of any Holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer as
to any particular Old Note either before or after the Expiration Date
(including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects
or irregularities in connection with the tenders of Old Notes for exchange must
be cured within such reasonable period of time as the Company shall determine.
Neither the Company nor the Exchange Agent nor any other person shall be under
any duty to give notification of any defect or irregularity with respect to any
tender of Old Notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered Holder or Holders of Old Notes, such Old Notes must be endorsed
or accompanied by powers of attorney, in either case signed by the registered
Holder or Holders exactly as the name or names of the registered Holder or
Holders appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted with the Letter of Transmittal.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will accept, promptly after the Expiration Date, all Old
Notes properly tendered and will issue the New
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Notes promptly after acceptance of the Old Notes. See "--Conditions of the
Exchange Offer" below. For purposes of the Exchange Offer, the Company shall be
deemed to have accepted properly tendered Old Notes for exchange when, as and
if the Company has given oral or written notice thereof to the Exchange Agent,
with written confirmation of any oral notice to be given promptly thereafter.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of (i) certificates for such Old Notes or a timely
Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility, (ii) a properly completed and duly executed
Letter of Transmittal or an Agent's Message in lieu thereof and (iii) all other
required documents. If any tendered Old Notes are not accepted for any reason
set forth in the terms and conditions of the Exchange Offer or if Old Notes are
submitted for a greater principal amount than the Holder wishes to exchange,
such unaccepted or non-exchange Old Notes will be returned without expense to
the tendering Holder thereof (or, in the case of Old Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry procedures described below, such
non-exchanged Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration
or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with
respect to the Old Notes at the Book-Entry Transfer Facility for purposes of
the Exchange Offer promptly after the date of this Prospectus. Any financial
institution that is a participant in the Book-Entry Transfer Facility's systems
may make book-entry deliver of Old Notes by causing the Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. Such participant using the Book-Entry
Transfer Facility's procedures for transfer should transmit its acceptance to
the Book-Entry Transfer Facility on or prior to the Expiration Date or comply
with the guaranteed delivery procedures described below. The Book-Entry
Transfer Facility will verify such acceptance, execute a book-entry transfer of
the tendered Old Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility and then send to the Exchange Agent confirmation of such
book-entry transfer, including the Agent's Message confirming that the
Book-Entry Transfer Facility has received an express acknowledgment from such
participant that such participant has received and agrees to be bound by the
Letter of Transmittal and that the Company may enforce the Letter of
Transmittal against such participant. However, although delivery of Old Notes
may be effected through book-entry transfer at the Book-Entry Transfer
facility, an Agent's Message and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at the address set
forth below under "--Exchange Agent" on or prior to the Expiration Date or
there must be compliance with the guaranteed delivery procedures described
below.
GUARANTEED DELIVERY PROCEDURES
If a Holder of Old Notes desires to tender such Old Notes and the Old
Notes are not immediately available, or time will not permit such Holder's Old
Notes or other required documents to reach the Exchange Agent before the
Expiration Date, or the procedure for book-entry transfer cannot be completed
on a timely basis, a tender may be effected if (i) the tender is made through
an Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent
received from such Eligible Institution a Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the Holder of the Old Notes and the amount of Old Notes tendered,
stating that the tender is being made thereby and guaranteeing that within
three New York Stock Exchange ("NYSE") trading days after the date of the
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered
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Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the
case may be, together with a properly completed and duly executed appropriate
Letter of Transmittal (or facsimile thereof or Agent's Message in lieu thereof)
with any required signature guarantees and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof or Agent's Message in lieu thereof) with any
required signature guarantees and all other documents required by the Letter of
Transmittal, are received by the Exchange Agent within three NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, in the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth below under "--Exchange
Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having tendered
the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to
be withdrawn (including the certificate number or numbers and principal amount
at maturity of such Old Notes), (iii) contain a statement that such Holder is
withdrawing his election to have such Old Notes exchanged, (iv) be signed by
the Holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer to have the
trustee with respect to the Old Notes register the transfer of such Old Notes
in the name of the person withdrawing the tender and (v) specify the name in
which such Old Notes are registered, if different from that of the Depositor.
If Old Notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Old Notes and otherwise comply with the procedures of such
facility. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer and no New Notes will be issued with respect
thereto unless the Old Notes so withdrawn are validly retendered. Any Old Notes
that have been tendered for exchange but which are not exchanged for any reason
will be returned to the holder thereof without cost to such Holder (or, in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with the Book-Entry Transfer Facility for the Old Notes) as soon as
practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may retendered by following the
procedures described under "--Procedures for Tendering Old Notes" above at any
time on or prior to 5:00 p.m., New York City time, on the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is not conditioned upon any minimum principal amount at
maturity of the Old Notes being tendered for exchange. However, notwithstanding
any other provisions of the Exchange Offer, the Company will not be required to
accept for exchange, or exchange any New Notes for, any Old Notes, and may
terminate the Exchange Offer as provided herein before the acceptance of any
Old Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer which,
in the Company's sole judgment, might materially impair the ability of the
Company to proceed with the Exchange Offer,
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(b) any law, statute, rule or regulation is proposed, adopted or enacted,
or any existing law, statue, rule or regulation is interpreted by the staff of
the Commission, which, in the Company's sole judgment, might materially impair
the ability of the Company to proceed with the Exchange Offer, or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation of
the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering Holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the expiration of
the Exchange Offer, subject, however, to the rights of Holders who tendered
such Old Notes to withdraw their tendered Old Notes, or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Old Notes which have not been withdrawn.
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its sole discretion. The failure by the Company at any
time to exercise any of the foregoing rights shall not be deemed a waiver or
any such right, and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if at such time any stop order shall be threatened or in effect with respect to
the Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended.
EXCHANGE AGENT
State Street Bank & Trust Company has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal should be directed
to the Exchange Agent at the address set forth below. Questions and requests
for assistance, requests for additional copies of this Prospectus or of the
Letter of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
State Street Bank & Trust Company
<TABLE>
<S> <C>
BY MAIL: OVERNIGHT COURIER:
State Street Bank & Trust Company State Street Bank & Trust Company
Corporate Trust Department Corporate Trust Department
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: Kellie Mullen Attention: Kellie Mullen
BY HAND IN NEW YORK (AS DROP AGENT): BY HAND IN BOSTON:
State Street Bank & Trust Company, N.A. State Street Bank & Trust Company
61 Broadway Two International Place
15th Floor, Corporate Trust Window Fourth Floor, Corporate Trust Department
New York, New York 10006 Boston, Massachusetts 02110
FACSIMILE TRANSMISSION: CONFIRM BY TELEPHONE:
(For Eligible Institutions Only) (617) 664-5314
(617) 664-5290
</TABLE>
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DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The estimated cash expenses to be
insured in connection with the Exchange Offer will be paid by the Company and
are estimated in the aggregate to be approximately $ . Such expenses
include fees and expenses of the Exchange Agent and Trustee, accounting and
legal fees and printing costs, among others.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered Holder of the Old Notes
tendered hereby, or if tendered Old Notes are registered in the name of any
person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or on any other persons) will be
payable by the tendering Holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. Accordingly, such Old
Notes may be resold only (i) to the Company (upon redemption thereof or
otherwise), (ii) pursuant to an effective registration statement under the
Securities Act, (iii) so long as the old Notes are eligible for resale pursuant
to Rule 144A, to a qualified institutional buyer within the meaning of Rule
144A under the Securities Act in a transaction meeting the requirements of Rule
144A, or (iv) pursuant to another available exemption from the registration
requirements of the Securities Act, in each case in accordance with any
applicable securities laws of any state of the United States. The Company does
not currently anticipate that it will register under the Securities Act the
resale of any Old Notes that remain outstanding after consummation of the
Exchange Offer (subject to limited exceptions, if applicable).
Holders of the Old and New Notes which remain outstanding after
consummation of the Exchange Offer will vote together as a single class for
purposes of determining whether Holders of the requisite percentage thereof
have taken certain actions or exercised certain rights under the Indenture.
Upon consummation of the Exchange Offer, Holders of Old Notes will not be
entitled to any further registration rights under the Registration Rights
Agreement, except under limited circumstances. See "Exchange Offer;
Registration Rights."
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company.
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BUSINESS
GENERAL
Neff is one of the largest and fastest growing equipment rental companies
in the United States, with 72 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 72 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, pro forma
for the Richbourg Acquisition, 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--Substantial
Leverage," "Risk Factors--Dependence on Additional Capital for Future Growth;
Reliance on Credit Facilities," "Risk Factors--Restrictions Imposed by Terms of
Indebtedness" and "Risk Factors--Risks Inherent in Growth Strategy."
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, pro forma for the Richbourg Acquisition,
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.
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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, another of the Company's
major stockholders, will be valuable to the Company in identifying and
evaluating acquisitions in both North and South America.
GROWTH STRATEGY
The Company's objective is to increase revenue, cash flow and
profitability by building and maintaining a leading market position in the
equipment rental industry. Key elements of the Company's growth strategy
include:
ACQUIRE EQUIPMENT RENTAL COMPANIES. Management intends to expand the
Company through acquisitions of equipment rental companies and believes there
are a significant number of acquisition opportunities in North and South
America which would complement the Company's existing operations. After
completing an acquisition, the Company generally integrates the operations of
the acquired company into its management information system, consolidates
equipment purchasing and resale functions and centralizes fleet management as
quickly as possible while assuring consistent, high-quality service to the
acquired company's customers. Since July 1997, the Company has made several
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 acquired 65%
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 one letter of
intent outstanding to acquire the assets of an additional equipment rental
company 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 26 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
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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 acquiring 65% of the outstanding stock of S.A. Argentina. 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
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oversee the day-to-day management of S.A. Argentina. The Company has the option
to purchase the remaining 35% of the outstanding stock of S.A. Argentina from
the Argentina Stockholders. This option will be exercisable for a period of 30
months commencing 30 months after the consummation of the Argentina
Acquisition, June 30, 1998. In addition, the Argentina Stockholders have the
option during the same period to require the Company to purchase the remaining
35% of the outstanding stock of S.A. Argentina. The exercisability of these
options is 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. See
"Risk Factors--Risks Associated with the Argentina Acquisition."
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 72 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:
PERCENTAGE OF TOTAL RENTAL FLEET
MAJOR EQUIPMENT CATEGORY (BASED ON ORIGINAL COST)
- ------------------------ --------------------------------
Earthmoving ............... 41.0%
Material Handling ......... 16.1
Aerial .................... 12.7
Compressors ............... 6.2
Compaction ................ 6.1
Trucks .................... 4.2
Cranes .................... 3.8
Welders ................... 2.7
Pumps ..................... 1.3
Generators ................ 1.3
Lighting .................. 1.3
Other ..................... 3.3
The Company attempts to differentiate itself from its competitors by
providing a broad selection of new and well-maintained rental equipment, and
through high-quality, responsive service to its customers. As of 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 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,
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concise communication when ordering equipment. Punctuality and reliability are
key components of the servicing process, as well as maintenance performance,
timely equipment removal at the rental termination, and simplified billing. The
Company's service initiatives include (i) reliable on-time equipment delivery
directly to customers' job sites; (ii) on-site repairs and maintenance of
rental equipment by factory trained mechanics, which are generally available 24
hours a day, seven days a week; and (iii) ongoing training of an experienced
sales force to consult with customers regarding their equipment needs.
NEW EQUIPMENT SALES. The Company is a distributor of new equipment on
behalf of several nationally known equipment manufacturers. The Company is the
sole authorized distributor of John Deere industrial and construction equipment
in central and southern Florida; it is one of the largest John Deere
construction equipment dealerships in the United States. The Company also has
distributor arrangements with Bomag to sell heavy compaction equipment, and
with Terex Americas to sell off-road trucks, in central and southern Florida.
The Company's sales line consists of nine categories of John Deere, Bomag and
Terex Americas equipment and a total of 58 different machines, including: John
Deere backhoe loaders, forklifts, crawler dozers, four-wheel-drive loaders,
scrapers, skid steers, motor graders and excavators; Bomag vibratory rollers,
static rollers, recyclers and trash compacters; and a complete line of
articulated off-road trucks manufactured by Terex Americas.
The Company's ability to sell new equipment offers flexibility to its
customers and enhances the Company's customer relations. In addition, the
Company's dealership operations provide it with several competitive advantages,
including the opportunity to achieve favorable pricing by combining equipment
purchases for its dealership and rental fleets, the reduction of costs in
certain locations by sharing service, maintenance and administrative personnel
and better knowledge of its local markets by pooling management information.
The Company currently operates new equipment dealerships at six of its
locations.
In addition to standard equipment sales, the Company also offers customers
the option to rent-to-purchase equipment for a period of time. Under this
program, the customer applies a portion of the rental payment to the purchase
price, thus accruing equity over the term of the rental period. The Company's
rent-to-purchase customers generally rent new equipment for a period of six to
18 months with the option to purchase at the end of the rental period. Sales
under the Company's rent-to-purchase program represented approximately 35% of
the Company's new equipment sales in 1997.
The Company effectively competes against other dealers by offering John
Deere and other quality equipment lines for sale, and by providing high quality
service. All personnel, from management to mechanics, are factory trained. The
training of mechanics is continually upgraded as new product lines are
introduced. The Company can transfer equipment from one store to another based
upon a particular customer's needs. Customers also have the opportunity to rent
equipment from the Company's rental fleet if their own equipment is under
repair. The parts department features ample stock to limit customer down time.
Maintenance vehicles are equipped to handle minor repairs in the field to
prevent costly down time.
USED EQUIPMENT SALES. The Company maintains a regular program of selling
used equipment in order to adjust the size and composition of its rental fleet
to changing market conditions and to maintain the quality and low average age
of its rental fleet. Management attempts to balance the objective of obtaining
acceptable prices from equipment sales against the revenues obtainable from
used equipment rentals. The Company is generally able to achieve favorable
resale prices for its used equipment due to its strong preventative maintenance
program and its practice of selling used 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
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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 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.
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To stay informed about their local markets, salespeople track new
equipment sales and construction projects in the area through EQUIPMENT DATA
REPORTS, FW DODGE REPORTS and PEC Reports (Planning, Engineering and
Construction), follow up on referrals and visit construction sites and
potential equipment users who are new to the local area. The Company's
salespeople also use targeted marketing strategies to address the specific
needs of local customers.
PURCHASING
The Company purchases equipment from vendors with reputations for product
quality and reliability. The Company believes its size and the quantity of
equipment it purchases enable it to purchase equipment directly from vendors
pursuant to national purchasing agreements at lower prices and on more
favorable terms than many smaller competitors. The Company seeks to maintain
close relationships with its vendors to ensure the timely delivery of new
equipment.
The Company believes that it has sufficient alternative sources of supply
for the equipment it purchases in each of its principal product categories. The
following table summarizes the Company's principal categories of equipment and
specifies the Company's major suppliers of such equipment:
<TABLE>
<CAPTION>
PRODUCT CATEGORY PRIMARY VENDORS
- ---------------- ---------------
<S> <C>
Air Compressors and Equipment ........... Sullivan, Ingersoll-Rand and Atlas Copco
Earthmoving Equipment (such as Backhoes,
Loaders, Dozers, Excavators and Material
Handling Equipment) .................... John Deere, Case, JCB, Daewoo and Bobcat
Compaction Equipment, Rollers
and Recyclers .......................... Bomag, Wacker, MultiQuip and Stone
Pumps ................................... MultiQuip, Wacker and Thompson
Generators .............................. MultiQuip, Wacker and Atlas Copco
Welders ................................. MultiQuip and Miller
Electric Tools .......................... Bosch, Kango and Hitachi
Light Towers ............................ Specialty Lighting, Coleman and Amida
Forklifts ............................... JCB, Gradall, Lull and Ingersoll-Rand
Trucking ................................ Terex Americas, Ford and International
Aerial .................................. Skyjack, JLG, Mark Industries and Genie Industries
Concrete ................................ Partner, Edco, Whiteman, Miller, MultiQuip, Wacker
and Stone
Hydraulic Hammers ....................... Kent
</TABLE>
LOCATIONS
The Company's locations typically include (i) offices for sales,
administration and management; (ii) a customer showroom displaying equipment
and parts; (iii) an equipment service area; and (iv) outdoor and indoor storage
facilities for equipment. Each location offers a full range of rental equipment
for rental, with the mix designed to meet the anticipated needs of the
customers in each location. The Company's equipment dealerships typically
operate at the same sites as rental equipment locations.
Each stand-alone rental equipment location is staffed by, on average,
approximately 15 full-time employees, including a branch manager, a rental
coordinator, service manager, sales representatives, an 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
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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 Fund 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 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
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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 June 19, 1998, the Company had approximately 1,230 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. The management of S.A.
Argentina has been retained to continue to oversee the day-to-day operations of
S.A. Argentina.
PROPERTIES
The Company leases 13,000 square feet for its corporate headquarters in an
office building in Miami, Florida. The Company owns the buildings and/or the
land at 11 of its locations. In May 1997, the Company purchased the buildings
and land at six of its locations in Florida from Atlantic Real Estate Holdings
Corp., an affiliate of the Company controlled by the Mas family which formerly
leased these locations to the Company. The Company also owns the buildings
and/or the land at its locations in Phoenix, Arizona; Hardeeville, Georgia;
Texas City, Texas; Pasadena, Texas; and Corpus Christi, Texas. All other sites
are leased, generally for terms of five years. Owned and leased sites range
from approximately 10,000 to 25,000 square feet on lots ranging up to 22 acres,
and include showrooms, equipment service areas and storage facilities. The
Company does not consider any specific leased location to be material to its
operations. The Company believes that equally suitable alternative locations
are available in all areas where it currently does business.
LEGAL PROCEEDINGS
The Company is a party to pending legal proceedings arising in the
ordinary course of business. While the results of such proceedings cannot be
predicted with certainty, the Company does not believe any of these matters are
material to the Company's financial condition or results of operations.
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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 June 19, 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.
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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. 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 addition of two outside
directors, 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 May 2001. 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 May 2000, 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 May 1999.
Thereafter, each class will serve three-year terms.
The Company must select one independent director within 90 days after May
22, 1998, the date of the commencement of the Common Stock Offering and an
additional independent director within one year after the date of the Common
Stock Offering 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.
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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
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 10,000 shares
of Class A 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, has an option to
purchase 100,000 shares of Class A Common Stock at $14.00 per share, the
initial offering price per share to the public in the Common Stock Offering.
These options are currently exercisable and expire on May 21, 2008.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that a director of the
Company will not be personally liable to the Company or its stockholders for
monetary damages for any breach of fiduciary duty as a director, except in
certain cases where liability is mandated by the DGCL. The provision has no
effect on any non-monetary remedies that may be available to the Company or its
stockholders, nor does it relieve the Company or its directors from compliance
with federal or state securities laws. The Certificate of Incorporation of the
Company generally provide that the Company shall indemnify, to the fullest
extent permitted by law, any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit,
investigation, administrative hearing or any other proceeding (each, a
"Proceeding") by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another entity, against expenses (including
attorneys' fees) and losses, claims, liabilities, judgments, fines and amounts
paid in settlement actually incurred by such person in connection with such
Proceeding. The Company has entered into, or intends to enter into, agreements
to provide indemnification for its
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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. 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.
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
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<PAGE>
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 Common Stock Offering, Mr. Fitzgerald
received options to purchase an additional 207,220 shares of Class A Common
Stock, in order to maintain Mr. Fitzgerald's option to purchase 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 $14.00, the initial offering price
per share to the public in the Common Stock Offering 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 at $14.00 per share, the initial offering price per share
to the public in the Common Stock Offering were granted to each of Mr. Gladis
and Ms. Biumi; options to purchase 20,000 shares of Class A Common Stock were
granted to Mr. Warren. These options 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 also issued additional options to
purchase an aggregate of approximately 150,000 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 -- $4,696,990 --
Robert G. Warren,
Senior Vice President,
Neff Machinery ............ 84,650 -- $ 682,918 --
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 assumed fair market
value of the Class A Common Stock is $14.00, the public offering price per
share for the Common Stock Offering.
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
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<PAGE>
has agreed to waive any rights he may have to register any shares of Class A
Common Stock prior to the Common Stock Offering or to demand an offering within
180 days of the closing of the Common Stock Offering.
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 SHARES, UNITS PERFORMANCES OR OTHER PERIOD
NAME OR OTHER RIGHTS UNTIL MATURATION OR 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, Neff Rental ............ 25,000(1) installments over 5 years
Bonnie S. Biumi, Phantom Shares vest in equal
Chief Financial Officer ....................... 25,000(2) installments over 3 years
</TABLE>
- ----------------
(1) Phantom Share assigned value at date of grant was $9.00.
(2) Phantom Share assigned value at date of grant was $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. The Company established 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 Common Stock
Offering. The Company also intends to 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
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<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
Common Stock 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 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.
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<PAGE>
PERFORMANCE AWARDS. The Compensation Committee in its discretion may grant
awards of performance units or performance shares to an employee contingent
upon the attainment of a specified objective during a specified period of time.
Performance units may be denominated in shares of Class A Common Stock or a
specified dollar amount and are contingent upon attainment of the specified
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 Common Stock 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.
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<PAGE>
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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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of June 19, 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>
NUMBER OF SHARES NUMBER OF SHARES
OF CLASS A PERCENT OF OF CLASS B PERCENT OF
COMMON STOCK CLASS OWNED COMMON STOCK CLASS OWNED
---------------------- ------------- ----------------- ------------
<S> <C> <C> <C> <C>
Jorge Mas .......................... 3,802,744(1) 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(2) 24.1 5,100,000 100%
Santos ............................. 900,000(3) 4.3 -- --
Santos Capital ..................... 1,500,000(4) 7.1 -- --
Kevin P. Fitzgerald ................ 757,220(1)(5) 3.5 -- --
Robert G. Warren ................... 111,150(6) * -- --
Peter A. Gladis .................... 14,000(7) * -- --
Bonnie S. Biumi .................... 13,000(8) * -- --
All executive officers and directors
as a group (7 persons) ............ 9,469,720 44.5% -- --
</TABLE>
- ----------------
* Less than 1%.
(1) Does not include shares beneficially owned through Santos or Santos
Capital.
(2) 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.
(3) Santos is beneficially owned by Jorge Mas, Juan Carlos Mas, Jose Ramon Mas
and Kevin P. Fitzgerald.
(4) The amount shown includes an option currently exercisable by Santos
Capital, an affiliate of Santos, to purchase 1,500,000 shares of Common
Stock from GE Capital. Santos Capital is beneficially owned by Jorge Mas,
Juan Carlos Mas, Jose Ramon Mas and Kevin P. Fitzgerald.
(5) The amount shown consists of shares covered by options currently
exercisable by Mr. Fitzgerald.
(6) The amount shown includes 84,650 shares covered by options currently
exercisable by Mr. Warren and 20,000 shares covered by options which will
not be exercisable within the next sixty days.
(7) The amount shown includes 10,000 shares covered by options which will not
be exercisable within the next sixty days.
(8) The amount shown includes 10,000 shares covered by options which will not
be exercisable within the next sixty days.
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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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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, 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 Common Stock 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, 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 the Common Stock 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. 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. The terms of the Company's
credit facilities, and the Indenture limit the Company's ability to pay
dividends on the Common Stock. See "--Preferred Stock."
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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 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.
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
Stockholders' Rights Plan. See "--Stockholders' Rights Plan."
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
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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 Common
Stock 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, 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
On May 21, 1998, the Company declared 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 was payable to the
stockholders of record on May 21, 1998 (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,
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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 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
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of a Right (except Rights which previously have been voided as set forth above)
shall thereafter have the right (the "Flip-Over Right") to receive, upon
exercise, common shares of the acquiring company having a value equal to two
times the Purchase Price. The holder of a Right will continue to have the
Flip-Over Right whether or not such holder exercises or surrenders the Flip-In
Right.
The Purchase Price payable, and the number of Preferred Shares, Common
Shares or other securities issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares; (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price,
less than the then current market price of the Preferred Shares; or (iii) upon
the distribution to holders of the Preferred Shares of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
The number of outstanding Rights and the Purchase Price payable are also
subject to adjustment in the event of a stock split of the Common Shares or a
stock dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such
case, prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share but, if greater, will be entitled
to an aggregate dividend per share of 1,000 times the dividend declared per
Common Share. In the event of liquidation, the holders of the Preferred Shares
will be entitled to a minimum preferential liquidation payment of $1,000 per
share; thereafter, and after the holders of the Common Shares receive a
liquidation payment of $1.00 per share, the holders of the Preferred Shares and
the holders of the Common Shares will share the remaining assets in the ratio
of 1,000 to 1 (as 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
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connection with a merger or other business combination transaction or series of
transactions involving the Company in which all holders of Common Shares are
treated alike but not involving an Acquiring Person or Transaction Person or
any Affiliates or Associates thereof. Upon the effective date of the redemption
of the Rights, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.
All of the provisions of the Rights Agreement may be amended by the Board
of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, defect or inconsistency, to make changes
which do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person), or, subject to certain limitations, to
shorten or lengthen any time period under the Rights Agreement.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to stockholders of the Company, stockholders may, depending
upon the circumstances, recognize taxable income should the Rights become
exercisable or upon the occurrence of certain events thereafter.
Each outstanding Common Share on the Record Date will receive one Right.
As long as the Rights are attached to the Common Shares, the Company will issue
one Right with each new Common Share so that all such shares will have attached
rights. 1,000,000 Preferred Shares will be reserved for issuance upon exercise
of the Rights.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on (i) the Rights being redeemed; (ii) a
substantial number of Rights being acquired or (iii) that the offer will be
deemed a "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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DESCRIPTION OF CREDIT FACILITIES
On May 1, 1998, the Company amended and restated its $250 million
revolving credit facility with a syndicate of Lenders and Bankers Trust
Company, as agent (the "Senior Credit Facility," and, as amended and restated,
the "New Credit Facility"). On June 30, 1998, the revolving credit facility was
increased to $300 million. Each of Neff, Neff Rental and Neff Machinery can
borrow, repay and reborrow funds under the New Credit Facility for general
corporate purposes. The New Credit Facility terminates on 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%. The interest rate as of May
22, 1998 was 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 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. See "Risk Factors--Dependence on Additional Capital for Future
Growth; Reliance on Credit Facilities."
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DESCRIPTION OF THE NOTES
The Old Notes were and the New Notes will be issued under an indenture
(the "Indenture"), dated as of May 28, 1998 by and among the Company, the
Guarantors and State Street Bank and Trust Company, as Trustee (the "Trustee")
a copy of which is filed as an exhibit to the Registration Statement of which
this Prospectus constitutes a part. The terms of the New Notes and the Old
Notes are identical in all material respects, except for certain provisions
relating to additional interest to be paid to the Holders of Old Notes under
certain circumstances relating to the timing of the Exchange Offer.
The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to
all of the provisions of the Indenture including the definitions of certain
terms therein and those terms made a part of the Indenture by reference to the
TIA as in effect on the date of the Indenture. The definitions of certain
capitalized terms used in the following summary are set forth below under
"--Certain Definitions." For purposes of this section, references to the
"Company" include only the Company and not its Subsidiaries.
The Old Notes are and the New Notes will be unsecured obligations of the
Company, ranking subordinate in right of payment to all Senior Debt of the
Company.
The Old Notes were issued and the New Notes will be issued in fully
registered form only, without coupons, in denominations of $1,000 and integral
multiples thereof. Initially, the Trustee will act as Paying Agent and
Registrar for the Notes. The Notes may be presented for registration or
transfer and exchange at the offices of the Registrar, which initially will be
the Trustee's corporate trust office. The Company may change any Paying Agent
and Registrar without notice to holders of the Notes (the "Holders"). The
Company will pay principal (and premium, if any) on the Notes at the Trustee's
corporate office in New York, New York. At the Company's option, interest may
be paid at the Trustee's corporate trust office or by check mailed to the
registered address of Holders. Any Old Notes that remain outstanding after the
completion of the Exchange Offer, together with the New Notes issued in
connection with the Exchange Offer, will be treated as a single class of
securities for all purposes under the Indenture, including, without limitation,
waivers, amendments, redemptions, Change of Control Offers and Net Proceeds
Offers, and for all purposes of this Description of Notes, all references
herein to "Notes" shall be deemed to refer collectively to the Old Notes and
any New Notes, unless the context otherwise requires.
PRINCIPAL, MATURITY AND INTEREST
The Old Notes (and the New Notes) are limited in aggregate principal
amount to $200.0 million, of which $100.0 million was issued in the Private
Debt Offering and will mature on June 1, 2008. Additional amounts may be issued
in one or more series from time to time, subject to limitations set forth under
"Certain Covenants--Limitation on Incurrence of Additional Indebtedness" and
restrictions contained in the Credit Agreement. Interest on the Notes will
accrue at the rate of 10 1/4% per annum and will be payable semiannually in
cash on each June 1 and December 1 commencing on December 1, 1998, to the
persons who are registered Holders at the close of business on the May 15 and
November 15 immediately preceding the applicable interest payment date.
Interest on the Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from and including the date of
issuance. Registered Holders of New Notes on the relevant record date for the
first interest payment date following consummation of the Exchange Offer will
receive interest accruing from the date of initial issuance of the New Notes,
plus an amount equal to the accrued interest on the Old Notes from the most
recent date to which interest has been paid to the date of exchange thereof for
New Notes. Interest on the Old Notes accepted for exchange will cease to accrue
upon issuance of the New Notes. Holders whose Old Notes are accepted for
exchange will not receive any payment in respect of interest on such Old Notes
otherwise payable on any interest payment date the record date for which occurs
on or after the consummation of the Exchange Offer. The Notes will not be
entitled to the benefit of any mandatory sinking fund.
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REDEMPTION
OPTIONAL REDEMPTION. The Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after June 1,
2003, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on June 1 of the year set
forth below, plus, in each case, accrued and unpaid interest thereon, if any,
to the date of redemption:
YEAR PERCENTAGE
---- ----------
2003 ......................... 105.125%
2004 ......................... 103.417%
2005 ......................... 101.708%
2006 and thereafter .......... 100.000%
OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS. At any time, or from
time to time, on or prior to June 1, 2001, the Company may, at its option, use
the net cash proceeds of one or more Public Equity Offerings (as defined below)
to redeem up to 30% of the sum of (i) the initial aggregate principal amount of
the New Notes and the Old Notes which were not tendered for exchange and (ii)
the respective initial aggregate principal amount of the Notes issued under the
Indenture after the Issue Date, at a redemption price equal to 110.250% of the
principal amount thereof plus accrued and unpaid interest thereon, if any, to
the date of redemption; PROVIDED that at least 70% of the sum of (i) the
aggregate principal amount of the New Notes and the Old Notes which were not
tendered for exchange and (ii) the respective initial aggregate principal
amount of Notes issued under the Indenture after the Issue Date remains
outstanding immediately after any such redemption. In order to effect the
foregoing redemption with the proceeds of any Public Equity Offering, the
Company shall make such redemption not more than 120 days after the
consummation of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock (other than the Common
Stock Offering) of the Company pursuant to a registration statement filed with
the Commission in accordance with the Securities Act.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which such Notes are listed or, if such Notes are not then listed on
a national securities exchange, on a PRO RATA basis, by lot or by such method
as the Trustee shall deem fair and appropriate; PROVIDED, HOWEVER, that no
Notes of a principal amount of $1,000 or less shall be redeemed in part,
PROVIDED, FURTHER, that if a partial redemption is made with the proceeds of a
Public Equity Offering, selection of the Notes or portions thereof for
redemption shall be made by the Trustee only on a PRO RATA basis or on as
nearly a PRO RATA basis as is practicable (subject to DTC procedures), unless
such method is otherwise prohibited. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as the
Company has deposited with the Paying Agent funds in satisfaction of the
applicable redemption price pursuant to the Indenture.
SUBORDINATION
The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Debt whether outstanding on
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the Issue Date or thereafter incurred, including, without limitation, the
Company's obligations under the Credit Agreement. Upon any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to creditors upon any total or partial
liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors or marshaling of assets of the Company or in a bankruptcy,
reorganization, insolvency, receivership or other similar proceeding relating
to the Company or its property, whether voluntary or involuntary, all
Obligations due or to become due upon all Senior Debt shall first be paid in
full in cash or Cash Equivalents, or such payment duly provided for to the
satisfaction of the holders of Senior Debt, before any payment or distribution
of any kind or character is made on account of any Obligations on the Notes, or
for the acquisition of any of the Notes for cash or property or otherwise. If
any default occurs and is continuing in the payment when due, whether at
maturity, upon any redemption, by declaration or otherwise, of any principal
of, interest on, unpaid drawings for letters of credit issued in respect of, or
regularly accruing fees with respect to, any Senior Debt, no payment of any
kind or character shall be made by or on behalf of the Company or any other
Person on its or their behalf with respect to any Obligations on the Notes or
to acquire any of the Notes for cash or property or otherwise.
In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Debt, as such event of default is defined in
the instrument creating or evidencing such Designated Senior Debt, permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the event of default to the
Trustee (a "Default Notice"), then, unless and until all events of default have
been cured or waived or have ceased to exist or the Trustee receives notice
from the Representative for the respective issue of Designated Senior Debt
terminating the Blockage Period (as defined below), during the 180 days after
the delivery of such Default Notice (the "Blockage Period"), neither the
Company nor any other Person on its behalf shall (x) make any payment of any
kind or character with respect to any Obligations on the Notes or (y) acquire
any of the Notes for cash or property or otherwise. Notwithstanding anything
herein to the contrary, in no event will a Blockage Period extend beyond 180
days from the date the payment on the Notes was due and only one such Blockage
Period may be commenced within any 360 consecutive days. No event of default
which existed or was continuing on the date of the commencement of any Blockage
Period with respect to the Designated Senior Debt shall be, or be made, the
basis for commencement of a second Blockage Period by the Representative of
such Designated Senior Debt whether or not within a period of 360 consecutive
days, unless such event of default shall have been cured or waived for a period
of not less than 90 consecutive days (it being acknowledged that any subsequent
action, or any breach of any financial covenants for a period commencing after
the date of commencement of such Blockage Period that, in either case, would
give rise to an event of default pursuant to any provisions under which an
event of default previously existed or was continuing shall constitute a new
event of default for this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt, including
the Holders of the Notes, may recover less, ratably, than holders of Senior
Debt.
As of March 31, 1998, on a pro forma basis after giving effect to the
Richbourg Acquisition, the Argentina Acquisition, the Offering and the Common
Stock Offering and the application of the estimated net proceeds therefrom, the
Company would have had Senior Debt of approximately $203.9 million. See "Risk
Factors--Subordination of the Notes and Guarantees; Asset Encumbrances."
GUARANTEES
Each Guarantor unconditionally guarantees, on a senior subordinated basis,
jointly and severally, to each Holder and the Trustee, the full and prompt
performance of the Company's obligations under the Indenture and the Notes,
including the payment of principal of and interest on the Notes. The Guarantees
of the Old Notes are, and the New Notes will be subordinated to Guarantor
Senior Debt on the same basis as the Notes are subordinated to Senior Debt. The
obligations of each Guarantor are
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limited to the maximum amount which, after giving effect to all other
contingent and fixed liabilities of such Guarantor and after giving effect to
any collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, will result in
the obligations of such Guarantor under the Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in an amount PRO RATA,
based on the net assets of each Guarantor, determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to
the Company or another Guarantor that is a Wholly Owned Restricted Subsidiary
of the Company without limitation, or with other Persons upon the terms and
conditions set forth in the Indenture. See "Certain Covenants--Merger,
Consolidation and Sale of Assets." In the event all of the Capital Stock (or
all or substantially all of the assets) of a Guarantor is sold by the Company
and the sale complies with the provisions set forth in "Certain
Covenants--Limitation on Asset Sales," the Guarantor's Guarantee will be
released.
Separate financial statements of the Guarantors are not included herein
because such Guarantors are jointly and severally liable with respect to the
Company's obligations pursuant to the Notes, and the aggregate net assets,
earnings and equity of the Guarantors and the Company, for the periods
presented in the financial statements included herein, are substantially
equivalent to the net assets, earnings and equity of the Company on a
consolidated basis.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest to the date of purchase. The
Indenture will provide that the Company is not required to make a Change of
Control Offer if a third party makes a Change of Control Offer that would be in
compliance with the provisions described in this section if it were made by the
Company and such third party purchases (for the consideration referred to in
the immediate preceding sentence) the Notes validly tendered and not withdrawn.
The Indenture provides that, prior to the mailing of the notice referred
to below, but in any event within 30 days following any Change of Control, the
Company covenants to (i) repay in full and terminate all commitments under
Indebtedness under the Credit Agreement and all other Senior Debt the terms of
which require repayment upon a Change of Control or offer to repay in full and
terminate all commitments under all Indebtedness under the Credit Agreement and
all such other Senior Debt and to repay the Indebtedness owed to each lender
which has accepted such offer or (ii) obtain the requisite consents under the
Credit Agreement and all such other Senior Debt to permit the repurchase of the
Notes as provided below. The Company shall first comply with the covenant in
the immediately preceding sentence before it shall be required to repurchase
Notes pursuant to the provisions described below. The Company's failure to
comply with the covenant described in the immediately preceding sentence shall
constitute an Event of Default described in clause (iii) and not in clause (ii)
under "Events of Default" below.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change
of Control Offer. Such notice shall state, among other things, the purchase
date, which must be no earlier than 30 days nor later than 45 days from the
date such notice is mailed, other than as may be required by law (the "Change
of Control Payment Date"). Holders electing to have a Note purchased pursuant
to a Change of Control Offer will be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third business day prior to the Change of Control
Payment Date.
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If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive
the covenant relating to a Holder's right to redemption upon a Change of
Control. This right, as well as restrictions in the Indenture described herein
on the ability of the Company and its Restricted Subsidiaries to incur
additional Indebtedness, to grant liens on its property, to make Restricted
Payments and to make Asset Sales, may make more difficult or discourage a
takeover of the Company, whether favored or opposed by the management of the
Company. Consummation of any such transaction in certain circumstances may
require redemption or repurchase of the Notes, and there can be no assurance
that the Company or the acquiring party will have sufficient financial
resources to effect such redemption or repurchase. Such restrictions and the
restrictions on transactions with Affiliates may, in certain circumstances,
make more difficult or discourage any leveraged buyout of the Company or any of
its Subsidiaries by the management of the Company. While such restrictions
cover a wide variety of arrangements which have traditionally been used to
effect highly leveraged transactions, the Indenture may not afford the Holders
of Notes protection in all circumstances from the adverse aspects of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); PROVIDED, HOWEVER, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company or any Guarantor may incur
Indebtedness (including, without limitation, Acquired Indebtedness), if on the
date of the incurrence of such Indebtedness, after giving effect to the
incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company
is greater than 2.0 to 1.0 if such date of incurrence is on or prior to June 1,
2000 and greater than 2.25 to 1.0 thereafter. For purposes of determining any
particular amount of Indebtedness under this "Limitation on Indebtedness"
covenant, (1) guarantees, Liens or obligations with respect to letters of
credit supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included and (2) any Liens granted pursuant to
the equal and ratable provisions referred to in the "Limitations on Liens"
covenant described below shall not be treated as Indebtedness.
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not
cause or permit any of its Restricted Subsidiaries to, directly or indirectly,
(a) declare or pay any dividend or make any distribution (other than dividends
or distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock,
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(b) purchase, redeem or otherwise acquire or retire for value any Capital Stock
of the Company or any warrants, rights or options to purchase or acquire shares
of any class of such Capital Stock, (c) make any principal payment on,
purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for
value, prior to any scheduled final maturity, scheduled repayment or scheduled
sinking fund payment, any Indebtedness of the Company that is subordinate or
junior in right of payment to the Notes or (d) make any Investment (other than
Permitted Investments) (each of the foregoing actions set forth in clauses (a),
(b) (c) and (d) being referred to as a "Restricted Payment"), if at the time of
such Restricted Payment or immediately after giving effect thereto, (i) a
Default or an Event of Default shall have occurred and be continuing or (ii)
the Company is not able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant or (iii) the aggregate amount
of Restricted Payments (including such proposed Restricted Payment) made
subsequent to the Issue Date (the amount expended for such purposes, if other
than in cash, being the fair market value of such property as determined
reasonably and in good faith by the Board of Directors of the Company) shall
exceed the sum of the following amounts (without duplication): (1) 50% of the
cumulative Consolidated Net Income (or if cumulative Consolidated Net Income
shall be a loss, minus 100% of such loss) of the Company accrued on a
cumulative basis during the period beginning on the first day of the fiscal
quarter immediately following the Closing Date and ending on the last day of
the last fiscal quarter preceding the date the Restricted Payment occurs (the
"Reference Date") (treating such period as a single accounting period); plus
(2) 100% of the aggregate net cash proceeds received by the Company from any
Person (other than a Subsidiary of the Company) from the issuance and sale
subsequent to the Issue Date and on or prior to the Reference Date of Qualified
Capital Stock of the Company or any options, warrants or other rights to
acquire Qualified Capital Stock of the Company; plus (3) 100% of the aggregate
net cash proceeds received subsequent to the Issue Date by the Company from any
Person (other than a Subsidiary of the Company) from the issuance or sale of
debt securities or shares of Disqualified Capital Stock that have been
converted into or exchanged for Qualified Capital Stock, together with the
aggregate cash received by the Company at the time of such conversion or
exchange; plus (4) 100% of the aggregate net cash proceeds of any equity
contribution received by the Company from a holder of the Company's Capital
Stock; plus (5) an amount equal to the net reduction in Investment made
pursuant to this first paragraph of the "Limitation on Restricted Payments"
covenant in any Person resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances, or other transfers of assets, in
each case to the Company or any Restricted Subsidiary (except to the extent any
such payment is included in the calculation of Consolidated Net Income), or
from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
valued in each case as provided in the definition of "Investments," not to
exceed the amount of Investments previously made by the Company or any
Restricted Subsidiary in such Person.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend or the
consummation of any irrevocable redemption within 60 days after the date of
declaration of such dividend or the giving of notice of such irrevocable
redemption if the dividend or redemption would have been permitted on the date
of declaration or the giving of such irrevocable redemption notice; (2) if no
Default or Event of Default shall have occurred and be continuing, the
repurchase, redemption or other acquisition or retirement of any shares of
Capital Stock of the Company, either (i) solely in exchange for shares of
Qualified Capital Stock of the Company or any options, warrants or other rights
to acquire Qualified Capital Stock of the Company or (ii) through the
application of net proceeds of a substantially concurrent sale for cash (other
than to a Subsidiary of the Company and other than the Common Stock Offering)
of shares of Qualified Capital Stock of the Company, or any options, warrants
or other rights to acquire Qualified Capital Stock of the Company; (3) if no
Default or Event of Default shall have occurred and be continuing, the
acquisition of any Indebtedness of the Company that is subordinate or junior in
right of payment to the Notes either (i) solely in exchange for shares of
Qualified Capital Stock of the Company or any options, warrants or other rights
to acquire Qualified Capital Stock of the Company or (ii) through the
application of net proceeds of a substantially concurrent sale for cash (other
than to a Subsidiary of the Company and other than the Common Stock Offering)
of (A) shares of Qualified Capital Stock of the
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Company or any options, warrants or other rights to acquire Qualified Capital
Stock of the Company, or (B) Refinancing Indebtedness; (4) if no Default or
Event of Default shall have occurred and be continuing, the redemption at
maturity of, or the payment of dividends in the form of additional shares of
Preferred Stock on the Series A Preferred Stock to the extent required pursuant
to the terms thereof or the payment of cash dividends on the Series A Preferred
Stock in an amount not to exceed $1.0 million in any fiscal year; and (5) so
long as no Default or Event of Default shall have occurred and be continuing,
repurchases by the Company of Common Stock of the Company from employees of the
Company or any of its Subsidiaries or their authorized representatives upon the
death, disability or termination of employment of such employees, in an
aggregate amount not to exceed $1.0 million in any calendar year. In
determining the aggregate amount of Restricted Payments made subsequent to the
Issue Date in accordance with clause (iii) of the immediately preceding
paragraph, amounts expended pursuant to clauses (1), (2)(ii), 3(ii)(A), (4) and
(5) shall be included in such calculation.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an officers' certificate stating that such
Restricted Payment complies with the Indenture and setting forth in reasonable
detail the basis upon which the required calculations were computed, which
calculations may be based upon the Company's latest available internal
quarterly financial statements.
LIMITATION ON ASSET SALES. The Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 70% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash or Cash Equivalents and is
received at the time of such disposition; and (iii) upon the consummation of an
Asset Sale, the Company shall apply, or cause such Restricted Subsidiary to
apply, the Net Cash Proceeds relating to such Asset Sale within 365 days of
receipt thereof either (A) to prepay any Senior Debt or Guarantor Senior Debt
and, in the case of any Senior Debt or Guarantor Senior Debt under any
revolving credit facility, effect a permanent reduction in the availability
under such revolving credit facility, (B) to make an investment in properties
and assets that replace the properties and assets that were the subject of such
Asset Sale or in properties and assets that will be used in the business of the
Company and its Restricted Subsidiaries as existing on the Issue Date or in
businesses reasonably related thereto ("Replacement Assets"), or (C) a
combination of prepayment and investment permitted by the foregoing clauses
(iii)(A) and (iii)(B). On the 366th day after an Asset Sale or such earlier
date, if any, as the Board of Directors of the Company or of such Restricted
Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset
Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next
preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate
amount of Net Cash Proceeds which have not been applied on or before such Net
Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B) and
(iii)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount")
shall be applied by the Company or such Restricted Subsidiary to make an offer
to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer
Payment Date") not less than 30 nor more than 45 days following the applicable
Net Proceeds Offer Trigger Date, from all Holders on a PRO RATA basis, that
amount of Notes equal to the Net Proceeds Offer Amount at a price equal to 100%
of the principal amount of the Notes to be purchased, plus accrued and unpaid
interest thereon, if any, to the date of purchase; PROVIDED, HOWEVER, that if
at any time any non-cash consideration received by the Company or any
Restricted Subsidiary of the Company, as the case may be, in connection with
any Asset Sale is converted into or sold or otherwise disposed of for cash
(other than interest received with respect to any such non-cash consideration),
then such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance with
this covenant. The Company may defer the Net Proceeds Offer until there is an
aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $10.0
million resulting from one or more Asset Sales (at which time, the entire
unutilized Net Proceeds Offer Amount, and not just the amount in excess of
$10.0 million, shall be applied as required pursuant to this paragraph).
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In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "--Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and its Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Notwithstanding the two immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 80% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value; PROVIDED that any consideration not
constituting Replacement Assets received by the Company or any of its
Restricted Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall constitute Net Cash Proceeds subject to
the provisions of the two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on
the register of Holders within 30 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set
forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of tendering
Holders will be purchased on a PRO RATA basis (based on amounts tendered). A
Net Proceeds Offer shall remain open for a period of 20 business days or such
longer period as may be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or
make any other distributions on or in respect of its Capital Stock; (b) make
loans or advances or to pay any Indebtedness or other obligation owed to the
Company or any other Restricted Subsidiary of the Company; or (c) transfer any
of its property or assets to the Company or any other Restricted Subsidiary of
the Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) the Indenture; (3) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Restricted Subsidiary of the Company; (4) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired; (5) the Credit Agreement; (6)
agreements existing on the Issue Date to the extent and in the manner such
agreements are in effect on the Issue Date; (7) restrictions on the transfer of
assets subject to any Lien permitted under the Indenture imposed by the holder
of such Lien; (8) restrictions imposed by any agreement to sell assets
permitted under the Indenture to any Person pending the closing of such sale;
(9) any agreement or instrument governing Capital Stock of any Person that is
acquired; or (10) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred to
in clause (2), (4),(5) or (6) above; PROVIDED, HOWEVER, that the provisions
relating to such encumbrance or restriction contained in any such Indebtedness
are no less favorable to the Company in any material respect as determined by
the Board of Directors of the Company in their
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reasonable and good faith judgment than the provisions relating to such
encumbrance or restriction contained in agreements referred to in such clause
(2), (4), (5) or (6), respectively.
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Company will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly Owned Restricted Subsidiary of the
Company) or permit any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company) to own any Preferred Stock of any
Restricted Subsidiary of the Company.
LIMITATION ON LIENS. The Company will not, and will not cause or permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or permit or suffer to exist any Liens of any kind against or upon any
property or assets of the Company or any of its Restricted Subsidiaries whether
owned on the Issue Date or acquired after the Issue Date, or any proceeds
therefrom, or assign or otherwise convey any right to receive income or profits
therefrom unless (i) in the case of Liens securing Indebtedness that is
expressly subordinate or junior in right of payment to the Notes, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and (ii) in all other cases, the Notes are equally and
ratably secured, except for (A) Liens existing as of the Issue Date to the
extent and in the manner such Liens are in effect on the Issue Date; (B) Liens
securing Senior Debt and Liens securing Guarantor Senior Debt; (C) Liens
securing the Notes and the Guarantees; (D) Liens of the Company or a Wholly
Owned Restricted Subsidiary of the Company on assets of any Subsidiary of the
Company; (E) Liens securing Refinancing Indebtedness which is incurred to
Refinance any Indebtedness which has been secured by a Lien permitted under the
Indenture and which has been incurred in accordance with the provisions of the
Indenture; PROVIDED, HOWEVER, that such Liens (A) are no less favorable to the
Holders and are not more favorable to the lienholders with respect to such
Liens than the Liens in respect of the Indebtedness being Refinanced and (B) do
not extend to or cover any property or assets of the Company or any of its
Restricted Subsidiaries not securing the Indebtedness so Refinanced; and (F)
Permitted Liens.
PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED DEBT. The Company will
not incur or suffer to exist Indebtedness that is senior in right of payment to
the Notes and subordinate in right of payment to any other Indebtedness of the
Company.
MERGER, CONSOLIDATION AND SALE OF ASSETS. The Company will not, in a
single transaction or series of related transactions, consolidate or merge with
or into any Person, or sell, assign, transfer, lease, convey or otherwise
dispose of (or cause or permit any Restricted Subsidiary of the Company to
sell, assign, transfer, lease, convey or otherwise dispose of) all or
substantially all of the Company's assets (determined on a consolidated basis
for the Company and the Company's Restricted Subsidiaries) whether as an
entirety or substantially as an entirety to any Person unless: (i) either (1)
the Company shall be the surviving or continuing corporation or (2) the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or the Person which acquires by sale, assignment, transfer,
lease, conveyance or other disposition the properties and assets of the Company
and of the Company's Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity") (x) shall be a corporation organized and validly existing
under the laws of the United States or any State thereof or the District of
Columbia and (y) shall expressly assume, by supplemental indenture (in form and
substance satisfactory to the Trustee), executed and delivered to the Trustee,
the due and punctual payment of the principal of, and premium, if any, and
interest on all of the Notes and the performance of every covenant of the
Notes, the Indenture and the Registration Rights Agreement on the part of the
Company to be performed or observed; (ii) immediately after giving effect to
such transaction and the assumption contemplated by clause (i)(2)(y) above
(including giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be, (1)
shall have a Consolidated Net Worth equal to or greater than the Consolidated
Net Worth of the Company immediately prior to such transaction and (2) shall be
able to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the "--Limitation on Incurrence of Additional
Indebtedness" covenant; (iii) immediately before and immediately after giving
effect to such
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transaction and the assumption contemplated by clause (i)(2)(y) above
(including, without limitation, giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred and any Lien granted in
connection with or in respect of the transaction), no Default or Event of
Default shall have occurred or be continuing; and (iv) the Company or the
Surviving Entity shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture comply with the applicable provisions of the Indenture
and that all conditions precedent in the Indenture relating to such transaction
have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
The Indenture provides that upon any consolidation, combination or merger
or any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which
the Company is merged or to which such conveyance, lease or transfer is made
shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under the Indenture and the Notes with the same effect as
if such surviving entity had been named as such.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the Indenture in connection
with any transaction complying with the provisions of "--Limitation on Asset
Sales") will not, and the Company will not cause or permit any Guarantor to,
consolidate with or merge with or into any Person other than the Company or any
other Guarantor unless: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Guarantor) or to which such sale,
lease, conveyance or other disposition shall have been made is a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia; (ii) such entity assumes by supplemental indenture
all of the obligations of the Guarantor on the Guarantee; (iii) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing; and (iv) immediately after giving effect to
such transaction and the use of any net proceeds therefrom on a PRO FORMA
basis, the Company could satisfy the provisions of clause (ii) of the first
paragraph of this covenant. Any merger or consolidation of a Guarantor with and
into the Company (with the Company being the surviving entity) or another
Guarantor that is a Wholly Owned Restricted Subsidiary of the Company need only
comply with clause (iv) of the first paragraph of this covenant.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other property with a fair market value in excess of $5,000,000 shall be
approved by the Board of Directors of the Company or such Restricted
Subsidiary, as the case may be, such approval to be evidenced by a Board
Resolution stating that such Board of Directors has determined that such
transaction complies with the foregoing provisions. If the Company or any
Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a
series of related Affiliate Transactions related to a common plan) that
involves an aggregate fair market value of more than $10,500,000, the Company
or such Restricted Subsidiary, as the case may be, shall, prior to the
consummation thereof, obtain a
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favorable opinion as to the fairness of such transaction or series of related
transactions to the Company or the relevant Restricted Subsidiary, as the case
may be, from a financial point of view, from an Independent Financial Advisor
and file the same with the Trustee.
(b) The restrictions set forth in clause (a) above shall not apply to (i)
reasonable fees and compensation paid to, loans or advances to, and indemnity
provided on behalf of, officers, directors, employees or consultants of the
Company or any Restricted Subsidiary of the Company as determined in good faith
by the Company's Board of Directors or senior management; (ii) transactions
exclusively between or among the Company and any of its Wholly Owned Restricted
Subsidiaries or exclusively between or among such Wholly Owned Restricted
Subsidiaries, provided such transactions are not otherwise prohibited by the
Indenture; (iii) any payments or transactions pursuant to agreements in effect
as of the Issue Date or any amendment thereto or any transaction contemplated
thereby (including pursuant to any amendment thereto) in any replacement
agreement thereto so long as any such amendment or replacement agreement is not
more disadvantageous to the Holders in any material respect than the original
agreement as in effect on the Issue Date; (iv) Restricted Payments permitted by
the Indenture; and (v) any Investments by an Affiliate of the Company in the
Capital Stock (other than Disqualified Stock) of the Company or any Restricted
Subsidiary of the Company.
ADDITIONAL SUBSIDIARY GUARANTEES. If the Company or any Guarantor
transfers or causes to be transferred, in one transaction or a series of
related transactions, any property with a fair market value of $500,000 or more
to any Restricted Subsidiary that is not a Guarantor, or if the Company or any
of its Restricted Subsidiaries shall organize, acquire or otherwise invest in
another domestic Restricted Subsidiary having total assets with a book value in
excess of $500,000, then such transferee or acquired or other domestic
Restricted Subsidiary shall (i) execute and deliver to the Trustee a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Restricted Subsidiary shall unconditionally guarantee all of the
Company's obligations under the Notes and the Indenture on the terms set forth
in the Indenture and (ii) deliver to the Trustee an opinion of counsel that
such supplemental indenture has been duly authorized, executed and delivered by
such Restricted Subsidiary and constitutes a legal, valid, binding and
enforceable obligation of such Restricted Subsidiary. Thereafter, such
Restricted Subsidiary shall be a Guarantor for all purposes of the Indenture.
CONDUCT OF BUSINESS. The Company and its Restricted Subsidiaries will not
engage in any businesses which are not the same, similar or related to the
businesses in which the Company and its Restricted Subsidiaries are engaged on
the Issue Date.
REPORTS TO HOLDERS. The Indenture provides that the Company will deliver
to the Trustee within 15 days after the filing of the same with the Commission,
copies of the quarterly and annual reports and of the information, documents
and other reports, if any, which the Company is required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture
further provides that, at all times from and after the earlier of (i) the date
of the commencement of an Exchange Offer or the effectiveness of the Shelf
Registration Statement (the "Registration") and (ii) October 28, 1998, in
either case notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act for so long as
any Notes are outstanding. The Company will also comply with the other
provisions of TIA /section/ 314(a).
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);
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(ii) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase Notes tendered
pursuant to a Change of Control Offer or a Net Proceeds Offer) (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);
(iii) default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period
of 30 days after the Company receives written notice specifying the default
(and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Notes
(except in the case of a default with respect to the "Merger, Consolidation
and Sale of Assets" covenant, which will constitute an Event of Default
with such notice requirement but without such passage of time requirement);
(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any Restricted Subsidiary of the
Company and such failure continues for a period of 20 days or more, or the
acceleration of the final stated maturity of any such Indebtedness (which
acceleration is not rescinded, annulled or otherwise cured within 20 days
of receipt by the Company or such Restricted Subsidiary of notice of any
such acceleration) if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final maturity or which has been
accelerated, in each case with respect to which the 20-day period described
above has passed, aggregates $5,000,000 or more at any time;
(v) one or more judgments in an aggregate amount in excess of $5,000,000
shall have been rendered against the Company or any of its Significant
Subsidiaries and such judgments remain undischarged, unpaid or unstayed for
a period of 60 days after such judgment or judgments become final and
non-appealable;
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(vii) any of the Guarantees of a Guarantor that is a Significant
Subsidiary ceases to be in full force and effect or any of such Guarantees
is declared to be null and void and unenforceable or any of such Guarantees
is found to be invalid or any of such Guarantors denies its liability under
its Guarantee (other than by reason of release of such Guarantor in
accordance with the terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in principal amount of outstanding Notes
may declare the principal of and accrued interest on all the Notes to be due
and payable by notice in writing to the Company and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same (i) shall become immediately due and
payable or (ii) if there are any amounts outstanding under the Credit
Agreement, shall become immediately due and payable upon the first to occur of
an acceleration under the Credit Agreement or 5 business days after receipt by
the Company and the Representative under the Credit Agreement of such
Acceleration Notice but only if such Event of Default is then continuing. If an
Event of Default specified in clause (vi) above with respect to the Company
occurs and is continuing, then all unpaid principal of, and premium, if any,
and accrued and unpaid interest on all of the outstanding Notes shall IPSO
FACTO become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived
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except nonpayment of principal or interest that has become due solely because
of the acceleration, (iii) to the extent the payment of such interest is
lawful, interest on overdue installments of interest and overdue principal,
which has become due otherwise than by such declaration of acceleration, has
been paid, (iv) if the Company has paid the Trustee its reasonable compensation
and reimbursed the Trustee for its expenses, disbursements and advances and (v)
in the event of the cure or waiver of an Event of Default of the type described
in clause (vi) of the description above of Events of Default, the Trustee shall
have received an officers' certificate and an opinion of counsel that such
Event of Default has been cured or waived. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
The Holders of a majority in principal amount of the then outstanding
Notes may waive any existing Default or Event of Default under the Indenture,
and its consequences, except a default in the payment of the principal of or
interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge
of any Default or Event of Default (provided that such officers shall provide
such certification at least annually whether or not they know of any Default or
Event of Default) that has occurred and, if applicable, describe such Default
or Event of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to
the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that
the Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, except for (i) the rights of Holders to
receive payments in respect of the principal of, premium, if any, and interest
on the Notes when such payments are due, (ii) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payments, (iii) the rights, powers, trust, duties and immunities of
the Trustee and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, reorganization and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders cash in U.S. dollars, non-callable U.S. government
obligations, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
Notes on the stated date for payment thereof or on the applicable redemption
date, as the case may be; (ii) in the case of Legal Defeasance, the Company
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the
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Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable United States federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for United
States federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders will not recognize
income, gain or loss for United States federal income tax purposes as a result
of such Covenant Defeasance and will be subject to United States federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred; (iv) immediately
after giving effect to such deposit on a pro forma basis, no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the incurrence of
Indebtedness, all or a portion of the proceeds of which will be used to defease
the Notes) or, insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after
the date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under the Indenture
(other than a Default or Event of Default resulting from the incurrence of
Indebtedness, all or a portion of the proceeds of which will be used to defease
the Notes) or any other material agreement or instrument to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that (A) the
trust funds will not be subject to any rights of holders of Senior Debt,
including, without limitation, those arising under the Indenture and (B) after
the 91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and (ix) certain other customary
conditions precedent are satisfied. Notwithstanding the foregoing, the opinion
of counsel required by clause (ii) above need not be delivered if all Notes not
theretofore delivered to the Trustee for cancellation (x) have become due and
payable, (y) will become due and payable on the maturity date within one year
or (z) are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be;
(ii) the Company has paid all other sums payable under the Indenture by the
Company; and (iii) the Company
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has delivered to the Trustee an officers' certificate and an opinion of counsel
stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Guarantors and the Trustee, without
the consent of the Holders, may amend the Indenture for certain specified
purposes, including curing ambiguities, defects or inconsistencies, so long as
such change does not, in the opinion of the Trustee, adversely affect the
rights of any of the Holders in any material respect. In formulating its
opinion on such matters, the Trustee will be entitled to rely on such evidence
as it deems appropriate, including, without limitation, solely on an opinion of
counsel. Other modifications and amendments of the Indenture may be made with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes issued under the Indenture, except that, without the consent
of each Holder affected thereby, no amendment may: (i) reduce the amount of
Notes whose Holders must consent to an amendment; (ii) reduce the rate of or
change or have the effect of changing the time for payment of interest,
including defaulted interest, on any Notes; (iii) reduce the principal of or
change or have the effect of changing the fixed maturity of any Notes, or
change the date on which any Notes may be subject to redemption or repurchase,
or reduce the redemption or repurchase price therefor; (iv) make any Notes
payable in money other than that stated in the Notes; (v) make any change in
provisions of the Indenture protecting the right of each Holder to receive
payment of principal of and interest on such Note on or after the due date
thereof or to bring suit to enforce such payment, or permitting Holders of a
majority in principal amount of Notes to waive Defaults or Events of Default;
(vi) amend, change or modify in any material respect the obligation of the
Company to make and consummate a Change of Control Offer in the event of a
Change of Control or make and consummate a Net Proceeds Offer with respect to
any Asset Sale that has been consummated or modify any of the provisions or
definitions with respect thereto; or (vii) modify or change any provision of
the Indenture or the related definitions affecting the subordination or ranking
of the Notes or any Guarantee in a manner which adversely affects the Holders;
or (viii) release any Guarantor from any of its obligations under its Guarantee
or the Indenture otherwise than in accordance with the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it, the Notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the law of another jurisdiction would be
required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it by the Indenture, and
use the same degree of care and skill in its exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to
obtain payments of claims in certain cases or to realize on certain property
received in respect of any such claim as security or otherwise. Subject to the
TIA, the Trustee will be permitted to engage in other transactions; PROVIDED
that if the Trustee acquires any conflicting interest as described in the TIA,
it must eliminate such conflict or resign.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary
of the Company or at the time it merges or consolidates with the Company or any
of its Subsidiaries or assumed in connection with the acquisition of assets
from such Person and in each case not incurred by such Person in connection
with, or in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the Company or such acquisition, merger or consolidation.
"AFFILIATE" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"ASSET ACQUISITION" means (a) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person (other
than a Restricted Subsidiary of the Company) which constitute all or
substantially all of the assets of such Person or comprises any division or
line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by the Company or
any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company of (a) any Capital Stock of any Restricted Subsidiary
of the Company; or (b) any other property or assets of the Company or any
Restricted Subsidiary of the Company other than in the ordinary course of
business; PROVIDED, HOWEVER, that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration of less than $1.0
million, (ii) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of the Company as permitted under "Merger,
Consolidation and Sale of Assets," (iii) disposals or replacements of obsolete
or outdated equipment in the ordinary course of business and (iv) the sale or
discount, in each case without recourse (other than recourse for a breach of a
representation or warranty), of accounts receivable arising in the ordinary
course of business, but only in connection with the compromise or collection
thereof in the ordinary course of business and not as part of a financing
transaction.
"BOARD OF DIRECTORS" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and,
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for purposes of this definition, the amount of such obligations at any date
shall be the capitalized amount of such obligations at such date, determined in
accordance with GAAP.
"CAPITAL STOCK" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and (ii) with
respect to any Person that is not a corporation, any and all partnership or
other equity interests of such Person.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the date of
acquisition thereof combined capital and surplus of not less than $250,000,000;
(v) 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 (iv) above; and
(vi) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (i) through (v) above.
"CHANGE OF CONTROL" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets of
the Company to any Person or group of related Persons for purposes of Section
13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof
(whether or not otherwise in compliance with the provisions of the Indenture)
(other than to the Permitted Holders); (ii) the approval by the holders of
Capital Stock of the Company of any plan or proposal for the liquidation or
dissolution of the Company (whether or not otherwise in compliance with the
provisions of the Indenture); (iii) any Person or Group (other than the
Permitted Holders(s)) shall become the owner, directly or indirectly,
beneficially or of record, of shares representing more than 50% of the
aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Company; or (iv) the replacement of a majority of the
Board of Directors of the Company over a two-year period from the directors who
constituted the Board of Directors of the Company at the beginning of such
period, and such replacement shall not have been approved by a vote of at least
a majority of the Board of Directors of the Company then still in office who
either were members of such Board of Directors at the beginning of such period
or whose election as a member of such Board of Directors was previously so
approved.
"COMMON STOCK" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"COMMON STOCK OFFERING" means the initial public offering of the Company's
Class A Common Stock, including the exercise of the over-allotment option, if
any, pursuant to the Registration Statement on Form S-1 (333-48077), originally
filed on March 17, 1998, as amended, modified or supplemented.
"CONSOLIDATED EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been
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reduced thereby, (A) all income taxes of such Person and its Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period (other
than income taxes attributable to extraordinary, unusual or nonrecurring gains
or losses or taxes attributable to sales or dispositions outside the ordinary
course of business), (B) Consolidated Interest Expense and (C) Consolidated
Non-cash Charges LESS any non-cash items increasing Consolidated Net Income for
such period, all as determined on a consolidated basis for such Person and its
Restricted Subsidiaries in accordance with GAAP.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a PRO
FORMA (including any pro forma expense and cost reductions calculated on a
basis consistent with Regulation S-X under the Securities Act) basis for the
period of such calculation to (i) the incurrence or repayment of any
Indebtedness of such Person or any of its Restricted Subsidiaries (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof), other than the incurrence or repayment of
Indebtedness in the ordinary course of business for working capital purposes
pursuant to working capital facilities, occurring during the Four Quarter
Period or at any time subsequent to the last day of the Four Quarter Period and
on or prior to the Transaction Date, as if such incurrence or repayment, as the
case may be (and the application of the proceeds thereof), occurred on the
first day of the Four Quarter Period and (ii) any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of such Person or one of its
Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (provided that such Consolidated EBITDA shall be included
only to the extent includable pursuant to the definition of "Consolidated Net
Income") attributable to the assets which are the subject of the Asset
Acquisition or Asset Sale during the Four Quarter Period) occurring during the
Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such Asset Sale
or Asset Acquisition (including the incurrence, assumption or liability for any
such Acquired Indebtedness) occurred on the first day of the Four Quarter
Period. If such Person or any of its Restricted Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if such
Person or any Restricted Subsidiary of such Person had directly incurred or
otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of
the Transaction Date and which will continue to be so determined thereafter
shall be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the Transaction Date; (2) if
interest on any Indebtedness actually incurred on the Transaction Date may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the Transaction Date will be deemed to have been in
effect during the Four Quarter Period; and (3) notwithstanding clause (1)
above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"CONSOLIDATED FIXED CHARGES" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense,
plus (ii) the product of (x) the amount of all dividend payments on any series
of Preferred Stock of such Person (other than dividends paid in Qualified
Capital Stock) paid, accrued or scheduled to be paid or accrued during such
period times (y) a fraction, the numerator of which is one and the denominator
of which is one minus the then current effective consolidated federal, state
and local income tax rate of such Person, expressed as a decimal.
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"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount and amortization or write-off
of deferred financing costs, (b) the net costs under Interest Swap Obligations,
(c) all capitalized interest and (d) the interest portion of any deferred
payment obligation; and (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such Person
and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; PROVIDED that there shall be excluded therefrom (a) for purposes of
calculating the Consolidated Fixed Charge Coverage Ratio only, after-tax gains
or losses (net of any related fees and expenses) from Asset Sales or
abandonments or reserves relating thereto, (b) after-tax items classified as
extraordinary or nonrecurring gains or losses, (c) the net income (or loss) of
any Person acquired in a "pooling of interests" transaction accrued prior to
the date it becomes a Restricted Subsidiary of the referent Person or is merged
or consolidated with the referent Person or any Restricted Subsidiary of the
referent Person, (d) the net income (but not loss) of any Restricted Subsidiary
of the referent Person to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is
restricted by a contract, operation of law or otherwise, (e) the net income of
any Person, other than a Restricted Subsidiary of the referent Person, except
to the extent of cash dividends or distributions paid to the referent Person or
to a Restricted Subsidiary of the referent Person by such Person (in the case
that any such Restricted Subsidiary is not a Wholly Owned Restricted
Subsidiary, the portion of net income included therein will be equal to the
Company's interest in such Restricted Subsidiary), (f) for purposes of
calculating the Consolidated Fixed Charge Coverage Ratio only, any restoration
to income of any contingency reserve, except to the extent that provision for
such reserve was made out of Consolidated Net Income accrued at any time
following the Issue Date, (g) income or loss attributable to discontinued
operations (including, without limitation, operations disposed of during such
period whether or not such operations were classified as discontinued), and (h)
in the case of a successor to the referent Person by consolidation or merger or
as a transferee of the referent Person's assets, any earnings of the successor
corporation prior to such consolidation, merger or transfer of assets.
"CONSOLIDATED NET WORTH" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Capital Stock of such Person, PROVIDED that the Consolidated Net
Worth of any Person shall exclude the effect of any non-cash charges relating
to the acceleration of stock options or similar securities of such Person or
another Person with which such Person is merged or consolidated.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"CREDIT AGREEMENT" means the Credit Agreement dated as of May 1, 1998,
among the Company, Neff Rental, Inc., Neff Machinery, Inc., the lenders party
thereto in their capacities as lenders thereunder and Bankers Trust Company, as
agent, together with the related documents thereto (including, without
limitation, any guarantee agreements and security documents), in each case as
such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
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thereunder or adding Restricted Subsidiaries of the Company as additional
borrowers or guarantors thereunder) all or any portion of the Indebtedness
under such agreement or any successor or replacement agreement and whether by
the same or any other agent, lender or group of lenders.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"DEFAULT" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"DESIGNATED SENIOR DEBT" means (i) Indebtedness under or in respect of the
Credit Agreement and (ii) any other Indebtedness constituting Senior Debt
which, at the time of determination, has an aggregate principal amount of at
least $25,000,000 and is specifically designated in the instrument evidencing
such Senior Debt as "Designated Senior Debt" by the Company.
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof on or prior to the final maturity date of the Notes.
"ELIGIBLE ACCOUNTS" has the meaning specified in the Credit Agreement.
"ELIGIBLE FINANCED EQUIPMENT" has the meaning specified in the Credit
Agreement.
"ELIGIBLE PARTS INVENTORY" has the meaning specified in the Credit
Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"FAIR MARKET VALUE" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length, free market transaction,
for cash, between a willing seller and a willing and able buyer, neither of
whom is under undue pressure or compulsion to complete the transaction. Fair
market value shall be determined by the Board of Directors of the Company
acting reasonably and in good faith (which determination shall be conclusive)
and shall be evidenced by a Board Resolution of the Board of Directors of the
Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date. All
ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP applied on a consistent basis, except that
calculations made for purposes of determining compliance with the terms of the
covenants and with other provisions of the Indenture shall be made without
giving effect to (i) the deduction or amortization of any premiums, fees and
expenses incurred in connection with any financings or any other permitted
incurrence of Indebtedness and (ii) depreciation, amortization or other
expenses recorded as a result of the application of purchase accounting in
accordance with Accounting Principles Board Opinion Nos. 16 and 17.
"GUARANTOR" means (i) each of Neff Rental, Inc. and Neff Machinery, Inc.
and (ii) each of the Company's Restricted Subsidiaries that in the future
executes a supplemental indenture in which such Restricted Subsidiary agrees to
be bound by the terms of the Indenture as a Guarantor; PROVIDED that any Person
constituting a Guarantor as described above shall cease to constitute a
Guarantor when its respective Guarantee is released in accordance with the
terms of the Indenture.
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"GUARANTOR SENIOR DEBT" means with respect to any Guarantor, (i) the
principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for
in the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of a Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Debt" shall also include the principal of, premium, if any,
interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (x) all monetary
obligations (including guarantees thereof) of every nature of such Guarantor
under the Credit Agreement, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit,
fees, expenses and indemnities, (y) all Interest Swap Obligations (including
guarantees thereof) and (z) all obligations (including guarantees thereof)
under Currency Agreements, in each case whether outstanding on the Issue Date
or thereafter incurred. Notwithstanding the foregoing, "Guarantor Senior Debt"
shall not include (i) any Indebtedness of such Guarantor to a Restricted
Subsidiary of such Guarantor or any Affiliate of such Guarantor or any of such
Affiliate's Subsidiaries, (ii) Indebtedness to, or guaranteed on behalf of, any
shareholder, director, officer or employee of such Guarantor or any Restricted
Subsidiary of such Guarantor (including, without limitation, amounts owed for
compensation), (iii) Indebtedness to trade creditors and other amounts incurred
in connection with obtaining goods, materials or services (excluding purchase
money indebtedness to equipment manufacturers), (iv) Indebtedness represented
by Disqualified Capital Stock, (v) any liability for federal, state, local or
other taxes owed or owing by such Guarantor, (vi) that portion of any
Indebtedness incurred in violation of the Indenture provisions set forth under
"Limitation on Incurrence of Additional Indebtedness" (but, as to any such
obligation, no such violation shall be deemed to exist for purposes of this
clause (vi) if the holder(s) of such obligation or their representative and the
Trustee shall have received an officers' certificate of the Company to the
effect that the incurrence of such Indebtedness does not (or, in the case of
revolving credit Indebtedness, that the incurrence of the entire committed
amount thereof at the date on which the initial borrowing thereunder is made
would not) violate such provisions of the Indenture), (vii) Indebtedness which,
when incurred and without respect to any election under Section 1111(b) of
Title 11, United States Code, is without recourse to the Company and (viii) any
Indebtedness which is, by its express terms, subordinated in right of payment
to any other Indebtedness of such Guarantor.
"INDEBTEDNESS" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all Capitalized Lease Obligations of such Person, (iv) all Obligations of
such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business), (v) all Obligations for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction, (vi) guarantees and other contingent obligations in
respect of Indebtedness referred to in clauses (i) through (v) above and clause
(viii) below, (vii) all Obligations of any other Person of the type referred to
in clauses (i) through (vi) which are secured by any lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of the
Obligation so secured, (viii) all Obligations under currency agreements and
interest swap agreements of such Person and (ix) all Disqualified Capital Stock
issued by such Person with the amount of Indebtedness represented by such
Disqualified Capital Stock being equal to the greater of its voluntary or
involuntary liquidation preference and its maximum fixed repurchase price, but
excluding accrued dividends, if any. For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were purchased
on any date on which Indebtedness shall be required to be determined
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pursuant to the Indenture, and if such price is based upon, or measured by, the
fair market value of such Disqualified Capital Stock, such fair market value
shall be determined reasonably and in good faith by the Board of Directors of
the issuer of such Disqualified Capital Stock. Indebtedness shall not include
any liability for (i) federal, state, local or other taxes, (ii) endorsements
or negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business or (iii) any indebtedness that has been
defeased or satisfied in accordance with the terms of the documents governing
such indebtedness.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance on such date of all unconditional Obligations as described
above, and the maximum liability upon the occurrence of the contingency giving
rise to the Obligation, on any contingent Obligations at such date; PROVIDED,
HOWEVER, that the amount outstanding at any time of any Indebtedness incurred
with original issue discount is the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP.
"INDEPENDENT FINANCIAL ADVISOR" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified
to perform the task for which it is to be engaged.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant
to any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated
by applying a fixed or a floating rate of interest on the same notional amount
and shall include, without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
"INVESTMENT" means, with respect to any Person, any direct or indirect
loan or other extension of credit (including, without limitation, a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit by
the Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of the "Limitation on
Restricted Payments" covenant, (i) "Investment" shall include and be valued at
the fair market value of the net assets of any Restricted Subsidiary at the
time that such Restricted Subsidiary is designated an Unrestricted Subsidiary
and shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary and (ii) the amount of any Investment shall be the
original cost of such Investment plus the cost of all additional Investments by
the Company or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment, reduced by the payment of dividends or
distributions in connection with such Investment or any other amounts received
in respect of such Investment; PROVIDED that no such payment of dividends or
distributions or receipt of any such other amounts shall reduce the amount of
any Investment if such payment of dividends or distributions or receipt of any
such amounts would be included in Consolidated Net Income. If the Company or
any Restricted Subsidiary of the Company sells or otherwise disposes of any
Common Stock of any direct or indirect Restricted Subsidiary of the Company
(other than all of the Common Stock of such Restricted Subsidiary) such that,
after giving effect to any such sale or disposition, the Company no longer
owns, directly or indirectly, 100% of the outstanding Common Stock of such
Restricted Subsidiary, the Company shall be deemed to have made an Investment
on the date of any such sale or disposition equal to the fair market value of
the Common Stock of such Restricted Subsidiary not sold or disposed of.
"ISSUE DATE" means the date of original issuance of the Notes.
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"LIEN" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement to
give any security interest).
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(other than the portion of any such deferred payment constituting interest)
received by the Company or any of its Restricted Subsidiaries from such Asset
Sale net of (a) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions), (b) taxes paid or payable after taking
into account any reduction in consolidated tax liability due to available tax
credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that either (A) is secured by a Lien on the property or assets
sold or (B) is required to be repaid in connection with such Asset Sale (or in
order to obtain a consent required in connection therewith), (d) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, (e) any consideration for an Asset
Sale (which would otherwise constitute Net Cash Proceeds) that is required to
be held in escrow pending determination of whether a purchase price adjustment
will be made, but amounts under this clause (e) shall become Net Cash Proceeds
at such time and to the extent such amounts are released to such Person and (f)
a pro rata portion of the amount of cash or Cash Equivalents received by any
non-Guarantor Restricted Subsidiary that are held by Persons other than the
Company or its Restricted Subsidiaries.
"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"PARTS INVENTORY" has the meaning specified in the Credit Agreement.
"PERMITTED HOLDER(S)" means (i) Jorge Mas, Jr., Juan Carlos Mas and Jose
Ramon Mas and any of their respective Affiliates, spouses, siblings, lineal
descendants or lineal ascendants or any trust for the benefit of such persons,
(ii) General Electric Capital Corporation and GECFS, Inc. and their Affiliates,
(iii) Kevin P. Fitzgerald, (iv) Santos Fund L.L.P., Santos Capital Advisors,
Inc. and their Affiliates and (v) an entity (a "Holding Company") that owns,
directly or indirectly, beneficially or of record, 100% of the ordinary voting
power represented by the outstanding Capital Stock of the Company, PROVIDED
that no Person or Group (other than a Permitted Holder) becomes the owner,
directly or indirectly, beneficially or of record, of more than 50% of the
ordinary voting power represented by the outstanding Capital Stock of such
Holding Company.
"PERMITTED INDEBTEDNESS" means, without duplication, each of the following:
(i) Indebtedness under the Notes, the Indenture and the Guarantees in
an aggregate principal amount not to exceed $100.0 million;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed the
greater of (A) $350.0 million and (B) the sum of (i) 100% of the net book
value of Eligible Financed Equipment of the Company and its Restricted
Subsidiaries, (ii) 85% of the book value of the Eligible Accounts of the
Company and its Restricted Subsidiaries and (iii) 60% of Parts Inventory of
the Company and its Restricted Subsidiaries, reduced in the case of the
preceding clause (A) by any required permanent repayments from the
application of the use of proceeds from Asset Sales (which in the case of a
revolving credit facility are accompanied by a corresponding permanent
commitment reduction) thereunder;
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(iii) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payments or mandatory prepayments when actually paid
or permanent reductions thereof;
(iv) Interest Swap Obligations of the Company or any of its Restricted
Subsidiaries covering Indebtedness of the Company or such Restricted
Subsidiary; PROVIDED, HOWEVER, that such Interest Swap Obligations are
entered into to protect the Company and its Restricted Subsidiaries from
fluctuations in interest rates on Indebtedness incurred in accordance with
the Indenture to the extent the notional principal amount of such Interest
Swap Obligation does not exceed the principal amount of the Indebtedness to
which such Interest Swap Obligation relates;
(v) Indebtedness under Currency Agreements; PROVIDED that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(vi) Indebtedness of a Wholly Owned Restricted Subsidiary of the
Company to the Company or to a Restricted Subsidiary of the Company for so
long as such Indebtedness is held by the Company, a Wholly Owned Restricted
Subsidiary of the Company or the lenders or collateral agent under the
Credit Agreement, in each case subject to no Lien held by a Person other
than the Company, a Wholly Owned Restricted Subsidiary of the Company or
the lenders or collateral agent under the Credit Agreement; PROVIDED that
if as of any date any Person other than the Company, a Wholly Owned
Restricted Subsidiary of the Company or the lenders or collateral agent
under the Credit Agreement owns or holds any such Indebtedness or holds a
Lien in respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted Indebtedness by the
issuer of such Indebtedness pursuant to this clause (vi);
(vii) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary of the Company for so long as such Indebtedness is held by a
Restricted Subsidiary of the Company or the lenders or collateral agent
under the Credit Agreement, in each case subject to no Lien (other than a
lien in favor of the lenders or collateral agent under the Credit
Agreement); PROVIDED that (a) any Indebtedness of the Company to any Wholly
Owned Restricted Subsidiary of the Company that is not a Guarantor is
unsecured and subordinated, pursuant to a written agreement, to the
Company's obligations under the Indenture and the Notes and (b) if as of
any date any Person other than a Wholly Owned Restricted Subsidiary of the
Company or the lenders or collateral agent under the Credit Agreement owns
or holds any such Indebtedness or any Person holds a Lien in respect of
such Indebtedness, such date shall be deemed the incurrence of Indebtedness
not constituting Permitted Indebtedness by the Company pursuant to this
clause (vii);
(viii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; PROVIDED, HOWEVER, that such
Indebtedness is extinguished within two business days of incurrence;
(ix) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(x) Refinancing Indebtedness;
(xi) Capitalized Lease Obligations and Purchase Money Indebtedness of
the Company or any of its Restricted Subsidiaries not to exceed $20 million
at any one time outstanding;
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(xii) Indebtedness permitted by clauses (iii) and (xiii) of the
definition of "Permitted Investments;"
(xiii) guarantees of Indebtedness otherwise permitted under the
Indenture; and
(xiv) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount (or, in the case of
Indebtedness issued at a discount, an accreted amount (determined in
accordance with GAAP)) not to exceed $10.0 million at any one time
outstanding (which may, but need not, be incurred in whole or in part under
the Credit Agreement).
For purposes of determining compliance with the "Limitation on Incurrence
of Additional Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the types of Permitted Indebtedness
described in the above clauses, the Company, in its sole discretion shall
classify such item of Indebtedness and only be required to include the amount
and type of such Indebtedness in one of such clauses. Any Permitted
Indebtedness initially incurred pursuant to any of the clauses in the preceding
paragraph may at any time at the sole discretion of the Company be treated as
having been incurred pursuant to any other clause as long as the outstanding
amount of such Permitted Indebtedness at the time of any reclassification could
be made pursuant to such other clause.
"PERMITTED INVESTMENTS" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Wholly Owned Restricted Subsidiary of the
Company or that will merge or consolidate into the Company or a Wholly Owned
Restricted Subsidiary of the Company, (ii) Investments in the Company by any
Restricted Subsidiary of the Company; PROVIDED that any Indebtedness evidencing
such Investment is unsecured and, to the extent made by a Restricted Subsidiary
that is not a Guarantor, subordinated, pursuant to a written agreement, to the
Company's obligations under the Notes and the Indenture; (iii) Investments in
an aggregate amount not to exceed $10 million by the Company or any Restricted
Subsidiary of the Company in any Person that is or will become immediately
after such Investment a non-Guarantor Restricted Subsidiary of the Company or
that will merge or consolidate into the Company or a non-Guarantor Restricted
Subsidiary of the Company, (iv) an Investment in the amount of up to $38.0
million to purchase 51% of the Capital Stock of Sulliar Argentina; (v)
investments in cash and Cash Equivalents; (vi) loans and advances to employees
and officers of the Company and its Restricted Subsidiaries in the ordinary
course of business for bona fide business purposes not in excess of $1.0
million at any one time outstanding; (vii) Currency Agreements and Interest
Swap Obligations entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' businesses and otherwise in compliance with the
Indenture; (viii) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers or in good faith
settlement of delinquent obligations of such trade creditors or customers or in
good faith settlement of delinquent obligations of such trade creditors or
customers; (ix) Investments made by the Company or its Restricted Subsidiaries
as a result of consideration received in connection with an Asset Sale made in
compliance with the "Limitation on Asset Sales" covenant; (x) Investments
existing on the Issue Date; (xi) guarantees of Indebtedness otherwise permitted
under the Indenture, (xii) obligations of one or more officers or other
employees of the Company or any of its Restricted Subsidiaries in connection
with such officers' or employee's acquisition of shares of Common Stock of the
Company so long as no cash is paid by the Company or any of its Restricted
Subsidiaries to such officers or employees in connection with the acquisition
of any such obligations; and (xiii) additional Investments in an aggregate
amount that, together with all other Investments made pursuant to this clause
(xiii), does not exceed $25.0 million.
For purposes of determining compliance with the "Limitation on Restricted
Payments" covenant, in the event that an Investment meets the criteria of more
than one of the types of Permitted Investments described in the clauses in the
preceding paragraph, the Company, in its sole discretion, shall classify such
Permitted Investment and only be required to include the amount and type of
such Permitted Investment in one of such clauses. Any Permitted Investment
initially made pursuant to any of the clauses in the preceding paragraph may at
any time at the sole discretion of the Company be
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treated as having been made pursuant to any other clause as long as the
outstanding amount of such Permitted Investment at the time of any
reclassification could be made pursuant to such other clause.
"PERMITTED LIENS" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
that are either (a) not yet due or are delinquent for less than ninety days
or (b) being contested in good faith by appropriate proceedings and as to
which the Company or its Restricted Subsidiaries shall have set aside on
its books such reserves, if any, as may be required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security;
(iv) Liens securing (a) letters of credit issued in the ordinary
course of business consistent with past practice in connection therewith,
or to secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money) and any bank's unexercised
right of set off with respect to deposits made in the ordinary course and
(b) indemnity obligations in respect of the disposition of any business or
assets of the Company or any Restricted Subsidiary (PROVIDED that the
property subject to such Lien does not have a fair market value in excess
of the cash or cash equivalent proceeds received by the Company and its
Restricted Subsidiaries in connection with such disposition);
(v) Liens securing indebtedness incurred in accordance with the
covenant "Limitation on Incurrence of Additional Indebtedness" owing to
John Deere Construction Equipment Company and its Affiliates;
(vi) judgment Liens not giving rise to an Event of Default;
(vii) Liens on parts inventory, as incurred in accordance with the
Credit Agreement;
(viii) easements, rights-of-way, municipal ordinances, zoning
restrictions and other similar charges, encumbrances, title defects or
irregularities not interfering in any material respect with the ordinary
conduct of the business of the Company or any of its Restricted
Subsidiaries;
(ix) any interest or title of a lessor under any Capitalized Lease
Obligation; PROVIDED that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(x) purchase money Liens to finance property or assets of the Company
or any Restricted Subsidiary of the Company acquired in the ordinary course
of business; PROVIDED, HOWEVER, that (A) the related purchase money
Indebtedness shall not exceed the cost of such property or assets
(including the cost of design, development, improvement, production,
acquisition, construction, installation and integration) and shall not be
secured by any property or assets of the Company or any Restricted
Subsidiary of the Company other than the property and assets so acquired or
constructed (and any improvements) and (B) the Lien securing such
Indebtedness shall be created within six months of such acquisition,
construction or improvement;
(xi) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
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(xii) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(xiii) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of offset
and set-off;
(xiv) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xv) Liens securing Indebtedness under Currency Agreements;
(xvi) any lease or sublease to a third party not interfering in any
material respect with the business of the Company and its Restricted
Subsidiaries;
(xvii) Liens placed upon assets of a foreign Restricted Subsidiary of
the Company to service Indebtedness of such foreign Restricted Subsidiary
that is otherwise permitted under the Indenture and;
(xviii) Liens securing Acquired Indebtedness incurred in accordance
with the "Limitation on Incurrence of Additional Indebtedness" covenant;
PROVIDED that (A) such Liens secured such Acquired Indebtedness at the time
of and prior to the incurrence of such Acquired Indebtedness by the Company
or a Restricted Subsidiary of the Company and were not granted in
connection with, or in anticipation of, the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company and
(B) such Liens do not extend to or cover any property or assets of the
Company or of any of its Restricted Subsidiaries other than the property or
assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of the Company or a Restricted
Subsidiary of the Company and are no more favorable to the lienholders than
those securing the Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary of the
Company.
"PERSON" means an individual, partnership, corporation, unincorporated
organization, association, limited liability company, joint stock company,
trust or joint venture, or a governmental agency or political subdivision
thereof or any other entity.
"PREFERRED STOCK" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"REFINANCE" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance
with the "Limitation on Incurrence of Additional Indebtedness" covenant (other
than pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix) or (xiv) of
the definition of Permitted Indebtedness), in each case that does not (1)
result in an increase in the aggregate principal amount of Indebtedness of such
Person as of the date of such proposed Refinancing (plus the amount of any
interest or premium required to be paid under the terms of the instrument
governing such
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Indebtedness and plus the amount of reasonable fees and expenses incurred by
the Company in connection with such Refinancing) or (2) create Indebtedness
with (A) a Weighted Average Life to Maturity that is less than the Weighted
Average Life to Maturity of the Indebtedness being Refinanced or (B) a final
maturity earlier than the final maturity of the Indebtedness being Refinanced;
PROVIDED that (x) if such Indebtedness being Refinanced is Indebtedness of the
Company, then such Refinancing Indebtedness shall be Indebtedness solely of the
Company and (y) if such Indebtedness being Refinanced is subordinate or junior
to the Notes, then such Refinancing Indebtedness shall be subordinate to the
Notes at least to the same extent and in the same manner as the Indebtedness
being Refinanced.
"REPRESENTATIVE" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; PROVIDED that if, and
for so long as, any Designated Senior Debt lacks such a representative, then
the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether
owned by the Company or any Restricted Subsidiary at the Issue Date or later
acquired, which has been or is to be sold or transferred by the Company or such
Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such
Property.
"SENIOR DEBT" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Debt" shall also include the principal of, premium,
if any, interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (x) all monetary
obligations (including guarantees thereof) of every nature of the Company under
the Credit Agreement, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit,
fees, expenses and indemnities, (y) all Interest Swap Obligations (including
guarantees thereof) and (z) all obligations (including guarantees thereof)
under Currency Agreements, in each case whether outstanding on the Issue Date
or thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall not
include (i) any Indebtedness of the Company to a Subsidiary of the Company or
any Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii)
Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer
or employee of the Company or any Subsidiary of the Company (including, without
limitation, amounts owed for compensation), (iii) Indebtedness to trade
creditors and other amounts incurred in connection with obtaining goods,
materials or services (excluding purchase money indebtedness to equipment
manufacturers), (iv) Indebtedness represented by Disqualified Capital Stock,
(v) any liability for federal, state, local or other taxes owed or owing by the
Company, (vi) that portion of any Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Incurrence of Additional
Indebtedness" (but, as to any such obligation, no such violation shall be
deemed to exist for purposes of this clause (vi) if the holder(s) of such
obligation or their representative and the Trustee shall have received an
officers' certificate of the Company to the effect that the incurrence of such
Indebtedness does not (or, in the case of revolving credit Indebtedness, that
the incurrence of the entire committed amount thereof at the date on which the
initial borrowing thereunder is made would not) violate such provisions of the
Indenture), (vii) Indebtedness which, when incurred and without respect
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to any election under Section 1111(b) of Title 11, United States Code, is
without recourse to the Company and (viii) any Indebtedness which is, by its
express terms, subordinated in right of payment to any other Indebtedness of
the Company.
"SERIES A PREFERRED STOCK" means the 340,907 shares of the Company's
Series A cumulative convertible redeemable preferred stock with detachable
stock purchase warrant, $.01 par value per share.
"SIGNIFICANT SUBSIDIARY" shall have the meaning set forth in Rule 1.02(w)
of Regulation S-X under the Securities Act.
"SUBSIDIARY", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"TREASURY RATE" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled by, and
published in, the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
date fixed for redemption of the Notes following a Change of Control (or, if
such Statistical Release is no longer published, any publicly available source
of similar market data)) most nearly equal to the then remaining Average Life
to Stated Maturity of the Notes; PROVIDED, HOWEVER, that if the Average Life to
Stated Maturity of the Notes is not equal to the constant maturity of a United
States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the Average
Life to Stated Maturity of the Notes is less than one year, the weekly average
yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
"UNRESTRICTED SUBSIDIARY" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; PROVIDED that (x) the Company
certifies to the Trustee that such designation complies with the "Limitation on
Restricted Payments" covenant and (y) each Subsidiary to be so designated and
each of its Subsidiaries has not at the time of designation, and does not
thereafter, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to any Indebtedness pursuant to
which the lender has recourse to any of the assets of the Company or any of its
Restricted Subsidiaries. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary only if (x) immediately after giving
effect to such designation, the Company is able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance with
the "Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an officers' certificate certifying that such
designation complied with the foregoing provisions.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal,
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including payment at final maturity, in respect thereof, by (ii) the number of
years (calculated to the nearest one-twelfth) which will elapse between such
date and the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
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EXCHANGE OFFER; REGISTRATION RIGHTS
Holders of New Notes are not generally entitled to any registration rights
with respect to such New Notes. In connection with the initial issuance and
sale of the Old Notes, the Company, the Guarantors and the Initial Purchasers
entered into the Registration Rights Agreement pursuant to which the Company
and the Guarantors agreed that they would, at their cost, for the benefit of
the Holders, (i) within 60 days after the Issue Date (the "Filing Date"), file
a registration statement on an appropriate registration form (the "Exchange
Offer Registration Statement") with respect to a registered offer (the
"Exchange Offer") to exchange the Old Notes for the New Notes, which will have
terms substantially identical in all material respects to the Old Notes (except
that the New Notes will not contain terms with respect to transfer
restrictions) and (ii) to use their best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act within
150 days after the Issue Date. Upon the Exchange Offer Registration Statement
being declared effective, the Company and the Guarantors agreed to offer the
New Notes in exchange for surrender of the Old Notes. The Company and the
Guarantors will keep the Exchange Offer open for not less than 20 business days
(or longer if required by applicable law) after the date notice of the Exchange
Offer is mailed to the Holders. For each of the Old Notes surrendered to the
Company pursuant to the Exchange Offer, the Holder who surrendered such Old
Notes will receive a New Note having a principal amount equal to that of the
surrendered Old Notes. Interest on each New Note will accrue (A) from the later
of (i) the last interest payment date on which interest was paid on the Old
Note surrendered in exchange therefor, and (ii) if the Old Note is surrendered
for exchange on a date in a period which includes the record date for an
interest payment date to occur on or after the date of such exchange and as to
which interest will be paid, the date of such interest payment date or (B) if
no interest has been paid on the Old Notes, from the Issue Date.
Under existing interpretations of the Commission contained in several
no-action letters to third parties, the New Notes will be freely transferable
by Holders thereof (other than affiliates of the Company and the Guarantors)
after the Exchange Offer without further registration under the Securities Act;
provided, however, that each Holder that wishes to exchange its Old Notes for
New Notes will be required to represent (i) that any New Notes to be received
by it will be acquired in the ordinary course of its business, (ii) that at the
time of the commencement of the Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the New Notes in violation of the Securities
Act, (iii) that it is not an "affiliate" (as defined in Rule 405 promulgated
under the Securities Act) of the Company or the Guarantors, (iv) if such Holder
is not a broker-dealer, that it is not engaged in, and does not intend to
engage in, the distribution of New Notes and (v) if such Holder is a
broker-dealer (a "Participating Broker-Dealer") that will receive New Notes for
its own account in exchange for Old Notes that were acquired as a result of
market-making or other trading activities, that it will deliver a prospectus in
connection with any resale of such New Notes. The Company and the Guarantors
will agree to make available, during the period required by the Securities Act,
a prospectus meeting the requirement of the Securities Act for use by
Participating Broker-Dealers and other persons, if any, with similar prospectus
delivery requirements for use in connection with any resale of New Notes.
If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, the Company and the Guarantors
are not permitted to effect an Exchange Offer, (ii) the Exchange Offer is not
consummated within 190 days of the Issue Date, (iii) in certain circumstances,
certain Holders of unregistered Notes so request, or (iv) in the case of any
Holder that participates in the Exchange Offer, such Holder does not receive
New Notes on the date of the exchange that may be sold without restriction
under state and federal securities laws (other than due solely to the status of
such Holder as an affiliate of the Company or any Guarantor within the meaning
of the Securities Act), then in each case, the Company and the Guarantors will
(x) promptly deliver to the Holders and the Trustee written notice thereof and
(y) at their sole expense, (a) as promptly as practicable, file a shelf
registration statement covering resales of the Notes (the "Shelf Registration
Statement"), (b) use their best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act and (c) use their
best efforts to keep effective the Shelf Registration Statement until the
earlier of two
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years after the Issue Date or such time as all of the applicable Notes have
been sold thereunder. The Company will, in the event that a Shelf Registration
Statement is filed, provide to each Holder copies of the prospectus that is a
part of the Shelf Registration Statement, notify each such Holder when the
Shelf Registration Statement for the Notes has become effective and take
certain other actions as are required to permit unrestricted resales of the
Notes. A Holder that sells Notes pursuant to the Shelf Registration Statement
will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such a Holder (including
certain indemnification rights and obligations).
If the Company or the Guarantors fail to comply with the above provisions
or if the Exchange Offer Registration Statement or the Shelf Registration
Statement fails to become effective, then, as liquidated damages, additional
interest (the "Additional Interest") shall become payable in respect of the Old
Notes as follows:
(i) if (A) neither the Exchange Offer Registration Statement nor a Shelf
Registration Statement is filed with the Commission on or prior to the Filing
Date or (B) notwithstanding that the Company and the Guarantors have
consummated or will consummate an Exchange Offer, the Company and the
Guarantors are required to file a Shelf Registration Statement and such Shelf
Registration Statement is not filed on or prior to the date required by the
Registration Rights Agreement, then commencing on the day after either such
required filing date, Additional Interest shall accrue on the principal amount
of the Old Notes at a rate of 0.50% per annum, for the first 90 days
immediately following each such filing date, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each subsequent
90-day period; or
(ii) if (A) neither the Exchange Offer Registration Statement nor a Shelf
Registration Statement is declared effective by the Commission on or prior to
150 days after the Issue Date or (B) notwithstanding that the Company and the
Guarantors have consummated or will consummate an Exchange Offer, the Company
and the Guarantors are required to file a Shelf Registration Statement and such
Shelf Registration Statement is not declared effective by the Commission on or
prior to the 60th day following the date such Shelf Registration Statement was
filed, then, commencing on the date after the 60th day following the applicable
filing date, Additional Interest shall accrue on the principal amount of the
Old Notes at a rate of 0.50% per annum for the first 90 days immediately
following such date, such Additional Interest rate increasing by an additional
0.50% per annum at the beginning of each subsequent 90-day period; or
(iii) If (A) the Company and the Guarantors have not exchanged New Notes
for all Old Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to the 60th day after the date on which the Exchange Offer
Registration Statement was declared effective or (B) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf Registration
Statement ceases to be effective at any time prior to the second anniversary of
the Issue Date (other than after such time as all Old Notes have been disposed
of thereunder), then Additional Interest shall accrue on the principal amount
of the Old Notes at a rate of 0.50% per annum for the first 90 days commencing
on (x) the 61st day after such effective date, in the case of (A) above, or (y)
the day such Shelf Registration Statement ceases to be effective in the case of
(B) above, such Additional Interest rate increasing by an additional 0.50% per
annum at the beginning of each subsequent 90-day period; provided, however,
that the Additional Interest rate on the Old Notes under the foregoing clauses
(i), (ii) and (iii) may not exceed in the aggregate 2.0% per annum; provided,
further, however, that (1) upon the filing of the Exchange Offer Registration
Statement or a Shelf Registration Statement (in the case of clause (i) above),
(2) upon the effectiveness of the Exchange Offer Registration Statement or a
Shelf Registration Statement (in the case of clause (ii) above), or (3) upon
the exchange of New Notes for all Notes tendered (in the case of clause
(iii)(A) above), or upon the effectiveness of the Shelf Registration Statement
which had ceased to remain effective (in the case of clause (iii)(B) above),
Additional Interest on the Old Notes as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue.
106
<PAGE>
Any amounts of Additional Interest due pursuant to clauses (i), (ii) or
(iii) above will be payable in cash, on the same original interest payment
dates as the Old Notes. The amount of Additional Interest will be determined by
multiplying the applicable Additional Interest rate by the principal amount of
the Old Notes multiplied by a fraction, the numerator of which is the number of
days such Additional Interest rate was applicable during such period
(determined on the basis of a 360-day year comprised of twelve 30-day months),
and the denominator of which is 360.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement, a
copy of which is filed as an exhibit to the Registration Statement of which
this Prospectus constitutes a part.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the New Notes will be issued in fully
registered form. Except as described in the next paragraph, the New Notes
initially will be represented by one or more permanent global certificates in
definitive, fully registered form (the "Global Notes"). The Global Notes will
be deposited with, or on behalf of, The Depository Trust Company, New York, New
York ("DTC") and registered in the name of a nominee of DTC.
THE GLOBAL NOTES
The Company expects that pursuant to procedures established by DTC (i)
upon the issuance of the Global Notes, DTC or its custodian will credit, on its
internal system, the principal amount of New Notes of the individual beneficial
interests represented by such Global Notes to the respective accounts of
persons who have accounts with such depository and (ii) ownership of beneficial
interests in the Global Notes will be shown on, and the transfer of such
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
Ownership of beneficial interests in the Global Notes will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants.
So long as DTC, or its nominee, is the registered owner or Holder of the
New Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or Holder of the New Notes represented by such Global Notes for all
purposes under the Indenture. No beneficial owner of an interest in the Global
Notes will be able to transfer that interest except in accordance with DTCs
procedures, in addition to those provided for under the Indenture with respect
to the New Notes.
Payments of the principal of, premium (if any), or interest (including
Additional Interest) on the Global Notes will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment
of principal, premium, if any, or interest (including Additional Interest) on
the Global Notes, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Notes as shown on the records of DTC or its nominee. The Company
also expects that payments by participants to owners of beneficial interests in
the Global Notes held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
107
<PAGE>
Transfers between participants in DTC will be effected in the ordinary way
through DTC's sameday funds system in accordance with DTC rules and will be
settled in same day funds. If a Holder requires physical delivery of a
certificated security ("Certificated Securities") for any reason, including to
sell New Notes to persons in states which require physical delivery of the New
Notes or to pledge such securities, such holder must transfer its interest in a
Global Note, in accordance with the normal procedures of DTC and with the
procedures set forth in the Indenture.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and certain other organizations. Indirect
access to the DTC system is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a participant, either directly or indirectly ("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performances by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED SECURITIES
If DTC is at any time unwilling or unable to continue as a depository for
the Global Note and a successor depository is not appointed by the Company
within 90 days, Certificated Securities will be issued in exchange for the
Global Notes.
108
<PAGE>
CERTAIN UNITED STATES TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a general discussion of certain United States federal
income tax consequences to Non-U.S. Holders of owning and disposing of the
Notes. As used herein, the term "Non-U.S. Holder" means a beneficial owner of a
Note that, for United States federal income tax purposes, is an individual or
entity other than a citizen or individual resident of the United States, a
corporation (or other entity taxable as a corporation) or partnership created
or organized in or under the laws of the United States or any political
subdivision thereof (other than a partnership treated as foreign under U.S.
Treasury regulations), an estate the income of which is subject to United
States federal income taxation regardless of its source or a trust if (i) a
United States court is able to exercise primary supervision over the trust's
administration and (ii) one or more U.S. persons have the authority to control
all of the trust's substantial decisions.
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 United States federal income tax as if they were U.S.
citizens.
This discussion does not deal with all aspects of United States federal
income taxation that may be relevant to Holders of the Notes in light of their
personal circumstances or to certain types of 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 persons who have hedged the risk of owning a Note) and does
not deal with tax consequences arising under the laws of any foreign, state or
local jurisdiction. It is, moreover, based upon the provisions of existing law
on the date hereof, including, in particular, the Internal Revenue Code of
1986, as amended (the "Code"), Treasury regulations promulgated thereunder and
other administrative and judicial interpretations thereof, all of which are
subject to change at any time, with or without retroactive effect. This
discussion also generally assumes that each Holder holds the Note as a capital
asset within the meaning of Section 1221 of the Code and that any amounts
received by a Non-U.S. Holder with respect to the Note are not effectively
connected with the conduct by such Non-U.S. Holder of a trade or business in
the United States. The following summary provides general information only.
Accordingly, each prospective Holder is advised to consult its own tax advisers
with respect to current and possible future tax consequences of acquiring,
holding and disposing of the Notes.
THE EXCHANGE OFFER. The exchange of Old Notes for New Notes pursuant to
the Exchange Offer will not be a taxable event for United States federal income
tax purposes, and the tax characteristics of the New Notes (e.g., tax basis,
holding period, issue price and issue date) will be the same as those of the
Old Notes exchanged therefor.
PAYMENTS OF INTEREST. A Non-U.S. Holder will not be subject to United
States federal income tax at a 30% rate (or lower treaty rate) by withholding
or otherwise on payments of interest on a Note (provided that the beneficial
owner of the Note fulfills the statement requirements set forth in applicable
Treasury regulations and described below) unless (A) such Non-U.S. Holder (i)
actually or constructively owns 10% or more of the total combined voting power
of all classes of stock of the Company entitled to vote, (ii) is a controlled
foreign corporation related, directly or indirectly, to the Company through
stock ownership, or (iii) is a bank receiving interest described in Section
881(c)(3)(A) of the Code or (B) such interest is effectively connected with the
conduct of a trade or business by the Non-U.S. Holder in the United States (or,
if a tax treaty applies, is attributable to a permanent establishment in the
United States).
The statement requirement referred to above will be fulfilled if the
beneficial owner of a Note certifies on IRS Form W-8, under penalties of
perjury, that it is not a U.S. person and provides its name and address, and
(i) such beneficial owner files such Form W-8 with the withholding agent or
(ii) in the
109
<PAGE>
case of a Note held on behalf of the beneficial owner by a securities clearing
organization, bank or other financial institution holding customers' securities
in the ordinary course of its trade or business, such financial institution
files with the withholding agent a statement that it has received the Form W-8
from the holder and furnishes the withholding agent with a copy thereof.
Prospective investors, including foreign partnerships and their partners,
should consult their tax advisors regarding possible additional reporting
requirements.
GAIN ON DISPOSITION OF THE NOTES. A Non-U.S. Holder will not be subject to
United States federal income tax by withholding or otherwise on any gain
realized upon the disposition of a Note unless (i) the gain is effectively
connected with the conduct of a trade or business by the Non-U.S. Holder in the
United States or, if a tax treaty applies, is attributable to a permanent
establishment in the United States, (ii) in the case of a Non-U.S. Holder who
is an individual, such Non-U.S. Holder is present in the United States for a
period or periods aggregating 183 days or more during the taxable year of the
disposition and certain other conditions are met or (iii) the Non-U.S. Holder
is subject to provisions of U.S. tax law applicable to certain U.S.
expatriates.
EFFECTIVELY CONNECTED INCOME. To the extent that interest income or gain
on the disposition of the Note is effectively connected with the conduct of a
trade or business of the Non-U.S. Holder in the United States or, if a tax
treaty applies, is attributable to a permanent establishment in the United
States, such income will be subject to United States federal income tax on a
net income basis at the same rates generally applicable to U.S. persons.
Additionally, in the case of a Non-U.S. Holder that is a corporation, such
effectively connected income may be subject to the United States branch profits
tax at the rate of 30% (or lower treaty rate).
TREATIES. A tax treaty between the United States and a country in which a
Non-U.S. Holder is a resident may alter the tax consequences described above.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding of United States federal income tax at a rate of 31%
and information reporting generally will apply to payments of principal,
interest and premium (if any) to a Non-U.S. Holder that is not an "Exempt
Recipient" and that fails to provide certain information as may be required by
United States law and applicable regulations. Backup withholding will not apply
to payments by the Company or a Note if the statement requirement described
above in "Payments of Interest" is satisfied, provided that the payor does not
have actual knowledge that the payee is a U.S. person. The payment of the
proceeds of the disposition of Notes to or through the United States office of
any broker, U.S. or foreign, will be subject to information reporting and
backup withholding at a rate of 31% unless the owner certifies its status as a
Non-U.S. Holder under penalties of perjury or otherwise establishes an
exemption, provided the broker does not have actual knowledge that the holder
is a U.S. person or that the conditions of any other exemption are not, in
fact, satisfied. The payment of the proceeds of the disposition of Notes to or
through a non-U.S. office of a non-U.S. broker that is not a U.S. related
person will not be subject to information reporting or backup withholding. For
this purpose, a "U.S. related person" is (i) a "controlled foreign corporation"
for U.S. federal income tax purposes, (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, or (iii)
for payments made after December 31, 1999, a partnership with certain
connections to the United States. In the case of the payment of proceeds from
the disposition of Notes to or through a non-U.S. office of a broker that is
either a U.S. person or a U.S. related person, information reporting is
required on the payment unless the broker has documentary evidence in its files
that the owner is a Non-U.S. Holder and the broker has no knowledge to the
contrary.
Holders should consult their tax advisors regarding the application of
information reporting and backup withholding in their particular situation and
the availability of an exemption therefrom, and the procedures for obtaining
such exemption, and regarding the effect of new regulations generally effective
110
<PAGE>
for payments made after December 31, 1999. Any amounts withheld from a payment
to a Non-U.S. Holder under the back-up withholding rules will be allowed as a
credit against such Holder's United States federal income tax liability and may
entitle such Holder to a refund, provided that the required information is
furnished to the IRS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company and the Subsidiary Guarantors have agreed that,
for a period of 190 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act, and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 190 days after the Expiration Date, the Company will send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal.
The Company and the Guarantors have agreed to pay all expenses incident to
this Exchange Offer other than commissions or concessions of any brokers or
dealers and will indemnify the Holders of the New Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Fried, Frank, Harris, Shriver & Jacobson, Washington, D.C.
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
111
<PAGE>
subsidiaries included elsewhere in this Prospectus 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 Prospectus 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
Prospectus 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.
112
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents which have been filed by the Company with the
Commission are incorporated in this Prospectus by reference:
1. The Company's Current Report on Form 8-K dated June 30, 1998 and filed
on July 15, 1998.
All reports and other documents filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Prospectus and prior to the consummation of the Exchange Offer
shall be deemed to be incorporated herein by reference and to be a part hereof
on and from the date of filing such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or incorporated
herein by reference or in any other subsequently filed document that also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a
copy of any and all documents incorporated by reference in this Prospectus (not
including exhibits to such information, unless such exhibits are specifically
incorporated by reference in such information). Such requests should be
directed to Neff Corp., Attention: Secretary, 3750 N.W. 87th Avenue, Miami,
Florida, 33178 (telephone (305) 513-3350).
113
<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 F-5
in the period ended December 31, 1997 ..............................................
Consolidated Statements of Common Stockholders' Deficit F-6
for each of the three years in the period ended December 31, 1997 ..................
Consolidated Statements of Cash Flows for each of the three years F-7
in the period ended December 31, 1997 ..............................................
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 F-24
March 25, 1997 and March 31, 1998 (unaudited) ......................................
Consolidated Statement of Common Stockholders' Equity (Deficit) F-25
for the first quarter ended March 31, 1998 (unaudited) .............................
Consolidated Statements of Cash Flows for the first quarter ended F-26
March 25, 1997 and March 31, 1998 (unaudited) ......................................
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 F-32
in the period ended July 31, 1997 ..................................................
Consolidated Statements of Stockholders' Equity for each of the three years F-33
in the period ended July 31, 1997 ..................................................
Consolidated Statements of Cash Flows for each of the three years F-34
in the period ended July 31, 1997 ..................................................
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 F-48
in the period ended December 31, 1997 ..............................................
Statements of Common Stockholders' Equity for each of the three years F-49
in the period ended December 31, 1997 ..............................................
Statements of Cash Flows for each of the three years F-50
in the period ended December 31, 1997 ..............................................
Notes to Financial Statements ........................................................ F-51
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<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 F-57
December 31, 1997, 1996 and 1995 ....................................................
Consolidated Statements of Changes in Shareholders' Equity for the years ended F-58
December 31, 1997, 1996 and 1995 ....................................................
Consolidated Statements of Cash Flows for the years ended F-59
December 31, 1997, 1996 and 1995 ....................................................
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 F-79
(unaudited) .........................................................................
Consolidated Statement of Changes in Shareholders' Equity for the three months ended F-80
March 31, 1998 (unaudited) ..........................................................
Consolidated Statements of Cash Flows for the three months ended F-81
March 31, 1998 and 1997 (unaudited) .................................................
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.
DELOITTE & TOUCHE LLP
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 20, 1998, respectively
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):
1997
---------
1998 ......................................................... $ 802
1999 ......................................................... 813
2000 ......................................................... 466
2001 ......................................................... 390
2002 ......................................................... 215
------
Total future minimum lease payments .......................... 2,686
Less amounts representing interest (6.00% to 13.5%) .......... (366)
------
Present value of net future minimum lease payments ........... $2,320
======
F-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)
1998 ............................................................ $212,077
1999 ............................................................ 312
2000 ............................................................ 274
2001 ............................................................ 140
2002 ............................................................ 2,680
Thereafter ...................................................... 10,720
--------
$226,203
========
NOTE 6--REDEEMABLE PREFERRED STOCK AND DETACHABLE STOCK PURCHASE WARRANT
During December 1995, the Company issued 300,000 shares of Series A
Cumulative Redeemable Preferred Stock ("Series A"), and a detachable stock
purchase warrant (the "Redeemable Warrant") for $12.0 million ($11.4 million
net of certain related costs). Series A provides for the semiannual payment of
preferential dividends at an annual rate of 8% (5% beginning January 1, 1997)
of the liquidation value. The dividends are payable in cash or in additional
shares through the later of December 31, 1999 or the expiration of the
Company's Senior Credit Facility (see Note 5). Series A is scheduled to be
redeemed by the Company in December 2002 and restricts the payment of dividends
or any other distributions to holders of the Company's common stock.
The Redeemable Warrant granted the holder the right to acquire
approximately 20% of the common stock of the Company at a purchase price of
$.01 per share. The Redeemable Warrant was redeemable at the holder's option
during a specified period and at a price equal to its fair market value. The
Company had the option for a specified period of time to redeem the Redeemable
Warrant from the holder at a price equal to its fair market value as defined.
Series A and the Redeemable Warrant were recorded at their pro rata estimated
fair value in relation to the proceeds received on the date of issuance ($8.0
million for the Series A and $3.4 million for the Redeemable Warrant, net of
issue costs). Series A will be accreted to its liquidation value at maturity of
$12.0 million utilizing the effective interest method. The Redeemable Warrant
was being accreted to its fair value on a prospective basis until the mandatory
redemption date in December 2000. Through December 31, 1996, accretion to the
Series A and the Redeemable Warrant amounted to approximately $0.5 million and
$1.9 million, respectively.
During December 1996, in connection with the execution of the Senior
Credit Facility, the Company, and GE Capital, entered into certain agreements,
including an agreement to exercise the Redeemable Warrant for approximately 20%
of the Company's common stock. Simultaneously with this exercise, the Company
and GE Capital agreed to exchange the shares of common stock for 800,000 shares
of Series B Cumulative Convertible Redeemable Preferred Stock ("Series B"). The
accreted balance of the Redeemable Warrant on the date these agreements were
entered into was approximately $5.3 million which represented the carrying
value of Series B as of December 31, 1996. Series B is
F-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:
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1995 1996
---------- ------------
Pro forma net loss (in thousands) ......... $ (189) $ (2,439)
====== ========
Pro forma earnings per share
Basic ................................... $ (.02) $ (.69)
====== ========
Diluted ................................. $ (.02) $ (.69)
====== ========
The fair value of options granted, in accordance with the provisions of
SFAS 123, were determined using the Black-Scholes option pricing model with a
risk-free interest rate of 6.74%, zero volatility and expected life of 10
years.
Effective January 1, 1997, the Company adopted a phantom stock plan (the
"Phantom Plan"). The Phantom Plan is designed to reward employees for increases
in the Company's performance. The Phantom Plan enables the Company to award
employees individual units representing a hypothetical share of the Company's
stock (the "Phantom Share"). Each Phantom Share is assigned a share value on
the date granted as determined by the administrator of the Phantom Plan. The
difference between the calculated share value, as determined pursuant to a
formula set forth in the Phantom Plan, of the Phantom Share on the date
redeemed by the employee and the value assigned on the date of grant represents
the cash award the employee is entitled to receive on the redemption date. The
Phantom Shares generally vest over five years. As of December 31, 1997, the
Company had granted 155,500 Phantom Shares with an assigned per share value of
$9. No compensation expense had been recorded in the accompanying statements
of operations as the assigned share value on the date of grant exceeds the
calculated share value as of December 31, 1997.
The Company has granted to GE Capital an option to acquire common stock of
the Company in an amount that would equal 51% ownership after conversion of the
Series B and Series C preferred stock. In connection with the conversion of the
Series B and Series C preferred stock, (see Note 15), the Company and GE
Capital plan to cancel this option. The exercise price for this option is based
upon fair market value of the Company determined on the date the option is
exercised. GE Capital may exercise the option at any time from July 1, 1998
until June 30, 1999.
NOTE 8--RETIREMENT PLAN
In February 1996, the Company adopted a qualified 401(k) profit sharing
plan (the "401(k) Plan"). The 401(k) Plan covers substantially all employees of
the Company. Participating employees may contribute to the 401(k) Plan through
salary reductions. The Company may contribute, at its discretion, matching
contributions equal to 50% of the employee's contribution not to exceed 3% of
the employee's annual salary. The Company contributed approximately $0.2
million and $0.3 million to the 401(k) Plan for the years ended December 31,
1996 and 1997, respectively.
F-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):
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------
1995 1996 1997
=========== ============ =========
Current .......... $ -- $ (1,057) $ --
Deferred ......... (2,860) 596 1,748
-------- -------- ------
Total ............ $ (2,860) $ (461) $1,748
======== ======== ======
The following table summarizes the tax effects comprising the Company's
net deferred tax liabilities (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards ............................. $ 809 $ 4,347
Alternative minimum tax credits .............................. 247 874
Deferred stock option compensation ........................... -- 1,672
Intangible assets, allowance for bad debts and other ......... 219 1,037
-------- --------
Total deferred tax assets ................................. 1,275 7,930
Valuation allowance ........................................... (809) (1,368)
DEFERRED TAX LIABILITIES--Depreciation ........................ (2,730) (7,698)
-------- --------
NET DEFERRED TAX LIABILITY .................................... $ (2,264) $ (1,136)
======== ========
</TABLE>
As of December 31, 1997, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $11.4 million and
$12.7 million, respectively, expiring in 2012 (includes net operating loss
carryforwards for federal and state income tax purposes of approximately $4.4
million and $5.6 million, respectively, acquired in connection with the
acquisition of IER described in Note 1). IER's net operating loss carryforwards
may only be utilized by Rental. In addition, the Company has reduced the
adjustment to stockholders' equity by $1.8 million related to the tax benefit
of the acquisition of property from a related party (see Note 13).
Current accounting standards require that deferred income taxes reflect
the tax consequences on future years of differences between the tax bases of
assets and liabilities and their bases for financial reporting purposes. In
addition, future tax benefits, such as net operating loss (NOL) carryforwards,
are
F-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):
1998 ............................................................ $ 2,400
1999 ............................................................ 2,192
2000 ............................................................ 1,999
2001 ............................................................ 1,549
2002 ............................................................ 957
Thereafter ...................................................... 2,029
-------
$11,126
=======
NOTE 14--SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
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):
MARCH 25, 1997
---------------
Revenues .................................. $41,159
=======
Net (loss) income ......................... $ 1,117
=======
Basic and diluted earnings per common share
Basic .................................... $ (.13)
=======
Diluted .................................. $ (.13)
=======
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
FIRST QUARTER ENDED
------------------------
MARCH 25, MARCH 31,
1997 1998
----------- ----------
(IN THOUSANDS)
Supplemental Disclosure of Cash Flow Information
Cash paid for interest ........................ $1,224 $6,752
====== ======
Cash paid for taxes ........................... $ 507 $ --
====== ======
F-29
<PAGE>
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).
ARTHUR ANDERSEN LLP
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 accompanying 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 accompanying 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 accompanying 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):
1996 1997
---------- -----------
The Credit Agreement:
Term Loan and Revolving Facility ................ $ 11,227 $ 8,417
Capex Facility .................................. 5,897 6,435
-------- ---------
17,124 14,852
Equipment Contracts .............................. 9,149 7,592
Promissory Notes ................................. 824 807
-------- ---------
Senior Secured Borrowings ........................ 27,097 23,251
Less: Current Portion ............................ (5,809) (22,630)
-------- ---------
Total Long-Term Debt ........................... $ 21,288 $ 621
======== =========
9% Subordinated Debentures plus interest ......... $ 4,011 $ 4,371
12% Subordinated Debentures ...................... 3,800 3,800
-------- ---------
Total Subordinated Debentures .................. $ 7,811 $ 8,171
======== =========
THE CREDIT AGREEMENT
On July 31, 1997, the Company had in place a credit facility that
originated on June 18, 1993 under a loan and security agreement (the "Credit
Agreement") with a financial institution (the "Lender") that initially provided
BRS with a borrowing base of up to $12 million which was increased to $18
million on July 21, 1994 ("Amendment No. 1") and $27 million on August 18, 1995
("Amendment No. 3"). The
F-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):
YEAR ENDED JULY 31 OPERATING LEASES
- ------------------ ----------------
1998 ................................................ $ 698
1999 ................................................ 403
2000 ................................................ 367
2001 ................................................ 148
2002 ................................................ 48
------
$1,664
======
The Company leases its facilities at various monthly rental terms which
expire at various dates through September 2006. The above amounts include
commitments from the A-l Rental Center, Rental World, and Cameron acquisitions
(see Note 4). Total rent of $0.4 million, $0.7 million and $0.7 million for the
periods ended July 31, 1995, 1996, and 1997 were charged to facilities expense.
At July 31, 1997, the Company had future payments under capital leases as
follows (in thousands):
YEAR ENDED JULY 31 CAPITAL LEASE OBLIGATIONS
- ------------------ -------------------------
1998 ............................................ $ 85
1999 ............................................ --
2000 ............................................ --
2001 ............................................ --
2002 ............................................ --
-----
85
Less: Interest .................................... (11)
-----
Capital Lease Obligations ......................... $ 74
=====
The Company is party to several capital leases primarily related to
computers and computer-related equipment. These leases have been capitalized
using interest rates ranging from 7 percent to 12 percent. Amortization on the
capitalized amounts is included in depreciation expense. All of the capitalized
leases were repaid subsequent to July 31, 1997 as a result of the sale of the
Company and accordingly, all capital leases payable were classified as current
liabilities in the accompanying consolidated balance sheets.
F-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):
1995 1996 1997
------ --------- -------
Current
Federal ................................... $ -- $ -- $ --
State ..................................... 8 -- --
---- ------ ----
8 -- --
---- ------ ----
Deferred
Federal ................................... 233 (117) 266
State ..................................... 26 (13) 29
---- ------ ----
259 (130) 296
---- ------ ----
$267 $ (130) $296
==== ====== ====
The reconciliation of the tax provision to the tax provision computed at
statutory rates is as follows for the years ended July 31 (in thousands):
1995 1996 1997
------ ---------- ------
Federal tax at statutory rate (34%) .......... $195 $ (212) $173
Nondeductible expenses ....................... 42 54 48
State taxes .................................. 22 (25) 20
Valuation allowance and other ................ 8 53 55
---- ------ ----
$267 $ (130) $296
==== ====== ====
The deferred income tax balances consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Property and equipment basis differences .......... $2,694 $3,336
------ ------
Total deferred tax liabilities .................... 2,694 3,336
------ ------
DEFERRED TAX ASSETS:
Net operating loss carryforwards .................. 1,371 1,721
Alternative minimum tax credit .................... 627 627
Other ............................................. 279 324
------ ------
Total deferred tax assets ......................... 2,277 2,672
Valuation allowance for deferred tax assets ......... (177) (226)
------ ------
Net deferred tax assets ............................. 2,100 2,446
------ ------
Net deferred tax liabilities ........................ $ 594 $ 890
====== ======
</TABLE>
Included in prepaid expense and other are current deferred tax assets of
$237 and $188 at July 31, 1996 and 1997, respectively.
F-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.
Buenos Aires, Argentina PRICE WATERHOUSE & CO.
March 25, 1998 Daniel A. Lopez Lado (Partner)
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.
YEAR ENDED
DECEMBER 31, HIGH LOW AVERAGE(1) END OF PERIOD
- ------------ ----------- ----------- ------------ --------------
1995 ......... 1.0000 0.9990 0.9995 1.0000
1996 ......... 1.0000 1.0000 1.0000 1.0000
1997 ......... 1.0000 1.0000 1.0000 1.0000
- ----------------
(1) Average of month-end rates.
SOURCES: CENTRAL BANK--BANCO DE LA NACION ARGENTINA.
c) The consolidated financial statements of Sullair Argentina Sociedad
Anonima at December 31, 1997, as well as the related notes and exhibits, have
been prepared in Argentine pesos on the basis of accounting records carried in
Argentina in that currency. These financial statements include a column that
gives effect to the translation into U.S. dollars of the balances at December
31, 1997. Balances have been translated at the exchange rate at December 31,
1997, indicated in Note 1.2.b).
1.3. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance
with Argentine GAAP and with the requirements of the IGJ, and are presented in
Argentine pesos ("P$").
1.4. CASH AND CASH EQUIVALENTS
In the consolidated statements of cash flows, the Company considers cash
and cash equivalents all its highly liquid investments purchased with an
original maturity at three months or less.
F-61
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--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
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1997 1996
----------- ----------- --------
US$(1) P$
----------- ----------------------
Sullair Corporation(2)
Accounts payable ......... 1,109,854 1,109,854 758,958
========= ========= =======
- ----------------
(1) See Note 1.2.c).
(2) Sullair Argentina Sociedad Anonima and Sullair San Luis Sociedad Anonima
buy Sullair Corporation machines and equipment.
F-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
========= ========== ========= ==========
</TABLE>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995
----------------------------- ------------
P$
------------------------------------------
NET SHAREHOLDERS' NET
INCOME EQUITY INCOME
------------- --------------- ------------
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
========= ========== =========
- ----------------
(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$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER-- NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 12--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS--(CONTINUED)
Breakdown of amounts paid during the years is as follows:
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1997 1996
-------- -------- -------
US$(1) P$
-------- ------------------
Income tax ............................... 14,646 14,646 43,820
====== ====== ======
Main non-cash transactions
Main non-cash transactions, consequently eliminated in the Statement of
cash flows, are the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1997 1996 1995
----------- ----------- ----------- ----------
US$(1) P$
----------- --------------------------------------
<S> <C> <C> <C> <C>
Fixed assets acquisitions financed by loans and
accounts payable ............................. -- -- 5,763,979 6,081,494
--------- --------- --------- ---------
-- -- 5,763,979 6,081,494
========= ========= ========= =========
</TABLE>
- ----------------
(1) See Note 1.2.c).
Main investing activities
Proceeds from investments other than cash equivalents are as follows:
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1997 1996 1995
-------- --------- --------- --------
US$(1) P$
-------- --------------------------------
Current investments .......... -- -- 504,387 --
1998 Argentina Bond ......... 33,000 33,000 33,000 --
------ ------ ------- -------
Total ........................ 33,000 33,000 537,387 --
====== ====== ======= =======
- ----------------
(1) See Note 1.2.c).
The Company has no cash balances in currency other than U.S. dollars.
Since the exchange rates remained unchanged for the years ended December 31,
1997, 1996 and 1995, no foreign exchange gains/losses shall be adjusted for US
GAAP purposes.
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$- of August 31, 1995 and in nominal pesos
thereafter--Note 1.2.)
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------
US$ (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.
MARCH 31 HIGH LOW AVERAGE(1) END OF PERIOD
- ---------- ----------- ----------- ------------ --------------
1997 1.0000 1.0000 1.0000 1.0000
1998 1.0000 1.0000 1.0000 1.0000
- ----------------
(1) Average of month-end rates.
SOURCES: CENTRAL BANK: BANCO DE LA NACION ARGENTINA.
c) The consolidated financial statements of Sullair Argentina Sociedad
Anonima at 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 or the "Argentina Bond" has been valued at its cost,
increased on an 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
MARCH 31,
1998
-------------
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
==========
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)
MARCH 31,
1998
-------------
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
==========
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)
THREE-MONTH PERIOD ENDED
MARCH 31,
-------------------------------
1998 1997
-------------- --------------
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)
========== ==========
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$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER-- NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 4--ALLOWANCE FOR DOUBTFUL ACCOUNTS
MARCH 31,
1998
----------
Balance at the beginning of the period ............................. 271,724
Increase ........................................................... 75,000
Write off .......................................................... --
-------
Balance at the end of the period ................................... 346,724
=======
NOTE 5--SHORT-TERM BANK BORROWINGS
MARCH 31,
1998
-------------
Credit balance with banks ..................................... 877,620
Loans ......................................................... 12,021,380
----------
12,899,000
==========
Weighted average interest rate ................................ 12.00%
NOTE 6--TRANSACTIONS WITH RELATED PARTIES
MARCH 31,
1998
----------
Sullair Corporation
Accounts payable ................................................. 2,309,326
=========
NOTE 7--SUBSTITUTION OF THE INDUSTRIAL PROMOTION REGIME IN SULLAIR SAN LUIS
SOCIEDAD ANONIMA
a) The fiscal benefits obtained by Sullair San Luis Sociedad Anonima under
the industrial promotion regime were substituted as established by Decree No.
2054/92 of the National Government
These benefits are currently ruled by a DGI (tax authorities) computerized
current account which can be applied, up to a maximum per year, to the payment
of tax obligations corresponding to the remaining years of the project
Accordingly, these benefits are accounted for under the accrual basis once
the Company complies with the obligations that produce the benefit. During the
three-month period ended March 31, 1998 Sullair San Luis Sociedad Anonima has
used US$ 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$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER-- NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 7--SUBSTITUTION OF THE INDUSTRIAL PROMOTION REGIME IN SULLAIR SAN LUIS
SOCIEDAD ANONIMA--(CONTINUED)
1990 up to November 30, 1992. Decree No. 2054/92 also established the maximum
amount of the tax credit to be recognized which cannot be exceeded. Despite the
fact that the total amount of the VAT credit paid during the abovementioned
period by Sullair San Luis Sociedad Anonima amounted to US$ 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 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 requires companies with controlling financial interests in
other companies to present both the parent companies, 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 work in
progress. Under US GAAP interest incurred on work in 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:
MARCH 31,
1998
------------
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
=======
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:
MARCH 31,
1998
----------
Cash and banks .......................................... 344,123
-------
Total cash and cash equivalents ......................... 344,123
=======
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:
MARCH 31,
1998
----------
Income tax .................................................... 92,034
======
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>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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.
The Company has obtained 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 Registration Rights Agreement filed
as Exhibit 1.1 hereto, which provides for indemnification by the Participants
(as defined in the Registration Rights Agreement) of the Company, its directors
and officers who sign the Registration Statement and persons who control the
Company, under certain circumstances.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as exhibits to this registration
statement:
EXHIBIT DESCRIPTION
- ------- -----------
3.1 Certificate of Incorporation of the Company, as amended and restated.
3.2 By-Laws of the Company, as amended and restated.
II-1
<PAGE>
EXHIBIT DESCRIPTION
- ------- -----------
4.1 Indenture, by and among the Company, the Guarantors and State Street
Bank & Trust Company, as Trustee, dated as of May 28, 1998.
4.2 Form of 101/4% Senior Subordinated Notes due 2008 (included in Exhibit
4.1).
4.3 Registration Rights Agreement, by and among the Company, the
Guarantors, BT Alex. Brown Incorporated, Bear, Stearns & Co., Inc. and
Morgan Stanley & Co. Incorporated, dated as of May 28, 1998.
4.4 Form of Certificate of Class A Common Stock, filed as Exhibit 4.1 to
the Company's Registration Statement on Form S-1 (Registration No.
333-48077), dated March 17, 1998, incorporated herein by reference.
4.5 Registration Rights Agreement, by and between Neff Corp. and GECFS,
Inc., dated as of March 25, 1998, filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-1 (Registration No. 333-48077), dated
March 17, 1998, incorporated herein by reference.
4.6 Registration Rights Agreement, by and between Neff Corp. and Santos
Fund I, L.R, dated as of March 25, 1998, filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-1 (Registration No.
333-48077), dated March 17, 1998, incorporated herein by reference.
4.7 Registration Rights Agreement, by and between Neff Corp. and Santos
Capitol Advisors, Inc., dated as of March 25, 1998, filed as Exhibit
4.4 to the Company's Registration Statement on Form S-1 (Registration
No. 333-48077), dated March 17, 1998, incorporated herein by reference.
4.8 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, filed as
Exhibit 4.5 to the Company's Registration Statement on Form S-1
(Registration No. 333-48077), dated March 17, 1998, incorporated herein
by reference.
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, filed as Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333- 48077), dated
March 17, 1998, incorporated herein by reference.
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, filed as Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (Registration No. 333- 48077), dated March 17,
1998, incorporated herein by reference.
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, filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-1 (Registration No. 333- 48077), dated
March 17, 1998, incorporated herein by reference.
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, filed as
Exhibit 10.4 to the Company's Registration Statement on Form S-1
(Registration No. 333-48077), dated March 17, 1998, incorporated herein
by reference.
10.5 The Asset Purchase Agreement by and among Richbourg's Sales & Rentals,
Inc., Bruce E. Richbourg and Neff Corp., dated December 23, 1997, filed
as Exhibit 10.5 to the Company's Registration Statement on Form S-1
(Registration No. 333-48077), dated March 17, 1998, incorporated herein
by reference.
10.6 Stock Option Agreement by and between Neff Corp. and Kevin P
Fitzgerald, filed as Exhibit 10.6 to the Company's Registration
Statement on Form S-1 (Registration No. 333-48077), dated March 17,
1998, incorporated herein by reference.
10.7 Stock Option Agreement by and between Neff Corp. and Robert G. Warren,
filed as Exhibit 10.7 to the Company's Registration Statement on Form
S-1 (Registration No. 333-48077), dated March 17, 1998, incorporated
herein by reference.
II-2
<PAGE>
EXHIBIT DESCRIPTION
- ------- -----------
10.8 Form of Lock-up Agreement, filed as Exhibit 10.8 to the Company's
Registration Statement on Form S-1 (Registration No. 333-48077), dated
March 17, 1998, incorporated herein by reference.
10.9 Standstill Agreement by and among Neff Corp., General Electric Capital
Corporation, GECFS, Inc. and Santos Capital Advisors, Inc., filed as
Exhibit 10.9 to the Company's Registration Statement on Form S-1
(Registration No. 333-48077), dated March 17, 1998, incorporated herein
by reference.
10.10 Neff Corp. 1998 Incentive Stock Plan, filed as Exhibit 10.10 to the
Company's Registration Statement on Form S-1 (Registration No.
333-48077), dated March 17, 1998, incorporated herein by reference.
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, filed as Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (Registration No. 333-48077), dated
March 17, 1998, incorporated herein by reference.
10.12 Neff Corp. Phantom Stock Plan, filed as Exhibit 10.12 to the Company's
Registration Statement on Form S-1 (Registration No. 333-48077), dated
March 17, 1998, incorporated herein by reference.
10.13 Form of Rights Agreement, filed as Exhibit 10.13 to the Company's
Registration Statement on Form S-1 (Registration No. 333-48077), dated
March 17, 1998, incorporated herein by reference.
10.14 Stock Purchase Agreement by and between Neff Corp. and Sullair
Argentina Sociedad Anonima, dated June 30, 1998. Filed as Exhibit 2 to
the Company's Report on Form 8-K dated June 30, 1998, incorporated
herein by reference.
21 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 Power of Attorney (included on Signature Page of this Registration
Statement).
25 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, on Form T-1 of State Street Bank & Trust Company, as Trustee
under the Indenture
27 Financial data schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
- ----------------
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual reports pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
II-3
<PAGE>
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:
(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
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miami, State of Florida,
on July 17, 1998.
NEFF CORP.
By /s/ KEVIN P. FITZGERALD
--------------------------------------
Kevin P. Fitzgerald
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 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 that all 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>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ JORGE MAS Chairman of the Board July 17, 1998
- ------------------------------
Jorge Mas
/s/ KEVIN P. FITZGERALD President and Chief Executive Officer July 17, 1998
- ------------------------------ (Principal Executive Officer)
Kevin P. Fitzgerald
/s/ JOSE RAMON MAS Director July 17, 1998
- ------------------------------
Jose Ramon Mas
/s/ JUAN CARLOS MAS Director July 17, 1998
- ------------------------------
Juan Carlos Mas
/s/ BONNIE S. BIUMI Chief Financial Officer July 17, 1998
- ------------------------------ (Principal Financial Officer
Bonnie S. Biumi and Accounting Officer)
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miami, State of Florida,
on July 17, 1998.
NEFF RENTAL, INC.
By: /s/ KEVIN P. FITZGERALD
------------------------------------
Kevin P. Fitzgerald
Chief Executive Officer
The undersigned director and officers of Neff Rental, Inc. 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 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 that all 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>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ KEVIN P. FITZGERALD President, Chief Executive Officer July 17, 1998
- ------------------------------ and Sole Director
Kevin P. Fitzgerald (Principal Executive Officer)
/s/ LAWRENCE WHEELER Chief Financial Officer July 17, 1998
- ------------------------------ (Principal Financial and
Lawrence Wheeler Accounting Officer)
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miami, State of Florida,
on July 17, 1998.
NEFF MACHINERY, INC.
By: /s/ KEVIN P. FITZGERALD
-------------------------------------
Kevin P. Fitzgerald
Chief Executive Officer
The undersigned director and officers of Neff Machinery, Inc. 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 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 that all 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>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ KEVIN P. FITZGERALD President, Chief Executive Officer July 17, 1998
- ------------------------------ and Sole Director
Kevin P. Fitzgerald (Principal Executive Officer)
/s/ MANUEL A. ALVAREZ Chief Financial Officer July 17, 1998
- ------------------------------ (Principal Financial and
Manuel A. Alvarez Accounting Officer)
</TABLE>
II-7
<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 20, 1998,
respectively, (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedule listed in Item 21 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>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
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 Indenture, by and among the Company, the Guarantors and State Street
Bank & Trust Company, as Trustee, dated as of May 28, 1998.
4.3 Registration Rights Agreement, by and among the Company, the
Guarantors, BT Alex. Brown Incorporated, Bear, Stearns & Co., Inc. and
Morgan Stanley & Co. Incorporated, dated as of May 28, 1998.
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson.
21 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.
25 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, on Form T-1 of State Street Bank & Trust Company, as Trustee
under the Indenture
27 Financial data schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
NEFF CORP.
(Pursuant to Sections 242 and 245 of the General
Corporation Law of the State of Delaware)
Neff Corp., a corporation existing under the laws of the State
of Delaware (the "Corporation"), hereby certifies as follows:
1. The Corporation's present name is Neff Corp.
2. The date of the filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware was July 6,
1995 under the name of Neff Corp. The original Certificate of Incorporation was
amended and restated on March 25, 1998.
3. The existing Amended and Restated Certificate of
Incorporation of the Corporation is hereby amended and restated so as to read in
its entirety as follows:
FIRST: The name of the Corporation is Neff Corp.
SECOND: The address of the Corporation's registered office in
the State of Delaware is Corporation Trust Center, 1209 Orange Street in the
City of Wilmington, County of New Castle, Delaware 19801-1297. The name of its
registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The aggregate number of shares of all classes of
capital stock which the Corporation shall have the authority to issue is
140,000,000, of which (i) 100,000,000 shall be designated Class A Common Stock,
par value $.01 per share (the "Class A Common Stock"), (ii) 20,000,000 shall be
designated Class B Special Common Stock, par value $.01 per share (the "Class B
Special Common Stock," and together with the Class A Common Stock, the "Common
Stock") and (iii) 20,000,000 shall be designated Preferred Stock, par value $.01
per share.
<PAGE>
Effective upon the filing of this Amended and Restated
Certificate of Incorporation, each issued and outstanding share of Class A
Common Stock will be converted into eighty-four and sixty-five one-hundredths
(84.65) shares of Class A Common Stock, par value $.01 per share and each issued
and outstanding share of Class B Special Common Stock will be converted into
eighty-four and sixty-five one-hundredths (84.65) shares of Class B Special
Common Stock. Each holder of one (1) share of Class A Common Stock at such time
will, without further action on the part of any person, immediately thereafter
hold eighty-four and sixty-five one-hundredths (84.65) shares of Class A Common
Stock of the Corporation and each holder of one (1) share of Class B Special
Common Stock at such time will, without further action on the part of any
person, immediately thereafter hold eighty-four and sixty-five one-hundredths
(84.65) shares of Class B Special Common Stock of the Corporation.
Promptly after the filing of this Amended and Restated
Certificate of Incorporation, the Corporation shall deliver to the holders of
issued and outstanding shares of Common Stock a certificate or certificates
representing the number of shares of Class A Common Stock or Class B Special
Common Stock issuable by reason of such conversion in the names of such holders.
This issuance of certificates for shares of Class A Common Stock or Class B
Special Common Stock upon the conversion of Common Stock shall be made without
charge for any issuance tax in respect thereof or other cost incurred by the
Corporation in connection with such conversion and the related issuance of
shares of Class A Common Stock and Class B Special Common Stock.
No fractional shares of Class A Common Stock or Class B
Special Common Stock shall be created or outstanding upon the conversion of
Common Stock. Any holder of Class A Common Stock or Class B Special Common Stock
who by reason of the conversion of Common Stock would have been entitled to
receive a fraction of a share of Class A Common Stock or Class B Special Common
Stock, will receive only the nearest whole share, with .5 share or more
fractional shares being rounded up to the next whole share.
A. Class A Common Stock
1. DIVIDENDS. Subject to the preferential rights, if
any, of the Preferred Stock and the preferential rights of the Class B Special
Common Stock prior to the first underwritten public offering of Class A Common
Stock with gross proceeds of not less than $50 million 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
(an "Initial Public Offering"), the holders of shares of Class A Common Stock
shall be entitled to receive, when and if declared by the Board of Directors of
the Corporation (the "Board of Directors"), out of the assets of the Corporation
which are by law available therefor, dividends payable either in cash, in
property, or in shares of capital stock of the Corporation.
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2. VOTING RIGHTS. At every annual or special meeting of
stockholders of the Corporation, every holder of Class A Common Stock shall be
entitled to one vote, in person or by proxy, for each share of Class A Common
Stock standing in his name on the books of the Corporation and the Class A
Common Stock and Class B Special Common Stock shall be considered as one class
for voting purposes and the holders thereof shall be entitled to vote ratably
without preference of either class over the other.
3. LIQUIDATION, DISSOLUTION, OR WINDING UP. In the
event of any voluntary or involuntary liquidation, dissolution, or winding up of
the affairs of the Corporation, after payment or provision for payment of the
debts and other liabilities of the Corporation and of the preferential amounts,
if any, to which the holders of Preferred Stock and/or the holders of Class B
Special Common Stock shall be entitled, the holders of all outstanding shares of
Class A Common Stock shall be entitled to share ratably in the remaining net
assets of the Corporation. Neither the consolidation or merger of the
Corporation into or with any other corporation or corporations, nor the
reduction of the capital stock of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section A3.
4. PREEMPTIVE RIGHTS. No holder of Class A Common Stock
shall have any preemptive right to subscribe for or purchase any additional
shares of stock or securities convertible into or carrying warrants or options
to acquire shares of stock of the Corporation.
B. Class B Special Common Stock
1. DIVIDENDS. Subject to the preferential rights, if
any, of the Preferred Stock, the holders of shares of Class B Special Common
Stock shall be entitled to receive, when and if declared by the Board of
Directors, out of the assets of the Corporation which are by law available
therefor, dividends payable either in cash, in property, or in shares of capital
stock of the Corporation, as follows:
a. PRE-INITIAL PUBLIC OFFERING. Prior to the
completion by the Corporation of an Initial Public Offering, in connection with
the declaration and payment of any dividend on the Common Stock, the holders of
Class B Special Common Stock shall be entitled to the following preferential
rights: with respect to the declaration and payment of any cash dividend to the
holders of Common Stock, the holders of Class B Special Common Stock shall be
entitled to receive, in the aggregate, seventy-five percent (75%) of the total
dollar amount of the cash dividend declared and paid to the holders of Common
Stock; and the holders of Class A Common Stock shall be entitled to receive, in
the aggregate, twenty-five percent (25%) of the total dollar amount of the cash
dividend declared and paid to the holders of Common Stock. With respect to
dividends declared and paid by the Corporation to holders of Common Stock other
than cash dividends, Class A Common Stock and Class B Special Common Stock shall
be
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considered as one class, and the holders of Class A Common Stock and Class B
Special Common Stock shall be entitled to participate ratably, share for share,
and without preference of either class over the other in all dividends so
declared.
b. POST-INITIAL PUBLIC OFFERING. After the
completion by the Company of an Initial Public Offering, the holders of Class B
Special Common Stock shall no longer be entitled to any preferential rights with
respect to dividends declared or paid by the Corporation. Whenever the Board of
Directors declares a dividend upon Class A Common Stock, Class A Common Stock
and Class B Special Common Stock shall be considered as one class, and the
holders of Class B Special Common Stock shall be entitled to participate
ratably, share for share with the holders of Class A Common Stock, and without
preference of either class over the other in all sums so declared.
2. VOTING RIGHTS. Every holder of Class B Special Common Stock
shall be entitled to one vote, in person or by proxy, for each share of Class B
Special Common Stock standing in his name on the books of the Corporation and
the Class A Common Stock and Class B Special Common Stock shall be considered as
one class for voting purposes and the holders thereof shall be entitled to vote
ratably without preference of either class over the other.
3. LIQUIDATION, DISSOLUTION, OR WINDING UP. In the event of
any voluntary or involuntary liquidation, dissolution, or winding up of the
affairs of the Corporation, after payment or provision for payment of the debts
and other liabilities of the Corporation and of the preferential amounts, if
any, to which the holders of Preferred Stock shall be entitled, the holders of
all outstanding shares of Class B Special Common Stock shall be entitled to be
paid, before any distribution or payment is made upon any of the Junior
Securities (as defined), an amount in cash equal to the aggregate Liquidation
Value (as defined) of all such Class B Special Common Stock outstanding, and the
holders of Class B Special Common Stock shall not be entitled to any further
payment. If upon any such liquidation, dissolution or winding up of the
Corporation, the Corporation's assets to be distributed among the holders of the
Class B Special Common Stock are insufficient to permit payment to such holders
of the aggregate amounts to which they are entitled to be paid, then the entire
assets to be distributed shall be distributed ratably among such holders based
upon the aggregate Liquidation Value of the shares held by each such holder. The
Corporation shall mail written notice of such liquidation, dissolution or
winding up not less than 10 days prior to the payment date stated therein, to
each record holder of Class B Special Common Stock. Neither the consolidation or
merger of the Corporation into or with any other corporation or corporations,
nor the reduction of the capital stock of the Corporation, shall be deemed to be
a liquidation, dissolution or winding up of the Corporation within the meaning
of this Section B3.
4. PREEMPTIVE RIGHTS. No holder of Class B Special
Common Stock shall have any preemptive right to subscribe for or purchase any
additional shares
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of stock or securities convertible into or carrying warrants or options to
acquire shares of stock of the Corporation.
5. CONVERSION. At any time and from time to time, any
holder of Class B Special Common Stock may convert all or any portion of the
Class B Special Common Stock held by such holder into an equal number of shares
of Class A Common Stock. Each conversion of Class B Special Common Stock shall
be deemed to have been effected as of the close of business on the date on which
the certificate or certificates representing the Class B Special Common Stock to
be converted has been surrendered for conversion at the principal office of the
Corporation. At the time any conversion has been effected, the rights of the
holder of the shares converted as a holder of Class B Special Common Stock shall
cease and the Person or Persons in whose name or names any certificate or
certificates for shares of Class A Common Stock are to be issued upon such
conversion shall be deemed to have become the holder or holders of record of the
shares of Class A Common Stock represented thereby. As soon as possible after a
conversion has been effected (but in any event within 5 business days in the
case of subparagraph (i) below), the Corporation shall deliver to the converting
holder:
(i) a certificate or certificates representing the number of
shares of Class A Common Stock issuable by reason of such conversion in such
name or names and such denomination or denominations as the converting holder
has specified; and
(ii) a certificate or certificates representing any shares of
Class B Special Common Stock which were represented by the certificate or
certificates delivered to the Corporation in connection with such conversion but
which were not converted.
The issuance of certificates for shares of Class A Common
Stock upon conversion of Class B Special Common Stock shall be made without
charge to the holders of such Class B Special Common Stock for any issuance tax
in respect thereof or other cost incurred by the Corporation in connection with
such conversion and the related issuance of shares of Class A Common Stock. The
Corporation shall take all such actions as are necessary in order to insure that
the Class A Common Stock issuable with respect to such conversion shall be
validly issued, fully paid and nonassessable, and free and clear of all taxes,
liens, charges and encumbrances with respect to the issuance thereof.
If the Corporation at any time subdivides (by stock split, stock
dividend, recapitalization or otherwise) the Class A Common Stock into a greater
number of shares of Class A Common Stock, the number of shares of Class B
Special Common Stock shall be proportionately increased and the Liquidation
Preference of each share of Class B Special Common Stock shall be
proportionately decreased. If the Corporation at any time combines (by reverse
stock split or otherwise) the Class A Common Stock into a smaller number of
shares of Class A Common Stock, the number of shares of Class B Special Common
Stock shall be proportionately reduced and the Liquidation Preference of each
share of Class B Special Common Stock shall be proportionately increased.
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Notwithstanding the foregoing, if the Corporation subdivides or combines by
means of a stock dividend of Common Stock in which the holders of Class A Common
Stock and Class B Special Common Stock participate ratably, share for share, and
without preference of either class over the other, the number of shares of Class
B Special Common Stock and the Liquidation Preference of each share of Class B
Special Common Stock shall not be affected pursuant to this paragraph.
In the event of any recapitalization, reclassification,
consolidation or merger of the Corporation (a "Transaction") which is effected
in such a manner that the holders of Class A Common Stock are entitled to
receive (either directly or upon subsequent liquidation) stock, securities or
assets with respect to or in exchange for Class A Common Stock, the holders of
Class B Special Common Stock shall be entitled to receive (either directly or
upon subsequent liquidation) such shares of stock, securities or assets as such
holders would have received in connection with the Transaction if such holders
had converted their shares of Class B Special Common Stock into shares of Class
A Common Stock immediately prior to the Transaction.
The Corporation shall not close its books against the transfer
of Class B Special Common Stock or of Class A Common Stock issued or issuable
upon conversion of Class B Special Common Stock in any manner which interferes
with the timely conversion of Class B Special Common Stock. The Corporation
shall assist and cooperate with any holder of Class B Special Common Stock
required to make any governmental filings or obtain any governmental approval
prior to or in connection with any conversion of Class B Special Common Stock
hereunder (including, without limitation, making any filings required to be made
by the Corporation).
The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Class A Common Stock, solely for
the purpose of issuance upon the conversion of the Class B Special Common Stock,
such number of shares of Class A Common Stock as are issuable upon the
conversion of all outstanding Class B Special Common Stock. The Corporation
shall take all such actions as may be necessary to assure that all shares of
Class A Common Stock which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges. The Corporation shall take all such actions as may be necessary to
assure that all such shares of Class A Common Stock may be so issued without
violation of any applicable law or governmental regulation or any requirements
of any domestic securities exchange or the NASDAQ Stock Market upon which shares
of Class A Common Stock may be listed (except for official notice of issuance
which shall be immediately delivered by the Corporation upon each such
issuance).
If any fractional interest in a share of Class A Common Stock
would, except for the provisions of this subparagraph, be delivered upon any
conversion of the Class B Special Common Stock, the Corporation, in lieu of
delivering the fractional share
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therefor, shall pay an amount to the holder thereof equal to the Liquidation
Value of such fractional interest
6. DEFINITIONS. Unless defined elsewhere herein, each
capitalized term used in this Section B of Article FOURTH shall have the meaning
assigned to such term below, solely for the purposes of this Section B of
Article FOURTH:
"JUNIOR SECURITIES" means any of the Corporation's Stock,
except for any other series of preferred stock issued by the Board of Directors
of the Corporation in accordance with this Article FOURTH.
"LIQUIDATION VALUE" of any share of Class B Special Common
Stock is $11.67.
"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.
C. Preferred Stock
1. ISSUANCE. Shares of the Preferred Stock of the
Corporation may be issued from time to time in one or more classes or series,
each of which class or series shall have such distinctive designation or title
as shall be fixed by the Board of Directors of the Corporation prior to the
issuance of any shares thereof. Each such class or series of Preferred Stock
shall have such voting powers, full or limited, or no voting powers, and such
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated in
such resolution or resolutions providing for the issue of such class or series
of Preferred Stock as may be adopted from time to time by the Board of Directors
prior to the issuance of any shares thereof pursuant to the authority hereby
expressly vested in it, all in accordance with the laws of the State of
Delaware.
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2. SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
a. DESIGNATION, PAR VALUE AND AMOUNT. The shares
of such series shall be designated as "Series B Junior Participating Preferred
Stock" (hereinafter referred to as "Series B Preferred Stock"), the shares of
such series shall be with par value of $0.01 per share, and the number of shares
constituting such series shall be 1,000,000; PROVIDED, HOWEVER, that, if more
than a total of 1,000,000 shares of Series B Preferred Stock shall be issuable
upon the exercise of Rights (the "Rights") issued pursuant to the Rights
Agreement, dated as of May 15, 1998 between the Company and First Union National
Bank, as Rights Agent (as amended from time to time) (the "Rights Agreement"),
the Board of Directors of the Company, pursuant to Section 151 of the DGCL,
shall direct by resolution or resolutions that a certificate be properly
executed, acknowledged and filed providing for the total number of shares of
Series B Preferred Stock authorized to be issued to be increased (to the extent
that the Amended and Restated Certificate of Incorporation then permits) to the
largest number of whole shares (rounded up to the nearest whole number) issuable
upon exercise of the Rights.
b. DIVIDENDS AND DISTRIBUTIONS.
i. Subject to the prior and superior
rights of the holders of any shares of any series of Preferred Stock ranking
prior and superior to the shares of Series B Preferred Stock with respect to
dividends, the holders of shares of Series B Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors out of assets
legally available for the purpose, quarterly dividends payable in cash on the
first business day of November, February, May and August in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Series B Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b)
subject to the provision for adjustment hereinafter set forth, 1,000 times the
aggregate per share amount of all cash dividends, and 1,000 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Class A Common Stock or
a subdivision of the outstanding shares of Class A Common Stock (by
reclassification or otherwise), declared on the Class A Common Stock since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series B Preferred Stock. In the event the Company shall
at any time declare or pay any dividend on the Class A Common Stock payable in
shares of Class A Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Class A Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Class A
Common Stock) into a greater or lesser number of shares of Class A Common Stock,
then in each such case the amount to which holders of shares of Series B
Preferred Stock were entitled immediately prior to such event under clause (b)
of the
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preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Class A Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Class A Common Stock that were outstanding immediately prior
to such event.
ii. The Company shall declare a dividend or
distribution on the Series B Preferred Stock as provided in paragraph i. of
this Section C.2.b. immediately after it declares a dividend or distribution
on the Class A Common Stock (other than a dividend payable in shares of Common
Stock); PROVIDED that, in the event no dividend or distribution shall have been
declared on the Class A Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date,
a dividend of $1.00 per share on the Series B Preferred Stock shall nevertheless
be payable on such subsequent Quarterly Dividend Payment Date.
iii. Dividends shall begin to accrue
and be cumulative on outstanding shares of Series B Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series B Preferred Stock, unless the date of issue of such shares is prior to
the record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of shares of Series
B Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series B Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series B Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
c. VOTING RIGHTS. The holders of shares of Series B
Preferred Stock shall have the following voting rights:
i. Except as provided in paragraph iii. of
this Section C.2.c. and subject to the provision for adjustment hereinafter set
forth, each share of Series B Preferred Stock shall entitle the holder thereof
to 1,000 votes on all matters submitted to a vote of the stockholders of the
Company. In the event the Company shall at any time declare or pay any dividend
on the Class A Common Stock payable in shares of Class A Common Stock, or effect
a subdivision or combination or consolidation of the outstanding shares of Class
A Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Class A Common Stock) into a greater or lesser
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number of shares of Class A Common Stock, then in each such case the number of
votes per share to which holders of shares of Series B Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of Class A
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Class A Common Stock that were outstanding
immediately prior to such event.
ii. Except as otherwise provided
herein or by law, the holders of shares of Series B Preferred Stock and the
holders of shares of Class A Common Stock shall vote together as one class on
all matters submitted to a vote of stockholders of the Company.
iii. (A) If, on the date used to
determine stockholders of record for any meeting of stockholders for the
election of directors, a default in preference dividends (as defined in
subparagraph (E) below) on the Series B Preferred Stock shall exist, the holders
of the Series B Preferred Stock shall have the right, voting as a class as
described in subparagraph (B) below, to elect two directors (in addition to the
directors elected by holders of Class A Common Stock of the Company). Such right
may be exercised (a) at any meeting of stockholders for the election of
directors or (b) at a meeting of the holders of shares of Voting Preferred Stock
(as hereinafter defined), called for the purpose in accordance with the By-laws
of the Company, until all such cumulative dividends (referred to above) shall
have been paid in full or until non-cumulative dividends have been paid
regularly for at least one year.
(B) The right of the holders of Series B
Preferred Stock to elect two directors, as described above, shall be exercised
as a class concurrently with the rights of holders of any other series of
Preferred Stock upon which voting rights to elect such directors have been
conferred and are then exercisable. The Series B Preferred Stock and any
additional series of Preferred Stock which the Company may issue and which may
provide for the right to vote with the foregoing series of Preferred Stock are
collectively referred to herein as "Voting Preferred Stock."
(C) Each director elected by the holders
of shares of Voting Preferred Stock shall be referred to herein as a "Preferred
Director." A Preferred Director so elected shall continue to serve as such
director for one year, except that upon any termination of the right of all of
such holders to vote as a class for Preferred Directors, the term of office of
such directors shall terminate. Any Preferred Director may be removed by, and
shall not be removed except by, the vote of the holders of record of a majority
of the outstanding shares of Voting Preferred Stock then entitled to vote for
the election of directors, present (in person or by proxy) and voting together
as a single class (a) at a meeting of the stockholders, or (b) at a meeting of
the holders of shares of such Voting Preferred Stock, called for the purpose in
accordance with the By-laws of the Company, or (c) by written consent signed by
the holders of a majority of
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the then outstanding shares of Voting Preferred Stock then entitled to vote for
the election of directors, taken together as a single class.
(D) So long as a default in any
preference dividends on the Series B Preferred Stock shall exist or the holders
of any other series of Voting Preferred Stock shall be entitled to elect
Preferred Directors, (a) any vacancy in the office of a Preferred Director may
be filled (except as provided in the following clause (b)) by an instrument in
writing signed by the remaining Preferred Director and filed with the Company
and (b) in the case of the removal of any Preferred Director, the vacancy may be
filled by the vote or written consent of the holders of a majority of the
outstanding shares of Voting Preferred Stock then entitled to vote for the
election of directors, present (in person or by proxy) and voting together as a
single class, at such time as the removal shall be effected. Each director
appointed as aforesaid by the remaining Preferred Director shall be deemed, for
all purposes hereof, to be a Preferred Director. Whenever (x) no default in
preference dividends on the Series B Preferred Stock shall exist and (y) the
holders of other series of Voting Preferred Stock shall no longer be entitled to
elect such Preferred Directors, then the number of directors constituting the
Board of Directors of the Company shall be reduced by two.
(E) For purposes hereof, a "default in
preference dividends" on the Series B Preferred Stock shall be deemed to have
occurred whenever the amount of cumulative and unpaid dividends on the Series B
Preferred Stock shall be equivalent to six full quarterly dividends or more
(whether or not consecutive), and, having so occurred, such default shall be
deemed to exist thereafter until, but only until, all cumulative dividends on
all shares of the Series B Preferred Stock then outstanding shall have been paid
through the last Quarterly Dividend Payment Date or until, but only until,
non-cumulative dividends have been paid regularly for at least one year.
iv. Except as set forth herein (or as
otherwise required by applicable law), holders of Series B Preferred Stock shall
have no general or special voting rights and their consent shall not be required
for taking any corporate action.
d. CERTAIN RESTRICTIONS.
i. Whenever quarterly dividends or
other dividends or distributions payable on the Series B Preferred Stock as
provided in Section C.2.b. are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of Series
B Preferred Stock outstanding shall have been paid in full, the Company shall
not
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(A) declare or pay dividends, or make
any other distributions, on any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series B
Preferred Stock;
(B) declare or pay dividends, or make
any other distributions, on any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the Series B
Preferred Stock, except dividends paid ratably on the Series B Preferred Stock
and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are then
entitled;
(C) redeem or purchase or otherwise
acquire for consideration (except as provided in (D) below) shares of any stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series B Preferred Stock, PROVIDED that the Company may at
any time redeem, purchase or otherwise acquire shares of any such junior stock
in exchange for shares of any stock of the Company ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series B
Preferred Stock;
(D) redeem or purchase or otherwise
acquire for consideration any shares of Series B Preferred Stock, or any shares
of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series B Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the respective
Series and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
ii. The Company shall not permit any
subsidiary of the Company to purchase or otherwise acquire for consideration any
shares of stock of the Company unless the Company could, under Section C.2.d.i.,
purchase or otherwise acquire such shares at such time and in such manner.
e. REACQUIRED SHARES. Any shares of Series B
Preferred Stock purchased or otherwise acquired by the Company in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein, in the Amended and Restated Certificate of Incorporation, in any other
amendment or restatement of the Certificate of Incorporation creating a series
of Preferred Stock, or as otherwise required by law.
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f. LIQUIDATION, DISSOLUTION OR WINDING UP.
i. Subject to the prior and superior
rights of holders of any shares of any series of Preferred Stock ranking prior
and superior to the shares of Series B Preferred Stock with respect to rights
upon liquidation, dissolution or winding up (voluntary or otherwise), no
distribution shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series B Preferred Stock unless, prior thereto, the holders of shares of Series
B Preferred Stock shall have received $1,000 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Series B Liquidation Preference"). Following
the payment of the full amount of the Series B Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series B
Preferred Stock unless, prior thereto, the holders of shares of Class A Common
Stock shall have received an amount per share (the "Capital Adjustment") equal
to the quotient obtained by dividing (i) the Series B Liquidation Preference by
(ii) 1,000 (such number in clause (ii), the "Adjustment Number"). Following the
payment of the full amount of the Series B Liquidation Preference and the
Capital Adjustment in respect of all outstanding shares of Series B Preferred
Stock and Class A Common Stock, respectively, holders of Series B Preferred
Stock and holders of Class A Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to 1 with respect to such Preferred Stock and Class A
Common Stock, on a per share basis, respectively.
ii. In the event, however, that there
are not sufficient assets available to permit payment in full of the Series B
Liquidation Preference and the liquidation preferences of all other series of
preferred stock, if any, which rank on a parity with the Series B Preferred
Stock, then such remaining assets shall be distributed ratably to the holders of
Series B Preferred Stock and the holders of such parity shares in proportion to
their respective liquidation preferences. In the event, however, that there are
not sufficient assets available to permit payment in full of the Capital
Adjustment then such remaining assets shall be distributed ratably to the
holders of Class A Common Stock.
g. CONSOLIDATION, MERGER, ETC. In case the Company
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Class A Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case the
shares of Series B Preferred Stock shall at the same time be similarly exchanged
or changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Class A Common Stock is changed or
exchanged. In the event the Company shall at any time declare or pay any
dividend on the Class A Common Stock payable in shares of Class A Common Stock,
or
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effect a subdivision or combination or consolidation of the outstanding
shares of Class A Common Stock (by reclassification or otherwise than by payment
of a dividend in shares of Class A Common Stock) into a greater or lesser number
of shares of Class A Common Stock, then in each such case the amount set forth
in the preceding sentence with respect to the exchange or change of shares of
Series B Preferred Stock shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Class A Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Class A Common Stock that were outstanding immediately prior
to such event.
h. NO REDEMPTION. The shares of Series B Preferred
Stock shall not be redeemable.
i. RANKING. The Series B Preferred Stock shall
rank junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
j. AMENDMENT. The Amended and Restated
Certificate of Incorporation of the Company shall not be further amended in any
manner which would materially alter or change the powers, preferences or special
rights of the Series B Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of a majority or more of the outstanding
shares of Series B Preferred Stock, voting separately as a class.
FIFTH: The business and affairs of the Corporation shall be
managed by and under the direction of the Board of Directors. The Board of
Directors may exercise all such authority and powers of the Corporation and do
all such lawful acts and things as are not by statute or this Amended and
Restated Certificate of Incorporation directed or required to be exercised or
done by the stockholders.
A. NUMBER OF DIRECTORS. The number of directors of the
Corporation shall be fixed from time to time exclusively by a resolution of a
majority of the Board of Directors of the Corporation, but in no event shall the
number of directors be fewer than three (3). Any change to the number of
directors set forth herein may only be made by amendment to this Article FIFTH.
No director need be a stockholder.
B. CLASSES AND TERM OF OFFICE. Subject to the provisions of
Section G of this Article FIFTH below, the directors shall be divided into three
classes (I, II and III), as nearly equal in number as possible, and no class
shall include less than one director. There shall not be more than three classes
of directors. The initial term of office for members of Class I shall expire at
the annual meeting of stockholders in 1998; the initial term of office for
members of Class II shall expire at the annual meeting of stockholders
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in 1999; and the initial term of office for members of Class III shall expire at
the annual meeting of stockholders in 2000. At each annual meeting of
stockholders following such initial classification and election, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of stockholders
after their election, and shall continue to hold office until their respective
successors are elected and qualified or until their death, or until they shall
have resigned, or have been removed, as hereinafter provided. In the event of
any increase in the number of directors, the additional directors shall be so
classified that all classes of directors have as nearly equal numbers of
directors as may be possible. In the event of any decrease in the number of
directors, all classes of directors shall be decreased equally as nearly as may
be possible.
C. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Subject to the
rights of the holders of any class of Common Stock or series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
number of directors or any vacancies in the Board of Directors resulting from
death, resignation, retirement, disqualification, removal from office or any
other cause may be filled by the Board of Directors, provided that a quorum is
then in office and present, or by a majority of the directors then in office, if
less than a quorum is then in office, or by the sole remaining director.
Directors elected to fill a newly created directorship or other vacancies shall
hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until such
director's successor has been elected and has qualified.
D. REMOVAL OF DIRECTORS. Subject to the rights of the holders
of any series of Preferred Stock then outstanding, the directors or any director
may be removed from office at any time, but only for cause, at a meeting called
for that purpose, and only by the affirmative vote of the holders of at least
66-2/3% of the voting power of all shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.
E. WRITTEN BALLOT NOT REQUIRED. Elections of directors need
not be by written ballot unless the Amended and Restated By-Laws of the
Corporation shall otherwise provide.
F. RIGHTS IN STOCKHOLDERS' AGREEMENT. The rights of any
holders of any Common Stock or Preferred Stock, including, without limitation,
the rights with respect to any directors, may be evidenced in a Stockholders'
Agreement to the extent not contained in any Certificate of Incorporation of the
Corporation or any Certificate of Designation of the Corporation.
G. RIGHTS OF HOLDERS OF PREFERRED STOCK. Notwithstanding the
foregoing provisions of this Article FIFTH, whenever the holders of any one or
more classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately
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by class or series, to elect directors at an annual or special meeting of
stockholders, the election, term of office, filling of vacancies and other
features of such directorships shall be governed by the rights and preferences
of such Preferred Stock as set forth in this Amended and Restated Certificate of
Incorporation or in the resolution or resolutions of the Board of Directors
relating to the issuance of such Preferred Stock, and such directors so elected
shall not be divided into classes pursuant to this Article FIFTH unless
expressly provided by such rights and preferences.
SIXTH: Pursuant to Section 228 of the Delaware General
Corporation Law, any action required to be taken at any annual or special
meeting of stockholders of the Corporation, or any action which may be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
66-2/3% of the outstanding stock entitled to vote thereon.
SEVENTH: The Board of Directors is expressly authorized to
adopt, amend or repeal the Amended and Restated By-Laws of the Corporation. Any
by-laws made by the directors under the powers conferred hereby may be amended
or repealed by the directors or by the stockholders. Notwithstanding the
foregoing and anything contained in this Amended and Restated Certificate of
Incorporation to the contrary, the Amended and Restated By-Laws shall not be
amended or repealed by the stockholders, and no provision inconsistent therewith
shall be adopted by the stockholders, without the affirmative vote of the
holders of 66-2/3% of the voting power of all shares of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class.
EIGHTH: A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director; PROVIDED, HOWEVER, that the foregoing shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of Delaware or (iv) for any transaction from which the director derived an
improper personal benefit. If the General Corporation Law of Delaware is
hereafter amended to permit further elimination or limitation of the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of Delaware as so amended. Any repeal or modification of this
Article EIGHTH by the stockholders of the Corporation or otherwise shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification with respect to acts or
omissions occurring prior to such repeal or modification.
NINTH: Each person who was or is made a party or is threatened
to be made a party to or is involved (including, without limitation, as a
witness) in any actual
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or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he is or was a director or officer of the corporation or is or was
serving at the request of the Corporation as a director or officer of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"Indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a director or officer or in any other capacity while so
serving, shall be indemnified and held harmless by the Corporation to the full
extent authorized by the General Corporation Law of Delaware, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), or by other applicable law as then in effect, against all
expense, liability and loss (including attorneys' fees and related
disbursements, judgments, fines, excise taxes or penalties under the Employee
Retirement Income Security Act of 1974, as amended from time to time ("ERISA"),
penalties and amounts paid or to be paid in settlement) actually and reasonably
incurred or suffered by such Indemnitee in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director,
officer, partner, member or trustee and shall inure to the benefit of his or her
heirs, executors and administrators. Each person who is or was serving as a
director or officer of a subsidiary of the Corporation shall be deemed to be
serving, or have served, at the request of the Corporation.
A. DETERMINATION BY BOARD OF DIRECTORS. Any indemnification
under this Article NINTH (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he/she has met the applicable standard of conduct set forth in the
General Corporation Law of Delaware, as the same exists or hereafter may be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such amendment). Such
determination shall be made (a) by the Board of Directors by a majority vote of
the directors who were not parties to such action, suit or proceeding (the
"Disinterested Directors"), even though less than a quorum, (b) if there are no
such directors, or if such directors so direct, by independent legal counsel in
a written opinion, or (c) by the stockholders.
B. ADVANCES FOR EXPENSES. Costs, charges and expenses
(including attorneys' fees) incurred by a director or officer of the Corporation
in defending a civil or criminal action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay all amounts so advanced in the event that it shall ultimately
be determined that such director or officer is not entitled to be indemnified by
the Corporation as authorized in this Article NINTH. The majority of the
Disinterested Directors may, in the manner set forth above, and upon approval of
such
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director or officer of the Corporation, authorize the Corporation's counsel
to represent such person, in any action, suit or proceeding, whether or not the
Corporation is a party to such action, suit or proceeding.
C. PROCEDURE FOR INDEMNIFICATION. Any indemnification or
advance of costs, charges and expenses under this Article NINTH, shall be made
promptly, and in any event within sixty (60) days upon the written request of
the director or officer, and shall be accompanied by a written undertaking by or
on behalf of Indemnitee to repay such amount if it shall ultimately be
determined that Indemnitee is not entitled to be indemnified therefor pursuant
to the terms of this Article NINTH. The right to indemnification of advances as
granted by this Article NINTH shall be enforceable by the director or officer in
any court of competent jurisdiction, if the Corporation denies such request, in
whole or in part, or if no disposition thereof is made within sixty (60) days.
Such person's costs and expenses incurred in connection with successfully
establishing his/her right to indemnification, in whole or in part, in any such
action shall also be indemnified by the Corporation. It shall be a defense to
any such action (other than an action brought to enforce a claim for the advance
of costs, charges and expenses under this Article NINTH where the required
undertaking, if any, has been received by the Corporation) that the claimant has
not met the standard of conduct set forth in the General Corporation Law of
Delaware, as the same exists or hereafter may be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), but the burden of proving
such defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, its independent legal counsel and its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he/she has met the applicable standard of conduct set forth in the
General Corporation Law of Delaware, as the same exists or hereafter may be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such amendment), nor the
fact that there has been an actual determination by the Corporation (including
its Board of Directors, its independent legal counsel and its stockholders) that
the claimant has not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
D. OTHER RIGHTS; CONTINUATION OF RIGHT TO INDEMNIFICATION.
The indemnification and advancement of expenses provided by this Article NINTH
shall not be deemed exclusive of any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any law (common
or statutory), by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his/her official capacity and as to
action in another capacity while holding office or while employed by or acting
as agent for the Corporation, and shall continue as to a person who has ceased
to be a director or officer, and shall inure to the benefit of the
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estate, heirs, executors and administrators of such person. All rights to
indemnification under this Article NINTH shall be deemed to be a contract
between the Corporation and each director or officer of the Corporation who
serves or served in such capacity at any time while this Article NINTH is in
effect. Any repeal or modification of this Article NINTH or any repeal or
modification of relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall not in any way diminish any rights to
indemnification of such director or officer or the obligations of the
Corporation arising hereunder with respect to any action, suit or proceeding
arising out of, or relating to, any actions, transactions or facts occurring
prior to the final adoption of such modification or repeal. For the purposes of
this Article NINTH, references to "the Corporation" include all constituent
corporations absorbed in a consolidation or merger as well as the resulting or
surviving corporation, so that any person who is or was a director or officer of
such a constituent corporation or is or was serving at the request of such
constituent corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article NINTH, with respect to the
resulting or surviving corporation, as he would if he/she had served the
resulting or surviving corporation in the same capacity.
E. INSURANCE. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was or has agreed to
become a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him/her and incurred by him/her or on his/her behalf in any
such capacity, or arising out of his/her status as such, whether or not the
Corporation would have the power to indemnify him/her against such liability
under the provisions of this Article NINTH, PROVIDED, HOWEVER, that such
insurance is available on acceptable terms, which determination shall be made by
a vote of a majority of the Board of Directors.
F. SAVINGS CLAUSE. If this Article NINTH or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each person
entitled to indemnification under the first paragraph of this Article NINTH as
to all expense, liability and loss (including attorneys' fees and related
disbursements, judgments, fines, ERISA excise taxes and penalties, penalties and
amounts paid or to be paid in settlement) actually and reasonably incurred or
suffered by such person and for which indemnification is available to such
person pursuant to this Article NINTH to the full extent permitted by any
applicable portion of this Article NINTH that shall not have been invalidated
and to the full extent permitted by applicable law.
TENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Amended and Restated
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation. Notwithstanding any other
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provision of this Amended and Restated Certificate of Incorporation or the
Amended and Restated By-Laws of the Corporation, and notwithstanding the fact
that a lesser percentage or separate class vote may be specified by law, this
Amended and Restated Certificate of Incorporation, the Amended and Restated
By-Laws of the Corporation or otherwise, but in addition to any affirmative vote
of the holders of any particular class or series of the capital stock required
by law, this Amended and Restated Certificate of Incorporation, the Amended and
Restated By-Laws of the Corporation or otherwise, the affirmative vote of the
holders of at least 66-2/3% of the voting power of all shares of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to adopt any provision inconsistent with, to
amend or repeal any provision of, or to adopt a by-law inconsistent with, any of
Articles FIFTH, SIXTH, SEVENTH, EIGHTH, NINTH and/or TENTH of this Amended and
Restated Certificate of Incorporation.
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This Amended and Restated Certificate of Incorporation has
been duly adopted by the written consent of the stockholders of the Corporation
in accordance with the provisions of Sections 228, 242 and 245 of the Delaware
General Corporation Law, as amended, and written notice has been given as
provided in Section 228 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed under the seal of the Corporation this _____ day
of May, 1998.
---------------------------------
Kevin P. Fitzgerald
Vice Chairman of the Board,
President and Director of Neff Corp.
Attest:
- ----------------------------------
Kevin P. Fitzgerald
Secretary of Neff Corp.
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EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
NEFF CORP.
(A Delaware Corporation)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
Corporation within the State of Delaware shall be in the City of Wilmington,
County of New Castle.
SECTION 2. OTHER OFFICES. The Corporation may also have an
office or offices other than said registered office at such place or places,
either within or without the State of Delaware, as the Board of Directors shall
from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders
for the election of directors or for any other purpose shall be held at any such
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of meeting
or in a duly executed waiver thereof.
SECTION 2. ANNUAL MEETING. The annual meeting of stockholders,
commencing with the year 1999, will be held at 10 A.M. on the last Friday in
May, if not a legal holiday, and if a legal holiday, then on the next succeeding
day not a legal holiday, at 10 A.M., or at such other date and time as shall be
designated from time to time by the Board of Directors and stated in the notice
of meeting or in a duly executed waiver thereof. At such annual meeting, the
stockholders shall elect, by a plurality vote, a Board of Directors and transact
such other business as may properly be brought before the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders,
unless otherwise prescribed by statute, may be called at any time by the Board
of Directors, the Chairman of the Board, if one shall have been elected, or the
President. Such request shall state the purpose or purposes of the proposed
meeting.
SECTION 4. NOTICE OF MEETINGS. Except as otherwise expressly
required by statute, written notice of each annual and special meeting of
stockholders stating the
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date, place and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given to each
stockholder of record entitled to vote thereat not less than ten (10) nor more
than sixty (60) days before the date of the meeting. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice. Notice shall be given personally or by mail and, if by mail, shall be
sent in a postage prepaid envelope, addressed to the stockholder at his address
as it appears on the records of the Corporation. Notice by mail shall be deemed
given at the time when the same shall be deposited in the United States mail,
postage prepaid. Notice of any meeting shall not be required to be given to any
person who attends such meeting, except when such person attends the meeting in
person or by proxy for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, or who, either before or after the meeting, shall submit a
signed written waiver of notice, in person or by proxy. Neither the business to
be transacted at, nor the purpose of, an annual or special meeting of
stockholders need be specified in any written waiver of notice.
SECTION 5. LIST OF STOCKHOLDERS. The officer who has charge of
the stock ledger of the Corporation shall prepare and make, at least ten (10)
days before each meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, showing the
address of and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city, town or
village where the meeting is to be held, which place shall be specified in the
notice of meeting, or, if not specified, at the place where the meeting is to be
held. The list shall be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
SECTION 6. QUORUM, ADJOURNMENTS. The holders of a majority of
the voting power of the issued and outstanding stock of the Corporation entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum for the transaction of business at all meetings of stockholders, except
as otherwise provided by statute or by the Amended and Restated Certificate of
Incorporation. If, however, such quorum shall not be present or represented by
proxy at any meeting of stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented by proxy. At such
adjourned meeting at which a quorum shall be present or represented by proxy,
any business may be transacted which might have been transacted at the meeting
as originally called. If the adjournment is for more than thirty (30) days, or,
if after adjournment a new record date is set, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
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SECTION 7. ORGANIZATION. At each meeting of stockholders, the
Chairman of the Board, if one shall have been elected, or, in his absence or if
one shall not have been elected, the President shall act as chairman of the
meeting. The Secretary or, in his absence or inability to act, the person whom
the chairman of the meeting shall appoint secretary of the meeting shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 8. ORDER OF BUSINESS. The order of business at all
meetings of the stockholders shall be as determined by the chairman of the
meeting.
SECTION 9. VOTING. Except as otherwise provided by statute or
the Amended and Restated Certificate of Incorporation, each stockholder of the
Corporation shall be entitled at each meeting of stockholders to one vote for
each share of capital stock of the Corporation standing in his name on the
record of stockholders of the Corporation:
(a) on the date fixed pursuant to the provisions of
Section 8 of Article V of these Amended and Restated By-Laws
as the record date for the determination of the stockholders
who shall be entitled to notice of and to vote at such
meeting; or
(b) if no such record date shall have been so fixed,
then at the close of business on the day next preceding the
day on which notice thereof shall be given, or, if notice is
waived, at the close of business on the date next preceding
the day on which the meeting is held.
Each stockholder entitled to vote at any meeting of stockholders may authorize
another person or persons to act for him by a proxy signed by such stockholder
or his attorney-in-fact, but no proxy shall be voted after three years from its
date, unless the proxy provides for a longer period. Any such proxy shall be
delivered to the secretary of the meeting at or prior to the time designated in
the order of business for so delivering such proxies. When a quorum is present
at any meeting, the vote of the holders of a majority of the voting power of the
issued and outstanding stock of the Corporation entitled to vote thereon,
present in person or represented by proxy, shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of statute or of the Amended and Restated Certificate of Incorporation or of
these Amended and Restated By-Laws, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Unless required by statute, or determined by the chairman of the meeting to be
advisable, the vote on any question need not be by ballot. On a vote by ballot,
each ballot shall be signed by the stockholder voting, or by his proxy, if there
be such proxy, and shall state the number of shares voted and the number of
votes to which each share is entitled.
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SECTION 10. INSPECTORS. The Board of Directors may, in advance
of any meeting of stockholders, appoint one or more inspectors to act at such
meeting or any adjournment thereof. If any of the inspectors so appointed shall
fail to appear or act, the chairman of the meeting shall, or if inspectors shall
not have been appointed, the chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the results, and do such acts
as are proper to conduct the election or vote with fairness to all stockholders.
On request of the chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the office
of director shall act as an inspector of an election of directors. Inspectors
need not be stockholders.
SECTION 11. NOTICE OF STOCKHOLDER BUSINESS; NOMINATIONS.
(a) ANNUAL MEETING OF STOCKHOLDERS.
(1) Nominations of persons for election to
the Board of Directors and the proposal of business to be considered by the
stockholders shall be made at an annual meeting of stockholders (A) pursuant to
the Corporation's notice of such meeting, (B) by or at the direction of the
Board of Directors or (C) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of the notice provided for in this
Section 11.
(2) Nominations of persons for election to
the Board of Directors by a stockholder shall set forth (A) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected) and (B) as to the stockholder making the nomination and the
beneficial owner, if any, on whose behalf the nomination is made (1) the name
and address of such stockholder, as they appear on the Corporation's books, and
of such beneficial owner, and (2) the class and number of shares of the
Corporation that are owned beneficially and held of record by such stockholder
and such beneficial owner. For other business to be properly brought before an
annual meeting by a stockholder
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pursuant to clause (C) of paragraph (a)(1) of this Section 11, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation and such other business must otherwise be a proper matter for
stockholder action. Except as otherwise provided in any Certificate of
Incorporation or Certificate of Designation of the Corporation, to be timely, a
stockholder's notice must be delivered to the principal executive offices of the
Corporation no later than the close of business on the sixtieth (60th) day nor
earlier than the close of business on the ninetieth (90th) day prior to the
first anniversary of the preceding year's annual meeting; PROVIDED, HOWEVER,
that in the event that the date of the annual meeting is more than thirty (30)
days before or more than sixty (60) days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or the close of business on the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made by
the Corporation. Such stockholder's notice shall set forth (A) as to any
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (B) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(1) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner, and (2) the class and number
of shares of the Corporation that are owned beneficially and held of record by
such stockholder and such beneficial owner.
(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only
such business shall be conducted at a special meeting of stockholders as shall
have been brought before the meeting pursuant to the Corporation's notice of
meeting. Nominations of persons for election to the Board of Directors may be
made at a special meeting of stockholders at which directors are to be elected
pursuant to the Corporation's notice of meeting (A) by or at the direction of
the Board of Directors or (B) provided that the Board of Directors has
determined that directors shall be elected at such meeting by any stockholder of
the Corporation who is a stockholder of record at the time of giving of notice
of the special meeting, who shall be entitled to vote at such meeting and who
complies with the notice procedures set forth in this Section 11.
(c) GENERAL.
(1) Only such persons who are nominated in
accordance with the procedures set forth in this Section 11 shall be eligible to
serve as directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 11. Except as otherwise provided by
law, the Amended and Restated Certificate of
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<PAGE>
Incorporation or these Amended and Restated By-Laws, the chairman of the meeting
shall have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this Section 11 and, if any
proposed nomination or business is not in compliance herewith, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 11, "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the forgoing provisions
of this Section 11, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth herein. Nothing in this Section 11 shall be
deemed to affect any rights (A) of stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act or (B) of the holders of any series of Preferred Stock to elect
directors under specified circumstances, (C) of the holders of Class B Special
Common Stock, par value $.01 per share, of the Corporation ("Class B Special
Common Stock") to elect a director under circumstances specified in the Amended
and Restated Certificate of Incorporation of the Corporation or (D) of the
holders of Common Stock purchased from General Electric Capital Corporation
representing at least 10% of the issued and outstanding Common Stock of the
Corporation to elect a director under circumstances specified in the Amended and
Restated Stockholders' Agreement dated as of March 25, 1998 by and among the
Corporation, Jorge Mas, Juan Carlos Mas, Jose Ramon Mas, General Electric
Capital Corporation, GECFS, Inc., Kevin P. Fitzgerald, Santos Fund I, L.P. and
Santos Capital Advisors, Inc.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors. The Board of Directors may exercise all such authority and powers of
the Corporation and do all such lawful acts and things as are not by statute or
the Amended and Restated Certificate of Incorporation directed or required to be
exercised or done by the stockholders.
SECTION 2. PLACE OF MEETINGS. Meetings of the Board of
Directors shall be held at such place or places, within or without the State of
Delaware, as the Board of
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<PAGE>
Directors may from time to time determine or as shall be specified in the notice
of any such meeting.
SECTION 3. ANNUAL MEETINGS. The Board of Directors shall meet
for the purpose of organization, the election of officers and the transaction of
other business, as soon as practicable after each annual meeting of
stockholders, on the same day and at the same place where such annual meeting
shall be held. Notice of such meeting need not be given. In the event such
annual meeting is not so held, the annual meeting of the Board of Directors may
be held at such other time or place (within or without the State of Delaware) as
shall be specified in a notice thereof given as hereinafter provided in Section
6 of this Article III.
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such time and place as the Board of Directors may
fix. If any day fixed for a regular meeting shall be a legal holiday at the
place where the meeting is to be held, then the meeting which would otherwise be
held on that day shall be held at the same hour on the next succeeding business
day. Notice of regular meetings of the Board of Directors need not be given
except as otherwise required by statute or these Amended and Restated By-Laws.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, if one shall have been
elected, or by two or more directors of the Corporation or by the President.
SECTION 6. NOTICE OF MEETINGS. Notice of each special meeting
of the Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 6, in which notice shall be stated the time and place of the meeting.
Except as otherwise required by these Amended and Restated By-Laws, such notice
need not state the purposes of such meeting. Notice of each such meeting shall
be mailed, postage prepaid, to each director, addressed to him at his residence
or usual place of business, by first class mail, at least five (5) days before
the day on which such meeting is to be held, or shall be sent addressed to him
at such place by telegraph, cable, telex, telecopier or other similar means, or
be delivered to him personally or be given to him by telephone or other similar
means, at least six hours before the time at which such meeting is to be held.
Notice of any such meeting need not be given to any director who shall, either
before or after the meeting, submit a signed waiver of notice or who shall
attend such meeting, except when he shall attend for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
SECTION 7. QUORUM AND MANNER OF ACTING. A majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, and, except as otherwise
expressly required by statute
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<PAGE>
or the Amended and Restated Certificate of Incorporation or these Amended and
Restated By-Laws, the act of a majority of the directors present at any meeting
at which a quorum is present shall be the act of the Board of Directors. In the
absence of a quorum at any meeting of the Board of Directors, a majority of the
directors present thereat may adjourn such meeting to another time and place.
Notice of the time and place of any such adjourned meeting shall be given to all
of the directors unless such time and place were announced at the meeting at
which the adjournment was taken, in which case such notice shall only be given
to the directors who were not present thereat. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called. The directors shall act only as
a Board and the individual directors shall have no power as such.
SECTION 8. ORGANIZATION. At each meeting of the Board of
Directors, the Chairman of the Board, if one shall have been elected, or, in the
absence of the Chairman of the Board or if one shall not have been elected, the
President (or, in his absence, another director chosen by a majority of the
directors present) shall act as chairman of the meeting and preside thereat. The
Secretary or, in his absence, any person appointed by the chairman shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 9. RESIGNATIONS. Any director of the Corporation may
resign at any time by giving written notice of his resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon its receipt. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 10. COMPENSATION. The Board of Directors shall have
authority to fix the compensation, including fees and reimbursement of expenses,
of directors for services to the Corporation in any capacity.
SECTION 11. COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate one
or more committees, including an executive committee, each committee to consist
of one or more of the directors of the Corporation. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
addition, in the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Except to the extent restricted by
statute or the Amended and Restated Certificate of Incorporation, each such
committee, to the extent provided in the resolution creating it, shall have and
may exercise all the powers and authority of the Board of Directors and may
authorize the seal of the
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<PAGE>
Corporation to be affixed to all papers which require it. Each such committee
shall serve at the pleasure of the Board of Directors and have such name as may
be determined from time to time by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report the same to
the Board of Directors. In addition, in the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
SECTION 12. ACTION BY CONSENT. Unless restricted by the
Amended and Restated Certificate of Incorporation, any action required or
permitted to be taken by the Board of Directors or any committee thereof may be
taken without a meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board of Directors
or such committee, as the case may be.
SECTION 13. TELEPHONIC MEETING. Unless restricted by the
Amended and Restated Certificate of Incorporation, any one or more members of
the Board of Directors or any committee thereof may participate in a meeting of
the Board of Directors or such committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation by such means shall constitute
presence in person at a meeting.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER AND QUALIFICATIONS. The officers of the
Corporation shall be elected by the Board of Directors and shall include the
President, one or more Vice-Presidents, the Secretary and the Treasurer. If the
Board of Directors wishes it may also elect as an officer of the Corporation a
Chairman of the Board and may elect other officers (including one or more
Assistant Treasurers and one or more Assistant Secretaries) as may be necessary
or desirable for the business of the Corporation. Any two or more offices may be
held by the same person, and no officer except the Chairman of the Board need be
a director. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified, or until his death, or until he shall
have resigned or have been removed, as hereinafter provided in these Amended and
Restated By-Laws.
SECTION 2. RESIGNATIONS. Any officer of the Corporation may
resign at any time by giving written notice of his resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall
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<PAGE>
become effective shall not be specified therein, immediately upon receipt.
Unless otherwise specified therein, the acceptance of any such resignation shall
not be necessary to make it effective.
SECTION 3. REMOVAL. Any officer of the Corporation may be
removed, either with or without cause, at any time, by the Board of Directors at
any meeting thereof.
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board,
if one shall have been elected, shall be a member of the Board, an officer of
the Corporation and, if present, shall preside at each meeting of the Board of
Directors or the stockholders. He shall advise and counsel with the President,
and in his absence with other executives of the Corporation, and shall perform
such other duties as may from time to time be assigned to him by the Board of
Directors.
SECTION 5. THE PRESIDENT. The President shall be the chief
executive officer of the Corporation. He shall, in the absence of the Chairman
of the Board or if a Chairman of the Board shall not have been elected, preside
at each meeting of the Board of Directors or the stockholders. He shall perform
all duties incident to the office of President and chief executive officer and
such other duties as may from time to time be assigned to him by the Board of
Directors.
SECTION 6. VICE-PRESIDENT. Each Vice-President shall perform
all such duties as from time to time may be assigned to him by the Board of
Directors or the President. At the request of the President or in his absence or
in the event of his inability or refusal to act, the Vice-President, or if there
shall be more than one, the Vice-Presidents in the order determined by the Board
of Directors (or if there be no such determination, then the Vice-Presidents in
the order of their election), shall perform the duties of the President, and,
when so acting, shall have the powers of and be subject to the restrictions
placed upon the President in respect of the performance of such duties.
SECTION 7. TREASURER. The Treasurer shall
(a) have charge and custody of, and be responsible
for, all the funds and securities of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) deposit all moneys and other valuables to the
credit of the Corporation in such depositaries as may be
designated by the Board of Directors or pursuant to its
direction;
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<PAGE>
(d) receive, and give receipts for, moneys due and
payable to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and
supervise the investments of its funds, taking proper vouchers
therefore;
(f) render to the Board of Directors, whenever the
Board of Directors may require, an account of the financial
condition of the Corporation; and
(g) in general, perform all duties incident to the
office of Treasurer and such other duties as from time to time
may be assigned to him by the Board of Directors.
SECTION 8. SECRETARY. The Secretary shall
(a) keep or cause to be kept in one or more books
provided for the purpose, the minutes of all meetings of the
Board of Directors, the committees of the Board of Directors
and the stockholders;
(b) see that all notices are duly given in accordance
with the provisions of these Amended and Restated By-Laws and
as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all certificates
for shares of the Corporation (unless the seal of the
Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation
under its seal;
(d) see that the books, reports, statements,
certificates and other documents and records required by law
to be kept and filed are properly kept and filed; and
(e) in general, perform all duties incident to the
office of Secretary and such other duties as from time to time
may be assigned to him by the Board of Directors.
SECTION 9. THE ASSISTANT TREASURER. The Assistant Treasurer,
or if there shall be more than one, the Assistant Treasurers in the order
determined by the Board of Directors (or if there be no such determination, then
in the order of their election), shall, in the absence of the Treasurer or in
the event of his inability or refusal to act, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties as from time to
time may be assigned by the Board of Directors.
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<PAGE>
SECTION 10. THE ASSISTANT SECRETARY. The Assistant Secretary,
or if there be more than one, the Assistant Secretaries in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Secretary or in the event
of his inability or refusal to act, perform the duties and exercise the powers
of the Secretary and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
SECTION 11. OFFICERS' BONDS OR OTHER SECURITY. If required by
the Board of Directors, any officer of the Corporation shall give a bond or
other security for the faithful performance of his duties, in such amount and
with such surety as the Board of Directors may require.
SECTION 12. COMPENSATION. The compensation of the officers of
the Corporation for their services as such officers shall be fixed from time to
time by the Board of Directors. An officer of the Corporation shall not be
prevented from receiving compensation by reason of the fact that he is also a
director of the Corporation.
ARTICLE V
STOCK CERTIFICATES AND THEIR TRANSFER
SECTION 1. STOCK CERTIFICATES. Certificates representing stock
in the Corporation shall be signed by, or in the name of the Corporation by, the
Chairman of the Board or the President or a Vice-President and by the Treasurer
or an Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by him in the Corporation. If
the Corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided in Section 202 of
the General Corporation Law of the State of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each stockholder
who so requests the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
SECTION 2. UNCERTIFICATED SHARES. Subject to any conditions
imposed by the General Corporation Law of the State of Delaware, the Board of
Directors may provide by resolution or resolutions that some or all of any or
all classes or series of the
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<PAGE>
stock of the Corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any uncertificated shares, the
Corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law of the State of Delaware.
SECTION 3. FACSIMILE SIGNATURES. Where a certificate is signed
by a transfer agent or transfer clerk and by a registrar, the signatures of the
Chairman of the Board, President, Vice-President, Treasurer, Assistant
Treasurer, Secretary or Assistant Secretary upon such certificate may be
facsimiles engraved or printed. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 4. LOST CERTIFICATES. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen, or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen, or destroyed certificate or certificates, or his legal
representative, to give the Corporation a bond in such sum as it may direct
sufficient to indemnify it against any claim that may be made against the
Corporation on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
SECTION 5. TRANSFERS OF STOCK. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its records; provided, however, that the Corporation
shall be entitled to recognize and enforce any lawful restriction on transfer.
Whenever any transfer of stock shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of transfer if, when the
certificates are presented to the Corporation for transfer, both the transferor
and the transferee request the Corporation to do so.
SECTION 6. TRANSFER AGENTS AND REGISTRARS. The Board of
Directors may appoint, or authorize any officer or officers to appoint, one or
more transfer agents and one or more registrars.
SECTION 7. REGULATIONS. The Board of Directors may make such
additional rules and regulations, not inconsistent with these Amended and
Restated By-Laws, as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of stock of the Corporation.
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SECTION 8. FIXING THE RECORD DATE. In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
SECTION 9. REGISTERED STOCKHOLDERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its records
as the owner of shares of stock to receive dividends and to vote as such owner,
shall be entitled to hold liable for calls and assessments a person registered
on its records as the owner of shares of stock, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares of
stock on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VI
RIGHTS IN STOCKHOLDERS' AGREEMENT
The rights of any holders of any Common Stock or Preferred
Stock may be evidenced in a Stockholders' Agreement to the extent not contained
in any Certificate of Incorporation of the Corporation, any Certificate of
Designation of the Corporation or these By-Laws.
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<PAGE>
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to the provisions of statute and
the Amended and Restated Certificate of Incorporation, dividends upon the shares
of capital stock of the Corporation may be declared by the Board of Directors at
any regular or special meeting. Dividends may be paid in cash, in property or in
shares of stock of the Corporation, unless otherwise provided by statute or the
Amended and Restated Certificate of Incorporation.
SECTION 2. RESERVES. Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for dividends such
sum or sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may modify
or abolish any such reserves in the manner in which they were created.
SECTION 3. SEAL. The seal of the Corporation shall be in such
form as shall be approved by the Board of Directors.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation
shall be fixed, and once fixed, may thereafter be changed by resolution of the
Board of Directors.
SECTION 5. CHECKS, NOTES, DRAFTS, ETC. All checks, notes,
drafts or other orders for the payment of money of the Corporation shall be
signed, endorsed or accepted in the name of the Corporation by such officer,
officers, person or persons as from time to time may be designated by the Board
of Directors or by an officer or officers authorized by the Board of Directors
to make such designation.
SECTION 6. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of
Directors may authorize any officer or officers, agent or agents, in the name
and on behalf of the Corporation to enter into or execute and deliver any and
all deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
SECTION 7. VOTING OF STOCK IN OTHER CORPORATIONS. Unless
otherwise provided by resolution of the Board of Directors, the Board of
Directors, or, in the action of absence by the Board of Directors, the Chairman
of the Board of Directors or the President of the Corporation, from time to
time, may (or may appoint one or more attorneys or agents to) cast the votes
which the Corporation may be entitled to cast as a
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shareholder or otherwise in any other corporation, any of whose shares or
securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other corporation. In the event one or more
attorneys or agents are appointed, the Chairman of the Board or the President
may instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent. The Chairman of the Board or the President may, or
may instruct the attorneys or agents appointed to, execute or cause to be
executed in the name and on behalf of the Corporation and under its seal or
otherwise, such written proxies, consents, waivers or other instruments as may
be necessary or proper in the circumstances.
ARTICLE VIII
AMENDMENTS
The Board of Directors is authorized to adopt, amend or repeal
these Amended and Restated By-Laws. Any by-laws made by the directors under the
powers conferred hereby may be amended or repealed by the directors or by the
stockholders. Notwithstanding the foregoing, these Amended and Restated By-Laws
may be amended or repealed or new by-laws adopted only in accordance with
Article TENTH of the Amended and Restated Certificate of Incorporation.
EXHIBIT 4.1
NEFF CORP.,
AS ISSUER,
and
THE GUARANTORS
(DEFINED HEREIN)
and
STATE STREET BANK AND TRUST COMPANY,
AS TRUSTEE
----------------------
INDENTURE
Dated as of May 28, 1998
----------------------
up to $200,000,000
10 1/4% Senior Subordinated Notes due 2008
<PAGE>
CROSS-REFERENCE TABLE
TIA INDENTURE
SECTION SECTION
- ------- ----------
310(a)(1)................................................. 7.10
(a)(2)................................................. 7.10
(a)(3)................................................. N.A.
(a)(4)................................................. N.A.
(a)(5)................................................. 7.08; 7.10
(b).................................................... 7.08; 7.10;12.02
(c).................................................... N.A.
311(a).................................................... 7.11
(b).................................................... 7.11
(c).................................................... N.A.
312(a).................................................... 2.05
(b).................................................... 12.03
(c).................................................... 12.03
313(a).................................................... 7.06
(b)(1)................................................. N.A.
(b)(2)................................................. 7.06
(c).................................................... 7.06; 12.02
(d).................................................... 7.06
314(a).................................................... 4.06; 4.08; 12.02
(b).................................................... N.A.
(c)(1)................................................. 12.04
(c)(2)................................................. 12.04
(c)(3)................................................. N.A.
(d).................................................... N.A.
(e).................................................... 12.05
(f).................................................... N.A.
315(a).................................................... 7.01(b)
(b).................................................... 7.05; 12.02
(c).................................................... 7.01(a)
(d).................................................... 7.01(c)
(e).................................................... 6.11
316(a)(last sentence)..................................... 2.09
(a)(1)(A).............................................. 6.05
(a)(1)(B).............................................. 6.04
(a)(2)................................................. N.A.
(b).................................................... 6.07
(c).................................................... 9.05
317(a)(1)................................................. 6.08
(a)(2)................................................. 6.09
(b).................................................... 2.04
318(a).................................................... 12.01
(c).................................................... 12.01
- ----------------------
N.A. means Not Applicable
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be
a part of the Indenture.
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TABLE OF CONTENTS
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ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions....................................................1
SECTION 1.02. Incorporation by Reference of TIA.............................32
SECTION 1.03. Rules of Construction.........................................32
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating...............................................33
SECTION 2.02. Execution and Authentication; Aggregate Principal Amount......34
SECTION 2.03. Registrar and Paying Agent....................................36
SECTION 2.04. Paying Agent To Hold Assets in Trust..........................36
SECTION 2.05. Noteholder Lists..............................................37
SECTION 2.06. Transfer and Exchange.........................................37
SECTION 2.07. Replacement Notes.............................................38
SECTION 2.08. Outstanding Notes.............................................38
SECTION 2.09. Treasury Notes................................................39
SECTION 2.10. Temporary Notes...............................................39
SECTION 2.11. Cancellation..................................................40
SECTION 2.12. Defaulted Interest............................................40
SECTION 2.13. CUSIP Number..................................................40
SECTION 2.14. Deposit of Moneys.............................................41
SECTION 2.15. Book-Entry Provisions for Global Note.........................41
SECTION 2.16. Special Transfer Provisions...................................42
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee............................................45
SECTION 3.02. Selection of Notes To Be Redeemed.............................45
SECTION 3.03. Notice of Redemption..........................................46
SECTION 3.04. Effect of Notice of Redemption................................47
SECTION 3.05. Deposit of Redemption Price...................................47
SECTION 3.06. Notes Redeemed in Part........................................47
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes..............................................48
SECTION 4.02. Maintenance of Office or Agency...............................48
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SECTION 4.03. Corporate Existence...........................................48
SECTION 4.04. Payment of Taxes and Other Claims.............................49
SECTION 4.05. Maintenance of Properties and Insurance.......................49
SECTION 4.06. Compliance Certificate; Notice of Default.....................50
SECTION 4.07. Compliance with Laws..........................................51
SECTION 4.08. SEC Reports...................................................51
SECTION 4.09. Waiver of Stay, Extension or Usury Laws.......................52
SECTION 4.10. Limitation on Restricted Payments.............................52
SECTION 4.11. Limitation on Transactions with Affiliates....................55
SECTION 4.12. Limitation on Incurrence of Additional Indebtedness...........56
SECTION 4.13. Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries........................57
SECTION 4.14. Prohibition on Incurrence of Senior Subordinated Debt.........57
SECTION 4.15. Limitation on Change of Control...............................58
SECTION 4.16. Limitation on Asset Sales.....................................60
SECTION 4.17. Limitation on Preferred Stock of Restricted Subsidiaries......63
SECTION 4.18. Limitation on Liens...........................................64
SECTION 4.19. Conduct of Business...........................................64
SECTION 4.20. Additional Subsidiary Guarantees..............................64
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc...................................65
SECTION 5.02. Successor Corporation Substituted.............................67
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.............................................68
SECTION 6.02. Acceleration..................................................70
SECTION 6.03. Other Remedies................................................71
SECTION 6.04. Waiver of Past Defaults.......................................71
SECTION 6.05. Control by Majority...........................................71
SECTION 6.06. Limitation on Suits...........................................71
SECTION 6.07. Rights of Holders To Receive Payment..........................72
SECTION 6.08. Collection Suit by Trustee....................................72
SECTION 6.09. Trustee May File Proofs of Claim..............................73
SECTION 6.10. Priorities....................................................73
SECTION 6.11. Undertaking for Costs.........................................74
SECTION 6.12. Restoration of Rights and Remedies............................74
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ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.............................................75
SECTION 7.02. Rights of Trustee.............................................76
SECTION 7.03. Individual Rights of Trustee..................................77
SECTION 7.04. Trustee's Disclaimer..........................................77
SECTION 7.05. Notice of Default.............................................78
SECTION 7.06. Reports by Trustee to Holders.................................78
SECTION 7.07. Compensation and Indemnity....................................78
SECTION 7.08. Replacement of Trustee........................................79
SECTION 7.09. Successor Trustee by Merger, Etc..............................81
SECTION 7.10. Eligibility; Disqualification.................................81
SECTION 7.11. Preferential Collection of Claims Against Company.............81
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of the Company's Obligations......................81
SECTION 8.02. Legal Defeasance and Covenant Defeasance......................83
SECTION 8.03. Conditions to Legal Defeasance or Covenant Defeasance.........85
SECTION 8.04. Application of Trust Money....................................87
SECTION 8.05. Repayment to the Company or the Guarantors....................88
SECTION 8.06. Satisfaction and Discharge....................................88
SECTION 8.07. Reinstatement.................................................89
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders....................................89
SECTION 9.02. With Consent of Holders.......................................90
SECTION 9.03. Effect on Senior Debt.........................................91
SECTION 9.04. Compliance with TIA...........................................92
SECTION 9.05. Revocation and Effect of Consents.............................92
SECTION 9.06. Notation on or Exchange of Notes..............................93
SECTION 9.07. Trustee To Sign Amendments, Etc...............................93
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ARTICLE TEN
SUBORDINATION
SECTION 10.01. Notes Subordinated to Senior Debt of the Company..............93
SECTION 10.02. No Payment on Notes in Certain Circumstances..................94
SECTION 10.03. Payment Over of Proceeds Upon Dissolution, Etc................95
SECTION 10.04. Payments May Be Paid Prior to Dissolution.....................97
SECTION 10.05. Subrogation...................................................97
SECTION 10.06. Obligations of the Company Unconditional......................98
SECTION 10.07. Notice to Trustee.............................................98
SECTION 10.08. Reliance on Judicial Order or Certificate of
Liquidating Agent..........................................99
SECTION 10.09. Trustee's Relation to Senior Debt.............................99
SECTION 10.10. Subordination Rights Not Impaired by Acts
or Omissions of the Company or Holders
of Senior Debt............................................100
SECTION 10.11. Noteholders Authorize Trustee To Effectuate 101
Subordination of Notes....................................101
SECTION 10.12. This Article Ten Not To Prevent Events of Default............101
SECTION 10.13. Trustee's Compensation Not Prejudiced........................102
ARTICLE ELEVEN
GUARANTEES
SECTION 11.01. Unconditional Guarantee......................................102
SECTION 11.02. Subordination of Guarantee...................................103
SECTION 11.03. Severability.................................................103
SECTION 11.04. Release of a Guarantor.......................................103
SECTION 11.05. Limitation of Guarantor's Liability..........................104
SECTION 11.06. Guarantors May Consolidate, Etc., on Certain Terms...........105
SECTION 11.07. Contribution.................................................106
SECTION 11.08. Waiver of Subrogation........................................106
SECTION 11.09. Execution of Guarantee.......................................107
SECTION 11.10. No Payment on Guarantees in Certain Circumstances............107
SECTION 11.11. Payment Over of Proceeds Upon Dissolution, Etc...............109
SECTION 11.12. Payments May Be Paid Prior to Dissolution....................111
SECTION 11.13. Subrogation..................................................111
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SECTION 11.14. Obligations of Each Guarantor Unconditional..................112
SECTION 11.15. Notice to Trustee............................................112
SECTION 11.16. Reliance on Judicial Order or Certificate
of Liquidating Agent......................................113
SECTION 11.17. Trustee's Relation to Guarantor Senior Debt..................113
SECTION 11.18. Subordination Rights Not Impaired by Acts
or Omissions of a Guarantor or Holders
of Guarantor Senior Debt..................................114
SECTION 11.19. Noteholders Authorize Trustee To Effectuate
Subordination of Guarantees...............................115
SECTION 11.20. This Article Eleven Not To Prevent Events of Default.........115
SECTION 11.21. Trustee's Compensation Not Prejudiced........................115
ARTICLE TWELVE
MISCELLANEOUS
SECTION 12.01. TIA Controls.................................................116
SECTION 12.02. Notices......................................................116
SECTION 12.03. Communications by Holders with Other Holders.................117
SECTION 12.04. Certificate and Opinion as to Conditions Precedent...........117
SECTION 12.05. Statements Required in Certificate or Opinion................118
SECTION 12.06. Rules by Trustee, Paying Agent, Registrar....................118
SECTION 12.07. Legal Holidays...............................................119
SECTION 12.08. Governing Law................................................119
SECTION 12.09. No Adverse Interpretation of Other Agreements................119
SECTION 12.10. No Recourse Against Others...................................119
SECTION 12.11. Successors...................................................119
SECTION 12.12. Duplicate Originals..........................................120
SECTION 12.13. Severability.................................................120
Signatures .............................................................120
Exhibit A(1) - Form of Initial Note with Guarantee.........................A.1-1
Exhibit A(2) - Form of Exchange Note with Guarantee........................A.2-1
Exhibit B - Form of Legend for Global Notes...............................B-1
Exhibit C - Form of Certificate To Be Delivered
in Connection with Transfers to
Non-QIB Accredited Investors.............................C-1
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Exhibit D - Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S.................................D-1
Note: This Table of Contents shall not, for any purpose, be deemed to be part
of the Indenture.
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<PAGE>
INDENTURE, dated as of May 28, 1998, among Neff Corp., a
Delaware corporation (the "Company"), the Guarantors (as hereinafter defined)
and State Street Bank and Trust Company, as trustee (the "TRUSTEE").
The Company has duly authorized the creation of an issue of 10
1/4% Senior Subordinated Notes due 2008 and, to provide therefor, the Company
has duly authorized the execution and delivery of this Indenture. All things
necessary to make the Notes, when duly issued and executed by the Company and
authenticated and delivered hereunder, the valid obligations of the Company, and
to make this Indenture a valid and binding agreement of the Company, have been
done.
Each party hereto agrees as follows for the benefit of the
other parties and for the equal and ratable benefit of the Holders of the Notes.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"ACCELERATION NOTICE" has the meaning provided in Section
6.02.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any
of its Subsidiaries existing at the time such Person becomes a Restricted
Subsidiary of the Company or at the time it merges or consolidates with the
Company or any of its Subsidiaries or assumed in connection with the acquisition
of assets from such Person and in each case not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"ACT" means the Securities Act of 1933, as amended.
"AFFILIATE" means, with respect to any specified Person, any
other Person who directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such specified
Person. The term "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative of the foregoing.
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"AFFILIATE TRANSACTION" has the meaning provided in Section
4.11.
"AGENT" means any Registrar, Paying Agent or co-Registrar.
"AGENT MEMBERS" has the meaning provided in Section 2.15.
"ASSET ACQUISITION" means (a) an Investment by the Company or
any Restricted Subsidiary of the Company in any other Person pursuant to which
such Person shall become a Restricted Subsidiary of the Company or any
Restricted Subsidiary of the Company, or shall be merged with or into the
Company or any Restricted Subsidiary of the Company, or (b) the acquisition by
the Company or any Restricted Subsidiary of the Company of the assets of any
Person (other than a Restricted Subsidiary of the Company) which constitute all
or substantially all of the assets of such Person or comprises any division or
line of business of such Person or any other properties or assets of such Person
other than in the ordinary course of business.
"ASSET SALE" means any direct or indirect sale, issuance,
conveyance, transfer, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by the
Company or any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company of (a) any Capital Stock of any Restricted Subsidiary
of the Company; or (b) any other property or assets of the Company or any
Restricted Subsidiary of the Company other than in the ordinary course of
business; PROVIDED, HOWEVER, that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration of less than $1.0
million, (ii) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of the Company as permitted under Section
5.01, (iii) disposals or replacements of obsolete or outdated equipment in the
ordinary course of business and (iv) the sale or discount, in each case without
recourse (other than recourse for a breach of a representation or warranty), of
accounts receivable arising in the ordinary course of business, but only in
connection with the compromise or collection thereof in the ordinary course of
business and not as part of a financing transaction.
"AUTHENTICATING AGENT" has the meaning provided in Section
2.02.
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"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar
Federal, state or foreign law for the relief of debtors.
"BLOCKAGE PERIOD" has the meaning provided in Section
10.02(a).
"BOARD OF DIRECTORS" means, as to any Person, the board of
directors of such Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy
of a resolution certified by the Secretary or an Assistant Secretary of such
Person to have been duly adopted by the Board of Directors of such Person and to
be in full force and effect on the date of such certification, and delivered to
the Trustee.
"BUSINESS DAY" means a day that is not a Legal Holiday.
"CAPITAL STOCK" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and (ii) with
respect to any Person that is not a corporation, any and all partnership or
other equity interests of such Person.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"CASH EQUIVALENTS" means (i) marketable direct obligations
issued by, or unconditionally guaranteed by, the United States Government or
issued by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof; (ii) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Corporation ("S&P") or
Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no
more than one year from the date of creation
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thereof and, at the time of acquisition, having a rating of at least A-1 from
S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers'
acceptances maturing within one year from the date of acquisition thereof issued
by any bank organized under the laws of the United States of America or any
state thereof or the District of Columbia or any U.S. branch of a foreign bank
having at the date of acquisition thereof combined capital and surplus of not
less than $250,000,000; (v) 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 (iv)
above; and (vi) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (i) through (v)
above.
"CHANGE OF CONTROL" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company to any Person or group of related Persons for purposes
of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates
thereof (whether or not otherwise in compliance with the provisions of this
Indenture) (other than to the Permitted Holders); (ii) the approval by the
holders of Capital Stock of the Company of any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of this Indenture); (iii) any Person or Group
(other than the Permitted Holders) shall become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 50% of
the aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Company; or (iv) the replacement of a majority of the Board
of Directors of the Company over a two-year period from the directors who
constituted the Board of Directors of the Company at the beginning of such
period, and such replacement shall not have been approved by a vote of at least
a majority of the Board of Directors of the Company then still in office who
either were members of such Board of Directors at the beginning of such period
or whose election as a member of such Board of Directors was previously so
approved.
"CHANGE OF CONTROL OFFER" has the meaning provided in Section
4.15.
"CHANGE OF CONTROL PAYMENT DATE" has the meaning provided in
Section 4.15.
"COMMON STOCK" of any Person means any and all shares,
interests or other participations in, and other equivalents
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(however designated and whether voting or non-voting) of such Person's common
stock, whether outstanding on the Issue Date or issued after the Issue Date, and
includes, without limitation, all series and classes of such common stock.
"COMMON STOCK OFFERING" means the initial public offering of
the Company's Class A Common Stock, including the exercise of the over-allotment
option, if any, pursuant to the Registration Statement on Form S-1 (333-48077),
originally filed with the SEC on March 17, 1998, as amended, modified or
supplemented.
"COMPANY" means Neff Corp., a Delaware corporation, and its
successors that become a party to this Indenture in accordance with its terms.
"CONSOLIDATED EBITDA" means, with respect to any Person, for
any period, the sum (without duplication) of (i) Consolidated Net Income and
(ii) to the extent Consolidated Net Income has been reduced thereby, (A) all
income taxes of such Person and its Restricted Subsidiaries paid or accrued in
accordance with GAAP for such period (other than income taxes attributable to
extraordinary, unusual or nonrecurring gains or losses or taxes attributable to
sales or dispositions outside the ordinary course of business), (B) Consolidated
Interest Expense and (C) Consolidated Non-cash Charges LESS any non-cash items
increasing Consolidated Net Income for such period, all as determined on a
consolidated basis for such Person and its Restricted Subsidiaries in accordance
with GAAP.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect
to any Person, the ratio of Consolidated EBITDA of such Person during the four
full fiscal quarters (the "Four Quarter Period") ending on or prior to the date
of the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a PRO
FORMA (including any PRO FORMA expense and cost reductions calculated on a basis
consistent with Regulation S-X under the Act) basis for the period of such
calculation to (i) the incurrence or repayment of any Indebtedness of such
Person or any of its Restricted Subsidiaries (and the application of the
proceeds thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes pursuant to working
<PAGE>
-6-
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the Four
Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any Consolidated EBITDA (provided that such
Consolidated EBITDA shall be included only to the extent includable pursuant to
the definition of "Consolidated Net Income") attributable to the assets which
are the subject of the Asset Acquisition or Asset Sale during the Four Quarter
Period) occurring during the Four Quarter Period or at any time subsequent to
the last day of the Four Quarter Period and on or prior to the Transaction Date,
as if such Asset Sale or Asset Acquisition (including the incurrence, assumption
or liability for any such Acquired Indebtedness) occurred on the first day of
the Four Quarter Period. If such Person or any of its Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the incurrence of such guaranteed Indebtedness as
if such Person or any Restricted Subsidiary of such Person had directly incurred
or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"CONSOLIDATED FIXED CHARGES" means, with respect to any Person
for any period, the sum, without duplication, of (i)
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Consolidated Interest Expense, plus (ii) the product of (x) the amount of all
dividend payments on any series of Preferred Stock of such Person (other than
dividends paid in Qualified Capital Stock) paid, accrued or scheduled to be paid
or accrued during such period times (y) a fraction, the numerator of which is
one and the denominator of which is one minus the then current effective
consolidated federal, state and local income tax rate of such Person, expressed
as a decimal.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any
Person for any period, the sum of, without duplication: (i) the aggregate of the
interest expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount and amortization or write-off
of deferred financing costs, (b) the net costs under Interest Swap Obligations,
(c) all capitalized interest and (d) the interest portion of any deferred
payment obligation; and (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such Person
and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any Person,
for any period, the aggregate net income (or loss) of such Person and its
Restricted Subsidiaries for such period on a consolidated basis, determined in
accordance with GAAP; PROVIDED that there shall be excluded therefrom (a) for
purposes of calculating the Consolidated Fixed Charge Coverage Ratio only,
after-tax gains or losses (net of any related fees and expenses) from Asset
Sales or abandonments or reserves relating thereto, (b) after-tax items
classified as extraordinary or nonrecurring gains or losses, (c) the net income
(or loss) of any Person acquired in a "pooling of interests" transaction accrued
prior to the date it becomes a Restricted Subsidiary of the referent Person or
is merged or consolidated with the referent Person or any Restricted Subsidiary
of the referent Person, (d) the net income (but not loss) of any Restricted
Subsidiary of the referent Person to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that income
is restricted by a contract, operation of law or otherwise, (e) the net income
of any Person, other than a Restricted Subsidiary of the referent Person, except
to the extent of cash dividends or distributions paid to the referent Person or
to a Restricted Subsidiary of the referent Person by such Person (in the case
that any such Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
the portion of net income included therein will be equal to the Company's
interest in such Restricted Subsidiary), (f) for purposes
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of calculating the Consolidated Fixed Charge Coverage Ratio only, any
restoration to income of any contingency reserve, except to the extent that
provision for such reserve was made out of Consolidated Net Income accrued at
any time following the Issue Date, (g) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued), and (h) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets, any
earnings of the successor corporation prior to such consolidation, merger or
transfer of assets.
"CONSOLIDATED NET WORTH" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Capital Stock of such Person, PROVIDED that the Consolidated Net
Worth of any Person shall exclude the effect of any non-cash charges relating to
the acceleration of stock options or similar securities of such Person or
another Person with which such Person is merged or consolidated.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any
Person, for any period, the aggregate depreciation, amortization and other
non-cash expenses of such Person and its Restricted Subsidiaries reducing
Consolidated Net Income of such Person and its Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such charges constituting an extraordinary item or loss or any such charge
which requires an accrual of or a reserve for cash charges for any future
period).
"COVENANT DEFEASANCE" has the meaning provided in Section
8.02(c).
"CREDIT AGREEMENT" means the Credit Agreement dated as of May
1, 1998, among the Company, Neff Rental, Inc., Neff Machinery, Inc., the lenders
party thereto in their capacities as lenders thereunder and Bankers Trust
Company, as agent, together with the related documents thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
thereunder or adding Restricted Subsidiaries of the Company as additional
borrowers or guarantors thereunder) all or any portion of the Indebtedness under
such agreement or any successor
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or replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"CURRENCY AGREEMENT" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any Restricted Subsidiary of the Company against
fluctuations in currency values.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"DEFAULT" means an event or condition the occurrence of which
is, or with the lapse of time or the giving of notice or both would be, an Event
of Default.
"DEFAULT NOTICE" has the meaning provided in Section 10.02(a).
"DEPOSITARY" means The Depository Trust Company, its nominees
and successors.
"DESIGNATED SENIOR DEBT" means (i) Indebtedness under or in
respect of the Credit Agreement and (ii) any other Indebtedness constituting
Senior Debt which, at the time of determination, has an aggregate principal
amount of at least $25,000,000 and is specifically designated in the instrument
evidencing such Senior Debt as "Designated Senior Debt" by the Company.
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital
Stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof on or prior to the final maturity date of the Notes.
"ELIGIBLE ACCOUNTS" has the meaning specified in the Credit
Agreement.
"ELIGIBLE FINANCED EQUIPMENT" has the meaning specified in the
Credit Agreement.
"ELIGIBLE PARTS INVENTORY" has the meaning specified in the
Credit Agreement.
"EQUITY INTEREST" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but
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excluding any debt security that is convertible into, or exchangeable for,
Capital Stock).
"EVENT OF DEFAULT" has the meaning provided in Section 6.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any successor statute or statutes thereto.
"EXCHANGE NOTES" means the 10 1/4% Senior Subordinated Notes
due 2008 to be issued in exchange for the Initial Notes pursuant to the
Registration Rights Agreement or, with respect to Initial Notes issued under
this Indenture subsequent to the Issue Date pursuant to Section 2.02, a
registration rights agreement substantially identical to the Registration Rights
Agreement.
"EXCHANGE OFFER" has the meaning assigned to such term in the
Registration Rights Agreement.
"FAIR MARKET VALUE" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between a willing seller and a willing and able buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair market value shall be determined by the Board of Directors of
the Company acting reasonably and in good faith (which determination shall be
conclusive) and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"FUNDING GUARANTOR" has the meaning provided in Section 11.07.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect as of the
Issue Date. All ratios and computations based on GAAP contained in this
Indenture shall be computed in conformity with GAAP applied on a consistent
basis, except that calculations made for purposes of determining compliance with
the terms of the covenants and with other provisions of this Indenture shall be
made without giving effect to (i) the deduction or amortization of any premiums,
fees and expenses incurred in connection with any financings or any other
permitted incurrence of Indebtedness and (ii) depreciation, amortization or
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other expenses recorded as a result of the application of purchase accounting in
accordance with Accounting Principles Board Opinion Nos. 16 and 17.
"GLOBAL NOTE" has the meaning provided in Section 2.01.
"GUARANTEE" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person (whether
arising by virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part) (but if in part, only to the extent
thereof); PROVIDED, however, that the term "guarantee" shall not include (A)
endorsements for collection or deposit in the ordinary course of business and
(B) guarantees (other than guarantees of Indebtedness) by the Company in respect
of assisting one or more Subsidiaries in the ordinary course of their respective
businesses, including without limitation guarantees of trade obligations and
operating leases, on ordinary business terms. The term "guarantee" used as a
verb has a corresponding meaning.
"GUARANTEE" means the guarantee of the obligations under this
Indenture and the Notes by each of the Guarantors as set forth in Article
Eleven.
"GUARANTOR" means (i) each of Neff Rental, Inc. and Neff
Machinery, Inc. and (ii) each of the Company's Restricted Subsidiaries that in
the future executes a supplemental indenture in which such Restricted Subsidiary
agrees to be bound by the terms of this Indenture as a Guarantor; PROVIDED that
any Person constituting a Guarantor as described above shall cease to constitute
a Guarantor when its respective Guarantee is released in accordance with the
terms of this Indenture.
"GUARANTOR BLOCKAGE PERIOD" has the meaning provided in
Section 11.10(a).
"GUARANTOR DEFAULT NOTICE" has the meaning provided in Section
11.10(a).
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"GUARANTOR PAYMENT DEFAULT" has the meaning provided in
Section 11.10(a).
"GUARANTOR NON-PAYMENT DEFAULT" has the meaning provided in
Section 11.10(a).
"GUARANTOR SENIOR DEBT" means with respect to any Guarantor,
(i) the principal of, premium, if any, and interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on any Indebtedness of a
Guarantor, whether outstanding on the Issue Date or thereafter created, incurred
or assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Guarantee of such Guarantor. Without limiting the generality of
the foregoing, "Guarantor Senior Debt" shall also include the principal of,
premium, if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (x) all monetary
obligations (including guarantees thereof) of every nature of such Guarantor
under the Credit Agreement, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit, fees,
expenses and indemnities, (y) all Interest Swap Obligations (including
guarantees thereof) and (z) all obligations (including guarantees thereof) under
Currency Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, "Guarantor Senior Debt"
shall not include (i) any Indebtedness of such Guarantor to a Restricted
Subsidiary of such Guarantor or any Affiliate of such Guarantor or any of such
Affiliate's Subsidiaries, (ii) Indebtedness to, or guaranteed on behalf of, any
shareholder, director, officer or employee of such Guarantor or any Restricted
Subsidiary of such Guarantor (including, without limitation, amounts owed for
compensation), (iii) Indebtedness to trade creditors and other amounts incurred
in connection with obtaining goods, materials or services (excluding Purchase
Money Indebtedness to equipment manufacturers), (iv) Indebtedness represented by
Disqualified Capital Stock, (v) any liability for federal, state, local or other
taxes owed or owing by such Guarantor, (vi) that portion of any Indebtedness
incurred in violation of the provisions set forth in this Indenture under
Section 4.12 (but, as to any such obligation, no such violation shall be deemed
to exist for purposes of this clause (vi) if the holder(s) of such obligation or
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their representative and the Trustee shall have received an Officers'
Certificate of the Company to the effect that the incurrence of such
Indebtedness does not (or, in the case of revolving credit Indebtedness, that
the incurrence of the entire committed amount thereof at the date on which the
initial borrowing thereunder is made would not) violate such provisions of this
Indenture), (vii) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company and (viii) any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness of such
Guarantor.
"HOLDER" or "NOTEHOLDER" means the person in whose name a Note
is registered on the Registrar's books.
"INCUR" has the meaning provided in Section 4.12.
"INDEBTEDNESS" means with respect to any Person, without
duplication, (i) all Obligations of such Person for borrowed money, (ii) all
Obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all Capitalized Lease Obligations of such Person,
(iv) all Obligations of such Person issued or assumed as the deferred purchase
price of property, all conditional sale obligations and all Obligations under
any title retention agreement (but excluding trade accounts payable and other
accrued liabilities arising in the ordinary course of business), (v) all
Obligations for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (vi) guarantees and other
contingent obligations in respect of Indebtedness referred to in clauses (i)
through (v) above and clause (viii) below, (vii) all Obligations of any other
Person of the type referred to in clauses (i) through (vi) which are secured by
any lien on any property or asset of such Person, the amount of such Obligation
being deemed to be the lesser of the fair market value of such property or asset
or the amount of the Obligation so secured, (viii) all Obligations under
currency agreements and interest swap agreements of such Person and (ix) all
Disqualified Capital Stock issued by such Person with the amount of Indebtedness
represented by such Disqualified Capital Stock being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed repurchase
price, but excluding accrued dividends, if any. For purposes hereof, the
"maximum fixed repurchase price" of any Disqualified Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Disqualified Capital Stock as if such Disqualified Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to this Indenture, and if
<PAGE>
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such price is based upon, or measured by, the fair market value of such
Disqualified Capital Stock, such fair market value shall be determined
reasonably and in good faith by the Board of Directors of the issuer of such
Disqualified Capital Stock. Indebtedness shall not include any liability for (i)
federal, state, local or other taxes, (ii) endorsements or negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business or (iii) any indebtedness that has been defeased or satisfied
in accordance with the terms of the documents governing such indebtedness.
The amount of Indebtedness of any Person at any date shall be
the outstanding balance on such date of all unconditional Obligations as
described above, and the maximum liability upon the occurrence of the
contingency giving rise to the Obligation, on any contingent Obligations at such
date; PROVIDED, HOWEVER, that the amount outstanding at any time of any
Indebtedness incurred with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP.
"INDENTURE" means this Indenture, as amended or supplemented
from time to time in accordance with the terms hereof.
"INDEPENDENT" means with respect to the Company and its
Subsidiaries, any person who (i) is in fact independent, (ii) does not have any
direct financial interest or any material indirect financial interest in the
Company or any of its Subsidiaries, or in any Affiliate of the Company or any of
its Subsidiaries (other than as a result of holding securities of the Company in
trading accounts) and (iii) is not an officer, employee, promoter, underwriter,
trustee, partner, director or person performing similar functions for the
Company or any of its Subsidiaries or any Affiliate of the Company or any of its
Subsidiaries.
"INDEPENDENT FINANCIAL ADVISOR" means a firm (i) which does
not, and whose directors, officers and employees or Affiliates do not, have a
direct or indirect financial interest in the Company and (ii) which, in the
judgment of the Board of Directors of the Company, is otherwise independent and
qualified to perform the task for which it is to be engaged.
"INITIAL NOTES" means, collectively, (i) the 10 1/4% Senior
Subordinated Notes due 2008 of the Company issued on the Issue Date and (ii) one
or more series of 10 1/4% Senior Subordinated Notes due 2008 that are issued
under this Indenture subsequent to the Issue Date pursuant to Section 2.02, in
each
<PAGE>
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case for so long as such securities constitute Restricted Securities.
"INITIAL PURCHASERS" means BT Alex. Brown Incorporated, Bear,
Stearns & Co. Inc. and Morgan Stanley & Co. Incorporated.
"INSTITUTIONAL ACCREDITED INVESTOR" means an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3)
or (7) under the Act.
"INTEREST PAYMENT DATE" when used with respect to any Note,
means the stated maturity of an installment of interest specified in such Note.
"INTEREST SWAP OBLIGATIONS" means the obligations of any
Person pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"INVESTMENT" means, with respect to any Person, any direct or
indirect loan or other extension of credit (including, without limitation, a
guarantee) or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition by such Person of any Capital
Stock, bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit by
the Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of Section 4.10, (i)
"Investment" shall include and be valued at the fair market value of the net
assets of any Restricted Subsidiary at the time that such Restricted Subsidiary
is designated an Unrestricted Subsidiary and shall exclude the fair market value
of the net assets of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the
amount of any Investment shall be the original cost of such Investment plus the
cost of all additional Investments by the Company or any of its Restricted
Subsidiaries, without any adjustments for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment, reduced by
the payment
<PAGE>
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of dividends or distributions in connection with such Investment or any other
amounts received in respect of such Investment; PROVIDED that no such payment of
dividends or distributions or receipt of any such other amounts shall reduce the
amount of any Investment if such payment of dividends or distributions or
receipt of any such amounts would be included in Consolidated Net Income. If the
Company or any Restricted Subsidiary of the Company sells or otherwise disposes
of any Common Stock of any direct or indirect Restricted Subsidiary of the
Company (other than all of the Common Stock of such Restricted Subsidiary) such
that, after giving effect to any such sale or disposition, the Company no longer
owns, directly or indirectly, 100% of the outstanding Common Stock of such
Restricted Subsidiary, the Company shall be deemed to have made an Investment on
the date of any such sale or disposition equal to the fair market value of the
Common Stock of such Restricted Subsidiary not sold or disposed of.
"ISSUE DATE" means the date of original issuance of the Notes.
"LEGAL DEFEASANCE" has the meaning provided in Section
8.02(b).
"LEGAL HOLIDAY" has the meaning provided in Section 12.07.
"LIEN" means any lien, mortgage, deed of trust, pledge,
security interest, charge or encumbrance of any kind (including any conditional
sale or other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"MATURITY DATE" means June 1, 2008.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of its Restricted Subsidiaries from
such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions), (b) taxes paid or payable after
taking into account any reduction in consolidated tax liability due to available
tax credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that either (A) is secured by a Lien on the property or assets sold
or (B) is required to be repaid in connection with such
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Asset Sale (or in order to obtain a consent required in connection therewith),
(d) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, (e) any
consideration for an Asset Sale (which would otherwise constitute Net Cash
Proceeds) that is required to be held in escrow pending determination of whether
a purchase price adjustment will be made, but amounts under this clause (e)
shall become Net Cash Proceeds at such time and to the extent such amounts are
released to such Person and (f) a PRO RATA portion of the amount of cash or Cash
Equivalents received by any non-Guarantor Restricted Subsidiary that are held by
Persons other than the Company or its Restricted Subsidiaries.
"NET PROCEEDS OFFER" has the meaning provided in Section 4.16.
"NET PROCEEDS OFFER PAYMENT DATE" has the meaning provided in
Section 4.16.
"NET PROCEEDS OFFER TRIGGER DATE" has the meaning provided in
Section 4.16.
"NON-PAYMENT DEFAULT" has the meaning provided in Section
10.02(a).
"NON-U.S. PERSON" means a person who is not a U.S. person, as
defined in Regulation S.
"NOTES" means, collectively, the Initial Notes, the Private
Exchange Notes, if any, and the Unrestricted Notes, treated as a single class of
securities, as amended or supplemented from time to time in accordance with the
terms hereof, that are issued pursuant to this Indenture.
"OBLIGATIONS" means all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"OFFICER" means, with respect to any person, the Chairman of
the Board, the Chief Executive Officer, the President, any Vice President, the
Chief Financial Officer, the Treasurer, the Controller, or the Secretary of such
person, or
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any other officer designated by the Board of Directors serving in a similar
capacity.
"OFFICERS' CERTIFICATE" means, with respect to any person, a
certificate signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of such person and otherwise complying with
the requirements of Sections 12.04 and 12.05, as they relate to the making of an
Officers' Certificate.
"OFFSHORE PHYSICAL NOTES" has the meaning provided in Section
2.01.
"OPINION OF COUNSEL" means a written opinion from legal
counsel, who may be counsel for the Company and who is reasonably acceptable to
the Trustee, complying with the requirements of Sections 12.04 and 12.05, as
they relate to the giving of an Opinion of Counsel.
"PARTS INVENTORY" has the meaning specified in the Credit
Agreement.
"PAYING AGENT" has the meaning provided in Section 2.03.
"PAYMENT DEFAULT" has the meaning provided in Section
10.02(a).
"PERMITTED HOLDER(S)" means (i) Jorge Mas, Juan Carlos Mas and
Jose Ramon Mas and any of their respective Affiliates, spouses, siblings, lineal
descendants or lineal ascendants or any trust for the benefit of such persons,
(ii) General Electric Capital Corporation and GECFS, Inc. and their Affiliates,
(iii) Kevin P. Fitzgerald, (iv) Santos Fund I L.P., Santos Capital Advisors,
Inc. and their Affiliates and (v) an entity (a "HOLDING COMPANY") that owns,
directly or indirectly, beneficially or of record, 100% of the ordinary voting
power represented by the outstanding Capital Stock of the Company, PROVIDED that
no Person or Group (other than a Permitted Holder) becomes the owner, directly
or indirectly, beneficially or of record, of more than 50% of the ordinary
voting power represented by the outstanding Capital Stock of such Holding
Company.
"PERMITTED INDEBTEDNESS" means, without duplication, each of
the following:
(i) Indebtedness under the Notes, this Indenture and the Guarantees in
an aggregate principal amount not to exceed $100.0 million;
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(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed the
greater of (A) $350.0 million and (B) the sum of (i) 100% of the net book
value of Eligible Financed Equipment of the Company and its Restricted
Subsidiaries, (ii) 85% of the book value of the Eligible Accounts of the
Company and its Restricted Subsidiaries and (iii) 60% of Parts Inventory of
the Company and its Restricted Subsidiaries, reduced in the case of the
preceding clause (A) by any required permanent repayments from the
application of the use of proceeds from Asset Sales (which in the case of a
revolving credit facility are accompanied by a corresponding permanent
commitment reduction) thereunder;
(iii) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payments or mandatory prepayments when actually paid
or permanent reductions thereof;
(iv) Interest Swap Obligations of the Company or any of its Restricted
Subsidiaries covering Indebtedness of the Company or such Restricted
Subsidiary; PROVIDED, HOWEVER, that such Interest Swap Obligations are
entered into to protect the Company and its Restricted Subsidiaries from
fluctuations in interest rates on Indebtedness incurred in accordance with
this Indenture to the extent the notional principal amount of such Interest
Swap Obligation does not exceed the principal amount of the Indebtedness to
which such Interest Swap Obligation relates;
(v) Indebtedness under Currency Agreements; PROVIDED that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(vi) Indebtedness of a Wholly Owned Restricted Subsidiary of the
Company to the Company or to a Restricted Subsidiary of the Company for so
long as such Indebtedness is held by the Company, a Wholly Owned Restricted
Subsidiary of the Company or the lenders or collateral agent under the
Credit Agreement, in each case subject to no Lien held by a Person other
than the Company, a Wholly Owned Restricted Subsidiary of the Company or
the lenders or collateral agent under the Credit Agreement; PROVIDED that
if as of any date any Person other than the Company, a
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Wholly Owned Restricted Subsidiary of the Company or the lenders or
collateral agent under the Credit Agreement owns or holds any such
Indebtedness or holds a Lien in respect of such Indebtedness, such date
shall be deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the issuer of such Indebtedness pursuant to this clause
(vi);
(vii) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary of the Company for so long as such Indebtedness is held by a
Restricted Subsidiary of the Company or the lenders or collateral agent
under the Credit Agreement, in each case subject to no Lien (other than a
lien in favor of the lenders or collateral agent under the Credit
Agreement); PROVIDED that (a) any Indebtedness of the Company to any Wholly
Owned Restricted Subsidiary of the Company that is not a Guarantor is
unsecured and subordinated, pursuant to a written agreement, to the
Company's obligations under the Indenture and the Notes and (b) if as of
any date any Person other than a Wholly Owned Restricted Subsidiary of the
Company or the lenders or collateral agent under the Credit Agreement owns
or holds any such Indebtedness or any Person holds a Lien in respect of
such Indebtedness, such date shall be deemed the incurrence of Indebtedness
not constituting Permitted Indebtedness by the Company pursuant to this
clause (vii);
(viii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; PROVIDED, HOWEVER, that such
Indebtedness is extinguished within two business days of incurrence;
(ix) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(x) Refinancing Indebtedness;
(xi) Capitalized Lease Obligations and Purchase Money Indebtedness of
the Company or any of its Restricted Subsidiaries not to exceed $20.0
million at any one time outstanding;
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(xii) Indebtedness permitted by clauses (iii) and (xiii) of the
definition of "Permitted Investments;"
(xiii) guarantees of Indebtedness otherwise permitted under this
Indenture; and
(xiv) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount (or, in the case of
Indebtedness issued at a discount, an accreted amount (determined in
accordance with GAAP)) not to exceed $10.0 million at any one time
outstanding (which may, but need not, be incurred in whole or in part under
the Credit Agreement).
For purposes of determining compliance with Section 4.12, in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Permitted Indebtedness described in the above clauses, the Company,
in its sole discretion shall classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of such
clauses. Any Permitted Indebtedness initially incurred pursuant to any of the
clauses in the preceding paragraph may at any time at the sole discretion of the
Company be treated as having been incurred pursuant to any other clause as long
as the outstanding amount of such Permitted Indebtedness at the time of any
reclassification could be made pursuant to such other clause.
"PERMITTED INVESTMENTS" means (i) Investments by the Company
or any Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Wholly Owned Restricted Subsidiary of the
Company or that will merge or consolidate into the Company or a Wholly Owned
Restricted Subsidiary of the Company, (ii) Investments in the Company by any
Restricted Subsidiary of the Company; PROVIDED that any Indebtedness evidencing
such Investment is unsecured and, to the extent made by a Restricted Subsidiary
that is not a Guarantor, subordinated, pursuant to a written agreement, to the
Company's obligations under the Notes and this Indenture; (iii) Investments in
an aggregate amount not to exceed $10 million by the Company or any Restricted
Subsidiary of the Company in any Person that is or will become immediately after
such Investment a non-Guarantor Restricted Subsidiary of the Company or that
will merge or consolidate into the Company or a non-Guarantor Restricted
Subsidiary of the Company, (iv) an Investment in the amount of up to $38.0
million to purchase 51% of the Capital Stock of Sullair Argentina; (v)
investments in cash and Cash Equivalents; (vi) loans and advances to employees
and officers of the Company and its Restricted Subsidiaries in the ordinary
course of business for bona fide business purposes not
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in excess of $1.0 million at any one time outstanding; (vii) Currency Agreements
and Interest Swap Obligations entered into in the ordinary course of the
Company's or its Restricted Subsidiaries' businesses and otherwise in compliance
with this Indenture; (viii) Investments in securities of trade creditors or
customers received pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of such trade creditors or customers or in
good faith settlement of delinquent obligations of such trade creditors or
customers or in good faith settlement of delinquent obligations of such trade
creditors or customers; (ix) Investments made by the Company or its Restricted
Subsidiaries as a result of consideration received in connection with an Asset
Sale made in compliance with Section 4.16; (x) Investments existing on the Issue
Date; (xi) guarantees of Indebtedness otherwise permitted under this Indenture,
(xii) obligations of one or more officers or other employees of the Company or
any of its Restricted Subsidiaries in connection with such officers' or
employee's acquisition of shares of Common Stock of the Company so long as no
cash is paid by the Company or any of its Restricted Subsidiaries to such
officers or employees in connection with the acquisition of any such
obligations; and (xiii) additional Investments in an aggregate amount that,
together with all other Investments made pursuant to this clause (xiii), does
not exceed $25.0 million.
For purposes of determining compliance with Section 4.10, in
the event that an Investment meets the criteria of more than one of the types of
Permitted Investments described in the clauses in the preceding paragraph, the
Company, in its sole discretion, shall classify such Permitted Investment and
only be required to include the amount and type of such Permitted Investment in
one of such clauses. Any Permitted Investment initially made pursuant to any of
the clauses in the preceding paragraph may at any time at the sole discretion of
the Company be treated as having been made pursuant to any other clause as long
as the outstanding amount of such Permitted Investment at the time of any
reclassification could be made pursuant to such other clause.
"PERMITTED LIENS" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
that are either (a) not yet due or are delinquent for less than ninety days
or (b) being contested in good faith by appropriate proceedings and as to
which the Company or its Restricted Subsidiaries shall have set aside on
its books such reserves, if any, as may be required pursuant to GAAP;
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(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security;
(iv) Liens securing (a) letters of credit issued in the ordinary
course of business consistent with past practice in connection therewith,
or to secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money) and any bank's unexercised
right of set off with respect to deposits made in the ordinary course and
(b) indemnity obligations in respect of the disposition of any business or
assets of the Company or any Restricted Subsidiary (PROVIDED that the
property subject to such Lien does not have a fair market value in excess
of the cash or cash equivalent proceeds received by the Company and its
Restricted Subsidiaries in connection with such disposition);
(v) Liens securing Indebtedness otherwise permitted under this
Indenture owing to John Deere Construction Equipment Company and its
Affiliates;
(vi) judgment Liens not giving rise to an Event of Default;
(vii) Liens on parts inventory, as incurred in accordance with the
Credit Agreement;
(viii) easements, rights-of-way, municipal ordinances, zoning
restrictions and other similar charges, encumbrances, title defects or
irregularities not interfering in any material respect with the ordinary
conduct of the business of the Company or any of its Restricted
Subsidiaries;
(ix) any interest or title of a lessor under any Capitalized Lease
Obligation; PROVIDED that such Liens do not
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extend to any property or assets which is not leased property subject to
such Capitalized Lease Obligation;
(x) purchase money Liens to finance property or assets of the Company
or any Restricted Subsidiary of the Company acquired in the ordinary course
of business; PROVIDED, HOWEVER, that (A) the related Purchase Money
Indebtedness shall not exceed the cost of such property or assets
(including the cost of design, development, improvement, production,
acquisition, construction, installation and integration) and shall not be
secured by any property or assets of the Company or any Restricted
Subsidiary of the Company other than the property and assets so acquired or
constructed (and any improvements) and (B) the Lien securing such
Indebtedness shall be created within six months of such acquisition,
construction or improvement;
(xi) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(xii) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(xiii) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of offset
and set-off;
(xiv) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under this
Indenture;
(xv) Liens securing Indebtedness under Currency Agreements;
(xvi) any lease or sublease to a third party not interfering in any
material respect with the business of the Company and its Restricted
Subsidiaries;
(xvii) Liens placed upon assets of a foreign Restricted Subsidiary of
the Company to service Indebtedness of such
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foreign Restricted Subsidiary that is otherwise permitted under this
Indenture; and
(xviii) Liens securing Acquired Indebtedness incurred in accordance
with Section 4.12; PROVIDED that (A) such Liens secured such Acquired
Indebtedness at the time of and prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company and
were not granted in connection with, or in anticipation of, the incurrence
of such Acquired Indebtedness by the Company or a Restricted Subsidiary of
the Company and (B) such Liens do not extend to or cover any property or
assets of the Company or of any of its Restricted Subsidiaries other than
the property or assets that secured the Acquired Indebtedness prior to the
time such Indebtedness became Acquired Indebtedness of the Company or a
Restricted Subsidiary of the Company and are no more favorable to the
lienholders than those securing the Acquired Indebtedness prior to the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary of the Company.
"PERSON" means an individual, partnership, corporation,
unincorporated organization, association, limited liability company, joint stock
company, trust or joint venture, or a governmental agency or political
subdivision thereof or any other entity.
"PHYSICAL NOTES" has the meaning provided in Section 2.01.
"PREFERRED STOCK" of any Person means any Capital Stock of
such Person that has preferential rights to any other Capital Stock of such
Person with respect to dividends or redemptions or upon liquidation.
"PRINCIPAL" of any Indebtedness (including the Notes) means
the principal amount of such Indebtedness plus the premium, if any, on such
Indebtedness.
"PRIVATE EXCHANGE NOTES" has the meaning set forth in the
Registration Rights Agreement.
"PRIVATE PLACEMENT LEGEND" means the legend initially set
forth on the Initial Notes in the form set forth in Exhibit A(1).
"PRO FORMA" means, with respect to any calculation made or
required to be made pursuant to the terms of this Indenture, a calculation in
accordance with Article 11 of Regulation
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S-X under the Act, as determined by the Board of Directors of the Company in
consultation with its independent public accountants.
"PROCEEDS PURCHASE DATE" has the meaning provided in Section
4.16.
"PROPERTY" of any Person means all types of real, personal,
tangible, intangible or mixed property owned by such person whether or not
included in the most recent consolidated balance sheet of such person and its
Subsidiaries under GAAP.
"PUBLIC EQUITY OFFERING" means an underwritten public offering
of Qualified Capital Stock (other than the Common Stock Offering) of the Company
pursuant to a registration statement filed with the SEC in accordance with the
Act.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the
Company and its Restricted Subsidiaries incurred in the normal course of
business for the purpose of financing all or any part of the purchase price, or
the cost of installation, construction or improvement, of property or equipment.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not
Disqualified Capital Stock.
"QUALIFIED INSTITUTIONAL BUYER" or "QIB" shall have the
meaning specified in Rule 144A under the Act.
"RECORD DATE" means, with respect to any Note, any of the
Record Dates specified in such Note, whether or not a Legal Holiday.
"REDEMPTION DATE," when used with respect to any Note to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Notes.
"REDEMPTION PRICE," when used with respect to any Note to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
and the Notes.
"REFERENCE DATE" has the meaning provided in Section 4.10.
"REFINANCE" means, in respect of any security or Indebtedness,
to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire,
or to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "REFINANCED" and "REFINANCING"
shall have correlative meanings.
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"REFINANCING INDEBTEDNESS" means any Refinancing by the
Company or any Restricted Subsidiary of the Company of Indebtedness incurred in
accordance with Section 4.12 (other than pursuant to clause (ii), (iv), (v),
(vi), (vii), (viii), (ix) or (xiv) of the definition of Permitted Indebtedness),
in each case that does not (1) result in an increase in the aggregate principal
amount of Indebtedness of such Person as of the date of such proposed
Refinancing (plus the amount of any interest or premium required to be paid
under the terms of the instrument governing such Indebtedness and plus the
amount of reasonable fees and expenses incurred by the Company in connection
with such Refinancing) or (2) create Indebtedness with (A) a Weighted Average
Life to Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (B) a final maturity earlier than the final
maturity of the Indebtedness being Refinanced; PROVIDED that (x) if such
Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if
such Indebtedness being Refinanced is subordinate or junior to the Notes, then
such Refinancing Indebtedness shall be subordinate to the Notes at least to the
same extent and in the same manner as the Indebtedness being Refinanced.
"REGISTRAR" has the meaning provided in Section 2.03.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of the Issue Date among the Company, the Guarantors and the
Initial Purchasers.
"REGULATION S" means Regulation S under the Act.
"REPRESENTATIVE" means the indenture trustee or other trustee,
agent or representative in respect of any Designated Senior Debt; PROVIDED that
if, and for so long as, any Designated Senior Debt lacks such a representative,
then the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"RESTRICTED PAYMENT" has the meaning provided in Section 4.10.
"RESTRICTED SECURITY" has the meaning assigned to such term in
Rule 144(a)(3) under the Act; PROVIDED that the Trustee shall be entitled to
request and conclusively rely on an Opinion of Counsel with respect to whether
any Note constitutes a Restricted Security.
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"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of
such Person which at the time of determination is not an Unrestricted
Subsidiary.
"RULE 144A" means Rule 144A under the Act.
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such Property.
"SEC" means the United States Securities and Exchange
Commission.
"SENIOR DEBT" means the principal of, premium, if any, and
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on any Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Debt" shall also include the principal of, premium, if
any, interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (x) all monetary
obligations (including guarantees thereof) of every nature of the Company under
the Credit Agreement, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit, fees,
expenses and indemnities, (y) all Interest Swap Obligations (including
guarantees thereof) and (z) all obligations (including guarantees thereof) under
Currency Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall not
include (i) any Indebtedness of the Company to a Subsidiary of the Company or
any Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii)
Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer
or employee of the Company or any Subsidiary of the Company
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(including, without limitation, amounts owed for compensation), (iii)
Indebtedness to trade creditors and other amounts incurred in connection with
obtaining goods, materials or services (excluding Purchase Money Indebtedness),
(iv) Indebtedness represented by Disqualified Capital Stock, (v) any liability
for federal, state, local or other taxes owed or owing by the Company, (vi) that
portion of any Indebtedness incurred in violation of the provisions of this
Indenture set forth under Section 4.12 (but, as to any such obligation, no such
violation shall be deemed to exist for purposes of this clause (vi) if the
holder(s) of such obligation or their representative and the Trustee shall have
received an Officers' Certificate of the Company to the effect that the
incurrence of such Indebtedness does not (or, in the case of revolving credit
Indebtedness, that the incurrence of the entire committed amount thereof at the
date on which the initial borrowing thereunder is made would not) violate such
provisions of this Indenture), (vii) Indebtedness which, when incurred and
without respect to any election under Section 1111(b) of Title 11, United States
Code, is without recourse to the Company and (viii) any Indebtedness which is,
by its express terms, subordinated in right of payment to any other Indebtedness
of the Company.
"SERIES A PREFERRED STOCK" means the 340,907 shares of the
Company's Series A cumulative convertible redeemable preferred stock with
detachable stock purchase warrant, $.01 par value per share.
"SHELF REGISTRATION STATEMENT" has the meaning specified in
the Registration Rights Agreement.
"SIGNIFICANT SUBSIDIARY" shall have the meaning set forth in
Rule 1.02(w) of Regulation S-X under the Act.
"SUBORDINATED OBLIGATIONS" means any Indebtedness of the
Company which is expressly subordinated or junior in right of payment to the
Notes.
"SUBSIDIARY", with respect to any Person, means (i) any
corporation of which the outstanding Capital Stock having at least a majority of
the votes entitled to be cast in the election of directors under ordinary
circumstances shall at the time be owned, directly or indirectly, by such Person
or (ii) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly, owned by
such Person.
"SULLAIR ARGENTINA" shall mean Sullair Argentina S.A., a
corporation organized under the laws of the Republic of Argentina.
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"SURVIVING ENTITY" has the meaning provided in Section 5.01.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
/sections/ 77aaa-77bbbb), as amended, as in effect on the date of this
Indenture, except as otherwise provided in Section 9.04.
"TREASURY RATE" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled by, and published in, the most recent Federal Reserve Statistical
Release H.15 (519) which has become publicly available at least two business
days prior to the date fixed for redemption of the Notes following a Change of
Control (or, if such Statistical Release is no longer published, any publicly
available source of similar market data)) most nearly equal to the then
remaining Average Life to Stated Maturity of the Notes; PROVIDED, HOWEVER, that
if the Average Life to Stated Maturity of the Notes is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury securities for which such yields are given, except
that if the Average Life to Stated Maturity of the Notes is less than one year,
the weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used.
"TRUSTEE" means the party named as such in this Indenture
until a successor replaces it in accordance with the provisions of this
Indenture and thereafter means such successor.
"TRUST OFFICER" means any officer of the Trustee assigned by
the Trustee to administer this Indenture, or in the case of a successor trustee,
an officer assigned to the department, division or group performing the
corporation trust work of such successor and assigned to administer this
Indenture.
"U.S. GOVERNMENT OBLIGATIONS" means non-callable direct
obligations of, and non-callable obligations guaranteed by, the United States of
America for the payment of which the full faith and credit of the United States
of America is pledged.
"U.S. LEGAL TENDER" means such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
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"U.S. PHYSICAL NOTES" has the meaning provided in Section
2.01.
"UNRESTRICTED NOTES" means one or more Notes that do not and
are not required to bear the private placement legend in the form set forth on
Exhibit A(1), including, without limitation, the Exchange Notes in the form set
forth as Exhibit A(2) hereto.
"UNRESTRICTED SUBSIDIARY" of any Person means (i) any
Subsidiary of such Person that at the time of determination shall be or continue
to be designated an Unrestricted Subsidiary by the Board of Directors of such
Person in the manner provided below and (ii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, the Company or any other Subsidiary of the Company that is not
a Subsidiary of the Subsidiary to be so designated; PROVIDED that (x) the
Company certifies to the Trustee that such designation complies with Section
4.10 and (y) each Subsidiary to be so designated and each of its Subsidiaries
has not at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable with
respect to any Indebtedness pursuant to which the lender has recourse to any of
the assets of the Company or any of its Restricted Subsidiaries. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary only if (x) immediately after giving effect to such designation, the
Company is able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with Section 4.12 and (y) immediately
before and immediately after giving effect to such designation, no Default or
Event of Default shall have occurred and be continuing. Any such designation by
the Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years
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(calculated to the nearest one-twelfth) which will elapse between such date and
the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any
Restricted Subsidiary of such Person of which all the outstanding voting
securities (other than in the case of a foreign Restricted Subsidiary,
directors' qualifying shares or an immaterial amount of shares required to be
owned by other Persons pursuant to applicable law) are owned by such Person or
any Wholly Owned Restricted Subsidiary of such Person.
SECTION 1.02. INCORPORATION BY REFERENCE OF TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Notes.
"indenture security holder" means a Holder or a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means the Company, the
Guarantors, if any, or any other obligor on the Notes or the Guarantees, if any.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule and
not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
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(4) words in the singular include the plural, and words in the
plural include the singular; and
(5) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section
or other subdivision.
ARTICLE TWO
THE NOTES
SECTION 2.01. FORM AND DATING.
The Initial Notes, the notation thereon relating to the
Guarantees, if any, and the Trustee's certificate of authentication shall be
substantially in the form of EXHIBIT A(1) hereto. The Exchange Notes, the
notation thereon relating to the Guarantees, if any, and the Trustee's
certificate of authentication shall be substantially in the form of EXHIBIT A(2)
hereto. The Notes may have notations, legends or endorsements required by law,
stock exchange rule or depositary rule or usage. The Company and the Trustee
shall approve the form of the Notes and any notation, legend or endorsement on
them. Each Note shall be dated the date of its issuance.
The terms and provisions contained in the Notes and the
Guarantees, if any, annexed hereto as Exhibits A(1) and A(2), shall constitute,
and are hereby expressly made, a part of this Indenture and, to the extent
applicable, the Company, the Guarantors, if any, and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be
issued initially in the form of one or more permanent global Notes in registered
form, substantially in the form set forth in Exhibit A(1) (the "GLOBAL NOTE"),
deposited with the Trustee, as custodian for the Depositary, and shall bear the
legend set forth in EXHIBIT B, duly executed by the Company and authenticated by
the Trustee as hereinafter provided. The aggregate principal amount of the
Global Note may from time to time be increased or decreased by adjustments made
on the records of the Trustee, as custodian for the Depositary, as hereinafter
provided.
Notes offered and sold in offshore transactions in reliance on
Regulation S shall be issued in the form of permanent certificated Notes in
registered form in substantially the
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form set forth in Exhibit A(1) (the "OFFSHORE PHYSICAL NOTES"). Notes offered
and sold in reliance on any other exemption from registration under the Act
other than as described in the preceding paragraph shall be issued, and Notes
offered and sold in reliance on Rule 144A may be issued, in the form of
permanent certificated Notes in registered form, in substantially the form set
forth in Exhibit A(1) (the "U.S. PHYSICAL NOTES"). The Offshore Physical Notes
and the U.S. Physical Notes are sometimes collectively herein referred to as the
"PHYSICAL NOTES."
SECTION 2.02. EXECUTION AND AUTHENTICATION; AGGREGATE
PRINCIPAL AMOUNT.
Two Officers, or an Officer and an Assistant Secretary, shall
sign, or one Officer shall sign and one Officer or an Assistant Secretary (each
of whom shall, in each case, have been duly authorized by all requisite
corporate actions) shall attest to, the Notes for the Company by manual or
facsimile signature. Each Guarantor, if any, shall execute the Guarantee in the
manner set forth in Section 11.09.
If an Officer or Assistant Secretary whose signature is on a
Note was an Officer or Assistant Secretary at the time of such execution but no
longer holds that office or position at the time the Trustee authenticates the
Note, the Note shall nevertheless be valid.
A Note shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Note. The
signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.
The Trustee shall authenticate (i) Initial Notes for original
issue in the aggregate principal amount not to exceed $200,000,000 in one or
more series, (ii) Private Exchange Notes from time to time only in exchange for
a like principal amount of Initial Notes and (iii) Unrestricted Notes from time
to time only (x) in exchange for a like principal amount of Initial Notes or (y)
in an aggregate principal amount of not more than the excess of $200,000,000
over the sum of the aggregate principal amount of (A) Initial Notes then
outstanding, (B) Private Exchange Notes then outstanding and (C) Unrestricted
Notes issued in accordance with (iii)(x) above, in each case upon a written
order of the Company in the form of an Officers' Certificate of the Company.
Each such written order shall specify the amount of Notes to be authenticated
and the date on which the Notes are to be authenticated, whether the Notes are
to be Initial Notes, Private Exchange Notes or Unrestricted Notes and
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whether the Notes are to be issued as Physical Notes or Global Notes or such
other information as the Trustee may reasonably request. In addition, with
respect to authentication pursuant to clauses (ii) or (iii) of the first
sentence of this paragraph, the first such written order from the Company shall
be accompanied by an Opinion of Counsel of the Company in a form reasonably
satisfactory to the Trustee stating that the issuance of the Private Exchange
Notes or the Unrestricted Notes, as the case may be, does not give rise to an
Event of Default, complies with this Indenture and has been duly authorized by
the Company. The aggregate principal amount of Notes outstanding at any time may
not exceed $200,000,000, except as provided in Section 2.07.
In the event that the Company shall issue and the Trustee
shall authenticate any Notes issued under this Indenture subsequent to the Issue
Date pursuant to clauses (i) and (iii) of the first sentence of the immediately
preceding paragraph, the Company shall use its best efforts to obtain the same
"CUSIP" number for such Notes as is printed on the Notes outstanding at such
time; PROVIDED, HOWEVER, that if any series of Notes issued under this Indenture
subsequent to the Issue Date is determined, pursuant to an Opinion of Counsel of
the Company in a form reasonably satisfactory to the Trustee, to be a different
class of security than the Notes outstanding at such time for federal income tax
purposes, the Company may obtain a "CUSIP" number for such Notes that is
different than the "CUSIP" number printed on the Notes then outstanding.
Notwithstanding the foregoing, all Notes issued under this Indenture shall vote
and consent together on all matters as one class and no series of Notes will
have the right to vote or consent as a separate class on any matter.
The Trustee may appoint an authenticating agent (the
"AUTHENTICATING AGENT") reasonably acceptable to the Company to authenticate
Notes. Unless otherwise provided in the appointment, an Authenticating Agent may
authenticate Notes whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
Authenticating Agent. An Authenticating Agent has the same rights as an Agent to
deal with the Company and Affiliates of the Company.
The Notes shall be issuable in fully registered form only,
without coupons, in denominations of $1,000 and any integral multiple thereof.
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SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency (which shall be
located in the Borough of Manhattan in the City of New York, State of New York)
where (a) Notes may be presented or surrendered for registration of transfer or
for exchange ("REGISTRAR"), (b) Notes may be presented or surrendered for
payment ("PAYING AGENT") and (c) notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Registrar shall keep
a register of the Notes and of their transfer and exchange. The Company, upon
prior written notice to the Trustee, may have one or more co-Registrars and one
or more additional paying agents reasonably acceptable to the Trustee. The term
"Paying Agent" includes any additional Paying Agent. Neither the Company nor any
Affiliate of the Company may act as Paying Agent.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which agreement shall incorporate
the provisions of the TIA and implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee, in advance, of the
name and address of any such Agent. If the Company fails to maintain a Registrar
or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 7.07.
The Company initially appoints the Trustee as Registrar,
Paying Agent and agent for service of demands and notices in connection with the
Notes, until such time as the Trustee has resigned or a successor has been
appointed. The Paying Agent or Registrar may resign upon 30 days prior written
notice to the Company.
SECTION 2.04. PAYING AGENT TO HOLD ASSETS IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that, subject to Articles Ten and Eleven, each
Paying Agent shall hold in trust for the benefit of the Holders or the Trustee
all assets held by the Paying Agent for the payment of principal of, or interest
on, the Notes (whether such assets have been distributed to it by the Company or
any other obligor on the Notes), and the Company and the Paying Agent shall
notify the Trustee in writing of any Default by the Company (or any other
obligor on the Notes) in making any such payment. The Company at any time may
require a Paying Agent to distribute all assets held by it to the Trustee and
account for any assets disbursed and the Trustee
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may at any time during the continuance of any payment Default, upon written
request to a Paying Agent, require such Paying Agent to distribute all assets
held by it to the Trustee and to account for any assets distributed. Upon
distribution to the Trustee of all assets that shall have been delivered by the
Company to the Paying Agent, the Paying Agent shall have no further liability
for such assets.
SECTION 2.05. NOTEHOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Noteholders. If the Trustee is not the Registrar, the Company shall
furnish or cause the Registrar to furnish to the Trustee as of each Record Date
and before each related Interest Payment Date and at such other times as the
Trustee may request in writing a list as of such date and in such form as the
Trustee may reasonably require of the names and addresses of Noteholders, which
list may be conclusively relied upon by the Trustee.
SECTION 2.06. TRANSFER AND EXCHANGE.
Subject to the provisions of Sections 2.15 and 2.16, when
Notes are presented to the Registrar or a co-Registrar with a request to
register the transfer of such Notes or to exchange such Notes for an equal
principal amount of Notes of other authorized denominations, the Registrar or
co-Registrar shall register the transfer or make the exchange as requested if
its requirements for such transaction are met; PROVIDED, HOWEVER, that the Notes
presented or surrendered for registration of transfer or exchange shall be duly
endorsed or accompanied by a written instrument of transfer in form satisfactory
to the Company and the Registrar or co-Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing. To permit registrations of
transfer and exchanges, the Company shall issue and execute and the Trustee
shall authenticate Notes at the Registrar's or co-Registrar's request. No
service charge shall be made to a Noteholder for any registration of transfer or
exchange. The Company may require from such Noteholder payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable in
connection therewith (other than any such transfer taxes or similar governmental
charge payable upon exchanges or transfers pursuant to Sections 2.10, 3.06,
4.15, 4.16 or 9.06, in which event the Company shall be responsible for the
payment of such taxes).
The Registrar or co-Registrar shall not be required to
register the transfer of or exchange of any Note (i) during
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a period beginning at the opening of business 15 days before the mailing of a
notice of redemption of Notes and ending at the close of business on the day of
such mailing and (ii) selected for redemption in whole or in part pursuant to
Article Three, except the unredeemed portion of any Note being redeemed in part.
Any Holder of the Global Note shall, by acceptance of such
Global Note, agree that transfers of beneficial interests in such Global Notes
may be effected only through a book entry system maintained by the Holder of
such Global Note (or its agent) and that ownership of a beneficial interest in
the Note shall be required to be reflected in a book entry.
SECTION 2.07. REPLACEMENT NOTES.
If a mutilated Note is surrendered to the Trustee or if the
Holder of a Note claims that the Note has been lost, destroyed or wrongfully
taken, the Company shall issue and execute and the Trustee shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, such Holder must provide an affidavit of lost
certificate and an indemnity bond or other indemnity, sufficient in the judgment
of both the Company and the Trustee, to protect the Company, the Trustee or any
Agent from any loss which any of them may suffer if a Note is replaced. The
Company may charge such Holder for its reasonable, out-of-pocket expenses in
replacing a Note, including reasonable fees and expenses of the Trustee and
counsel, and the Trustee may charge the Company for the Trustee's reasonable
out-of-pocket expenses in replacing such Note. Every replacement Note shall
constitute an additional Obligation of the Company.
SECTION 2.08. OUTSTANDING NOTES.
Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those cancelled by it, those delivered to it
for cancellation and those described in this Section as not outstanding. Subject
to the provisions of Section 2.09, a Note does not cease to be outstanding
because the Company, any Guarantor or any of their respective Affiliates holds
the Note.
If a Note is replaced pursuant to Section 2.07 (other than a
mutilated Note surrendered for replacement), it ceases to be outstanding unless
the Trustee receives proof satisfactory to it that the replaced Note is held by
a BONA FIDE purchaser. A mutilated Note ceases to be outstanding upon surrender
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of such Note and replacement thereof pursuant to Section 2.07.
If on a Redemption Date or the Maturity Date, the Paying Agent
holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of
the principal and interest due on the Notes payable on that date and is not
prohibited from paying such money to the Holders thereof pursuant to the terms
of this Indenture, then on and after that date such Notes cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver, consent or notice,
Notes owned by the Company, any Guarantor or any of their respective Affiliates
shall be considered as though they are not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Notes which a Trust Officer of the
Trustee actually knows are so owned shall be so considered. The Company shall
notify the Trustee, in writing, when it or any of its Affiliates repurchases or
otherwise acquires Notes, and of the aggregate principal amount of such Notes so
repurchased or otherwise acquired.
SECTION 2.10. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes upon receipt of a
written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Notes to be
authenticated and the date on which the temporary Notes are to be authenticated,
and shall direct the Trustee to authenticate such Notes and certify that all
conditions precedent to the issuance of such Notes contained herein have been
complied with. Temporary Notes shall be substantially in the form of definitive
Notes but may have variations that the Company and the Trustee consider
appropriate for temporary Notes. Without unreasonable delay, the Company shall
prepare and the Trustee shall authenticate upon receipt of a written order of
the Company pursuant to Section 2.02 definitive Notes in exchange for temporary
Notes.
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SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee, or
at the direction of the Trustee, the Registrar or the Paying Agent, and no one
else, shall cancel and, at the written direction of the Company, shall (subject
to the record-retention requirements of the Exchange Act) dispose of all Notes
surrendered for registration of transfer, exchange, payment or cancellation.
Subject to Section 2.07, the Company may not issue new Notes to replace Notes
that it has paid or delivered to the Trustee for cancellation. If the Company or
any Guarantor shall acquire any of the Notes, such acquisition shall not operate
as a redemption or satisfaction of the Indebtedness represented by such Notes
unless and until the same are surrendered to the Trustee for cancellation
pursuant to this Section 2.11.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes,
it shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest to the Persons who are Holders on a subsequent
special record date, which date shall be the fifteenth day next preceding the
date fixed by the Company for the payment of defaulted interest or the next
succeeding Business Day if such date is not a Business Day. At least 15 days
before the subsequent special record date, the Company shall mail to each
Holder, with a copy to the Trustee, a notice that states the subsequent special
record date, the payment date and the amount of defaulted interest, and interest
payable on such defaulted interest, if any, to be paid.
SECTION 2.13. CUSIP NUMBER.
The Company in issuing the Notes may use one or more "CUSIP"
numbers, and if so, the appropriate CUSIP number(s) shall be included in all
notices of redemption or exchange as a convenience to Holders; PROVIDED that any
such notice may state that no representation is made by the Trustee as to the
correctness or accuracy of any CUSIP number(s) printed in the notice or on the
Notes, and that reliance may be placed only on the other identification numbers
printed on the Notes. The Company shall promptly notify the Trustee of any
change in the CUSIP number.
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SECTION 2.14. DEPOSIT OF MONEYS.
Prior to 10:00 a.m., New York City time, on each Interest
Payment Date and on the Maturity Date, the Company shall have deposited with the
Paying Agent in immediately available funds money sufficient to make cash
payments, if any, due on such Interest Payment Date or Maturity Date, as the
case may be, in a timely manner which permits the Paying Agent to remit payment
to the Holders on such Interest Payment Date or Maturity Date, as the case may
be.
SECTION 2.15. BOOK-ENTRY PROVISIONS FOR GLOBAL NOTE.
(a) The Global Note initially shall (i) be registered in the
name of the Depositary or the nominee of such Depositary, (ii) be delivered to
the Trustee as custodian for such Depositary and (iii) bear legends as set forth
in Exhibit B.
Members of, or participants in, the Depositary ("AGENT
MEMBERS") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depositary, or the Trustee as its custodian, or
under the Global Note, and the Depositary may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of the
Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a holder of any Note.
(b) Transfers of the Global Note shall be limited to transfers
in whole, but not in part, to the Depositary, its successors or their respective
nominees. Interests of beneficial owners in the Global Note may be transferred
or exchanged for Physical Notes in accordance with the rules and procedures of
the Depositary and the provisions of Section 2.16. In addition, Physical Notes
shall be transferred to all beneficial owners in exchange for their beneficial
interests in the Global Note if (i) the Depositary notifies the Company that it
is unwilling or unable to continue as Depositary for the Global Note and a
successor depositary is not appointed by the Company within 90 days of such
notice or (ii) an Event of Default has occurred and is continuing and the
Registrar has received a request from the Depositary to issue Physical Notes.
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(c) In connection with any transfer or exchange of a portion
of the beneficial interest in the Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred, and the Company
shall execute, and the Trustee shall authenticate and deliver, one or more
Physical Notes of like tenor and amount.
(d) In connection with the transfer of the entire Global Note
to beneficial owners pursuant to paragraph (b), the Global Note shall be deemed
to be surrendered to the Trustee for cancellation, and the Company shall
execute, and the Trustee shall authenticate and deliver, to each beneficial
owner identified by the Depositary in exchange for its beneficial interest in
the Global Note, an equal aggregate principal amount of Physical Notes of
authorized denominations.
(e) Any Physical Note constituting a Restricted Security
delivered in exchange for an interest in the Global Note pursuant to paragraph
(b) or (c) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c)
of Section 2.16, bear the legend regarding transfer restrictions applicable to
the Physical Notes set forth in Exhibit A.
(f) The Holder of the Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION 2.16. SPECIAL TRANSFER PROVISIONS.
(a) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS
AND NON-U.S. PERSONS. The following provisions shall apply with respect to the
registration of any proposed transfer of a Note constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
Non-U.S. Person:
(i) the Registrar shall register the transfer of any Note
constituting a Restricted Security, whether or not such Note bears the
Private Placement Legend, if (x) the requested transfer is after May
28, 2000 and the transferor certifies that the Restricted Security was
not acquired from the Company or Affiliate of the Company less than two
years prior to the date of the proposed transfer
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or (y) (1) in the case of a transfer to an Institutional Accredited
Investor which is not a QIB (excluding Non-U.S. Persons), the proposed
transferee has delivered to the Registrar a certificate substantially
in the form of Exhibit C hereto or (2) in the case of a transfer to a
Non-U.S. Person, the proposed transferor has delivered to the Registrar
a certificate substantially in the form of Exhibit D hereto; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in the Global Note, upon receipt by the Registrar
of (x) the certificate, if any, required by paragraph (i) above and (y)
instructions given in accordance with the Depositary's and the
Registrar's procedures,
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Physical Notes) a
decrease in the principal amount of the Global Note in an amount equal to the
principal amount of the beneficial interest in the Global Note to be
transferred, and (b) the Company shall execute and the Trustee shall
authenticate and deliver one or more Physical Notes of like tenor and amount.
(b) TRANSFERS TO QIBS. The following provisions shall apply
with respect to the registration of any proposed transfer of a Note constituting
a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer if such
transfer is being made by a proposed transferor who has checked the box
provided for on the form of Note stating, or has otherwise advised the
Company and the Registrar in writing, that the sale has been made in
compliance with the provisions of Rule 144A to a transferee who has
signed the certification provided for on the form of Note stating, or
has otherwise advised the Company and the Registrar in writing, that it
is purchasing the Note for its own account or an account with respect
to which it exercises sole investment discretion and that it and any
such account is a QIB within the meaning of Rule 144A, and is aware
that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the
Company as it has requested pursuant to Rule 144A or has determined not
to request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A; and
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(ii) if the proposed transferee is an Agent Member, and the
Notes to be transferred consist of Physical Notes which after transfer
are to be evidenced by an interest in the Global Note, upon receipt by
the Registrar of instructions given in accordance with the Depositary's
and the Registrar's procedures, the Registrar shall reflect on its
books and records the date and an increase in the principal amount of
the Global Note in an amount equal to the principal amount of the
Physical Notes to be transferred, and the Trustee shall cancel the
Physical Notes so transferred.
(c) PRIVATE PLACEMENT LEGEND. Upon the registration of
transfer, exchange or replacement of Notes not bearing the Private Placement
Legend, the Registrar shall deliver Notes that do not bear the Private Placement
Legend. Upon the registration of transfer, exchange or replacement of Notes
bearing the Private Placement Legend, the Registrar shall deliver only Notes
that bear the Private Placement Legend unless (i) the circumstance contemplated
by paragraph (a)(i)(x) of this Section 2.16 exist or (ii) there is delivered to
the Registrar an Opinion of Counsel reasonably satisfactory to the Company and
the Trustee to the effect that neither such legend nor the related restrictions
on transfer are required in order to maintain compliance with the provisions of
the Act.
(d) GENERAL. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 2.15 or this Section
2.16 for a period of three years. The Company shall have the right to inspect
and make copies of all such letters, notices or other written communications at
any reasonable time upon the giving of reasonable written notice to the
Registrar.
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ARTICLE THREE
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to Paragraph
Six of the Notes, it shall notify both the Trustee and the Paying Agent in
writing of the Redemption Date and the principal amount of the Notes to be
redeemed.
The Company shall give each notice provided for in this
Section 3.01 at least 30 days before the Redemption Date (unless a shorter
notice period shall be satisfactory to the Trustee, as evidenced in a writing
signed on behalf of the Trustee), together with an Officers' Certificate and
Opinion of Counsel stating that such redemption shall comply with the conditions
contained herein and in the Notes.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If fewer than all of the Notes are to be redeemed, the Trustee
shall select the Notes to be redeemed on a PRO RATA basis, by lot or in such
other fair and appropriate manner chosen at the discretion of the Trustee and,
if the Notes are listed on any national securities exchange, by a method that
complies with the requirements of such exchange; PROVIDED, HOWEVER, that if
partial redemption is made with the proceeds of a Public Equity Offering prior
to June 1, 2001, selection of the Notes or portions thereof for redemption shall
be made by the Trustee only on a PRO RATA basis or on as nearly a PRO RATA basis
as is practicable (subject to the applicable procedures of the Depositary)
unless such method is otherwise prohibited. The Trustee shall make the selection
from the Notes outstanding and not previously called for redemption and shall
promptly notify the Company in writing of the Notes selected for redemption and,
in the case of any Note selected for partial redemption, the principal amount
thereof to be redeemed. Notes in denominations of $1,000 may be redeemed only in
whole. The Trustee may select for redemption portions (equal to $1,000 or any
integral multiple thereof) of the principal of Notes that have denominations
larger than $1,000. Provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption.
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SECTION 3.03. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a Redemption
Date, the Company shall mail or cause to be mailed a notice of redemption by
first-class mail, postage prepaid, to each Holder whose Notes are to be
redeemed, with a copy to the Trustee and any Paying Agent.
Each notice for redemption shall identify the Notes to be
redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued interest,
if any, to be paid;
(3) the name and address of the Paying Agent;
(4) the subparagraph of the Notes pursuant to which such
redemption is being made;
(5) that Notes called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price plus accrued interest,
if any;
(6) that, unless (a) the Company defaults in making the
redemption payment or (b) such redemption payment is prohibited
pursuant to Article Ten or Eleven hereof or otherwise, interest on
Notes called for redemption ceases to accrue on and after the
Redemption Date, and the only remaining right of the Holders of such
Notes is to receive payment of the Redemption Price plus accrued
interest, if any, upon surrender to the Paying Agent of the Notes
redeemed;
(7) if any Note is being redeemed in part, the portion of the
principal amount (equal to $1,000 or any integral multiple thereof) of
such Note to be redeemed and that, on or after the Redemption Date, and
upon surrender of such Note, a new Note or Notes in the aggregate
principal amount equal to the unredeemed portion thereof will be
issued; and
(8) if fewer than all the Notes are to be redeemed, the
identification of the particular Notes (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Notes to be
redeemed and the aggregate principal amount of Notes to be outstanding
after such partial redemption.
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SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section
3.03, Notes called for redemption become due and payable on the Redemption Date
and at the Redemption Price plus accrued interest, if any. Upon surrender to the
Trustee or Paying Agent, such Notes called for redemption, unless prohibited
pursuant to Article Ten or Eleven or otherwise pursuant to this Indenture, shall
be paid at the Redemption Price (which shall include accrued interest thereon to
the Redemption Date), but installments of interest, the maturity of which is on
or prior to the Redemption Date, shall be payable to Holders of record at the
close of business on the relevant record dates referred to in the Notes.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
On or before the Redemption Date, the Company shall deposit
with the Paying Agent in immediately available funds U.S. Legal Tender
sufficient to pay the Redemption Price plus accrued interest, if any, of all
Notes or portions thereof to be redeemed on that date. The Paying Agent shall
promptly return to the Company any U.S. Legal Tender so deposited which is not
required for that purpose, except with respect to monies owed as obligations to
the Trustee pursuant to Article Seven.
If the Company complies with the preceding paragraph and
payment of the Notes is not prohibited under Article Ten or Eleven or otherwise,
then, unless the Company defaults in the payment of such Redemption Price plus
accrued interest, if any, interest on the Notes to be redeemed will cease to
accrue on and after the applicable Redemption Date, whether or not such Notes
are presented for payment.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is to be redeemed in part, the
Company shall issue and execute, and the Trustee shall authenticate for the
Holder, a new Note or Notes equal in principal amount to the unredeemed portion
of the Note surrendered.
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ARTICLE FOUR
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay the principal of and interest on the
Notes on the dates and in the manner provided in the Notes and in this
Indenture. An installment of principal of or interest on the Notes shall be
considered paid on the date it is due if the Trustee or Paying Agent (other than
the Company or an Affiliate of the Company) holds, as of 11 a.m., on that date
U.S. Legal Tender designated for and sufficient to pay the installment in full
and is not prohibited from paying such money to the Holders pursuant to the
terms of this Indenture.
The Company shall pay, to the extent such payments are lawful,
interest on overdue principal and on overdue installments of interest (without
regard to any applicable grace periods) from time to time on demand at the rate
borne by the Notes. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain the office or agency required under
Section 2.03. The Company shall give prior written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in Section 12.02.
SECTION 4.03. CORPORATE EXISTENCE.
Except as otherwise permitted by Article Five, the Company
shall do or cause to be done, at its own cost and expense, all things necessary
to preserve and keep in full force and effect its corporate existence and the
corporate existence of each of its Restricted Subsidiaries in accordance with
the respective organizational documents of each such Restricted Subsidiary and
the material rights (charter and statutory) and franchises of the Company and
each such Restricted Subsidiary; PROVIDED, HOWEVER, that the Company shall not
be required to preserve, with respect to itself, any right or franchise and,
with respect to any of its Restricted Subsidiaries, any such
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existence, right or franchise, if the Board of Directors of the Company shall
determine in good faith that the preservation thereof is no longer desirable in
the conduct of the business of the Company and its Restricted Subsidiaries,
taken as a whole.
SECTION 4.04. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all material taxes,
assessments and governmental charges (including withholding taxes and any
penalties, interest and additions to taxes) levied or imposed upon it or any of
its Subsidiaries or its Properties or any of its Subsidiaries' Properties and
(ii) all material lawful claims for labor, materials and supplies that, if
unpaid, might by law become a Lien upon its Properties or any of its
Subsidiaries' Properties, except, in each case, as would not be, in the
aggregate, reasonably likely to have a material adverse effect on the business
and financial condition of the Company and its Restricted Subsidiaries, taken as
a whole; PROVIDED, HOWEVER, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings properly instituted and diligently conducted for
which adequate reserves, to the extent required under GAAP, have been taken.
SECTION 4.05. MAINTENANCE OF PROPERTIES AND INSURANCE.
(a) The Company shall, and shall cause each of its Restricted
Subsidiaries to, maintain its Properties in good working order and condition
(subject to ordinary wear and tear) and make all necessary repairs, renewals,
replacements, additions, betterments and improvements thereto and actively
conduct and carry on its business, unless the failure to do so, in each case,
would not be, in the aggregate, reasonably likely to have a material adverse
effect on the business and financial condition of the Company and its Restricted
Subsidiaries, taken as a whole; PROVIDED, HOWEVER, that nothing in this Section
4.05 shall prevent the Company or any of its Restricted Subsidiaries from
discontinuing the operation and maintenance of any of its Properties if such
discontinuance is, in the ordinary course of business or, in the good faith
judgment of the Board of Directors or other governing body of the Company or the
Restricted Subsidiary concerned, as the case may be, desirable in the conduct of
its businesses and is not disadvantageous in any material respect to the
Holders.
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(b) The Company shall maintain insurance (including
appropriate self-insurance) against loss or damage of the kinds that, in the
good faith judgment of the Company, are adequate and appropriate for the conduct
of the business of the Company and its Restricted Subsidiaries in a prudent
manner, with reputable insurers or with the government of the United States of
America or an agency or instrumentality thereof, in such amounts, with such
deductibles, and by such methods as shall be consistent with past practice or
customary, in the good faith judgment of the Company, for companies similarly
situated in the industry, except for any omissions thereof which would not be,
in the aggregate, reasonably likely to have a material adverse effect on the
business and financial condition of the Company and its Restricted Subsidiaries,
taken as a whole.
SECTION 4.06. COMPLIANCE CERTIFICATE; NOTICE OF DEFAULT.
(a) The Company shall deliver to the Trustee, within 120 days
after the end of the Company's fiscal year, an Officers' Certificate which
complies with TIA /section/ 314(a)(4) stating that a review of its activities
during the preceding fiscal year has been made under the supervision of the
signing Officers with a view to determining whether it has kept, observed,
performed and fulfilled its Obligations under this Indenture and further
stating, as to each such Officer signing such certificate, that to the best of
such Officer's knowledge the Company during such preceding fiscal year has, in
all material respects, kept, observed, performed and fulfilled each and every
such covenant and the Obligations contained in this Indenture and the Notes and
no Default or Event of Default occurred during such year and at the date of such
certificate there is no Default or Event of Default that has occurred and is
continuing or, if such signers do know of such Default or Event of Default, the
certificate shall describe the Default or Event of Default and its status with
particularity. The Officers' Certificate shall also notify the Trustee should
the Company elect to change the manner in which it fixes its fiscal year end.
(b) The annual financial statements delivered pursuant to
Section 4.08 shall be accompanied by a written report of the Company's
independent accountants (who shall be a firm of established national reputation)
that in conducting their audit of such financial statements nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article Four, Five or Six of this Indenture insofar as they
relate to accounting matters or, if any such violation has occurred, specifying
the nature and period of existence thereof, it being understood that such
accountants
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shall not be liable directly or indirectly to any Person for any failure to
obtain knowledge of any such violation.
(c) (i) If any Default or Event of Default has occurred and is
continuing or (ii) if any Holder seeks to exercise any remedy hereunder with
respect to a claimed Default under this Indenture or the Notes, the Company
shall deliver to the Trustee, at its address set forth in Section 12.02 hereof,
by registered or certified mail or by telegram, telex or facsimile transmission
followed by hard copy by registered or certified mail an Officers' Certificate
specifying such event, notice or other action (including any action the Company
is taking or proposes to take in respect thereof) within thirty days of such
occurrence.
SECTION 4.07. COMPLIANCE WITH LAWS.
The Company shall, and shall cause each of its Subsidiaries
to, comply with all applicable statutes, rules, regulations, orders and
restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of its businesses and the ownership of its properties, except for
such noncompliances as are not in the aggregate reasonably likely to have a
material adverse effect on the business or financial condition of the Company
and its Subsidiaries, taken as a whole.
SECTION 4.08. SEC REPORTS.
(a) The Company shall file with the SEC all information,
documents and reports to be filed with the SEC pursuant to Sections 13 or 15(d)
of the Exchange Act, whether or not the Company is subject to such filing
requirements so long as the SEC will accept such filings. The Company (at its
own expense) shall file with the Trustee within 15 days after it files them with
the SEC, copies of the quarterly and annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) which the Company files with
the SEC pursuant to Section 13 or 15(d) of the Exchange Act. Upon qualification
of this Indenture under the TIA, the Company shall also comply with the
provisions of TIA /section/ 314(a).
(b) At the Company's expense, regardless of whether the
Company is required to furnish such reports and other information referred to in
paragraph (a) above to its stockholders pursuant to the Exchange Act, from the
earlier of (i) the
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date of the commencement of the Exchange Offer or the effectiveness of the Shelf
Registration Statement and (ii) October 28, 1998, the Company will file with the
SEC, to the extent permitted, such annual reports and other information,
documents and other reports specified in Sections 13 or 15(d) of the Exchange
Act and the Company will cause such to be mailed to the Trustee and the Holders
at their addresses appearing in the register of Notes maintained by the
Registrar so long as any Notes are outstanding.
(c) The Company shall provide to any Holder any information
reasonably requested by such Holder concerning the Company (including financial
statements) necessary in order to permit such Holder to sell or transfer Notes
in compliance with Rule 144A under the Act.
SECTION 4.09. WAIVER OF STAY, EXTENSION OR USURY LAWS.
The Company and each Guarantor covenants (to the extent that
it may lawfully do so) that it shall not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive the
Company or any such Guarantor, as the case may be, from paying all or any
portion of the principal of or interest on the Notes or performing its
Guarantee, as the case may be and as contemplated herein, wherever enacted, now
or at any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and (to the extent that it may lawfully do so)
the Company and each Guarantor, if any, hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not hinder, delay or
impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law had
been enacted.
SECTION 4.10. LIMITATION ON RESTRICTED PAYMENTS.
The Company shall not, and shall not cause or permit any of
its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any
dividend or make any distribution (other than dividends or distributions payable
in Qualified Capital Stock of the Company) on or in respect of shares of the
Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem
or otherwise acquire or retire for value any Capital Stock of the Company or any
warrants, rights or options to purchase or acquire shares of any class of such
Capital Stock, (c) make any principal payment on, purchase, defease,
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redeem, prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund payment,
any Indebtedness of the Company that is subordinate or junior in right of
payment to the Notes or (d) make any Investment (other than Permitted
Investments) (each of the foregoing actions set forth in clauses (a), (b) (c)
and (d) being referred to as a "RESTRICTED PAYMENT"), if at the time of such
Restricted Payment or immediately after giving effect thereto, (i) a Default or
an Event of Default shall have occurred and be continuing or (ii) the Company is
not able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with Section 4.12 or (iii) the aggregate
amount of Restricted Payments (including such proposed Restricted Payment) made
subsequent to the Issue Date (the amount expended for such purposes, if other
than in cash, being the fair market value of such property as determined
reasonably and in good faith by the Board of Directors of the Company) shall
exceed the sum of the following amounts (without duplication): (1) 50% of the
cumulative Consolidated Net Income (or if cumulative Consolidated Net Income
shall be a loss, minus 100% of such loss) of the Company accrued on a cumulative
basis during the period beginning on the first day of the fiscal quarter
immediately following the Issue Date and ending on the last day of the last
fiscal quarter preceding the date the Restricted Payment occurs (the "REFERENCE
DATE") (treating such period as a single accounting period); plus (2) 100% of
the aggregate net cash proceeds received by the Company from any Person (other
than a Subsidiary of the Company) from the issuance and sale subsequent to the
Issue Date and on or prior to the Reference Date of Qualified Capital Stock of
the Company or any options, warrants or other rights to acquire Qualified
Capital Stock of the Company; plus (3) 100% of the aggregate net cash proceeds
received subsequent to the Issue Date by the Company from any Person (other than
a Subsidiary of the Company) from the issuance or sale of debt securities or
shares of Disqualified Capital Stock that have been converted into or exchanged
for Qualified Capital Stock, together with the aggregate cash received by the
Company at the time of such conversion or exchange; plus (4) 100% of the
aggregate net cash proceeds of any equity contribution received by the Company
from a holder of the Company's Capital Stock; plus (5) an amount equal to the
net reduction in Investment made pursuant to this first paragraph of Section
4.10 in any Person resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances, or other transfers of assets, in
each case to the Company or any Restricted Subsidiary (except to the extent any
such payment is included in the calculation of Consolidated Net Income), or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries valued in
each case as provided in the definition of
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"Investments," not to exceed the amount of Investments previously made by the
Company or any Restricted Subsidiary in such Person.
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph do not prohibit: (1) the payment of any dividend
or the consummation of any irrevocable redemption within 60 days after the date
of declaration of such dividend or the giving of notice of such irrevocable
redemption if the dividend or redemption would have been permitted on the date
of declaration or the giving of such irrevocable redemption notice; (2) if no
Default or Event of Default shall have occurred and be continuing, the
repurchase, redemption or other acquisition or retirement of any shares of
Capital Stock of the Company, either (i) solely in exchange for shares of
Qualified Capital Stock of the Company or any options, warrants or other rights
to acquire Qualified Capital Stock of the Company or (ii) through the
application of net proceeds of a substantially concurrent sale for cash (other
than to a Subsidiary of the Company and other than the Common Stock Offering) of
shares of Qualified Capital Stock of the Company, or any options, warrants or
other rights to acquire Qualified Capital Stock of the Company; (3) if no
Default or Event of Default shall have occurred and be continuing, the
acquisition of any Indebtedness of the Company that is subordinate or junior in
right of payment to the Notes either (i) solely in exchange for shares of
Qualified Capital Stock of the Company or any options, warrants or other rights
to acquire Qualified Capital Stock of the Company or (ii) through the
application of net proceeds of a substantially concurrent sale for cash (other
than to a Subsidiary of the Company and other than the Common Stock Offering) of
(A) shares of Qualified Capital Stock of the Company or any options, warrants or
other rights to acquire Qualified Capital Stock of the Company, or (B)
Refinancing Indebtedness; (4) if no Default or Event of Default shall have
occurred and be continuing, the redemption at maturity of, or the payment of
dividends in the form of additional shares of Preferred Stock on the Series A
Preferred Stock to the extent required pursuant to the terms thereof or the
payment of cash dividends on the Series A Preferred Stock in an amount not to
exceed $1.0 million in any fiscal year; and (5) so long as no Default or Event
of Default shall have occurred and be continuing, repurchases by the Company of
Common Stock of the Company from employees of the Company or any of its
Subsidiaries or their authorized representatives upon the death, disability or
termination of employment of such employees, in an aggregate amount not to
exceed $1.0 million in any calendar year. In determining the aggregate amount of
Restricted Payments made subsequent to the Issue Date in accordance with clause
(iii) of the immediately preceding paragraph,
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amounts expended pursuant to clauses (1), (2)(ii), 3(ii)(A), (4) and (5) shall
be included in such calculation.
Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment complies with this Indenture and setting forth in reasonable
detail the basis upon which the required calculations were computed, which
calculations may be based upon the Company's latest available internal quarterly
financial statements.
SECTION 4.11. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into or permit to
exist any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with, or for the benefit of, any of its Affiliates
(each an "AFFILIATE TRANSACTION"), other than (x) Affiliate Transactions
permitted under paragraph (b) below and (y) Affiliate Transactions on terms that
are no less favorable than those that might reasonably have been obtained in a
comparable transaction at such time on an arm's-length basis from a Person that
is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate
Transactions (and each series of related Affiliate Transactions which are
similar or part of a common plan) involving aggregate payments or other property
with a fair market value in excess of $5,000,000 shall be approved by the Board
of Directors of the Company or such Restricted Subsidiary, as the case may be,
such approval to be evidenced by a Board Resolution stating that such Board of
Directors has determined that such transaction complies with the foregoing
provisions. If the Company or any Restricted Subsidiary of the Company enters
into an Affiliate Transaction (or a series of related Affiliate Transactions
related to a common plan) that involves an aggregate fair market value of more
than $10,500,000, the Company or such Restricted Subsidiary, as the case may be,
shall, prior to the consummation thereof, obtain a favorable opinion as to the
fairness of such transaction or series of related transactions to the Company or
the relevant Restricted Subsidiary, as the case may be, from a financial point
of view, from an Independent Financial Advisor and file the same with the
Trustee.
(b) The restrictions set forth in clause (a) above shall not
apply to (i) reasonable fees and compensation paid to, loans or advances to, and
indemnity provided on behalf of,
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officers, directors, employees or consultants of the Company or any Restricted
Subsidiary of the Company as determined in good faith by the Company's Board of
Directors or senior management; (ii) transactions exclusively between or among
the Company and any of its Wholly Owned Restricted Subsidiaries or exclusively
between or among such Wholly Owned Restricted Subsidiaries, PROVIDED such
transactions are not otherwise prohibited by this Indenture; (iii) any payments
or transactions pursuant to agreements in effect as of the Issue Date or any
amendment thereto or any transaction contemplated thereby (including pursuant to
any amendment thereto) in any replacement agreement thereto so long as any such
amendment or replacement agreement is not more disadvantageous to the Holders in
any material respect than the original agreement as in effect on the Issue Date;
(iv) Restricted Payments permitted by this Indenture; and (v) any Investments by
an Affiliate of the Company in the Capital Stock (other than Disqualified Stock)
of the Company or any Restricted Subsidiary of the Company.
SECTION 4.12. LIMITATION ON INCURRENCE OF ADDITIONAL
INDEBTEDNESS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume,
guarantee, acquire, become liable, contingently or otherwise, with respect to,
or otherwise become responsible for payment of (collectively, "INCUR") any
Indebtedness (other than Permitted Indebtedness); PROVIDED, HOWEVER, that if no
Default or Event of Default shall have occurred and be continuing at the time of
or as a consequence of the incurrence of any such Indebtedness, the Company or
any Guarantor may incur Indebtedness (including, without limitation, Acquired
Indebtedness), if on the date of the incurrence of such Indebtedness, after
giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage
Ratio of the Company is greater than 2.0 to 1.0 if such date of incurrence is on
or prior to June 1, 2000 and greater than 2.25 to 1.0 thereafter. For purposes
of determining any particular amount of Indebtedness under this Section 4.12,
(1) guarantees, Liens or obligations with respect to letters of credit
supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included and (2) any Liens granted pursuant to
the equal and ratable provisions referred to in Section 4.18 shall not be
treated as Indebtedness.
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SECTION 4.13. LIMITATION ON DIVIDEND AND OTHER PAYMENT
RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company shall not, and shall not cause or permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or permit to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary of the Company to (a) pay dividends or
make any other distributions on or in respect of its Capital Stock; (b) make
loans or advances or to pay any Indebtedness or other obligation owed to the
Company or any other Restricted Subsidiary of the Company; or (c) transfer any
of its property or assets to the Company or any other Restricted Subsidiary of
the Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) this Indenture; (3) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Restricted Subsidiary of the Company; (4) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired; (5) the Credit Agreement; (6)
agreements existing on the Issue Date to the extent and in the manner such
agreements are in effect on the Issue Date; (7) restrictions on the transfer of
assets subject to any Lien permitted under this Indenture imposed by the holder
of such Lien; (8) restrictions imposed by any agreement to sell assets permitted
under this Indenture to any Person pending the closing of such sale; (9) any
agreement or instrument governing Capital Stock of any Person that is acquired;
or (10) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred to in
clause (2), (4),(5) or (6) above; PROVIDED, HOWEVER, that the provisions
relating to such encumbrance or restriction contained in any such Indebtedness
are no less favorable to the Company in any material respect as determined by
the Board of Directors of the Company in its reasonable and good faith judgment
than the provisions relating to such encumbrance or restriction contained in
agreements referred to in such clause (2), (4), (5) or (6), respectively.
SECTION 4.14. PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED
DEBT.
The Company shall not incur or suffer to exist Indebtedness
that is senior in right of payment to the Notes and subordinate in right of
payment to any other Indebtedness of the Company.
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SECTION 4.15. LIMITATION ON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder
shall have the right to require that the Company purchase all or a portion of
such Holder's Notes pursuant to the offer described below (the "CHANGE OF
CONTROL OFFER"), at a purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest to the date of purchase. However, the
Company is not required to make a Change of Control Offer if a third party makes
a Change of Control Offer that would be in compliance with the provisions
described in this Section 4.15 if it were made by the Company and such third
party purchases (for the consideration referred to in the immediate preceding
sentence) the Notes validly tendered and not withdrawn.
(b) Within 30 days following the date upon which the Change of
Control occurred, the Company shall send, by first class mail, a notice to each
Holder, with a copy to the Trustee, which notice shall govern the terms of the
Change of Control Offer. The notice to the Holders shall contain all
instructions and materials necessary to enable such Holders to tender Notes
pursuant to the Change of Control Offer. Such notice shall state:
(1) that the Change of Control Offer is being made pursuant
to this Section 4.15 and that all Notes tendered will be accepted for
payment;
(2) the purchase price (including the amount of accrued
interest) and the purchase date (which shall be no earlier than 30 days
nor later than 45 days from the date such notice is mailed, other than
as may be required by law) (the "CHANGE OF CONTROL PAYMENT DATE");
(3) that any Note not tendered will continue to accrue
interest if interest is then accruing;
(4) that, unless the Company defaults in making payment
therefor, any Note accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(5) that Holders electing to have a Note purchased pursuant
to a Change of Control Offer will be required to surrender the Note,
with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the third
business day prior to the Change of Control Payment Date;
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(6) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than 5:00 p.m., New
York City time, on the second Business Day preceding the Change of
Control Payment Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of
the Notes the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased; and
(7) the circumstances and relevant facts regarding such
Change of Control.
On or before the Change of Control Payment Date, the Company
shall (i) accept for payment Notes or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the purchase price plus accrued interest, if any, of all Notes
or portions thereof so tendered and accepted and (iii) deliver to the Trustee
Notes so accepted together with an Officers' Certificate stating the Notes or
portions thereof being purchased by the Company. The Paying Agent shall promptly
mail or deliver to the Holders of Notes so accepted payment in an amount equal
to the purchase price plus accrued interest, if any, and the Company shall
execute and issue, and the Trustee shall promptly authenticate and mail or
deliver to such Holders new Notes equal in principal amount to any unpurchased
portion of the Notes surrendered. Any Notes not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof. The Company shall
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date. For purposes of this
Section 4.15, the Trustee shall act as the Paying Agent.
(c) If the Credit Agreement is in effect, or any amounts are
owing thereunder, in either case at the time of the occurrence of the Change of
Control, prior to the mailing of the notice referred to in clause (b) above, but
in any event within 30 days following any Change of Control, the Company shall
(i) repay in full and terminate all commitments under the Indebtedness under the
Credit Agreement and all other Senior Debt the terms of which require repayment
upon a Change of Control or offer to repay in full and terminate all commitments
under all Indebtedness under the Credit Agreement and all such other Senior Debt
and to repay the Indebtedness owed to each lender which has accepted such offer
or (ii) obtain the requisite consents under the Credit Agreement and all such
other Senior Debt to permit the repurchase of the Notes as provided below. The
Company shall first comply with the covenant in the immediately preceding
sentence before it shall be required to
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repurchase Notes in the event of a Change of Control; PROVIDED that the
Company's failure to comply with the covenant described in the immediately
preceding sentence shall constitute an Event of Default described in Section
6.01(3) and not in Section 6.01(2).
The Company shall comply with all applicable securities laws
in connection with any Change of Control Offer, including Rule 14e-1 under the
Exchange Act.
SECTION 4.16. LIMITATION ON ASSET SALES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or
the applicable Restricted Subsidiary, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the fair market value of the
assets sold or otherwise disposed of (as determined in good faith by the
Company's Board of Directors), (ii) at least 70% of the consideration received
by the Company or the Restricted Subsidiary, as the case may be, from such Asset
Sale shall be in the form of cash or Cash Equivalents and is received at the
time of such disposition; and (iii) upon the consummation of an Asset Sale, the
Company shall apply, or cause such Restricted Subsidiary to apply, the Net Cash
Proceeds relating to such Asset Sale within 365 days of receipt thereof either
(A) to prepay any Senior Debt or Guarantor Senior Debt and, in the case of any
Senior Debt or Guarantor Senior Debt under any revolving credit facility, effect
a permanent reduction in the availability under such revolving credit facility,
(B) to make an investment in properties and assets that replace the properties
and assets that were the subject of such Asset Sale or in properties and assets
that will be used in the business of the Company and its Restricted Subsidiaries
as existing on the Issue Date or in businesses reasonably related thereto
("REPLACEMENT ASSETS"), or (C) a combination of prepayment and investment
permitted by the foregoing clauses (iii)(A) and (iii)(B). On the 366th day after
an Asset Sale or such earlier date, if any, as the Board of Directors of the
Company or of such Restricted Subsidiary determines not to apply the Net Cash
Proceeds relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B)
and (iii)(C) of the next preceding sentence (each, a "NET PROCEEDS OFFER TRIGGER
DATE"), such aggregate amount of Net Cash Proceeds which have not been applied
on or before such Net Proceeds Offer Trigger Date as permitted in clauses
(iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each a "NET
PROCEEDS OFFER Amount") shall be applied by the Company or such Restricted
Subsidiary to make an offer to purchase (the "NET PROCEEDS OFFER") on a date
(the "NET PROCEEDS OFFER PAYMENT
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DATE") not less than 30 nor more than 45 days following the applicable Net
Proceeds Offer Trigger Date, from all Holders on a PRO RATA basis, that amount
of Notes equal to the Net Proceeds Offer Amount at a price equal to 100% of the
principal amount of the Notes to be purchased, plus accrued and unpaid interest
thereon, if any, to the date of purchase; PROVIDED, however, that if at any time
any non-cash consideration received by the Company or any Restricted Subsidiary
of the Company, as the case may be, in connection with any Asset Sale is
converted into or sold or otherwise disposed of for cash (other than interest
received with respect to any such non-cash consideration), then such conversion
or disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash Proceeds thereof shall be applied in accordance with this Section 4.16. The
Company may defer the Net Proceeds Offer until there is an aggregate unutilized
Net Proceeds Offer Amount equal to or in excess of $10.0 million resulting from
one or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer
Amount, and not just the amount in excess of $10.0 million, shall be applied as
required pursuant to this paragraph).
In the event of the transfer of substantially all (but not
all) of the property and assets of the Company and its Restricted Subsidiaries
as an entirety to a Person in a transaction permitted under Section 5.01, the
successor corporation shall be deemed to have sold the properties and assets of
the Company and its Restricted Subsidiaries not so transferred for purposes of
this Section 4.16, and shall comply with the provisions of this Section 4.16
with respect to such deemed sale as if it were an Asset Sale. In addition, the
fair market value of such properties and assets of the Company or its Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this Section 4.16.
Notwithstanding the two immediately preceding paragraphs, the
Company and its Restricted Subsidiaries will be permitted to consummate an Asset
Sale without complying with such paragraphs to the extent (i) at least 80% of
the consideration for such Asset Sale constitutes Replacement Assets and (ii)
such Asset Sale is for fair market value; PROVIDED that any consideration not
constituting Replacement Assets received by the Company or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
the two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders
as determined on a date shown on the register of Holders within 30 days
following the Net Proceeds Offer Trigger
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Date, with a copy to the Trustee. A Net Proceeds Offer shall remain open for a
period of 20 business days or such longer period as may be required by law. The
notice shall contain all instructions and materials necessary to enable such
Holders to tender Notes pursuant to the Net Proceeds Offer and shall state the
following terms:
(1) that the Net Proceeds Offer is being made pursuant to
Section 4.16 and that all Notes tendered will be accepted for payment;
PROVIDED, HOWEVER, that if the aggregate principal amount of Notes
tendered in a Net Proceeds Offer plus accrued interest at the
expiration of such offer exceeds the aggregate amount of the Net
Proceeds Offer, the Company shall select the Notes to be purchased on a
PRO RATA basis (based on amounts tendered) (with such adjustments as
may be deemed appropriate by the Company so that only Notes in
denominations of $1,000 or multiples thereof shall be purchased);
(2) the purchase price (including the amount of accrued
interest) and the purchase date (which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed, other than
as may be required by law) (the "PROCEEDS PURCHASE DATE");
(3) that any Note not tendered will continue to accrue
interest if interest is then accruing;
(4) that, unless the Company defaults in making payment
therefor, any Note accepted for payment pursuant to the Net Proceeds
Offer shall cease to accrue interest after the Proceeds Purchase Date;
(5) that Holders electing to have a Note purchased pursuant
to a Net Proceeds Offer will be required to surrender the Note, with
the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Note completed, to the Paying Agent at the address specified in
the notice prior to 5:00 p.m., New York City time, on the second
Business Day prior to the Proceeds Purchase Date;
(6) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than 5:00 p.m., New
York City time, on the second Business Day preceding the Proceeds
Purchase Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Notes
the Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Note purchased; and
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(7) that Holders whose Notes were purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered.
On or before the Proceeds Purchase Date, the Company shall (i)
accept for payment Notes or portions thereof tendered pursuant to the Net
Proceeds Offer which are to be purchased in accordance with item (b)(1) above,
(ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the
purchase price of all Notes to be purchased and (iii) deliver to the Trustee
Notes so accepted together with an Officers' Certificate stating the Notes or
portions thereof being purchased by the Company. The Paying Agent shall promptly
mail to the Holders of Notes so accepted payment in an amount equal to the
purchase price plus accrued interest, if any, and the Company shall execute and
issue, and the Trustee shall promptly authenticate and mail or deliver to such
Holders new Notes equal in principal amount to any unpurchased portion of the
Notes surrendered. The Company shall publicly announce the results of the Net
Proceeds Offer on or as soon as practicable after the Proceeds Purchase Date.
For purposes of this Section 4.16, the Trustee shall act as the Paying Agent.
If the aggregate purchase price of Notes tendered pursuant to
the Net Proceeds Offer is less than the Net Cash Proceeds allotted to the
purchase of the Notes, the Company may apply the remaining Net Cash Proceeds for
general corporate purposes.
The agreements governing certain outstanding Senior Debt of
the Company may require that the Company and its Subsidiaries apply all proceeds
from asset sales to repay in full outstanding obligations under such Senior Debt
prior to the application of such proceeds to repurchase outstanding Notes.
The Company will comply with all applicable securities laws in
connection with any Net Proceeds Offer, including Rule l4e-1 under the Exchange
Act. To the extent that the provisions of any securities laws or regulations
conflict with the provisions of this Section 4.16, the Company shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section 4.16 by virtue thereof.
SECTION 4.17. LIMITATION ON PREFERRED STOCK OF RESTRICTED
SUBSIDIARIES.
The Company shall not permit any of its Restricted
Subsidiaries to issue any Preferred Stock (other than to the
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Company or to a Wholly Owned Restricted Subsidiary of the Company) or permit any
Person (other than the Company or a Wholly Owned Restricted Subsidiary of the
Company) to own any Preferred Stock of any Restricted Subsidiary of the Company.
SECTION 4.18. LIMITATION ON LIENS.
The Company shall not, and shall not cause or permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens of any kind against or upon any property or
assets of the Company or any of its Restricted Subsidiaries whether owned on the
Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless (i) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes, the Notes are secured by
a Lien on such property, assets or proceeds that is senior in priority to such
Liens and (ii) in all other cases, the Notes are equally and ratably secured,
except for (A) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date; (B) Liens securing Senior
Debt and Liens securing Guarantor Senior Debt; (C) Liens securing the Notes and
the Guarantees; (D) Liens of the Company or a Wholly Owned Restricted Subsidiary
of the Company on assets of any Subsidiary of the Company; (E) Liens securing
Refinancing Indebtedness which is incurred to Refinance any Indebtedness which
has been secured by a Lien permitted under this Indenture and which has been
incurred in accordance with the provisions of this Indenture; PROVIDED, HOWEVER,
that such Liens (x) are no less favorable to the Holders and are not more
favorable to the lienholders with respect to such Liens than the Liens in
respect of the Indebtedness being Refinanced and (y) do not extend to or cover
any property or assets of the Company or any of its Restricted Subsidiaries not
securing the Indebtedness so Refinanced; and (F) Permitted Liens.
SECTION 4.19. CONDUCT OF BUSINESS.
The Company and its Restricted Subsidiaries shall not engage
in any businesses which are not the same, similar or related to the businesses
in which the Company and its Restricted Subsidiaries are engaged on the Issue
Date.
SECTION 4.20. ADDITIONAL SUBSIDIARY GUARANTEES.
If the Company or any Guarantor transfers or causes to be
transferred, in one transaction or a series of related
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transactions, any property with a fair market value of $500,000 or more to any
Restricted Subsidiary of the Company that is not a Guarantor, or if the Company
or any of its Restricted Subsidiaries shall organize, acquire or otherwise
invest in another domestic Restricted Subsidiary of the Company having total
assets with a book value in excess of $500,000, then such transferee or acquired
or other domestic Restricted Subsidiary shall (i) execute and deliver to the
Trustee a supplemental indenture in form reasonably satisfactory to the Trustee
pursuant to which such Restricted Subsidiary shall unconditionally guarantee all
of the Company's obligations under the Notes and this Indenture on the terms set
forth in this Indenture and (ii) deliver to the Trustee an Opinion of Counsel
that such supplemental indenture has been duly authorized, executed and
delivered by such Restricted Subsidiary and constitutes a legal, valid, binding
and enforceable obligation of such Restricted Subsidiary. Thereafter, such
Restricted Subsidiary shall be a Guarantor for all purposes of this Indenture.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. WHEN COMPANY MAY MERGE, ETC.
(a) The Company shall not, in a single transaction or series
of related transactions, consolidate or merge with or into any Person, or sell,
assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or
otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Company's Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless: (i) either (1) the Company shall be the surviving or continuing
corporation or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company and of the Company's Restricted
Subsidiaries substantially as an entirety (the "SURVIVING ENTITY") (x) shall be
a corporation organized and validly existing under the laws of the United States
or any State thereof or the District of Columbia and (y) shall expressly assume,
by supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Notes and the
performance of every covenant of
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the Notes, this Indenture and the Registration Rights Agreement on the part of
the Company to be performed or observed; (ii) immediately after giving effect to
such transaction and the assumption contemplated by clause (i)(2)(y) above
(including giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be, (1)
shall have a Consolidated Net Worth equal to or greater than the Consolidated
Net Worth of the Company immediately prior to such transaction and (2) shall be
able to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to Section 4.12; (iii) immediately before and immediately
after giving effect to such transaction and the assumption contemplated by
clause (i)(2)(y) above (including, without limitation, giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred
and any Lien granted in connection with or in respect of the transaction), no
Default or Event of Default shall have occurred or be continuing; and (iv) the
Company or the Surviving Entity shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that such consolidation,
merger, sale, assignment, transfer, lease, conveyance or other disposition and,
if a supplemental indenture is required in connection with such transaction,
such supplemental indenture comply with the applicable provisions of this
Indenture and that all conditions precedent in this Indenture relating to such
transaction have been satisfied.
(b) For purposes of clause (a) above, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Restricted Subsidiaries of the Company, the Capital Stock of which
constitutes all or substantially all of the properties and assets of the
Company, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company. Notwithstanding the foregoing clauses
(a)(ii) and (a)(iii) of this Section 5.01, (a) any Restricted Subsidiary of the
Company may consolidate with, merge into or transfer all or part of its
properties and assets to the Company or a Guarantor and (b) the Company may
merge with an Affiliate incorporated solely for the purpose of reincorporating
the Company in another jurisdiction.
(c) Each Guarantor (other than any Guarantor whose Guarantee
is to be released in accordance with the terms of the Guarantee and this
Indenture in connection with any transaction complying with the provisions of
Section 4.16) will not, and the Company will not cause or permit any Guarantor
to, consolidate with or merge with or into any Person other than the Company
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or any other Guarantor unless: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Guarantor) or to which such sale,
lease, conveyance or other disposition shall have been made is a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia; (ii) such entity assumes by supplemental indenture
all of the obligations of the Guarantor on the Guarantee; (iii) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing; and (iv) immediately after giving effect to
such transaction and the use of any net proceeds therefrom on a PRO FORMA basis,
the Company could satisfy the provisions of clause (ii) of the first paragraph
of this Section 5.01. Any merger or consolidation of a Guarantor with and into
the Company (with the Company being the surviving entity) or another Guarantor
that is a Wholly Owned Restricted Subsidiary of the Company need only comply
with clause (iv) of the first paragraph of this Section 5.01.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation, combination or merger or any transfer
of all or substantially all of the assets of the Company in accordance with this
Article Five, in which the Company is not the continuing corporation, the
Surviving Entity formed by such consolidation or into which the Company is
merged or to which such conveyance, lease or transfer is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Indenture and the Notes with the same effect as if such surviving
entity had been named as such, and thereafter the predecessor corporation shall
be relieved of all Obligations and covenants under this Indenture and the Notes;
PROVIDED that solely for the purpose of calculating amounts described in clause
(c) of the first paragraph of Section 4.10, any such Surviving Person shall only
be deemed to have succeeded to and be substituted for the Company with respect
to the period subsequent to the effective time of this transaction (and the
Company shall be deemed to be the "Company" for such purposes for all prior
periods).
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ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" is:
(1) the failure to pay interest on any Notes when the same
becomes due and payable and the default continues for a period of 30
days (whether or not such payment shall be prohibited by the
subordination provisions of this Indenture);
(2) the failure to pay the principal on any Notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer)
(whether or not such payment shall be prohibited by the subordination
provisions of this Indenture);
(3) default in the observance or performance of any other
covenant or agreement contained in this Indenture which default
continues for a period of 30 days after the Company receives written
notice specifying the default (and demanding that such default be
remedied) from the Trustee or the Holders of at least 25% of the
outstanding principal amount of the Notes (except in the case of a
default with respect to Section 5.01, which will constitute an Event of
Default with such notice requirement but without such passage of time
requirement);
(4) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal
amount of any Indebtedness of the Company or any Restricted Subsidiary
of the Company and such failure continues for a period of 20 days or
more, or the acceleration of the final stated maturity of any such
Indebtedness (which acceleration is not rescinded, annulled or
otherwise cured within 20 days of receipt by the Company or such
Restricted Subsidiary of notice of any such acceleration) if the
aggregate principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure
to pay principal at final maturity or which has been accelerated,
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in each case with respect to which the 20-day period described above
has passed, aggregates $5,000,000 or more at any time;
(5) one or more judgments in an aggregate amount in excess of
$5,000,000 shall have been rendered against the Company or any of its
Significant Subsidiaries and such judgments remain undischarged, unpaid
or unstayed for a period of 60 days after such judgment or judgments
become final and non-appealable;
(6) the Company or any of its Significant Subsidiaries (A)
commences a voluntary case or proceeding under any Bankruptcy Law with
respect to itself, (B) consents to the entry of a judgment, decree or
order for relief against it in an involuntary case or proceeding under
any Bankruptcy Law, (C) consents to the appointment of a Custodian of
it or for substantially all of its property, (D) consents to or
acquiesces in the institution of a bankruptcy or an insolvency
proceeding against it, (E) makes a general assignment for the benefit
of its creditors, or (F) takes any corporate action to authorize or
effect any of the foregoing;
(7) a court of competent jurisdiction enters a judgment,
decree or order for relief in respect of the Company or any of its
Significant Subsidiaries in an involuntary case or proceeding under any
Bankruptcy Law, which shall (A) approve as properly filed a petition
seeking reorganization, arrangement, adjustment or composition in
respect of the Company or any of its Significant Subsidiaries, (B)
appoint a Custodian of the Company or any of its Significant
Subsidiaries or for substantially all of its property or (C) order the
winding-up or liquidation of its affairs; and such judgment, decree or
order shall remain unstayed and in effect for a period of 60
consecutive days; or
(8) any of the Guarantees of a Guarantor that is a Significant
Subsidiary ceases to be in full force and effect or any of such
Guarantees is declared to be null and void and unenforceable or any of
such Guarantees is found to be invalid or any of such Guarantors denies
its liability under its Guarantee (other than by reason of release of
such Guarantor in accordance with the terms of this Indenture).
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SECTION 6.02. ACCELERATION.
(a) If an Event of Default (other than an Event of Default
specified in Section 6.01(6) or (7) with respect to the Company) occurs and is
continuing and has not been waived pursuant to Section 6.04, either the Trustee
or the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by notice in writing to the Company and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"ACCELERATION NOTICE"), may declare the entire principal amount of and accrued
interest on the Notes to be due and payable immediately, and the same (i) shall
become immediately due and payable or (ii) if there are any amounts outstanding
under the Credit Agreement, shall become due and payable upon the first to occur
of an acceleration under the Credit Agreement, or 5 Business Days after receipt
by the Company and the Representative under the Credit Agreement of such
Acceleration Notice, unless all Events of Default specified in such Acceleration
Notice (other than any Event of Default in respect of non-payment of principal)
shall have been cured or waived. If an Event of Default specified in Section
6.01(6) or (7) occurs with respect to the Company, the principal amount of and
accrued interest on the Notes shall become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any holder.
(b) At any time after a declaration of acceleration with
respect to the Notes as described in the preceding paragraph, the Holders of a
majority in principal amount of the Notes may rescind and cancel such
declaration and its consequences (i) if the rescission would not conflict with
any judgment or decree, (ii) if all existing Events of Default have been cured
or waived except nonpayment of principal or interest that has become due solely
because of the acceleration, (iii) to the extent the payment of such interest is
lawful, interest on overdue installments of interest and overdue principal,
which has become due otherwise than by such declaration of acceleration, has
been paid, (iv) if the Company has paid the Trustee its reasonable compensation
and reimbursed the Trustee for its expenses, disbursements and advances and (v)
in the event of the cure or waiver of an Event of Default of the type described
in clause (6) or (7) of Section 6.01, the Trustee shall have received an
Officers' Certificate and an Opinion of Counsel that such Event of Default has
been cured or waived. No such rescission shall affect any subsequent Default or
impair any right consequent thereto.
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SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Notes or to enforce the performance
of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Subject to Sections 2.09, 6.07 and 9.02, the Holders of a
majority in principal amount of the outstanding Notes by notice to the Trustee
may waive an existing Default or Event of Default and its consequences, except a
Default in the payment of principal of or interest on any Note as specified in
clauses (1) and (2) of Section 6.01. When a Default or Event of Default is
waived, it is cured and ceases.
SECTION 6.05. CONTROL BY MAJORITY.
Subject to Section 2.09, the Holders of a majority in
principal amount of the outstanding Notes may direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it, including, without limitation,
any remedies provided for in Section 6.03. Subject to Section 7.01, however, the
Trustee may refuse to follow any direction that the Trustee reasonably believes
conflicts with any law or this Indenture, that the Trustee determines may be
unduly prejudicial to the rights of another Holder, or that may involve the
Trustee in personal liability; PROVIDED that the Trustee may take any other
action deemed proper by the Trustee which is not inconsistent with such
direction.
SECTION 6.06. LIMITATION ON SUITS.
A Holder may not pursue any remedy with respect to this
Indenture or the Notes unless:
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(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer to the Trustee indemnity
reasonably satisfactory to the Trustee against any loss, liability or
expense to be incurred in compliance with such request;
(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of satisfactory
indemnity; and
(5) during such 60-day period the Holders of a majority in
principal amount of the outstanding Notes do not give the Trustee a
direction which, in the opinion of the Trustee, is inconsistent with
the request.
The foregoing limitations shall not apply to a suit instituted
by a Holder for the enforcement of the payment of principal and premium, if any,
or interest on such Note on or after the respective due dates set forth in such
Note (including upon acceleration thereof); PROVIDED that upon institution of
any proceeding or exercise of any remedy, such Holders provide the Trustee with
prompt written notice thereof.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder to receive payment of principal of and interest on a Note,
on or after the respective due dates expressed in such Note, or to bring suit
for the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default in payment of principal or interest
specified in clause (1) or (2) of Section 6.01 occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company, any Guarantor, if any, or any other obligor on the Notes
for
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the whole amount of principal and accrued interest remaining unpaid, together
with interest on overdue principal and, to the extent that payment of such
interest is lawful, interest on overdue installments of interest, in each case
at the rate per annum borne by the Notes, and such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses, taxes,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relating to the Company or any other
obligor upon the Notes, any of their respective creditors or any of their
respective property and shall be entitled and empowered to collect and receive
any monies or other property payable or deliverable on any such claims and to
distribute the same, and any Custodian in any such judicial proceedings is
hereby authorized by each Holder to make such payments to the Trustee and, in
the event that the Trustee shall consent to the making of such payments directly
to the Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, taxes, disbursements and advances of the Trustee, its
agent and counsel, and any other amounts due the Trustee under Section 7.07. The
Company's payment obligations under this Section 6.09 shall be secured in
accordance with the provisions of Section 7.07 hereunder. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money or property pursuant to this
Article Six, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: subject to Articles Ten and Eleven, to Holders for
amounts due and unpaid on the Notes for interest
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and premium, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for interest and
premium, respectively;
Third: subject to Articles Ten and Eleven, to Holders for
amounts due and unpaid on the Notes for principal, ratably without
preference or priority of any kind, according to the amounts due and
payable on the Notes for principal; and
Fourth: subject to Articles Ten and Eleven, to the Company,
the Guarantors, if any, or any other obligor on the Notes, as their
interests may appear, or as a court of competent jurisdiction may
direct.
The Trustee, upon prior notice to the Company, may fix a
record date and payment date for any payment to Holders pursuant to this Section
6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 6.07, or a suit by a Holder or Holders of more than
10% in principal amount of the outstanding Notes.
SECTION 6.12. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or any Note and such proceeding
has been discontinued or abandoned for any reason, or has been determined
adversely to the Trustee or to such Holder, then and in every such case the
Company, the Trustee and the Holders shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.
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ARTICLE SEVEN
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in its exercise thereof as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture and the TIA and no others and
no covenants or obligations shall be implied in this Indenture against
the Trustee.
(2) In the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, in the case of any such certificate or opinion
which by any provision hereof is specifically required to be furnished
to the Trustee, the Trustee shall examine the certificates and opinions
to determine whether or not they conform to the requirements of this
Indenture.
(c) Notwithstanding anything to the contrary herein contained,
the Trustee may not be relieved from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b)
of this Section 7.01.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.02, 6.04 or 6.05.
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(d) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c), (d) and (f) of this
Section 7.01 and Section 7.02.
(f) The Trustee shall not be liable for interest on any money
or assets received by it except as the Trustee may agree in writing with the
Company. Assets held in trust by the Trustee need not be segregated from other
assets except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
Subject to Section 7.01:
(a) The Trustee may rely and shall be fully protected in
acting or refraining from acting upon any document believed by it to be
genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel and may require an Officers' Certificate or an
Opinion of Counsel, or both, which shall conform to Sections 12.04 and
12.05. The Trustee shall not be liable for any action it takes or omits
to take in good faith in reliance on such Officers' Certificate or
Opinion of Counsel.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any
attorney or agent appointed with due care.
(d) The Trustee shall not be liable for any action that it
takes or omits to take in good faith which it reasonably believes to be
authorized or within its rights or powers.
(e) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, notice,
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request, direction, consent, order, bond, debenture, or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit.
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request,
order or direction of any of the Holders pursuant to the provisions of
this Indenture, unless such Holders shall have offered to the Trustee
security or indemnity reasonably satisfactory to the Trustee against
the costs, expenses and liabilities which may be incurred by it in
compliance with such request, order or direction.
(g) The Trustee may consult with counsel and the advice or
opinion of such counsel as to matters of law shall be full and complete
authorization and protection from liability in respect of any action
taken, omitted or suffered by it hereunder in good faith and in
accordance with the advice or opinion of such counsel.
(h) The Trustee shall not be charged with knowledge of any
Defaults or Events of Default unless either (1) a Trust Officer of the
Trustee shall have actual knowledge of such Default or Event of Default
or (2) written notice of such Default or Event of Default shall have
been given to the Trustee by any Holder or by the Company or any other
obligor on the Notes or any holder of Senior Debt or Guarantor Senior
Debt or any representative thereof.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company, any
Subsidiary of the Company, or their respective Affiliates with the same rights
it would have if it were not Trustee. Any Agent may do the same with like
rights. However, the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Notes, and it shall not be accountable for the
Company's use of the proceeds from the Notes, and it shall not be responsible
for any statement of the Company in this Indenture or the Notes other than the
Trustee's certificate of authentication.
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SECTION 7.05. NOTICE OF DEFAULT.
If a Default or an Event of Default occurs and is continuing
and if it is known to the Trustee, the Trustee shall mail to each Holder notice
of the uncured Default or Event of Default within 90 days after such Default or
Event of Default becomes known to the Trustee. Except in the case of a Default
or an Event of Default in payment of principal of, or interest on, any Note, the
Trustee may withhold the notice if and so long as its Board of Directors, the
executive committee of its Board of Directors or a committee of its directors
and/or Trust Officers in good faith determines that withholding the notice is in
the interest of the Holders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each May 15 following initial issuance,
the Trustee shall, to the extent that any of the events described in TIA
/section/ 313(a) occurred within the previous twelve months, but not otherwise,
mail to each Holder a brief report dated as of such date that complies with TIA
/section/ 313(a). The Trustee also shall comply with TIA /sections/ 313(b) and
(c).
A copy of each report at the time of its mailing to Holders
shall be mailed to the Company and filed with the SEC and each stock exchange,
if any, on which the Notes are listed.
The Company shall promptly notify the Trustee in writing if
the Notes become listed on any stock exchange and the Trustee shall comply with
TIA /section/ 313(d).
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time
reasonable compensation for its services. The Trustee's compensation shall not
be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable
out-of-pocket expenses incurred or made by it in connection with the performance
of its duties under this Indenture. Such expenses shall include the reasonable
fees and expenses of the Trustee's agents and counsel.
The Company and the Guarantors shall indemnify the Trustee and
its agents, employees, officers, directors and shareholders for, and hold it
harmless against, any loss, liability or expense incurred by it except for such
actions to the extent caused by any negligence, bad faith or willful misconduct
on its part, arising out of or in connection with the
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administration of this trust including the reasonable costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its rights, powers or duties hereunder. The Trustee
shall notify the Company promptly of any claim asserted against the Trustee for
which it may seek indemnity. Failure by the Trustee to so notify the Company
shall not relieve the Company of its obligations hereunder. At the Trustee's
sole discretion, the Company shall defend the claim and the Trustee shall
provide reasonable cooperation and may participate at the Company's expense in
the defense. Alternatively, the Trustee may at its option have separate counsel
of its own choosing and the Company shall pay the reasonable fees and expenses
of such counsel; PROVIDED that the Company will not be required to pay such fees
and expenses if it assumes the Trustee's defense, there is no conflict of
interest between the Company and the Trustee in connection with such defense as
reasonably determined by the Trustee and no Default or Event of Default has
occurred and is continuing. The Company need not pay for any settlement made
without its written consent, which consent shall not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any loss or
liability to the extent incurred by the Trustee which is attributable to its
negligence, bad faith or willful misconduct.
To secure the Company's payment obligations in this Section
7.07, the Trustee shall have a lien prior to the Notes on all assets or money
held or collected by the Trustee, in its capacity as Trustee, except assets or
money held in trust to pay principal of or interest on particular Notes.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(6) or (7) occurs, such expenses and
the compensation for such services are intended to constitute expenses of
administration under any Bankruptcy Law.
The obligations of the Company under this Section 7.07 and any
lien arising hereunder shall survive the resignation or removal of the Trustee,
the discharge of the Company's Obligations pursuant to Article Eight or the
termination of this Indenture.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
The Trustee may resign by so notifying the Company in writing,
such resignation to be effective upon the appointment of a successor Trustee.
The Holders of a majority in principal amount of the outstanding Notes may
remove the Trustee by so
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notifying the Company and the Trustee in writing and may appoint a successor
Trustee with the Company's consent which consent shall not be unreasonably
withheld. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall notify each Holder of
such event and shall promptly appoint a successor Trustee. Within one year after
the successor Trustee takes office, the Holders of a majority in principal
amount of the Notes may appoint a successor Trustee to replace the successor
Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Holder.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 10% in principal amount of the outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Company's obligations under Section 7.07 shall continue for
the benefit of the retiring Trustee.
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SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or national banking association, the resulting, surviving or
transferee corporation without any further act shall, if such resulting,
surviving or transferee corporation is otherwise eligible hereunder, be the
successor Trustee; PROVIDED that such corporation shall be otherwise qualified
and eligible under this Article Seven.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the
requirement of TIA /sections/ 310(a)(1), (2) and (5). The Trustee (or, in the
case of a corporation included in a bank holding company system, the related
bank holding company) shall have a combined capital and surplus of at least $100
million as set forth in its most recent published annual report of condition. In
addition, if the Trustee is a corporation included in a bank holding company
system, the Trustee, independently of such bank holding company, shall meet the
capital requirements of TIA /section/ 310(a)(2). The Trustee shall comply with
TIA /section/ 310(b); PROVIDED, HOWEVER, that there shall be excluded from the
operation of TIA /section/ 310(b)(1) any indenture or indentures under which
other securities, or certificates of interest or participation in other
securities, of the Company are outstanding, if the requirements for such
exclusion set forth in TIA /section/ 310(b)(1) are met.
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST
COMPANY.
The Trustee shall comply with TIA /section/ 311(a), excluding
any creditor relationship listed in TIA /section/ 311(b). A Trustee who has
resigned or been removed shall be subject to TIA /section/ 311(a) to the extent
indicated therein.
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. TERMINATION OF THE COMPANY'S OBLIGATIONS.
The Company may terminate its obligations under the Notes and
this Indenture, except those obligations referred to
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in the penultimate paragraph of this Section 8.01, if all Notes previously
authenticated and delivered (other than destroyed, lost or stolen Notes which
have been replaced or paid or Notes for whose payment U.S. Legal Tender has
theretofore been deposited with the Trustee or the Paying Agent in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company, as provided in Section 8.05) have been delivered to the Trustee for
cancellation and the Company has paid all sums payable by it hereunder, or if:
(a) either (i) pursuant to Article Three, the Company shall
have given notice to the Trustee and mailed a notice of redemption to
each Holder of the redemption of all of the Notes under arrangements
satisfactory to the Trustee for the giving of such notice or (ii) all
Notes have otherwise become due and payable hereunder;
(b) the Company shall have irrevocably deposited or caused to
be deposited with the Trustee or a trustee satisfactory to the Trustee,
under the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds in trust solely for the
benefit of the Holders for that purpose, U.S. Legal Tender in such
amount as is sufficient without consideration of reinvestment of such
interest, to pay principal of, premium, if any, and interest on the
outstanding Notes to maturity or redemption; PROVIDED that the Trustee
shall have been irrevocably instructed to apply such U.S. Legal Tender
to the payment of said principal, premium, if any, and interest with
respect to the Notes and, PROVIDED, FURTHER, that from and after the
time of deposit, the money deposited shall not be subject to the rights
of holders of Senior Debt pursuant to the provisions of Article Ten;
(c) no Default or Event of Default with respect to this
Indenture or the Notes shall have occurred and be continuing on the
date of such deposit or shall occur as a result of such deposit and
such deposit will not result in a breach or violation of, or constitute
a default under, any other instrument to which the Company is a party
or by which it is bound;
(d) the Company shall have paid all other sums payable by it
hereunder; and
(e) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent providing for the termination of the Company's
obligations under the Notes and this Indenture have been complied with.
Such Opinion
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of Counsel shall also state that such satisfaction and discharge does
not result in a default under the Senior Credit Facility (if then in
effect) or any other agreement or instrument then known to such counsel
that binds or affects the Company.
Notwithstanding the foregoing paragraph, the Company's
obligations in Sections 2.05, 2.06, 2.07, 2.08, 4.01, 4.02, 7.07, 8.05 and 8.06
shall survive until the Notes are no longer outstanding pursuant to the last
paragraph of Section 2.08. After the Notes are no longer outstanding, the
Company's obligations in Sections 7.07, 8.05 and 8.06 shall survive.
After such delivery or irrevocable deposit, the Trustee upon
request shall acknowledge in writing the discharge of the Company's and the
Guarantors' obligations under the Notes, the Guarantees and this Indenture
except for those surviving obligations specified above.
SECTION 8.02. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.
(a) The Company may, at its option by Board Resolution of the
Board of Directors of the Company, at any time, elect to have either paragraph
(b) or (c) below be applied to all outstanding Notes upon compliance with the
conditions set forth in Section 8.03.
(b) Upon the Company's exercise under paragraph (a) hereof of
the option applicable to this paragraph (b), the Company and the Guarantors
shall, subject to the satisfaction of the conditions set forth in Section 8.03,
be deemed to have been discharged from its obligations with respect to all
outstanding Notes on the date the conditions set forth below are satisfied
(hereinafter, "LEGAL DEFEASANCE"). For this purpose, Legal Defeasance means that
the Company shall be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding Notes, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.04 hereof and the other
Sections of this Indenture referred to in (i) and (ii) below, and to have
satisfied all its other obligations under such Notes and this Indenture (and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging the same), and Holders of the Notes and any amounts
deposited under Section 8.03 hereof shall cease to be subject to any obligations
to, or the rights of, any holder of Senior Debt or Guarantor Senior Debt under
Article Ten or Eleven, as the case may be, or otherwise, except for the
following provisions, which shall survive until otherwise terminated
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or discharged hereunder: (i) the rights of Holders of outstanding Notes to
receive solely from the trust fund described in Section 8.04 hereof, and as more
fully set forth in such Section, payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due, (ii) the
Company's obligations with respect to such Notes under Article Two and Section
4.02 hereof, (iii) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and the Company's obligations in connection therewith and (iv)
this Article Eight. Subject to compliance with this Article Eight, the Company
may exercise its option under this paragraph (b) notwithstanding the prior
exercise of its option under paragraph (c) hereof.
(c) Upon the Company's exercise under paragraph (a) hereof of
the option applicable to this paragraph (c), the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.03 hereof, be released
from its obligations under the covenants contained in Sections 4.10 through 4.20
and Article Five hereof with respect to the outstanding Notes on and after the
date the conditions set forth below are satisfied (hereinafter, "COVENANT
DEFEASANCE"), and the Notes shall thereafter be deemed not "outstanding" for the
purposes of any direction, waiver, consent or declaration or act of Holders (and
the consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Notes shall not be deemed outstanding for accounting
purposes) and Holders of the Notes and any amounts deposited under Section 8.03
hereof shall cease to be subject to any obligations to, or the rights of, any
holder of Senior Debt or Guarantor Senior Debt under Article Ten or Article
Eleven or otherwise. For this purpose, such Covenant Defeasance means that, with
respect to the outstanding Notes, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event or Default under
Section 6.01(3) hereof, but, except as specified above, the remainder of this
Indenture and such Notes shall be unaffected thereby. In addition, upon the
Company's exercise under paragraph (a) hereof of the option applicable to this
paragraph (c), subject to the satisfaction of the conditions set forth in
Section 8.03 hereof, those events described in Section 6.01 (except those events
described in Section 6.01(1), (2), (6) and (7)) shall not constitute Events of
Default.
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SECTION 8.03. CONDITIONS TO LEGAL DEFEASANCE OR COVENANT
DEFEASANCE.
The following shall be the conditions to the application of
either Section 8.02(b) or 8.02(c) hereof to the out standing Notes:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders, U.S. Legal Tender or U.S.
Government Obligations, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if
any, and interest on the Notes on the stated date for payment thereof
or on the applicable redemption date, as the case may be, of such
principal or installment of principal of or interest on the Notes;
PROVIDED that the Trustee shall have received an irrevocable written
order from the Company instructing the Trustee to apply such U.S. Legal
Tender or the proceeds of such U.S. Government Obligations to said
payments with respect to the Notes;
(b) in the case of an election under Section 8.02(b) hereof,
the Company shall have delivered to the Trustee an Opinion of Counsel
in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling or (B) since the date of this
Indenture, there has been a change in the applicable United States
federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
Notes will not recognize income, gain or loss for United States federal
income tax purposes as a result of such Legal Defeasance and will be
subject to United States federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.02(c) hereof,
the Company shall have delivered to the Trustee an Opinion of Counsel
in the United States reasonably acceptable to the Trustee confirming
that the Holders of the Notes will not recognize income, gain or loss
for United States federal income tax purposes as a result of such
Covenant Defeasance and will be subject to United States federal income
tax on the same amounts, in the same manner
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and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(d) immediately after giving effect to such deposit on a PRO
FORMA basis, no Default or Event of Default with respect to the Notes
shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the incurrence
of Indebtedness all or a portion of the proceeds of which will be used
to defease the Notes pursuant to this Article Eight concurrently with
such incurrence) or insofar as Sections 6.01(6) and 6.01(7) hereof are
concerned, at any time in the period ending on the 91st day after the
date of such deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of or constitute a default under this
Indenture (other than a Default or Event of Default resulting from the
incurrence of Indebtedness, all or a portion of the proceeds of which
will be used to defease the Notes) or any other material agreement or
instrument to which the Company or any of its Subsidiaries is a party
or by which the Company or any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company;
(g) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with;
(h) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that (A) the trust funds will not be subject
to any rights of any holders of Senior Debt, including, without
limitation, those arising under this Indenture and (B) after the 91st
day following the deposit, the trust funds will not be subject to the
effect of any applicable Bankruptcy Law;
(i) The Company shall have paid or duly provided for payment
of all amounts then due to the Trustee pursuant to Section 7.07 hereof;
and
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(j) No such deposit will result in a Default under this
Indenture (other than a Default or Event of Default resulting from the
incurrence of Indebtedness, all or a portion of the proceeds of which
will be used to defease the Notes) or a breach or violation of, or
constitute a default under, any other instrument or agreement
(including, without limitation, the Credit Agreement) to which the
Company or any of its subsidiaries is a party or by which it or its
property is bound.
Notwithstanding the foregoing, the Opinion of Counsel required
by clause (b) above need not be delivered if all Notes not theretofore delivered
to the Trustee for cancellation (x) have become due and payable, (y) will become
due and payable within one year or (z) are to be called for redemption within
one year under arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of the Company.
SECTION 8.04. APPLICATION OF TRUST MONEY.
The Trustee or Paying Agent shall hold in trust U.S. Legal
Tender or U.S. Government Obligations deposited with it pursuant to Article
Eight, and shall apply the deposited U.S. Legal Tender and the money from U.S.
Government Obligations in accordance with this Indenture to the payment of
principal of and interest on the Notes. The Trustee shall be under no obligation
to invest said U.S. Legal Tender or U.S. Government Obligations except as it may
agree with the Company.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Legal Tender or
U.S. Government Obligations deposited pursuant to Section 8.03 hereof or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Notes.
Anything in this Article Eight to the contrary not
withstanding, the Trustee shall deliver or pay to the Company from time to time
upon the Company's request any U.S. Legal Tender or U. S. Government Obligations
held by it as provided in Section 8.03 hereof which, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, are in excess of the
amount thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.
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SECTION 8.05. REPAYMENT TO THE COMPANY OR THE GUARANTORS.
Subject to Article Eight, the Trustee and the Paying Agent
shall promptly pay to the Company, or if deposited with the Trustee by any
Guarantor, to such Guarantor, upon request any excess U.S. Legal Tender or U.S.
Government Obligations held by them at any time and thereupon shall be relieved
from all liability with respect to such money. The Trustee and the Paying Agent
shall pay to the Company, or if deposited with the Trustee by any Guarantor, to
such Guarantor, upon request any money held by them for the payment of principal
or interest that remains unclaimed for two years; PROVIDED that the Trustee or
such Paying Agent, before being required to make any payment, may at the expense
of the Company cause to be published once in a newspaper of general circulation
in the City of New York or mail to each Holder entitled to such money notice
that such money remains unclaimed and that after a date specified therein which
shall be at least 30 days from the date of such publication or mailing any
unclaimed balance of such money then remaining will be repaid to the Company or
a Guarantor. After payment to the Company or a Guarantor, as the case may be,
Noteholders entitled to such money must look to the Company for payment as
general creditors unless an applicable law designates another Person.
SECTION 8.06. SATISFACTION AND DISCHARGE.
This Indenture will be discharged and will cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of the Notes, as expressly provided for in this Indenture) as to all
outstanding Notes when (i) either (a) all the Notes theretofore authenticated
and delivered (except lost, stolen or destroyed Notes which have been replaced
or paid and Notes for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust) have been delivered to the Trustee
for cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under this Indenture by the Company;
and
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(iii) the Company has delivered to the Trustee an Officers' Certificate and
an opinion of counsel stating that all conditions precedent under this Indenture
relating to the satisfaction and discharge of this Indenture have been complied
with.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any U.S.
Legal Tender or U.S. Government Obligations in accordance with Article Eight by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's and each Guarantor's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Article Eight until such time as the Trustee or Paying
Agent is permitted to apply all such U.S. Legal Tender or U.S. Government
Obligations in accordance with Article Eight; PROVIDED that if the Company or
any Guarantor, as the case may be, has made any payment of interest on or
principal of any Notes because of the reinstatement of its obligations, the
Company or any Guarantor, as the case may be, shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the U.S. Legal Tender
or U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS.
The Company, when authorized by a Board Resolution, and the
Trustee, together, may amend or supplement this Indenture, the Notes or any
Guarantee without notice to or consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency; PROVIDED
that such amendment or supplement does not adversely affect the rights
of any Holder;
(2) to comply with Article Five;
(3) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
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(4) to comply with any requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the TIA;
or
(5) to make any change that would provide any additional
benefit or rights to the Holders or that does not adversely affect the
rights of any Holder;
PROVIDED that the Company has delivered to the Trustee an Opinion of Counsel and
an Officers' Certificate stating that such amendment or supplement complies with
the provisions of this Section 9.01.
SECTION 9.02. WITH CONSENT OF HOLDERS.
Subject to Section 6.07, the Company, when authorized by a
Board Resolution, and the Trustee, together, with the written consent of the
Holder or Holders of at least a majority in aggregate principal amount of the
outstanding Notes, may amend or supplement this Indenture, the Notes or any
Guarantee without notice to any other Holders. Subject to Section 6.07, the
Holder or Holders of a majority in aggregate principal amount of the outstanding
Notes may waive compliance by the Company with any provision of this Indenture
or the Notes without notice to any other Holder. No amendment, supplement or
waiver, including a waiver pursuant to Section 6.04, shall, without the consent
of each Holder of each Note affected thereby:
(1) change the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver of any provision of this
Indenture, the Notes or any Guarantee;
(2) reduce the rate of or change or have the effect of
changing the time for payment of interest, including defaulted
interest, on any Notes;
(3) reduce the principal amount of or change or have the
effect of changing the fixed maturity of the Notes, or change the date
on which any Notes may be subject to redemption or repurchase, or
reduce the redemption or repurchase price therefor;
(4) make any changes in provisions concerning waivers of
Defaults or Events of Default by Holders of the Notes or the rights of
Holders to recover the principal of, interest on, premium, if any, or
redemption payment with respect to, any Note;
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(5) make the principal of, or the interest on any Note payable
with anything or in any manner other than as provided for in this
Indenture and the Notes as in effect on the date hereof;
(6) make any change in provisions of this Indenture protecting
the right of each Holder to receive payment of principal of and
interest on such Note on or after the due date thereof or to bring suit
to enforce such payment, or permitting Holders of a majority in
principal amount of Notes to waive Defaults or Events of Default;
(7) amend, change or modify in any material respect the
obligation of the Company to make and consummate a Change of Control
Offer after the occurrence of an event which constitutes a Change of
Control or make and consummate a Net Proceeds Offer with respect to any
Asset Sale that has been consummated or modify any of the provisions or
definitions with respect thereto;
(8) modify or change any provision of this Indenture or the
related definitions affecting the subordination or ranking of the Notes
or any Guarantee in a manner which adversely affects the Holders; or
(9) release any Guarantor from any of its obligations under
its Guarantee or this Indenture otherwise than in accordance with the
terms of this Indenture.
It shall not be necessary for the consent of the Holders under
this Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
9.02 becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
SECTION 9.03. EFFECT ON SENIOR DEBT.
No amendment, supplement or waiver of this Indenture shall
adversely affect the rights of any holder of Senior Debt or Guarantor Senior
Debt, if any (including their rights under Article Ten or Article Eleven of this
Indenture), without the consent of such holder.
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SECTION 9.04. COMPLIANCE WITH TIA.
Every amendment, waiver or supplement of this Indenture or the
Notes shall comply with the TIA as then in effect.
SECTION 9.05. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. Subject to the following paragraph, any such Holder or subsequent Holder
may revoke the consent as to such Holder's Note or portion of such Note by
written notice to the Trustee or the Company received before the date on which
the Trustee receives an Officers' Certificate certifying that the Holders of the
requisite principal amount of Notes have consented (and not theretofore revoked
such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver, which record date shall be at least 30 days
prior to the first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
Persons who were Holders at such record date (or their duly designated proxies),
and only those Persons, shall be entitled to revoke any consent previously
given, whether or not such Persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
After an amendment, supplement or waiver becomes effective, it
shall bind every Holder, unless it makes a change described in any of clauses
(1) through (7) of Section 9.02, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Note who has consented to it and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note; PROVIDED that any such waiver shall not impair or
affect the right of any Holder to receive payment of principal of and interest
on a Note, on or after the respective due dates expressed in such Note, or to
bring suit for the enforcement of any such payment on or after such respective
dates without the consent of such Holder.
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SECTION 9.06. NOTATION ON OR EXCHANGE OF NOTES.
If an amendment, supplement or waiver changes the terms of a
Note, the Trustee may, at the written direction of the Company, require the
Holder of the Note to deliver it to the Trustee. The Trustee at the written
direction of the Company may place an appropriate notation on the Note about the
changed terms and return it to the Holder. Alternatively, if the Company or the
Trustee so determines, the Company in exchange for the Note shall issue and the
Trustee shall authenticate a new Note that reflects the changed terms. Any such
notation or exchange shall be made at the sole cost and expense of the Company.
Failure to make the appropriate notation or issue a new Note shall not affect
the validity and effect of such amendment, supplement or waiver.
SECTION 9.07. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; PROVIDED that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, if requested, an indemnity
reasonably satisfactory to it and to receive, and shall be fully protected in
relying upon, an Opinion of Counsel and an Officers' Certificate each stating
that the execution of any amendment, supplement or waiver authorized pursuant to
this Article Nine is authorized or permitted by this Indenture. Such Opinion of
Counsel shall not be an expense of the Trustee.
ARTICLE TEN
SUBORDINATION
SECTION 10.01. NOTES SUBORDINATED TO SENIOR DEBT OF THE
COMPANY.
The Company covenants and agrees and the Trustee and each
Holder of the Notes, by its acceptance thereof, likewise covenants and agrees,
that all Notes shall be issued subject to the provisions of this Article Ten;
and the Trustee and each person holding any Note, whether upon original issue or
upon transfer, assignment or exchange thereof, accepts and agrees that the
payment of all Obligations on the Notes by the Company shall, to the extent and
in the manner herein set forth, be subordinated and junior in right of payment
to the prior payment
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in full in cash or Cash Equivalents of all Obligations on the Senior Debt; that
the subordination is for the benefit of, and shall be enforceable directly by,
the holders of Senior Debt, and that each holder of Senior Debt whether now
outstanding or hereinafter created, incurred, assumed or guaranteed shall be
deemed to have acquired Senior Debt in reliance upon the covenants and
provisions contained in this Indenture and the Notes.
SECTION 10.02. NO PAYMENT ON NOTES IN CERTAIN CIRCUMSTANCES.
(a) If any default occurs and is continuing in the payment
when due, whether at maturity, upon any redemption, by declaration or otherwise,
of any principal of, interest on, unpaid drawings for letters of credit issued
in respect of, or regularly accruing fees with respect to, any Senior Debt (a
"PAYMENT DEFAULT"), no payment of any kind or character shall be made by or on
behalf of the Company or any other Person on its behalf with respect to any
Obligations on the Notes or to acquire any of the Notes for cash or property or
otherwise. In addition, if any event of default other than a Payment Default (a
"NON-PAYMENT DEFAULT") occurs and is continuing with respect to any Designated
Senior Debt, as such event of default is defined in the instrument creating or
evidencing such Designated Senior Debt, permitting the holders of such
Designated Senior Debt then outstanding to accelerate the maturity thereof and
if the Representative for the respective issue of Designated Senior Debt gives
written notice of the Non-payment Default to the Trustee (a "DEFAULT NOTICE"),
then, unless and until all Non-payment Defaults have been cured or waived or
have ceased to exist or the Trustee receives notice from the Representative for
the respective issue of Designated Senior Debt terminating the Blockage Period
(as defined below), during the 180 days after the delivery of such Default
Notice (the "BLOCKAGE PERIOD"), neither the Company nor any other Person on its
behalf shall (x) make any payment of any kind or character with respect to any
Obligations on the Notes or (y) acquire any of the Notes for cash or property or
otherwise. For all purposes of this Section 10.02(a), in no event will a
Blockage Period extend beyond 180 days from the date the payment on the Notes
was due and only one such Blockage Period may be commenced within any 360
consecutive days. No Non-payment Default which existed or was continuing on the
date of the commencement of any Blockage Period with respect to the Designated
Senior Debt shall be, or be made, the basis for commencement of a second
Blockage Period by the Representative of such Designated Senior Debt whether or
not within a period of 360 consecutive days, unless such Non-payment Default
shall have been cured or waived for a
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period of not less than 90 consecutive days (it being acknowledged that any
subsequent action or any breach of any financial covenants for a period
commencing after the date of commencement of such Blockage Period, that in
either case, would give rise to a Non-payment Default pursuant to any provisions
under which a Non-payment Default previously existed or was continuing shall
constitute a new Non-payment Default for this purpose).
(b) In the event that, notwithstanding the foregoing, any
payment shall be received by the Trustee or any Holder when such payment is
prohibited by Section 10.02(a), such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of Senior Debt
(PRO RATA to such holders on the basis of the respective amount of Senior Debt
held by such holders) or their respective Representatives, as their respective
interests may appear. The Trustee shall be entitled to rely on information
regarding amounts then due and owing on the Senior Debt, if any, received from
the holders of Senior Debt (or their Representatives) or, if such information is
not received from such holders or their Representatives, from the Company and
only amounts included in the information provided to the Trustee shall be paid
to the holders of Senior Debt.
Nothing contained in this Article Ten shall limit the right of
the Trustee or the Holders of Notes to take any action to accelerate the
maturity of the Notes pursuant to Section 6.02 or to pursue any rights or
remedies hereunder; PROVIDED that all Senior Debt thereafter due or declared to
be due shall first be paid in full in cash or Cash Equivalents before the
Holders are entitled to receive any payment of any kind or character with
respect to the Obligations on the Notes.
SECTION 10.03. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
(a) Upon any payment or distribution of assets or securities
of the Company of any kind or character, whether in cash, property or
securities, to creditors upon any total or partial liquidation, dissolution,
winding-up, reorganization, assignment for the benefit of creditors or
marshaling of assets of the Company, or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, whether voluntary or involuntary, all Obligations with respect to all
Senior Debt shall first be paid in full, in cash or Cash Equivalents, before any
payment or distribution of any kind or character is made on account of any
Obligations on the Notes, or for the acquisition of any of the Notes for cash
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or property or otherwise; and until all such Obligations with respect to all
Senior Debt are paid in full in cash or Cash Equivalents, any distribution to
which the Holders of the Notes would be entitled but for the subordination
provisions will be made to the holders of Senior Debt as their interests may
appear. Upon any such dissolution, winding-up, liquidation, reorganization,
bankruptcy, insolvency, receivership or similar proceeding or assignment for the
benefit of creditors or marshaling of assets, any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to which the Holders of the Notes or the Trustee under this
Indenture would be entitled, except for the provisions hereof, shall be paid by
the Company or by any receiver, trustee in bankruptcy, liquidating trustee,
agent or other person making such payment or distribution, or by the Holders of
the Notes or by the Trustee under this Indenture if received by them, directly
to the holders of Senior Debt (PRO RATA to such holders on the basis of the
respective amounts of Senior Debt held by such holders) or their respective
Representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Senior Debt may have been issued, as their respective
interests may appear, for application to the payment of Senior Debt remaining
unpaid until all such Senior Debt has been paid in full in cash or Cash
Equivalents after giving effect to any concurrent payment, distribution or
provision therefor to or for the holders of Senior Debt.
(b) To the extent any payment of Senior Debt (whether by or on
behalf of the Company, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to any receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then, if such payment is recovered by, or
paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar person, the Senior Debt or part thereof originally intended to
be satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred.
(c) In the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, shall be received by the Trustee or any
Holder when such payment or distribution is prohibited by Section 10.03(a), such
payment or distribution shall be held in trust for the benefit of, and shall be
paid over or delivered to, the holders of Senior Debt (PRO RATA to such holders
on the basis of the respective amount of Senior Debt held by such holders) or
their respective Representatives, or to the trustee or trustees under
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any indenture pursuant to which any of such Senior Debt may have been issued, as
their respective interests may appear, for application to the payment of Senior
Debt remaining unpaid until all such Senior Debt has been paid in full in cash
or Cash Equivalents, after giving effect to any concurrent payment, distribution
or provision therefor to or for the holders of such Senior Debt.
SECTION 10.04. PAYMENTS MAY BE PAID PRIOR TO DISSOLUTION.
Nothing contained in this Article Ten or elsewhere in this
Indenture shall prevent (i) the Company, except under the conditions described
in Sections 10.02 and 10.03, from making payments at any time for the purpose of
making payments of principal of and interest on the Notes, or from depositing
with the Trustee any moneys for such payments, or (ii) in the absence of actual
knowledge of the Trustee that a given payment would be prohibited by Section
10.02 or 10.03, the application by the Trustee of any moneys deposited with it
for the purpose of making such payments of principal of and interest on the
Notes to the Holders entitled thereto unless at least one Business Day prior to
the date upon which such payment would otherwise become due and payable, the
Trustee shall have received the written notice provided for in Section 10.02(a)
or in Section 10.07 (PROVIDED that, notwithstanding the foregoing, such
application shall otherwise be subject to the provisions of the first sentence
of Section 10.02(a) and Section 10.03). The Company shall give prompt written
notice to the Trustee of any dissolution, winding-up, liquidation or
reorganization of the Company.
SECTION 10.05. SUBROGATION.
Subject to the payment in full in cash or Cash Equivalents of
all Senior Debt, the Holders of the Notes shall be subrogated to the rights of
the holders of Senior Debt to receive payments or distributions of cash,
property or securities of the Company applicable to the Senior Debt until the
Notes shall be paid in full; and, for the purposes of such subrogation, no such
payments or distributions to the holders of the Senior Debt by or on behalf of
the Company or by or on behalf of the Holders by virtue of this Article Ten
which otherwise would have been made to the Holders shall, as between the
Company and the Holders of the Notes, be deemed to be a payment by the Company
to or on account of the Senior Debt, it being understood that the provisions of
this Article Ten are and are intended solely for the purpose of defining the
relative rights
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of the Holders of the Notes, on the one hand, and the holders of the Senior
Debt, on the other hand.
If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article Ten shall
have been applied, pursuant to the provisions of this Article Ten, to the
payment of amounts payable under the Senior Debt, then the Holders shall be
entitled to receive from the holders of such Senior Debt any payments or
distributions received by such holders of Senior Debt in excess of the amount
sufficient to pay all amounts payable under or in respect of the Senior Debt in
full in cash or Cash Equivalents.
SECTION 10.06. Obligations of the Company UNCONDITIONAL.
Nothing contained in this Article Ten or elsewhere in this
Indenture or in the Notes is intended to or shall impair, as among the Company,
its creditors other than the holders of Senior Debt, and the Holders of the
Notes, the obligation of the Company, which is absolute and unconditional, to
pay to the Holders of the Notes the principal of and any interest on the Notes
as and when the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of the Holders of
the Notes and creditors of the Company other than the holders of the Senior
Debt, nor shall anything herein or therein prevent the Holder of any Note or the
Trustee on its behalf from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
in respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
SECTION 10.07. NOTICE TO TRUSTEE.
The Company shall give prompt written notice to the Trustee of
any fact known to the Company which would prohibit the making of any payment to
or by the Trustee in respect of the Notes pursuant to the provisions of this
Article Ten. Regardless of anything to the contrary contained in this Article
Ten or elsewhere in this Indenture, the Trustee shall not be charged with
knowledge of the existence of any default or event of default with respect to
any Senior Debt or of any other facts which would prohibit the making of any
payment to or by the Trustee unless and until the Trustee shall have received
notice in writing from the Company, or from a holder of Senior Debt or a
Representative therefor, and, prior to the receipt of any such written notice,
the Trustee shall be entitled to assume
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(in the absence of actual knowledge to the contrary) that no such facts exist.
In the event that the Trustee determines in good faith that
any evidence is required with respect to the right of any person as a holder of
Senior Debt to participate in any payment or distribution pursuant to this
Article Ten, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amounts of Senior Debt held by
such person, the extent to which such person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
person under this Article Ten and, if such evidence is not furnished, the
Trustee may defer any payment to such person pending judicial determination as
to the right of such person to receive such payment.
SECTION 10.08. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF
LIQUIDATING AGENT.
Upon any payment or distribution of assets of the Company
referred to in this Article Ten, the Trustee, subject to the provisions of
Article Seven hereof, and the Holders of the Notes shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction in which
bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings
are pending, or upon certificate of the receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making such payment or distribution,
delivered to the Trustee or the Holders of the Notes, for the purpose of
ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Debt and other Indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article Ten.
SECTION 10.09. TRUSTEE'S RELATION TO SENIOR DEBT.
The Trustee and any agent of the Company or the Trustee shall
be entitled to all the rights set forth in this Article Ten with respect to any
Senior Debt which may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Senior Debt and nothing in
this Indenture shall deprive the Trustee or any such agent of any of its rights
as such holder.
With respect to the holders of Senior Debt, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Ten, and no implied covenants or
obligations with respect
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to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders or the Company
or any other person money or assets to which any holders of Senior Debt shall be
entitled by virtue of this Article Ten, except if such payment is made as a
result of willful misconduct or gross negligence of the Trustee.
Whenever a distribution is to be made or a notice given to
holders or owners of Senior Debt, the distribution may be made and the notice
given to their Representatives, if any.
SECTION 10.10. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR
OMISSIONS OF THE COMPANY OR HOLDERS OF SENIOR
DEBT.
No right of any present or future holders of any Senior Debt
to enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the Trustee, without incurring
responsibility to the Trustee or the Holders of the Notes and without impairing
or releasing the subordination provided in this Article Ten or the obligations
hereunder of the Holders of the Notes to the holders of the Senior Debt, do any
one or more of the following: (i) change the manner, place or terms of payment
or extend the time of payment of, or renew or alter, Senior Debt, or otherwise
amend or supplement in any manner Senior Debt, or any instrument evidencing the
same or any agreement under which Senior Debt is outstanding; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Debt; (iii) release any Person liable in any manner
for the payment or collection of Senior Debt; and (iv) exercise or refrain from
exercising any rights against the Company and any other Person.
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SECTION 10.11. NOTEHOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE
SUBORDINATION OF Notes.
Each Holder of Notes by its acceptance of them authorizes and
expressly directs the Trustee on its behalf to take such action as may be
necessary or appropriate to effectuate, as between the holders of Senior Debt
and the Holders of Notes, the subordination provided in this Article Ten, and
appoints the Trustee its attorney-in-fact for such purposes, including, in the
event of any dissolution, winding-up, liquidation or reorganization of the
Company (whether in bankruptcy, insolvency, receivership, reorganization or
similar proceedings or upon an assignment for the benefit of creditors or
otherwise) tending towards liquidation of the business and assets of the
Company, and the filing of a claim for the unpaid balance of its or his Notes
and accrued interest in the form required in those proceedings.
If the Trustee does not file a proper claim or proof of debt
in the form required in such proceeding prior to 30 days before the expiration
of the time to file such claim or claims, then the holders of the Senior Debt or
their Representative are or is hereby authorized to have the right to file and
are or is hereby authorized to file an appropriate claim for and on behalf of
the Holders of said Notes. Nothing herein contained shall be deemed to authorize
the Trustee or the holders of Senior Debt or their Representative to authorize
or consent to or accept or adopt on behalf of any Holders any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee or the holders of
Senior Debt or their Representative to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 10.12. THIS ARTICLE TEN NOT TO PREVENT EVENTS OF
DEFAULT.
The failure to make a payment on account of principal of or
interest on the Notes by reason of any provision of this Article Ten will not be
construed as preventing the occurrence of a Default or an Event of Default under
Section 6.01.
Nothing contained in this Article Ten shall limit the right of
the Trustee or the Holders of Notes to take any action to accelerate the
maturity of the Notes pursuant to Article Six or to pursue any rights or
remedies hereunder or under applicable law, subject to the rights, if any, under
this Article Ten of the holders, from time to time, of Senior Debt.
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SECTION 10.13. TRUSTEE'S COMPENSATION NOT PREJUDICED.
Nothing in this Article Ten will apply to amounts due to the
Trustee, in its capacity as such, pursuant to other sections in this Indenture.
ARTICLE ELEVEN
GUARANTEES
SECTION 11.01. UNCONDITIONAL GUARANTEE.
Each Guarantor hereby unconditionally, jointly and severally,
guarantees (such guarantee to be referred to herein as the "GUARANTEE") to each
Holder of a Note authenticated and delivered by the Trustee and to the Trustee
and its successors and assigns, the Notes or the obligations of the Company
hereunder or thereunder, that: (i) the principal of and interest on the Notes
will be promptly paid in full when due, subject to any applicable grace period,
whether at maturity, by acceleration or otherwise and interest on the overdue
principal, if any, and interest on any interest, to the extent lawful, of the
Notes and all other obligations of the Company to the Holders or the Trustee
hereunder or thereunder will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; and (ii) in case of any extension
of time of payment or renewal of any Notes or of any such other obligations, the
same will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, subject to any applicable grace period,
whether at stated maturity, by acceleration or otherwise, subject, however, in
the case of clauses (i) and (ii) above, to the limitations set forth in Section
11.05. Each Guarantor hereby agrees that its Obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstances which might otherwise constitute
a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that this Guarantee will not be discharged except by complete
performance of the obligations contained in the Notes, this Indenture and in
this Guarantee. If any Holder or the
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Trustee is required by any court or otherwise to return to the Company, any
Guarantor, or any custodian, trustee, liquidator or other similar official
acting in relation to the Company or any Guarantor, any amount paid by the
Company or any Guarantor to the Trustee or such Holder, this Guarantee, to the
extent theretofore discharged, shall be reinstated in full force and effect as
to such amount only. Each Guarantor further agrees that, as between each
Guarantor, on the one hand, and the Holders and the Trustee, on the other hand,
(x) the maturity of the Obligations guaranteed hereby may be accelerated as
provided in Article Six for the purposes of this Guarantee, notwithstanding any
stay, injunction or other prohibition preventing such acceleration in respect of
the Obligations guaranteed hereby, and (y) in the event of any acceleration of
such obligations as provided in Article Six, such Obligations (whether or not
due and payable) shall forthwith become due and payable by each Guarantor for
the purpose of this Guarantee.
SECTION 11.02. SUBORDINATION OF GUARANTEE.
Each Guarantor agrees, and each Holder by accepting a
Guarantee agrees, that all Obligations owed under and in respect of such
Guarantees are subordinated in right of payment, to the extent and in the manner
provided in this Article Eleven, to the prior indefeasible payment in full in
cash or Cash Equivalents, of all Guarantor Senior Debt of such Guarantor, and
that the subordination of the Guarantees pursuant to this Article Eleven is for
the benefit of, and shall be enforceable directly by, all holders of all
Guarantor Senior Debt of such Guarantor, whether outstanding on the Issue Date
or issued thereafter, and that each holder of Guarantor Senior Debt shall be
deemed to have acquired Guarantor Senior Debt in reliance upon the covenants and
provisions contained in this Indenture and the Notes.
SECTION 11.03. SEVERABILITY.
In case any provision of this Guarantee shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.04. RELEASE OF A GUARANTOR.
(a) If no Default exists or would exist under this Indenture,
upon the sale or disposition of all of the Capital Stock, or all or
substantially all of the assets, of a Guarantor by the Company or one or more
Restricted Subsidiaries of
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the Company in a transaction constituting an Asset Sale the Net Cash Proceeds of
which are applied in accordance with Section 4.16 and the Guarantor is released
from all of its obligations under the Credit Agreement, or upon the
consolidation or merger of a Guarantor with or into any Person in compliance
with Article Five (in each case, other than to the Company or a Wholly Owned
Restricted Subsidiary), or if any Guarantor is dissolved or liquidated in
accordance with this Indenture, or if a Guarantor is designated an Unrestricted
Subsidiary, such Guarantor and each Subsidiary of such Guarantor that is also a
Guarantor shall be automatically and unconditionally released from all
obligations under this Article Eleven without any further action required on the
part of the Trustee or any Holder; PROVIDED, however, that each such Guarantor
is sold or disposed of in accordance with this Indenture. Any Guarantor not so
released or the entity surviving such Guarantor, as applicable, shall remain or
be liable under its Guarantee as provided in this Article Eleven.
(b) The Trustee shall deliver an appropriate instrument
evidencing the release of a Guarantor upon receipt of a request by the Company
or such Guarantor accompanied by an Officers' Certificate and an Opinion of
Counsel certifying as to the compliance with this Section 11.04, PROVIDED the
legal counsel delivering such Opinion of Counsel may rely as to matters of fact
on one or more Officers' Certificates.
The Trustee shall execute any documents reasonably requested
by the Company or a Guarantor in order to evidence the release of such Guarantor
from its obligations under its Guarantee endorsed on the Notes and under this
Article Eleven.
SECTION 11.05. LIMITATION OF GUARANTOR'S LIABILITY.
Each Guarantor and by its acceptance hereof each Holder hereby
confirms that it is the intention of all such parties that the guarantee by such
Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or
conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To
effectuate the foregoing intention, the Holders and such Guarantor hereby
irrevocably agree that the Obligations of such Guarantor under its Guarantee
shall be limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Guarantor and after giving effect to
any collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to Section 11.07, result in the Obligations of such Guarantor
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under its Guarantee not constituting such fraudulent transfer or conveyance.
SECTION 11.06. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN
TERMS.
(a) Nothing contained in this Indenture or in any of the Notes
shall prevent any consolidation or merger of a Guarantor with or into the
Company or another Guarantor that is a Wholly Owned Restricted Subsidiary of the
Company or shall prevent any sale or conveyance of the assets of a Guarantor to
the Company or another Guarantor that is a Wholly Owned Restricted Subsidiary of
the Company. Upon any such consolidation, merger, sale or conveyance, the
Guarantee given by such Guarantor shall no longer have any force or effect.
(b) Except as set forth in Article Four hereof, nothing
contained in this Indenture or in any of the Notes shall prevent any
consolidation or merger of a Guarantor with or into a corporation or
corporations other than the Company or another Guarantor (whether or not
affiliated with the Guarantor), or successive consolidations or mergers in which
a Guarantor or its successor or successors shall be a party or parties, or shall
prevent any sale or conveyance of all or substantially all of the assets of a
Guarantor to a corporation other than the Company or another Guarantor (whether
or not affiliated with the Guarantor); PROVIDED, HOWEVER, that, subject to
Sections 11.04 and 11.06(a), either (x) the transaction is an Asset Sale
consummated in accordance with Section 4.16, or (y) (i) the entity formed by or
surviving any such consolidation or merger (if other than such Guarantor) or to
which such sale, lease, conveyance or other disposition shall have been made is
a corporation organized and existing under the laws of the United States, any
State thereof or the District of Columbia, (ii) immediately after such
transaction, and giving effect thereto, no Default or Event of Default shall
have occurred as a result of such transaction and be continuing and (iii) each
Guarantor hereby covenants and agrees that, upon any such consolidation, merger,
sale or conveyance, the Guarantee of such Guarantor set forth in this Article
Eleven, and the due and punctual performance and observance of all of the
covenants and conditions of this Indenture to be performed by such Guarantor,
shall be expressly assumed (in the event that the Guarantor is not the surviving
corporation in such transaction), by supplemental indenture satisfactory in form
to the Trustee, executed and delivered to the Trustee, together with an
Officers' Certificate of the Company and an Opinion of Counsel stating that the
transaction and such supplemental indenture comply with this Indenture, by the
corporation formed by such consolidation,
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or into which the Guarantor shall have merged, or by the corporation that shall
have acquired such property. In the case of any such consolidation, merger, sale
or conveyance that is not an Asset Sale consummated in accordance with Section
4.16, upon the assumption by the successor corporation, by supplemental
indenture executed and delivered to the Trustee and satisfactory in form to the
Trustee of the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Guarantor, such successor
corporation shall succeed to and be substituted for the Guarantor with the same
effect as if it had been named herein as a Guarantor.
SECTION 11.07. CONTRIBUTION.
In order to provide for just and equitable contribution among
the Guarantors, the Guarantors agree, INTER SE, that in the event any payment or
distribution is made by any Guarantor (a "FUNDING Guarantor") under this
Guarantee, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a PRO RATA amount based on the Adjusted Net Assets of each
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in discharging the Company's
obligations with respect to the Notes or any other Guarantor's Obligations with
respect to this Guarantee.
SECTION 11.08. WAIVER OF SUBROGATION.
Each Guarantor hereby irrevocably waives any claim or other
rights which it may now or hereafter acquire against the Company that arise from
the existence, payment, performance or enforcement of such Guarantor's
Obligations under this Guarantee and this Indenture, including, without
limitation, any right of subrogation, reimbursement, exoneration,
indemnification, and any right to participate in any claim or remedy of any
Holder of Notes against the Company, whether or not such claim, remedy or right
arises in equity, or under contract, statute or common law, including, without
limitation, the right to take or receive from the Company, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim or other rights. If any amount
shall be paid to any Guarantor in violation of the preceding sentence and the
Notes shall not have been paid in full, such amount shall have been deemed to
have been paid to such Guarantor for the benefit of, and held in trust for the
benefit of, the Holders of the Notes, and shall forthwith be paid to the Trustee
for the benefit of such Holders to be credited and applied upon the Notes,
whether matured or unmatured,
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in accordance with the terms of this Indenture. Each Guarantor acknowledges that
it will receive direct and indirect benefits from the financing arrangements
contemplated by this Indenture and that the waiver set forth in this Section
11.08 is knowingly made in contemplation of such benefits.
SECTION 11.09. EXECUTION OF GUARANTEE.
To evidence their Guarantee to the Noteholders specified in
Section 11.01, the Guarantors hereby agree to execute the Guarantee in
substantially the form of Exhibit A recited to be endorsed on each Note ordered
to be authenticated and delivered by the Trustee. Each Guarantor hereby agrees
that its Guarantee set forth in Section 11.01 shall remain in full force and
effect notwithstanding any failure to endorse on each Note a notation of such
Guarantee. Each such Guarantee shall be signed on behalf of each Guarantor by
two Officers, or an Officer and an Assistant Secretary or one Officer shall sign
and one Officer or an Assistant Secretary (each of whom shall, in each case,
have been duly authorized by all requisite corporate actions) shall attest to
such Guarantee prior to the authentication of the Note on which it is endorsed,
and the delivery of such Note by the Trustee, after the authentication thereof
hereunder, shall constitute due delivery of such Guarantee on behalf of such
Guarantor. Such signatures upon the Guarantee may be by manual or facsimile
signature of such officers and may be imprinted or otherwise reproduced on the
Guarantee, and in case any such officer who shall have signed the Guarantee
shall cease to be such officer before the Note on which such Guarantee is
endorsed shall have been authenticated and delivered by the Trustee or disposed
of by the Company, such Note nevertheless may be authenticated and delivered or
disposed of as though the person who signed the Guarantee had not ceased to be
such officer of the Guarantor.
SECTION 11.10. NO PAYMENT ON GUARANTEES IN CERTAIN
CIRCUMSTANCES.
(a) If any default occurs and is continuing in the payment
when due, whether at maturity, upon any redemption, by declaration or otherwise,
of any principal of, interest on, unpaid drawings for letters of credit issued
in respect of, or regularly accruing fees with respect to, any Guarantor Senior
Debt or Senior Debt guaranteed by any Guarantor (a "GUARANTOR PAYMENT DEFAULT"),
no payment of any kind or character shall be made by or on behalf of the
Guarantor or any other Person on its behalf with respect to any Obligations on
the Notes or any of the obligations of such Guarantor on its Guarantee or to
acquire any of the Notes for cash or property or otherwise. In
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addition, if any event of default other than a Guarantor Payment Default (a
"GUARANTOR NON-PAYMENT DEFAULT") occurs and is continuing with respect to any
Designated Senior Debt guaranteed by a Guarantor (which guarantee constitutes
Guarantor Senior Debt of such Guarantor), as such event of default is defined in
the instrument creating or evidencing such Designated Senior Debt, permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the Guarantor Non-payment Default
to the Trustee (a "GUARANTOR DEFAULT NOTICE"), then, unless and until all
Guarantor Non-payment Defaults have been cured or waived or have ceased to exist
or the Trustee receives notice from the Representative for the respective issue
of Designated Senior Debt terminating the Guarantor Blockage Period (as defined
below), during the 180 days after the delivery of such Guarantor Default Notice
(the "GUARANTOR BLOCKAGE PERIOD"), neither the Guarantor nor any other Person on
its behalf shall (x) make any payment of any kind or character with respect to
any Obligations on the Notes or under its Guarantee or (y) acquire any of the
Notes for cash or property or otherwise. For all purposes of this Section
11.10(a), in no event will a Guarantor Blockage Period extend beyond 180 days
from the date the payment on the Notes was due and only one such Guarantor
Blockage Period may be commenced within any 360 consecutive days. No Guarantor
Non-payment Default which existed or was continuing on the date of the
commencement of any Guarantor Blockage Period with respect to the Designated
Senior Debt shall be, or be made, the basis for commencement of a second
Guarantor Blockage Period by the Representative of such Designated Senior Debt
whether or not within a period of 360 consecutive days, unless such Non-payment
Default shall have been cured or waived for a period of not less than 90
consecutive days (it being acknowledged that any subsequent action or any breach
of any financial covenants for a period commencing after the date of
commencement of such Guarantor Blockage Period that, in either case, would give
rise to a Guarantor Non-payment Default pursuant to any provisions under which a
Guarantor Non-payment Default previously existed or was continuing shall
constitute a new Guarantor Non-payment Default for this purpose).
(b) In the event that, notwithstanding the foregoing, any
payment shall be received by the Trustee or any Holder when such payment is
prohibited by Section 11.10(a), such payment shall be held in trust for the
benefit of, shall be paid over or delivered to, the holders of Guarantor Senior
Debt (PRO RATA to such holders on the basis of the respective amount of
Guarantor Senior Debt held by such holders) or their respective Representatives,
as their respective interests may appear. The
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Trustee shall be entitled to rely on information regarding amounts then due and
owing on the Guarantor Senior Debt, if any, received from the holders of
Guarantor Senior Debt (or their Representatives) or, if such information is not
received from such holders or their Representatives, from such Guarantor and
only amounts included in the information provided to the Trustee shall be paid
to the holders of Guarantor Senior Debt.
Nothing contained in this Article Eleven shall limit the right
of the Trustee or the Holders of Notes to take any action to accelerate the
maturity of the Notes pursuant to Section 6.02 or to pursue any rights or
remedies hereunder; provided that all Guarantor Senior Debt thereafter due or
declared to be due shall first be paid in full in cash or Cash Equivalents
before the Holders are entitled to receive any payment of any kind or character
with respect to the Obligations on the Notes or on account of any Guarantor's
Guarantee.
SECTION 11.11. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
(a) Upon any payment or distribution of assets of any
Guarantor of any kind or character, whether in cash, property or securities, to
creditors upon any total or partial liquidation, dissolution, winding-up,
reorganization, assignment for the benefit of creditors or marshaling of assets
of such Guarantor, or in a bankruptcy, reorganization, insolvency, receivership
or similar proceeding relating to any Guarantor or its property, whether
voluntary or involuntary, all Obligations with respect to all Guarantor Senior
Debt shall first be paid in full, in cash or Cash Equivalents, before any
payment or distribution of any kind or character is made on account of any
Obligations on the Notes or any of the Obligations of such Guarantor on its
Guarantee, or for the acquisition of any of the Notes for cash or property or
otherwise; and until all such Obligations with respect to all Guarantor Senior
Debt are paid in full in cash or Cash Equivalents, any distribution to which the
Holders of the Notes would be entitled but for the subordination provisions will
be made to the holders of Guarantor Senior Debt as their interests may appear.
Upon any such dissolution, winding-up, liquidation, reorganization, bankruptcy,
insolvency, receivership or similar proceeding or assignment for the benefit of
creditors or marshaling of assets, any payment or distribution of assets of any
Guarantor of any kind or character, whether in cash, property or securities, to
which the Holders of the Notes or the Trustee under this Indenture would be
entitled, except for the provisions hereof, shall be paid by such Guarantor or
by any receiver, trustee in bankruptcy, liquidating trustee, agent or other
person making such payment or
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distribution, or by the Holders of the Notes or by the Trustee under this
Indenture if received by them, directly to the holders of Guarantor Senior Debt
(PRO RATA to such holders on the basis of the respective amounts of Guarantor
Senior Debt held by such holders) or their respective Representatives, or to the
trustee or trustees under any indenture pursuant to which any of such Guarantor
Senior Debt may have been issued, as their respective interests may appear, for
application to the payment of Guarantor Senior Debt remaining unpaid until all
such Guarantor Senior Debt has been paid in full in cash or Cash Equivalents
after giving effect to any concurrent payment, distribution or provision
therefor to or for the holders of Guarantor Senior Debt.
(b) To the extent any payment of Guarantor Senior Debt
(whether by or on behalf of such Guarantor, as proceeds of security or
enforcement of any right of setoff or otherwise) is declared to be fraudulent or
preferential, set aside or required to be paid to any receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar person under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then, if such payment is recovered by, or paid over to, such receiver, trustee
in bankruptcy, liquidating trustee, agent or other similar person, the Guarantor
Senior Debt or part thereof originally intended to be satisfied shall be deemed
to be reinstated and outstanding as if such payment had not occurred.
(c) In the event that, notwithstanding the foregoing, any
payment or distribution of assets of a Guarantor of any kind or character,
whether in cash, property or securities, shall be received by the Trustee or any
Holder when such payment or distribution is prohibited by Section 11.11(a), such
payment or distribution shall be held in trust for the benefit of, and shall be
paid over or delivered to, the holders of Guarantor Senior Debt (PRO RATA to
such holders on the basis of the respective amount of Guarantor Senior Debt held
by such holders) or their respective Representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Guarantor Senior Debt
may have been issued, as their respective interests may appear, for application
to the payment of Guarantor Senior Debt remaining unpaid until all such
Guarantor Senior Debt has been paid in full in cash or Cash Equivalents, after
giving effect to any concurrent payment, distribution or provision therefor to
or for the holders of such Guarantor Senior Debt.
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SECTION 11.12. PAYMENTS MAY BE PAID PRIOR TO DISSOLUTION.
Nothing contained in this Article Eleven or elsewhere in this
Indenture shall prevent (i) any Guarantor, except under the conditions described
in Sections 10.02, 10.03, 11.10 and 11.11, from making payments at any time for
the purpose of making payments of principal of and interest on the Notes, or
from depositing with the Trustee any moneys for such payments, or (ii) in the
absence of actual knowledge by the Trustee that a given payment would be
prohibited by Section 10.02, 10.03, 11.10 or 11.11, the application by the
Trustee of any moneys deposited with it for the purpose of making such payments
of principal of and interest on the Notes to the Holders entitled thereto unless
at least one Business Day prior to the date upon which such payment would
otherwise become due and payable, the Trustee shall have received the written
notice provided for in Section 10.02(a), 10.07, 11.10(a) or in Section 11.15
(provided that, notwithstanding the foregoing, such application shall otherwise
be subject to the provisions of the first sentence of Section 10.02(a), 11.10(a)
and Section 11.11). Each Guarantor shall give prompt written notice to the
Trustee of any dissolution, winding-up, liquidation or reorganization of any
Guarantor.
SECTION 11.13. SUBROGATION.
Subject to the payment in full in cash or Cash Equivalents of
all Guarantor Senior Debt, the Holders shall be subrogated to the rights of the
holders of Guarantor Senior Debt to receive payments or distributions of cash,
property or securities of such Guarantor applicable to the Guarantor Senior Debt
of such Guarantor until the Notes shall be paid in full; and, for the purposes
of such subrogation, no such payments or distributions to the holders of the
Guarantor Senior Debt by or on behalf of such Guarantor or by or on behalf of
the Holders by virtue of this Article Eleven which otherwise would have been
made to the Holders shall, as between the Guarantors and the Holders of the
Notes, be deemed to be a payment by such Guarantor to or on account of the
Guarantor Senior Debt, it being understood that the provisions of this Article
Eleven are and are intended solely for the purpose of defining the relative
rights of the Holders of the Notes, on the one hand, and the holders of the
Guarantor Senior Debt, on the other hand.
If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article Eleven shall
have been applied, pursuant to the provisions of this Article Eleven, to the
payment of amounts
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payable under the Guarantor Senior Debt, then the Holders shall be entitled to
receive from the holders of such Guarantor Senior Debt any payments or
distributions received by such holders of Guarantor Senior Debt in excess of the
amount sufficient to pay all amounts payable under or in respect of the
Guarantor Senior Debt in full in cash or Cash Equivalents.
SECTION 11.14. OBLIGATIONS OF EACH GUARANTOR UNCONDITIONAL.
Nothing contained in this Article Eleven or elsewhere in this
Indenture or in the Notes or the Guarantees is intended to or shall impair, as
among any Guarantor, its creditors other than the holders of Guarantor Senior
Debt, and the Holders of the Notes, the obligation of such Guarantor, which is
absolute and unconditional, to pay to the Holders of the Notes the principal of
and any interest on the Notes as and when the same shall become due and payable
in accordance with the terms of the Guarantees, or is intended to or shall
affect the relative rights of the Holders of the Notes and creditors of any
Guarantor other than the holders of Guarantor Senior Debt, nor shall anything
herein or therein prevent the Holder of any Note or the Trustee on its behalf
from exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, in respect of cash,
property or securities of any Guarantor received upon the exercise of any such
remedy.
SECTION 11.15. NOTICE TO TRUSTEE.
The Company or any Guarantor shall give prompt written notice
to the Trustee of any fact known to the Company or any such Guarantor which
would prohibit the making of any payment to or by the Trustee in respect of the
Guarantees pursuant to the provisions of this Article Eleven. Regardless of
anything to the contrary contained in this Article Eleven or elsewhere in this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any default or event of default with respect to any Guarantor Senior Debt or of
any other facts which would prohibit the making of any payment to or by the
Trustee unless and until the Trustee shall have received notice in writing from
the Company or a Guarantor, or from a holder of Guarantor Senior Debt or a
Representative therefor, and, prior to the receipt of any such written notice,
the Trustee shall be entitled to assume (in the absence of actual knowledge to
the contrary) that no such facts exist.
In the event that the Trustee determines in good faith that
any evidence is required with respect to the right
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of any person as a holder of Guarantor Senior Debt to participate in any payment
or distribution pursuant to this Article Eleven, the Trustee may request such
person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amounts of Guarantor Senior Debt held by such person, the extent to which
such person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such person under this Article Eleven,
and if such evidence is not furnished the Trustee may defer any payment to such
person pending judicial determination as to the right of such person to receive
such payment.
SECTION 11.16. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF
LIQUIDATING AGENT.
Upon any payment or distribution of assets of any Guarantor
referred to in this Article Eleven, the Trustee, subject to the provisions of
Article Seven hereof, and the Holders of the Notes shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction in which
bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings
are pending, or upon certificate of the receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making such payment or distribution,
delivered to the Trustee or the holders of the Notes, for the purpose of
ascertaining the persons entitled to participate in such distribution, the
holders of the Guarantor Senior Debt and other Indebtedness of such Guarantor,
the amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article Eleven.
SECTION 11.17. TRUSTEE'S RELATION TO GUARANTOR SENIOR DEBT.
The Trustee and any agent of any Guarantor or the Trustee
shall be entitled to all the rights set forth in this Article Eleven with
respect to any Guarantor Senior Debt which may at any time be held by it in its
individual or any other capacity to the same extent as any other holder of
Guarantor Senior Debt and nothing in this Indenture shall deprive the Trustee or
any such agent of any of its rights as such holder.
With respect to the holders of Guarantor Senior Debt, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Eleven, and no implied
covenants or obligations with respect to the holders of Guarantor Senior Debt
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of
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Guarantor Senior Debt and shall not be liable to any such holders if the Trustee
shall pay over or distribute to or on behalf of Holders or any such Guarantor or
any other person money or assets to which any holders of Guarantor Senior Debt
shall be entitled by virtue of this Article, except if such payment is made as a
result of willful misconduct or gross negligence of the Trustee.
Whenever a distribution is to be made or a notice given to
holders or owners of Guarantor Senior Debt, the distribution may be made and the
notice given to their Representatives, if any.
SECTION 11.18. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR
OMISSIONS OF A GUARANTOR OR HOLDERS OF
GUARANTOR SENIOR DEBT.
No right of any present or future holders of any Guarantor
Senior Debt to enforce subordination as provided herein shall at any time in any
way be prejudiced or impaired by any act or failure to act on the part of any
Guarantor or by any act or failure to act, in good faith, by any such holder, or
by any noncompliance by such Guarantor with the terms of this Indenture,
regardless of any knowledge thereof which any such holder may have or otherwise
be charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Guarantor Senior Debt may, at any time and from time
to time, without the consent of or notice to the Trustee, without incurring
responsibility to the Trustee or the Holders and without impairing or releasing
the subordination provided in this Article Eleven or the obligations hereunder
of the Holders to the holders of the Guarantor Senior Debt, do any one or more
of the following: (i) change the manner, place or terms of payment or extend the
time of payment of, or renew or alter, Guarantor Senior Debt, or otherwise amend
or supplement in any manner Guarantor Senior Debt, or any instrument evidencing
the same or any agreement under which Guarantor Senior Debt is outstanding; (ii)
sell, exchange, release or otherwise deal with any property pledged, mortgaged
or otherwise securing Guarantor Senior Debt; (iii) release any person liable in
any manner for the payment or collection of Guarantor Senior Debt; and (iv)
exercise or refrain from exercising any rights against such Guarantor and any
other person.
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SECTION 11.19. NOTEHOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE
SUBORDINATION OF GUARANTEES.
Each Holder by its acceptance of them authorizes and expressly
directs the Trustee on its behalf to take such action as may be necessary or
appropriate to effectuate, as between the holders of Guarantor Senior Debt and
the Holders, the subordination provided in this Article Eleven, and appoints the
Trustee its attorney-in-fact for such purposes, including, in the event of any
dissolution, winding-up, liquidation or reorganization of any Guarantor (whether
in bankruptcy, insolvency, receivership, reorganization or similar proceedings
or upon an assignment for the benefit of creditors or otherwise) tending towards
liquidation of the business as assets of such Guarantor, the filing of a claim
for the unpaid balance of its or his Notes and accrued interest in the form
required in those proceedings.
If the Trustee does not file a proper claim or proof of debt
in the form required in such proceeding prior to 30 days before the expiration
of the time to file such claim or claims, then the holders of the Guarantor
Senior Debt or their Representative are or is hereby authorized to have the
right to file and are or is hereby authorized to file an appropriate claim for
and on behalf of the Holders of said Notes. Nothing herein contained shall be
deemed to authorize the Trustee or the holders of Guarantor Senior Debt or their
Representative to authorize or consent to or accept or adopt on behalf of any
Holders any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof, or to authorize the
Trustee or the holders of Guarantor Senior Debt or their Representative to vote
in respect of the claim of any Holder in any such proceeding.
SECTION 11.20. THIS ARTICLE ELEVEN NOT TO PREVENT EVENTS OF
DEFAULT.
The failure to make a payment on account of principal of or
interest on the Notes by reason of any provision of this Article Eleven will not
be construed as preventing the occurrence of an Event of Default.
SECTION 11.21. TRUSTEE'S COMPENSATION NOT PREJUDICED.
Nothing in this Article Eleven will apply to amounts due to
the Trustee, in its capacity as such, pursuant to other sections in this
Indenture.
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ARTICLE TWELVE
MISCELLANEOUS
SECTION 12.01. TIA CONTROLS.
If any provision of this Indenture limits, qualifies, or
conflicts with another provision which is required to be included in this
Indenture by the TIA, the required provision shall control.
SECTION 12.02. NOTICES.
Any notices or other communications required or permitted
hereunder shall be in writing, and shall be sufficiently given if made by hand
delivery, by private courier service guaranteeing next day delivery, by telex,
by telecopier or registered or certified mail, postage prepaid, return receipt
requested, addressed as follows:
if to the Company or the Guarantors, if any:
Neff Corp.
3750 N.W. 87th Avenue
Miami, Florida 33178
Attention: Kevin P. Fitzgerald
Telecopy: (305) 513-4255
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue NW
Suite 800
Washington, D.C. 20004
Attention: Stephen I. Glover
Telecopy: (202) 639-7003
if to the Trustee:
State Street Bank and Trust Company
Goodwin Square
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Attention: Philip G. Kane, Jr.
Telecopy: (860) 244-1897
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with a copy to:
State Street Bank and Trust Company
61 Broadway, 15th Floor
New York, New York 10006
Attention: Corporate Trust Administration
Telecopy: (212) 612-3201
Each of the Company, the Guarantors, if any, and the Trustee
by written notice to each other such Person may designate additional or
different addresses for notices to such Person. Any notice or communication to
the Company, the Guarantors, if any, or the Trustee shall be deemed to have been
given or made as of the date so delivered if personally delivered or delivered
by private courier service guaranteeing next day delivery; when answered back,
if telexed; when receipt is acknowledged, if faxed; and five (5) calendar days
after mailing if sent by registered or certified mail, postage prepaid (except
that a notice of change of address shall not be deemed to have been given until
actually received by the addressee).
Any notice or communication mailed to a Holder shall be mailed
to such Holder by first class mail or other equivalent means at such Holder's
address as it appears on the registration books of the Registrar and shall be
sufficiently given to such Holder if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
SECTION 12.03. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Holders may communicate pursuant to TIA /section/ 312(b) with
other Holders with respect to their rights under this Indenture or the Notes.
The Company, the Guarantors, if any, the Trustee, the Registrar and any other
Person shall have the protection of TIA /section/ 312(c).
SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS
PRECEDENT.
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee upon request:
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(1) an Officers' Certificate, in form and substance reasonably
satisfactory to the Trustee, stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with;
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such
counsel, all such conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(3) where applicable, a certificate or opinion by an
independent certified public accountant reasonably satisfactory to the
Trustee that complies with TIA /section/ 314(c).
SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.06, shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has
made such examination or investigation as is reasonably necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of each
such Person, such condition or covenant has been complied with.
SECTION 12.06. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR.
The Trustee may make reasonable rules in accordance with the
Trustee's customary practices for action by or at a meeting of Holders. The
Paying Agent or Registrar may make reasonable rules for its functions.
<PAGE>
-119-
SECTION 12.07. LEGAL HOLIDAYS.
A "LEGAL HOLIDAY" used with respect to a particular place of
payment is a Saturday, a Sunday or a day on which banking institutions in New
York, New York, or the city in which the principal corporate trust office of the
Trustee is located, or at such place of payment are not required to be open. If
a payment date is a Legal Holiday at such place, payment may be made at such
place on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue for the intervening period.
SECTION 12.08. GOVERNING LAW.
THIS INDENTURE, THE NOTES AND THE GUARANTEES SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS
APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS. EACH OF THE PARTIES HERETO AGREES TO
SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE.
SECTION 12.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 12.10. NO RECOURSE AGAINST OTHERS.
A director, officer, employee, stockholder or incorporator, as
such, of the Company, the Guarantors, if any, or of the Trustee shall not have
any liability for any obligations of the Company under the Notes or this
Indenture. Each Holder by accepting a Note waives and releases all such
liability. Such waiver and release are part of the consideration for the
issuance of the Notes. This provision does not affect any possible claims under
federal securities laws.
SECTION 12.11. SUCCESSORS.
All agreements of the Company and the Guarantors, if any, in
this Indenture, the Notes and the Guarantees, if any, shall bind their
successors. All agreements of the Trustee in this Indenture shall bind its
successors.
<PAGE>
-120-
SECTION 12.12. DUPLICATE ORIGINALS.
All parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together shall represent
the same agreement.
SECTION 12.13. SEVERABILITY.
In case any one or more of the provisions in this Indenture or
in the Notes or in the Guarantees, if any, shall be held invalid, illegal or
unenforceable, in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions shall not in any way be affected or impaired thereby, it being
intended that all of the provisions hereof shall be enforceable to the full
extent permitted by law.
<PAGE>
-121-
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the date first written above.
NEFF CORP.
By: __________________________________________
Name:
Title:
NEFF RENTAL, INC.
By: __________________________________________
Name:
Title:
NEFF MACHINERY, INC.
By: __________________________________________
Name:
Title:
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By: __________________________________________
Name:
Title:
<PAGE>
EXHIBIT A(1)
[FORM OF INITIAL NOTE]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501 (A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR")
OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (2) AGREES
THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE SECURITY
RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY
SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE
UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES
(OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN
AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT (IF
AVAILABLE), (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE
TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY
WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED
TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
<PAGE>
CUSIP No.:
NEFF CORP.
10 1/4% SENIOR SUBORDINATED NOTE DUE 2008
No. $
NEFF CORP., a Delaware corporation (the "Company," which term
includes any successor entity), for value received promises to pay to
or registered assigns, the principal sum of Dollars,
on June 1, 2008.
Interest Payment Dates: June 1 and December 1
Record Dates: May 15 and November 15
Reference is made to the further provisions of this Note
contained herein, which will for all purposes have the same effect as if set
forth at this place.
A.1-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
NEFF CORP.
By: _______________________________________
Name:
Title:
By: _______________________________________
Name:
Dated: [ ], 1998 Title:
Certificate of Authentication
This is one of the 10 1/4% Senior Subordinated Notes due 2008
referred to in the within-mentioned Indenture.
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By:____________________________________________
Authorized Signatory
A.1-3
<PAGE>
(REVERSE OF SECURITY)
10 1/4% SENIOR SUBORDINATED NOTE DUE 2008
1. INTEREST. NEFF CORP., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. Interest on the Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from May 28, 1998. The Company will pay interest semi-annually in arrears on
each Interest Payment Date, commencing December 1, 1998. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and on
overdue installments of interest from time to time on demand at the rate borne
by the Notes and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful.
2. METHOD OF PAYMENT. The Company shall pay interest on the
Notes (except defaulted interest) to the Persons who are the registered Holders
at the close of business on the Record Date immediately preceding the Interest
Payment Date even if the Notes are canceled on registration of transfer or
registration of exchange after such Record Date. Holders must surrender Notes to
a Paying Agent to collect principal payments. The Company shall pay principal
and interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by its check payable in such U.S.
Legal Tender. The Company may deliver any such interest payment to the Paying
Agent or to a Holder at the Holder's registered address.
3. PAYING AGENT AND REGISTRAR. Initially, STATE STREET BANK
AND TRUST COMPANY (the "Trustee") will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-Registrar without notice to
the Holders.
4. INDENTURE. The Company issued the Notes under an Indenture,
dated as of May 28, 1998 (the "Indenture"), by and among the Company, the
Guarantors (as defined therein) and the Trustee. Capitalized terms herein are
used as defined in the Indenture unless otherwise defined herein. This Note is
one of a duly authorized issue of Initial Notes of the Company designated as its
10 1/4% Senior Subordinated Notes due 2008 (the "Initial Notes"). The Notes
include the Initial Notes, the Private Exchange Notes and the Unrestricted Notes
issued in exchange for the Initial Notes pursuant to the Registration
A.1-4
<PAGE>
Rights Agreement or, with respect to Initial Notes issued under the Indenture
subsequent to the Issue Date, a registration rights agreement substantially
identical to the Registration Rights Agreement. The Initial Notes and the
Unrestricted Notes are treated as a single class of securities under the
Indenture. The terms of the Notes include those stated in this Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S. Code /sections/ 77aaa-77bbbb) (the "TIA"), as in effect on the date of
the Indenture. Notwithstanding anything to the contrary herein, the Notes are
subject to all such terms, and Holders of Notes are referred to the Indenture
and said Act for a statement of them. The Notes are general unsecured
obligations of the Company limited in aggregate principal amount to
$200,000,000. Under Article Eleven of the Indenture the payment on each Note is
guaranteed on a senior subordinated basis by the Guarantors. Each Holder, by
accepting a Note, agrees to be bound by all of the terms and provisions of the
Indenture, as the same may be amended from time to time.
5. SUBORDINATION. The Notes are subordinated in right of
payment, in the manner and to the extent set forth in the Indenture, to the
prior payment in full in cash or Cash Equivalents of all Senior Debt of the
Company, whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed or guaranteed. The Guarantees in respect of the Notes are
subordinated in right of payment, in the manner and to the extent set forth in
the Indenture, to the prior payment in full in cash or Cash Equivalents of all
Guarantor Senior Debt of each Guarantor, whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by
its acceptance hereof agrees to be bound by such provisions and authorizes and
expressly directs the Trustee, on its behalf, to take such action as may be
necessary or appropriate to effectuate the subordination provided for in the
Indenture and appoints the Trustee its attorney-in-fact for such purposes.
A.1-5
<PAGE>
6. REDEMPTION PROVISIONS. Except as provided below, the Notes
may not be redeemed prior to June 1, 2003.
(a) OPTIONAL REDEMPTION. On or after such date, the Notes may
be redeemed at the option of the Company, at any time as a whole, or
from time to time in part, on not less than 30 nor more than 60 days'
notice, at the following redemption prices (expressed as percentages of
principal amount), plus accrued and unpaid interest (if any) to the
date of redemption (subject to the rights of holders of record on the
relevant record date to receive interest due on the relevant interest
payment date), if redeemed during the 12-month period commencing June
1:
REDEMPTION
PRICE
----------
2003................................ 105.125%
2004................................ 103.417%
2005................................ 101.708%
2006 and thereafter................. 100.000%
(b) Notwithstanding the foregoing, at any time prior to June
1, 2001, the Company may, at its option, redeem, in part and from time
to time, with the net cash proceeds of one or more Public Equity
Offerings, up to 30% of the sum of (i) the initial aggregate principal
amount of the Notes originally issued in the Offering and (ii) the
respective initial aggregate principal amount of the Notes issued under
the Indenture after the Issue Date at a redemption price equal to
110.250% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the redemption date; PROVIDED that at
least 70% of the sum of (i) the initial aggregate principal amount of
the Notes issued in the Offering and (ii) the respective initial
aggregate principal amount of the Notes issued under the Indenture
after the Issue Date remains outstanding immediately after the
occurrence of any such redemption and that any such redemption occurs
within 120 days following the closing of any such Public Equity
Offering.
7. NOTICE OF REDEMPTION. Notice of redemption shall be mailed
by first-class mail at least 30 days but not more than 60 days before the
Redemption Date to each Holder of Notes to be redeemed at its registered
address. Notes in denominations larger than $1,000 may be redeemed in part. If
any Note is to be redeemed in part only, the notice of redemption that relates
to such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal
A.1-6
<PAGE>
amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note. On and after the
Redemption Date, interest will cease to accrue on Notes or portions thereof
called for redemption as long as the Company has deposited with the paying agent
funds in satisfaction of the applicable redemption price pursuant to the
Indenture.
Except as set forth in the Indenture, if monies for the
redemption of the Notes called for redemption shall have been deposited with the
Paying Agent for redemption on such Redemption Date, then, unless the Company
defaults in the payment of such Redemption Price plus accrued interest, if any,
the Notes called for redemption will cease to bear interest from and after such
Redemption Date and the only right of the Holders of such Notes will be to
receive payment of the Redemption Price plus accrued interest, if any.
8. OFFERS TO PURCHASE. Section 4.15 of the Indenture provides
that, upon a Change of Control if the Company does not redeem the Notes, each
holder will have the right, subject to certain conditions set forth in the
Indenture, to require the Company to repurchase such holder's Notes at a price
equal to 101% of the principal amount thereof plus accrued interest to the date
of repurchase. Section 4.16 of the Indenture provides that, after certain Asset
Sales, and subject to further limitations contained therein, the Company will
make an offer to purchase certain amounts of the Notes in accordance with the
procedures set forth in the Indenture.
9. DENOMINATIONS; TRANSFER; EXCHANGE. The Notes are in
registered form, without coupons, in denominations of $1,000 and integral
multiples of $1,000. A Holder shall register the transfer of or exchange Notes
in accordance with the Indenture. The Registrar may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and to
pay certain transfer taxes or similar governmental charges payable in connection
therewith as permitted by the Indenture. The Registrar need not register the
transfer of or exchange of any Notes or portions thereof selected for
redemption.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note
shall be treated as the owner of it for all purposes.
11. UNCLAIMED MONEY. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company. After that, all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
12. DISCHARGE PRIOR TO REDEMPTION OR MATURITY. If the Company
at any time deposits with the Trustee U.S. Legal
A.1-7
<PAGE>
Tender or U.S. Government Obligations sufficient to pay the principal of,
premium, if any, and interest on the Notes to redemption or maturity and
complies with the other provisions of the Indenture relating thereto, the
Company will be discharged from certain provisions of the Indenture and the
Notes (including certain covenants, but excluding its obligation to pay the
principal of and interest on the Notes).
13. AMENDMENT; SUPPLEMENT; WAIVER. Subject to certain
exceptions, the Indenture, the Notes or the Guarantee, if any, may be amended or
supplemented with the written consent of the Holders of at least a majority in
aggregate principal amount of the Notes then outstanding, and any existing
Default or Event of Default or noncompliance with any provision may be waived
with the written consent of the Holders of a majority in aggregate principal
amount of the Notes then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture or the Notes
to, among other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Notes in addition to or in place of certificated Notes, or comply
with Article Five of the Indenture or make any other change that does not
adversely affect in any material respect the rights of any Holder of a Note.
14. RESTRICTIVE COVENANTS. The Indenture imposes certain
limitations on the ability of the Company and its Restricted Subsidiaries to,
among other things, incur additional Indebtedness or Liens, make payments in
respect of its Capital Stock or certain Indebtedness, enter into transactions
with Affiliates, create dividend or other payment restrictions affecting
Subsidiaries, incur additional Senior Subordinated Debt, merge or consolidate
with any other Person, sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its assets or adopt a plan of liquidation
and sell Capital Stock of a Restricted Subsidiary. Such limitations are subject
to a number of important qualifications and exceptions. The Company must
annually report to the Trustee on compliance with such limitations.
15. SUCCESSORS. When a successor assumes, in accordance with
the Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor will be released from those obligations.
16. DEFAULTS AND REMEDIES. If an Event of Default occurs and
is continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of Notes then outstanding may declare all the Notes to be due and payable
in the manner, at the time and with the effect provided in the Indenture.
Holders of Notes may not enforce the Indenture or the Notes except as provided
in the Indenture. The Trustee is not obligated to enforce the Indenture or the
Notes unless it has received
A.1-8
<PAGE>
indemnity reasonably satisfactory to it. The Indenture permits, subject to
certain limitations therein provided, Holders of a majority in aggregate
principal amount of the Notes then outstanding to direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of Notes
notice of any continuing Default or Event of Default (except a Default in
payment of principal or interest) if it determines that withholding notice is in
their interest.
17. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Notes and may otherwise deal with the Company, its Subsidiaries or
their respective Affiliates as if it were not the Trustee.
18. NO RECOURSE AGAINST OTHERS. No stockholder, director,
officer, employee or incorporator, as such, of the Company shall have any
liability for any obligation of the Company under the Notes or the Indenture.
Each Holder of a Note by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
19. AUTHENTICATION. This Note shall not be valid until the
Trustee or Authenticating Agent manually signs the certificate of authentication
on this Note.
20. GOVERNING LAW. The laws of the State of New York shall
govern this Note and the Indenture, without regard to principles of conflict of
laws.
21. ABBREVIATIONS AND DEFINED TERMS. Customary abbreviations
may be used in the name of a Holder of a Note or an assignee, such as: TEN COM
(= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
22. CUSIP NUMBERS. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes as a convenience to the Holders
of the Notes. No representation is made as to the accuracy of such numbers as
printed on the Notes and reliance may be placed only on the other identification
numbers printed hereon.
23. REGISTRATION RIGHTS.
Pursuant to the Registration Rights Agreement, the Company
will be obligated to consummate an exchange offer pursuant to which the Holder
of this Note shall have the right to exchange this Note for the Company's 10
1/4% Senior Subordinated
A.1-9
<PAGE>
Notes due 2008 which have been registered under the Securities Act, in like
principal amount and having terms identical in all material respects as this
Note (other than as relates to registration rights and transfer restrictions).
The Holders shall be entitled to receive certain additional interest payments in
the event such exchange offer is not consummated and upon certain other
conditions, all pursuant to and in accordance with the terms of the Registration
Right Agreement.
24. INDENTURE. Each Holder, by accepting a Note, agrees to be
bound by all of the terms and provisions of the Indenture, as the same may be
amended from time to time.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture, which has the text of this
Note in larger type. Requests may be made to: Neff Corp., 3750 N.W. 87th Avenue,
Miami, Florida 33178, Attn: Bonnie S. Biumi.
A.1-10
<PAGE>
FORM OF SENIOR SUBORDINATED GUARANTEE
[ ] ("the Guarantor") has unconditionally guaranteed on a
senior subordinated basis (such guarantee by each Guarantor being referred to
herein as the "Guarantee") (i) the due and punctual payment of the principal of
and interest on the Notes, whether at maturity, by acceleration or otherwise,
the due and punctual payment of interest on the overdue principal and interest,
if any, on the Notes, to the extent lawful, and the due and punctual performance
of all other obligations of the Company to the Holders or the Trustee all in
accordance with the terms set forth in Article Eleven of the Indenture and (ii)
in case of any extension of time of payment or renewal of any Notes or any of
such other obligations, that the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration or otherwise.
The obligations of each Guarantor to the Holders and to the
Trustee pursuant to the Guarantee and the Indenture are expressly set forth and
are expressly subordinated and subject in right of payment to the prior payment
in full in cash or Cash Equivalents of all Guarantor Senior Debt of such
Guarantor, to the extent and in the manner provided, in Article Eleven of the
Indenture, and reference is hereby made to such Indenture for the precise terms
of the Guarantee therein made.
No past, present or future stockholder, officer, director,
employee or incorporator, as such, of any of the Guarantors shall have any
liability under the Guarantee by reason of such person's status as stockholder,
officer, director, employee or incorporator. Each holder of a Note by accepting
a Note waives and releases all such liability. The waiver and release are part
of the consideration for the issuance of the Guarantees.
A.1-11
<PAGE>
The Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Notes upon which the Guarantee is
noted shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
[ ]
By: _______________________________
Name:
Title:
Attest:____________________________________________
A.1-12
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form
below and have your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint , ___________________________________________, agent to
transfer this Note on the books of the Company. The agent may substitute another
to act for him.
Date: _____________________ Signed: _____________________________________
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee: ________________________________
In connection with any transfer of this Note occurring prior
to the date which is the earlier of (i) the date of the declaration by the SEC
of the effectiveness of a registration statement under the Securities Act of
1933, as amended (the "Securities Act") covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) May 28, 1999, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer and that this Note is being transferred:
[CHECK ONE]
(1) _______ to the Company or a subsidiary thereof; or
(2) _______ pursuant to and in compliance with Rule 144A under the
Securities Act; or
(3) _______ to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) that has
furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter can
be obtained from the Trustee); or
A.1-13
<PAGE>
(4) _______ outside the United states to a "foreign person" in compliance
with Rule 904 of Regulation S under the Securities Act; or
(5) _______ pursuant to the exemption from registration provided by Rule
144 under the Securities Act; or
(6) _______ pursuant to an effective registration statement under the
Securities Act; or
(7) _______ pursuant to another available exemption from the registration
requirements of the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Notes evidenced by this certificate in the name of any person other than the
registered Holder thereof; PROVIDED that if box (3), (4), (5) or (7) is checked,
the Company or the Trustee may require, prior to registering any such transfer
of the Notes, in its sole discretion, such legal opinions, certifications
(including an investment letter in the case of box (3) or (4)) and other
information as the Trustee or the Company has reasonably requested to confirm
that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act.
If none of the foregoing boxes is checked, the Trustee or Registrar
shall not be obligated to register this Note in the name of any person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.16 of the Indenture shall have
been satisfied.
Date: ________________________ Signed: ______________________________________
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee: _________________________________________________________
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant
A.1-14
<PAGE>
to Rule 144A or has determined not to request such information and that it is
aware that the transferor is relying upon the undersigned's foregoing
representations in order to claim the exemption from registration provided by
Rule 144A.
Date: _______________________ Signed: _____________________________________
NOTICE: To be executed by
an executive officer
A.1-15
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the
appropriate box:
Section 4.15 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this Note purchased
by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state
the amount you elect to have purchased:
$ ___________________________
Dated: _______________________ ____________________________________________
NOTICE: The signature on this assignment
must correspond with the name as it appears
upon the face of the within Note in every
particular without alteration or enlargement
or any change whatsoever and be guaranteed
by the endorser's bank or broker.
Signature Guarantee: _________________________________
A.1-16
<PAGE>
EXHIBIT A(2)
[FORM OF EXCHANGE NOTE]
CUSIP No.:
NEFF CORP.
10 1/4% SENIOR SUBORDINATED NOTE DUE 2008
No. $
NEFF CORP., a Delaware corporation (the "Company," which term
includes any successor entity), for value received promises to pay to
or registered assigns, the principal sum of
Dollars, on June 1, 2008.
Interest Payment Dates: June 1 and December 1
Record Dates: May 15 and November 15
Reference is made to the further provisions of this Note
contained herein, which will for all purposes have the same effect as if set
forth at this place.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
NEFF CORP.
By: __________________________________
Name:
Title:
By: __________________________________
Name:
Dated: [ ], 1998 Title:
Certificate of Authentication
This is one of the 10 1/4% Senior Subordinated Notes due 2008
referred to in the within-mentioned Indenture.
STATE STREET BANK AND TRUST
COMPANY,
as Trustee
By:______________________________________
Authorized Signatory
A.2-2
<PAGE>
(REVERSE OF SECURITY)
10 1/4% SENIOR SUBORDINATED NOTE DUE 2008
1. INTEREST. NEFF CORP., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. Interest on the Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from May 28, 1998. The Company will pay interest semi-annually in arrears on
each Interest Payment Date, commencing December 1, 1998. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and on
overdue installments of interest from time to time on demand at the rate borne
by the Notes and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful.
2. METHOD OF PAYMENT. The Company shall pay interest on the
Notes (except defaulted interest) to the Persons who are the registered Holders
at the close of business on the Record Date immediately preceding the Interest
Payment Date even if the Notes are canceled on registration of transfer or
registration of exchange after such Record Date. Holders must surrender Notes to
a Paying Agent to collect principal payments. The Company shall pay principal
and interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by its check payable in such U.S.
Legal Tender. The Company may deliver any such interest payment to the Paying
Agent or to a Holder at the Holder's registered address.
3. PAYING AGENT AND REGISTRAR. Initially, STATE STREET BANK
AND TRUST COMPANY (the "Trustee") will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-Registrar without notice to
the Holders.
4. INDENTURE. The Company issued the Notes under an Indenture,
dated as of May 28, 1998 (the "Indenture"), by and among the Company, the
Guarantors (as defined therein) and the Trustee. Capitalized terms herein are
used as defined in the Indenture unless otherwise defined herein. This Note is
one of a duly authorized issue of Unrestricted Notes of the Company designated
as its 10 1/4% Senior Subordinated Notes due 2008 (the "Unrestricted Notes").
The Notes include the Initial Notes, the Private Exchange Notes and the
Unrestricted Notes issued in exchange for the Initial Notes pursuant to the
Registration Rights Agreement or, with respect to Initial Notes issued under the
Indenture subsequent to the Issue Date, a registration
A.2-3
<PAGE>
rights agreement substantially identical to the Registration Rights Agreement.
The Initial Notes and the Unrestricted Notes are treated as a single class of
securities under the Indenture. The terms of the Notes include those stated in
this Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code /sections/ 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture. Notwithstanding anything to the contrary
herein, the Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture and said Act for a statement of them. The Notes are
general unsecured obligations of the Company limited in aggregate principal
amount to $200,000,000. Under Article Eleven of the Indenture the payment on
each Note is guaranteed on a senior subordinated basis by the Guarantors. Each
Holder, by accepting a Note, agrees to be bound by all of the terms and
provisions of the Indenture, as the same may be amended from time to time.
5. SUBORDINATION. The Notes are subordinated in right of
payment, in the manner and to the extent set forth in the Indenture, to the
prior payment in full in cash or Cash Equivalents of all Senior Debt of the
Company, whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed or guaranteed. The Guarantees in respect of the Notes are
subordinated in right of payment, in the manner and to the extent set forth in
the Indenture, to the prior payment in full in cash or Cash Equivalents of all
Guarantor Senior Debt of each Guarantor, whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by
its acceptance hereof agrees to be bound by such provisions and authorizes and
expressly directs the Trustee, on its behalf, to take such action as may be
necessary or appropriate to effectuate the subordination provided for in the
Indenture and appoints the Trustee its attorney-in-fact for such purposes.
A.2-4
<PAGE>
6. REDEMPTION PROVISIONS. Except as provided below, the Notes
may not be redeemed prior to June 1, 2003.
(a) OPTIONAL REDEMPTION. On or after such date, the Notes may be
redeemed at the option of the Company, at any time as a whole, or from time to
time in part, on not less than 30 nor more than 60 days' notice, at the
following redemption prices (expressed as percentages of principal amount), plus
accrued and unpaid interest (if any) to the date of redemption (subject to the
rights of holders of record on the relevant record date to receive interest due
on the relevant interest payment date), if redeemed during the 12-month period
commencing June 1:
REDEMPTION
PRICE
-----------
2003................................. 105.125%
2004................................. 103.417%
2005................................. 101.708%
2006 and thereafter.................. 100.000%
(b) Notwithstanding the foregoing, at any time prior to June
1, 2001, the Company may, at its option, redeem, in part and from time
to time, with the net cash proceeds of one or more Public Equity
Offerings, up to 30% of the sum of (i) the initial aggregate principal
amount of the Notes originally issued in the Offering and (ii) the
respective initial aggregate principal amount of the Notes under the
Indenture after the Issue Date at a redemption price equal to 110.250%
of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the redemption date; PROVIDED that at least 70% of
the sum of (i) the initial aggregate principal amount of the Notes
issued in the Offering and (ii) the respective initial aggregate
principal amount of the Notes under the Indenture after the Issue Date
remains outstanding immediately after the occurrence of any such
redemption and that any such redemption occurs within 120 days
following the closing of any such Public Equity Offering.
7. NOTICE OF REDEMPTION. Notice of redemption shall be mailed
by first-class mail at least 30 days but not more than 60 days before the
Redemption Date to each Holder of Notes to be redeemed at its registered
address. Notes in denominations larger than $1,000 may be redeemed in part. If
any Note is to be redeemed in part only, the notice of redemption that relates
to such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the
A.2-5
<PAGE>
original Note. On and after the Redemption Date, interest will cease to accrue
on Notes or portions thereof called for redemption as long as the Company has
deposited with the paying agent funds in satisfaction of the applicable
redemption price pursuant to the Indenture.
Except as set forth in the Indenture, if monies for the
redemption of the Notes called for redemption shall have been deposited with the
Paying Agent for redemption on such Redemption Date, then, unless the Company
defaults in the payment of such Redemption Price plus accrued interest, if any,
the Notes called for redemption will cease to bear interest from and after such
Redemption Date and the only right of the Holders of such Notes will be to
receive payment of the Redemption Price plus accrued interest, if any.
8. OFFERS TO PURCHASE. Section 4.15 of the Indenture provides
that, upon a Change of Control if the Company does not redeem the Notes, each
holder will have the right, subject to certain conditions set forth in the
Indenture, to require the Company to repurchase such holder's Notes at a price
equal to 101% of the principal amount thereof plus accrued interest to the date
of repurchase. Section 4.16 of the Indenture provides that, after certain Asset
Sales, and subject to further limitations contained therein, the Company will
make an offer to purchase certain amounts of the Notes in accordance with the
procedures set forth in the Indenture.
9. DENOMINATIONS; TRANSFER; EXCHANGE. The Notes are in
registered form, without coupons, in denominations of $1,000 and integral
multiples of $1,000. A Holder shall register the transfer of or exchange Notes
in accordance with the Indenture. The Registrar may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and to
pay certain transfer taxes or similar governmental charges payable in connection
therewith as permitted by the Indenture. The Registrar need not register the
transfer of or exchange of any Notes or portions thereof selected for
redemption.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note
shall be treated as the owner of it for all purposes.
11. UNCLAIMED MONEY. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company. After that, all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
12. DISCHARGE PRIOR TO REDEMPTION OR MATURITY. If the Company
at any time deposits with the Trustee U.S. Legal Tender or U.S. Government
Obligations sufficient to pay the principal of, premium, if any, and interest on
the Notes to redemption
A.2-6
<PAGE>
or maturity and complies with the other provisions of the Indenture relating
thereto, the Company will be discharged from certain provisions of the Indenture
and the Notes (including certain covenants, but excluding its obligation to pay
the principal of and interest on the Notes).
13. AMENDMENT; SUPPLEMENT; WAIVER. Subject to certain
exceptions, the Indenture, the Notes or the Guarantee, if any, may be amended or
supplemented with the written consent of the Holders of at least a majority in
aggregate principal amount of the Notes then outstanding, and any existing
Default or Event of Default or noncompliance with any provision may be waived
with the written consent of the Holders of a majority in aggregate principal
amount of the Notes then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture or the Notes
to, among other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Notes in addition to or in place of certificated Notes, or comply
with Article Five of the Indenture or make any other change that does not
adversely affect in any material respect the rights of any Holder of a Note.
14. RESTRICTIVE COVENANTS. The Indenture imposes certain
limitations on the ability of the Company and its Restricted Subsidiaries to,
among other things, incur additional Indebtedness or Liens, make payments in
respect of its Capital Stock or certain Indebtedness, enter into transactions
with Affiliates, create dividend or other payment restrictions affecting
Subsidiaries, incur additional Senior Subordinated Debt, merge or consolidate
with any other Person, sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its assets or adopt a plan of liquidation
and sell Capital Stock of a Restricted Subsidiary. Such limitations are subject
to a number of important qualifications and exceptions. The Company must
annually report to the Trustee on compliance with such limitations.
15. SUCCESSORS. When a successor assumes, in accordance with
the Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor will be released from those obligations.
16. DEFAULTS AND REMEDIES. If an Event of Default occurs and
is continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of Notes then outstanding may declare all the Notes to be due and payable
in the manner, at the time and with the effect provided in the Indenture.
Holders of Notes may not enforce the Indenture or the Notes except as provided
in the Indenture. The Trustee is not obligated to enforce the Indenture or the
Notes unless it has received indemnity reasonably satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders
A.2-7
<PAGE>
of a majority in aggregate principal amount of the Notes then outstanding to
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of Notes notice of any continuing Default or Event of
Default (except a Default in payment of principal or interest) if it determines
that withholding notice is in their interest.
17. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Notes and may otherwise deal with the Company, its Subsidiaries or
their respective Affiliates as if it were not the Trustee.
18. NO RECOURSE AGAINST OTHERS. No stockholder, director,
officer, employee or incorporator, as such, of the Company shall have any
liability for any obligation of the Company under the Notes or the Indenture.
Each Holder of a Note by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
19. AUTHENTICATION. This Note shall not be valid until the
Trustee or Authenticating Agent manually signs the certificate of authentication
on this Note.
20. GOVERNING LAW. The laws of the State of New York shall
govern this Note and the Indenture, without regard to principles of conflict of
laws.
21. ABBREVIATIONS AND DEFINED TERMS. Customary abbreviations
may be used in the name of a Holder of a Note or an assignee, such as: TEN COM
(= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
22. CUSIP NUMBERS. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes as a convenience to the Holders
of the Notes. No representation is made as to the accuracy of such numbers as
printed on the Notes and reliance may be placed only on the other identification
numbers printed hereon.
23. INDENTURE. Each Holder, by accepting a Note, agrees to be
bound by all of the terms and provisions of the Indenture, as the same may be
amended from time to time.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture, which has the text of this
Note in larger type. Requests may
A.2-8
<PAGE>
be made to: Neff Corp., 3750 N.W. 87th Avenue, Miami, Florida 33178, Attn:
Bonnie S. Biumi.
A.2-9
<PAGE>
FORM OF SENIOR SUBORDINATED GUARANTEE
[ ] (the "Guarantor") has unconditionally
guaranteed on a senior subordinated basis (such guarantee by each Guarantor
being referred to herein as the "Guarantee") (i) the due and punctual payment of
the principal of and interest on the Notes, whether at maturity, by acceleration
or otherwise, the due and punctual payment of interest on the overdue principal
and interest, if any, on the Notes, to the extent lawful, and the due and
punctual performance of all other obligations of the Company to the Holders or
the Trustee all in accordance with the terms set forth in Article Eleven of the
Indenture and (ii) in case of any extension of time of payment or renewal of any
Notes or any of such other obligations, that the same will be promptly paid in
full when due or performed in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise.
The obligations of each Guarantor to the Holders and to the
Trustee pursuant to the Guarantee and the Indenture are expressly set forth and
are expressly subordinated and subject in right of payment to the prior payment
in full in cash or Cash Equivalents of all Guarantor Senior Debt of such
Guarantor, to the extent and in the manner provided, in Article Eleven of the
Indenture, and reference is hereby made to such Indenture for the precise terms
of the Guarantee therein made.
No past, present or future stockholder, officer, director,
employee or incorporator, as such, of any of the Guarantors shall have any
liability under the Guarantee by reason of such person's status as stockholder,
officer, director, employee or incorporator. Each holder of a Note by accepting
a Note waives and releases all such liability. The waiver and release are part
of the consideration for the issuance of the Guarantees.
A.2-10
<PAGE>
The Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Notes upon which the Guarantee is
noted shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
[ ]
By: __________________________________
Name:
Title:
Attest:
A.2-11
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form
below and have your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint , __________________________________________, agent to
transfer this Note on the books of the Company. The agent may substitute another
to act for him.
Date: __________________ Signed: ___________________________________________
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee: __________________________
A.2-12
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the
appropriate box:
Section 4.15 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this Note purchased
by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state
the amount you elect to have purchased:
$ _________________________
Dated: _____________________ ____________________________________________
NOTICE: The signature on this assignment
must correspond with the name as it appears
upon the face of the within Note in every
particular without alteration or enlargement
or any change whatsoever and be guaranteed
by the endorser's bank or broker.
Signature Guarantee: _____________________________
A.2-13
<PAGE>
EXHIBIT B
FORM OF LEGEND FOR GLOBAL NOTES
Any Global Note authenticated and delivered hereunder shall
bear a legend (which would be in addition to any other legends required in the
case of a Restricted Security) in substantially the following form:
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY
OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS NOTE IS
NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER
THAN THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A
TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE
DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE,
OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE
& CO., HAS AN INTEREST HEREIN.
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE TO BE
DELIVERED IN CONNECTION WITH
TRANSFERS TO NON-QIB ACCREDITED INVESTORS
___________, ____
STATE STREET BANK AND TRUST COMPANY
Goodwin Square
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Attention: Corporate Trust Department
Re: NEFF CORP.
(THE "COMPANY")
10 1/4% SENIOR SUBORDINATED
NOTES DUE 2008 (THE "NOTES")
Ladies and Gentlemen:
In connection with our proposed purchase of $_______ aggregate
principal amount of the Notes, we confirm that:
1. We have received a copy of the Offering Memorandum (the
"Offering Memorandum"), dated May 22, 1998, relating to the Notes and such other
information as we deem necessary in order to make our investment decision. We
acknowledge that we have read and agreed to the matters stated on pages
(i)-(iii) of the Offering Memorandum and in the section entitled "Transfer
Restrictions" of the Offering Memorandum, including the restrictions on
duplication and circulation of the Offering Memorandum.
2. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the Indenture dated
as of May 28, 1998 relating to the Notes (the "Indenture") and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes
except in compliance with, such restrictions and conditions and the Securities
Act of 1933, as amended (the "Securities Act").
3. We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes may not be offered
or sold within the United States or to, or for the account or benefit of, U.S.
Persons except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell or otherwise transfer any Notes we will do so
only (i) to the Company or any subsidiary thereof, (ii) inside the United States
in accordance with Rule 144A under the Securities Act to a
<PAGE>
"qualified institutional buyer" (as defined in Rule 144A under the Securities
Act), (iii) inside the United States to an institutional "accredited investor"
(as defined below) that, prior to such transfer, furnishes (or has furnished on
its behalf by a U.S. broker-dealer) to you a signed letter containing certain
representatives and agreements relating to the restrictions on transfer of the
Notes, substantially in the form of this letter, (iv) outside the United States
in accordance with Rule 904 of Regulation S under the Securities Act, (v)
pursuant to the exemption from registration provided by Rule 144 under the
Securities Act (if available), or (vi) pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to any
person purchasing any of the Notes from us a notice advising such purchaser that
resales of the Notes are restricted as stated herein.
4. We are not acquiring the Notes for or on behalf of, and
will not transfer the Notes to, any pension or welfare plan (as defined in
Section 3 of the Employee Retirement Income Security Act of 1974), except as
permitted in the section entitled "Transfer Restrictions" of the Offering
Memorandum.
5. We understand that, on any proposed resale of any Notes, we
will be required to furnish to you and the Company such certification, legal
opinions and other information as you and the Company may reasonably require to
confirm that the proposed sale complies with the foregoing restrictions. We
further understand that the Notes purchased by us will bear a legend to the
foregoing effect.
6. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or their investment, as the case may be.
7. We are acquiring the Notes purchased by us for our own
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
C-2
<PAGE>
You, the Company and the Initial Purchasers (as defined in the
Offering Memorandum) are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby.
Very truly yours,
[Name of Transferee]
By:_____________________________________
Authorized Signature
C-3
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS
PURSUANT TO REGULATION S
______________, ____
STATE STREET BANK AND TRUST COMPANY
Goodwin Square
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Attention: Corporate Trust Department
Re: NEFF CORP.
(THE "COMPANY") 10 1/4% SENIOR
SUBORDINATED NOTES DUE 2008 (THE "NOTES")
Ladies and Gentlemen:
In connection with our proposed sale of $___________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
1. the offer of the Notes was not made to a person in the
United States;
2. either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United States, or
(b) the transaction was executed in, on or through the facilities of a
designated off-shore securities market and neither we nor any person acting on
our behalf knows that the transaction has been pre-arranged with a buyer in the
United States;
3. no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
4. the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act; and
5. we have advised the transferee of the transfer restrictions
applicable to the Notes.
<PAGE>
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:____________________________________
Authorized Signature
D-2
EXHIBIT 4.3
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of May 28, 1998
By and Among
NEFF CORP.
as Issuer
THE GUARANTORS
named herein
and
BT ALEX. BROWN INCORPORATED
BEAR, STEARNS & CO. INC.
and
MORGAN STANLEY & CO. INCORPORATED
as Initial Purchasers
================================================================================
$100,000,000
10 1/4% SENIOR SUBORDINATED NOTES DUE 2008
<PAGE>
TABLE OF CONTENTS
PAGE
1. Definitions .............................................................. 1
2. Exchange Offer ............................................................5
3. Shelf Registration ........................................................9
4. Additional Interest ......................................................10
5. Registration Procedures ..................................................12
6. Registration Expenses ....................................................23
7. Indemnification ..........................................................25
8. Rule 144 and 144A ........................................................29
9. Underwritten Registrations ...............................................29
10. Miscellaneous ...........................................................30
(a) No Inconsistent Agreements .......................................30
(b) Adjustments Affecting Registrable
Securities .....................................................30
(c) Amendments and Waivers ...........................................30
(d) Notices ..........................................................31
(e) Successors and Assigns ...........................................32
(f) Counterparts .....................................................32
(g) Headings .........................................................32
(h) Governing Law ....................................................32
(i) Severability .....................................................33
(j) Securities Held by the Issuers or
Their Affiliates ...............................................33
(k) Third Party Beneficiaries ........................................33
(l) Entire Agreement .................................................33
-i-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") is dated
as of May 28, 1998 by and among Neff Corp., a Delaware corporation (the
"COMPANY"), the Guarantors named on the signature pages hereto (the "Guarantors"
and, together with the Company, the "Issuers") and BT Alex. Brown Incorporated,
Bear, Stearns & Co. Inc. and Morgan Stanley & Co. Incorporated (the "INITIAL
PURCHASERS").
This Agreement is entered into in connection with the Purchase
Agreement, dated as of May 22, 1998, between the Company, the Guarantors and the
Initial Purchasers (the "PURCHASE AGREEMENT") that provides for the sale by the
Company to the Initial Purchasers of $100,000,000 aggregate principal amount of
the Company's 10 1/4% Senior Subordinated Notes due 2008 (the "NOTES"). The
Notes will be guaranteed (the "Guarantees") on a senior basis by the Guarantors.
The Notes and the Guarantees together are herein referred to as the
"SECURITIES". In order to induce the Initial Purchasers to enter into the
Purchase Agreement, the Issuers have agreed to provide the registration rights
set forth in this Agreement for the benefit of the Initial Purchasers and their
direct and indirect transferees and assigns. The execution and delivery of this
Agreement is a condition to the Initial Purchasers' obligation to purchase the
Securities under the Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
ADDITIONAL INTEREST: See Section 4(a) hereof.
ADVICE: See the last paragraph of Section 5 hereof.
AGREEMENT: See the first introductory paragraph
hereto.
APPLICABLE PERIOD: See Section 2(b) hereof.
CLOSING DATE: The Closing Date as defined in the
Purchase Agreement.
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COMPANY: See the first introductory paragraph
hereto.
EFFECTIVENESS DATE: The date that is 150 days after
the Issue Date.
EFFECTIVENESS PERIOD: See Section 3(a) hereof.
EVENT DATE: See Section 4(b) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
EXCHANGE OFFER: See Section 2(a) hereof.
EXCHANGE REGISTRATION STATEMENT: See Section 2(a)
hereof.
EXCHANGE SECURITIES: See Section 2(a) hereof.
FILING DATE: Within 60 days after the Issue Date.
HOLDER: Any holder of a Registrable Security or
Registrable Securities.
INDEMNIFIED PERSON: See Section 7(c) hereof.
INDEMNIFYING PERSON: See Section 7(c) hereof.
INDENTURE: The Indenture, dated as of May 28, 1998 by and
among the Company, the Guarantors and State Street Bank and Trust Company, as
trustee, pursuant to which the Securities are being issued, as amended or
supplemented from time to time in accordance with the terms thereof.
INITIAL PURCHASER: See the first introductory
paragraph hereto.
INSPECTORS: See Section 5(o) hereof.
ISSUE DATE: The date on which the original
Securities were sold to the Initial Purchasers pursuant to the
Purchase Agreement.
ISSUERS: See the introductory paragraph hereto.
NASD: See Section 5(s) hereof.
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<PAGE>
NOTES: See the second introductory paragraph hereto.
PARTICIPANT: See Section 7(a) hereof.
PARTICIPATING BROKER-DEALER: See Section 2(b)
hereof.
PERSON: An individual, trustee, corporation, partnership,
limited liability company, joint stock company, trust, unincorporated
association, union, business association, firm or other legal entity.
PRIVATE EXCHANGE: See Section 2(b) hereof.
PRIVATE EXCHANGE SECURITIES: See Section 2(b)
hereof.
PROSPECTUS: The prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, and all other amendments and supplements to the
Prospectus, with respect to the terms of the offering of any portion of the
Registrable Securities covered by such Registration Statement including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.
PURCHASE AGREEMENT: See the second introductory
paragraph hereto.
RECORDS: See Section 5(o) hereof.
REGISTRABLE SECURITIES: Each Security upon original issuance
of the Securities and at all times subsequent thereto, each Exchange Security as
to which Section 2(c)(v) hereof is applicable upon original issuance and at all
times subsequent thereto and each Private Exchange Security upon original
issuance thereof and at all times subsequent thereto, until in the case of any
such Security, Exchange Security or Private Exchange Security, as the case may
be, the earliest to occur of (i) a Registration Statement (other than, with
respect to any Exchange Security as to which Section 2(c)(v) hereof is
applicable, the Exchange Registration Statement) covering such Security,
Exchange Security or Private Exchange Security, as the case may be, has been
declared effective by the SEC and such
<PAGE>
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Security, Exchange Security or Private Exchange Security, as the case may be,
has been disposed of in accordance with such effective Registration Statement,
(ii) such Security, Exchange Security or Private Exchange Security, as the case
may be, is sold in compliance with Rule 144, (iii) such Security has been
exchanged for an Exchange Security or Exchange Securities pursuant to an
Exchange Offer and is entitled to be resold without complying with the
prospectus delivery requirements of the Securities Act or (iv) such Security,
Exchange Security or Private Exchange Security, as the case may be, ceases to be
outstanding for purposes of the Indenture.
REGISTRATION STATEMENT: Any registration statement of the
Company, including, but not limited to, the Exchange Registration Statement and
any registration statement filed in connection with a Shelf Registration, filed
with the SEC pursuant to the provisions of this Agreement, including the
Prospectus, amendments and supplements to such registration statement, including
post-effective amendments, all exhibits and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
RULE 144: Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
RULE 144A: Rule 144A promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the SEC.
RULE 415: Rule 415 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
SECURITIES: See the second introductory paragraph
hereto.
SECURITIES ACT: The Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated
thereunder.
<PAGE>
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SHELF NOTICE: See Section 2(c) hereof.
SHELF REGISTRATION: See Section 3(a) hereof.
TIA: The Trust Indenture Act of 1939, as amended.
TRUSTEE: The trustee under the Indenture and, if
existent, the trustee under any indenture governing the
Exchange Securities and Private Exchange Securities (if any).
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. EXCHANGE OFFER
(a) The Company and the Guarantors shall file with the SEC no later
than the Filing Date an offer to exchange (the "EXCHANGE OFFER") any and all of
the Registrable Securities (other than the Private Exchange Securities, if any)
for a like aggregate principal amount of debt securities of the Company that are
identical in all material respects to the Securities (the "EXCHANGE SECURITIES")
(and that are entitled to the benefits of the Indenture or a trust indenture
that is identical in all material respects to the Indenture (other than such
changes to the Indenture or any such identical trust indenture as are necessary
to comply with any requirements of the SEC to effect or maintain the
qualification thereof under the TIA) and that, in either case, has been
qualified under the TIA), except that the Exchange Securities (other than
Private Exchange Securities, if any) shall have been registered pursuant to an
effective Registration Statement under the Securities Act and shall contain no
restrictive legend thereon. The Exchange Offer shall be registered under the
Securities Act on the appropriate form (the "EXCHANGE REGISTRATION STATEMENT")
and shall comply with all applicable tender offer rules and regulations under
the Exchange Act. The Company and the Guarantors agree to use their respective
reasonable best efforts to (x) cause the Exchange Registration Statement to be
declared effective under the Securities Act on or before the Effectiveness Date;
(y) keep the Exchange Offer open for at least 20 business days (or longer if
required by applicable law) after the date that notice of the Exchange Offer is
mailed to Holders; and (z) consummate the Exchange Offer on or prior to the
190th day following the Issue Date. If after such Exchange Registration
Statement is declared effective by the SEC, the Exchange Offer or the issuance
of the Exchange Securities thereunder is interfered with by any stop order,
injunction or other order or re-
<PAGE>
-6-
quirement of the SEC or any other governmental agency or court, such Exchange
Registration Statement shall be deemed not to have become effective for purposes
of this Agreement. Each Holder who participates in the Exchange Offer will be
required to represent in writing that any Exchange Securities received by it
will be acquired in the ordinary course of its business, that at the time of the
consummation of the Exchange Offer such Holder will have no arrangement or
understanding with any Person to participate in the distribution of the Exchange
Securities in violation of the provisions of the Securities Act and that such
Holder is not an affiliate of the Company or the Guarantors within the meaning
of the Securities Act and is not acting on behalf of any persons or entities who
could not truthfully make the foregoing representations. Upon consummation of
the Exchange Offer in accordance with this Section 2, the provisions of this
Agreement shall continue to apply, MUTATIS MUTANDIS, solely with respect to
Registrable Securities that are Private Exchange Securities and Exchange
Securities held by Participating Broker-Dealers, and the Company shall have no
further obligation to register Registrable Securities (other than Private
Exchange Securities and other than in respect of any Exchange Securities as to
which clause 2(c)(v) hereof applies) pursuant to Section 3 hereof. No securities
other than the Exchange Securities shall be included in
the Exchange Registration Statement.
(b) The Company and the Guarantors shall include within the Prospectus
contained in the Exchange Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchasers, that shall
contain a summary statement of the positions taken or policies made by the Staff
of the SEC with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of Exchange Securities received by such broker-dealer in the
Exchange Offer (a "PARTICIPATING BROKER-DEALER"), whether such positions or
policies have been publicly disseminated by the staff of the SEC or such
positions or policies, in the judgment of the Initial Purchasers, represent the
prevailing views of the Staff of the SEC. Such "Plan of Distribution" section
shall also expressly permit the use of the Prospectus by all Persons subject to
the prospectus delivery requirements of the Securities Act, including all
Participating Broker-Dealers, and include a statement describing the means by
which Participating Broker-Dealers may resell the Exchange Securities.
The Company and the Guarantors shall use their respective
reasonable best efforts to keep the Exchange Registra-
<PAGE>
-7-
tion Statement effective and to amend and supplement the Prospectus contained
therein in order to permit such Prospectus to be lawfully delivered by all
Persons subject to the prospectus delivery requirements of the Securities Act
for such period of time as is necessary to comply with applicable law in
connection with any resale of the Exchange Securities; PROVIDED, HOWEVER, that
such period shall not exceed [270] days after the consummation of the Exchange
Offer (or such longer period if extended pursuant to the last paragraph of
Section 5 hereof) (the "APPLICABLE PERIOD").
If, prior to consummation of the Exchange Offer, the Initial
Purchasers hold any Securities acquired by them and having, or that are
reasonably likely to be determined to have, the status of an unsold allotment in
the initial distribution, the Issuers, upon the request of the Initial
Purchasers simultaneously with the delivery of the Exchange Securities in the
Exchange Offer, shall issue and deliver to the Initial Purchasers in exchange
(the "PRIVATE EXCHANGE") for such Securities held by the Initial Purchasers a
like principal amount of debt securities of the Issuers that are identical in
all material respects to the Exchange Securities(the "PRIVATE EXCHANGE
SECURITIES") (and that are issued pursuant to the same indenture as the Exchange
Securities), except for the placement of a restrictive legend on such Private
Exchange Securities. The Private Exchange Securities shall bear the same CUSIP
number as the Exchange Securities.
Interest on the Exchange Securities and the Private Exchange
Securities will accrue from the last interest payment date on which interest was
paid on the Securities surrendered in exchange therefor or, if no interest has
been paid on the Securities, from the Issue Date.
In connection with the Exchange Offer, the Company and the
Guarantors shall:
(1) mail to each Holder a copy of the Prospectus forming
part of the Exchange Registration Statement, together with an appropriate letter
of transmittal and related documents;
(2) utilize the services of a depositary for the Exchange
Offer with an address in the Borough of Manhattan, The
City of New York;
(3) permit Holders to withdraw tendered Securities at any
time prior to the close of business, New York time,
<PAGE>
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on the last business day on which the Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all
applicable laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer
or the Private Exchange, as the case may be, the Company and the Guarantors
shall:
(1) accept for exchange all Securities properly tendered and
not validly withdrawn pursuant to the Exchange Offer or
the Private Exchange;
(2) deliver to the Trustee for cancellation all Securities so
accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly
to each Holder of Securities, Exchange Securities or Private Exchange
Securities, as the case may be, equal in principal amount to the Securities of
such Holder so accepted for exchange.
The Exchange Securities and the Private Exchange Securities
may be issued under (i) the Indenture or (ii) an indenture identical in all
material respects to the Indenture, which in either event shall provide that (1)
the Exchange Securities shall not be subject to the transfer restrictions set
forth in the Indenture and (2) the Private Exchange Securities shall be subject
to the transfer restrictions set forth in the Indenture. The Indenture or such
indenture shall provide that the Exchange Securities, the Private Exchange
Securities and the Notes shall vote and consent together on all matters as one
class and that neither the Exchange Securities, the Private Exchange Securities
or the Securities will have the right to vote or consent as a separate class on
any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Issuers are not permitted to effect
an Exchange Offer, (ii) the Exchange Offer is not consummated within 190 days of
the Issue Date, (iii) the holder of Private Exchange Securities so requests at
any time after the consummation of the Private Exchange, (iv) the Holders of not
less than a majority in aggregate principal amount of the Registrable Securities
determine that the interests of the Holders would be materially adversely
affected by consummation of the Exchange Offer or (v) in the case of any Holder
that participates in the Exchange Offer,
<PAGE>
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such Holder does not receive Exchange Securities on the date of the exchange
that may be sold without restriction under state and federal securities laws
(other than due solely to the status of such Holder as an affiliate of the
Company or any of the Guarantors within the meaning of the Securities Act), then
the Company shall promptly deliver written notice thereof (the "SHELF NOTICE")
to the Trustee and in the case of clauses (i), (ii) and (iv), all Holders, in
the case of clause (iii), the Holders of the Private Exchange Securities and in
the case of clause (v), the affected Holder, and shall file a Shelf Registration
pursuant to Section 3 hereof.
3. SHELF REGISTRATION
If a Shelf Notice is delivered as contemplated by Section 2(c)
hereof, then:
(a) SHELF REGISTRATION. The Company and the Guarantors shall
as promptly as reasonably practicable file with the SEC a Registration Statement
for an offering to be made on a continuous basis pursuant to Rule 415 covering
all of the Registrable Securities (the "SHELF REGISTRATION"). If the Company and
the Guarantors shall not have yet filed an Exchange Registration Statement, the
Company and the Guarantors shall use their respective reasonable best efforts to
file with the SEC the Shelf Registration on or prior to the Filing Date. The
Shelf Registration shall be on Form S-1 or another appropriate form permitting
registration of such Registrable Securities for resale by Holders in the manner
or manners designated by them (including, without limitation, one or more
underwritten offerings). The Company and the Guarantors shall not permit any
securities other than the Registrable Securities to be included in the Shelf
Registration.
The Company and the Guarantors shall use their respective
reasonable best efforts to cause the Shelf Registration to be declared effective
under the Securities Act on or prior to the Effectiveness Date and to keep the
Shelf Registration continuously effective under the Securities Act until the
date that is two years from the Issue Date (the "EFFECTIVENESS PERIOD"), or such
shorter period ending when all Registrable Securities covered by the Shelf
Registration have been sold in the manner set forth and as contemplated in the
Shelf Registration.
(b) WITHDRAWAL OF STOP ORDERS. If the Shelf Registration
ceases to be effective for any reason at any time during the Effectiveness
Period (other than because of the sale of
<PAGE>
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all of the securities registered thereunder), the Company and the Guarantors
shall use their respective reasonable best efforts to obtain the prompt
withdrawal of any order suspending the effectiveness thereof.
(c) SUPPLEMENTS AND AMENDMENTS. The Company and the Guarantors
shall promptly supplement and amend the Shelf Registration if required by the
rules, regulations or instructions applicable to the registration form used for
such Shelf Registration, if required by the Securities Act, or if reasonably
requested by the Holders of a majority in aggregate principal amount of the
Registrable Securities covered by such Registration Statement or by any
underwriter of such Registrable Securities.
4. ADDITIONAL INTEREST
(a) The Company, the Guarantors and the Initial Purchasers
agree that the Holders of Registrable Securities will suffer damages if the
Company and the Guarantors fail to fulfill their respective obligations under
Section 2 or Section 3 hereof and that it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, the Company and the
Guarantors agree to pay, as liquidated damages, additional interest on the
Securities("ADDITIONAL INTEREST") under the circumstances and to the extent set
forth below (without duplication):
(i) if neither the Exchange Registration Statement nor the
Shelf Registration has been filed on or prior to the Filing Date,
Additional Interest shall accrue on the Securities over and above the
stated interest at a rate of 0.50% per annum for the first 90 days
immediately following the Filing Date, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period;
(ii) if neither the Exchange Registration Statement nor the
Initial Shelf Registration is declared effective by the SEC on or prior
to the Effectiveness Date, then, commencing on the 151st day after the
Issue Date, Additional Interest shall be accrued on the Securities
included or that should have been included in such Registration
Statement over and above the stated interest at a rate of 0.50% per
annum for the first 90 days immediately following the Effectiveness
Date, such Additional Interest rate increasing by an additional 0.50%
per annum at the beginning of each subsequent 90-day period; and
<PAGE>
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(iii) if either (A) the Company and the Guarantors have not
exchanged Exchange Securities for all Securities validly tendered in
accordance with the terms of the Exchange Offer on or prior to the
190th day after the Issue Date or (B) the Exchange Registration
Statement ceases to be effective at any time prior to the time that the
Exchange Offer is consummated or (C) if applicable, the Shelf
Registration has been declared effective and such Shelf Registration
ceases to be effective at any time during the Effectiveness Period,
then Additional Interest shall be accrued on the Securities(over and
above any interest otherwise payable on the Securities) at a rate of
0.50% per annum on (x) the 191st day after the Issue Date, in the case
of (A) above, or (y) the day the Exchange Registration Statement ceases
to be effective without being declared effective within five business
days in the case of (B) above, or (z) the day such Shelf Registration
ceases to be effective, in the case of (C) above, such Additional
Interest rate increasing by an additional 0.50% per annum at the
beginning of each such subsequent 90-day period (it being understood
and agreed that, notwithstanding any provision to the contrary, so long
as any Security that is the subject of a Shelf Notice is then covered
by an effective Shelf Registration Statement, no Additional Interest
shall accrue on such Security);
PROVIDED, HOWEVER, that the Additional Interest rate on any affected Security
may not exceed at any one time in the aggregate 2.0% per annum; and PROVIDED,
FURTHER, that (1) upon the filing of the Exchange Registration Statement or a
Shelf Registration (in the case of clause (i) of this Section 4(a)), (2) upon
the effectiveness of the Exchange Registration Statement or the Shelf
Registration (in the case of clause (ii) of this Section 4(a)), or (3) upon the
exchange of Exchange Securities for all Securities tendered (in the case of
clause (iii)(A) of this Section 4(a)), or upon the effectiveness of the Exchange
Registration Statement that had ceased to remain effective (in the case of
(iii)(B) of this Section 4(a)) or upon the effectiveness of the Shelf
Registration that had ceased to remain effective (in the case of (iii)(C) of
this Section 4(a)), Additional Interest on the affected Securities as a result
of such clause (or the relevant subclause thereof), as the case may be, shall
cease to accrue.
(b) The Company and the Guarantors shall notify the Trustee
within one business day after each and every date on which an event occurs in
respect of which Additional Interest is required to be paid (an "EVENT DATE").
Any amounts of Addi-
<PAGE>
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tional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4
will be payable in cash semi-annually on each June 1 and December 1 (to the
holders of record on the May 15 and November 15 immediately preceding such
dates), commencing with the first such date occurring after any such Additional
Interest commences to accrue. The amount of Additional Interest will be
determined by multiplying the applicable Additional Interest rate by the
principal amount of the Registrable Securities, multiplied by a fraction, the
numerator of which is the number of days such Additional Interest rate was
applicable during such period (determined on the basis of a 360-day year
consisting of twelve 30-day months and, in the case of a partial month, the
actual number of days elapsed) and the denominator of which is 360.
5. REGISTRATION PROCEDURES
In connection with the filing of any Registration Statement
pursuant to Sections 2 or 3 hereof, the Company and the Guarantors shall effect
such registrations to permit the sale of the securities covered thereby in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto and in connection with any Registration Statement filed by the
Company and the Guarantors hereunder, the Company and the Guarantors shall:
(a) Prepare and file with the SEC prior to the Filing Date, a
Registration Statement or Registration Statements as prescribed by
Sections 2 or 3 hereof, and use its reasonable best efforts to cause
each such Registration Statement to become effective and remain
effective as provided herein; PROVIDED, HOWEVER, that, if (1) such
filing is pursuant to Section 3 hereof or (2) a Prospectus contained in
an Exchange Registration Statement filed pursuant to Section 2 hereof
is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities
during the Applicable Period, before filing any Registration Statement
or Prospectus or any amendments or supplements thereto, the Company and
the Guarantors shall furnish to and afford the Holders of the
Registrable Securities covered by such Registration Statement or each
such Participating Broker-Dealer, as the case may be, their counsel and
the managing underwriters, if any, a reasonable opportunity to review
copies of all such documents (including copies of any documents to be
incorporated by reference therein and all exhibits thereto) proposed to
be filed (in each case at least three business days prior to such
filing). The
<PAGE>
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Company and the Guarantors shall not file any Registration Statement or
Prospectus or any amendments or supplements thereto if the Holders of a
majority in aggregate principal amount of the Registrable Securities
covered by such Registration Statement, or any such Participating
Broker-Dealer, as the case may be, or their counsel, or the managing
underwriters, if any, shall reasonably object.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Registration
Statement, as the case may be, as may be necessary to keep such
Registration Statement continuously effective for the Effectiveness
Period or the Applicable Period, as the case may be; cause the related
Prospectus to be supplemented by any prospectus supplement required by
applicable law, and as so supplemented to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the
Securities Act; and comply with the provisions of the Securities Act
and the Exchange Act applicable to it with respect to the disposition
of all securities covered by such Registration Statement as so amended
or in such Prospectus as so supplemented and with respect to the
subsequent resale of any securities being sold by a Participating
Broker-Dealer covered by any such Prospectus; the Company and the
Guarantors shall be deemed not to have used their respective reasonable
best efforts to keep a Registration Statement effective during the
Applicable Period if each of the Company and the Guarantors voluntarily
takes any action that would result in selling Holders of the
Registrable Securities covered thereby or Participating Broker-Dealers
seeking to sell Exchange Securities not being able to sell such
Registrable Securities or such Exchange Securities during that period,
unless such action is required by applicable law or unless the Company
and the Guarantors comply with this Agreement, including without
limitation, the provisions of paragraph 5(k) hereof and the last
paragraph of this Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3
hereof or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Securities during the Applicable Period,
notify the selling Holders of Registrable Securities, or each such
Participating Broker-Dealer, as the case may be, their counsel and the
managing underwriters, if any,
<PAGE>
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promptly (but in any event within two business days) and confirm such
notice in writing, (i) when a Prospectus or any Prospectus supplement
or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same
has become effective under the Securities Act (including in such notice
a written statement that any Holder may, upon request, obtain, at the
sole expense of the Issuers, one conformed copy of such Registration
Statement or post-effective amendment including financial statements
and schedules, documents incorporated or deemed to be incorporated by
reference and exhibits), (ii) of the issuance by the SEC of any stop
order suspending the effectiveness of a Registration Statement or of
any order preventing or suspending the use of any preliminary
prospectus or the initiation of any proceedings for that purpose, (iii)
if at any time when a prospectus is required by the Securities Act to
be delivered in connection with sales of the Registrable Securities or
resales of Exchange Securities by Participating Broker-Dealers the
representations and warranties of the Issuers contained in any
agreement (including any underwriting agreement), contemplated by
Section 5(n) hereof cease to be true and correct, (iv) of the receipt
by the Issuers of any notification with respect to the suspension of
the qualification or exemption from qualification of a Registration
Statement or any of the Registrable Securities or the Exchange
Securities to be sold by any Participating Broker-Dealer for offer or
sale in any jurisdiction, or the initiation or written threat of any
proceeding for such purpose, (v) of the happening of any event, the
existence of any condition or any information becoming known that makes
any statement made in such Registration Statement or related Prospectus
or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respects or that requires the making
of any changes in or amendments or supplements to such Registration
Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
that in the case of the Prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading and (vi) of the Issuers'
<PAGE>
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determination that a post-effective amendment to a Registration
Statement would be appropriate.
(d) Use their respective reasonable best efforts to prevent
the issuance of any order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending the use
of a Prospectus or suspending the qualification (or exemption from
qualification) of any of the Registrable Securities or the Exchange
Securities for sale in any jurisdiction and, if any such order is
issued, to use their reasonable best efforts to obtain the withdrawal
of any such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and
if requested by the managing underwriter or underwriters, if any, or
the Holders of a majority in aggregate principal amount of the
Registrable Securities being sold in connection with an underwritten
offering, (i) promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriter
or underwriters, if any, such Holders or counsel for any of them
determine is reasonably necessary to be included therein, (ii) make all
required filings of such prospectus supplement or such post-effective
amendment as soon as practicable after the Issuers have received
notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment and (iii) supplement or make
amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3
hereof or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Securities during the Applicable Period,
furnish to each selling Holder of Registrable Securities and to each
such Participating Broker-Dealer who so requests and to their
respective counsel and each managing underwriter, if any, at the sole
expense of the Issuers, one conformed copy of the Registration
Statement or Registration Statements and each post-effective amendment
thereto, including financial statements and schedules and, if
requested, all documents incorporated or deemed to be incorporated
therein by reference and all exhibits.
<PAGE>
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(g) If (1) a Shelf Registration is filed pursuant to Section 3
hereof or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Securities during the Applicable Period,
deliver to each selling Holder of Registrable Securities, or each such
Participating Broker-Dealer, as the case may be, their respective
counsel and the underwriters, if any, at the sole expense of the
Issuers, as many copies of the Prospectus or Prospectuses (including
each form of preliminary prospectus) and each amendment or supplement
thereto and any documents incorporated by reference therein as such
Persons may reasonably request; and, subject to the last paragraph of
this Section 5, the Company and the Guarantors hereby consent to the
use of such Prospectus and each amendment or supplement thereto by each
of the selling Holders of Registrable Securities or each such
Participating Broker-Dealer, as the case may be, and the underwriters
or agents, if any, and dealers, if any, in connection with the offering
and sale of the Registrable Securities covered by, or the sale by
Participating Broker-Dealers of the Exchange Securities pursuant to,
such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities or
Exchange Securities or any delivery of a Prospectus contained in the
Exchange Registration Statement by any Participating Broker-Dealer who
seeks to sell Exchange Securities during the Applicable Period, to use
their reasonable best efforts to register or qualify and to cooperate
with the selling Holders of Registrable Securities or each such
Participating Broker-Dealer, as the case may be, the managing
underwriter or underwriters, if any, and their respective counsel in
connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for
offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any selling Holder,
Participating Broker-Dealer or the managing underwriter or underwriters
reasonably request in writing; PROVIDED, HOWEVER, that where Exchange
Securities held by Participating Broker-Dealers or Registrable
Securities are offered other than through an underwritten offering, the
Company and the Guarantors agree to cause their counsel to perform Blue
Sky investigations and file registrations and qualifications required
to be filed pursuant to this Section 5(h); use their reasonable best
ef-
<PAGE>
-17-
forts to keep each such registration or qualification (or exemption
therefrom) effective during the period such Registration Statement is
required to be kept effective and do any and all other acts or things
reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Exchange Securities held by Participating
Broker-Dealers or the Registrable Securities covered by the applicable
Registration Statement; PROVIDED, HOWEVER, that none of the Company or
the Guarantors shall be required to (A) qualify generally to do
business in any jurisdiction where it is not then so qualified, (B)
take any action that would subject it to general service of process in
any such jurisdiction where it is not then so subject or (C) subject
itself to taxation in any such jurisdiction where it is not then so
subject.
(i) If a Shelf Registration is filed pursuant to Section 3
hereof, cooperate with the selling Holders of Registrable Securities
and the managing underwriter or underwriters, if any, to facilitate the
timely preparation and delivery of certificates representing
Registrable Securities to be sold, which certificates shall not bear
any restrictive legends and shall be in a form eligible for deposit
with The Depository Trust Company; and enable such Registrable
Securities to be in such denominations and registered in such names as
the managing underwriter or underwriters, if any, or Holders may
reasonably request.
(j) Use its reasonable best efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with
or approved by such other governmental agencies or authorities as may
be necessary to enable the Holders thereof or the underwriter or
underwriters, if any, to consummate the disposition of such Registrable
Securities, except as may be required solely as a consequence of the
nature of such selling Holder's business, in which case the Company and
the Guarantors will cooperate in all reasonable respects with the
filing of such Registration Statement and the granting of such
approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3
hereof or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Securities during the Applicable Period,
upon the occurrence of any event contemplated by paragraph 5(c)(v)
<PAGE>
-18-
or 5(c)(vi), hereof, as promptly as practicable prepare and (subject to
Section 5(a) hereof) file with the SEC, at the Issuers' sole expense, a
supplement or post-effective amendment to the Registration Statement or
a supplement to the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference, or file any other
required document so that, as thereafter delivered to the purchasers of
the Registrable Securities being sold thereunder or to the purchasers
of the Exchange Securities to whom such Prospectus will be delivered by
a Participating Broker-Dealer, any such Prospectus will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
(l) Use their respective reasonable best efforts to cause the
Registrable Securities covered by a Registration Statement or the
Exchange Securities, as the case may be, to be rated with the
appropriate rating agencies, if so requested by the Holders of a
majority in aggregate principal amount of Registrable Securities
covered by such Registration Statement or the Exchange Securities, as
the case may be, or the managing underwriter or underwriters, if any.
(m) Prior to the effective date of the first Registration
Statement relating to the Registrable Securities, (i) provide the
Trustee with certificates for the Registrable Securities or Exchange
Securities, as the case may be, in a form eligible for deposit with The
Depository Trust Company and (ii) provide a CUSIP number for the
Registrable Securities or Exchange Securities, as the case may be.
(n) In connection with any underwritten offering of
Registrable Securities pursuant to a Shelf Registration, enter into an
underwriting agreement as is customary in underwritten offerings of
debt securities similar to the Securities and take all such other
actions as are reasonably requested by the managing underwriter or
underwriters in order to expedite or facilitate the registration or the
disposition of such Registrable Securities and, in such connection, (i)
make such representations and warranties to, and covenants with, the
underwriters with respect to the business of the Issuers and their
subsidiaries (including any acquired business, properties or entity, if
<PAGE>
-19-
applicable) and the Registration Statement, Prospectus and documents,
if any, incorporated or deemed to be incorporated by reference therein,
in each case, as are customarily made by issuers to underwriters in
underwritten offerings of debt securities similar to the Securities,
and confirm the same in writing if and when requested; (ii) obtain the
written opinion of counsel to the Issuers and written updates thereof
in form, scope and substance reasonably satisfactory to the managing
underwriter or underwriters, addressed to the underwriters covering the
matters customarily covered in opinions requested in underwritten
offerings of debt similar to the Securities and such other matters as
may be reasonably requested by the managing underwriter or
underwriters; (iii) obtain "cold comfort" letters and updates thereof
in form, scope and substance reasonably satisfactory to the managing
underwriter or underwriters from the independent certified public
accountants of the Issuers (and, if necessary, any other independent
certified public accountants of any subsidiary of the Issuers or of any
business acquired by the Issuers for which financial statements and
financial data are, or are required to be, included or incorporated by
reference in the Registration Statement), addressed to each of the
underwriters, such letters to be in customary form and covering matters
of the type customarily covered in "cold comfort" letters in connection
with underwritten offerings of debt securities similar to the
Securities and such other matters as reasonably requested by the
managing underwriter or underwriters; and (iv) if an underwriting
agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable than those set forth in
Section 7 hereof (or such other provisions and procedures acceptable to
Holders of a majority in aggregate principal amount of Registrable
Securities covered by such Registration Statement and the managing
underwriter or underwriters or agents) with respect to all parties to
be indemnified pursuant to said Section. The above shall be done at
each closing under such underwriting agreement, or as and to the extent
required thereunder.
(o) If (1) a Shelf Registration is filed pursuant to Section 3
hereof or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Securities during the Applicable Period,
upon reasonable advance notice make available for inspection by
<PAGE>
-20-
any selling Holder of such Registrable Securities being sold, or each
such Participating Broker-Dealer, as the case may be, any underwriter
participating in any such disposition of Registrable Securities, if
any, and any attorney, accountant or other agent retained by any such
selling Holder or each such Participating Broker-Dealer, as the case
may be, or underwriter (collectively, the "INSPECTORS"), at the offices
where normally kept, during reasonable business hours without
interfering in the orderly business of the Company or Guarantors, all
financial and other records, pertinent corporate documents and
instruments of the Issuers and their subsidiaries (collectively, the
"RECORDS") as shall be reasonably necessary to enable them to exercise
any applicable due diligence responsibilities, and cause the respective
officers, directors and employees of the Issuers and their subsidiaries
to supply all information reasonably requested by any such Inspector in
connection with such Registration Statement. Records that the Issuers
determine, in good faith, to be confidential and any Records that they
notify the Inspectors are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records is necessary to
avoid or correct a material misstatement or omission in such
Registration Statement, (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction, (iii) after giving reasonable prior notice to the
Company, disclosure of such information is, in the opinion of counsel
for any Inspector, necessary or advisable in connection with any
action, claim, suit or proceeding, directly or indirectly, involving or
potentially involving such Inspector and arising out of, based upon,
relating to or involving this Agreement or any transactions
contemplated hereby or arising hereunder or (iv) the information in
such Records has been made generally available to the public. Each
selling Holder of such Registrable Securities and each such
Participating Broker-Dealer will be required to agree that information
obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it as the basis for any market
transactions in the securities of the Company unless and until such
information is generally available to the public. Each selling Holder
of such Registrable Securities and each such Participating
Broker-Dealer will be required to further agree that it will, upon
learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the
Company to
<PAGE>
-21-
undertake appropriate action to prevent disclosure of the Records
deemed confidential at the Issuers' sole expense.
(p) Provide an indenture trustee for the Registrable
Securities or the Exchange Securities, as the case may be, and cause
the Indenture or the trust indenture provided for in Section 2(a)
hereof, as the case may be, to be qualified under the TIA not later
than the effective date of the Exchange Offer or the first Registration
Statement relating to the Registrable Securities; and in connection
therewith, cooperate with the trustee under any such indenture and the
Holders of the Registrable Securities, to effect such changes to such
indenture as may be required for such indenture to be so qualified in
accordance with the terms of the TIA; and execute, and use its
reasonable best efforts to cause such trustee to execute, all documents
as may be required to effect such changes and all other forms and
documents required to be filed with the SEC to enable such indenture to
be so qualified in a timely manner.
(q) Comply with all applicable rules and regulations of the
SEC and make generally available to its securityholders earning
statements satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder (or any similar rule promulgated under the
Securities Act) no later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period
is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Securities are sold to underwriters in a firm
commitment or reasonable best efforts underwritten offering and (ii) if
not sold to underwriters in such an offering, commencing on the first
day of the first fiscal quarter of the Issuers after the effective date
of a Registration Statement, which statements shall cover said 12-month
periods.
(r) Upon consummation of an Exchange Offer or a Private
Exchange, obtain an opinion of counsel to the Issuers, who may, at the
Issuer's election, be internal counsel to the Issuers, in a form
customary for underwritten transactions, addressed to the Trustee for
the benefit of all Holders of Registrable Securities participating in
the Exchange Offer or the Private Exchange, as the case may be, that
the Exchange Securities or Private Exchange Securities, as the case may
be, and the related indenture constitute legal, valid and binding
obligations of the Issuers, enforceable against the Issuers in
accordance with
<PAGE>
-22-
its respective terms, subject to customary exceptions and
qualifications.
(s) If an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Securities by Holders to
the Company (or to such other Person as directed by the Company) in
exchange for the Exchange Securities or the Private Exchange
Securities, as the case may be, the Company shall mark, or cause to be
marked, on such Registrable Securities that such Registrable Securities
are being cancelled in exchange for the Exchange Securities or the
Private Exchange Securities, as the case may be; in no event shall such
Registrable Securities be marked as paid or otherwise satisfied.
(t) Cooperate with each seller of Registrable Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Registrable Securities and
their respective counsel in connection with any filings required to be
made with the National Association of Securities Dealers, Inc. (the
"NASD").
(u) Use their respective reasonable best efforts to take all
other steps necessary or advisable to effect the registration of the
Registrable Securities covered by a Registration Statement contemplated
hereby.
The Company and the Guarantors may require each seller of
Registrable Securities as to which any registration is being effected to furnish
to the Company and the Guarantors such information regarding such seller and the
distribution of such Registrable Securities as the Company and the Guarantors
may, from time to time, reasonably request. The Company and the Guarantors may
exclude from such registration the Registrable Securities of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request and in such event shall have no further obligation under
this Agreement (including, without limitation, obligations under Section 4
hereof) with respect to such seller or any subsequent holder of such Registrable
Securities. Each seller as to which any Shelf Registration is being effected
agrees to furnish promptly to the Company and the Guarantors all information
required to be disclosed in order to make the information previously furnished
to the Company and the Guarantors by such seller not materially misleading.
<PAGE>
-23-
Each Holder of Registrable Securities and each Participating
Broker-Dealer agrees by acquisition of such Registrable Securities or Exchange
Securities to be sold by such Participating Broker-Dealer, as the case may be,
that, upon actual receipt of any notice from the Company of the happening of any
event of the kind described in Sections 5(c)(ii), 5(c)(iv), 5(c)(v) or 5(c)(vi)
hereof, such Holder will forthwith discontinue disposition of such Registrable
Securities covered by such Registration Statement or Prospectus or Exchange
Securities to be sold by such Holder or Participating Broker-Dealer, as the case
may be, until such Holder's or Participating Broker-Dealer's receipt of the
copies of the supplemented or amended Prospectus contemplated by Section 5(k)
hereof, or until it is advised in writing (the "ADVICE") by the Company that the
use of the applicable Prospectus may be resumed, and has received copies of any
amendments or supplements thereto. In the event that the Company shall give any
such notice, each of the Effectiveness Period and the Applicable Period shall be
extended by the number of days during such periods from and including the date
of the giving of such notice to and including the date when each seller of
Registrable Securities covered by such Registration Statement or Exchange
Securities to be sold by such Participating Broker-Dealer, as the case may be,
shall have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 5(k) hereof or (y) the Advice; PROVIDED, HOWEVER, that
the Effectiveness Period shall not be extended for a period longer than two
years from the Issue Date.
6. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company and the Guarantors shall be borne
by the Company and the Guarantors whether or not the Exchange Offer or a Shelf
Registration is filed or becomes effective, including, without limitation, (i)
all registration and filing fees (including, without limitation, (A) fees with
respect to filings required to be made with the NASD in connection with an
underwritten offering and (B) fees and expenses of compliance with state
securities or Blue Sky laws (including, without limitation, reasonable fees and
disbursements of counsel in connection with Blue Sky qualifications of the
Registrable Securities or Exchange Securities and determination of the
eligibility of the Registrable Securities or Exchange Securities for investment
under the laws of such jurisdictions (x) where the holders of Registrable
Securities are located, in the case of the Exchange Securities, or (y) as
provided in Section 5(h) hereof, in the case of Regis-
<PAGE>
-24-
trable Securities or Exchange Securities to be sold by a Participating
Broker-Dealer during the Applicable Period)), (ii) printing expenses, including,
without limitation, expenses of printing certificates for Registrable Securities
or Exchange Securities in a form eligible for deposit with The Depository Trust
Company and of printing prospectuses if the printing of prospectuses is
requested by the managing underwriter or underwriters, if any, by the Holders of
a majority in aggregate principal amount of the Registrable Securities included
in any Registration Statement or sold by any Participating Broker-Dealer, as the
case may be, (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company and fees and disbursements of special
counsel for the sellers of Registrable Securities(subject to the provisions of
Section 6(b) hereof), (v) fees and disbursements of all independent certified
public accountants referred to in Section 5(n)(iii) hereof (including, without
limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (vi) rating agency fees, if any,
and any fees associated with making the Registrable Securities or Exchange
Securities eligible for trading through the Depository Trust Company, (vii)
Securities Act liability insurance, if the Company desires such insurance,
(viii) fees and expenses of all other Persons retained by the Company, (ix)
internal expenses of the Company (including, without limitation, all salaries
and expenses of officers and employees of the Company performing legal or
accounting duties), (x) the expense of any annual audit, (xi) the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securities exchange, if applicable, and (xii) the expenses
relating to printing, word processing and distributing of all Registration
Statements, underwriting agreements, securities sales agreements, indentures and
any other documents necessary to comply with this Agreement.
(b) The Company and the Guarantors shall (i) reimburse the
Holders of the Registrable Securities being registered in a Shelf Registration
for the reasonable fees and disbursements of not more than one counsel chosen by
the Holders of a majority in aggregate principal amount of the Registrable
Securities to be included in such Registration Statement and (ii) reimburse
reasonable out-of-pocket expenses (other than legal expenses) of Holders of
Registrable Securities incurred in connection with the registration and sale of
the Registrable Securities pursuant to a Shelf Registration or in connection
with the exchange of Registrable Securities pursuant to the Exchange Offer.
<PAGE>
-25-
7. INDEMNIFICATION
(a) Each of the Company and the Guarantors agrees to indemnify
and hold harmless each Holder of Registrable Securities offered pursuant to a
Shelf Registration Statement and each Participating Broker-Dealer selling
Exchange Securities during the Applicable Period, the officers and directors of
each such Person or its affiliates, and each other Person, if any, who controls
any such Person or its affiliates within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act (each, a "PARTICIPANT"), from
and against any and all losses, claims, damages and liabilities (including,
without limitation, the reasonable legal fees and other expenses actually
incurred in connection with any suit, action or proceeding or any claim
asserted) caused by, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement pursuant to which the offering of such Registrable Securities or
Exchange Securities, as the case may be, is registered (or any amendment
thereto) or related Prospectus (or any amendments or supplements thereto) or any
related preliminary prospectus, or caused by, arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that none of the Company or the Guarantors will be required to indemnify a
Participant if (i) such losses, claims, damages or liabilities are caused by any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information relating to any Participant
furnished to the Company in writing by or on behalf of such Participant
expressly for use therein or (ii) if such Participant sold to the person
asserting the claim the Registrable Notes or Exchange Securities that are the
subject of such claim and such untrue statement or omission or alleged untrue
statement or omission was contained or made in any preliminary prospectus and
corrected in the Prospectus or any amendment or supplement thereto and the
Prospectus does not contain any other untrue statement or omission or alleged
untrue statement or omission of a material fact that was the subject matter of
the related proceeding and it is established by the Company in the related
proceeding that such Participant failed to deliver or provide a copy of the
Prospectus (as amended or supplemented) to such Person with or prior to the
confirmation of the sale of such Registrable Notes or Exchange Notes sold to
such Person if required by applicable law, unless such failure to deliver or
provide a copy
<PAGE>
-26-
of the Prospectus (as amended or supplemented) was a result of noncompliance by
the Company with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to
indemnify and hold harmless the Company and each of the Guarantors, the
Company's directors and officers, each Guarantor's directors and officers and
each Person who controls the Company and the Guarantors within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Company to each Participant, but only
(i) with reference to information relating to such Participant furnished to the
Company in writing by or on behalf of such Participant expressly for use in any
Registration Statement or Prospectus, any amendment or supplement
thereto or any preliminary prospectus or (ii) with respect to any untrue
statement or representation made by such Participant in writing to the Company.
The liability of any Participant under this paragraph shall in no event exceed
the proceeds received by such Participant from sales of Registrable Securities
or Exchange Securities giving rise to such obligations.
(c) If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be brought or
asserted against any Person in respect of which indemnity may be sought pursuant
to either of the two preceding paragraphs, such Person (the "INDEMNIFIED
PERSON") shall promptly notify the Person against whom such indemnity may be
sought (the "INDEMNIFYING PERSON") in writing, and the Indemnifying Person, upon
request of the Indemnified Person, shall retain counsel reasonably satisfactory
to the Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding; PROVIDED, HOWEVER, that the failure to so notify the
Indemnifying Person shall not relieve it of any obligation or liability that it
may have hereunder or otherwise (unless and only to the extent that such failure
directly results in the loss or compromise of any material rights or defenses by
the Indemnifying Person and the Indemnifying Person was not otherwise aware of
such action or claim). In any such proceeding, any Indemnified Person shall have
the right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Person unless (i) the Indemnifying
Person and the Indemnified Person shall have mutually agreed in writing to the
contrary, (ii) the Indemnifying Person shall have failed within a reasonable
period of time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in
<PAGE>
-27-
any such proceeding (including any impleaded parties) include both the
Indemnifying Person and the Indemnified Person and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that, unless there exists a
conflict among Indemnified Persons, the Indemnifying Person shall not, in
connection with any one such proceeding or separate but substantially similar
related proceeding in the same jurisdiction arising out of the same general
allegations, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Indemnified Persons, and that all
such fees and expenses shall be reimbursed promptly as they are incurred. Any
such separate firm for the Participants and such control Persons of Participants
shall be designated in writing by Participants who sold a majority in interest
of Registrable Securities and Exchange Securities sold by all such Participants
and any such separate firm for the Company, its directors, its officers and such
control Persons of the Company shall be designated in writing by the Company.
The Indemnifying Person shall not be liable for any settlement of any proceeding
effected without its prior written consent, but if settled with such consent or
if there be a final non-appealable judgment for the plaintiff for which the
Indemnified Person is entitled to indemnification pursuant to this Agreement,
the Indemnifying Person agrees to indemnify and hold harmless each Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified
Person shall have requested an Indemnifying Person to reimburse the Indemnified
Person for reasonable fees and expenses actually incurred by counsel as
contemplated by the third sentence of this paragraph, the Indemnifying Person
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
days after receipt by such Indemnifying Person of the aforesaid request and (ii)
such Indemnifying Person shall not have reimbursed the Indemnified Person in
accordance with such request prior to the date of such settlement; PROVIDED,
HOWEVER, that the Indemnifying Person shall not be liable for any settlement
effected without its consent pursuant to this sentence if the Indemnifying
Person is contesting, in good faith, the request for reimbursement. No
Indemnifying Person shall, without the prior written consent of the Indemnified
Person, effect any settlement or compromise of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party, and indemnity could have been sought hereunder by such Indemnified
Person, unless such settlement (A) includes an unconditional written release of
such Indemnified
<PAGE>
-28-
Person, in form and substance reasonably satisfactory to such Indemnified
Person, from all liability on claims that are the subject matter of such
proceeding and (B) does not include any statement as to an admission of fault,
culpability or failure to act by or on behalf of any Indemnified Person.
(d) If the indemnification provided for in the first and
second paragraphs of this Section 7 is for any reason unavailable to, or
insufficient to hold harmless, an Indemnified Person in respect of any losses,
claims, damages or liabilities referred to therein, then each Indemnifying
Person under such paragraphs, in lieu of indemnifying such Indemnified Person
thereunder and in order to provide for just and equitable contribution, shall
contribute to the amount paid or payable by such Indemnified Person as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Person or Persons
on the one hand and the Indemnified Person or Persons on the other in connection
with the statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof). The relative fault of the parties shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Issuers on the one hand or such Participant or such
other Indemnified Person, as the case may be, on the other, the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission, and any other equitable considerations
appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable
if contribution pursuant to this Section 7 were determined by PRO RATA
allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Securities
<PAGE>
-29-
or Exchange Securities, as the case may be, exceeds the amount of any damages
that such Participant has otherwise been required to pay or has paid by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in
this Section 7 will be in addition to any liability that the Indemnifying
Persons may otherwise have to the Indemnified Persons referred to above.
8. RULE 144 AND 144A
The Company and the Guarantors covenant that they will file
the reports required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations adopted by the SEC thereunder in a timely
manner in accordance with the requirements of the Securities Act and the
Exchange Act and, if at any time the Company and the Guarantors not required to
file such reports, they will, upon the request of any Holder of Registrable
Securities, make publicly available annual reports and such information,
documents and other reports of the type specified in Sections 13 and 15(d) of
the Exchange Act. The Company and the Guarantors further covenants for so long
as any Registrable Securities remain outstanding, to make available to any
Holder or beneficial owner of Registrable Securities in connection with any sale
thereof and any prospective purchaser of such Registrable Securities from such
Holder or beneficial owner the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Registrable Securities
pursuant to Rule 144A.
9. UNDERWRITTEN REGISTRATIONS
If any of the Registrable Securities covered by any Shelf
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will manage the offering will
be selected by the Holders of a majority in aggregate principal amount of such
Registrable Securities included in such offering and reasonably acceptable to
the Company and the Guarantors.
No Holder of Registrable Securities may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Securities on the
<PAGE>
-30-
basis provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
10. MISCELLANEOUS
(a) NO INCONSISTENT AGREEMENTS. The Issuers have not entered
into, as of the date hereof, and shall not, after the date of this Agreement,
enter into any agreement with respect to any of the Company's securities that is
inconsistent with the rights granted to the Holders of Registrable Securities in
this Agreement or otherwise conflicts with the provisions hereof. Except for
registration rights agreements, pursuant to which all necessary waivers have
been received, with GECFS, Inc., Kevin Fitzgerald, George Mas, Jose Ramon Mas,
Juan Carlos Mas and Santos Capital Advisors, Inc. and Santos Fund I L.P., the
Issuers have not entered and will not enter into any agreement with respect to
any of the Company's securities that will grant to any Person piggy-back
registration rights with respect to a Registration Statement.
(b) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Issuers
shall not, directly or indirectly, take any action with respect to the
Registrable Securities as a class that would adversely affect the ability of the
Holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than with the
prior written consent of the Holders of not less than a majority in aggregate
principal amount of the then outstanding Registrable Securities. Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders of
Registrable Securities whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect, impair,
limit or compromise the rights of other Holders of Registrable Securities may be
given by Holders of at least a majority in aggregate principal amount of the
Registrable Securities being sold by such Holders pursuant to such Registration
Statement; PROVIDED, HOWEVER, that the provisions of this sentence may not be
amended, modified or supplemented except in
<PAGE>
-31-
accordance with the provisions of the immediately preceding sentence.
(d) NOTICES. All notices and other communications (including
without limitation any notices or other communications to the Trustee) provided
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
1. if to a Holder of the Registrable Securities or any
Participating Broker-Dealer, at the most current address of such Holder
or Participating Broker-Dealer, as the case may be, set forth on the
records of the registrar under the Indenture, with a copy in like
manner to the Initial Purchasers as follows:
BT ALEX. BROWN INCORPORATED
BEAR, STEARNS & CO. INC.
MORGAN STANLEY & CO. INCORPORATED
c/o BT Alex. Brown Incorporated
130 Liberty Street
New York, New York 10006
Facsimile No.: (212) 250-7200
Attention: Corporate Finance Department
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Facsimile No.: (212) 269-5420
Attention: William M. Hartnett, Esq.
2. if to the Initial Purchasers, at the addresses specified in
Section 10(d)(1)
<PAGE>
-32-
3. if to the Issuer, at the address as follows:
NEFF CORP.
3750 N.W. 87th Avenue
Miami, FL 33178
Facsimile No.: (305) 513-4155
Attention: Kevin P. Fitzgerald
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue, N.W.
Washington, DC 20004
Facsimile No.: (202) 639-7003
Attention: Stephen I. Glover, Esq.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; one business
day after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the Trustee at
the address and in the manner specified in such Indenture.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto; PROVIDED, HOWEVER, that this Agreement shall not inure to the benefit of
or be binding upon a successor or assign of a Holder unless and to the extent
such successor or assign holds Registrable Securities.
(f) COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WHOLLY
<PAGE>
-33-
WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT.
(i) SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(j) SECURITIES HELD BY THE ISSUERS OR THEIR AFFILIATES.
Whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by the
Issuers or their affiliates (as such term is defined in Rule 405 under the
Securities Act) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
(k)THIRD PARTY BENEFICIARIES. Holders of Registrable
Securities and Participating Broker-Dealers are intended third party
beneficiaries of this Agreement and this Agreement may be enforced by such
Persons.
(l) ENTIRE AGREEMENT. This Agreement, together with the
Purchase Agreement and the Indenture, is intended by the parties as a final and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein and any and all prior
oral or written agreements, representations, or warranties, contracts,
understandings, correspondence, conversations and memoranda between the Initial
Purchasers on the one hand and the Issuers on the other, or between or among any
agents, representatives, parents, subsidiaries, affiliates, predecessors in
interest or successors in interest with respect to the subject matter hereof and
thereof are merged herein and replaced hereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
NEFF CORP.
By:
--------------------------------------
Name:
Title:
NEFF RENTAL INC.
By:
--------------------------------------
Name:
Title:
NEFF MACHINERY INC.
By:
--------------------------------------
Name:
Title:
BT ALEX. BROWN INCORPORATED
By:
--------------------------------------
Name:
Title:
BEAR, STEARNS & CO. INC.
By:
--------------------------------------
Name:
Title:
MORGAN STANLEY & CO. INCORPORATED
By:
--------------------------------------
Name:
Title:
EXHIBIT 5.1
July __, 1998
(202) 639-7315
Board of Directors
Neff Corp.
3750 N.W. 87th Avenue
Miami, Florida 33166
Gentlemen:
We are acting as special counsel for Neff Corp., a Delaware
corporation (the "Company"), Neff Machinery, Inc., a Florida corporation ("Neff
Machinery"), and Neff Rental, Inc. ("Neff Rental," and together with Neff
Machinery, the "Guarantors," and together with Neff Machinery and the Company,
the "Issuers"), in connection with the offer by the Company to exchange up to
$100,000,000 aggregate principal amount of the Company's 10 1/4% Senior
Subordinated Notes due 2008 (the "New Notes"), which will be registered under
the Securities Act of 1933, as amended (the "Securities Act"), for a like
principal amount at maturity of the Company's issued and outstanding 10 1/4%
Senior Subordinated Notes due 2008 (the "Old Notes," and together with the New
Notes, the "Notes") (the "Exchange Offer") pursuant to the Registration
Statement on Form S-4 filed on July __, 1998, as amended (the "Registration
Statement") under the Securities Act. The Old Notes are, and the New Notes will
be, unconditionally guaranteed (the "Guarantees") by the Guarantors.
In connection with this opinion, we have (i) investigated such
questions of law, (ii) examined originals or certified, conformed or
reproduction copies of such agreements, instruments, documents and records of
each of the Issuers, (iii) examined such certificates of public officials,
officers or other representatives of each of the Issuers, and other persons, and
such other documents, and (iv) reviewed such information from officers and
representatives of each of the Issuers and others as we have deemed necessary or
appropriate for the purposes of this opinion.
<PAGE>
In all such examinations, we have assumed the legal capacity
of all natural persons executing documents (other than the capacity of officers
of the Company executing documents in such capacity), the genuineness of all
signatures on original or certified copies, and the conformity to original or
certified documents of all copies submitted to us as conformed or reproduction
copies. As to various questions of fact relevant to the opinions expressed
herein, we have relied upon, and assumed the accuracy of, certificates and oral
or written statements and other information of or from public officials,
officers or other representatives of each of the Issuers, and other persons.
To the extent that it may be relevant to the opinion expressed
herein, we have assumed, for purposes of the opinions expressed herein, that (i)
the trustee for the Notes (the "Trustee") has the power and authority to enter
into and perform the indenture for the Notes (the "Indenture"), (ii) the
Indenture has been duly authorized, executed and delivered by the Trustee and is
a valid and binding obligation of the Trustee, enforceable against the Trustee
in accordance with its terms and (iii) the Notes have been duly authenticated
and delivered by the Trustee.
Based upon the foregoing, and subject to the limitations,
qualifications and assumptions set forth herein, we are of the opinion that:
1. The New Notes have been duly and validly authorized by the Company,
and when duly executed by the proper officers of the Company and issued in
exchange for the Old Notes as contemplated by the Registration Statement, will
constitute valid and legally binding obligations of the Company, entitled to the
benefits of the Indenture, and enforceable against the Company in accordance
with their terms.
2. The Guarantees of the New Notes have bee duly authorized and, when
the New Notes have been duly executed and the Guarantees have been duly executed
in accordance with the terms of the Indenture, will constitute valid and legally
binding obligations of the Guarantors, entitled to the benefits of the
Indenture, and enforceable against the Guarantors in accordance with their
terms.
The enforceability and effectiveness of the provisions of the
New Notes and the Guarantees are limited by and subject to (i) applicable
bankruptcy, fraudulent conveyance, insolvency, regoranization, moratorium or
other similar laws now or hereafter in effect affecting creditors' rights
generally and (ii) general principles of equity (including, without limitation,
standards of materiality, good faith, fair dealing and reasonableness) whether
such principles are considered in a proceeding at law or in equity.
<PAGE>
The opinions expressed herein are limited to the federal laws of the
United States and the laws of the state of New York and, to the extent relevant
hereto, the General Corporation Law of the State of Delaware. We assume no
obligations to supplement this letter if any applicable laws change after the
date hereof or if we become aware of any facts that might change the opinions
expressed herein after the date hereof.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the prospectus forming a part of the Registration
Statement. In giving this consent, we do not hereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: ____________________________________
Stephen I. Glover
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Neff Machinery, Inc., Florida Corporation
Neff Rental, Inc., Florida Corporation
Sullair Argentina S.A., Argentine Corporation
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To Neff Corp.:
We consent to the use in this Registration Statement of Neff Corp. on Form
S-4 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 20, 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 hearings "Selected
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Miami, Florida
July 15, 1998
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Neff Corp. on Form
S-4 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 headings "Selected
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
July 15, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
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 filed by Neff Corp.
Arthur Andersen LLP
Houston, Texas
July 15, 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-4 of our report dated March 25, 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
July 16, 1998
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
STATE STREET BANK AND TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
Massachusetts 04-1867445
(JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER
ORGANIZATION IF NOT A U.S. NATIONAL BANK) IDENTIFICATION NO.)
225 Franklin Street, Boston, Massachusetts 02110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
NEFF CORP.
(NAME OF ISSUER)
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 65-0626400
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3750 N.W. 87TH AVENUE
MIAMI, FLORIDA 33178
(ADDRESS OF ISSUER)
(Address of principal executive offices) (Zip Code)
10.25 % SENIOR SUBORDINATED NOTES DUE 2008
(TYPE OF SECURITIES)
(TITLE OF INDENTURE SECURITIES)
<PAGE>
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with
the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference
thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE>
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 7TH OF JULY, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /S/ PHILIP G. KANE, JR.
-----------------------
NAME PHILIP G. KANE, JR.
TITLE VICE PRESIDENT
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by NEFF CORP.
of its 10 1/4% SENIOR SUBORDINATED NOTES DUE 2008 , we hereby consent that
reports of examination by Federal, State, Territorial or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /S/ PHILIP G. KANE, JR.
-----------------------
NAME PHILIP G. KANE, JR.
TITLE VICE PRESIDENT
DATED: JULY 7, 1998
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business MARCH 31, 1998,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
THOUSANDS OF
ASSETS DOLLARS
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin .............................. 1,144,309
Interest-bearing balances ....................................................... 9,914,704
Securities ............................................................................... 10,062,052
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ............................................. 8,073,970
Loans and lease financing receivables:
Loans and leases, net of unearned income ........................................ 6,433,627
Allowance for loan and lease losses ............................................. 88,820
Allocated transfer risk reserve.................................................. 0
Loans and leases, net of unearned income and allowances ......................... 6,344,807
Assets held in trading accounts .......................................................... 1,117,547
Premises and fixed assets ................................................................ 453,576
Other real estate owned .................................................................. 100
Investments in unconsolidated subsidiaries ............................................... 44,985
Customers' liability to this bank on acceptances outstanding ............................. 66,149
Intangible assets ........................................................................ 263,249
Other assets.............................................................................. 1,066,572
-----------
Total assets ............................................................................. 38,552,020
===========
LIABILITIES
Deposits:
In domestic offices ............................................................. 9,266,492
Noninterest-bearing .................................................... 6,824,432
Interest-bearing ....................................................... 2,442,060
In foreign offices and Edge subsidiary .......................................... 14,385,048
Noninterest-bearing .................................................... 75,909
Interest-bearing ....................................................... 14,309,139
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ............................................. 9,949,994
Demand notes issued to the U.S. Treasury and Trading Liabilities ......................... 171,783
Trading liabilities....................................................................... 1,078,189
Other borrowed money ..................................................................... 406,583
Subordinated notes and debentures ........................................................ 0
Bank's liability on acceptances executed and outstanding ................................. 66,149
Other liabilities ........................................................................ 878,947
Total liabilities ........................................................................ 36,203,185
-----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus............................................. 0
Common stock ............................................................................. 29,931
Surplus .................................................................................. 450,003
Undivided profits and capital reserves/Net unrealized holding gains (losses) ............. 1,857,021
Net unrealized holding gains (losses) on available-for-sale securities ................... 18,136
Cumulative foreign currency translation adjustments ...................................... (6,256)
Total equity capital ..................................................................... 2,348,835
-----------
Total liabilities and equity capital ..................................................... 38,552,020
-----------
</TABLE>
4
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,885
<SECURITIES> 0
<RECEIVABLES> 25,007
<ALLOWANCES> 1,092
<INVENTORY> 6,072
<CURRENT-ASSETS> 0
<PP&E> 208,524<F1>
<DEPRECIATION> 41,077<F1>
<TOTAL-ASSETS> 280,790
<CURRENT-LIABILITIES> 0
<BONDS> 228,523
53,747
0
<COMMON> 85
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 280,790
<SALES> 142,019
<TOTAL-REVENUES> 142,019
<CGS> 98,745
<TOTAL-COSTS> 98,745
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 957
<INTEREST-EXPENSE> 14,338
<INCOME-PRETAX> (8,141)
<INCOME-TAX> (1,748)
<INCOME-CONTINUING> 6,197
<DISCONTINUED> 0
<EXTRAORDINARY> (451)
<CHANGES> 0
<NET-INCOME> (6,844)
<EPS-PRIMARY> (1.74)
<EPS-DILUTED> (1.74)
<FN>
<F1>Includes Rental Equipment
</FN>
</TABLE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE
NEFF CORP.
10 1/4-% SENIOR SUBORDINATED NOTES DUE 2008
FOR REGISTERED 10 1/4-% SENIOR SUBORDINATED NOTES DUE 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
To: State Street Bank and Trust Company, The Exchange Agent
<TABLE>
<S> <C>
BY MAIL: OVERNIGHT COURIER:
State Street Bank & Trust Company State Street Bank & Trust Company
Corporate Trust Departmen Corporate Trust Department
P.O. Box 77 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: Kellie Mullen Attention: Kellie Mullen
BY HAND IN NEW YORK (AS DROP AGENT): BY HAND IN BOSTON:
State Street Bank & Trust Company, N.A. State Street Bank & Trust Company
61 Broadway Two International Place
15th Floor, Corporate Trust Window Fourth Floor, Corporate Trust Department
New York, New York 10006 Boston, Massachusetts 02110
FACSIMILE TRANSMISSION: CONFIRM BY TELEPHONE:
(For Eligible Institutions Only) (617) 664-5314
(617) 664-5290
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
The undersigned acknowledges that he or she has received the Prospectus
dated June , 1998 (the "Prospectus") of Neff Corp., a Delaware corporation
(the "Company") and this Letter of Transmittal (the "Letter of Transmittal"),
which together constitute the Company's offer (the "Exchange Offer") to
exchange $1,000 principal amount of its 10-% Senior Subordinated Notes due
2008, (the "New Notes"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement
of which the Prospectus is a part, for each $1,000 principal amount of its
outstanding 10-% Senior Subordinated Notes due 2008 (the "Old Notes"), of which
$100,000,000 principal amount is outstanding. Other capitalized terms used but
not defined herein have the meaning given to them in the Prospectus.
The Letter of Transmittal is to be used by Holders of Old Notes (i) if
certificates representing the Old Notes are to be physically delivered herewith
or (ii) if tender of Old Notes is to be made according to the guaranteed
delivery procedures described in the Prospectus.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this letter in its entirety.
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
<TABLE>
<CAPTION>
DESCRIPTION OF 10 1/4 SENIOR SUBORDINATED NOTES DUE 2008 (OLD NOTES)
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
AGGREGATE PRINCIPAL TENDERED (MUST BE
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S): CERTIFICATE AMOUNT REPRESENTED IN INTEGRAL MULTIPLE
(PLEASE FILL IN, IF BLANK) NUMBER(S) OF CERTIFICATE(S) OF $1,000)*
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
------------- --------------------- ---------------------
------------- --------------------- ---------------------
------------- --------------------- ---------------------
------------- --------------------- ---------------------
TOTAL
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Unless indicated in the column labeled "Principal Amount Tendered," any
tendering Holder of Old Notes will be deemed to have tendered the entire
aggregate principal amount represented by the column labeled "Aggregate
Principal Amount Represented by Certificate(s)."
If the space provided above is inadequate, list the certificate numbers and
principal amounts on a separate signed schedule and affix the list to this
Letter of Transmittal. The minimum permitted tender is $1,000 in principal
amount of Old Notes. All tenders must be integral multiples of $1,000.
<TABLE>
<S> <C>
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4, 5 and 6) (See Instructions 4, 5 and 6)
To be completed ONLY if certificates for Old
To be completed ONLY if certificates for Notes in a principal amount or not accepted for
Old Notes in a principal amount or not exchanges, or New Notes issued in exchange for Old
accepted for exchanges, or New Notes issued in Notes accepted for exchange, are to be sent to
exchanges for Old Notes accepted for someone other than the undersigned, or to the
exchange, are to be issued in the name of undersigned at an address other than that shown
someone other than the undersigned. above.
Name:_______________________________ Name:_______________________________
Address:____________________________ Address:____________________________
____________________________________ ____________________________________
(Zip Code) (Zip Code)
____________________________________ ____________________________________
(Taxpayer Identification (Taxpayer Identification
or Social Security No.) or Social Security No.)
</TABLE>
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:_________________________________________________________________________
Address:______________________________________________________________________
2
<PAGE>
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company the principal amount of Old Notes indicated
above. Subject to and effective upon the acceptance for exchange of the
principal amount of Old Notes tendered in accordance with this Letter of
Transmittal, the undersigned sells, assigns and transfers to, or upon the order
of, the Company, all right, title and interest in and to the Old Notes tendered
hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent its agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as the agent of the Company) with respect to the
tendered Old Notes with full power of substitution to (i) deliver certificates
for such Old Notes to the Company and deliver all accompanying evidences of
transfer and authenticity to, or upon the order of, the Company and (ii)
present such Old Notes for transfer on the books of the Company and receive all
benefits and otherwise exercise all rights of beneficial ownership of such Old
Notes, all in accordance with the terms of the terms of the Exchange Offer. The
power of attorney granted in this paragraph shall be deemed irrevocable and
coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim, when the same are acquired by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the Holder, that neither the Holder nor any such other person has an
arrangement with any person to participate in the distribution of such New
Notes within the meaning of the Securities Act and that neither the Holder nor
any such other person is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company or any of its subsidiaries or, if such Holder is
an "affiliate," that such Holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent
applicable. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If the undersigned is a broker-dealer that will
receive New Notes, it represents that the Old Notes to be exchanged for New
Notes were acquired as a result of market-making activities or other trading
activities, and it acknowledges that it will deliver a prospectus in connection
with any resale of such New Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. The undersigned
will, upon request, execute and deliver any additional documents deemed by the
Exchange Agent or the Company to be necessary or desirable to complete the
assignment, transfer and purchase of the Old Notes tendered hereby.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Old Notes when, as and if the Company has given oral
or written notice thereof to the Exchange Agent.
If any tendered Old Notes are not accepted for exchange pursuant to the
Exchange Offer for any reason, certificates for any such unaccepted Old Notes
will be returned, without expense, to the undersigned at the address shown
below or at a different address as may be indicated herein under "Special
Payment Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer--Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Payment Instructions," please
issue the certificates representing the New Notes issued in exchange for the
Old Notes accepted for exchange and return any Old Notes not tendered or not
exchanged in the name(s) of the undersigned. Similarly, unless otherwise
indicated under "Special Delivery
3
<PAGE>
Instructions," please send the certificates representing the New Notes issued
in exchange for the Old Notes accepted for exchange and any certificates for
Old Notes not tendered or not exchanged (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signatures. In the event that both "Special Payment Instructions" and "Special
Delivery Instructions" are completed, please issue the certificates
representing the New Notes issued in exchange for the Old Notes accepted for
exchange and return any Old Notes not tendered or not exchanged in the name(s)
of, and send said certificates to, the person(s) so indicated. The undersigned
recognizes that the Company has no obligation pursuant to the "Special Payment
Instructions" and "Special Delivery Instructions" to transfer any Old Notes
from the name of the registered holder(s) thereof if the Company does not
accept for exchange any of the Old Notes so tendered.
Holders of the Old Notes who wish to tender their Old Notes and (i) whose
Old Notes are not immediately available or (ii) who cannot deliver their Old
Notes, this Letter of Transmittal or any other documents required hereby to the
Exchange Agent prior to the Expiration Date, may tender their Old Notes
according to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer--Guaranteed Delivery Procedures." See
Instruction 1 regarding the completion of the Letter of Transmittal printed
below.
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
X ___________________________________________________ Date:______________
X ___________________________________________________ Date:______________
Signature(s) of Registered Holder(s)
or Authorized Signatory
Area Code and Telephone No.:____________________________________________________
The above lines must be signed by the registered holder(s) of Old Notes as
their name(s) appear(s) on the Old Notes or by person(s) authorized to become
registered holder(s) by a properly completed bond power from the registered
holder(s), a copy of which must be transmitted with this Letter of Transmittal.
If Old Notes to which this Letter of Transmittal relates are held of record by
two or more joint holders, then all such holders must sign this Letter of
Transmittal. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person must (i) set forth his or her
full title below and (ii) unless waived by the Company, submit evidence
satisfactory to the Company of such person's authority so to act. See
Instruction 5 regarding the completion of this Letter of Transmittal printed
below.
Name(s):________________________________________________________________________
(Please Print)
Capacity:_______________________________________________________________________
Address:________________________________________________________________________
(Include Zip Code)
Signature(s) Guaranteed by an Eligible Institution
(If required by Instruction 5)
________________________________________________________________________________
(Authorized Signature)
________________________________________________________________________________
(Title)
________________________________________________________________________________
(Name of Firm)
Dated:__________, 1998
4
<PAGE>
INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Old Notes.
The tendered Old Notes, as well as a properly completed and duly executed
copy of this Letter of Transmittal or facsimile hereof and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth herein prior to 5:00 P.M., New York City time, on the
Expiration Date. The method of delivery of the tendered Old Notes, this Letter
of Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the Holder and, except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange Agent.
Instead of delivery by mail, it is recommended that the Holder use an overnight
or hand delivery service. If sent by mail, it is recommended that registered
mail, properly insured, with return receipt requested, be used. In all cases,
sufficient time should be allowed to assure delivery to the Exchange Agent
before the Expiration Date. No Letter of Transmittal or Old Notes should be
sent to the Company.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, this Letter
of Transmittal or any other documents required hereby to the Exchange Agent
prior to 5:00 P.M., New York City time, on the Expiration Date, must tender
their Old Notes according to the guaranteed delivery procedures set forth in
the Prospectus. Pursuant to such procedures: (i) such tender must be made by or
through a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (an "Eligible Institution"); (ii) prior to the
Expiration Date, the Exchange Agent must have received from the Eligible
Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the Holder of the Old Notes, the certificate number or
numbers of such Old Notes and the principal amount of Old Notes tendered,
stating that the tender is being made thereby and guaranteeing that, within
three business days after the date of the execution of the Notice of Guaranteed
Delivery , this Letter of Transmittal (or facsimile hereof) together with the
certificates representing the Old Notes and any other required documents will
be deposited by the Eligible Institution with the Exchange Agent; and (iii)
such properly completed and executed Letter of Transmittal (or facsimile
hereof), as well as all other documents required by this Letter of Transmittal
and the certificates representing all tendered Old Notes in proper form for
transfer, must be received by the Exchange Agent within three business days
after the date of the execution of the Notice of Guaranteed Delivery , all as
provided in the Prospectus under the caption "The Exchange Offer--Guaranteed
Delivery Procedures." Any Holder of Old Notes who wishes to tender his or her
Old Notes pursuant to the guaranteed delivery procedures described above must
ensure that the Exchange Agent receives the Notice of Guaranteed Delivery prior
to 5:00 P.M., New York City time, on the Expiration Date. Upon request of the
Exchange Agent, a Notice of Guaranteed Delivery will be sent to Holders who
wish to tender their Old Notes according to the guaranteed delivery procedures
set forth above.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which might, in the judgment of the Company or
counsel for the Company, be unlawful. The Company also reserves the absolute
right to waive any defects or irregularities or conditions of tender as to the
Exchange Offer and/or particular Old Notes. The Company's interpretation of the
terms and conditions of the Exchange Offer (including the instructions in this
Letter of Transmittal) shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
must be cured within such reasonable period of time as the Company shall
determine. Neither the Company, the Exchange Agent nor any other person shall
be under any duty to give notification of defects or irregularities with
respect to tenders of Old Notes, nor shall any of them incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by
5
<PAGE>
the Exchange Agent to the tendering Holders of Old Notes, unless otherwise
provided in this Letter of Transmittal, as soon as practicable following the
Expiration Date.
2. Tender by Holder.
Only a Holder of Old Notes may tender such Old Notes in the Exchange
Offer. Any beneficial holder of Old Notes who is not the registered holder and
who wishes to tender should arrange with the registered holder to execute and
deliver this Letter of Transmittal on his or her behalf or must, prior to
completing and executing this Letter of Transmittal and delivering his or her
Old Notes, either make appropriate arrangements to register ownership of the
Old Notes in such holder's name or obtain a properly completed bond power from
the registered holder.
3. Partial Tenders.
Tenders of Old Notes will be accepted only in integral multiples of
$1,000. If less than the entire principal amount of any Old Notes is tendered,
the tendering Holder should fill in the principal amount tendered in the fourth
column of the box entitled "Description of 10-% Senior Subordinated Notes due
2008 (Old Notes)" above. The entire principal amount of Old Notes delivered to
the Exchange Agent will be deemed to have been tendered unless otherwise
indicated. If the entire principal amount of all Old Notes is not tendered,
then Old Notes for the principal amount of Old Notes not tendered and a
certificate or certificates representing New Notes issued in exchange for any
Old Notes accepted will be sent to the Holder at his or her registered address,
unless a different address is provided in the appropriate box on this Letter of
Transmittal and Consent, promptly after the Old Notes are accepted for
exchange.
4. Withdrawal of Tenders.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the name
of the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the registered number or
numbers and principal amount of such Old Notes or, in the case of Old Notes
transferred by book-entry transfer, the name and number of the account at the
Book-Entry Transfer Facility to be credited), (iii) be signed by the Holder in
the same manner as the original signature on the Letter of Transmittal by which
such Old Notes were tendered (including any required signature guarantees) or
be accompanied by documents of transfer sufficient to have State Street Bank &
Trust Company, the trustee with respect to the Old Notes (the "Trustee"),
register the transfer of such Old Notes into the name of the person withdrawing
the tender and (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no New Notes will be issued
with respect thereto unless the Old Notes so withdrawn are validly re-tendered.
Properly withdrawn Old Notes may be re-tendered by following one of the
procedures set forth in this letter at any time prior to 5:00 p.m., New York
City time, on the Expiration Date.
5. Signatures on the Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signatures.
If this Letter of Transmittal (or facsimile hereof) is signed by the
record Holder(s) of the Old Notes tendered hereby, the signature must
correspond with the name(s) as written on the face of the Old Notes without
alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of Old Notes tendered and the certificate or
certificates for New Notes issued in exchange therefor are to be issued (or any
untendered principal amount of Old Notes is to be reissued) to the registered
Holder, the said Holder need not and should not endorse any tendered Old Notes,
nor provide a separate bond power. In any other case, such Holder must either
properly endorse the Old Notes tendered or transmit a properly completed
separate bond power with this Letter of Transmittal, with the signatures on the
endorsement or bond power guaranteed by an Eligible Institution.
6
<PAGE>
If this Letter of Transmittal (or facsimile hereof) is signed by a person
or persons other than the registered Holder or Holders of any Old Notes listed,
such Old Notes must be endorsed or accompanied by appropriate bond powers, in
either case signed by the registered Holder or Holders exactly as the name or
names of the registered Holder or Holders appear on the Old Notes. If this
Letter of Transmittal (or facsimile hereof) or any Old Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact or
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, evidence satisfactory to the Company of their authority so to act
must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 4 must be guaranteed by an Eligible Institution.
Except as otherwise provided below, all signatures on this Letter of
Transmittal (or facsimile hereof) must be guaranteed by an Eligible
Institution. Signatures on this Letter of Transmittal need not be guaranteed if
(i) this Letter of Transmittal is signed by the registered Holder(s) of the Old
Notes tendered herewith and such Holder(s) have not completed the box set forth
herein entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions" or (ii) such Old Notes are tendered for the account of
an Eligible Institution.
6. Special Payment and Delivery Instructions.
Tendering Holders should indicate, in the applicable box or boxes, the
name and address to which New Notes or substitute Old Notes for principal
amounts not tendered or not accepted for exchange are to be issued or sent, if
different from the name and address of the person signing this Letter of
Transmittal. In the case of issuance in a different name, the taxpayer
identification or social security number of the person named must also be
indicated.
7. Tax Identification Number.
Federal income tax law requires that a Holder whose offered Old Notes are
accepted for exchange must provide the Company (as payor) with his, her or its
correct Taxpayer Identification Number ("TIN"), which, in the case of an
exchanging Holder who is an individual, is his or her social security number.
If the Company is not provided with the correct TIN or an adequate basis for
exemption, such Holder may be subject to a $50 penalty imposed by the Internal
Revenue Service (the "IRS"). In addition, delivery to such Holder of New Notes
may be subject to backup withholding in an amount equal to 31% of the gross
proceeds resulting from the Exchange Offer. If withholding results in an
overpayment of taxes, a refund may be obtained from the IRS by the Holder.
Exempt Holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9."
To prevent backup withholding, each exchanging Holder must provide his,
her or its correct TIN by completing the Substitute Form W-9 enclosed herewith,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN) and that (i) the Holder is exempt from backup withholding, (ii) the Holder
has not been notified by the IRS that he, she or it is subject to backup
withholding as a result of a failure to report all interest or dividends or
(iii) the IRS has notified the Holder that he, she or it is no longer subject
to backup withholding. In order to satisfy the Exchange Agent that a foreign
individual qualifies as an exempt recipient, such Holder must submit a
statement signed under penalty of perjury attesting to such exempt status. Such
statements may be obtained from the Exchange Agent. If the Old Notes are in
more than one name or are not in the name of the actual owner, consult the
Substitute Form W-9 for information on which TIN to report. If you do not
provide your TIN to the Company within 60 days, backup withholding will begin
and continue until you furnish your TIN to the Company.
8. Transfer Taxes.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other
7
<PAGE>
than the registered Holder of the Old Notes tendered hereby, or if tendered Old
Notes are registered in the name of any person other than the person signing
this Letter of Transmittal, or if a transfer tax is imposed for any reason
other than the exchange of Old Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered Holder or
on any other persons) will be payable by the tendering Holder. If satisfactory
evidence of payment of taxes or exemption from taxes is not submitted with this
Letter of Transmittal, the amount of transfer taxes will be billed directly to
the tendering Holder.
Except as provided in this Instruction 8, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
9. Waiver of Conditions.
The Company reserves the absolute right to amend, waive or modify
specified conditions in the Exchange Offer in the case of any Old Notes
tendered.
10. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any tendering Holder whose Old Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated herein for
further instructions.
11. Requests for Assistance or Additional Copies.
Questions and requests for assistance and requests for additional copies
of the Prospectus or this Letter of Transmittal may be directed to the Exchange
Agent at the address specified in the Prospectus. Holders may also contact
their broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Exchange Offer.
(DO NOT WRITE IN SPACE BELOW)
- --------------------------------------------------------------------------------
CERTIFICATE SURRENDERED OLD NOTES TENDERED OLD NOTES ACCEPTED
- --------------------------------------------------------------------------------
- ----------------------------- ------------------------ -----------------------
- ----------------------------- ------------------------ -----------------------
- ----------------------------- ------------------------ -----------------------
Delivery Prepared by ________ Checked By ___________ Date__________________
- ----------------------------- ------------------------ -----------------------
- ----------------------------- ------------------------ -----------------------
8
<PAGE>
PAYOR'S NAME: NEFF CORP.
SUBSTITUTE Name (if joint names, list first and circle the name of the person
or entity whose number you enter in Part I below. See instructions
if your name has changed.)
- ----------------------------------------------------------------------------
PART 1-PLEASE PROVIDE YOUR _______________________
TAXPAYER IDENTIFICATION NUMBER Social Security Number
("TIN") IN THE BOX AT RIGHT AND OR
CERTIFY BY SIGNING AND DATING _______________________
BELOW Employer Idenfification
Number
=============================================================
PART 2-Certification-Under penalties of
perjury, I certify that: PART 3
(1) The number shown on this form is my
correct Taxpayer Identification Awaiting TIN [ ]
Number (or I am waiting for a number
to be issued to me) and
(2) I am not subject to backup withholding
(i) I am exempt from backup
withholding, (ii) I have not been
notified by the Internal Revenue
SUBSTITUTE Service ("IRS") that I am subject
to backup withholding as a result
FORM W-9 of failure to report all interest or
DEPARTMENT OF THE dividends, or (iii) the IRS has
TREASURY notified me that I am no longer
INTERNAL REVENUE subject to backup withholding.
SERVICE
Certificate instructions-You must
PAYER'S REQUEST cross out item (2) in Part 2 above
FOR TAXPAYER if you have been notified by the IRS
IDENTIFICATION that you are subject to backup
NUMBER ("TIN") withholding because of under
reporting interest of dividends on
your tax return. However, if after
being notified by the IRS that you
were subject to backup withholding
you received another notification
from the IRS stating that you are no
longer subject to backup withholding,
do not cross out item (2).
SIGNATURE............DATE........1996
NAME (PLEASE PRINT)..................
- --------------------------------------------------------------------------------
Note: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
9
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Obtaining a Number
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and apply
for a number.
Payees Exempt from Backup Withholding
Payees specifically exempted from backup withholding on ALL payments
include the following:
/bullet/ A corporation.
/bullet/ An organization exempt from tax under section 501(a), or an
individual retirement plan, or a custodial account under
Section 403(b)(7).
/bullet/ The United States or any agency or instrumentality thereof.
/bullet/ A state, the District of Columbia, a possession of the United
States, or any subdivision or instrumentality thereof, or a
foreign government or any political subdivision, agency or
instrumentality thereof.
/bullet/ An international organization or any agency or instrumentality
thereof.
/bullet/ A foreign central bank of issue.
/bullet/ A registered dealer in securities or commodities registered in
the U.S. or a possession of the U.S.
/bullet/ A futures commission merchant registered with the Commodity
Futures Trading Commission.
/bullet/ A real estate investment.
/bullet/ An entity registered at all times during the tax year under
the Investment Company Act of 1940 or a common trust fund
operated by a bank under section 584(a).
/bullet/ A financial institution.
/bullet/ A middleman known in the investment community as a nominee or
listed in the most recent publication of the American Society
of Corporate Secretaries, Inc., Nominee List.
/bullet/ A trust exempt from tax under section 664 as described in
section 4947.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
/bullet/ Payments to nonresident aliens subject to withholding under
section 1441.
/bullet/ Payments to partnerships not engaged in a trade or business in
the U.S. and which have at least one nonresident partner.
/bullet/ Payments of patronage dividends where the amount received is
not paid in money.
/bullet/ Payments made by certain foreign organizations.
10
<PAGE>
Payments of interest not generally subject to backup withholding include
the following:
/bullet/ Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this
interest is $600 or more and is paid in the course of the
payor's trade or business and you have not provided your
correct taxpayer identification number to the payor.
/bullet/ Payments of tax-exempt interest (including exempt-interest
dividends under section 852).
/bullet/ Payments described in section 6049(b)(5) to nonresident
aliens.
/bullet/ Payments on tax-free covenant bonds under section 1451.
/bullet/ Payments made by certain foreign organizations.
/bullet/ Mortgage interest paid to you.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYOR, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYOR. ALSO SIGN AND DATE THE FORM. Certain payments other than interest,
dividends, and patronage dividends that are not subject to information
reporting are also not subject to backup withholding. For details, see the
regulations under sections 6041, 6041A(a), 6042, 6044, 6045, 6049, 6050A and
6050N.
Privacy Act Notice.--Section 6109 requires most recipients of dividend interest
or other payments to give taxpayer identification numbers to payors who must
report the payments to the IRS. The IRS uses the numbers for identification
purposes. Payors must be given the numbers whether or not recipients are
required to file tax returns. Payors must generally withhold 20% of taxable
interest, dividend, and certain other payments to a payee who does not furnish
a taxpayer identification number to a payor. Certain penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you
fail to furnish your taxpayer identification number to a payor, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) Civil Penalty for False Information With Respect to Withholding.--If
you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(3) Criminal Penalty for Falsifying Information.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT
OR THE INTERNAL REVENUE SERVICE.
11
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
101/4% SENIOR SUBORDINATED NOTES DUE 2008 IN
EXCHANGE FOR REGISTERED 101/4% SENIOR SUBORDINATED
NOTES DUE 2008
OF
NEFF CORP.
This form must be used to accept the Exchange Offer of Neff Corp. (the
"Company") made pursuant to the Prospectus dated , 1998 (the
"Prospectus") if certificates for the 101/4% Senior Subordinated Notes due 2008
(the "Old Notes") of the Company are not immediately available or if the Old
Notes, the Letter of Transmittal or any other documents required thereby cannot
be delivered to the Exchange Agent prior to 5:00 P.M., New York City time, on
the Expiration Date (as defined in the Prospectus). Such form may be delivered
by hand or transmitted by facsimile transmission, overnight courier or mail to
the Exchange Agent. Capitalized terms used but not defined herein have the
meaning given to them in the Prospectus.
The Exchange Agent for the Exchange Offer is:
STATE STREET BANK & TRUST COMPANY
<TABLE>
<S> <C>
BY MAIL: OVERNIGHT COURIER:
State Street Bank & Trust Company State Street Bank & Trust Company
Corporate Trust Department Corporate Trust Department
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: Kellie Mullen Attention: Kellie Mullen
BY HAND IN NEW YORK (AS DROP AGENT): BY HAND IN BOSTON:
State Street Bank & Trust Company, N.A. State Street Bank & Trust Company
61 Broadway Two International Place
15th Floor, Corporate Trust Window Fourth Floor, Corporate Trust Department
New York, New York 10006 Boston, Massachusetts 02110
FACSIMILE TRANSMISSION: CONFIRM BY TELEPHONE:
(For Eligible Institutions Only) (617) 664-5314
(617) 664-5290
</TABLE>
Delivery of this instrument to an address, or transmission of instructions
via a facsimile, other than as set forth above, does not constitute a valid
delivery.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal to be used to tender Old Notes is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the Letter
of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Neff Corp., a Delaware corporation (the
"Company"), upon the terms and subject to the conditions set forth in the
Prospectus and the Letter of Transmittal (which together constitute the
"Exchange Offer"), receipt of which is hereby acknowledged, (number
of Old Notes) Old Notes pursuant to the guaranteed delivery procedures set
forth in Instruction 1 of the Letter of Transmittal.
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW.
CERTIFICATE NO(S). FOR OLD NOTES NAME(S) OF RECORD HOLDER(S)
(IF AVAILABLE)
- ----------------------------------- -----------------------------
___________________________________ __________________________________________
Authorized Signature
___________________________________ __________________________________________
Please Print or Type
Address___________________________________
___________________________________
Area Code & Tel. No.______________________
Signature(s)______________________________
______________________________
Dated:____________________________________
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Old Notes exactly as its (their) name(s) appear on certificates
for Old Notes or on a security position listing as the owner of Old Notes, or
by person(s) authorized to become registered holder(s) by endorsements and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person must
provide the following information.
Please print name(s) and addresses)
Name(s):________________________________________________________________________
Capacity:_______________________________________________________________________
Address(es):____________________________________________________________________
The undersigned acknowledges that it must deliver the Letter of
Transmittal and Old Notes tendered hereby to the Exchange Agent within the time
period set forth and that failure to do so could result in financial loss to
the undersigned.
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), hereby (a) represents that the above named person(s) "own(s)" the Old
Notes tendered hereby within the meaning of Rule 10b-4 under the Exchange Act,
(b) represents that such tender of Old Notes complies with Rule l0b-4 under the
Exchange Act and (c) guarantees that delivery to the Exchange Agent of
certificates for the Old Notes tendered hereby, in proper form for transfer,
with delivery of a properly completed and duly executed Letter of Transmittal
(or manually signed facsimile thereof) with any required signature and any
other required documents, will be received by the Exchange Agent at one of its
addresses set forth above within three business days after the date of the
execution of the Notice of Guaranteed Delivery . The undersigned acknowledges
that it must deliver the Letter of Transmittal and Old Notes tendered hereby to
the Exchange Agent within the time period set forth and that failure to do so
could result in financial loss to the undersigned.
Name of Firm_______________________ ______________________________________
Authorized Signature
Address____________________________ Name__________________________________
Please Print or Type
____________________________ Title_________________________________
Zip Code
Area Code and Tel. No._____________ Date__________________________________
Dated:_____________________________
NOTE: DO NOT SEND OLD NOTES WITH THIS FORM; OLD NOTES SHOULD BE SENT WITH YOUR
LETTER OF TRANSMITTAL SO THAT THEY ARE RECEIVED BY THE EXCHANGE AGENT
WITHIN THREE BUSINESS DAYS AFTER THE DATE OF THE EXECUTION OF THE NOTICE
OF GUARANTEED DELIVERY.
