AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 1998
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------
NEFF CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7353 65-0626400
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
3750 N.W. 87TH AVENUE
MIAMI, FLORIDA 33178
(305) 513-3350
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KEVIN P. FITZGERALD
CHIEF EXECUTIVE OFFICER AND PRESIDENT
NEFF CORP.
3750 N.W. 87TH AVENUE
MIAMI, FLORIDA 33178
(305) 513-3350
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
STEPHEN I. GLOVER, ESQ. WILLIAM M. HARTNETT, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON CAHILL GORDON & REINDEL
1001 PENNSYLVANIA AVENUE, N.W. 80 PINE STREET
WASHINGTON, D.C. 20004 NEW YORK, NEW YORK 10005
(202) 639-7000 (212) 701-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
--------------
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<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================
TITLE OF EACH CLASS PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Class A Common Stock, par value $0.01 per share, and associated
Preferred Stock Purchase Rights(2) ................................ $125,000,000 $36,875
===================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933. The proposed
maximum offering price includes amounts attributable to shares that may be
purchased by the Underwriters to cover over-allotments, if any.
(2) The Preferred Stock Purchase Rights, which are attached to the shares of
Class A Common Stock of the registrant, will be issued for no additional
consideration; no additional registration fee is required.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED , 1998
SHARES
NEFF CORP.
CLASS A COMMON STOCK
---------------
OF THE SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY,
SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED
STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." ALL
OF THE SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY ARE BEING
SOLD BY THE COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET
FOR THE CLASS A COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT
THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER SHARE.
SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
---------------
APPLICATION WILL BE MADE TO LIST THE CLASS A COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "NFF."
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
PRICE$ A SHARE
---------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------- ---------------- ------------
PER SHARE ......... $ $ $
TOTAL(3) .......... $ $ $
- -------
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITERS."
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT
$ .
(3) THE COMPANY HAS GRANTED TO THE U.S. UNDERWRITERS AN OPTION, EXERCISABLE
WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF,
ADDITIONAL SHARES OF CLASS A COMMON STOCK AT THE PRICE TO PUBLIC
LESS UNDERWRITING DISCOUNTS AND COMMISSIONS, FOR THE PURPOSE OF COVERING
OVERALLOTMENTS, IF ANY. IF THE U.S. UNDERWRITERS EXERCISE SUCH OPTION IN
FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS
AND PROCEEDS TO COMPANY WILL BE $ , $ AND $ ,
RESPECTIVELY. SEE "UNDERWRITERS."
---------------
THE SHARES OF CLASS A COMMON STOCK ARE OFFERED, SUBJECT TO PRIOR SALE,
WHEN, AS AND IF ACCEPTED BY THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO
APPROVAL OF CERTAIN LEGAL MATTERS BY CAHILL GORDON & REINDEL, COUNSEL FOR THE
UNDERWRITERS. IT IS EXPECTED THAT DELIVERY OF THE SHARES WILL BE MADE ON OR
ABOUT , 1998 AT THE OFFICE OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK,
N.Y., AGAINST PAYMENT THEREFOR IN IMMEDIATELY AVAILABLE FUNDS.
---------------
MORGAN STANLEY DEAN WITTER
BT ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1998
<PAGE>
ART WORK TO COME 2
<PAGE>
Certain statements contained in this Prospectus that are not related to
historical results are forward-looking statements. Actual results may differ
materially from those projected or implied in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed under "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
Further, certain forward-looking statements are based upon assumptions as to
future events that may not prove to be accurate. These forward-looking
statements involve risks and uncertainties including, but not limited to, those
set forth under "Risk Factors."
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------
For investors outside the United States: No action has been or will be
taken in any jurisdiction by the Company or any Underwriter that would permit a
public offering of the Class A Common Stock or possession or distribution of
this Prospectus in any jurisdiction where action for that purpose is required,
other than in the United States. Persons into whose possession this Prospectus
comes are required by the Company and the Underwriters to inform themselves
about and to observe any restrictions as to the offering of the Class A Common
Stock and the distribution of this Prospectus.
---------------
TABLE OF CONTENTS
PAGE
-----
Prospectus Summary ............................. 4
Risk Factors ................................... 10
Use of Proceeds ................................ 16
Dividend Policy ................................ 16
Capitalization ................................. 17
Dilution ....................................... 18
Unaudited Pro Forma Consolidated
Financial Data .............................. 19
Selected Consolidated Financial Data ........... 21
Management's Discussion and Analysis
of Financial Condition and
Results of Operations ....................... 23
Business ....................................... 30
Management ..................................... 39
Principal Stockholders ......................... 47
Certain Relationships and Transactions ......... 48
Description of Certain Indebtedness ............ 49
Description of Capital Stock ................... 50
Shares Eligible for Future Sale ................ 58
Underwriters ................................... 60
Certain United States Tax Considerations for
Non-United States Holders ................... 64
Legal Matters .................................. 67
Experts ........................................ 67
Additional Information ......................... 67
Index to Financial Statements .................. F-1
No person is authorized in connection with any offering made hereby to
give any information or to make any representation not contained in this
Prospectus and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company or any Underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the shares of Class A Common Stock offered
hereby, nor does it constitute an offer to sell or solicitation of an offer to
buy any of the securities offered hereby to any person in any jurisdiction in
which it is unlawful to make such an offer or solicitation to such person.
Neither the delivery of this Prospectus nor any sale made in the Offering shall
under any circumstances imply that the information contained herein is correct
as of any date subsequent to the date hereof.
---------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR, AND PURCHASE, SHARES OF CLASS A COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES THERETO AND THE UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL DATA APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT
OTHERWISE REQUIRES, ALL REFERENCES TO "NEFF" OR THE "COMPANY" INCLUDE NEFF
CORP. AND ITS WHOLLY OWNED SUBSIDIARIES, NEFF RENTAL, INC. ("NEFF RENTAL") AND
NEFF MACHINERY, INC. ("NEFF MACHINERY"). UNLESS THE CONTEXT OTHERWISE REQUIRES,
ALL REFERENCES TO GENERAL ELECTRIC CAPITAL CORPORATION ("GE CAPITAL") INCLUDE
ITS AFFILIATE GECFS, INC. UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES
TO "COMMON STOCK" INCLUDE THE COMPANY'S CLASS A COMMON STOCK, PAR VALUE $.01
PER SHARE (THE "CLASS A COMMON STOCK") AND THE COMPANY'S CLASS B COMMON STOCK,
PAR VALUE $.01 PER SHARE (THE "CLASS B COMMON STOCK") AND REFLECT AN 84.65 FOR
1.00 STOCK SPLIT FOR EACH CLASS OF COMMON STOCK TO BE EFFECTED PRIOR TO THE
COMPLETION OF THE OFFERING. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS
PROSPECTUS ASSUMES THAT THE U.S. UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT
EXERCISED.
THE COMPANY
Neff is one of the largest and fastest growing equipment rental companies
in the United States, with 68 rental locations in 15 states. The Company rents
a wide variety of equipment, including backhoes, air compressors, loaders,
lifts and compaction equipment to construction and industrial customers. The
Company also acts as a dealer of new equipment on behalf of several nationally
recognized equipment manufacturers. In addition, the Company sells used
equipment, spare parts and merchandise and provides ongoing repair and
maintenance services. The Company has increased its total revenues from $67.3
million in 1995 to $142.0 million in 1997; pro forma for the Acquisitions (as
defined), the Company's total revenues for 1997 were $198.3 million.
According to industry sources, the equipment rental industry grew from
approximately $600 million in revenues in 1982 to an estimated $18 billion in
1997. This growth has been driven primarily by construction and industrial
companies that have increasingly outsourced equipment needs to reduce
investment in non-core assets and convert costs from fixed to variable. The
equipment rental industry is highly fragmented, with an estimated 17,000
equipment rental companies in the United States. As a result, the Company
believes that there are substantial consolidation opportunities for
well-capitalized operators such as the Company. According to RENTAL EQUIPMENT
REGISTER and studies prepared by Manfredi & Associates, Inc. on the size of the
equipment rental market, no single company's revenues represented more than 2%
of total market revenues in 1996. Relative to smaller competitors, the Company
has several advantages, including increased purchasing power, larger
inventories to service larger accounts and the ability to transfer equipment
among rental locations in response to changing patterns of customer demand.
COMPETITIVE STRENGTHS
The Company believes it has several competitive strengths which provide it
with the opportunity for continued growth and increased profitability.
STRONG MARKET POSITION. The Company is one of the largest and fastest
growing construction and industrial equipment rental companies in the United
States, and is a leading competitor with a significant presence in the
Southeast and Gulf Coast regions. The Company operates 68 rental locations in
15 states, including Florida, Georgia, Alabama, Mississippi, South Carolina,
North Carolina, Tennessee, Louisiana, Texas, Oklahoma, Arizona, Nevada, Utah,
California and Colorado. From December 31, 1995 to December 31, 1997, pro forma
for the Richbourg Acquisition (as defined), the Company increased its equipment
rental locations from eight to 68 and expanded its rental fleet from
4
<PAGE>
$62 million to $321 million based on original cost. The Company believes its
dealership operations complement its equipment rental operations by providing
it with competitive advantages over competitors which only rent equipment.
These advantages include the ability to achieve favorable pricing by combining
equipment purchases for its dealership and rental fleets; the reduction of
costs in certain locations by sharing service, maintenance and administrative
personnel; and better knowledge of certain local markets by pooling management
information. In addition, management believes the Company's size and geographic
diversity help insulate it from regional economic downturns.
HIGH QUALITY RENTAL FLEET. Management believes the Company has one of the
newest, most comprehensive and well-maintained rental fleets in the equipment
rental industry. As of December 31, 1997, pro forma for the Richbourg
Acquisition, the average age of the Company's rental fleet was approximately 23
months. The Company makes ongoing capital investment in new equipment, engages
in regular sales of new equipment and conducts an advanced preventative
maintenance program. Management believes this maintenance program increases
fleet utilization, extends the useful life of equipment and produces higher
resale values.
EXCELLENT CUSTOMER SERVICE. The Company differentiates itself from its
competitors by providing high quality, responsive service to its customers.
Service initiatives include (i) reliable on-time equipment delivery directly to
customers' job sites, (ii) on-site repairs and maintenance of rental equipment
by factory trained mechanics, generally available 24 hours a day, seven days a
week and (iii) ongoing training of an experienced sales force to consult with
customers regarding their equipment needs.
STATE-OF-THE-ART MANAGEMENT INFORMATION SYSTEM. The Company has developed
a customized, state-of-the-art management information system capable of
monitoring operations at up to 300 sites. The Company uses this system to
maximize fleet utilization and determine the optimal fleet composition by
market. The system links all of the Company's rental locations and allows
management to track customer and sales information, as well as the location,
rental status and maintenance history of every piece of equipment in the rental
fleet. Rental location managers can search the Company's entire rental fleet
for needed equipment, quickly determine the closest location of such equipment,
and arrange for delivery to the customer's work site, thus maximizing equipment
utilization.
EXPERIENCED MANAGEMENT TEAM. Since 1995, the Company has significantly
increased the quality and depth of its management team to help oversee its
growth strategy. Neff's senior management team has extensive experience in the
equipment rental industry and its seven regional managers have, on average, 17
years of experience and substantial knowledge of the local markets served
within their regions. The Company believes that its management team has the
ability to continue the Company's strong growth as well as manage the Company
on a much larger scale. The Company is not dependent on recruiting additional
operating, acquisition, finance or other personnel to implement its growth
strategy. Management believes one of its affiliates, MasTec, Inc., and one of
its major stockholders, GE Capital, 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 integrates the operations of the
acquired
5
<PAGE>
company into its management information system, consolidates equipment
purchasing and resale functions and centralizes fleet management as quickly as
possible while assuring consistent, high-quality service to the acquired
company's customers. Since July 1997, the Company has made two strategic
acquisitions which have more than doubled the Company's number of rental
locations, significantly enhanced the Company's geographic presence and further
diversified the Company's customer base. The Company also has three letters of
intent outstanding to acquire additional equipment rental companies. See
"--Recent Acquisitions and Developments."
INCREASE PROFITABILITY OF RECENTLY OPENED RENTAL LOCATIONS. Since March 1,
1995, the Company has opened 21 start-up rental equipment locations including
11 locations in 1997. Management believes the Company's financial performance
does not yet fully reflect the benefit of these rental locations. Based on the
Company's historical experience, a new equipment rental location tends to
realize significant increases in revenues, cash flow and profitability during
the first three years of operation as more prospective customers become aware
of its operation and as the rental equipment fleet is customized to local
market demand. Because there is relatively little incremental operating expense
associated with such revenues, cash flow and profitability increase
significantly as a rental location matures. Although the Company intends to
expand primarily through acquisitions, management intends to open additional
start-up locations in markets where the Company has not been able to identify
attractive acquisition candidates. The Company plans to open five to seven
additional branches in 1998.
INCREASE FLEET AT EXISTING LOCATIONS. Management believes it can
capitalize on the demand for rental equipment in the markets it serves and
increase revenues by increasing the size of the rental fleet and adding new
product lines at existing locations. Management believes that this strategy
allows the Company to attract new customers and serve as a single source
supplier for its customers. Because the start-up expenditures associated with
increasing the fleet and expanding product lines at existing locations are
relatively modest, these investments typically generate higher and faster
returns than investments in new locations.
SELECTIVE EXPANSION OF DEALERSHIP OPERATIONS. The Company intends to
selectively expand its dealership operations. The Company believes it can
realize significant economies of scale by expanding its dealership operations
in areas where it has already established equipment rental operations. The
Company's distributor relationships and the combined purchasing volume of its
dealership and rental operations allow it to acquire inventory at favorable
prices and terms. The Company's dealership operations also allow it to reduce
overhead costs by sharing service, maintenance and administrative personnel
with its rental operations, as well as generating better knowledge of local
markets through the sharing of information. The Company also intends to expand
its dealership operations to areas where it does not yet have equipment rental
operations.
RECENT ACQUISITIONS AND DEVELOPMENTS
On August 1, 1997, the Company acquired Industrial Equipment Rentals,
Inc., the parent company of Buckner Rental Service, Inc. ("Buckner," such
aquisition, the "Buckner Acquisition"). Buckner is a leading provider of rental
equipment in the Gulf Coast region with 26 locations in Texas, Louisiana,
Mississippi and Alabama. During 1997, Buckner served over 39,500 customers in
the oil and gas, industrial/petrochemical and construction industries. The
Buckner Acquisition gives the Company a greater presence in the Gulf Coast
region and further diversifies the Company's customer base by significantly
increasing its strength in the industrial sector.
Effective January 1, 1998, the Company acquired substantially all of the
assets of Richbourg's Sales and Rentals, Inc. ("Richbourg," such acquisition,
the "Richbourg Acquisition" and, together with the Buckner Acquisition, the
"Acquisitions"). Richbourg is a leading provider of rental equipment in the
Southeast region with 17 locations in Florida, North Carolina, South Carolina
and Georgia. During
6
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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 February 1998, the Company entered into letters of intent to acquire
three equipment rental companies with aggregate 1997 revenues of approximately
$11.5 million. 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.
COMPANY HISTORY
The Company was founded in 1988 and is owned by the Mas family, GE Capital
and Santos Fund I, L.P., a Texas limited partnership ("Santos") which is owned
by the Mas family and Kevin P. Fitzgerald, the Chief Executive Officer and
President of the Company. The Mas family is also the principal stockholder of
MasTec, Inc., a public company traded on the New York Stock Exchange and one of
the largest providers of telecommunications-related engineering and
construction services in the United States, South America and Europe. In 1995,
the Company entered into a strategic partnership with GE Capital to take
advantage of growth and consolidation opportunities in the equipment rental
industry. See "Certain Relationships and Transactions."
The Company's chief executive offices are located at 3750 N.W. 87th
Avenue, Miami, Florida, 33178 and its telephone number is (305) 513-3350.
7
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THE OFFERING
Class A Common Stock Offered by the Company
U.S. Offering ............................... shares
International Offering ...................... shares
Total ...................................... shares
Common Stock to be outstanding immediately
after the Offering
Class A Common Stock ........................ shares(1)
Class B Common Stock(2) ..................... shares(2)
Total ...................................... shares
Use of Proceeds to the Company ................ The net proceeds of the
Offering will be used for the
repayment of indebtedness. See
"Use of Proceeds".
Proposed New York Stock Exchange Symbol ....... NFF
- ----------------
(1) Excludes (i) 1,000,000 additional shares of Class A Common Stock reserved
for issuance in connection with the Company's Incentive Stock Plan, (ii)
additional shares of Class A Common Stock reserved for issuance in
connection with options granted to Kevin P. Fitzgerald, the Chief
Executive Officer and President of the Company, and (iii) 84,650
additional shares of Class A Common Stock reserved for issuance in
connection with options granted to Robert G. Warren, Senior Vice
President of Neff Machinery.
(2) The holders of Class A and Class B Common Stock are entitled to one vote
per share on all matters submitted to a vote of the stockholders. Upon the
liquidation, dissolution or winding up of the Company, after satisfaction
of all of the Company's liabilities and the payment of the liquidation
preference of any preferred stock that may be outstanding, the holder of
each share of Class B Common Stock is entitled to receive before any
distribution or payment is made upon any other capital stock of the
Company, an amount in cash equal to $11.67.
RISK FACTORS
See "Risk Factors" for information concerning certain factors that should
be considered by prospective investors.
8
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SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PRO FORMA AS
YEAR ENDED DECEMBER 31, ADJUSTED(2)
---------------------------------------------------------------------- -------------
1993(1) 1994 1995 1996 1997 1997
------------ ------------ ------------ ----------- ----------- -------------
(DOLLARS IN THOUSANDS)
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STATEMENT OF OPERATIONS DATA:
Total revenues ..................... $ 43,834 $ 49,526 $ 67,254 $ 95,013 $ 142,019 $198,310
Gross profit(3) .................... 10,549 14,711 17,972 25,320 43,274 66,293
Selling, general and administrative
expenses ......................... 6,078 8,493 10,956 18,478 30,129 42,679
Officer stock option
compensation(4) .................. -- -- -- -- 4,400 4,400
Income from operations ............. 3,857 5,993 6,100 5,410 6,197 13,748
Income (loss) before extraordinary
items(5) ......................... 1,663 2,712 1,834 (1,388) (6,393)
Income (loss) before extraordinary
items per share ..................
Weighted average common shares
outstanding(6) ................... 8,465 8,465 8,465 8,465 8,465
OTHER DATA:
EBITDA(7) .......................... $ 10,255 $ 15,129 $ 18,763 $ 26,695 $ 37,635 $ 63,110
EBITDA margin(8) ................... 23.4% 30.5% 27.9% 28.1% 26.5% 31.8%
Number of rental locations
(end of period) .................. 5 6 8 16 53
BALANCE SHEET DATA (END OF PERIOD):
Net book value of rental
equipment ........................ $ 18,418 $ 31,331 $ 47,989 $ 76,794 $ 184,787
Total assets ....................... 30,761 47,722 68,816 109,118 280,790
Total debt ......................... 27,747 38,603 48,345 58,250 226,203
Redeemable preferred stock ......... -- -- 11,430 46,299 53,747
Total common stockholders' equity
(deficit) ........................ 571 4,205 (1,931) (7,508) (24,735)
</TABLE>
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(1) The consolidated balance sheet data and statement of operations data for the
year ended December 31, 1993 is derived from financial statements of the
Company's two wholly-owned subsidiaries, Neff Rental and Neff Machinery,
each of which was individually audited by independent certified public
accountants.
(2) The summary consolidated pro forma as adjusted financial data are derived
from the Company's Unaudited Pro Forma Consolidated Financial Data
appearing elsewhere in this Prospectus. The Unaudited Pro Forma
Consolidated Financial Data were prepared by the Company to illustrate the
estimated effects of the Offering, the Acquisitions and related
transactions described in the Notes to the Unaudited Pro Forma
Consolidated Financial Data as if they had occurred as of January 1, 1997
for purposes of the unaudited pro forma consolidated statements of
operations and as of December 31, 1997 for purposes of the unaudited pro
forma consolidated balance sheets.
(3) Gross profit for 1996 and 1997 reflect the Company's change in depreciation
policy to recognize extended estimated service lives and increased
residual values of its rental equipment. See the Consolidated Financial
Statements and the Notes thereto appearing elsewhere in this Prospectus.
(4) Officer stock option compensation expense represents a noncash charge with
respect to the change in estimated market value of the shares to be issued
to Kevin P. Fitzgerald under an option agreement.
(5) Prior to December 26, 1995, the Company operated as a Subchapter S
corporation under the provisions of the Internal Revenue Code. Income
(loss) before extraordinary items for 1993, 1994 and 1995 is restated to
reflect what the data would have been if the Company had Subchapter C
status in these years.
(6) Based on the number of shares outstanding as of . Assumes exercise of
options currently exercisable and exercisable within the next 60 days.
(7) EBITDA represents income from operations plus depreciation and amortization
and officer stock option compensation expenses. 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 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 EBITDA using the same methods; therefore, the EBITDA figures set
forth above may not be comparable to EBITDA reported by other companies.
(8) EBITDA margin represents EBITDA as a percentage of total revenues.
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RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS, IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, IN
EVALUATING AN INVESTMENT IN THE CLASS A COMMON STOCK OFFERED HEREBY.
RISKS INHERENT IN GROWTH STRATEGY
The Company has recently accelerated its growth, expanding the rental
equipment fleet at existing locations and adding eight locations in 1996 and 37
locations in 1997. The Company intends to continue this rapid growth over the
next five years by continuing to make acquisitions, expand its rental equipment
fleet at existing locations and open several new locations each year. There can
be no assurance that the Company will be able to identify acquisition
candidates and attractive new locations or obtain financing for acquisitions
and internal expansion on satisfactory terms, or at all. The Company's growth
strategy presents the risks inherent in assessing the value, strengths and
weaknesses of growth opportunities, in evaluating the costs and uncertain
returns of expanding the operations of the Company, and in integrating
acquisitions with existing operations. The Company expects that its growth
strategy will affect short-term cash flow and net income as the Company
increases the amount of its indebtedness and incurs expenses to open new
locations, make acquisitions and expand the rental fleet. There can be no
assurance that the Company will successfully expand, that any acquired
businesses will be successfully integrated into the Company's operations or
that any expansion will result in profitability. The Company's anticipated
growth will place significant demands on the Company's management and its
operational, financial and marketing resources. In connection with acquisitions
and the start-up of new branches, the Company anticipates experiencing growth
in the number of its employees, the scope of its operating and financial
systems and the geographic area of its operations. The Company believes this
growth will increase the operating complexity of the Company and the level of
responsibility exercised by both existing and new management personnel. To
manage this expected growth, the Company intends to invest further in its
operating and financial systems and to continue to expand, train and manage its
employee base. There can be no assurance that the Company will be able to
attract and retain qualified management and employees or that the Company's
current operating and financial systems and controls will be adequate as the
Company grows or that any steps taken to improve such systems and controls will
be sufficient. See "Business--Growth Strategy."
DEPENDENCE ON ADDITIONAL CAPITAL FOR FUTURE GROWTH; RESTRICTIONS UNDER TERMS OF
INDEBTEDNESS
The Company's ability to remain competitive, sustain its growth and expand
rental operations through start-up locations and acquisitions largely depends
on its access to capital. The Company must make ongoing capital expenditures to
maintain the age and condition of its rental equipment fleet in order to
provide its customers with high-quality equipment. Historically, the Company
has financed capital expenditures, start-up locations and acquisitions
primarily through the incurrence of indebtedness, cash flow from operations
and, to a lesser extent, the issuance of equity securities. To implement its
growth strategy and meet its capital needs, the Company may in the future issue
additional equity securities or may incur additional indebtedness. Such
additional indebtedness may make the Company more vulnerable to economic
downturns and may limit its ability to withstand competitive pressures. There
can be no assurance that additional capital, if and when required, will be
available on terms acceptable to the Company, or at all. Failure by the Company
to obtain sufficient additional capital in the future could force the Company
to curtail its growth or delay capital expenditures, which could have a
material adverse effect on the Company and the market price of the Class A
Common Stock.
The Company has entered into a commitment letter with Bankers Trust
Company to amend and restate the Company's existing $250 million revolving
credit facility (the "Senior Credit Facility," and, as amended and restated,
the "New Credit Facility"). The Company expects the New Credit Facility will be
in place upon consummation of the Offering.
The Company's ability to finance future acquisitions, start-ups and
internal growth is currently limited by the covenants contained in the Senior
Credit Facility, including a number of covenants that,
10
<PAGE>
among other things, restrict the ability of the Company to dispose of assets or
merge, incur debt, pay dividends, repurchase or redeem capital stock, create
liens, make capital expenditures and make certain investments or acquisitions
and otherwise restrict corporate activities. The Senior Credit Facility also
contains, among other covenants, requirements that the Company maintain
specified financial ratios, including minimum cash flow levels and interest
coverage. The Company expects the New Credit Facility will contain similar
covenants and requirements. As of December 31, 1997, the Company was not in
compliance with certain financial covenants contained in the Senior Credit
Facility. The lenders under the Senior Credit Facility have not taken action
with respect to this non-compliance, and the Company expects to obtain a waiver
for the non-compliance from the lenders prior to consummation of the Offering.
The Company expects to offer approximately $ million in debt
securities (the "Notes") for sale to qualified investors concurrently with this
Offering (the "Private Debt Offering.") There can be no assurance that the
Private Debt Offering will be consummated. This Offering is not conditioned
upon the consummation of the Private Debt Offering. If the Company were to
consummate the Private Debt Offering, the indenture governing the Notes is
likely to contain certain restrictive covenants that will affect, and in some
cases will significantly limit or prohibit, among other things, the ability of
the Company to pay dividends, make investments, engage in transactions with
stockholders and affiliates, issue capital stock, incur indebtedness, create
liens, sell assets and engage in mergers and consolidations. As a result of
these covenants, the ability of the Company and its subsidiaries to respond to
changing business and economic conditions and to secure additional financing
may be significantly restricted, and the Company may be prevented from engaging
in transactions, including acquisitions, that might be considered important to
the Company's growth strategy or otherwise beneficial to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Business--Growth Strategy" and
"Description of Certain Indebtedness."
SUBSTANTIAL LEVERAGE
The Company has a substantial amount of indebtedness. As of December 31,
1997, on a pro forma basis after giving effect to the Richbourg Acquisition,
the Offering and the Private Debt Offering and the application of the estimated
net proceeds therefrom, the Company would have had total combined indebtedness
of approximately $ million and would have had approximately $ million of
availability under the Senior Credit Facility.
The degree to which the Company is leveraged could have important
consequences to holders of the Class A Common Stock including, but not limited
to, the following: (i) the Company's ability to obtain additional financing in
the future for working capital, capital expenditures, acquisitions or general
corporate or other purposes may be limited; (ii) a substantial portion of the
Company's cash flow from operations will be dedicated to the payment of the
principal of, and interest on, its indebtedness; (iii) the agreements governing
the Company's long-term indebtedness will contain certain restrictive financial
and operating covenants that could limit the Company's ability to compete and
expand; and (iv) the Company's substantial leverage may make it more vulnerable
to economic downturns, limit its ability to withstand competitive pressures and
reduce its flexibility in responding to changing business and economic
conditions. See "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources," "Description of Certain Indebtedness" and the Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
GENERAL ECONOMIC CONDITIONS; REGIONAL CONDITIONS AND CYCLICALITY
The Company's business is affected by general economic and competitive
conditions, including national, regional and local slowdowns in construction
activity. The Company currently operates in 15 states located throughout the
southern and western United States. As a result, the Company's operating
results may be adversely affected by events or conditions, such as regional
economic slowdowns, adverse weather conditions and other factors, in the areas
in which it operates.
11
<PAGE>
DEPENDENCE ON EQUIPMENT MANUFACTURERS
The Company sells John Deere, Bomag and Terex Americas construction and
industrial equipment through dealership agreements. Each of the dealership
agreements is terminable at the option of the manufacturer. See
"Business--Dealership Agreements." There can be no assurance that the Company
will be able to continue its current, or obtain additional, dealership
agreements with any of the manufacturers. The Company's operating results could
be materially adversely impacted if these dealership agreements were terminated
for any reason.
John Deere has filed a notice of arbitration (the "Notice") with the
American Arbitration Association seeking review of the question of whether Neff
Corp. and Neff Machinery breached their agreements with John Deere by failing
to obtain John Deere's consent to transactions in which GE Capital increased its
equity interest in the Company in 1996. The Company has not filed a response to
the Notice and is actively discussing the issues raised by the Notice with John
Deere. Although the arbitration could result in a finding that the Company
breached its agreement with John Deere and that John Deere has the right to
terminate the dealership agreements, the Company believes that this matter can
be resolved in a manner that does not have a material adverse effect on its
financial condition or results of operations.
RECENT NET LOSSES
The Company incurred net losses of $2.2 million and $6.8 million in 1996
and 1997, respectively. There can be no assurance that the Company will operate
profitably in the future or have earnings or cash flow sufficient to comply
with the financial covenants to which it is subject or to cover its fixed
charges.
COMPETITION
The equipment rental and sales industries are highly competitive. The
Company's competitors include large national rental companies, regional
corporations, smaller independent businesses, and equipment vendors and dealers
who both sell and rent equipment to customers. Some of the Company's
competitors have greater financial resources, are more geographically diverse,
and have greater name recognition than the Company. There can be no assurance
that the Company will not encounter increased competition from existing
competitors or new market entrants, such as manufacturers, that may be
significantly larger and have greater financial and marketing resources than
the Company. If existing or future competitors reduce prices to gain or retain
market share and the Company must also reduce prices to remain competitive, the
Company's operating results would be adversely affected. Additionally, existing
or future competitors may seek to compete with the Company for start-up
locations or acquisition candidates, which may have the effect of increasing
acquisition prices and reducing the number of suitable acquisition candidates
or expansion locations. See "Business--Competition."
OPTION GRANTED TO KEY EMPLOYEE
Kevin P. Fitzgerald, the Chief Executive Officer and President of the
Company, holds an option to acquire 3% of the Company's Common Stock on a fully
diluted basis, at an aggregate exercise price of approximately $1.6 million. Mr.
Fitzgerald's option agreement provides that if the Company engages in a stock
split, stock dividend, merger or recapitalization, issues additional shares of
Common Stock, or completes any other potentially dilutive transaction, the
Company will adjust the number of shares subject to his option so that he
continues to have the right to purchase 3% of the Common Stock on a fully
diluted basis for an aggregate purchase price of $1.6 million. These adjustments
will be dilutive to the Company's stockholders. The Company recorded a noncash
compensation charge of $4.4 million with respect to Mr. Fitzgerald's option for
the year ended December 31, 1997. If the fair market value of a share of Class A
Common Stock at the end of any future quarter exceeds the fair market value of a
share of Class A Common Stock at the end of any preceding quarter (such excess
amount, the "Excess"), then the Company must record an additional noncash
compensation charge. The amount of
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<PAGE>
this noncash charge will equal the Excess multiplied by the number of shares
subject to Mr. Fitzgerald's option. Mr. Fitzgerald's option expires on December
31, 2005.
SEASONALITY AND QUARTERLY FLUCTUATIONS IN REVENUES AND OPERATING RESULTS
Historically, the Company's revenues and operating results have varied
throughout the year and are expected to continue to fluctuate in the future.
These fluctuations have been due to a number of factors, including: (i) general
economic conditions in the Company's markets; (ii) the timing of start-up
locations and acquisitions and related costs; (iii) the effectiveness of
integrating start-up locations and acquired businesses; (iv) rental patterns of
the Company's customers; (v) price changes in response to competitive factors;
and (vi) changes in manufacturers' incentive programs. The Company incurs
various costs in establishing or integrating start-ups or newly acquired
locations, and the profitability of a new location is generally expected to be
lower in the initial months of its operation.
Construction equipment sales and rental businesses often experience a
slowdown in demand during the winter months when adverse weather conditions
affect construction activity. To date, seasonal demand fluctuations have not
materially affected the Company's operating results. However, as the Company
expands geographically, seasonal demand fluctuations may lower operating
results in the first and fourth quarters.
LIABILITY AND INSURANCE
The Company's business exposes it to possible claims for personal injury
or death resulting from the use of equipment rented or sold by the Company and
from injuries caused in motor vehicle accidents in which Company delivery and
service personnel are involved. The Company carries comprehensive insurance
subject to a deductible at a level it believes is sufficient to cover existing
and future claims. There can be no assurance that existing or future claims
will not exceed the level of the Company's insurance or that such insurance
will continue to be available on economically reasonable terms, or at all.
ENVIRONMENTAL AND SAFETY REGULATION
The Company's facilities and operations are subject to certain federal,
state and local laws and regulations relating to environmental protection and
occupational health and safety, including those governing wastewater
discharges, the treatment, storage and disposal of solid and hazardous wastes
and materials, and the remediation of contamination associated with the release
of hazardous substances. The Company believes that it is in material compliance
with such requirements and does not currently anticipate any material capital
expenditures for environmental compliance or remediation for the current or
succeeding fiscal years. Certain of the Company's present and former facilities
have used substances and generated or disposed of wastes which are or may be
considered hazardous, and the Company may incur liability in connection
therewith. Moreover, there can be no assurance that environmental and safety
requirements will not become more stringent or be interpreted and applied more
stringently in the future. Such future changes or interpretations, or the
identification of adverse environmental conditions currently unknown to the
Company, could result in additional environmental compliance or remediation
costs to the Company. Such compliance and remediation costs could be material
to the Company's financial condition or results of operations. See
"Business--Environmental and Safety Regulation."
DEPENDENCE ON SENIOR MANAGEMENT
The Company is managed by a small number of key executive officers. The
loss of the services of certain of these key executives could have a material
adverse effect on the Company. The Company presently does not maintain any key
man life insurance policies on any of its officers. The Company's success also
depends on its ability to hire and retain additional qualified management
personnel. There can be no assurance that the Company will be able to hire and
retain such personnel. See "Management."
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<PAGE>
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 ("Santos"), a limited partnership controlled by the Mas family
and Mr. Fitzgerald, beneficially own all of the Company's outstanding Class A
Common Stock, which represents 66% of the fully diluted equity of the Company
prior to the Offering and % of the fully diluted equity of the Company upon
completion of the Offering. GE Capital owns Class B Common Stock which is
convertible into Class A Common Stock that represents 34% of the fully diluted
equity of the Company prior to the Offering and % of the fully diluted equity
of the Company upon completion of the Offering. The holders of a majority of the
Series A Cumulative Redeemable Preferred Stock, par value $.01 per share, of the
Company, (the "Series A Preferred Stock"), voting separately as a single class
in the election of directors of the Company, with each share of Series A
Preferred Stock entitled to one vote, are entitled to elect one director to
serve on the Company's Board of Directors. See "Description of Capital Stock--
Preferred Stock." GE Capital owns all of the issued and outstanding Series A
Preferred Stock and, therefore, is entitled to elect one director to the
Company's Board of Directors. The Company expects to redeem the Series A
Preferred Stock with the proceeds of the Private Debt Offering. See
"Capitalization." Santos Capital Advisers, Inc. ("Santos Capital"), a Florida
corporation owned by the Mas family and Mr. Fitzgerald, has an option to acquire
1.5 million shares of Common Stock from GE Capital; these shares represent 10%
of the fully diluted equity of the Company prior to the Offering and % of the
fully diluted equity of the Company upon completion of the Offering. As a
result, the Mas family, GE Capital and Mr. Fitzgerald are able to exercise a
controlling influence over the outcome of matters submitted to the Company's
stockholders for approval and will have the power to delay, defer o
r prevent a
change in control of the Company. In addition, pursuant to an Amended and
Restated Stockholders' Agreement by and among the Company, GE Capital, Jorge
Mas, Jose Ramon Mas, Juan Carlos Mas, Mr. Fitzgerald, Santos Capital and Santos,
if GE Capital transfers Common Stock representing 15% or more of the equity of
the Company to a third party (the "Transferee"), the Company's Board of
Directors will increase from six to seven members and the Transferee will be
entitled to designate the additional director. At each meeting of the
stockholders of the Company held for the purpose of electing the class of
directors of which the director designated by the Transferee is a member, the
parties to the Stockholders Agreement, in accordance with such agreement, will
cast their votes so as to cause such designee to be elected as a director. See
"Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the consummation of the Offering, the Company will
have outstanding shares of Class A Common Stock ( shares outstanding
if the U.S. Underwriters' over-allotment option is exercised in full),
including outstanding shares of Class A Common Stock beneficially owned by
existing stockholders. The shares of Class A Common Stock to be sold
pursuant to the Offering ( if the U.S. Underwriters' over-allotment
option is exercised in full) will be eligible for sale without restriction
under the Securities Act of 1933, as amended (the "Securities Act"), in the
public market after the consummation of the Offering by persons other than
affiliates of the Company. Sales of shares by "affiliates" of the Company as
the term is defined in Rule 144 under the Securities Act ("Affiliates") will be
subject to Rule 144. The Company and all existing stockholders, who will
beneficially own outstanding shares immediately following the consummation
of the Offering, have agreed with the Underwriters not to offer, sell or
otherwise dispose of any shares of Class A Common Stock (other than issuances
by the Company pursuant to the employee stock option plan) for a period of 180
days after the date of the Prospectus without the prior written consent of
Morgan Stanley & Co. Incorporated.
GE Capital holds 5,100,000 shares of Class B Common Stock which it may
exchange for 5,100,000 shares of Class A Common Stock. Upon such exchange, GE
Capital has the right to demand registration of its shares of Class A Common
Stock under the Securities Act. The Mas family, and Santos have the right to
demand registration of their shares of Class A Common Stock under the
Securities Act. Mr. Fitzgerald and Santos Capital each also have the right to
demand registration of shares he or it may acquire from the exercise of certain
options. Registration of any shares held by the
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<PAGE>
Mas family, Santos, Santos Capital, Mr. Fitzgerald or GE Capital would permit
the sale of these shares without regard to the restrictions of Rule 144. These
parties have agreed to waive their right to exercise their registration rights
in connection with the Offering and for 180 days thereafter. See "Description of
Capital Stock--Common Stock--Registration Rights."
Based on shares outstanding as of , 1998, following the expiration or
waiver of the foregoing restrictions on dispositions and any applicable holding
periods under Rule 144, outstanding shares of Class A Common Stock owned by
existing stockholders will be available for sale in the public market pursuant
to Rule 144 (including the volume and other limitations set for therein). The
Company intends to register on Form S-8 shares of Class A Common Stock reserved
for issuance upon exercise of options granted to certain employees under the
Company's Incentive Stock Plan, and shares of Class A Common Stock reserved for
issuance upon the exercise of certain options granted to Mr. Fitzgerald and
Robert G. Warren, the Senior Vice President of the Company. Options to purchase
shares granted to Mr. Fitzgerald and Mr. Warren and other employees are
currently exercisable.
No prediction can be made as to the effect, if any, that market sales of
shares held by the Mas family, GE Capital, Santos, Santos Capital, Mr.
Fitzgerald, Mr. Warren, other employees, or other stockholders, or the
availability of such shares for future sales, or market sales of shares sold in
the Offering pursuant to this Prospectus or the availability of such shares for
future sales, will have on the market price of shares of Class A Common Stock
prevailing from time to time. Sales of substantial amounts of Class A Common
Stock in the public market could adversely affect the prevailing market price
of the Class A Common Stock and could materially impair the Company's future
ability to realize capital through an offering of equity securities. See
"Shares Eligible for Future Sale."
ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and By-Laws and certain provisions of the
Delaware General Corporation Law (the "DGCL") may make it difficult in some
respects to effect a change in control of the Company and replace incumbent
management. The existence of these provisions may have a negative impact on the
price of the Class A Common Stock, may discourage third party bidders from
making a bid for the Company, or may reduce any premiums paid to stockholders
for their Common Stock. For example, the directors may only be removed for
cause and only the directors may fill vacancies that occur prior to the end of
a director's term. In addition, the Board of Directors of the Company has the
authority to fix the rights and preferences of, and to issue shares of, the
Company's Preferred Stock. Moreover, prior to the closing of the Offering, the
Company intends to adopt a Stockholders' Rights Plan (the "Rights Plan"). The
Rights Plan will permit the Board to adjust the number and kind of shares
subject to the Rights Plan so as to prevent dilution or enlargement of rights
in the event of a merger or other events which could affect control of the
Company. See "Management" and "Description of Capital Stock--Stockholders'
Rights Plan."
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of shares of Class A Common Stock pursuant to the Offering
will experience immediate and substantial dilution of the net tangible book
value per share of Class A Common Stock from the initial public offering price.
See "Dilution."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Company's
Class A Common Stock, and there can be no assurance that an active trading
market will develop or be sustained after this Offering. The initial public
offering price will be determined through negotiations between the Company and
representatives of the Underwriters; however, there can be no assurance that
future market prices for the Class A Common Stock will equal or exceed the
range for the initial public offering price set forth on the cover page of this
Prospectus. After completion of this Offering, the
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<PAGE>
market price of the Class A Common Stock could be subject to significant
variation due to fluctuations in the Company's operating results, changes in
earnings estimates by investment analysts, the success or failure of the
Company's growth strategies, and changes in business or regulatory conditions
affecting the Company. In addition, the New York Stock Exchange has experienced
extreme price fluctuations in recent years which have often been unrelated to
the operating performance of the affected companies. Such fluctuations could
adversely affect the market price of the Company's Class A Common Stock.
DIVIDEND RESTRICTIONS
The terms of the Company's Series A Preferred Stock, Senior Credit Facility
and the Private Debt Offering if consummated, restrict the Company from paying
dividends on its Class A Common Stock. The Company does not expect to pay
dividends on its Class A Common Stock in the foreseeable future. See "Dividend
Policy."
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements, including
without limitation, statements concerning the Company's operations, economic
performance and financial condition. The words "believe," "expect,"
"anticipate" and other similar expressions identify forward-looking statements.
Investors are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. These forward-looking
statements are based largely on the Company's current expectations and are
subject to a number of important risks and uncertainties, including those
identified under "Risk Factors" and elsewhere in this Prospectus. Actual
results could differ materially from the forward-looking statements. In light
of these risks and uncertainties, there can be no assurance that the results
referred to in the forward-looking statements contained in this Prospectus will
in fact occur.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Class A
Common Stock offered hereby are estimated to be approximately $ million
assuming an initial public offering price of $ per share ($ million
if the U.S. Underwriters' overallotment option is exercised in full), after
deducting underwriting discounts and commissions and offering expenses payable
by the Company (currently estimated to be $ million). The Company intends
to use the net proceeds from the Offering to (i) repay a loan which the Company
incurred to finance the Richbourg Acquisition (the "Term Loan") and (ii) reduce
outstanding borrowings under the Senior Credit Facility or the New Credit
Facility, as the case may be. The Term Loan carries interest at LIBOR plus
% and matures on January 31, 1999. The interest rate on the indebtedness
on the Senior Credit Facility is variable based on the Company's leverage and
averaged % for 1997. The Senior Credit Facility terminates on October 31,
1998; however, upon the completion of the Private Debt Offering, this date will
be extended to October 31, 2001. It is expected that the New Credit Facility,
if entered into, will expire on , 2003. See "Description of Certain
Indebtedness--Credit Facilities."
DIVIDEND POLICY
The Company did not pay any cash dividends during 1996 and 1997. The
Company anticipates that, following the completion of the Offering, earnings
will be retained for the development of its business and will not be
distributed to stockholders as dividends. The declaration and payment by the
Company of any future dividends and the amounts thereof will depend upon the
Company's results of operations, financial condition, cash requirements, future
prospects, limitations imposed by the Senior Credit Facility or the New Credit
Facility, as the case may be, the Private Debt Offering (if consummated), the
terms of its Preferred Stock and other factors deemed relevant by the Board of
Directors. See "Description of Capital Stock."
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997, (i) on an actual basis, (ii) pro forma for the Richbourg
Acquisition and related borrowings under the Senior Credit Facility and Term
Loan and (iii) pro forma as adjusted to give effect to the Offering assuming an
initial public offering price per share of $ and the application of the
estimated net proceeds therefrom and the exchange by GE Capital of the
Company's Series B and Series C Cumulative Convertible Redeemable Preferred
Stock for Class B Common Stock. This table should be read in conjunction with
"Use of Proceeds," "Unaudited Pro Forma Consolidated Financial Data," "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt:(1)
Senior Credit Facility ............................................ $ 161,825 $ 211,741 $
Term Loan ......................................................... 49,916 100,000
Notes payable ..................................................... 14,462 14,462 14,462
--------- --------- -------
Total debt ....................................................... 226,203 326,203
--------- --------- -------
Redeemable preferred stock:
Series A 5% Cumulative Redeemable Preferred Stock, $.01 par
value, 519,503 shares authorized; 340,907 shares issued and
outstanding ..................................................... 10,649 10,649 10,649
Series B Cumulative Convertible Redeemable Preferred Stock,
$.01 par value, 800,000 shares authorized; 800,000 shares
issued and outstanding .......................................... 8,336 8,336 --
Series C Cumulative Convertible Redeemable Preferred Stock,
$.01 par value, 800,000 shares authorized; 800,000 shares
issued and outstanding .......................................... 31,562 31,562 --
Accrued preferred stock dividends payable--Series B and C ......... 3,200 3,200 --
--------- --------- -------
Total redeemable preferred stock ................................. 53,747 53,747 10,649
--------- --------- -------
Common stockholders' equity (deficit):
Class A Common Stock, $.01 par value, 100,000,000 shares
authorized; shares issued and outstanding ................. 85 85
Class B Common Stock, $.01 par value 20,000,000 shares
authorized; 5,100,000 shares issued and outstanding ............. -- --
Additional paid-in capital ........................................ -- --
Accumulated deficit(2) ............................................ (24,820) (24,820)
--------- --------- -------
Total common stockholders' equity (deficit) ...................... (24,735) (24,735)
--------- --------- -------
Total capitalization ............................................ $ 255,215 $ 355,215 $
========= ========= =======
</TABLE>
- ----------------
(1) In addition, the Company expects to consummate the Private Debt Offering
for estimated net proceeds of approximately $ million, on or after
consummation of the Offering. It is anticipated that the proceeds of the
Private Debt Offering will be used to reduce outstanding borrowings under
the Senior Credit Facility or the New Credit Facility, as applicable, to
redeem the Series A Preferred Stock, and to repay the mortgage on properties
the Company owns in Florida. Amounts reported under the Senior Credit
Facility or New Credit Facility, as applicable, are available for
reborrowing. This Offering is not conditioned on the completion of the
Private Debt Offering. There can be no assurance that the Private Debt
Offering will be consummated. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations--Liquidity and Capital
Resources."
(2) 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.
17
<PAGE>
DILUTION
As of March , 1998, the Company had an aggregate of shares of
Common Stock outstanding, including shares of Class A Common Stock and 5,100,000
shares of Class B Common Stock. Net tangible book value per share of Class A
Common Stock represents the amount of total tangible assets less the sum of (i)
total liabilities, and (ii) the liquidation preference of the Series A Preferred
Stock of the Company and the Class B Common Stock. After giving effect to the
sale of the Class A Common Stock in the Offering at an assumed initial public
offering price of $ per share and the application of the estimated net
proceeds therefrom, the pro forma net tangible book value as of would have been
$ or $ per share. This represents an immediate increase in net
tangible book value of $ per share of Class A Common Stock to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$ per share of Class A Common Stock to new investors purchasing shares in
the Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ....................... $
Net tangible book value per share before the Offering .................
Increase per share attributable to new investors ......................
Pro forma net tangible book value per share after the Offering ........
----------
Dilution per share to new investors(1) ................................ $
==========
</TABLE>
- ----------------
(1) Assuming the conversion of the shares of Class B Common Stock into Class A
Common Stock, pro forma net tangible book value per share of Class A
Common Stock and dilution per share of Class A Common Stock to new
investors would be $ and $ , respectively.
The following table summarizes, as of on a pro forma basis, after
giving effect to the Offering, the differences between existing stockholders
and new investors in this Offering with respect to: (i) the number of shares of
Class A and Class B Common Stock purchased from the Company; (ii) the total
consideration paid to the Company; and (iii) the average price paid per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- --------- -------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders ......... % $ % $
New Investors .................
Total ......................... % $ %
======== ========= ======== ========
</TABLE>
The tables above assume no exercise of outstanding options to purchase
Common Stock, and therefore exclude (i) 1,000,000 additional shares of Class A
Common Stock reserved for issuance in connection with the Company's Incentive
Stock Plan, (ii) additional shares of Class A Common Stock reserved for issuance
in connection with an option granted to Kevin P. Fitzgerald to purchase 3% of
the issued and outstanding Common Stock of the Company for an aggregate purchase
price of $1.6 million, and (iii) 84,650 additional shares of Class A Common
Stock reserved for issuance in connection with an option granted to Robert G.
Warren for an aggregate purchase price of $0.5 million.
18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth the unaudited pro forma consolidated
balance sheet of the Company as of December 31, 1997, adjusted to give effect
to (i) the Richbourg Acquisition (January 2, 1998) and the financing of such
acquisition, and (ii) the Offering and the application of the estimated net
proceeds therefrom; as if these transactions had occurred as of December 31,
1997. The following table also sets forth the unaudited pro forma consolidated
statement of operations of the Company for the year ended December 31, 1997,
adjusted to give effect to: (i) the Buckner Acquisition (August 1, 1997), the
Richbourg Acquisition (January 2, 1998) and the financing of these
acquisitions and (ii) the Offering and the application of the estimated net
proceeds therefrom, as if these transactions had occurred on January 1, 1997.
The table does not give effect to the consummation of the Private Debt
Offering. It is anticipated that the proceeds of the Private Debt Offering, if
consummated, will be used to reduce outstanding borrowings under the Senior
Credit Facility or the New Credit Facility, as the case may be, to redeem the
Series A Preferred Stock, and to repay the mortgage on properties the Company
owns in Florida. There can be no assurance that the Private Debt Offering will
be consummated. The unaudited pro forma consolidated financial data are based
upon certain assumptions and estimates which are subject to change. These
statements are not necessarily indicative of the actual results of operations
that might have occurred, nor are they necessarily indicative of expected
results of the future. The unaudited pro forma consolidated financial data
should be read in conjunction with the Company's Consolidated Financial
Statements and the Notes thereto.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------
COMPANY RICHBOURG
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................................. $ 2,885 $ 161
Marketable securities-trading ......................................... -- 593
Accounts receivable, net .............................................. 25,007 3,126
Inventories ........................................................... 6,072 420
Rental equipment, net ................................................. 184,787 57,604
Property and equipment, net ........................................... 23,737 3,068
Goodwill, net ......................................................... 29,444 --
Intangible assets, net ................................................ 622 --
Prepaid expenses and other assets ..................................... 8,236 12
--------- -------
Total assets ........................................................ $ 280,790 $64,984
========= =======
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Liabilities
Accounts payable ..................................................... $ 10,871 $ 930
Accrued expenses ..................................................... 11,248 --
Senior Credit Facility ............................................... 161,825 26,526
Term loan payable .................................................... 49,916 --
Capitalized lease obligations ........................................ 2,320 --
Notes payable ........................................................ 14,462 --
Deferred income taxes ................................................ 1,136 --
--------- -------
Total liabilities ................................................... 251,778 27,456
--------- -------
Redeemable preferred stock ............................................ 53,747 --
--------- -------
Common stockholders' equity (deficit) ................................. (24,735) 37,528
--------- -------
Total liabilities and common stockholders' equity (deficit) ......... $ 280,790 $64,984
========= =======
<CAPTION>
ADJUSTMENTS
--------------------------------------
ACQUISITION OFFERING PRO FORMA
------------------ ------------------- ----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ............................................. $ 3,046
Marketable securities-trading ......................................... $ (593)(a) --
Accounts receivable, net .............................................. 28,133
Inventories ........................................................... 6,492
Rental equipment, net ................................................. 242,391
Property and equipment, net ........................................... 26,805
Goodwill, net ......................................................... 39,712 (b) 69,156
Intangible assets, net ................................................ 622
Prepaid expenses and other assets ..................................... 1,350 (c) 9,598
--------
Total assets ........................................................ $386,243
========
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Liabilities
Accounts payable ..................................................... $ (305)(d) $ 11,496
Accrued expenses ..................................................... 11,248
Senior Credit Facility ............................................... 28,218 (e) $ (h)
Term loan payable .................................................... 50,084 (f) (100,000)(h) --
Capitalized lease obligations ........................................ 2,320
Notes payable ........................................................ 14,462
Deferred income taxes ................................................ 1,136
--------
Total liabilities ...................................................
--------
Redeemable preferred stock ............................................ (43,098)(i) 10,649
--------
Common stockholders' equity (deficit) ................................. (37,528)(g) (h)(i)
--------
Total liabilities and common stockholders' equity (deficit) ......... $
========
</TABLE>
- --------------
<TABLE>
<S> <C>
(a) Eliminates assets not acquired.
(b) Records the excess of the acquisition consideration over the fair value of the net assets acquired.
Historical carrying values approximate fair values.
(c) Records deferred financing costs related to indebtedness which funded the Richbourg Acquisition.
(d) Eliminates liabilities not assumed.
(e) Records acquisition consideration funded through the Senior Credit Facility.
(f) Records acquisition consideration funded through the Term Loan.
(g) Records elimination of the stockholders' equity of Richbourg
(h) Records the Offering and the application of the estimated net proceeds therefrom.
(i) Records exchange of Series B and C Preferred Stock into Class B Common Stock by GE Capital.
</TABLE>
19
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------
COMPANY INDUSTRIAL(A) RICHBOURG
------------ --------------- -----------
<S> <C> <C> <C>
Revenues
Rental revenue ...................................... $ 68,056 $ 15,710 $ 28,894
Equipment sales ..................................... 50,578 2,468 6,510
Parts and service ................................... 23,385 2,709 --
--------- -------- --------
Total revenues ..................................... 142,019 20,887 35,404
--------- -------- --------
Cost of revenues
Cost of equipment sold .............................. 40,766 1,750 1,956
Depreciation of rental equipment .................... 24,490 4,161 10,928
Maintenance of rental equipment ..................... 19,748 2,799 10,714
Cost of parts and service ........................... 13,741 1,047 --
--------- -------- --------
Total cost of revenues ............................. 98,745 9,757 23,598
--------- -------- --------
Gross profit ......................................... 43,274 11,130 11,806
--------- -------- --------
Other operating expenses
Selling, general and administrative expenses ........ 30,129 8,616 4,160
Officer stock option compensation ................... 4,400 -- --
Other depreciation and amortization ................. 2,548 855 880
--------- -------- --------
Total other operating expenses ..................... 37,077 9,471 5,040
--------- -------- --------
Income from operations ............................... 6,197 1,659 6,766
--------- -------- --------
Other income (expense)
Interest expense .................................... (11,976) (1,862) (2,406)
Amortization of debt issue costs .................... (2,362) (21) --
Other income (expense) .............................. -- (260) 140
--------- -------- --------
Total other expense, net ........................... (14,338) (2,143) (2,266)
--------- -------- --------
Income (loss) before (provision for) benefit from
income taxes and extraordinary item ................. (8,141) (484) 4,500
(Provision for) benefit from income taxes ............ 1,748 80 --
--------- -------- --------
Income (loss) before extraordinary item .............. (6,393) (404) 4,500
Extraordinary loss, net of income taxes .............. (451) -- --
--------- -------- --------
Net income (loss) .................................... $ (6,844) $ (404) $ 4,500
========= ======== ========
Basic and Diluted Earnings Per Share:
Income (loss) before Extraordinary Item .............
Extraordinary Loss, net .............................
Net Income (loss) ...................................
Weighted Average Common Shares Outstanding ...........
<CAPTION>
ADJUSTMENTS
---------------------------
ACQUISITIONS OFFERING PRO FORMA
---------------- ---------- ------------
<S> <C> <C> <C>
Revenues
Rental revenue ...................................... $112,660
Equipment sales ..................................... 59,556
Parts and service ................................... 26,094
--------
Total revenues ..................................... 198,310
--------
Cost of revenues
Cost of equipment sold .............................. 44,472
Depreciation of rental equipment .................... $ (83)(b) 39,496
Maintenance of rental equipment ..................... 33,261
Cost of parts and service ........................... 14,788
--------
Total cost of revenues ............................. 132,017
--------
Gross profit ......................................... 66,293
--------
Other operating expenses
Selling, general and administrative expenses ........ (226)(c) 42,679
Officer stock option compensation ................... 4,400
Other depreciation and amortization ................. 1,183 (d) 5,466
--------
Total other operating expenses ..................... 52,545
--------
Income from operations ............................... 13,748
--------
Other income (expense)
Interest expense .................................... (7,357)(e) (g)
Amortization of debt issue costs .................... (1,125)(f) (3,508)
Other income (expense) .............................. (120)
--------
Total other expense, net ...........................
--------
Income (loss) before (provision for) benefit from
income taxes and extraordinary item .................
(Provision for) benefit from income taxes ............ 5,196 (h) (h)
Income (loss) before extraordinary item ..............
Extraordinary loss, net of income taxes .............. (451)
--------
Net income (loss) .................................... $
========
Basic and Diluted Earnings Per Share:
Income (loss) before Extraordinary Item ............. $
Extraordinary Loss, net .............................
--------
Net Income (Loss) ................................... $
========
Weighted Average Common Shares Outstanding ...........
========
</TABLE>
- ----------------
<TABLE>
<S> <C>
(a) Reflects seven months of operations before the Buckner Acquisition in August 1997.
(b) Adjusts depreciation on rental equipment of acquired companies to conform to the Company's depreciation policy.
(c) Eliminates consulting expenses related to prior owners and directors.
(d) Records the amortization of goodwill attributable to the Acquisitions using an estimated life of 40 years.
(e) Records interest expense related to the portion of the Acquisitions funded through borrowings under the Term Loan and
Senior Credit Facility, using the Company's historical rate of 9.0% per annum and eliminates interest expense related
to indebtedness of the acquired companies which was not assumed by the Company.
(f) Records the amortization of debt issue costs related to the Term Loan.
(g) Reflects a reduction of debt outstanding resulting from the use of proceeds of the Offering.
(h) Records a provision for income taxes at an estimated rate of 38%.
</TABLE>
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for each of the five years ended December 31, 1997. The consolidated
statements of operations data for the years ended December 31, 1995, 1996 and
1997, and the consolidated balance sheet data as of December 31, 1996 and 1997
are derived from financial statements audited by Deloitte & Touche LLP,
independent certified public accountants. The consolidated statement of
operations data for the year ended December 31, 1994 and the consolidated
balance sheet data as of December 31, 1994 and 1995 are derived from audited
financial statements of the Company not included in this Prospectus. The
consolidated statement of operations and balance sheet data for and as of the
year ended December 31, 1993 is derived from financial statements of the
Company's two wholly-owned subsidiaries, Neff Rental and Neff Machinery,
audited by other independent certified public accountants, and, in the opinion
of management, reflect all adjustments (consisting only of normal recurring
adjustments) that the Company considers necessary for a fair presentation of
such information in accordance with generally accepted accounting principles.
The historical results are not necessarily indicative of results to be expected
for any future period. The data set forth below should be read in conjunction
with, and are qualified by reference to, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- --------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Rental revenue ...................................... $ 11,878 $ 16,226 $ 20,019 $ 35,808 $ 68,056
Equipment sales ..................................... 22,233 22,996 33,943 44,160 50,578
Parts and service ................................... 9,723 10,304 13,292 15,045 23,385
-------- -------- -------- --------- ---------
Total revenues ..................................... 43,834 49,526 67,254 95,013 142,019
Cost of revenues
Cost of equipment sold .............................. 19,101 17,111 26,562 33,605 40,766
Depreciation of rental equipment .................... 5,784 8,911 11,747 19,853(1) 24,490(1)
Maintenance of rental equipment ..................... 1,833 2,806 3,469 8,092 19,748
Cost of parts and service ........................... 6,567 5,987 7,504 8,143 13,741
-------- -------- -------- ----------- -----------
Total cost of revenues ............................. 33,285 34,815 49,282 69,693 98,745
-------- -------- -------- ----------- -----------
Gross profit ......................................... 10,549 14,711 17,972 25,320 43,274
Selling, general and administrative expenses ......... 6,078 8,493 10,956 18,478 30,129
Other depreciation and amortization .................. 614 225 916 1,432 2,548
Officer stock option compensation(2) ................. -- -- -- -- 4,400
-------- -------- -------- ----------- -----------
Income from operations ............................... 3,857 5,993 6,100 5,410 6,197
Other income (expense) ............................... (1,175) (1,669) (3,090) (6,337) (14,338)
-------- -------- -------- ----------- -----------
Income (loss) before provisions for income taxes
and extraordinary items ............................ 2,682 4,324 3,010 (927) (8,141)
Provision for income taxes(3) ........................ (1,019) (1,612) (1,176) (461) 1,748
-------- -------- -------- ----------- -----------
Income (loss) before extraordinary items ............. 1,663 2,712 1,834 (1,388) (6,393)
Net income (loss) .................................... $ 1,663 $ 2,712 $ 1,834 $ (2,197) $ (6,844)
======== ======== ======== =========== ===========
Net income (loss) per share .......................... $ .20 $ .32 $ .22 $ (.66) $ (1.69)
Weighted average shares outstanding(4) ............... 8,465 8,465 8,465 8,465 8,465
</TABLE>
(FOOTNOTES ON NEXT PAGE)
21
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(5) ........................................... $ 10,255 $ 15,129 $ 18,763 $ 26,695 $ 37,635
EBITDA margin(6) .................................... 23.4% 30.5% 27.9% 28.1% 26.5%
Number of locations (end of period) ................. 5 6 8 16 53
BALANCE SHEET DATA (END OF PERIOD):
Net book value of rental equipment .................. $ 18,418 $ 31,331 $ 47,989 $ 76,794 $ 184,787
Total assets ........................................ 30,761 47,722 68,816 109,118 280,790
Total debt .......................................... 27,747 38,603 48,345 58,250 226,203
Redeemable preferred stock .......................... -- -- 11,430 46,299 53,747
Total common stockholders' equity (deficit) ......... 571 4,205 (1,931) (7,508) (24,735)
</TABLE>
- ----------------
(1) Depreciation of rental equipment for 1996 and 1997 reflect the Company's
change in depreciation policy to recognize extended estimated service
lives and increased residual values of its rental equipment. See the
Consolidated Financial Statements and the Notes thereto included elsewhere
in this Prospectus.
(2) Officer stock option compensation expense represents the changes with
respect to the change in estimated market value of the shares to be issued
to Kevin P. Fitzgerald under an option agreement.
(3) Prior to December 26, 1995, the Company operated as a Subchapter S
corporation under the provisions of the Internal Revenue Code. Income
(loss) before extraordinary items for 1993, 1994 and 1995 is restated to
reflect what the data would have been if the Company had Subchapter C
status in these years.
(4) Based on the number of shares outstanding as of . Assumes exercise of
options currently exercisable and exercisable within the next 60 days.
(5) EBITDA represents income from operations plus depreciation and amortization
and officer stock option compensation expenses. 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 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 EBITDA using the same methods; therefore, the EBITDA figures set
forth above may not be comparable to EBITDA reported by other companies.
(6) EBITDA margin represents EBITDA as a percentage of total revenues.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The matters discussed herein may include "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995. Such
statements involve risks and uncertainties which could result in operating
performance that is materially different from management's projections. The
section of this Prospectus entitled "Risk Factors" should be read in
conjunction with this Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion and analysis of the Company's consolidated
financial condition and consolidated results of operations should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto and the Company's Unaudited Pro Forma Consolidated Financial Data and
the Notes thereto, appearing elsewhere in this Prospectus.
OVERVIEW
The Company is one of the largest and fastest growing equipment rental
companies in the United States. In addition to its rental business, the Company
acts as a dealer of new equipment on behalf of several nationally recognized
equipment manufacturers. The Company also sells used equipment, spare parts and
merchandise and provides ongoing repair and maintenance services. Prior to
1995, the Company primarily acted as a dealer of new equipment on behalf of
several nationally recognized equipment manufacturers. During this time, many
of the Company's dealer locations (six locations) also operated as rental
locations. In 1995, the Company, responding to changes in the industry, began
to modify its operating structure to focus resources of the Company on the
rental equipment business. As part of this strategy, in December 1995, the
Company entered into a strategic partnership with GE Capital to take advantage
of the growth and consolidation opportunities in the equipment rental industry.
Since 1995, the Company has pursued an aggressive growth strategy,
increasing its number of equipment rental and sales locations to 68, as of
December 31, 1997, on a pro forma basis for the Richbourg Acquisition. The
Company has achieved this growth through: (i) the addition of 26 equipment
rental locations as a result of the Buckner Acquisition, (ii) the addition of
15 equipment rental locations as a result of the Richbourg Acquisition and
(iii) the opening of 21 new equipment rental locations primarily throughout the
southeast and southwest regions of the United States. The Company intends to
continue to pursue its aggressive growth strategy by: (i) making additional
acquisitions of equipment rental companies; (ii) increasing fleet at its
existing equipment rental locations in both existing and new product lines;
(iii) continuing to open new equipment rental locations; and (iv) expanding its
dealership operations.
Since January 1, 1995, the Company has opened 21 start-up rental equipment
locations. Management believes the Company's recent financial performance does
not fully reflect the benefit of these rental locations. Based on the Company's
historical experience, a new equipment rental location realizes significant
increases in revenues and cash flow during the first three years of operation
as more equipment is added to the rental fleet and as the location matures.
Because there is relatively little incremental operating expense associated
with such revenues, there is a greater proportionate increase in cash flow and
profitability as a rental location matures. The Company believes the revenues,
cash flow and profitability of the 21 start-up locations opened since January
1, 1995 will increase significantly as these locations mature.
The Company primarily derives revenue from (i) the rental of equipment,
(ii) sales of new and used equipment and (iii) sales of parts and service. On a
pro forma basis for the Acquisitions, the Company's primary source of revenue
is the rental of equipment to construction and industrial customers. Growth in
rental revenue is dependent upon several factors, including the demand for
rental equipment, the amount of equipment available for rent, rental rates and
the general economic environment. The level of new and used equipment sales is
primarily a function of the supply and
23
<PAGE>
demand for such equipment, price and general economic conditions. The age,
quality and mix of the Company's rental fleet also affect revenues from the
sale of used equipment. Revenues derived from the sale of parts and service is
generally correlated with sales of new equipment.
Costs of revenues include cost of equipment sold, depreciation and
maintenance costs of rental equipment and cost of parts and service. Cost of
equipment sold consists of the net book value of rental equipment at the time
of sale and cost for new equipment sales. Depreciation of rental equipment
represents the depreciation costs attributable to rental equipment. Maintenance
of rental equipment represents the costs of servicing and maintaining rental
equipment on an ongoing basis. Cost of parts and service represents costs
attributable to the sale of parts directly to customers and service provided
for the repair of customer owned equipment.
Depreciation of rental equipment is calculated on a straight-line basis
over the estimated service life of the asset (generally four to seven years
with a 10% residual value). During 1996 and 1997, the Company made certain
changes to its depreciation assumptions to recognize extended estimated service
lives and increased residual values of its rental equipment. The Company
believes that these changes in estimates will more appropriately reflect its
financial results by better allocating the cost of its rental equipment over
the service lives of these assets. In addition, the new lives and residual
values more closely conform to those prevalent in the industry.
Selling, general and administrative expenses include sales and marketing
expenses, payroll and related costs, professional fees, property and other
taxes and other administrative overhead. Other depreciation and amortization
represents the depreciation associated with property and equipment (other than
rental equipment) and the amortization of goodwill and intangible assets.
Prior to December 26, 1995, the Company had Subchapter S Corporation
status under the provisions of the Internal Revenue Code. As a result, the
stockholders of the Company were responsible for income taxes for the period
prior to December 26, 1995. In 1995, the Company recorded a deferred tax
liability for timing differences which existed at the time the Company changed
its tax status (see the Consolidated Financial Statements and the Notes thereto
included elsewhere in this Prospectus).
RESULTS OF OPERATIONS
In view of the Company's growth, management believes that the
period-to-period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future
performance. In addition, the Company's results of operations may fluctuate
from period to period in the future as a result of the cyclical nature of the
industry in which the Company operates. See "Risk Factors--Seasonality and
Quarterly Fluctuations in Revenues and Operating Results."
24
<PAGE>
The following table sets forth, for the periods indicated, information
derived from the consolidated statements of operations of the Company expressed
as a percentage of total revenues. There can be no assurance that the trends in
the table below will continue in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
1995 1996 1997
---- ---- ----
Revenues:
Rental revenue ....................................... 29.8% 37.7% 47.9%
Equipment sales ...................................... 50.5 46.5 35.6
Parts and service .................................... 19.7 15.8 16.5
----- ----- -----
Total revenues ...................................... 100.0% 100.0% 100.0%
----- ----- -----
Cost of revenues:
Cost of equipment sold ............................... 39.5 35.4 28.7
Depreciation of rental equipment ..................... 17.5 20.9 17.2
Maintenance of rental equipment ...................... 5.2 8.5 13.9
Cost of parts and service ............................ 11.1 8.6 9.7
----- ----- -----
Total cost of revenues .............................. 73.3 73.4 69.5
----- ----- -----
Gross profit .......................................... 26.7 26.6 30.5
Selling, general and administrative expenses ......... 16.3 19.4 21.2
Other depreciation and amortization .................. 1.4 1.5 1.8
Officer stock option compensation .................... -- -- 3.1
----- ----- -----
Income from operations ................................ 9.0% 5.7% 4.3%
</TABLE>
25
<PAGE>
1997 COMPARED TO 1996
REVENUES. Total revenues for 1997 increased 49.5% to $142.0 million from
$95.0 million in 1996. This growth in revenues primarily resulted from an
increase in the number of rental locations operated by the Company, coupled
with the continued maturation of existing rental locations. The increase in
rental locations resulted from the opening of 11 new rental locations during
the period and the acquisition of 26 rental locations in August 1997. Also
contributing to the growth in revenues were additional rental revenues
resulting from a larger more diversified fleet as a result of the Company's
continued investment in rental equipment.
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.
Increases in gross profit and gross profit as a percent of total revenues are
primarily attributable to (i) the continued growth of revenues from the 10
locations opened during 1995 and 1996; (ii) the growth in revenues arising from
the acquisition of 26 rental locations in August 1997; (iii) the growth in
revenues associated with the opening of 11 new rental locations during 1997;
(iv) the change in the Company's depreciation policy to recognize extended
service lives and increased salvage values of its rental equipment and (v) a
change in mix of the Company's revenue sources resulting from the increased
focus on the Company's rental equipment business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1997 increased 63.1% to $30.1 million or 21.2% of
total revenues from $18.5 million or 19.4% of total revenues in 1996. The
increase in selling, general and administrative expenses as a percent of
revenues is primarily attributable to the opening of 11 new rental locations
and the increase in regional and corporate personnel in anticipation of
continued growth through acquisitions and new location openings. Based upon the
Company's historical experience, a new location tends to incur costs during the
early period of operations without the benefit of the revenue stream
representative of a mature location. As new locations mature, selling, general
and administrative expenses as a percentage of revenue are expected to decline.
In 1996, selling, general and administrative expenses included approximately
$0.9 million of expenses related to the investigation of alternative financing
arrangements.
OTHER DEPRECIATION AND AMORTIZATION. Other depreciation and amortization
expense for 1997 increased 77.9% to $2.5 million from $1.4 million in 1996. The
increase in other depreciation and amortization is primarily attributable to
increased expenditures on computer equipment, management information systems
and property and equipment needed to support the Company's expansion.
OFFICER STOCK OPTION COMPENSATION EXPENSE. Officer stock option
compensation expense of $4.4 million represents changes in estimated market
value of the shares to be issued to a key employee under an option agreement.
INTEREST EXPENSE. Interest expense for 1997 increased to $12.0 million
from $6.0 million in 1996. This increase is attributable to additional
borrowings related to the Company's continued investment in rental equipment
and the Company's acquisition of 26 locations in August 1997.
EXTRAORDINARY LOSS. During 1997, as a result of modifications to the
Company's credit facility, the Company recorded extraordinary losses from the
write-off of debt issue costs associated with the early extinguishment of debt
of $0.4 million, net of related income taxes.
1996 COMPARED TO 1995
REVENUES. Total revenues for 1996 increased 41.3% to $95.0 million from
$67.3 million in 1995. This increase was primarily attributable to the increase
in the number of rental locations operated by the Company. The increase in
rental locations resulted from the opening of eight new rental locations during
1996. In addition, several changes were made to the Company's operating
structure to focus resources of the Company on the rental equipment business
which also increased revenues at existing locations.
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GROSS PROFIT. Gross profit for 1996 increased 40.9% to $25.3 million, or
26.6% of total revenues from $18.0 million or 26.7% of total revenues in 1995.
The increase in gross profit is primarily attributable to (i) the continued
growth of revenues from the two locations opened during 1995; (ii) the growth in
revenues associated with the opening of eight new rental locations during 1996;
and (iii) the change in the Company's depreciation policy to recognize extended
service lives of its rental equipment. The increases were offset by lower
margins at new rental locations. As a result, gross profit as a percentage of
total revenues was relatively consistent year to year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1996 increased 68.7% to $18.5 million, or 19.4% of
total revenues from $11.0 million or 16.3% of total revenues in 1995. The
increase in selling, general and administrative expenses is primarily
attributable to the opening of eight new rental locations. Based upon the
Company's historical experience, a new location tends to incur costs during the
early period of operations without the benefit of the revenue stream
representative of a mature location. In addition, the Company incurred
approximately $0.9 million of expenses related to the investigation of
alternative financing arrangements during 1996. No such costs were incurred in
1995.
OTHER DEPRECIATION AND AMORTIZATION. Other depreciation and amortization
expense for 1996 increased 56.3% to $1.4 million from $0.9 million in 1995.
The increase in other depreciation and amortization is primarily attributable
to increased expenditures on computer equipment as a result of the Company's
new location expansion.
INTEREST EXPENSE. Interest expense for 1996 increased to $6.0 million from
$3.1 million in 1995. This increase is attributable to additional borrowings
related to the Company's investment in rental equipment for its new locations.
EXTRAORDINARY LOSS. During 1996, as a result of modifications to the
Company's credit facility, the Company recorded extraordinary losses from the
write-off of deferred financing costs associated with the early extinguishment
of debt of $0.8 million, net of related income taxes. There were no such
transactions in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations, acquisitions and new rental
locations primarily through cash flow from operations, proceeds received from
the issuance of preferred stock and borrowings under the credit facilities and
term loans.
During 1997, the Company's operating activities provided net cash flow of
$9.4 million as compared to $7.2 million for 1996. This increase is primarily
attributable to the growth in the Company's operations resulting from an
increase in the number of rental locations operated by the Company.
Net cash used in investing activities was $173.7 million for 1997 as
compared to $44.7 million in the same period for the prior year. This increase
is primarily attributable to the Buckner Acquisition, increased expenditures for
fleet, computer equipment and other property and equipment necessary to support
the Company's expansion.
Net cash provided by financing activities was $162.3 million for 1997 as
compared to $37.2 million for 1996. The net cash provided by financing
activities was primarily attributable to borrowings under the Company's Senior
Credit Facility and Term Loan used to finance the Buckner Acquisition and
capital expenditures supporting the Company's expansion.
The Company's $250 million Senior Credit Facility allows borrowings based
upon eligible accounts receivable, rental fleet and inventory amounts. The
interest rates on balances outstanding under the Senior Credit Facility vary
based upon the leverage ratio maintained by the Company and were 10% for prime
and 9.2% for LIBOR-based borrowings at December 31, 1997. All outstanding
balances under
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the Senior Credit Facility are due on October 31, 1998 unless the
Company successfully completes the sale of at least $200 million of qualified
debt securities, as defined in the Senior Credit Facility, in which case they
become due in October 2001. As of December 31, 1997, the Company was not in
compliance with certain financial covenants contained in the Senior Credit
Facility. The lenders under the Senior Credit Facility have not taken any action
with respect to this noncompliance, and the Company expects to obtain a waiver
for the non-compliance prior to consummation of the Offering.
In January 1998, in connection with the Richbourg Acquisition, the Company
executed the Term Loan, which has terms and requirements similar to the
Company's Senior Credit Facility.
The Company's Senior Credit Facility is expected to be amended and
restated in connection with the Offering. Borrowings under the New Credit
Facility will continue to be based upon eligible accounts receivable, rental
fleet and inventory amounts. Based upon these requirements, the Company will
have access to the entire facility amount. The interest rates on balances
outstanding under the New Credit Facility will vary based upon the leverage
ratio maintained by the Company and range from prime rate or LIBOR plus 1.00%
to prime plus 1.25% or LIBOR plus 2.25%. Based upon the Company's current
leverage ratio the interest rate would be prime plus % or LIBOR plus %. In
the event the Company repays the Term Loan prior to October 31, 1998, the
maturity of the New Credit Facility will be extended to April 30, 2003;
otherwise, the New Credit Facility will mature on October 31, 1998. The Company
expects the New Credit Facility to be secured by substantially all of the
Company's assets and will contain various restrictive covenants which, among
other things, will place restrictions on indebtedness and require the Company
to maintain certain interest coverage ratios.
The Company plans to use the proceeds of the Offering to repay its $100
million Term Loan and approximately $ million in outstanding borrowings
under the Senior Credit Facility or New Credit Facility. Following the Offering
and repayment of indebtedness, the Company expects to have approximately $
million available under its Senior Credit Facility or $ million if the
Private Debt Offering is consummated. Based upon current expectations, the
Company believes that cash flow from operations, together with amounts which
may be borrowed under the Senior Credit Facility or New Credit Facility, will
be adequate for it to meet its capital requirements and pursue its business
strategy, although there can be no assurance that it will be able to do so.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE
INCOME, which is required to be adopted in the first quarter of 1998. SFAS No.
130 established standards for the reporting and display of comprehensive income
and its components. Comprehensive income includes certain non-owner changes in
equity that are currently excluded from net income.
In June 1997, SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION, was issued. SFAS No. 131 establishes standards for the way
that public companies disclose selected information about operating segments in
annual financial statements and requires that those companies disclose selected
information about segments in interim financial reports issued to stockholders.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. SFAS No. 131 is effective for
financial statements for periods beginning after December 15, 1997.
Accordingly, the Company is not required to adopt SFAS No. 131 until the fiscal
year ending December 31, 1998. SFAS No. 131 relates solely to disclosure
provisions, and therefore will not have any effect on the results of
operations, financial position and cash flows of the Company.
YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer and software systems as the millennium ("Year 2000")
approaches. The Year 2000 problem is pervasive 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
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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.
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BUSINESS
GENERAL
Neff is one of the largest and fastest growing equipment rental companies
in the United States, with 68 rental locations in 15 states. The Company rents
a wide variety of equipment, including backhoes, air compressors, loaders,
lifts and compaction equipment to construction and industrial customers. The
Company also acts as a dealer of new equipment on behalf of several nationally
recognized equipment manufacturers. In addition, the Company sells used
equipment, spare parts and merchandise and provides ongoing repair and
maintenance services. The Company has increased its total revenues from $67.3
million in 1995 to $142.0 million in 1997; pro forma for the Acquisitions, the
Company's total revenues for 1997 were $198.3 million.
According to industry sources, the equipment rental industry grew from
approximately $600 million in revenues in 1982 to an estimated $18 billion in
1997. This growth has been driven primarily by construction and industrial
companies that have increasingly outsourced equipment needs to reduce
investment in non-core assets and convert costs from fixed to variable. The
equipment rental industry is highly fragmented, with an estimated 17,000
equipment rental companies in the United States. As a result, the Company
believes that there are substantial consolidation opportunities for
well-capitalized operators such as the Company. According to RENTAL EQUIPMENT
REGISTER and studies prepared by Manfredi & Associates, Inc. on the size of the
equipment rental market, no single company's revenues represented more than 2%
of total market revenues in 1996. Relative to smaller competitors, the Company
has several advantages, including increased purchasing power, larger
inventories to service larger accounts and the ability to transfer equipment
among rental locations in response to changing patterns of customer demand.
COMPETITIVE STRENGTHS
The Company believes it has several competitive strengths which provide it
with the opportunity for continued growth and increased profitability.
STRONG MARKET POSITION. The Company is one of the largest and fastest
growing construction and industrial equipment rental companies in the United
States, and is a leading competitor with a significant presence in the
Southeast and Gulf Coast regions. The Company operates 68 rental locations in
15 states, including Florida, Georgia, Alabama, Mississippi, South Carolina,
North Carolina, Tennessee, Louisiana, Texas, Oklahoma, Arizona, Nevada, Utah,
California and Colorado. From December 31, 1995 to December 31, 1997, pro forma
for the Richbourg Acquisition, the Company increased its equipment rental
locations from eight to 68 and expanded its rental fleet from $62 million to
$321 million based on original cost. The Company believes its dealership
operations complement its equipment rental providing it with competitive
advantages over competitors which only rent equipment. These advantages include
the ability to achieve favorable pricing by combining equipment purchases for
its dealership and rental fleets; the reduction of costs in certain locations
by sharing service, maintenance and administrative personnel; and better
knowledge of certain local markets by pooling management information. In
addition, management believes the Company's size and geographic diversity help
insulate it from regional economic downturns.
HIGH QUALITY RENTAL FLEET. Management believes the Company has one of the
newest, most comprehensive and well-maintained rental fleets in the equipment
rental industry. As of December 31, 1997, pro forma for the Richbourg
Acquisition, the average age of the Company's rental fleet was approximately 23
months. The Company makes ongoing capital investment in new equipment, engages
in regular sales of new equipment and conducts an advanced preventative
maintenance program. Management believes this maintenance program increases
fleet utilization, extends the useful life of equipment and produces higher
resale values.
EXCELLENT CUSTOMER SERVICE. The Company differentiates itself from its
competitors by providing high quality, responsive service to its customers.
Service initiatives include (i) reliable on-time
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equipment delivery directly to customers' job sites, (ii) on-site repairs and
maintenance of rental equipment by factory trained mechanics, generally
available 24 hours a day, seven days a week and (iii) ongoing training of an
experienced sales force to consult with customers regarding their equipment
needs.
STATE-OF-THE-ART MANAGEMENT INFORMATION SYSTEM. The Company has developed
a customized, state-of-the-art management information system capable of
monitoring operations at up to 300 sites. The Company uses this system to
maximize fleet utilization and determine the optimal fleet composition by
market. The system links all of the Company's rental locations and allows
management to track customer and sales information, as well as the location,
rental status and maintenance history of every piece of equipment in the rental
fleet. Rental location managers can search the Company's entire rental fleet
for needed equipment, quickly determine the closest location of such equipment,
and arrange for delivery to the customer's work site, thus maximizing equipment
utilization.
EXPERIENCED MANAGEMENT. Since 1995, the Company has significantly
increased the quality and depth of its management team to help oversee its
growth strategy. Neff's senior management team has extensive experience in the
equipment rental industry and its seven regional managers have, on average, 17
years of experience and substantial knowledge of the local markets served
within their regions. The Company believes that its management team has the
ability to continue the Company's strong growth as well as manage the Company
on a much larger scale. The Company is not dependent on recruiting additional
operating, acquisition, finance or other personnel to implement its growth
strategy. Management believes one of its affiliates, MasTec, Inc., and one of
its major stockholders, GE Capital, 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 integrates the operations of the
acquired company into its management information system, consolidates equipment
purchasing and resale functions and centralizes fleet management as quickly as
possible while assuring consistent, high-quality service to the acquired
company's customers. Since July 1997, the Company has made two strategic
acquisitions which have more than doubled the Company's number of rental
locations, significantly enhanced the Company's geographic presence and further
diversified the Company's customer base. The Company also has three letters of
intent outstanding to acquire additional equipment rental companies.
INCREASE PROFITABILITY OF RECENTLY OPENED RENTAL LOCATIONS. Since March 1,
1995, the Company has opened 21 start-up rental equipment locations including
11 locations in 1997. Management believes the Company's financial performance
does not yet fully reflect the benefit of these rental locations. Based on the
Company's historical experience, a new equipment rental location tends to
realize significant increases in revenues, cash flow and profitability during
the first three years of operation as more prospective customers become aware
of its operation and as the rental equipment fleet is customized to local
market demand. Because there is relatively little incremental operating expense
associated with such revenues, cash flow and profitability increases
significantly as a rental location matures. Although the Company intends to
expand primarily through acquisitions, management intends to open additional
start-up locations in markets where the Company has not been able to identify
attractive acquisition candidates. The Company plans to open five to seven
additional branches in 1998.
INCREASE FLEET AT EXISTING LOCATIONS. Management believes it can
capitalize on the demand for rental equipment in the markets it serves and
increase revenues by increasing the size of the rental fleet
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and adding new product lines at existing locations. Management believes that
this strategy allows the Company both to attract new customers and serve as a
single source supplier for its customers. Because the startup expenditures
associated with increasing the fleet and expanding product lines at existing
locations are relatively modest, these investments typically generate higher
and faster returns than investments in new locations.
SELECTIVE EXPANSION OF DEALERSHIP OPERATIONS. The Company intends to
selectively expand its dealership operations. The Company believes it can
realize significant economies of scale by expanding its dealership operations
in areas where it has already established equipment rental operations. The
Company's distributor relationships and the combined purchasing volume of its
dealership and rental operations allow it to acquire inventory at favorable
prices and terms. The Company's dealership operations also allow it to reduce
overhead costs by sharing service, maintenance and administrative personnel
with its rental operations, as well as generating better knowledge of local
markets through the sharing of information. The Company also intends to expand
its dealership operations to areas where it does not yet have equipment rental
operations but may in the future; establishing a dealership presence in such
areas will facilitate equipment rental presence in those areas also.
ACQUISITION STRATEGY
The Company believes it can successfully implement its acquisition
strategy because of (i) the Company's access to financial resources, (ii) the
potential for increased profitability due to the centralizing of certain
administrative functions, enhanced systems capabilities, greater purchasing
power and economies of scale and (iii) the potential for owners of the
businesses being acquired to participate in the Company's planned growth while
realizing liquidity. The Company has developed a set of financial, geographic
and management criteria designed to assist management in the evaluation of
acquisition candidates. These criteria evaluate a variety of factors,
including, but not limited to, (i) historical and projected financial
performance, (ii) composition and size of the candidate's customer base, (iii)
relationship of the candidate's geographic location to the Company's market
areas, (iv) potential synergies gained through acquisition of the candidate and
(v) liabilities, contingent or otherwise, of the candidate.
The Company intends to evaluate acquisition candidates in South America as
well as the United States. Management believes it can capitalize on the
business relationships of its major stockholders, GE Capital and the Mas
family, and its affiliate, MasTec Inc., in South America in locating potential
South American acquisition candidates and consummating such acquisitions.
According to RENTAL EQUIPMENT REGISTER, the equipment rental market in South
America, which is estimated to be 20 to 30 years behind the American market,
will experience significant growth in the next five to ten years. The Company
intends to position itself to take advantage of the opportunities for equipment
rental companies in the emerging South American market.
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.
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EQUIPMENT RENTALS. The Company is one of the largest and fastest growing
equipment rental companies in the United States, with 68 rental locations in 15
states. The Company's rental fleet is comprised of a complete line of light and
heavy construction and industrial equipment from a wide variety of
manufacturers, including John Deere, Case, Bomag, Terex Americas, JCB, Sullivan
Industries, Ingersoll-Rand, Gradall, Lull, JLG, Bobcat, MultiQuip and Wacker.
Major categories of equipment represented the following percentages (based on
original cost) of the Company's total rental fleet as of December 31, 1997:
PERCENTAGE OF TOTAL RENTAL FLEET
MAJOR EQUIPMENT CATEGORY (BASED ON ORIGINAL COST)
- ------------------------------ ---------------------------------
Earthmoving ............... 41.0%
Material Handling ......... 16.1
Aerial .................... 12.7
Compressors ............... 6.2
Compaction ................ 6.1
Trucks .................... 4.2
Cranes .................... 3.8
Welders ................... 2.7
Pumps ..................... 1.3
Generators ................ 1.3
Lighting .................. 1.3
Other ..................... 3.3
The Company attempts to differentiate itself from its competitors by
providing a broad selection of new and well-maintained rental equipment, and
through high-quality, responsive service to its customers. As of December 31,
1997, on a pro forma basis for the Acquisitions, the Company's equipment rental
fleet had an original cost of approximately $321 million and an average age of
23 months, which management believes compares favorably with other leading
equipment rental companies. The Company makes ongoing capital investments in
new equipment, engages in regular sales of used equipment and conducts an
advanced preventative maintenance program. This program increases fleet
utilization, extends the useful life of equipment and produces higher resale
values.
In addition to providing a new and reliable equipment rental fleet,
management believes providing high quality customer service is essential to the
Company's future success. The equipment rental business is a service industry
requiring quick response times to satisfy customers' needs. Though some
activity is arranged with lead-time, much of the rental initiation process
takes place within a 48-hour period. Consequently, equipment availability,
branch location and transportation capabilities play a major role in earning
repeat business. Rental customers prefer a quick selection process and seek
quick, concise communication when ordering equipment. Punctuality and
reliability are key components of the servicing process, as well as maintenance
performance, timely equipment removal at the rental termination, and simplified
billing. The Company's service initiatives include (i) reliable on-time
equipment delivery directly to customers' job sites, (ii) on-site repairs and
maintenance of rental equipment by factory trained mechanics, which are
generally available 24 hours a day, seven days a week and (iii) ongoing
training of an experienced sales force to consult with customers regarding
their equipment needs.
NEW EQUIPMENT SALES. The Company is a distributor of new equipment on
behalf of several nationally known equipment manufacturers. The Company is the
sole authorized distributor of John Deere industrial and construction equipment
in central and southern Florida; it is one of the largest John Deere
construction equipment dealerships in the United States. The Company also has
distributor arrangements with Bomag to sell heavy compaction equipment, and
with Terex Americas to sell off-road trucks, in central and southern Florida.
The Company's sales line consists of nine categories of John Deere, Bomag and
Terex Americas equipment and a total of 58 different machines, including: John
Deere backhoe loaders, forklifts, crawler dozers, four-wheel-drive loaders,
scrapers, skid steers, motor graders and excavators; Bomag vibratory rollers,
static rollers, recyclers and trash compacters; and a complete line of
articulated off-road trucks manufactured by Terex Americas.
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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 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
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equipment, quickly determine the closest location of such equipment and arrange
for delivery to the customer's work site. This practice helps diminish "lost
rents," improve utilization and make equipment available in markets where it
can earn increased revenues. The Company's communications system can handle
multiple protocols and allows the integration of systems running on different
platforms. This feature allows the Company to include systems used by locations
acquired in an acquisition of an existing equipment rental company in its
central databases while the acquired locations are integrated into the
Company's system. The Company is in the process of integrating the locations
acquired in the Acquisitions into its management information system.
CUSTOMERS
The Company's customers include commercial, industrial and civil
construction contractors, manufacturers, public utilities, municipalities, golf
courses, shippers, commercial farmers, military bases, offshore platform
operators and maintenance contractors, refineries and petrochemical facilities
and a variety of other industrial accounts. The Company has a broad customer
base of more than 19,000 customers with active accounts at any one time, none
of which accounted for more than 1.5% of the Company's total 1997 revenues. Pro
forma for the Acquisitions, the Company's top ten customers in 1997 represented
7.6% of the Company's total revenues.
The Company's rental equipment customers vary in size from large Fortune
500 companies who have elected to outsource much of their equipment needs to
small construction contractors, subcontractors, and machine operators whose
equipment needs are job-based and not easily measured in advance. The Company's
new and used equipment sales customers are generally large construction
contractors who regularly purchase wholesale goods and annually budget for
fleet maintenance purchases.
The Company does not currently provide its own purchase financing to
customers. The Company rents equipment, sells parts, and provides repair
services on account to customers who are screened through a credit application
process. Customers can finance purchases of large equipment with a variety of
creditors, including manufacturers, banks, finance companies and other
financial institutions.
SALES AND MARKETING
The Company maintains a strong sales and marketing orientation throughout
its organization in order to increase its customer base and better understand
and serve its customers. Managers at each of the Company's branches are
responsible for supervising and training all sales employees at that location
and directing the salesforce by conducting regular sales meetings and
participating in selling activities. Managers develop relationships with local
customers and assist them in planning their equipment requirements. Managers
are also responsible for managing the mix of equipment at their locations,
keeping abreast of local construction activity and monitoring competitors in
their respective markets.
To stay informed about their local markets, salespeople track new
equipment sales and construction projects in the area through EQUIPMENT DATA
REPORTS, FW DODGE REPORTS and PEC Reports (Planning, Engineering and
Construction), follow up on referrals and visit construction sites and
potential equipment users who are new to the local area. The Company's
salespeople also use targeted marketing strategies to address the specific
needs of local customers.
PURCHASING
The Company purchases equipment from vendors with reputations for product
quality and reliability. The Company believes its size and the quantity of
equipment it purchases enable it to purchase equipment directly from vendors
pursuant to national purchasing agreements at lower prices and on more
favorable terms than many smaller competitors. The Company seeks to maintain
close relationships with its vendors to ensure the timely delivery of new
equipment.
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<PAGE>
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 Machinery as the equipment manufacturer's
authorized dealer in certain "Areas of Responsibility," which generally
includes 100% of certain counties in southern and central Florida. Under the
dealership agreements, the equipment manufacturers agree to sell equipment to
Neff Machinery for resale in these areas. The dealership agreements typically
do not have a specific term, but may be terminated by either party upon 120
days written notice, or immediately by the equipment manufacturer for cause,
which generally includes, among other things, default by Neff Machinery under
any security agreement between Neff Machinery and the equipment manufacturer,
dissolution or liquidation of Neff Machinery, or a significant change in the
control, ownership or capital structure of Neff Machinery without the equipment
manufacturer's prior written consent. See "--Legal Proceedings."
The Company receives cash incentives and volume-related discounts from the
equipment manufacturers which it represents. The Company uses most of these
cash rebates and marketing fund contributions to give customers price
discounts. In addition, John Deere, Bomag and Terex Americas offer the Company
standard dealer cash discounts or limited interest-free financing.
36
<PAGE>
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. Moreover, there can
be no assurance that environmental and safety requirements will not become more
stringent or be interpreted and applied more stringently in the future. Such
future changes or interpretations, or the identification of adverse
environmental conditions currently unknown to the Company, could result in
additional environmental compliance or remediation costs to the Company. Such
compliance and remediation costs could be material to the Company's financial
condition or results of operations.
In particular, at its owned and leased facilities the Company stores and
dispenses petroleum products from aboveground storage tanks and has in the past
stored and dispensed petroleum products from underground storage tanks. The
Company also uses hazardous materials, including solvents, to clean and
maintain equipment, and generates and disposes of solid and hazardous wastes,
including used motor oil, radiator fluid and solvents. In connection with such
activities, the Company has incurred capital expenditures and other compliance
costs which are expensed on a current basis and which, to date, have not been
material to the Company's financial condition. Based on currently available
information, the Company believes that it will not be required to incur
material capital expenditures or other compliance or remediation costs on
environmental and safety matters in the foreseeable future. See "Risk
Factors--Environmental and Safety Regulation."
EMPLOYEES
As of March 12, 1998, the Company had approximately 1,100 employees. None
of the Company's employees is represented by a union or covered by a collective
bargaining agreement. The Company believes its relations with its employees are
good.
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
37
<PAGE>
Company purchased the buildings and land at six of its locations in Florida
from Atlantic Real Estate Holdings Corp., an affiliate of the Company
controlled by the Mas family which formerly leased these locations to the
Company. The Company also owns the buildings and/or the land at its locations
in Phoenix, Arizona; Hardeeville, Georgia; Texas City, Texas; Pasadena, Texas;
and Corpus Christi, Texas. All other sites are leased, generally for terms of
five years. Owned and leased sites range from approximately 10,000 to 25,000
square feet on lots ranging up to 22 acres, and include showrooms, equipment
service areas and storage facilities. The Company does not consider any
specific leased location to be material to its operations. The Company believes
that equally suitable alternative locations are available in all areas where it
currently does business.
LEGAL PROCEEDINGS
The Company is a party to pending legal proceedings arising in the
ordinary course of business. While the results of such proceedings cannot be
predicted with certainty, the Company does not believe any of these matters are
material to the Company's financial condition or results of operations.
John Deere has filed a notice of arbitration (the "Notice") with the
American Arbitration Association seeking review of the question of whether Neff
Corp. and Neff Machinery breached their agreements with John Deere by failing
to obtain John Deere's consent to transactions in which GE Capital increased its
equity interest in the Company in 1996. The Company has not filed a response to
the Notice and is actively discussing the issues raised by the Notice with John
Deere. Although the arbitration could result in a finding that the Company
breached its agreement with John Deere and that John Deere has the right to
terminate the dealership agreements, the Company believes that this matter can
be resolved in a manner that does not have a material adverse effect on its
financial condition or results of operations.
38
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The table below sets forth the names and ages of the directors, executive
officers and significant employees of the Company and its subsidiaries as well
as the positions and offices held by such persons, as of March , 1998. Jorge
Mas, Juan Carlos Mas and Jose Ramon Mas, all of whom are members of the Board
of Directors, are brothers. There are no other family relationships among the
directors or officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jorge Mas .................... 34 Chairman of the Board of Directors
Kevin P. Fitzgerald .......... 41 Chief Executive Officer, President and Director
Peter A. Gladis .............. 47 Senior Vice President--Neff Rental
Robert G. Warren ............. 40 Senior Vice President--Neff Machinery
Bonnie S. Biumi .............. 35 Chief Financial Officer
William Derenbecker .......... 43 Regional Vice President--Neff Rental--Gulf Coast
Steve Halliwell .............. 39 Regional Vice President--Neff Rental--Florida
Graham Hood .................. 42 Regional Vice President--Neff Rental--Southeast
Wes Parks .................... 35 Regional Vice President--Neff Rental--Atlantic
Bruce Pope ................... 52 Regional Vice President--Neff Rental--Southwest
Thomas Vandever .............. 52 Regional Vice President--Neff Rental--Central
Jon Zier ..................... 42 Regional Vice President--Neff Rental--West
Juan Carlos Mas .............. 31 Director
Jose Ramon Mas ............... 28 Director
</TABLE>
JORGE MAS. Mr. Mas has been Chairman of Neff Corp. and its predecessor, MP
Equipment ("MP") since he founded MP in 1988. Since 1994, Mr. Mas has been the
President and CEO, and a director of MasTec, Inc., a provider of
telecommunications related engineering and construction services. Mr. Mas is a
member of the boards of directors of Supercanal Holdings, S.A., Primera Fila,
S.A. and Santos Capital. Mr. Mas has an M.B.A. and a B.A. in business
administration.
KEVIN P. FITZGERALD. Mr. Fitzgerald joined the Company in 1995 as
President and CEO. From 1991 through July, 1995, he was a Senior Vice President
for the investment banking firm of Houlihan Lokey Howard and Zukin. He is also
a member of the board of directors of Supercanal Holdings, S.A., Primera Fila,
S.A. and Santos Capital. Mr. Fitzgerald holds an M.B.A. in finance and a B.S.
in electrical engineering.
PETER A. GLADIS. Mr. Gladis joined the Company in 1995 after 20 years of
employment with Hertz Corporation, most recently, as Regional Vice President of
western region operations. Mr. Gladis is the Senior Vice President of Neff
Rental. Mr. Gladis has a B.S. in business administration and marketing and a
total of 25 years of experience in the equipment rental industry.
ROBERT G. WARREN. Mr. Warren joined the Company in 1988 after being
employed by Hertz Corporation as Regional Vice President. Mr. Warren is the
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.
39
<PAGE>
STEVE HALLIWELL. Mr. Halliwell joined the Company in 1990 after one year
with Wacker as Territory Manager and two years with Hood Equipment as a Sales
Representative. Mr. Halliwell serves as Neff Rental's Vice President for the
Florida Region. Mr. Halliwell has a total of 12 years of experience in the
equipment rental industry.
GRAHAM HOOD. Mr. Hood joined the Company in 1995 after 17 years of
employment with Hertz Corporation, where he most recently served as Regional
Vice President. Mr. Hood serves as Neff Rental's Vice President for the
Southwest Region. Mr. Hood has a total of 20 years of experience in the
equipment rental industry.
WES PARKS. Mr. Parks joined the Company in 1995 after eight years of
employment with Hertz Corporation, where he served as Branch Manager. Mr. Parks
serves as Neff Rental's Vice President for the Atlantic Region. Mr. Parks has a
total of 13 years in the equipment rental industry.
BRUCE POPE. Mr. Pope joined the Company in 1995 after being employed by
Hertz Corporation as Branch Manager. Mr. Pope serves as Neff Rental's Vice
President for the Southwest Region. Mr. Pope has a total of 33 years of
experience in the equipment rental industry.
THOMAS VANDEVER. Mr. Vandever joined the Company in 1997 after being
employed by Hertz Corporation as Regional Manager. Mr. Vandever serves as Neff
Rental's Vice President for the Central Region. Mr. Vandever has a total of 16
years of experience in the equipment rental industry.
JON ZIER. Mr. Zier joined the Company in 1996 after being employed by
Hertz Corporation as Regional Manager. Mr. Zier serves as Neff Rental's Vice
President for the West Region. Mr. Zier has a total of 20 years of experience
in the equipment rental industry.
JUAN CARLOS MAS. Mr. Mas has been a Director of the Company and MP since
1989. He is currently Director and President of the Construction Division of
Church and Tower, a subsidiary of MasTec, Inc., where he has been employed for
the past five years. Mr. Mas holds a B.A. in business administration and a J.D.
JOSE RAMON MAS. Jose Ramon Mas has also been a Director of the Company and
MP since 1989. Mr. Mas is Director and President of the Telecommunications
Division of Church and Tower, a subsidiary of MasTec, Inc., where he has been
employed for the past five years. He has a B.A. in business administration and
an M.B.A.
BOARD OF DIRECTORS
The Company's Board of Directors is currently composed of four directors,
Jorge Mas, Mr. Fitzgerald, Juan Carlos Mas and Jose Ramon Mas. The Company
intends to expand the Board to include two outside directors following the
Offering. The Company's Certificate of Incorporation provides that the Board of
Directors shall be divided into three classes. The members of each class of
directors will serve for staggered three-year terms. Following the consummation
of the Offering, the Board will be composed of two Class I directors, two Class
II directors and three Class III directors. Jorge Mas and Kevin P. Fitzgerald
will serve as Class I directors for an initial term which will expire at the
time of the annual stockholder meeting in June 2000. Juan Carlos Mas and Jose
Ramon Mas will serve as Class II directors for the initial term which will
expire at the time of the annual stockholders meeting in June 1999; and the two
outside directors to be selected will serve as Class III directors for the
initial term which will expire at the time of the annual stockholder meeting in
June 1998. Thereafter, each class will serve three-year terms.
The Company must select two additional independent directors within
days after the date of this Prospectus in order to maintain its New York Stock
Exchange listing. Failure to select such directors within this period could
result in a delisting of the Class A Common Stock from the New York Stock
Exchange.
40
<PAGE>
The holders of a majority of the Series A Preferred Stock, voting
separately as a single class in the election of directors of the Company, with
each share of Series A Preferred Stock entitled to one vote, are entitled to
elect one director to serve on the Company's Board of Directors. See
"Description of Capital Stock--Preferred Stock." GE Capital owns all of the
issued and outstanding Series A Preferred Stock and, therefore, is entitled to
elect one director to the Company's Board of Directors. The Company expects to
redeem the Series A Preferred Stock with the proceeds of the Private Debt
Offering. See "Capitalization."
Pursuant to an Amended and Restated Stockholders Agreement dated as of
, 1998, if GE Capital transfers Common Stock representing at least 15% of
the equity of the Company to a third party (the "GE Transferee") the Company
will increase the Board of Directors from six to seven members and the parties
to the Stockholders' Agreement, in accordance with such agreement, have agreed
to vote their shares of Common Stock to elect the GE Transferee's nominee as a
director to fill the vacancy.
COMMITTEES OF THE BOARD OF DIRECTORS
After completion of the Offering, the Company intends to establish an
Audit Committee and a Compensation Committee, each composed of two independent
directors. The Audit Committee will recommend the annual appointment of the
Company's auditors, with whom the Audit Committee will review the scope of
audit and non-audit assignments and related fees, accounting principles used by
the Company in financial reporting, internal auditing procedures and the
adequacy of the Company's internal control procedures. The Compensation
Committee will administer the Company's Incentive Stock Plan and make
recommendations to the Board of Directors regarding compensation for the
Company's executive officers.
COMPENSATION OF DIRECTORS
Each of the Company's nonemployee directors will receive an annual
retainer. In addition, nonemployee directors will receive meeting attendance
fees for special board meetings or committee meetings not held in conjunction
with a regular board meeting. Jorge Mas, Jose Ramon Mas and Juan Carlos Mas
will not receive any such retainers or fees, however. All directors will be
reimbursed for expenses incurred in connection with attending board and
committee meetings. Pursuant to the Company's Stock Incentive Plan, the
Company's nonemployee directors will receive options to purchase Common Stock
upon their initial appointment. These options will have an exercise price equal
to 100% of the fair market value on the date of the grant, and will vest over a
five year period (20% each year). The options will expire in ten years, unless:
(a) the director leaves the Board of Directors for any reason other than
disability, death or cause, in which case the director will have three months
after termination to exercise his vested options; (b) the director is dismissed
from the Board of Directors for cause, in which case all options will terminate
immediately; (c) the director's service terminates by reason of disability or
resignation, in which case the director will have one year after the
termination date to exercise vested options; or (d) the director dies, in which
case the director's estate will have one year to exercise vested options.
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 gene
ally 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
41
<PAGE>
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another entity, against expenses (including
attorneys' fees) and losses, claims, liabilities, judgments, fines and amounts
paid in settlement actually incurred by such person in connection with such
Proceeding. The Company has entered into, or intends to enter into, agreements
to provide indemnification for its directors and executive officers in addition
to the indemnification provided for in the Certificate of Incorporation. These
agreements, among other things, will indemnify the Company's directors and
executive officers for certain expenses (including attorneys' fees), and all
losses, claims, liabilities, judgments, fines and settlement amounts incurred by
such persons arising out of or in connection with their service as a director or
officer of the Company to the fullest extent permitted by applicable law. In
addition, the Company has obtained director and officer liability insurance that
insures the Company's directors and officers against certain liabilities.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During its fiscal year ended December 31, 1997, the Company had no
Compensation Committee or other committee of the Board of Directors performing
similar functions. Decisions concerning compensation of executive officers were
made by certain executive officers of the Company. It is contemplated that the
Board of Directors will establish a Compensation Committee consisting of
nonemployee directors following consummation of the Offering. See "--Board of
Directors."
EXECUTIVE COMPENSATION
The following table sets forth a summary of compensation for services
rendered in all capacities to the Company by the Chief Executive Officer and
President and each of the Company's most highly compensated executive officers
as to whom the total annual base salary, bonus and other compensation for the
fiscal year ended December 31, 1997 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- -------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS OPTIONS/SARS
- ----------------------------------------------- ------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Kevin P. Fitzgerald 1995 $ 50,000 --
President and Chief Executive 1996 150,000 $ 75,000
Officer(1) .................................... 1997 246,000 150,000
Robert G. Warren 1995 $ 90,000 $ 50,000 84,650
Senior Vice President, Neff Machinery ......... 1996 126,000 40,000 --
1997 155,000 25,000
Peter A. Gladis 1995 $ 42,000 -- --
Senior Vice President, Neff Rental(2) ......... 1996 145,000 $ 40,000
1997 150,000 75,000
Bonnie S. Biumi
Chief Financial Officer(3) .................... 1997 -- -- --
</TABLE>
- ----------------
(1) Mr. Fitzgerald commenced work for the Company in August 1995. He was paid
at the rate of $145,000 per year during fiscal year 1995. The salary set
forth above for 1995 represents his salary for the five-month period from
August to December, 1995.
(2) Mr. Gladis commenced work for the Company in September 1995. He was paid at
the rate of $145,000 per year during fiscal year 1995. The salary set
forth above represents his salary for the four-month period from September
to December, 1997.
(3) Ms. Biumi commenced work for the Company on December 29, 1997. Her annual
salary was $175,000.
42
<PAGE>
OPTION GRANTS AND EXERCISES
The Company did not grant any options to purchase any of its capital stock
in 1997 and no options to purchase any of its capital stock were exercised in
1997.
Options to purchase shares of Class A Common Stock representing three
percent of the issued and outstanding Common Stock of the Company for an
aggregate purchase price of approximately $1.6 million have been granted to Mr.
Fitzgerald. These options are not intended to qualify as incentive stock options
and all of these options are exercisable. One-third of Mr. Fitzgerald's options
expire on December 1, 2005, one-third expire on December 31, 2005 and the
remaining one-third expire on December 31, 2006. Options to purchase 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.
The following table sets forth information concerning the year-end value
of unexercised options held by Messrs. Fitzgerald and Warren:
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS "IN-THE-MONEY"
AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR END(1)
------------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Kevin P. Fitzgerald,
Chief Executive Officer
and President ................. -- -- -- --
Robert G. Warren,
Senior Vice President,
Neff Machinery ................ 84,650 -- -- --
Peter A. Gladis,
Senior Vice President,
Neff Rental ................... -- -- -- --
Bonnie S. Biumi, Chief
Financial Officer ............. -- -- -- --
</TABLE>
- ----------------
(1) Options are "in-the-money" at the fiscal year end if the fair market value
of the underlying securities on such date exceeds the exercise price of
the option. For the purposes of this calculation, the fair market value of
the Class A Common Stock is $ , the mid-point of the range of the
initial public offering price set forth on the cover of this Prospectus.
Mr. Fitzgerald also has certain rights to cause the Company to register
Class A Common Stock issued to him upon exercise of his options. At any time
during the period from December 1, 1995 until December 1, 2010 (the
"Registration Period") Mr. Fitzgerald may make one demand upon the Company and
require it to register any shares of Class A Common Stock issued to him upon
exercise of his options. If the Company files a registration statement to
register Class A Common Stock during the Registration Period, Mr. Fitzgerald
may demand that the Company include any shares of Class A Common Stock issued
to him upon exercise of his options in such registration statement. Mr.
Fitzgerald has agreed to waive any rights he may have to register any shares of
Class A Common Stock prior to the Offering or to demand an offering within 180
days of the closing of the Offering.
COMPANY COMPENSATION AND BENEFITS
SALARY AND BENEFITS. It is contemplated that the Company will establish
annual base salaries for Messrs. Warren and Gladis and Ms. Biumi in the amounts
of $160,000, $185,000 and $175,000
43
<PAGE>
respectively, effective upon the closing of the Offering. The Company will also
establish an annual bonus plan for executive officers and other key employees
under which bonuses will be paid based on sales increases, increases in earnings
per share and return on equity. The Company will provide medical and dental
benefits, life and disability insurance, vacation and holidays, and will
implement the other benefit plans described below.
INCENTIVE STOCK PLAN
Under the Company's Incentive Stock Plan (the "Incentive Stock Plan"),
designated officers, employees and consultants of the Company will be eligible
to receive awards in the form of stock options, stock appreciation rights,
restricted stock grants, performance awards or dividend equivalent rights. The
Incentive Stock Plan is intended to promote the long-term financial interests of
the Company by encouraging employees to acquire an ownership position in the
Company and to provide incentives for employee performance. The Incentive Stock
Plan, which is expected to be approved by the Board of Directors, will be
effective upon consummation of the Offering.
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, and the maximum dollar amount of performance
awards that individual may receive is $6 million.
The Incentive Stock Plan will be administered by the Compensation
Committee of the Board of Directors. Subject to the provisions of the Incentive
Stock Plan, the Compensation Committee will be authorized to determine who may
participate in the Incentive Stock Plan, the number and types of awards made to
each participant and the terms, conditions and limitations applicable to each
award. In addition, the Compensation Committee will have the exclusive power to
interpret the Incentive Stock Plan and to adopt such rules and regulations as
it may deem necessary or appropriate for purposes of administering the plan.
Subject to certain limitations, the Board of Directors will be authorized to
amend, modify or terminate the Incentive Stock Plan to meet any changes in
legal requirements or for any other purpose permitted by law.
STOCK OPTIONS. Under the Incentive Stock Plan, the Committee is authorized
to grant options to purchase shares of Class A Common Stock, including options
qualifying as "incentive stock options" ("ISOs") under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and options that do not
so qualify ("NSOs") to employees as additional compensation for their services
to the Company. Options granted will be subject to adjustment in the event of a
stock split, stock dividend or other change in the Class A Common Stock or the
capital structure of the Company.
Options shall be exercisable over such period as may be determined by the
Compensation Committee, but no stock option may be exercised after ten years
from the date of grant. Options may be exercisable in installments and upon
such other terms as determined by the Compensation Committee. Options will be
evidenced by option agreements. No option may be transferable other than by
will or by the laws of descent and distribution or pursuant to certain domestic
relations orders. The purchase price of Common Stock subject to an ISO shall
not be less than 100% of the Fair Market Value (as defined in the Incentive
Stock Plan) of such Common Stock on the date of grant, (110% in the case of an
ISO granted to an individual holding more than 10% of the Company's capital
stock). Such purchase price shall be paid in full in cash, Class A Common Stock
or a combination of both.
STOCK APPRECIATION RIGHTS. Under the Incentive Stock Plan, the
Compensation Committee also may grant stock appreciation rights either in
tandem with an option or alone. Stock appreciation rights granted in tandem
with a stock option may be granted at the same time as the stock option or at a
later time. A stock appreciation right shall entitle the participant to receive
from the Company an amount payable in cash, in shares of Class A Common Stock
or in a combination of cash and Class A Common
44
<PAGE>
Stock, equal to the positive difference between the fair market value of a share
of Class A Common Stock on the date of exercise and the grant price, or such
lesser amount as the Compensation Committee may determine.
RESTRICTED STOCK AWARDS. Under the Incentive Stock Plan, the Compensation
Committee may grant shares of restricted Class A Common Stock, which are
subject to forfeiture under such conditions and for such period of time (not
less than one year) as the Compensation Committee may determine. The
Compensation Committee shall determine the conditions or restrictions of any
restricted Class A Common Stock awards, which may include restrictions on
transferability, requirements of continued employment, individual performance
or the Company's financial performance.
PERFORMANCE AWARDS. The Compensation Committee in its discretion may grant
awards of performance units or performance shares to an employee contingent
upon the attainment of a specified objective during a specified period of time.
Performance units may be denominated in shares of Class A Common Stock or a
specified dollar amount and are contingent upon attainment of the specified
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 OR CHANGE IN CONTROL. The Incentive Stock Plan provides for the
acceleration of certain benefits in the event of a "Change in Control" of the
Company. A Change in Control will be deemed to have occurred if either (i) any
person or group other than the Mas brothers acquires beneficial ownership
equivalent to 30% of the voting securities of the Company, (ii) individuals who
are directors as of the closing of the Offering, or individuals who became
directors after being approved by two-thirds of such individuals (and other
directors previously so approved) cease to constitute at least two-thirds of
the members of the Board of Directors, (iii) the consummation of certain
mergers, the sale of substantially all of the assets of the Company or a
complete liquidation or dissolution of the Company.
PHANTOM STOCK PLAN
Effective January 1, 1997, the Company adopted a phantom stock plan (the
"Phantom Stock Plan"). The Phantom Stock Plan is designed to reward employees
for increases in the Company's performance. Pursuant to the terms of this plan,
employees are eligible to receive individual units representing a hypothetical
share of the Company's Common Stock (a "Phantom Share"). Each Phantom Share is
assigned a value on the date granted as determined by the administrator of the
Phantom Stock Plan. The difference between the calculated share value of the
Phantom Share on the date redeemed by the employee as determined pursuant to a
formula set forth in the Phantom Stock Plan and the value assigned on the date
of grant represents the cash award the employee is entitled to receive on the
redemption date. The Phantom Shares generally vest over five years and must be
redeemed by the Company within one year of vesting.
401(K) PLAN
The Company maintains a 401(k) Retirement Savings Plan (the "401(k) Plan")
to provide retirement and other benefits to employees of the Company and to
permit employees a means to save for their retirement. The 401(k) Plan is
intended to be a tax-qualified plan under Section 401(a) of the
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Code. Subject to legal limitations, participants may elect, by salary reduction,
to have 401(k) contributions of 1% to 15% of their compensation made to their
accounts. The Company may make discretionary profit sharing contributions on
behalf of participants based on the participant's contribution amounts.
Participants in the 401(k) Plan always have a 100% vested and nonforfeitable
interest in the value of their 401(k) contributions. In certain circumstances,
participants may receive loans and hardship withdrawals from their accounts in
the 401(k) Plan.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
The DGCL authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of the directors' fiduciary duty of care. The Company's
Certificate of Incorporation limits the liability of directors of the Company to
the Company or its stockholders to the fullest extent permitted by Delaware law.
Specifically, directors of the Company will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director, except
for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or knowing violations of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the DGCL or (iv) for any transaction from which the
director derived an improper personal benefit. The inclusion of this provision
in the Certificate of Incorporation may have the effect of reducing the
likelihood of derivative litigation against directors, and may discourage or
deter stockholders or management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if successful, might
otherwise have benefited the Company and its stockholders.
The Certificate of Incorporation provides mandatory indemnification rights
to any officer or director of the Company who, by reason of the fact that he or
she is an officer or director of the Company, is involved in a legal proceeding
of any nature. Such indemnification rights include reimbursement for expenses
incurred by such officer in advance of the final disposition of such proceeding
in accordance with the applicable provisions of the DGCL.
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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March , 1998, information with
respect to the beneficial ownership of the Company's Common Stock by: (i) each
person known to the Company to beneficially own more than 5% of the outstanding
shares of the Company's Class A Common Stock, (ii) each person known to the
Company to beneficially own more than 5% of the outstanding shares of the
Company's Class B Common Stock, (iii) each director of the Company and each
executive officer named in the Summary Compensation Table; and (iv) all
directors and executive officers of the Company as a group. Unless otherwise
indicated, (a) each such stockholder has sole voting and investment power with
respect to the shares beneficially owned by such stockholder and (b) has the
same address as the Company.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
BEFORE THE OFFERING AFTER THE OFFERING
--------------------------------------------- ------------------------------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES OF PERCENT SHARES OF PERCENT SHARES OF PERCENT SHARES OF PERCENT
CLASS A OF CLASS B OF CLASS A OF CLASS B OF
COMMON CLASS COMMON CLASS COMMON CLASS COMMON CLASS
STOCK OWNED STOCK OWNED STOCK OWNED STOCK OWNED
------------- --------- ----------- --------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jorge Mas ................ 3,702,744(1) 25.6% -- -- -- --
Juan Carlos Mas .......... 2,381,303(1) 16.5 -- -- -- --
Jose Ramon Mas ........... 2,381,303(1) 16.5 -- -- -- --
GE Capital ............... 5,100,000(2) 35.2 (1) 100% (1) 100%
Santos ................... 900,000(3) 6.2 -- -- (2) -- --
Santos Capital ........... 1,500,000(4) 10.4 -- --
Kevin P. Fitzgerald ...... 450,000(1)(5) 3.0 -- -- (3) -- --
Robert G. Warren ......... 84,650(6) * -- -- (4) * -- --
All executive officers
and directors as a
group (8 persons) ...... 9,000,000 60.0 -- -- -- --
</TABLE>
- ----------------
* Less than 1%.
(1) Does not include shares beneficially owned through Santos or Santos Capital.
(2) The amount shown includes shares owned by GECFS, Inc., an affiliate of GE
Capital. The amount shown includes 1,500,000 shares of Class B Common
Stock subject to an option held by Santos Capital. Santos 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. In the event that there is an increase or
reduction in the number of shares of Class A Common Stock outstanding, by
reason of a reclassification, recapitalization, merger, consolidation,
spin-off, split-up, issuance of warrants or rights or debentures, stock
dividend, stock split or reverse stock split or otherwise, the number of
Mr. Fitzgerald's options will be increased or reduced so that they
represent the right to purchase 3% of the issued and outstanding Class A
Common Stock of the Company.
(6) The amount shown consists of 84,650 shares covered by options currently
exercisable by Mr. Warren.
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CERTAIN RELATIONSHIPS AND TRANSACTIONS
MASTEC, INC.
MasTec, Inc., an affiliate of the Company controlled by the Mas family,
purchases and leases construction equipment from the Company. During the years
ended December 31, 1996 and 1997, revenues from MasTec, Inc. amounted to
approximately $1.5 and $0.7 million, respectively. The Company believes that
these payments were substantially equivalent to the payments that would have
been made between unrelated parties acting at arm's length.
ATLANTIC REAL ESTATE HOLDINGS CORPORATION
In May 1997, the Company acquired six properties that it previously leased
from Atlantic Real Estate Holdings Corp., an affiliate of the Company owned by
Jorge Mas, Juan Carlos Mas and Jose Ramon Mas, for approximately $13.9 million.
The Company operated its Miami, West Palm Beach, Fort Myers, Orlando, Pompano
Beach and Tampa equipment rental and dealership locations at these properties.
GE CAPITAL, SANTOS AND SANTOS CAPITAL
The Company and GE Capital have entered into a registration rights
agreement with respect to the Class B Common Stock held by GE Capital (the "GE
Capital Shares"). The registration rights agreement provides that GE Capital
may, after the earlier of (i) December 29, 1998 or (ii) an initial public
offering of the Company's Common Stock and subject to certain limitations, make
two demand registrations with respect to all or part of the GE Capital Shares.
The GE Capital Shares being registered must be converted to shares of Class A
Common Stock prior to registration. The registration rights agreement also
provides GE Capital with piggyback registration rights with respect to certain
registration statements filed by the Company. In any registration, the Company
must pay the registration expenses of GE Capital, excluding GE Capital's legal
fees, underwriting commissions and discounts. The Company has agreed to
indemnify GE Capital against certain liabilities under the Securities Act in
connection with the registration of the GE Capital Shares.
In March 1998, GE Capital and the Company consummated a series of
transactions pursuant to which GE Capital (i) exchanged its 800,000 shares of
the Company's Series B Preferred Stock and 800,000 shares of Series C Preferred
Stock for 6,000,000 shares of the Company's Class B Common Stock and (ii) sold
900,000 shares of Class B Common Stock to Santos, which Santos then converted
into Class A Common Stock. Santos Capital purchased an option from GE Capital to
acquire an additional 1,500,000 shares of Common Stock, exercisable for a period
of 18 months. The $16.5 million purchase price for the shares of Class A Common
Stock was paid in part by the delivery by Santos of a promissory note to GE
Capital for $11.5 million. This promissory note is secured by the shares of
Class A Common Stock Santos purchased from GE Capital.
Santos, Santos Capital and the Company have entered into a registration
rights agreement with respect to the shares of Class A Common Stock held by
Santos and Santos Capital. The terms of this agreement are substantially
equivalent to the terms of the registration rights agreement for GE Capital and
the Company.
PEP CONSULTING
PEP Consulting receives a consultant fee of $5,663 per month for services
rendered to Neff Rental. The owner of PEP Consulting, Jose Perez, was a
director of Neff Rental from December 1995 until October 1997.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITIES
The Company has established the Senior Credit Facility with a syndicate of
Lenders and GE Capital, as agent, dated December 31, 1997, which consists of a
$250 million revolving line of credit, under which each of Neff, Neff Rental
and Neff Machinery can borrow, repay and reborrow funds for general corporate
purposes. The Senior Credit Facility terminates on October 31, 1998; however,
upon the completion of the Private Debt Offering, this date will be changed to
October 31, 2001. Credit facilities with syndicates of lenders and GE Capital,
as agent, have been the Company's principal source of liquidity since December
1995.
The Company's Senior Credit Facility allows borrowings based upon eligible
accounts receivable, rental fleet and inventory amounts. The interest rates on
balances outstanding under the Senior Credit Facility vary based upon the
leverage ratio maintained by the Company and were % for Prime and for LIBOR
based borrowings at December 31, 1997. As of December 31, 1997, the Company was
not in compliance with certain financial covenants contained in the Senior
Credit Facility. The Company expects to obtain a waiver for the non-compliance
from the lenders under the Senior Credit Facility prior to the consummation of
the Offering.
The Company has also entered into a Term Loan with GE Capital, Bankers
Trust Company and BankAmerica Business Credit, Inc., dated December 31, 1997,
pursuant to which the Company received $100 million for the purpose of: (i)
repaying a July 31, 1997 term loan; and (ii) funding a portion of the Richbourg
Acquisition.
The terms and conditions of the indebtedness of the Company under the GE
Capital facilities impose restrictions that prohibit the Company from taking
certain actions without the prior written consent of the members of the
syndicate, including but not limited to merging with another company, incurring
certain kinds of indebtedness, changing the Company's capital structure,
selling assets other than in the ordinary course of business and declaring
dividends other than in connection with the Series A Preferred Stock of the
Company. See "Risk Factors--Dependence on Additional Capital for Future Growth;
Reliance on Credit Facilities."
The Company's Senior Credit Facility is expected to be amended and
restated at the time of the Offering. Borrowings under the New Credit Facility
will continue to be based upon eligible accounts receivable, rental fleet and
inventory amounts. Based upon these requirements, the Company will have access
to the entire facility amount. The interest rates on balances outstanding under
the New Credit Facility will vary based upon the leverage ratio maintained by
the Company and range from prime rate or LIBOR plus 1.00% to prime plus 1.25%
to LIBOR plus 2.25%. Based upon the Company's current leverage ratio the
interest rate would be prime plus % or LIBOR plus %. In the event the
Company repays the Term Loan prior to October 31, 1998, the New Credit Facility
will be due in 2003, otherwise, it will become due on October 31, 1998.
The Company expects the New Credit Facility will be secured by substantially
all of the Company's assets and will contain various restrictive covenants
which, among other things, place restrictions on indebtedness and require the
Company to maintain certain interest coverage ratios.
PRIVATE DEBT OFFERING
The Company expects to consummate the Private Debt Offering for estimated
gross proceeds of approximately $ million, and estimated net proceeds of
$ million after fees and expenses, on or after the consummation of the
Offering. The notes offered in the Private Debt Offering (the "Notes") are
expected to be general unsecured obligations of the Company and subordinated in
right of payment to all existing and future senior indebtedness of the Company.
The Notes will rank PARI PASSU in right of payment with any future senior
subordinated indebtedness of the Company and will rank senior in right of
payment to all other subordinated indebtedness of the Company. The indenture
governing
the Notes
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<PAGE>
(the "Indenture"), if issued, will contain certain covenants that, among other
things, limit the ability of the Company and its subsidiaries to incur
indebtedness, pay certain payments, create liens securing certain indebtedness,
pay dividends, make certain payments affecting subsidiaries or sell assets.
There can be no assurance that the Private Debt Offering will be consummated.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Class A Common Stock, $.01 par value, 20,000,000 shares of Class B Common
Stock, $.01 par value, 519,503 shares of Series A Preferred Stock and 1,000,000
shares of Series B Junior Participating Preferred Stock, $.01 par value (the
"Series B Junior Preferred Stock"). Upon completion of the Offering, there will
be issued and outstanding shares of Class A Common Stock, shares of Class B
Common Stock, 340,907 shares of Series A Preferred Stock, and no shares of
Series B Junior Participating Preferred Stock. In addition, shares of Class A
Common Stock have been reserved for issuance in connection with the grant of
options to purchase Class A Common Stock, and shares have been reserved in
connection with the conversion of Class B Common Stock.
COMMON STOCK
The Company's Class A Common Stock and Class B Common Stock are equal in
all respects except for liquidation rights and conversion rights of the Class B
Common Stock, as discussed more fully below. Immediately upon consummation of
this Offering, all of the then outstanding shares of Common Stock will be
validly issued, fully paid and nonassessable.
VOTING RIGHTS; CONVERSION OF CLASS B COMMON STOCK INTO CLASS A COMMON
STOCK. The holders of Class A and Class B Common Stock are entitled to one vote
per share on all matters submitted to a vote of the stockholders. Holders of
Class A and Class B Common Stock do not have cumulative rights, so that holders
of more than 50% of the shares of Common Stock present at a meeting at which a
quorum is present are able to elect all of the Company's directors eligible for
election in a given year. Shares of Class B Common Stock are convertible into
shares of Class A Common Stock, in whole or part, at any time and from time to
time at the option of the holder, on the basis of one share of Class A Common
Stock for each share of Class B Common Stock converted. In the event of any
increase or reduction in the number of shares of Class A Common Stock, or the
exchange of Class A Common Stock for a different number or kind of securities
of the Company, by reason of a reclassification, recapitalization, merger,
consolidation, reorganization, spin-off, split-up, stock split or reverse stock
split, change in corporate structure or otherwise, the Board of Directors
shall, in its discretion, adjust appropriately the number of shares of Class A
Common Stock into which one share of Class B Common Stock shall be converted.
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
50
<PAGE>
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. Notwithstanding the foregoing, dividends paid in shares of Class A
Common Stock or Class B Common Stock shall be paid only as follows: shares of
Class A Common Stock shall be paid only to holders of Class A Common Stock and
shares of Class B Common Stock shall be paid only to holders of Class B Common
Stock. The terms of the Company's credit facilities, Series A Preferred Stock
and the Private Debt Offering limit the Company's ability to pay dividends on
the Common Stock. See "Dividend Policy" and "--Preferred Stock."
OTHER PROVISIONS. The holders of Class A Common Stock and Class B Common
Stock have no preemptive or other subscription rights to purchase shares of
stock of the Company, and there are no redemptive or sinking fund provisions
applicable to the Class A Common Stock and Class B Common Stock.
REGISTRATION RIGHTS. The Company is a party to agreements pursuant to
which GE Capital, the Mas family, Santos, Santos Capital and Mr. Fitzgerald
have the right, among other matters, to require the Company to register their
shares of Class A Common Stock under the Securities Act under certain
circumstances. These rights cover approximately shares of Class A Common
Stock. See "Management--Company Compensation and Benefits" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
PREFERRED STOCK
The Certificate of Incorporation, a copy of which is filed as an exhibit
to the Registration Statement of which this Prospectus constitutes a part,
authorizes the Company's Board of Directors to issue Preferred Stock in series
and to establish the number of shares to be included in each such series and to
fix the designations, powers, preferences and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof. Because the
Board of Directors has the power to establish the preferences and rights of the
shares of any such series of Preferred Stock, it may afford the holders of any
Preferred Stock that may be outstanding, preferences, powers and rights
(including voting rights) senior to the rights of the holders of Class A Common
Stock. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company. See "Risk Factors--
Anti-Takeover Provisions."
The Board of Directors has established a class of Preferred Stock
designated Series A Preferred Stock consisting of 519,503 authorized shares,
par value $.01 per share. The Series A Preferred Stock has the dividend,
redemption, liquidation and other rights described below.
DIVIDEND RIGHTS. Dividends on each share of Series A Preferred Stock
accrue on a semi-annual basis at a rate of 5% per annum of the "Liquidation
Value," or $40 per share, thereof, plus all accumulated and unpaid dividends
thereon. Such dividends accrue whether or not they have been declared and
whether or not there are profits, surplus or other funds of the Company legally
available for the payment of dividends. During the period from December 31,
1995 until the earlier of December 31, 1999 or the termination of the Senior
Credit Facility (the "PIK Period"), under certain circumstances, the Company
may pay dividends on the Series A Preferred Stock in kind by issuing additional
shares of Series A Preferred Stock to the holders thereof that have an
aggregate Liquidation Value equal to the amount of the accrued and unpaid
dividend. At the end of the PIK Period, all accrued and unpaid dividends on the
Series A Preferred Stock must be paid in cash.
PRIORITY OF SERIES A PREFERRED STOCK ON DIVIDENDS AND REDEMPTIONS. As long
as any shares of Series A Preferred Stock remain outstanding, the Company must
obtain the prior written consent of the holders of a majority of the outstanding
shares of Series A Preferred Stock before it may redeem, retire, purchase or
otherwise acquire any stock of the Company other than Series A Preferred Stock
("Junior Securities"), or pay or declare any dividend or make any distribution
(in cash or property) upon any Junior Securities, other than dividends payable
solely in the securities in respect of which such dividends are paid or such
that are payable upon the conversion of convertible preferred stock into common
stock.
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LIQUIDATION RIGHTS. Upon any liquidation, dissolution or winding up of the
Company, holders of Series A Preferred Stock will be entitled to be paid,
before any distribution or payment is made upon any Junior Securities, an
amount in cash equal to the aggregate Liquidation Value (plus all accrued and
unpaid dividends thereon) of all such Series A Preferred Stock outstanding. The
holders of Series A Preferred Stock will not be entitled to receive any further
payment. Prior to the time of any liquidation, dissolution or winding up of the
Company, to the extent permitted by applicable law, the Company shall declare
for payment all accrued and unpaid dividends with respect to the Series A
Preferred Stock.
REDEMPTION RIGHTS. On December 31, 2002 (the "Scheduled Redemption Date")
the Company is obligated to redeem all issued and outstanding shares of Series
A Preferred Stock at a price per share equal to the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon). If the Company's funds which
are legally available for the redemption of the Series A Preferred Stock are
insufficient to redeem the total number of shares to be redeemed, those funds
which are legally available shall be used to redeem the maximum number of
shares of Series A Preferred Stock possible. At any time thereafter when
additional funds of the Company are legally available for the redemption of
shares of Series A Preferred Stock, such funds will immediately be used to
redeem the balance of the shares of Series A Preferred Stock.
ELECTION OF DIRECTORS. The holders of a majority of the Series A Preferred
Stock, voting separately as a single class in the election of directors of the
Company, with each share of Series A Preferred Stock entitled to one vote,
shall be entitled to elect one director to serve on the Company's Board of
Directors until his successor is elected by holders of a majority of the Series
A Preferred Stock or he is removed from office by a majority of the holders of
the Series A Preferred Stock. During the PIK Period, if dividends on the
outstanding shares of Series A Preferred Stock shall have not been paid in an
amount equal to one full semiannual dividend thereon, and if at any time after
the PIK Period, dividends on the outstanding shares of Series A Preferred Stock
shall have not been paid in an amount equal to two full semiannual dividends
thereon, the number of directors on the Company's Board of Directors shall be
increased by five. The holders of all Series A Preferred Stock then outstanding
shall be entitled to elect five directors to fill these five new positions on
the Board of Directors. These directors will serve on the Company's Board of
Directors until it has declared and paid to all holders of the Series A
Preferred Stock then outstanding, all accrued and unpaid dividends and two
consecutive semiannual dividends. This may be modified as part of GE
transaction.
VOTING RIGHTS. So long as any shares of Series A Preferred Stock are
outstanding, the Company shall not, without first obtaining the consent of the
holders of a majority of the outstanding shares of Series A Preferred Stock,
(i) authorize, create or issue any shares of stock of any other class or series
which shall rank in any respect on a parity with the Series A Preferred Stock,
or authorize, create or issue any obligations, bonds, notes, debentures, stock
or other securities by their terms convertible into shares of stock of any
other class or series which shall rank in any respect on a parity with the
Series A Preferred Stock, (ii) increase the authorized number of shares of
Series A Preferred Stock or (iii) authorize, recommend or enter into an
agreement with any person to effect a Change of Control (as defined in the
Certificate). In addition, the Company shall not, without first obtaining the
consent of the holders of at least eighty percent of the outstanding shares of
Series A Preferred Stock, (i) authorize, create or issue any shares of stock of
any other class or series which shall rank in any respect prior to the Series A
Preferred Stock, or authorize, create or issue any obligations, bonds, notes,
debentures, stock or other securities by their terms convertible into shares of
stock of any other class or series which shall rank in any respect prior to the
Series A Preferred Stock or (ii) amend, alter, change or repeal any of the
express terms and provisions of the Series A Preferred Stock in a manner which
would materially adversely affect the rights or preferences of the Series A
Preferred Stock.
The Board of Directors has established a class of Preferred Stock
designated Series B Junior Preferred Stock, consisting of 100,000 shares. The
Series B Junior Preferred is reserved for issuance in connection with the
Stockholder Rights Plan. See "--Stockholder Rights Plan."
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DELAWARE LAW AND CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation, the Company's By-Laws and Section 203 of
the DGCL contain certain provisions that may make the acquisition of control of
the Company by means of a tender offer, open market purchase, proxy fight or
otherwise, more difficult.
BUSINESS COMBINATIONS. The Company is a Delaware corporation and is
subject to Section 203 of the DGCL. In general, subject to certain exceptions,
Section 203 of the DGCL prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless: (i) upon consummation of such
transaction, the interested stockholder owned 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding for
purposes of determining the number of shares outstanding those shares owned by
(x) persons who are directors and also officers and (y) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer); (ii) the business combination is, or the transaction in which
such person became an interested stockholder was, approved by the board of
directors of the corporation before the stockholder became an interested
stockholder; or (iii) the business combination is approved by the board of
directors of the corporation and authorized at an annual or special meeting of
the corporation's stockholders by the affirmative vote of at least 662/3% of
the outstanding voting stock which is not owned by the interested stockholder.
For purposes of Section 203, a "business combination" includes mergers, asset
sales and other transactions resulting in a financial benefit to the interested
stockholder; an "interested stockholder" is a person who, together with
affiliates and associates, owns (or, in the case of affiliates and associates
of the issuer, did own within the last three years) 15% or more of the
corporation's voting stock other than a person who owned such shares on
December 23, 1987. An interested stockholder who became an interested
stockholder at a time when the restrictions of Section 203 did not apply to the
corporation shall not be subject to such restrictions.
BOARD OF DIRECTORS AND RELATED PROVISIONS. The Certificate of
Incorporation provides that the number of directors of the Company shall be
fixed from time to time by a resolution of a majority of the Board of Directors
of the Company. The Certificate of Incorporation provides that the Board of
Directors shall have no less than three and no more than eleven members and
shall be divided into three classes. The members of each class of directors will
serve for staggered three-year terms. Thereafter, the number of directors may be
fixed, from time to time, by the affirmative vote of a majority of the entire
Board of Directors by action of the stockholders of the Company. The holders of
a majority of the Series A Preferred Stock, voting separately as a single class
in the election of directors of the Company, with each share of Series A
Preferred Stock entitled to one vote, have the right to elect one member of the
Board of Directors, as well as certain other rights to elect directors if the
Company does not declare and pay dividends on the Series A Preferred Stock, as
described above. See "Description of Capital Stock--Preferred Stock." In
accordance with the DGCL, directors serving on classified boards of directors
may only be removed from office for cause. Vacancies on the Board of Directors
may be filled by a majority of the remaining directors, or by the sole remaining
director or by the stockholders. The Certificate provides that stockholders may
take action by the written consent of 662/3% of the stockholders, and that a
special meeting of stockholders may be called only by the Board of Directors.
The By-Laws of the Company provide that stockholders must follow an advance
notification procedure for certain stockholder nominations of candidates for the
Board of Directors and for certain other stockholder business to be conducted at
an annual meeting. These provisions could, under certain circumstances, operate
to delay, defer or prevent a change in control of the Company.
AUTHORIZED AND UNISSUED PREFERRED STOCK. Upon consummation of the
Offering, there will be authorized and unissued shares of Preferred
Stock. The Company's Certificate of Incorporation authorizes the Board of
Directors to issue one or more series of Preferred Stock and to establish the
designations, powers, preferences and rights of each series of Preferred Stock.
The existence of authorized and unissued Preferred Stock may enable the Board of
Directors to render more difficult or to discourage an attempt to obtain control
of the Company by means of a merger,
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tender offer, proxy contest or otherwise. For example, if in the due exercise of
its fiduciary obligations, the Board of Directors were to determine that a
takeover proposal is not in the Company's best interests, the Board of Directors
could cause shares of Preferred Stock to be issued without stockholder approval
in one or more private offerings or other transactions that might dilute the
voting or other rights of the proposed acquirer or insurgent stockholder or
stockholder group or create a substantial voting block in institutional or other
hands that might undertake to support the position of the incumbent Board of
Directors. See "--Preferred Stock."
SPECIAL MEETINGS OF STOCKHOLDERS. The By-Laws provide that special
meetings of the stockholders of the Company may be called only by the Board of
Directors of the Company, the Chairman of the Board of the Company or the
President of the Company. This provision will render it more difficult for
stockholders to take action opposed by the Board of Directors.
INDEMNIFICATION. The Certificate of Incorporation provides that the
Company shall indemnify each director, officer, employee or agent of the
Company to the fullest extent permitted by law. The Certificate of
Incorporation limits the liability of the Company's directors and stockholders
for monetary damages in certain circumstances. The Certificate of Incorporation
also provides that the Company may purchase insurance on behalf of the
directors, officers, employees and agents of the Company against certain
liabilities they may incur in such capacity, whether or not the Company would
have the power to indemnify against such liabilities.
STOCKHOLDERS' RIGHTS PLAN
The Company intends to declare a dividend distribution of one right (a
"Right") for each outstanding share of Class A Common Stock, without par value
(the "Common Shares"), of the Company. The dividend will be payable to the
stockholders of record on a certain date (the "Record Date"), and with respect
to Common Shares issued thereafter until the Distribution Date (as defined
below) and, in certain circumstances, with respect to Common Shares issued
after the Distribution Date. Except as set forth below, each Right, when it
becomes exercisable, entitles the registered holder to purchase from the
Company one one-thousandth of a share of Series B Junior Preferred Stock,
without par value (the "Preferred Shares"), of the Company (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights will be
set forth in a Rights Agreement (the "Rights Agreement") between the Company
and a Rights Agent (the "Rights Agent").
Initially, the Rights will be attached to all certificates representing
Common Shares then outstanding, and no separate Right Certificates will be
distributed. The Rights will separate from the Common Shares upon the earliest
to occur of (i) the date of a public announcement that, without the prior
consent of a majority of the members of the Board of Directors, a person or
group of affiliated or associated persons having acquired beneficial ownership
of 15% or more of the outstanding Common Shares (except pursuant to a Permitted
Offer, as defined), or (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
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practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Shares as of the close of business on the Distribution Date (and to each
initial record holder of certain Common Shares issued after the Distribution
Date), and such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date and will expire
on the tenth anniversary of the Record Date unless earlier redeemed by the
Company as described below.
In the event that any person becomes an Acquiring Person (except pursuant
to a tender or exchange offer which is for all outstanding Common Shares at a
price and on terms which a majority of the members of the Board of Directors
determines to be adequate and in the best interests of the Company and its
stockholders, other than such Acquiring Person, its affiliates and associates
(a "Permitted Offer")), each holder of a Right will thereafter have the right
(the "Flip-In Right") to receive upon exercise the number of units of one
one-thousandth of a Preferred Share (or, in certain circumstances, other
securities of the Company) having a value (immediately prior to such triggering
event) equal to two times the exercise price of the Right. Notwithstanding the
foregoing, following the occurrence of the event described above, all Rights
that are, or (under certain circumstances specified in the Rights Agreement)
were, beneficially owned by any Acquiring Person or any affiliate or associate
thereof will be null and void.
In the event that, at any time following the Shares Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction
in which the holders of all of the outstanding Common Shares immediately prior
to the consummation of the transaction are not the holders of all of the
surviving corporation's voting power, or (ii) more than 50% of the Company's
assets or earning power is sold or transferred, in either case with or to an
Acquiring Person or any Affiliate or Associate thereof, or any other person in
which such Acquiring Person, Affiliate or Associate has an interest, or any
person acting on behalf of or in concert with such Acquiring Person, Affiliate
or Associate, or, if in such transaction all holders of Common Shares are not
treated alike, any other person, then each holder of a Right (except Rights
which previously have been voided as set forth above) shall thereafter have the
right (the "Flip-Over Right") to receive, upon exercise, common shares of the
acquiring company having a value equal to two times the Purchase Price. The
holder of a Right will continue to have the Flip-Over Right whether or not such
holder exercises or surrenders the Flip-In Right.
The Purchase Price payable, and the number of Preferred Shares, Common
Shares or other securities issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price,
less than the then current market price of the Preferred Shares, or (iii) upon
the distribution to holders of the Preferred Shares of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
The number of outstanding Rights and the Purchase Price payable are also
subject to adjustment in the event of a stock split of the Common Shares or a
stock dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such
case, prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share but, if greater, will be entitled
to an aggregate dividend per share of 1,000 times the dividend declared per
Common Share. In the event of liquidation, the holders of the Preferred Shares
will be entitled to a minimum preferential liquidation payment of $1,000 per
share; thereafter, and after the holders of the Common Shares receive a
liquidation payment of $1.00 per share, the holders of the Preferred Shares and
the holders of the Common Shares will share the remaining assets in the ratio of
1,000 to 1 (as
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adjusted) for each Preferred Share and Capital Share so held, respectively.
Finally, in the event of any merger, consolidation or other transaction in which
Common Shares are exchanged, each Preferred Share will be entitled to receive
1,000 times the amount received per Common Share. These rights are protected by
customary antidilution provisions. In the event that the amount of accrued and
unpaid dividends on the Preferred Shares is equivalent to six full quarterly
dividends or more, the holders of the Preferred Shares shall have the right,
voting as a class, to elect two directors in addition to the directors elected
by the holders of the Common Shares until all cumulative dividends on the
Preferred Shares have been paid through the last quarterly dividend payment date
or until non-cumulative dividends have been paid regularly for at least one
year.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are one one-thousandth or integral multiples of one one-
thousandth of a Preferred Share, which may, at the election of the Company, be
evidenced by depository receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Preferred Shares on the last
trading day prior to the date of exercise.
At any time after a person becomes an Acquiring Person and prior to the
acquisition by such person or group of 50% or more of the Common Shares, the
Board of Directors of the Company may exchange the Rights (other than the
Rights owned by the Acquiring Person or its Associates and Affiliates, which
shall have become void) at an exchange ratio of one Common Share per Right
(subject to adjustment).
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Rights the Company may redeem
the Rights in whole, but not in part, at a price of $0.001 per Right (the
"Redemption Price") which redemption shall be effective upon the action of the
Board of Directors. Additionally, following the Shares Acquisition Date, the
Company may redeem the then outstanding Rights in whole, but not in part, at
the Redemption Price, that such redemption is in connection with a merger or
other business combination transaction or series of transactions involving the
Company in which all holders of Common Shares are treated alike but not
involving an Acquiring Person or Transaction Person or any Affiliates or
Associates thereof. Upon the effective date of the redemption of the Rights,
the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
All of the provisions of the Rights Agreement may be amended by the Board
of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, defect or inconsistency, to make changes
which do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person), or, subject to certain limitations, to
shorten or lengthen any time period under the Rights Agreement.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to stockholders of the Company, stockholders may, depending
upon the circumstances, recognize taxable income should the Rights become
exercisable or upon the occurrence of certain events thereafter.
Each outstanding Common Share on the Record Date will receive one Right.
As long as the Rights are attached to the Common Shares, the Company will issue
one Right with each new Common Share so that all such shares will have attached
rights. 1,000,000 Preferred Shares will be reserved for issuance upon exercise
of the Rights.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on (i) the Rights being redeemed, (ii) a
substantial number of Rights being acquired or (iii) that the offer will be
deemed a
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"Permitted Offer" under the Rights Agreement. However, the Rights should not
interfere with any merger or other business combination in connection with a
Permitted Offer or that is approved by the Company because the Rights are
redeemable under certain circumstances.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock is First
Union National Bank. The Company has not appointed a transfer agent for the
Class B Common Stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the consummation of the Offering, the Company will
have outstanding shares of Class A Common Stock ( shares outstanding
if the Underwriters' over-allotment option is exercised in full), including
outstanding shares of Class A Common Stock beneficially owned by existing
stockholders. In addition, immediately following the consummation of Offering,
the Company will have shares of Class B Common Stock outstanding, all of
which are convertible into shares of Class A Common Stock. The shares of
Class A Common Stock to be sold pursuant to the Offering ( if the
Underwriters' over-allotment option is exercised in full) will be eligible for
sale without restriction under the Securities Act of 1933, as amended (the
"Securities Act") in the public market after the consummation of the Offering
by persons other than affiliates of the Company. Sales of shares by
"affiliates" of the Company as the term is defined in Rule 144 under the
Securities Act ("Affiliates") will be subject to Rule 144. The Company and all
existing stockholders, who will beneficially own outstanding shares
immediately following the consummation of the Offering, have agreed with the
Underwriters not to offer, sell or otherwise dispose of any shares of Class A
Common Stock (other than issuances by the Company pursuant to the employee
stock option plan) for a period of 180 days after the date of the Prospectus
without the prior written consent of Morgan Stanley & Co. Incorporated.
GE Capital owns all of the outstanding shares of Class B Common Stock. GE
Capital has the right to convert its Class B Common Stock to Class A Common
Stock and demand registration of its shares of Class A Common Stock under the
Securities Act. Registration of any shares held by GE Capital would permit the
sale of these shares without regard to the restrictions of Rule 144. Kevin P.
Fitzgerald, President and Chief Executive Officer of the Company, also has the
right to demand registration of shares he may acquire from the exercise of
certain options. Registration of any shares held by Mr. Fitzgerald would permit
the sale of these shares without regard to the restrictions of Rule 144. The
Mas family and Santos also have the right to demand registration of their
shares of Class A Common Stock under the Securities Act. Registration of any
shares held by the Mas family or Santos would permit the sale of these shares
without regard to the restrictions of Rule 144. Santos Capital has the right to
demand registration of shares it may acquire upon the exercise of certain
options. Registration of these shares would permit their sale without regard to
the restrictions of Rule 144. Mr. Fitzgerald, GE Capital, the Mas family,
Santos and Santos Capital have agreed to waive their right to exercise their
registration rights in connection with the Offering and for 180 days
thereafter. See "Description of Capital Stock-- Registration Rights." Based on
shares outstanding as of , 1998, following the expiration or waiver of the
foregoing restrictions on dispositions and any applicable holding periods under
Rule 144, shares of Class A Common Stock owned by existing stockholders
will be available for sale in the public market pursuant to Rule 144 (including
the volume and other limitations set for therein). See "Underwriting." The
Company intends to register on Form S-8 shares of Class A Common Stock
reserved for issuance upon exercise of options granted to certain employees
under the Company's Incentive Stock Plan, and shares of Class A Common Stock
reserved for issuance upon the exercise of certain options granted to Mr.
Fitzgerald and Mr. Warren. Options to purchase shares of Class A Common
Stock are currently issued and exercisable.
Prior to the Offering, there has been no market for the Class A Common
Stock of the Company. The Company can make no predictions as to the effect, if
any, that sales of shares or the availability of shares for sale will have on
market prices prevailing from time to time. Nevertheless, sales of substantial
amounts of the Class A Common Stock of the Company in the public market, or the
prospect of such sales, could adversely affect the market price of the Class A
Common Stock.
In general, under Rule 144 as presently in effect, beginning 90 days after
the date of this Prospectus, if a period of at least one year has elapsed since
the later of the date shares of Class A Common Stock that are "restricted
securities" (as that term is defined in Rule 144) were acquired from the
Company or the date they were acquired from an affiliate (as that term is
defined in Rule 144) of the Company, as applicable, then the holder of such
restricted shares (including an Affiliate) is entitled to sell a number of
shares within any three-month period that does not exceed the greater of 1% of
the
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then outstanding shares of Class A Common Stock (approximately shares
immediately after the consummation of the Offering, assuming that the
Underwriters' over-allotment option is not exercised) or the average weekly
trading volume of the Class A Common Stock on the New York Stock Exchange
during the four calendar weeks preceding such sale. The holder may only sell
such shares through unsolicited brokers' transactions. Sales under Rule 144 are
also subject to certain requirements pertaining to the manner of such sales,
notices of such sales and the availability of current public information
concerning the Company. Affiliates may sell shares not constituting restricted
securities in accordance with the foregoing volume limitations and other
requirements but without regard to the two-year holding period requirement.
Under Rule 144(k), if a period of at least two years has elapsed since the
later of the date restricted shares were acquired from the Company or the date
they were acquired from an Affiliate of the Company, as applicable, then a
holder of such restricted shares who is not an Affiliate of the Company at the
time of the sale and who has not been an Affiliate of the Company for at least
three months prior to the sale would be entitled to sell the shares immediately
without regard to the volume limitations and other conditions described above.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below for whom Morgan Stanley & Co. Incorporated, BT Alex.
Brown Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation are
acting as U.S. Representatives, and the International Underwriters named below
for whom Morgan Stanley & Co. International Limited, BT Alex. Brown
International, a division of Bankers Trust International PLC and Donaldson,
Lufkin & Jenrette International are acting as International Representatives,
have severally agreed to purchase, and the Company has agreed to sell to them,
severally, the respective number of shares of Class A Common Stock set forth
opposite the names of such Underwriters below:
NUMBER OF
NAME SHARES
- ---- -----------
U.S. Underwriters:
Morgan Stanley & Co. Incorporated ...........................
BT Alex. Brown Incorporated .................................
Donaldson, Lufkin & Jenrette Securities Corporation .........
-----------
Subtotal ...................................................
-----------
International Underwriters:
Morgan Stanley & Co. International Limited ..................
BT Alex. Brown International, a division of
Bankers Trust International PLC ...........................
Donaldson, Lufkin & Jenrette International ..................
-----------
Subtotal ...................................................
-----------
Total .....................................................
===========
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively
referred to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Class A Common
Stock offered hereby are subject to the approval of certain legal matters by
their counsel and to certain other conditions. The Underwriters are obligated
to take and pay for all of the shares of Class A Common Stock offered hereby
(other than those covered by the U.S. Underwriters' overallotment option
described below) if any such shares are taken.
Pursuant to the Agreement between U.S. and International Underwriters,
each U.S. Underwriter has represented and agreed that, with certain exceptions:
(i) it is not purchasing any Shares (as defined herein) for the account of
anyone other than a United States or Canadian Person (as defined herein) and
(ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any Shares or distribute any prospectus relating to the Shares
outside the United States or Canada or to anyone other than a United States or
Canadian Person. Pursuant to the Agreement between U.S. and International
Underwriters, each International Underwriter has represented and agreed that,
with certain exceptions: (i) it is not purchasing any Shares for the account of
any United States or Canadian Person and (ii) it has not offered or sold, and
will not offer or sell, directly or indirectly, any Shares or distribute any
prospectus relating to the Shares in the United States or Canada or to any
United States or Canadian Person. With respect to any Underwriter that is a
U.S. Underwriter and an International Underwriter, the foregoing
representations and agreements (i) made by it in its capacity as a U.S.
Underwriter apply
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only to it in its capacity as a U.S. Underwriter and (ii) made by it in its
capacity as an International Underwriter apply only to it in its capacity as an
International Underwriter. The foregoing limitations do not apply to
stabilization transactions or to certain other transactions specified in the
Agreement between U.S. and International Underwriters. As used herein, "United
States or Canadian Person" means any national or resident of the United States
or Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person), and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Class A Common Stock to be purchased
by the Underwriters under the Underwriting Agreement are referred to herein as
the "Shares."
Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed. The per share price of any
Shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters,
each U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any Shares, directly or indirectly, in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and has represented that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus in
the province or territory of Canada in which such offer or sale is made. Each
U.S. Underwriter has further agreed to send to any dealer who purchases from it
any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, directly or indirectly, any of such Shares in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made, and that
such dealer will deliver to any other dealer to whom it sells any of such
Shares a notice containing substantially the same statement as is contained in
this sentence.
Pursuant to the Agreement between U.S. and International Underwriters,
each International Underwriter has represented and agreed that (i) it has not
offered or sold and, prior to the date six months after the closing date for
the sale of the Shares to the International Underwriters, will not offer or
sell, any Shares to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the Shares in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and
will only issue or pass on in the United Kingdom any document received by it in
connection with the offering of the Shares to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document
may otherwise lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters,
each International Underwriter has further represented that it has not offered
or sold, and has agreed not to offer or sell, directly or indirectly, in Japan
or to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or
sales to Japanese International Underwriters or dealers and except pursuant to
any exemption from the registration requirements of the Securities and Exchange
Law and otherwise in compliance with applicable
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provisions of Japanese law. Each International Underwriter has further agreed
to send to any dealer who purchases from it any of the Shares a notice stating
in substance that, by purchasing such Shares, such dealer represents and agrees
that it has not offered or sold, and will not offer or sell, any of such
Shares, directly or indirectly, in Japan or to or for the account of any
resident thereof except for offers or sales to Japanese International
Underwriters or dealers and except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law and otherwise in
compliance with applicable provisions of Japanese law, and that such dealer
will send to any other dealer to whom it sells any of such Shares a notice
containing substantially the same statement as is contained in this sentence.
The Underwriters initially propose to offer part of the shares of Class A
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $. a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $. a share to other Underwriters or to certain dealers. After the initial
offering of the shares of Class A Common Stock, the offering price and other
selling terms may from time to time be varied by the Representatives.
The Company has granted to the U.S. Underwriters an option, exercisable
for 30 days from the date of this Prospectus, to purchase up to an aggregate of
additional shares of Class A Common Stock at the public offering price set
forth on the cover page hereof, less underwriting discounts and commissions.
The U.S. Underwriters may exercise such option solely for the purpose of
covering overallotments, if any, made in connection with the offering of the
shares of Class A Common Stock offered hereby. To the extent such option is
exercised, each U.S. Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of Class A Common Stock as the number set forth next to such U.S.
Underwriter's name in the preceding table bears to the total number of shares
of Class A Common Stock set forth next to the names of all U.S. Underwriters in
the preceding table.
The Underwriters have informed the Company that they do not intend sales
to discretionary accounts to exceed five percent of the total number of shares
of Class A Common Stock offered by them.
The Company will be applying to list the Class A Common Stock on the New
York Stock Exchange under the symbol "NFF."
Each of the Company and the directors, executive officers and certain
other stockholders of the Company has agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it
will not, during the period ending 180 days after the date of this Prospectus,
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend or otherwise transfer or dispose of, directly or
indirectly, any shares of Class A Common Stock or any securities convertible
into or exercisable or exchangeable for Class A Common Stock or (ii) enter into
any swap or other arrangement that transfers to another, in whole or in part,
any of the economic consequences of ownership of the Class A Common Stock,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of Class A Common Stock or such other securities, in cash
or otherwise. The restrictions described in this paragraph do not apply to (x)
the sale of Shares to the Underwriters, (y) the issuance by the Company of
shares of Class A Common Stock upon the exercise of an option or a warrant or
the conversion of a security outstanding on the date of this Prospectus of
which the Underwriters have been advised in writing or (z) transactions by any
person other than the Company relating to shares of Class A Common Stock or
other securities acquired in open market transactions after the completion of
the offering of the Shares.
In order to facilitate the offering of the Class A Common Stock, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class A Common Stock. Specifically, the Underwriters
may overallot in connection with the offering, creating a short position in the
Class A Common Stock for their own account. In addition, to cover
overallotments or to stabilize
62
<PAGE>
the price of the Class A Common Stock, the Underwriters may bid for, and
purchase, shares of Class A Common Stock in the open market. Finally, the
underwriting syndicate may reclaim selling concessions allowed to an
Underwriter or a dealer for distributing the Class A Common Stock in the
offering, if the syndicate repurchases previously distributed Class A Common
Stock in transactions to cover syndicate short positions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain
the market price of the Class A Common Stock above independent market levels.
The Underwriters are not required to engage in these activities, and may end
any of these activities at any time.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
Bankers Trust Company, an affiliate of BT Alex. Brown Incorporated, will
act as agent under the New Credit Facility. In addition, Bankers Trust Company
is one of the lenders under the Term Loan. In each case, Bankers Trust Company
receives usual and customary fees. From time to time, Morgan Stanley & Co.
Incorporated has provided, and continues to provide, investment banking
services to the Company and its affiliates, in each case, receiving the usual
and customary fees.
At the request of the Company, the Underwriters have reserved for sale, at
the initial offering price, up to shares offered hereby for directors,
officers, employees, business associates, and related persons of the Company.
The number of shares of Class A Common Stock available for sale to the general
public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares which are not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares
offered hereby.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the Class A
Common Stock. The initial public offering price will be determined by
negotiations between the Company and the U.S. Representatives. Among the
factors to be considered in determining the initial public offering price will
be the future prospects of the Company and its industry in general, sales,
earnings and certain other financial operating information of the Company in
recent periods, and the price-earnings ratios, price-sales ratios, market
prices of securities and certain financial and operating information of
companies engaged in activities similar to those of the Company. The estimated
initial public offering price range set forth on the cover page of this
Preliminary Prospectus is subject to change as a result of market conditions
and other factors.
63
<PAGE>
CERTAIN UNITED STATES TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
GENERAL
The following is a general discussion of the principal United States
federal income and estate tax consequences of the ownership and disposition of
Class A Common Stock by a Non-U.S. Holder, as defined below. As used herein,
the term "Non-U.S. Holder" means a holder that for United States federal income
tax purposes is an individual or entity other than (i) a citizen or individual
resident of the United States, (ii) a corporation or partnership created or
organized in or under the laws of the United States or of any political
subdivision thereof (other than a partnership treated as foreign under U.S.
Treasury regulations), (iii) an estate the income of which is subject to U.S.
federal income taxation regardless of its source or (iv) a trust if both (A) a
U.S. court is able to exercise primary supervision over the administration of
the trust and (B) one or more U.S. persons have the authority to control all
substantial decisions of the trust.
This discussion does not address all aspects of United States federal
income and estate taxes that may be relevant to Non-U.S. Holders in light of
their personal circumstances (including the fact that in the case of a Non-U.S.
Holder that is a partnership, the U.S. tax consequences of holding and
disposing of shares of Class A Common Stock may be affected by certain
determinations made at the partner level), or to certain types of Non-U.S.
Holders which may be subject to special treatment under United States federal
income tax laws (for example, insurance companies, tax-exempt organizations,
financial institutions, dealers in securities and holders of securities held as
part of a "straddle," "hedge," or "conversion transaction") and does not
address U.S. state or local or foreign tax consequences. Furthermore, this
discussion is based on provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed regulations promulgated thereunder
and administrative and judicial interpretations thereof, all as of the date
hereof, and all of which are subject to change, possibly with retroactive
effect. The following summary is included herein for general information.
ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS
REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER
TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF SHARES OF COMMON STOCK.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a nonresident alien) by virtue of being present
in the United States for at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-year period ending in the current
calendar year (counting for such purposes all of the days present in the
current year, one-third of the days present in the immediately preceding year
and one-sixth of the days present in the second preceding year). Resident
aliens are subject to U.S. federal tax as if they were U.S. citizens.
DIVIDENDS
The Company does not anticipate paying cash dividends on its capital stock
in the foreseeable future. See "Dividend Policy." In the event, however, that
dividends are paid on shares of Class A Common Stock, dividends paid to a
Non-U.S. Holder of Class A Common Stock generally will be subject to
withholding of United States federal income tax at a 30% rate, or such lower
rate as may be provided by an income tax treaty between the United States and a
foreign country if the Non-U.S. Holder is treated as a resident of such foreign
country within the meaning of the applicable treaty. Non-U.S. Holders should
consult their tax advisors regarding their entitlement to benefits under a
relevant income tax treaty.
Dividends that are effectively connected with: (i) a Non-U.S. Holder's
conduct of a trade or business in the United States (or, if an income tax
treaty applies, attributable to a permanent establishment), or, in the case of
the individual, a "fixed base" in the United States ("U.S. trade or business
income"), are generally subject to U.S. federal income tax on a net income
basis at regular
64
<PAGE>
graduated rates, but are not generally subject to the 30% withholding tax if
the Non-U.S. Holder files the appropriate U.S. Internal Revenue Service ("IRS")
form with the payor (which form under U.S. Treasury regulations generally
effective for payments made after December 31, 1998 (the "Final Regulations"),
will require the Non-U.S. Holder to provide a U.S. taxpayer identification
number). Any U.S. trade or business income received by a Non-U.S. Holder that
is a corporation may also, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
Under currently applicable U.S. Treasury regulations, dividends paid to an
address in a foreign country are presumed (absent actual knowledge to the
contrary) to be paid to a resident of such country for purposes of the
withholding discussed above and for purposes of determining the applicability
of a tax treaty rate. Under the Final Regulations, however, a Non-U.S. Holder
of Class A Common Stock who wishes to claim the benefit of an applicable treaty
rate generally will be required to satisfy applicable certification and other
requirements. In addition, under the Final Regulations, in the case of Class A
Common Stock held by a foreign partnership, (i) the certification requirement
will generally be applied to the partners of the partnership and (ii) the
partnership will be required to provide certain information, including a United
States taxpayer identification number. The Final Regulations also provide
look-through rules for tiered partnerships.
A Non-U.S. Holder of Class A Common Stock that is eligible for a reduced
rate of U.S. withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for a
refund with the IRS.
The Final Regulations also provide special rules for dividend payments
made to foreign intermediaries, U.S. or foreign wholly owned entities that are
disregarded for U.S. federal income tax purposes and entities that are treated
as fiscally transparent in the United States, the applicable income tax treaty
jurisdiction, or both. In addition, recently enacted legislation, effective
August 4, 1997, denies income tax treaty benefits to foreigners receiving
income derived through a partnership (or otherwise fiscally transparent entity)
in certain circumstances. Prospective investors should consult with their own
tax advisers concerning the effect, if any, of these new Treasury regulations
and the recent legislation on an investment in the Class A Common Stock.
GAIN ON DISPOSITION OF CLASS A COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of Class A Common Stock unless:
(i) the gain is U.S. trade or business income (in which case, the branch
profits tax described above may also apply to a corporate Non-U.S. Holder),
(ii) the Non-U.S. Holder is an individual who holds the Class A Common Stock as
a capital asset within the meaning of Section 1221 of the Code, is present in
the United States for 183 or more days in the taxable year of the disposition
and meets certain other requirements, (iii) the Non-U.S. Holder is subject to
tax pursuant to the provisions of the U.S. tax law applicable to certain United
States expatriates or (iv) the Company is or has been a "U.S. real property
holding corporation" for federal income tax purposes at any time during the
shorter of the five-year period preceding such disposition or the period that
the Non-U.S. Holder held the Class A Common Stock. Generally, a corporation is
a "U.S. real property holding corporation" if the fair market value of its
"U.S. real property interests" equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interests plus its other assets
used or held for use in a trade or business. The Company believes that it has
not been, is not currently, and does not anticipate becoming, a "U.S. real
property holding corporation" for U.S. federal income tax purposes. The tax
with respect to stock in a "U.S. real property holding corporation" does not
apply to a Non-U.S. Holder whose holdings, direct and indirect, at all times
during the applicable period, constituted 5% or less of the Class A Common
Stock, provided that the Class A Common Stock was regularly traded on an
established securities market. If the Company were, or were to become, a U.S.
real property holding corporation, the Company believes that the Class A Common
Stock would be treated as "regularly traded."
65
<PAGE>
If a Non-U.S. Holder who is an individual is subject to tax under clause
(i) above, such individual generally will be taxed on the net gain derived from
a sale of Class A Common Stock under regular graduated United States federal
income tax rates. If an individual Non-U.S. Holder is subject to tax under
clause (ii) above, such individual generally will be subject to a flat 30% tax
on the gain derived from a sale, which may be offset by certain United States
capital losses (notwithstanding the fact that such individual is not considered
a resident alien of the United States). Thus, individual Non-U.S. Holders who
have spent (or expect to spend) more than a DE MINIMIS period of time in the
United States in the taxable year in which they contemplate a sale of Class A
Common Stock are urged to consult their tax advisers prior to the sale
concerning the U.S. tax consequences of such sale.
If a Non-U.S. Holder that is a foreign corporation is subject to tax under
clause (i) above, it generally will be taxed on its net gain under regular
graduated United States federal income tax rates and, in addition, will be
subject to the branch profits tax equal to 30% of its "effectively connected
earnings and profits," within the meaning of the Code for the taxable year, as
adjusted for certain items, unless it qualifies for a lower rate under an
applicable tax treaty.
FEDERAL ESTATE TAX
Class A Common Stock owned or treated as owned by an individual who is
neither a United States citizen nor a United States resident (as defined for
United States federal estate tax purposes) at the time of death will be
included in the individual's gross estate for United States federal estate tax
purposes, unless an applicable estate tax or other treaty provides otherwise
and, therefore, may be subject to United States federal estate tax.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under United States Treasury regulations, the Company must report annually
to the IRS and to each Non-U.S. Holder the amount of dividends paid to such
holder and the tax withheld with respect to such dividends. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder is
a resident under the provisions of an applicable income tax treaty or
agreement.
Currently, United States backup withholding (which generally is a
withholding tax imposed at the rate of 31% on certain payments to persons that
fail to furnish certain information under the United States information
reporting requirements) generally will not apply (i) to dividends paid to
Non-U.S. Holders that are subject to the 30% withholding discussed above (or
that are not so subject because a tax treaty applies that reduces such 30%
withholding) or (ii) before January 1, 1999, to dividends paid to a Non-U.S.
Holder at an address outside of the United States unless the payor has actual
knowledge that the payee is a U.S. Holder. Backup withholding and information
reporting generally will apply to dividends paid to addresses inside the United
States on shares of Class A Common Stock to beneficial owners that are not
"exempt recipients" and that fail to provide in the manner required certain
identifying information.
The payment of the proceeds of the disposition of Class A Common Stock by
a holder to or through the U.S. office of a broker or through a non-U.S. branch
of a U.S. broker generally will be subject to information reporting and backup
withholding at a rate of 31% unless the holder either certifies its status as a
Non-U.S. Holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a Non-U.S. Holder
of Class A Common Stock to or through a non-U.S. office of a non-U.S. broker
will not be subject to backup withholding or information reporting unless the
non-U.S. broker has certain U.S. relationships. In the case of the payment of
proceeds from the disposition of Class A Common Stock effected by a foreign
office of a broker that is a U.S. person or a "U.S. related person," existing
regulations require information reporting on the payment unless the broker
receives a statement from the owner, signed under penalty of perjury,
certifying its non-U.S. status or the broker has documentary evidence in its
files as to the Non-U.S. Holder's foreign status and the broker has no actual
knowledge to the contrary. For this
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<PAGE>
purpose, a "U.S. related person" is (i) a "controlled foreign corporation" for
U.S. federal income tax purposes or (ii) a foreign person 50% or more of whose
gross income from all sources for the three-year period ending with the close
of its taxable year preceding the payment (or for such part of the period that
the broker has been in existence) is derived from activities that are
effectively connected with the conduct of a U.S. trade or business.
The Regulations alter the foregoing rules in certain respects. Among other
things, such regulations provide certain presumptions under which a Non-U.S.
Holder is subject to backup withholding at the rate of 31% and information
reporting unless the Company receives certification from the holder of non-U.S.
status. Depending on the circumstances, this certification will need to be
provided (i) directly by the Non-U.S. Holder, (ii) in the case of a Non-U.S.
Holder that is treated as a partnership or other fiscally transparent entity,
by the partners, shareholders or other beneficiaries of such entity, or (iii)
by certain qualified financial institutions or other qualified entities on
behalf of the Non-U.S. Holder.
Any amounts withheld under the backup withholding rules from a payment to
a Non-U.S. Holder will be refunded (or credited against the holder's U.S.
federal income tax liability, if any) provided that the required information is
furnished to the IRS.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Fried, Frank, Harris, Shriver & Jacobson (a partnership
including professional corporations) 1001 Pennsylvania Avenue, N.W.,
Washington, D.C., 20004. Certain legal matters in connection with the Common
Stock offered hereby will be passed upon for the Underwriters by Cahill Gordon
& Reindel (a partnership including a professional corporation), 80 Pine Street,
New York, New York 10005.
EXPERTS
The audited financial statements of Neff Corp. and subsidiaries and of
Richbourg's Sales & Rentals, Inc. as of December 31, 1996 and 1997 and for each
of the three years in the period ended December 31, 1997 included in this
Prospectus and the related financial statement schedule of Neff Corp. and
subsidiaries included elsewhere in the Registration Statement have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the registration statement, and are included
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
The consolidated balance sheets as of July 31, 1996 and July 31, 1997 and
the consolidated statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended July 31, 1997 of Industrial
Equipment Rentals, Inc. and subsidiary included in this Registration Statement
have been audited by Arthur Andersen LLP, independent public accountants, as
set forth in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Class A Common Stock
offered hereby. This Prospectus, which constitutes part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Class A Common Stock, reference
is hereby made to such Registration Statement and the exhibits and schedules
thereto, copies of which may be inspected without charge at the public
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<PAGE>
reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its regional offices at: 75 Park
Place, Room 1228, New York, New York 10007 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60621. Copies of such material may be obtained from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C.
at prescribed rates. The summaries in this Prospectus of additional information
included in the Registration Statement or any exhibit thereto are qualified in
their entirety by reference to such information or exhibit. In addition,
registration statements and certain other filings are publicly available
through the Commission's site on the Internet's World Wide Web, located at
http://www.sec.gov. The Registration Statement, including all exhibits thereto
and amendments thereof, has been filed with the Commission through EDGAR.
68
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
NEFF CORP.
Independent Auditors' Report ................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 ................... F-3
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1997 ........................................ F-4
Consolidated Statements of Redeemable Preferred Stock and Common Stockholders'
Deficit for each of the three years in the period ended December 31, 1997 .... F-5
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1997 ........................................ F-6
Notes to Consolidated Financial Statements ..................................... F-7
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
Report of Independent Public Accountants ....................................... F-22
Consolidated Balance Sheets as of July 31, 1996 and 1997 ....................... F-23
Consolidated Statements of Operations for each of the three years
in the period ended July 31, 1997 ............................................ F-24
Consolidated Statements of Stockholders' Equity for each of the three years
in the period ended July 31, 1997 ............................................ F-25
Consolidated Statements of Cash Flows for each of the three years
in the period ended July 31, 1997 ............................................ F-26
Notes to Consolidated Financial Statements ..................................... F-27
RICHBOURG'S SALES AND RENTALS, INC.
Independent Auditors' Report ................................................... F-38
Balance Sheets as of December 31, 1996 and 1997 ................................ F-39
Statements of Operations for each of the three years
in the period ended December 31, 1997 ........................................ F-40
Statements of Common Stockholders' Equity for each of the three years
in the period ended December 31, 1997 ........................................ F-41
Statements of Cash Flows for each of the three years
in the period ended December 31, 1997 ........................................ F-42
Notes to Financial Statements .................................................. F-43
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Neff Corp.:
We have audited the accompanying consolidated balance sheets of Neff Corp.
and subsidiaries (the "Company"), as of December 31, 1996 and 1997, and the
related consolidated statements of operations, common stockholders' deficit and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1996 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
Miami, Florida
March 11, 1998
----------------
The accompanying consolidated financial statements reflect the 84.65 for
one stock split of the Company's outstanding common stock which is to be
effected on or about April 24, 1998. The above report is in the form which will
be furnished by Deloitte & Touche LLP upon completion of such stock split,
which is described in Note 1 to the consolidated financial statements and
assuming that from March 11, 1998 to the date of such stock split, no other
events shall have occurred that would affect the accompanying consolidated
financial statements and notes thereto.
DELOITTE & TOUCHE LLP
Miami, Florida
March 11, 1998
F-2
<PAGE>
NEFF CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<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' 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
Capitalized Lease Obligations .......................................... 1,454 2,320
Notes Payable .......................................................... -- 14,462
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
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' Deficit ................... $109,118 $ 280,790
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
NEFF CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
---------- ------------ ------------
<S> <C> <C> <C>
Revenues
Rental Revenue ............................................. $ 20,019 $ 35,808 $ 68,056
Equipment Sales ............................................ 33,943 44,160 50,578
Parts and Service .......................................... 13,292 15,045 23,385
-------- -------- ---------
Total Revenues ........................................... 67,254 95,013 142,019
-------- -------- ---------
Cost of Revenues
Cost of Equipment Sold ..................................... 26,562 33,605 40,766
Depreciation of Rental Equipment ........................... 11,747 19,853 24,490
Maintenance of Rental Equipment ............................ 3,469 8,092 19,748
Cost of Parts and Service .................................. 7,504 8,143 13,741
-------- -------- ---------
Total Cost of Revenues ................................... 49,282 69,693 98,745
-------- -------- ---------
Gross Profit ................................................ 17,972 25,320 43,274
-------- -------- ---------
Other Operating Expenses
Selling, General and Administrative Expenses ............... 10,956 18,478 30,129
Other Depreciation and Amortization ........................ 916 1,432 2,548
Officer Stock Option Compensation .......................... -- -- 4,400
-------- -------- ---------
Total Other Operating Expenses ........................... 11,872 19,910 37,077
-------- -------- ---------
Income from Operations ...................................... 6,100 5,410 6,197
-------- -------- ---------
Other Income (Expense)
Interest Expense ........................................... (3,090) (6,012) (11,976)
Amortization of Debt Issue Costs ........................... -- (325) (2,362)
-------- -------- ---------
Total Other Expense, Net ................................. (3,090) (6,337) (14,338)
-------- -------- ---------
Income (Loss) before (Provision for) Benefit from Income
Taxes and Extraordinary Item ............................... 3,010 (927) (8,141)
(Provision for) Benefit from Income Taxes ................... (2,860) (461) 1,748
-------- -------- ---------
Income (Loss) before Extraordinary Item ..................... 150 (1,388) (6,393)
Extraordinary Loss, Net of Income Taxes ..................... -- (809) (451)
-------- -------- ---------
Net Income (Loss) ........................................... $ 150 $ (2,197) $ (6,844)
======== ======== =========
Unaudited Pro Forma Net Income:
Income Before Pro Forma Provision for Income Taxes ......... $ 3,010
Pro Forma Provision for Income Taxes ....................... (1,176)
--------
Pro Forma Net Income ........................................ $ 1,834
========
Basic and Diluted Earnings Per Share (pro forma for 1995):
Income (loss) before Extraordinary Item ..................... $ .22 $ (.66) $ (1.69)
Extraordinary Loss, net ..................................... -- (.10) (.05)
-------- -------- ---------
Net Income (Loss) ........................................... $ .22 $ (.76) $ (1.74)
======== ======== =========
Weighted Average Common Shares Outstanding .................. 8,465 8,465 8,465
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
NEFF CORP.
CONSOLIDATED STATEMENT OF COMMON
STOCKHOLDERS' DEFICIT FOR EACH OF THE
THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 (after giving retroactive effect to the
transaction discussed in Note 1) .................................... 8,465 $85 $2,799 $ 1,321 $ 4,205
Net income ........................................................... -- -- -- 150 150
Distributions to common stockholders ................................. -- -- (2,799) (3,487) (6,286)
----- --- ------ -------- --------
Balance, December 31, 1995 ........................................... 8,465 85 -- (2,016) (1,931)
Net loss ............................................................. -- -- -- (2,198) (2,198)
Preferred stock dividend ............................................. -- -- -- (979) (979)
Accretion of Series A Preferred Stock and
Detachable Stock Purchase Warrant ................................... -- -- -- (2,400) (2,400)
----- --- ------ -------- --------
Balance, December 31, 1996 ........................................... 8,465 85 -- (7,593) (7,508)
Net loss ............................................................. -- -- -- (6,844) (6,844)
Adjustment for acquired property and equipment (Note 13), net of taxes -- -- -- (2,936) (2,936)
Dividends in kind--Series A Preferred Stock .......................... -- -- -- (657) (657)
Preferred stock dividends accrued--Series B and C .................... -- -- -- (3,200) (3,200)
Accretion of Series A, B and C Preferred Stock ....................... -- -- -- (3,590) (3,590)
----- --- ------ -------- --------
Balance, December 31, 1997 ........................................... 8,465 $85 $ -- $(24,820) $(24,735)
===== === ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
NEFF CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ................................................ $ 150 $ (2,197) $ (6,844)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ................................... 12,663 21,610 29,399
Officer stock option compensation ............................... -- -- 4,400
Gain on sale of rental equipment ................................ (8,846) (8,328) (11,856)
Extraordinary loss on debt extinguishment ....................... -- 1,298 722
Provision (benefit) for/(from) deferred income taxes ............ 2,860 (596) (1,748)
Change in operating assets and liabilities:
Accounts receivable ............................................ (1,487) (3,329) (8,341)
Inventories .................................................... 1,465 (2,227) 2,528
Other assets ................................................... (191) 255 (4,093)
Accounts payable and accrued expenses .......................... 866 2,831 5,240
Accrued financing costs ........................................ 2,143 (2,143) --
--------- --------- ----------
Net cash provided by operating activities ..................... 9,623 7,174 9,407
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of rental equipment .................................... (52,795) (86,886) (143,999)
Proceeds from sale of rental equipment ........................... 33,943 44,160 50,578
Purchases of property and equipment .............................. (1,483) (1,972) (16,747)
Advances to affiliate under a note receivable .................... -- -- --
Cash paid for acquisitions ....................................... -- -- (63,605)
Other ............................................................ -- -- --
--------- --------- ----------
Net cash used in investing activities ......................... (20,335) (44,698) (173,773)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issue costs ................................................. (1,623) (3,989) (2,425)
Net borrowings (repayments) under Senior Credit Facility ......... (250) -- 103,576
Advances under revolving credit facility ......................... -- 58,250 --
Borrowings under mortgage note ................................... -- -- 13,400
Borrowings under capitalized lease obligations ................... -- -- 866
Net borrowings (repayments) under floor plans payable ............ 10,039 (31,493) --
Borrowings under term loan ....................................... 17,135 -- 49,916
Repayments of notes payable ...................................... (11,285) (16,852) (135)
Repayments of notes payable to stockholders ...................... (4,836) -- --
Repayments under capitalized lease obligations ................... -- (222) --
Issuance of Series A preferred stock with detachable stock
purchase warrant, net of costs ................................. 11,430 -- --
Issuance of Series C preferred stock, net of costs ............... -- 31,489 --
Distributions to stockholders .................................... (6,286) -- (2,936)
--------- --------- ----------
Net cash provided by financing activities ..................... 14,324 37,183 162,262
--------- --------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents ............. 3,612 (341) (2,104)
Cash and Cash Equivalents, Beginning of Year ..................... 1,718 5,330 4,989
--------- --------- ----------
Cash and Cash Equivalents, End of Year ........................... $ 5,330 $ 4,989 $ 2,885
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--GENERAL
DESCRIPTION OF BUSINESS
Neff Corp. (the "Company") owns and operates equipment rental locations
throughout the southern and western regions of the United States. In addition
to its rental business, the Company acts as a dealer of new equipment on behalf
of several nationally recognized equipment manufacturers. The Company also
sells used equipment, spare parts and merchandise and provides ongoing repair
and maintenance services.
Neff Corp. was formed in 1995 to serve as a holding company for its
wholly-owned subsidiaries, Neff Machinery, Inc. ("Machinery") and Neff Rental,
Inc. ("Rental"). On December 26, 1995, the stockholders of Machinery and Rental
contributed 100% of their ownership interest in Machinery and Rental to Neff
Corp. in exchange for a 100% ownership interest in Neff Corp. The transaction
was accounted for as a reorganization of entities under common control (similar
to a pooling of interest business combination due to their common ownership).
As a result, the financial statements of Neff Corp. have been presented herein
as if Neff Corp. had conducted Machinery's and Rental's businesses since their
inception.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
STOCK SPLIT
The Company has effected a 84.65 for 1.00 stock split. The accompanying
financial statements reflect the stock split on a retroactive basis from the
beginning of the periods presented.
ACQUISITIONS
In August 1997, the Company purchased the common stock of Industrial
Equipment Rentals, Inc. ("IER") for approximately $64.0 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.
F-7
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--GENERAL--(CONTINUED)
UNAUDITED PRO FORMA INFORMATION
The following unaudited pro forma information has been prepared to reflect
the IER and Atlantic acquisition as if it was consummated as of January 1,
1996, after giving effect to certain pro forma adjustments described below (in
thousands).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
Revenues ......................................................... $129,172 $163,799
======== ========
(Loss) income before (provision for) benefit from income taxes and
extraordinary item .............................................. $ (63) $(8,625)
======== ========
Net (loss) income ................................................ $ (1,895) $ (7,248)
======== ========
Basic and diluted earnings per share
Basic ........................................................... $ (.62) $ (1.74)
======== ========
Diluted ......................................................... $ (.62) $ (1.74)
======== ========
</TABLE>
Pro forma adjustments reflect amortization of intangible assets,
depreciation of property and equipment and increased interest on borrowings to
finance the acquisitions. The unaudited pro forma information is based upon
certain assumptions and estimates and does not necessarily represent operating
results that would have occurred had the acquisitions been consummated as of
the beginning of the periods presented, nor is it necessarily indicative of
expected future operating results.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RECOGNITION OF REVENUE
Rental agreements are structured as operating leases and the related
revenues are recognized over the rental period. Sales of equipment and parts
are recognized at the time of shipment or, if out on lease, at the time a sales
contract is finalized. Equipment may at times be delivered to customers for a
trial period. Revenue on such sales are recognized at the time a sales contract
is finalized. Service revenues are recognized at the time the services are
rendered.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories, which consist principally of parts and new equipment held for
sale, are stated at the lower of cost or market, with cost determined on the
first-in, first-out basis for parts and specific identification basis for
equipment. Substantially all inventory represents finished goods held for sale.
F-8
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
RENTAL EQUIPMENT
Rental equipment is stated at cost less accumulated depreciation.
Depreciation is recorded using the straight-line method over the estimated
useful life of the related equipment (generally four to seven years with a 10%
residual value). For certain equipment, depreciation is matched against the
related rental income earned by computing depreciation on individual equipment
at the rate of 80% of the rental income earned. Routine repairs and maintenance
are expensed as incurred; improvements are capitalized at cost.
The Company routinely reviews the assumptions utilized in computing
depreciation of its rental equipment. Changes to the assumptions (such as
service lives and/or residual values) are made when, in the opinion of
management, such changes more appropriately allocate asset costs to operations
over the service life of the assets. Management utilizes, among other factors,
historical experience and industry comparison in determining the propriety of
any such changes.
During 1996 and 1997, the Company made certain changes to its depreciation
assumptions to recognize extended estimated service lives and increased
residual values of its rental equipment. The Company believes that these
changes in estimates will more appropriately reflect its financial results by
better allocating the cost of its rental equipment over the service life of
these assets.
This change in accounting estimate reduced depreciation of rental
equipment, loss before extraordinary item and net loss by approximately $5.3
million and $3.3 million or $.63 and $.39 per common share, for the years ended
December 31, 1996 and 1997, respectively.
Rental Fleet accumulated depreciation at December 31, 1996 and 1997 was
approximately $20.6 million and $34.8 million, respectively.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is recorded using accelerated and straight-line methods over the
estimated useful lives of the related assets. Significant improvements are
capitalized at cost. Repairs and maintenance are expensed as incurred.
The capitalized cost of equipment and vehicles under capital leases is
amortized over the lesser of the lease term or the asset's estimated useful
life, and is included in depreciation and amortization expense in the
consolidated statements of operations.
INTANGIBLE ASSETS
Intangible assets primarily result from business combinations and include
agreements not to compete and other identifiable intangible assets. These
assets are amortized on a straight-line basis over the estimated useful life
(five to 15 years). Accumulated amortization at December 31, 1996 and 1997 was
approximately $0.2 million and $2.5 million, respectively.
Goodwill arising from acquisitions is being amortized over 40 years using
the straight-line method. Accumulated amortization at December 31, 1996 and
1997 was approximately $0.1 million and $0.5 million, respectively.
F-9
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The carrying value of intangible assets is periodically reviewed by the
Company and impairments, if any, are recognized when the expected future
undiscounted cash flows derived from such intangible assets are less than their
carrying value.
During the first quarter of 1996, the Company adopted Statement No. 121,
("SFAS 121"), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
adoption of SFAS 121 did not have a material impact on the financial results of
the Company for the year ended December 31, 1996.
PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets primarily include debt issue costs,
prepaid expenses and deposits. Debt issue are amortized over the term of the
debt on a straight-line basis. For the years ended December 31, 1996 and 1997,
amortization of debt issue costs was $0.3 million and $2.4 million,
respectively. There was no amortization in 1995.
STOCK OPTIONS
In October 1995, the FASB issued Statement No. 123 ("SFAS 123"),
ACCOUNTING FOR STOCK-BASED COMPENSATION, which requires companies to either
recognize expense for stock-based awards based on their fair value on the date
of grant or provide footnote disclosures regarding the impact of such changes.
The Company adopted the provisions of SFAS 123 on January 1, 1996, but will
continue to account for options issued to employees or directors under the
Company's non-qualified stock option plans in accordance with Accounting
Principles Board Opinion No. 25 ("APB 25"), ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130 ("SFAS 130"), REPORTING
COMPREHENSIVE INCOME, which is required to be adopted in the first quarter of
1998. SFAS 130 established standards for the reporting and display of
comprehensive income and its components. Comprehensive income includes certain
non-owner changes in equity that are currently excluded from net income.
In June 1997, Statement No. 131 ("SFAS 131"), DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION, was issued. SFAS 131 establishes
standards for the way that public companies disclose selected information about
operating segments in annual financial statements and requires that those
companies disclose selected information about segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997. Accordingly, the Company is not required to adopt SFAS 131
until the fiscal year ending December 31, 1998. SFAS 131 relates solely to
disclosure provisions, and therefore will not have any effect on the results of
operations, financial position and cash flows of the Company.
RECLASSIFICATIONS
Certain amounts for the prior years have been reclassified to conform with
the current year presentation.
F-10
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--ACCOUNTS RECEIVABLE
The majority of the Company's customers are engaged in the construction
and industrial business throughout the southern and western regions of the
United States. The Company extends credit to its customers based upon an
evaluation of the customer's financial condition and credit history. For sales
of certain construction equipment, the Company's policy is to secure its
accounts receivable by obtaining liens on the customer's projects and issuing
notices thereof to the projects' owners and general contractors. All other
receivables are generally unsecured.
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
------------------------- USEFUL LIVES
1996 1997 (IN YEARS)
----------- ----------- -------------
<S> <C> <C> <C>
Land ................................... $ -- $ 5,407 --
Buildings and improvements ............. -- 6,540 2-30
Office equipment ....................... 2,944 2,768 2-7
Service equipment and vehicles ......... 2,784 9,994 2-5
Shop equipment ......................... 1,060 2,075 7
Capitalized lease equipment ............ 1,706 3,230 3-5
-------- --------
8,494 30,014
Less accumulated depreciation .......... (4,190) (6,277)
-------- --------
$ 4,304 $ 23,737
======== ========
</TABLE>
The Company has entered into lease arrangements for certain property and
equipment which are classified as capital leases. Future minimum lease payments
under capitalized lease obligations are as follows (in thousands):
1997
---------
1998 ......................................................... $ 802
1999 ......................................................... 813
2000 ......................................................... 466
2001 ......................................................... 390
2002 ......................................................... 215
------
Total future minimum lease payments .......................... 2,686
Less amounts representing interest (6.00% to 13.5%) .......... (366)
------
Present value of net future minimum lease payments ........... $2,320
======
F-11
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--NOTES PAYABLE AND DEBT
Notes payable and debt consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- -----------
<S> <C> <C>
$250 million revolving line of credit with interest rates ranging from the
Lender's prime rate plus 1.5% to LIBOR plus 3.5%. At December 31,
1997, the Lender's prime rate was 8.5% and the LIBOR rate was
5.718% ...................................................................... $58,250 $161,825
$50 million Term Loan with an interest rate of LIBOR plus 3.5%................ -- 49,916
Mortgage note payable with an interest rate of LIBOR plus 2% ................. -- 13,400
Various notes payable assumed through acquisition of IER with interest
rates ranging from 7% to 12% and maturity dates through 2001. ............... -- 1,062
------- --------
$58,250 $226,203
======= ========
</TABLE>
In December 1996, the Company and its subsidiaries (collectively referred
to as the "Borrowers") executed a $250 million revolving credit facility (the
"Senior Credit Facility") with a syndicate of lenders (the "Lenders").
Borrowings under the Senior Credit Facility are based upon eligible accounts
receivable, rental fleet and inventory amounts.
During July and December 1997, the Borrowers amended the Senior Credit
Facility (the "Amendments") with the Lenders. The Amendments, among other
things, allowed the Company to complete the IER and Richbourg acquisitions (see
Note 1 and Note 15) and revised certain financial covenants. The interest rates
on balances outstanding under the amended facility vary based upon the leverage
ratio maintained by the Borrowers. All outstanding principal balances are due in
October 1998 unless the Borrowers successfully complete the sale of at least
$200 million of Qualified Debt Securities (as defined in the Amendments) in
which case they become due in October 2001. A commitment fee of 1/2 of 1% is
charged on the aggregate daily unused balance of the Senior Credit Facility.
The Senior Credit Facility is secured by substantially all of the
Borrowers' assets and contains certain restrictive covenants which, among other
things, require the Borrowers to maintain certain financial coverage ratios and
places certain restrictions on the payment of dividends. At December 31, 1997,
the Company was not in compliance with certain financial covenants. The lenders
under the Senior Credit Facility have not taken any action with respect to this
non-compliance, and the Company expects to obtain a waiver for the
non-compliance prior to the consummation of the Offering.
During August 1997, the Company entered into a $50 million term loan (the
"Term Loan") in connection with its acquisition of IER (see Note 1). The Term
Loan is secured by assets acquired and is due in January 1999. During January
1998, the Company repaid all outstanding principal balances due under the Term
Loan with borrowings under its Senior Credit Facility.
In May 1997, the Company purchased land and buildings related to several of
its locations (see Note 13). The purchase was financed with a lender in the
principal amount $13.4 million. The interest rate on the outstanding balance
varies based upon the leverage ratio of the Company. As of December 31, 1997
interest was being charged at an annual rate of LIBOR plus 2%. Five annual
principal payment installments commence in May 2002. The mortgage is secured by
the land and buildings acquired.
F-12
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--NOTES PAYABLE AND DEBT--(CONTINUED)
During 1996 and 1997, the Company recorded extraordinary losses of
approximately $1.3 million and $0.7 million from the write-off of debt issue
costs associated with the early extinguishment of debt, before the related
income tax benefit of approximately $0.5 million and $0.3 million,
respectively.
Future maturities of the notes payable and debt, based upon amounts
outstanding as of December 31, 1997, are as follows (in thousands):
1998 ............... $212,077
1999 ............... 312
2000 ............... 274
2001 ............... 140
2002 ............... 2,680
Thereafter ......... 10,720
--------
$226,203
========
NOTE 6--REDEEMABLE PREFERRED STOCK AND DETACHABLE STOCK PURCHASE WARRANT
During December 1995, the Company issued 300,000 shares of Series A
Cumulative Redeemable Preferred Stock ("Series A"), and a detachable stock
purchase warrant (the "Redeemable Warrant") for $12.0 million ($11.4 million
net of certain related costs). Series A provides for the semiannual payment of
preferential dividends at an annual rate of 8% (5% beginning January 1, 1997)
of the liquidation value. The dividends are payable in cash or in additional
shares through the later of December 31, 1999 or the expiration of the
Company's Senior Credit Facility (see Note 5). Series A is scheduled to be
redeemed by the Company in December 2002 and restricts the payment of dividends
or any other distributions to holders of the Company's common stock.
The Redeemable Warrant granted the holder the right to acquire
approximately 20% of the common stock of the Company at a purchase price of
$.01 per share. The Redeemable Warrant was redeemable at the holder's option
during a specified period and at a price equal to its fair market value. The
Company had the option for a specified period of time to redeem the Redeemable
Warrant from the holder at a price equal to its fair market value as defined.
Series A and the Redeemable Warrant were recorded at their pro rata estimated
fair value in relation to the proceeds received on the date of issuance ($8.0
million for the Series A and $3.4 million for the Redeemable Warrant, net of
issue costs). Series A will be accreted to its liquidation value at maturity of
$12.0 million utilizing the effective interest method. The Redeemable Warrant
was being accreted to its fair value on a prospective basis until the mandatory
redemption date in December 2000. Through December 31, 1996, accretion to the
Series A and the Redeemable Warrant amounted to approximately $0.5 million and
$1.9 million, respectively.
During December 1996, in connection with the execution of the Senior Credit
Facility, the Company, and General Electric Capital Corporation ("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
F-13
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--REDEEMABLE PREFERRED STOCK AND DETACHABLE STOCK PURCHASE
WARRANT--(CONTINUED)
December 31, 1996. Series B is 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. No compensation expense has been recognized in 1996 and 1997
since the exercise price of these options approximated the estimated market
value of the shares to be issued at the date of grant.
F-14
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--STOCK OPTION PLANS--(CONTINUED)
The following table sets forth pro forma net loss and earnings per share
as if the stock options were accounted for under the fair value method:
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1995 1996
---------- ------------
Pro forma net loss (in thousands) ......... $ (189) $ (2,439)
====== ========
Pro forma earnings per share
Basic ................................... $ (.02) $ (.69)
====== ========
Diluted ................................. $ (.02) $ (.69)
====== ========
The fair value of options granted, in accordance with the provisions of
SFAS 123, were determined using the Black-Scholes option pricing model with a
risk-free interest rate of 6.74%, zero volatility and expected life of 10
years.
Effective January 1, 1997, the Company adopted a phantom stock plan (the
"Phantom Plan"). The Phantom Plan is designed to reward employees for increases
in the Company's performance. The Phantom Plan enables the Company to award
employees individual units representing a hypothetical share of the Company's
stock (the "Phantom Share"). Each Phantom Share is assigned a share value on
the date granted as determined by the administrator of the Phantom Plan. The
difference between the calculated share value, as determined pursuant to a
formula set forth in the Phantom Plan, of the Phantom Share on the date
redeemed by the employee and the value assigned on the date of grant represents
the cash award the employee is entitled to receive on the redemption date. The
Phantom Shares generally vest over five years. As of December 31, 1997, the
Company had granted 155,500 Phantom Shares with an assigned per share value of
$9. No compensation expense had been recorded in the accompanying statements
of operations as the assigned share value on the date of grant exceeds the
calculated share value as of December 31, 1997.
The Company has granted to GE Capital an option to acquire common stock of
the Company in an amount that would equal 51% ownership after conversion of the
Series B and Series C preferred stock. In connection with the conversion of the
Series B and Series C preferred stock, (see Note 15), the Company and GE
Capital plan to cancel this option. The exercise price for this option is based
upon fair market value of the Company determined on the date the option is
exercised. GE Capital may exercise the option at any time from July 1, 1998
until June 30, 1999.
NOTE 8--RETIREMENT PLAN
In February 1996, the Company adopted a qualified 401(k) profit sharing
plan (the "401(k) Plan"). The 401(k) Plan covers substantially all employees of
the Company. Participating employees may contribute to the 401(k) Plan through
salary reductions. The Company may contribute, at its discretion, matching
contributions equal to 50% of the employee's contribution not to exceed 3% of
the employee's annual salary. The Company contributed approximately $0.2
million and $0.3 million to the 401(k) Plan for the years ended December 31,
1996 and 1997, respectively.
F-15
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--INCOME TAXES
As a result of the contribution by the stockholders of their ownership
interest as described in Note 1, the Company lost its Subchapter S Corporation
status under the provisions of the Internal Revenue Code. The Subchapter S
provisions provide that taxable income be included in the federal income tax
returns of the individual stockholders. As a result, the Company's net income
for the period from January 1, 1994 through December 26, 1995 is included in
the individual tax returns of the stockholders of the Company and therefore a
provision for income taxes related to this period is not included in the
accompanying statements of operations. Additionally, under the provisions of
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES, the Company recorded a deferred tax liability upon losing Subchapter S
status for existing timing differences in the amount of approximately $2.9
million. The components of the (provision for) benefit from income taxes is as
follows (in thousands):
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------
1995 1996 1997
=========== ============ =========
Current .......... $ -- $ (1,057) $ --
Deferred ......... (2,860) 596 1,748
-------- -------- ------
Total ............ $ (2,860) $ (461) $1,748
======== ======== ======
The following table summarizes the tax effects comprising the Company's
net deferred tax liabilities (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards ............................. $ 809 $ 4,347
Alternative minimum tax credits .............................. 247 874
Deferred stock option compensation ........................... -- 1,672
Intangible assets, allowance for bad debts and other ......... 219 1,037
-------- --------
Total deferred tax assets ................................. 1,275 7,930
Valuation allowance ........................................... (809) (1,368)
DEFERRED TAX LIABILITIES--Depreciation ........................ (2,730) (7,698)
-------- --------
NET DEFERRED TAX LIABILITY .................................... $ (2,264) $ (1,136)
======== ========
</TABLE>
As of December 31, 1997, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $11.4 million and
$12.7 million, respectively, expiring in 2012 (includes net operating loss
carryforwards for federal and state income tax purposes of approximately $4.4
million and $5.6 million, respectively, acquired in connection with the
acquisition of IER described in Note 1). IER's net operating loss carryforwards
may only be utilized by Rental. In addition, the Company has a deferred tax
asset of $1.8 million related to the acquisition of property from a related
party (see Note 13).
Management has considered tax planning strategies in determining the
amount of valuation allowance required. The $0.8 million valuation allowance at
December 1996 was reversed in 1997, resulting from the identification by
management of certain tax planning strategies that would, if
F-16
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--INCOME TAXES--(CONTINUED)
implemented, result in the realization of this deferred tax asset. The
valuation allowance as of December 31, 1997 relates to limitations on the
deductability of deferred officer stock option compensation.
The following table summarizes the differences between the statutory
federal income tax rate and the Company's effective income tax rate (in dollars
thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1995 1996 1997
-------------------------- ------------------------- ------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
----------- ------------ ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax
rate ............................... $ -- --% $ 315 34.0% $2,768 34.0%
State income tax, net of
federal income tax benefit ......... -- -- 33 3.5 171 2.1
Change in valuation allowance -- -- (809) (87.3) (559) (6.9)
Non-deductible expenses ............. -- -- -- -- (716) (8.8)
Loss of Subchapter S status on
December 26, 1995 .................. (2,860) (95.0) -- -- --
Other ............................... -- -- -- -- 84 1.1
-------- ----- ------ ----- ------ ----
$ (2,860) (95.0)% $ (461) (49.8)% $1,748 21.5%
======== ===== ====== ===== ====== ====
</TABLE>
Pro forma net income is presented in the accompanying statements of
operations to show the effects of income taxes as if the Company had been
subject to federal and applicable state income taxes based on the tax laws and
rates in effect during the applicable period. In addition, pro forma net income
has been adjusted for the effect of the deferred tax liability recognized by
the Company upon Machinery and Rental losing their Subchapter S Corporation
status in December 1995 as if the entities lost their Subchapter S status at
the beginning of each period presented.
F-17
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--EARNINGS PER SHARE
For the years ended December 31, 1995, 1996 and 1997, the treasury stock
method was used to determine the dilutive effect of the options and warrants on
earnings per share data. Net loss from continuing operations per share and the
weighted average number of shares outstanding used in the computations are
summarized as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997
----------------------- ------------------------- -------------------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED
----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) .................... $ 1,834 $ 1,834 $ (2,197) $ (2,197) $ (6,844) $ (6,844)
Deduct:
Preferred stock dividend ............ -- -- 979 979 3,857 3,857
------- ------- -------- -------- --------- ---------
Accretion of preferred stock.......... -- -- 2,400 2,400 3,590 3,590
Income (loss) per share computations . 1,834 1,834 (5,576) (5,576) (14,291) (14,291)
Number of shares:
Weighted average common
shares outstanding ................ 8,465 8,465 8,465 8,465 8,465 8,465
Add:
Net additional shares issued(1) ..... -- -- -- -- -- --
------- ------- -------- -------- --------- ---------
Weighted average shares used
in the per share computations ....... 8,465 8,465 8,465 8,465 8,465 8,465
======= ======= ======== ======== ========= =========
Net income (loss) .................... $ .22 $ .22 $ (.66) $ (.66) $ (1.69) $ (1.69)
======= ======= ======== ======== ========= =========
</TABLE>
- ----------------
(1) Assumes exercise of outstanding Common Stock equivalents (options and
warrants) at the beginning of the period, net of 20% limitation, if
applicable, on the assumed repurchase of stock.
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair market value of financial instruments held by the Company at
December 31, 1997 are based on a variety of factors and assumptions and may not
necessarily be representative of the actual gains or losses that will be
realized in the future and do not include expenses that could be incurred in an
actual sale or settlement.
DEBT
The fair value of the Company's credit facility is assumed to be equal to
its carrying value. At December 31, 1996 and 1997 approximately $58.2 million
and $161.8 million was outstanding under the credit facility, respectively.
The Company's Term Loan, mortgage note payable, other notes payable and
capitalized lease obligations are estimated to approximate fair value as
determined based on rates currently available to the Company from other
lenders.
PREFERRED STOCK
Series A, Series B and Series C do not have a quoted market price and the
Company does not believe it is practicable to estimate a fair value different
from each of the security's carrying value because of features unique to these
securities including, but not limited to, the right to appoint two
F-18
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
directors and super majority voting requirements. The amounts due upon
redemption of Series A, Series B and Series C is approximately $13.6 million,
$32.0 million and $32.0 million plus accrued and unpaid dividends, respectively.
NOTE 12--COMMITMENTS AND CONTINGENCIES
The Company has agreements with certain equipment manufacturers which
appoint the Company, through its subsidiary, as the manufacturer's authorized
dealer in certain defined geographic areas. These agreements may be terminated
by dealers at any time. There can be no assurance that the Company will be able
to continue its current, or obtain additional, dealership agreements. The
Company's operating results could be materially adversely impacted if these
dealership agreements were terminated for any reason.
John Deere has filed a notice of arbitration (the "Notice") with the
American Arbitration Association to seek review of the question of whether Neff
Corp. and Neff Machinery breached their agreements with John Deere by failing
to seek John Deere's consent to transactions in which GE Capital increased its
equity interest in the Company in 1996. The Company has not filed a response to
the Notice and is actively discussing the issues raised by the Notice with John
Deere. Although the arbitration could result in a finding that the Company
breached its agreement with John Deere and that John Deere has the right to
terminate the dealership agreements, the Company believes that this matter can
be resolved in a manner that does not have a material adverse effect on its
financial condition, results of operations and cash flows.
The Company is a party to certain legal actions arising in the normal
course of business. In the opinion of management, the ultimate outcome of such
litigation is not expected to have a material effect on the financial position,
results of operations or cash flows of the Company.
NOTE 13--RELATED PARTY TRANSACTIONS AND OTHER COMMITMENTS
In May 1997, the Company acquired certain land and buildings used in its
Florida operations for approximately $13.9 million from Atlantic Real Estate
Holdings Corp. ("Atlantic"), an affiliate of the Company through common
ownership ("Atlantic Acquisition"). Prior to the acquisition of these assets,
the Company leased these properties from Atlantic. The Company financed
approximately $13.4 million of the purchase price with a mortgage note payable
(see Note 5). The remaining purchase price consisted of the forgiveness of
approximately $0.5 million in notes receivable from Atlantic. The assets have
been recorded at Atlantic's historical carrying value and approximately $2.9
million, net of income tax benefit of approximately $1.8 million, has been
recorded as a distribution to common stockholders in the accompanying statement
of common stockholders' deficit.
During 1995, 1996, and 1997, revenues from affiliated companies amounted
to approximately $1.7 million, $1.5 million and $0.7 million, respectively.
OPERATING LEASES
Prior to the Atlantic Acquisition discussed in Note 1, the Company leased
certain office and operating facilities from Atlantic and from other
unaffiliated entities under noncancellable operating leases expiring from 2000
through 2007. During 1995, 1996, and 1997, rental expense under operating lease
arrangements amounted to approximately $1.7 million, $2.1 million, and $3.4
million, respectively.
F-19
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--RELATED PARTY TRANSACTIONS AND OTHER COMMITMENTS--(CONTINUED)
As of December 31, 1997, future minimum rental payments under operating
lease arrangements are as follows for the years ending December 31 (in
thousands):
1998 ............... $ 2,400
1999 ............... 2,192
2000 ............... 1,999
2001 ............... 1,549
2002 ............... 957
Thereafter ......... 2,029
-------
$11,126
=======
NOTE 14--SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER31,
----------------------------------
1995 1996 1997
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ............................................ $3,173 $6,012 $10,367
====== ====== =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Purchase of equipment under capitalized lease obligations ......... $ -- $1,235 $ --
------ ------ -------
</TABLE>
NOTE 15--SUBSEQUENT EVENTS
During January 1998, the Company acquired substantially all of the assets
of Richbourg's Sales and Rentals, Inc. ("Richbourg") for approximately $100
million. Richbourg has rental equipment operations similar to the Company's
with 17 locations in three states. In connection with this acquisition, the
Company amended its Senior Credit Facility (see Note 5) and executed a $100
million term loan (the "Richbourg Term Loan") with terms and requirements
similar to the Company's Senior Credit Facility.
In February 1998, the Company entered into letters of intent to acquire
three equipment rental companies. These businesses have a total of three
equipment rental locations in California and Texas. Each of these acquisitions
is subject to a number of closing conditions, including the execution of
definitive purchase agreements, and there can be no assurance that these
acquisitions will be consummated.
The Company plans to commence an initial public offering of its Class A
Common Stock (the "Public Offering"). The Company expects to receive
approximately $125 million in proceeds from the Public Offering. The
Company intends to use the net proceeds to repay the Richbourg Term Loan and
reduce amounts outstanding under the Senior Credit Facility.
Prior to the Public Offering, the Company's Senior Credit Facility is
expected to be amended (the "New Credit Facility"). Borrowings under the New
Credit Facility will continue to be based upon eligible accounts receivable,
rental fleet and inventory amounts. The interest rates on balances outstanding
under the New Credit Facility will vary based upon the leverage ratio maintained
by the Company and range from prime rate or LIBOR plus 1% to prime plus 1.25% or
LIBOR plus 2.25%. In the event the Company repays the Richbourg Term Loan prior
to October 31, 1998, the maturity of the New Credit Facility will be due in
April 2003, otherwise, the New Credit Facility will mature on October 31, 1998.
F-20
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--SUBSEQUENT EVENTS--(CONTINUED)
In addition, GE Capital is expected to exchange its Series B and Series C
preferred stock for shares of the Company's Class B Common Stock prior to the
Public Offering. It is also contemplated that the Company will establish an
incentive stock plan for officers and employees concurrent with the Public
Offering.
The Company also expects to commence a private debt offering (the "Private
Debt Offering"). Proceeds from the Private Debt Offering will be used to redeem
Series A and reduce amounts outstanding under the New Credit Facility.
There can be no assurance that the Public Offering or Private Debt
Offering will be consummated.
* * * * * *
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The independent auditors' report of Deloitte & Touche LLP related to the
consolidated financial statements of Neff Corp. for the three years in the
period ended December 31, 1997 has not been issued. Deloitte & Touche LLP has
indicated the form of report which will be furnished upon completion of a Neff
Corp. stock split and so long as no other events shall have occurred that would
affect the Neff Corp. consolidated financial statements. After Deloitte &
Touche issues their report on Neff Corp., we expect to be in a position to
render the following audit report so long as no other events shall have occurred
that would affect the Industrial Equipment Rentals, Inc. consolidated financial
statements.
Arthur Andersen LLP
Houston, Texas
September 18, 1997
To the Stockholders of
Industrial Equipment Rentals, Inc.
We have audited the accompanying consolidated balance sheets of Industrial
Equipment Rentals, Inc. (a Delaware corporation), and subsidiary (the Company)
as of July 31, 1996 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended July 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of July 31, 1996 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended July 31, 1997, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements do not reflect any
adjustments associated with the sale of the Company on August 1, 1997 (see Note
2).
Houston, Texas
September 18, 1997
F-22
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
JULY 31,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ............................................... $ 2,160 $ 1,582
Accounts receivable, net ................................................ 5,487 6,058
Inventories ............................................................. 1,321 1,247
Prepaid expenses and other .............................................. 1,006 1,100
--------- ---------
Total Current Assets ................................................... 9,974 9,987
Property, Plant and Equipment, at Cost
Rental equipment ........................................................ 37,890 39,812
Other ................................................................... 4,626 5,100
--------- ---------
42,516 44,912
Less: Accumulated depreciation .......................................... (10,729) (16,779)
--------- ---------
31,787 28,133
Other Assets, net ........................................................ 2,306 1,787
--------- ---------
Total Assets ........................................................... $ 44,067 $ 39,907
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable ........................................................ $ 2,345 $ 1,956
Accrued expenses ........................................................ 1,845 1,602
Current portion of subordinated debentures .............................. 0 8,171
Capital lease obligation ................................................ 103 74
Current portion of long-term debt ....................................... 5,809 22,630
--------- ---------
Total Current Liabilities .............................................. 10,102 34,433
Long-Term Liabilities
Long-term debt, less current portion .................................... 21,288 621
Other long-term liabilities ............................................. 454 225
Subordinated debentures, less current portion ........................... 7,811 0
Deferred taxes .......................................................... 831 1,078
--------- ---------
Total Long-Term Liabilities ............................................ 30,384 1,924
--------- ---------
Total Liabilities ...................................................... 40,486 36,357
--------- ---------
Senior mandatorily redeemable convertible preferred stock, Series A $1
par; 107,500 shares outstanding; $20 per share redemption value......... 1,226 1,347
--------- ---------
Stockholders' Equity
Senior redeemable convertible preferred stock, Series B ................. 495 495
Junior preferred stock .................................................. 19 19
Common stock, $.01 par; 876,500 and 881,500 shares
outstanding, respectively ............................................. 9 9
Paid-in capital ......................................................... 2,806 2,806
Retained deficit ........................................................ (974) (1,126)
--------- ---------
Total Stockholders' Equity ............................................. 2,355 2,203
--------- ---------
Total Liabilities and Stockholders' Equity ............................. $ 44,067 $ 39,907
========= =========
</TABLE>
The following notes are an integral part of these consolidated financial
statements.
F-23
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rentals and related revenues ............................................ $17,522 $26,056 $30,012
Sales revenues .......................................................... 3,841 4,225 3,999
Sales of fixed assets ................................................... 1,798 2,925 1,860
------- ------- -------
Total Revenues ......................................................... 23,161 33,206 35,871
Costs and Expenses:
Rentals and related expenses ............................................ 4,374 6,663 7,019
Cost of sales ........................................................... 2,611 3,353 3,155
Cost of fixed assets disposed ........................................... 748 2,016 1,203
Wages and benefits ...................................................... 6,461 8,671 9,075
Depreciation ............................................................ 3,454 5,961 7,308
Facilities .............................................................. 864 1,400 1,636
Selling and administrative expenses ..................................... 1,446 1,796 1,659
Amortization expense .................................................... 533 596 689
------- ------- -------
Total Costs and Expenses ............................................... 20,491 30,456 31,744
------- ------- -------
Operating Income ......................................................... 2,670 2,750 4,127
Interest expense ........................................................ 2,001 3,057 3,291
Other ................................................................... 97 97 328
------- ------- -------
Income (Loss) Before Taxes ............................................... 572 (404) 508
Income Tax Expense (Benefit) ............................................ 267 (47) 296
------- ------- -------
Net Income (Loss) Before Extraordinary Item .............................. 305 (357) 212
Extraordinary loss on debt refinancing, net of tax benefit of $83........ -- (136) --
------- ------- -------
Net Income (Loss) ........................................................ $ 305 $ (493) $ 212
======= ======= =======
</TABLE>
The following notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SENIOR
REDEEMABLE
CONVERTIBLE
PREFERRED JUNIOR
STOCK PREFERRED COMMON PAID-IN RETAINED
SERIES B STOCK STOCK CAPITAL DEFICIT TOTAL
------------ ----------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1994 .................... $ -- $19 $ 9 $1,490 $ (58) $1,460
Net Income ................................ -- -- -- -- 305 305
Proceeds from Preferred Stock Issuance .... 495 -- -- 1,318 -- 1,813
Dividends ................................. -- -- -- -- (243) (243)
Accretion of Preferred Stock .............. -- -- -- -- (121) (121)
---- --- --- ------ -------- ------
Balance, July 31, 1995 .................... 495 19 9 2,808 (117) 3,214
Net Loss .................................. -- -- -- -- (493) (493)
Cost of Preferred Stock
Issuance ................................ -- -- -- (2) -- (2)
Dividends ................................. -- -- -- -- (243) (243)
Accretion of Preferred Stock .............. -- -- -- -- (121) (121)
---- --- --- ------- -------- -------
Balance, July 31, 1996 .................... 495 19 9 2,806 (974) 2,355
Net Income ................................ -- -- -- -- 212 212
Dividends ................................. -- -- -- -- (243) (243)
Accretion of Preferred Stock .............. -- -- -- -- (121) (121)
---- --- --- ------- -------- -------
Balance, July 31, 1997 .................... $495 $19 $ 9 $2,806 $ (1,126) $2,203
==== === === ======= ======== =======
</TABLE>
The following notes are an integral part of these consolidated
financial statements.
F-25
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31,
----------------------------------------
1995 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) ................................................... $ 305 $ (493) $ 212
Depreciation and amortization expense ............................... 3,987 6,557 7,997
Less: Gain on sale of property and equipment ........................ (966) (909) (657)
Increase (decrease) in deferred tax liability ....................... 259 (192) 247
Increase (decrease) in operating cash flows resulting from:
Accounts receivable ................................................ (1,088) (746) (311)
Inventories ........................................................ (534) 511 73
Prepaid expense and other .......................................... 165 69 151
Accounts payable ................................................... 973 (395) (402)
Accrued expenses ................................................... 309 479 (257)
-------- --------- --------
Net Cash Provided by Operating Activities ............................ 3,410 4,881 7,053
Cash Flows from Investing Activities:
Cost of acquisitions, net ........................................... (96) (3,481) (1,710)
Purchases of property and equipment
Rental equipment ................................................... (4,866) (10,101) (3,376)
Other property and equipment ....................................... (1,070) (1,277) (432)
Proceeds from sale of property and equipment ........................ 1,798 2,925 1,860
-------- --------- --------
Net Cash used for Investing Activities ............................... (4,234) (11,934) (3,658)
Cash Flows from Financing Activities:
Payments of equipment contracts ..................................... (752) (1,924) (2,675)
Retirement of debt on equipment contracts ........................... (397) (1,600) (328)
Payments/principal reductions on term loan .......................... (3,015) (2,166) (995)
Payments of other long-term capital financings ...................... (139) (229) (3,891)
Net borrowings under revolving facility ............................. 1,156 1,818 332
Proceeds from Capex notes ........................................... 4,362 7,151 3,466
Proceeds from issuance of subordinated debentures, including interest
payable ........................................................... 3,666 337 361
Cost relating to issuance of subordinated debentures ................ (42) -- --
Proceeds from issuance of Series B senior redeemable convertible
preferred stock, net .............................................. 1,813 -- --
Cost relating to refinancing of debt agreement ...................... -- 129 --
Dividends paid on preferred stock ................................... (243) (243) (243)
-------- --------- --------
Net Cash Provided by (used for) Financing Activities ................. 6,409 3,273 (3,973)
Net Increase (Decrease) in Cash and cash equivalents ................. 5,585 (3,780) (578)
Cash and cash equivalents at beginning of period .................... 355 5,940 2,160
-------- --------- --------
Cash and cash equivalents at end of period .......................... $ 5,940 $ 2,160 $ 1,582
======== ========= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Vendor financing of equipment purchases ............................. $ 618 $ 8,408 $ 1,430
Business assets acquired through seller financing ................... 90 750 266
Proceeds from capital lease obligations ............................. -- 79 --
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest ........................................................... $ 1,972 $ 3,010 $ 2,926
Income taxes ....................................................... 25 70 48
</TABLE>
The following notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
The accompanying consolidated financial statements include the accounts of
Industrial Equipment Rentals, Inc. ("IER") and its wholly-owned subsidiary,
Buckner Rental Service, Inc. ("BRS," formerly IER Acquisition Corp.). IER and
BRS (the "Company"), were incorporated in the state of Delaware in May 1993.
The Company is a full service equipment rental company servicing industrial,
commercial and construction customers along the Gulf Coast. The Company rents,
sells and services a broad line of construction and industrial equipment at
each of its rental locations.
NOTE 2--SALE OF BUSINESS AND BASIS OF ACCOUNTING
Effective August 1, 1997, the Company shareholders sold their stock in the
Company to Neff Corp. The accompanying consolidated financial statements
present the Company's financial position as of July 31, 1996 and 1997 and the
results of operations and cash flows for the three years in the period ended
July 31, 1997, prior to the sale. Accordingly, the consolidated financial
statements do not include any of the expected purchase price adjustments
associated with the sale of the Company listed below, among others.
a. A pushdown of the buyer's purchase accounting, (including elimination of
existing goodwill) was made immediately following the sale of the Company.
b. In connection with the above transaction, the Company's corporate
structure has been reorganized. As part of the restructuring, IER was
merged into its wholly-owned subsidiary ("BRS"), which has become the
wholly-owned subsidiary of another corporate entity. Shortly after closing
the transaction, the newly merged entity was merged into its new owner.
c. Due to the redemption of the 107,500 shares of non-voting $1 par Series
A Senior Redeemable Convertible Preferred Stock (the "Senior Series A") on
August 1, 1997, there was a charge to retained earnings of $0.8 million to
accrete the stock to its redemption value (see Note 9). A similar charge
of $0.4 million was made for the redemption of the 18,936 shares of
non-voting, $1 par Junior Preferred Stock (the "Junior Series") along with
adjustments for conversion of the 495,000 shares of voting $1 par Series B
Redeemable Convertible Preferred Stock (the "Senior Series B") into one
share of common stock which were redeemed for $10.2 million immediately
upon sale of the Company (see Note 9).
d. On August 1, 1997, substantially all of the Company's long-term debt was
repaid using proceeds from the sale. As a result, the Company was required
to pay approximately $81,000 in prepayment penalties and write off a total
of $0.1 milion in unamortized debt issue costs immediately after the
long-term debt was paid.
e. The Company incurred $1 million in closing fees, including $0.3 million
in closing bonuses, in conjunction with the sale.
f. Due to the change of control and separate return limitations as a result
of the sale of the Company, the deferred tax assets recorded for federal
and state tax net operating losses and alternative minimum tax
carryforwards of approximately $2.1 million as of July 31, 1997 will be
subject to restrictions on use. No adjustment has been reflected in the
accompanying financial statements to allow for such potential
restrictions.
F-27
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and BRS. All significant intercompany accounts and transactions
have been eliminated.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
The Company recognizes revenue on monthly contracts and other open
contracts based on the number of days of equipment usage occurring prior to the
end of the fiscal year. Accounts receivable are net of allowances for doubtful
accounts of $0.2 million at July 31, 1996 and 1997.
INVENTORIES
The Company maintains inventories of equipment for resale, parts,
merchandise and tools. Inventories are valued at the lower of cost (first-in,
first-out) or market. There was no work-in-process inventory at July 31, 1996
or 1997.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets. Rental
equipment with useful lives of five, seven and ten years is depreciated to a 20
percent salvage value at the end of their useful lives. All other property and
equipment is fully depreciated with no salvage value assumed. Prior to August
1, 1994, no salvage values were assumed on rental equipment with useful lives
of five and seven years. The change in estimate reduced depreciation expense by
approximately $0.6 million in the fiscal year ended July 31, 1995. Expenditures
for major additions and improvements are capitalized while minor replacements,
maintenance and repairs are charged to expense as incurred. Sales of the
Company's rental fleet are common but incidental to the Company's primary
rental business and are typically made to rental customers. When property is
retired, sold or otherwise disposed of, the cost and accumulated depreciation
are removed from the related accounts, and any proceeds are recognized as
revenues and included in the statement of operations.
F-28
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
In March 1995, Statement of Financial Accounting Standards SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," was issued. SFAS No. 121, which became effective for fiscal
years beginning after December 15, 1995, requires that certain long-lived
assets be reviewed for impairment whenever events indicate that the carrying
amount of an asset may not be recoverable and that an impairment loss be
recognized under certain circumstances in the amount by which the carrying
value exceeds the fair market value of the asset. The Company adopted SFAS No.
121 in the fiscal year ended July 31, 1997, as required, and the adoption did
not have a material effect on the Company's results of operations or financial
position.
OTHER ASSETS
Other assets consist of the following at July 31 (in thousands):
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD 1996 1997
------------- ----------- -----------
<S> <C> <C> <C>
Long-term portion of note receivable ......... N/A $ 247 $ --
Debt issue costs ............................. 5 yrs 204 204
Goodwill ..................................... 5,20 yrs 775 990
Non-competition agreements ................... 2,5 yrs 2,572 2,772
Other ........................................ N/A 36 38
3,834 4,004
Less: Accumulated amortization ............... (1,528) (2,217)
-------- --------
$ 2,306 $ 1,787
======== ========
</TABLE>
ACCOUNTING FOR INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109
"Accounting for Income Taxes," which requires that deferred income taxes be
computed using the liability method. Under the liability method, deferred
income taxes are recognized for the tax consequences of "temporary differences"
by applying statutory tax rates to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. Under
SFAS No. 109, the effect on deferred taxes of a change in tax rates is
recognized in the consolidated statement of operations in the period of the
enactment date.
RECLASSIFICATIONS
Certain amounts for the prior years have been reclassified to conform with
the current year presentation.
NOTE 4--ACQUISITIONS
A-L RENTAL CENTER
On June 14, 1995, the Company purchased substantially all of the assets of
A-l Rental Center. The acquisition price of $186,000 consisted of $90,000 in
cash, a $90,000 promissory note with 60 equal
F-29
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--ACQUISITIONS--(CONTINUED)
monthly payments with final payment due June 14, 2000, and directly related
acquisition expenses of $6,000. As part of the transaction, the Company entered
into a noncompetition agreement with the seller for the payment of $1,333 per
month commencing on July 14, 1995, with the last payment due and payable on
June 14, 2000. The Company also entered into an agreement to lease a facility
owned by the seller. The lease is an operating lease and requires payments of
$2,200 a month over a period of five years.
RENTAL WORLD
On August 1, 1995, the Company purchased substantially all of the assets
of Rental World of the Valley, Inc. ("Rental World"). The acquisition price of
$4.3 million consisted of $3.5 million in cash, $1.5 million of which was
funded using proceeds of a term loan, a $0.8 million promissory note dated
August 1, 1995 bearing interest at 7%, along with directly related acquisition
expenses of $55,600, of which $52,800 had been incurred as of July 31, 1995.
The promissory note is payable in twenty-four interest-only monthly
installments of $4,375 beginning September 1, 1995, and is equal to the
interest accrued on the principal, and forty-eight consecutive monthly
installments of principal and interest of $17,960 beginning on September 1,
1997. As part of the transaction, the Company entered into a noncompetition
agreement with the seller for the payment of $8,333 per month commencing on
September 1, 1995 with the last payment due and payable on August 1, 2000.
In conjunction with the acquisition, the Company entered into five year
lease agreements, commencing on the purchase date, to lease four of the rental
properties of the previous owner. The yearly rental expense of the four
payments is $0.2 million and is included in facilities expense.
CAMERON
On October 1, 1996, the Company purchased all of the assets of Cameron
Rental and Tank, Inc. (Cameron). The acquisition price of $1.5 million
consisted of $1.2 million in cash, a $0.3 million non-interest bearing
promissory note dated October 1, 1996 and acquisition expenses of $13,500. A
portion of the cash purchase price was funded using proceeds from the Capex
facility. The promissory note matured on January 28, 1997 and the face amount
was reduced by $6,453 in accordance with the terms of the note which required
an adjustment for the amount of cash collected by the Company 90 days after the
closing from accounts receivable and accrued or unbilled revenue of Cameron
above or below $0.3 million. As part of the transaction, the Company entered
into non-competition agreements for a period of two years with the two officers
of Cameron for the payment of $0.1 million to each payable at closing.
In conjunction with the acquisition, the Company entered into an agreement
to lease a facility owned by one of the officers of Cameron. The lease is an
operating lease and requires payments of $2,250 a month over a period of five
years.
The A-1 Rental Center, Rental World and Cameron acquisitions were
accounted for as purchases and accordingly, the purchase prices were allocated
to assets acquired based on their estimated fair market values. The results of
operations of the acquired assets are included in the accompanying financial
statements since the effective date of each acquisition.
The pro forma operating results for these acquisitions have not been
disclosed either because the effect of the acquisitions was not material (in
the case of A-1 Rental Center) or the acquisitions took place at or near the
beginning of the fiscal year.
F-30
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of July 31, 1996 and
1997 (in thousands):
<TABLE>
<CAPTION>
USEFUL LIFE 1996 1997
------------- ------------ ------------
<S> <C> <C> <C>
Rental fleet ...................................... 2-10 yrs $ 37,890 $ 39,812
Autos and trucks .................................. 3, 5, 7yrs 621 678
Buildings ......................................... 31.5 yrs 432 432
Furniture, fixtures and office equipment .......... 5 yrs 1,010 1,091
Leasehold improvements ............................ 5, 10 yrs 1,375 1,572
Land .............................................. N/A 322 322
Shop equipment .................................... 5 yrs 866 1,005
42,516 44,912
Less: Accumulated depreciation .................... (10,729) (16,779)
--------- ---------
$ 31,787 $ 28,133
========= =========
</TABLE>
NOTE 6--LONG-TERM DEBT AND SUBORDINATED DEBT
Substantially all of the Company's debt was repaid subsequent to July 31,
1997 as a result of the sale of the Company and accordingly, is classified as
current liabilities in the accompanying consolidated balance sheet (see Note
2).
Secured and unsecured long-term debt consists of the following at July 31,
1996 and 1997 (in thousands):
1996 1997
---------- -----------
The Credit Agreement:
Term Loan and Revolving Facility ................ $ 11,227 $ 8,417
Capex Facility .................................. 5,897 6,435
-------- ---------
17,124 14,852
Equipment Contracts .............................. 9,149 7,592
Promissory Notes ................................. 824 807
-------- ---------
Senior Secured Borrowings ........................ 27,097 23,251
Less: Current Portion ............................ (5,809) (22,630)
-------- ---------
Total Long-Term Debt ........................... $ 21,288 $ 621
======== =========
9% Subordinated Debentures plus interest ......... $ 4,011 $ 4,371
12% Subordinated Debentures ...................... 3,800 3,800
-------- ---------
Total Subordinated Debentures .................. $ 7,811 $ 8,171
======== =========
THE CREDIT AGREEMENT
On July 31, 1997, the Company had in place a credit facility that
originated on June 18, 1993 under a loan and security agreement (the "Credit
Agreement") with a financial institution (the "Lender") that initially provided
BRS with a borrowing base of up to $12 million which was increased to $18
million on July 21, 1994 ("Amendment No. 1") and $27 million on August 18, 1995
("Amendment No. 3"). The
F-31
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LONG-TERM DEBT AND SUBORDINATED DEBT--(CONTINUED)
Credit Agreement provides for a term loan (the "Term Loan") as well a revolving
line of credit (the "Revolving Facility") and a capital expenditure facility
(the "Capex Facility").
The Credit Agreement was significantly amended through Amendment No. 3 to
include equipment and other eligible inventory held for resale in the borrowing
base and extend the original term of the Credit Agreement to August 31, 2000.
The existing balances as of August 18, 1995, in the Revolving Facility and the
Capex Facility were converted into the Term Loan and an additional $1 million
was funded by the Lender to increase the principal balance in the Term Loan to
$15 million. Borrowing capacity under the Capex Facility was increased to $12
million. In consideration of Amendment No. 3, the Company agreed to pay the
Lender an amendment fee of $90,000 which was paid upon the execution by
Borrower. As of July 31, 1996, the unamortized amount of this fee was $72,000
of which a total of $18,000 was expensed ratably during fiscal year 1997. Due
to the significant modification of the Credit Agreement, the remaining
unamortized balance of previous debt issue costs related to this Credit
Agreement of $0.2 million was expensed during fiscal year ended July 31, 1996
and have been reflected in the Company's consolidated statement of operations
as an extraordinary item net of income tax benefit of $83,355. During fiscal
1996 and 1997, minor modifications were made to the Credit Agreement covenants
by amendments No. 4, No. 5 and No. 6; the associated costs of these minor
amendments were expensed in the respective periods.
The Lender has a security interest in substantially all of the Company's
assets except for otherwise encumbered equipment financed by creditors other
than the Lender. The Credit Agreement requires the maintenance of certain
covenants. As of July 31, 1997, the Company was in compliance with or obtained
waivers for all such covenants. The Credit Agreement restricts BRS from
advancing or paying dividends to IER if BRS is in default under the Credit
Agreement or if its available borrowings under the Revolving Facility are below
a specified amount. Amounts outstanding under the Credit Agreement bear
interest at a rate equal to prime rate plus 2.0 percent (10.75 percent
effective rate) at July 31, 1995 prior to Amendment No. 3 and prime plus 1.5
percent thereafter or, alternatively, at the Company's option, LIBOR plus 4
percent. The Company elected the LIBOR option and as of July 31, 1996 and 1997,
the effective rates were 9.45 percent and 9.63 percent, respectively.
The Revolving Facility may be used by the Company to meet general working
capital requirements, purchase equipment, finance down payments on certain
third-party financed equipment purchases, and issue letters of credit. The
total borrowings available under the Revolving Facility are approximately equal
to 80 percent of the Company's eligible accounts receivable, 65 percent of
eligible inventory of equipment held for sale, and 50 percent of eligible
inventory comprised of all goods (other than equipment) intended for sale,
rental or lease and all work in process and raw materials not to exceed $0.4
million. Additionally, the Revolving Facility is limited to remaining
borrowings under the $27 million total credit facility after subtraction of the
Term Loan and the Capex Facility. As of July 31, 1996 and 1997, there were no
outstanding balances on the Revolving Facility. As calculated, $3.2 million and
$4.7 million of additional borrowing was available as of July 31, 1996 and
1997, respectively.
In accordance with the Credit Agreement, proceeds from the sale of
collateralized rental equipment sold in the ordinary course of business of $1.3
million during fiscal 1996 and $1 million during fiscal 1997 were applied to
the outstanding principal balance of the Term Loan and, as a result, the
scheduled monthly payments of principal were reduced. The outstanding balance
on the Term Loan and Revolving Facility was $11.2 million and $8.4 million as
of July 31, 1996 and 1997, respectively, and was paid in full on August 1, 1997
in conjunction with the sale of the Company (see Note 2).
F-32
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LONG-TERM DEBT AND SUBORDINATED DEBT--(CONTINUED)
The Capex Facility may be used by the Company to finance up to 80 percent
of the purchase price of capital expenditures. At six month intervals, any
outstanding Capex Loan balance is converted into a Capex Note which must be
repaid in sixty ratable monthly payments. During August 1996 and March 1997,
portions of the Capex Loan were converted into Capex Notes in the amount of
$6.1 million and $1.3 million, respectively. During fiscal 1997, $1.2 million
in principal payments were made against these notes. Interest on the Capex Loan
is charged against the Revolving Facility each month.
EQUIPMENT CONTRACTS
The equipment contracts, bearing interest at rates ranging from 7.5
percent to 11 percent, are secured by equipment purchased and are payable in
various monthly principal installments.
SUBORDINATED DEBENTURES
The total amount of subordinated debentures outstanding was $7.8 million
and $8.2 million as of July 31, 1996 and 1997, respectively. These amounts
include $3.8 million as of July 31, 1996 and 1997 of subordinated debentures
that bear interest which is payable quarterly at a rate of 12 percent per annum
(the "12% Subordinated Debentures") and $3.7 million in subordinated debentures
that bear interest at a rate of nine percent per annum (the "9% Subordinated
Debentures") as well as accrued interest payable of $0.3 million at July 31,
1996 and $0.7 million at July 31, 1997 on the 9% Subordinated Debentures. All
debentures are owed to a group of the Company's preferred shareholders and were
paid in full on August 1, 1997 in conjunction with the sale of the Company (see
Note 2). As of July 31, 1996 and 1997, accrued interest payable on the 12%
Subordinated Debentures was $38,000.
DEBT MATURITIES
The aggregate annual maturities of the senior secured subordinated and
unsecured debt as of July 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED CREDIT EQUIPMENT CONTRACTS SUBORDINATED
JULY 31 AGREEMENT AND PROMISSORY NOTES DEBENTURES TOTAL
- ----------------------- ----------- ---------------------- ------------- ----------
<S> <C> <C> <C> <C>
1998 ............. $14,852 $7,778 $8,171 $30,801
1999 ............. -- 200 -- 200
2000 ............. -- 213 -- 213
2001 ............. -- 208 -- 208
2002 ............. -- -- -- --
Thereafter ......... -- -- -- --
------- ------ ------ -------
$14,852 $8,399 $8,171 $31,422
======= ====== ====== =======
</TABLE>
F-33
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--LEASES
At July 31, 1997, the Company had minimum annual lease commitments under
noncancelable operating leases as follows (in thousands):
YEAR ENDED JULY 31 OPERATING LEASES
- -------------------- -----------------
1998 .......... $ 698
1999 .......... 403
2000 .......... 367
2001 .......... 148
2002 .......... 48
------
$1,664
======
The Company leases its facilities at various monthly rental terms which
expire at various dates through September 2006. The above amounts include
commitments from the A-l Rental Center, Rental World, and Cameron acquisitions
(see Note 4). Total rent of $0.4 million, $0.7 million and $0.7 million for the
periods ended July 31, 1995, 1996, and 1997 were charged to facilities expense.
At July 31, 1997, the Company had future payments under capital leases as
follows (in thousands):
YEAR ENDED JULY 31 CAPITAL LEASE OBLIGATIONS
- --------------------------------------- --------------------------
1998 ............................. $ 85
1999 ............................. --
2000 ............................. --
2001 ............................. --
2002 ............................. --
-----
85
Less: Interest ..................... (11)
-----
Capital Lease Obligations .......... $ 74
=====
The Company is party to several capital leases primarily related to
computers and computer-related equipment. These leases have been capitalized
using interest rates ranging from 7 percent to 12 percent. Amortization on the
capitalized amounts is included in depreciation expense. All of the capitalized
leases were repaid subsequent to July 31, 1997 as a result of the sale of the
Company and accordingly, all capital leases payable were classified as current
liabilities in the accompanying consolidated balance sheets.
F-34
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--INCOME TAXES
The provision (benefit) for income taxes consists of the following for the
years ended July 31 (in thousands):
1995 1996 1997
------ --------- -------
Current
Federal ......... $ -- $ -- $ --
State ........... 8 -- --
---- ------ ----
8 -- --
---- ------ ----
Deferred
Federal ......... 233 (117) 266
State ........... 26 (13) 29
---- ------ ----
259 (130) 296
---- ------ ----
$267 $ (130) $296
==== ====== ====
The reconciliation of the tax provision to the tax provision computed at
statutory rates is as follows for the years ended July 31 (in thousands):
1995 1996 1997
------ ---------- ------
Federal tax at statutory rate (34%) .......... $195 $ (212) $173
Nondeductible expenses ....................... 42 54 48
State taxes .................................. 22 (25) 20
Valuation allowance and other ................ 8 53 55
---- ------ ----
$267 $ (130) $296
==== ====== ====
The deferred income tax balances consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Property and equipment basis differences .......... $2,694 $3,336
------ ------
Total deferred tax liabilities .................... 2,694 3,336
------ ------
DEFERRED TAX ASSETS:
Net operating loss carryforwards .................. 1,371 1,721
Alternative minimum tax credit .................... 627 627
Other ............................................. 279 324
------ ------
Total deferred tax assets ......................... 2,277 2,672
Valuation allowance for deferred tax assets ......... (177) (226)
------ ------
Net deferred tax assets ............................. 2,100 2,446
------ ------
Net deferred tax liabilities ........................ $ 594 $ 890
====== ======
</TABLE>
Included in prepaid expense and other are current deferred tax assets of
$237 and $188 at July 31, 1996 and 1997, respectively.
F-35
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--INCOME TAXES--(CONTINUED)
The Company had net operating loss carryforwards for federal and state
income tax purposes of approximately $0.8 million and $2.2 million,
respectively, at July 31, 1995, $3.5 million and $4.4 million, respectively, at
July 31, 1996 and $4.4 million and $5.7 million, respectively, at July 31,
1997. The Company also has alternative minimum tax credit carryovers of
approximately $627,000 for federal income tax purposes at July 31, 1995, 1996
and 1997. For financial reporting, the loss and credit carryforwards were
recognized as deferred tax assets and an appropriate valuation allowance was
recorded to reflect the uncertainty about ultimate realization.
NOTE 9--PREFERRED STOCK
SERIES A SENIOR MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
The holders of the 107,500 shares of non-voting, $1 par Senior Series A
are entitled to receive dividends thereon in cash at the rate of 6% per annum
based on a face value of $20 per share when, as and if declared by the
Company's Board of Directors, out of legally available funds. The dividends
compound and accrue quarterly and are cumulative from the date of issuance. As
of July 31, 1996 and 1997, accrued dividends payable for Senior Series A shares
were $10,750. The Senior Series A was recorded at issuance at its estimated
fair market value of $0.9 million ($7.93 per Senior Series A share) and is
being accreted up to its redemption value through charges to retained earnings
over the period from June 18, 1993 to the date it is mandatorily redeemable. As
of July 31, 1996 and 1997, accumulated accretion from June 18, 1993 on Senior
Series A shares were $0.4 million and $0.5 million, respectively. Also,
dividends on the Senior Series A shares are accrued, whether or not declared,
during the period to which they relate since the mandatory redemption amount
includes dividends and are included in accrued expenses in the accompanying
consolidated balance sheets. On August 1, 1997, the holders of the Senior
Series A redeemed their shares upon a change in ownership for $20 per share
(see Note 2).
SERIES B SENIOR REDEEMABLE CONVERTIBLE PREFERRED STOCK
The holders of the 495,000 shares of voting $1 par Senior Series B are not
entitled to receive dividends but have the option to redeem their shares upon a
change in ownership. The Senior Series B is not mandatorily redeemable.
Accretion of the Senior Series B is not necessary as it was recorded at its
redemption value of $3.704 per share not including the share of common stock to
be received upon redemption. The Senior Series B shares were recorded upon
issuance at the amount of net proceeds of $1.8 million which included par value
of $0.5 million with excess proceeds over par recorded as additional paid in
capital. On August 1, 1997 the holders of the Senior Series B converted their
shares into one share of common stock which were redeemed for $10.2 million
immediately upon the sale of the Company (see Note 2).
JUNIOR PREFERRED STOCK
The holders of the 18,936 shares of non-voting, $1 par Junior Series are
entitled to receive dividends in cash at the rate of 6% per annum based on a
face value of $100 per share when, as and if declared by the Board. The
dividends compound and accrue quarterly and are cumulative from the date of
issuance. As of July 31, 1996 and 1997, accrued dividends payable for Junior
Series shares were $9,468. No dividends shall be declared or paid on the Junior
Series unless full cumulative dividends have been declared or paid on the
Senior Series. The Junior Series was recorded at issuance at its
F-36
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--PREFERRED STOCK--(CONTINUED)
estimated fair market value of $1.5 million ($80.75 per Junior Series share).
Since the Junior Series is not mandatorily redeemable, it is not being accreted
up to its redemption value. Also, dividends on the Junior Series are accrued,
whether or not declared, during the period to which they relate and are
included in accrued expenses in the accompanying consolidated balance sheets.
On August 1, 1997, the holders of the Junior Series redeemed for $1.9 million
their shares upon a change in ownership (see Note 2).
NOTE 10--EMPLOYEE BENEFIT PLAN
The Company has a defined contribution profit sharing plan (the "Plan")
covering substantially all of its employees. All employees who are at least
20.5 years old, perform at least 1,000 hours of service annually and have
satisfied the six month service requirement, are eligible to participate.
Participants accumulate ownership in the Plan assets according to a vesting
schedule over a period of six years. Company contributions to the Plan are made
on an annual basis at the discretion of management, and are allocated to
participants' accounts according to annual compensation. No contribution to the
plan was made for the plan years ended July 31, 1995, 1996 or 1997.
Effective January 1, 1994, an amendment was made to the Plan to allow
401(k) contributions by the employee. The employer matches these contributions
at a rate based on a discretionary formula. Since the amendment, the Company
agreed to match 50 percent of the employee's contribution up to 6 percent of
the participants' gross pay. Such employer contributions vest over a period of
six years and totaled $67,263 during fiscal 1995, $86,318 during fiscal 1996
and $104,451 during fiscal 1997. As of July 31, 1995, 1996 and 1997, no
material amounts were outstanding and payable from the Company to the Plan.
NOTE 11--RELATED PARTY TRANSACTIONS
The Company leases eleven facilities from a corporation owned by a
stockholder, director and officer of the Company. Lease costs totaling
approximately $0.3 million for the years ended July 31, 1995, 1996 and 1997
were incurred under these lease agreements. As of July 31, 1997, these lease
agreements require minimum lease payments of approximately $346,800 per year
and expire at various times during the years from 1998 to 2002. No amendments
or terminations of any of these leases have been made as a result of the sale
of the Company (see Note 2).
The Company held one 5.33 percent interest bearing note receivable as of
July 31, 1996 and two 5.33 percent interest bearing notes receivable as of July
31, 1997 totaling approximately $301,000 and $297,000, respectively, from
certain stockholders and officers of the Company. Both notes receivable were
collected by the Company in full subsequent to July 31, 1997.
The Company paid a related party $120,000 for consulting services in
fiscal years ended July 31, 1995, 1996 and 1997, and subsequently, this
agreement was mutually terminated as of August 1, 1997.
NOTE 12--COMMITMENTS AND CONTINGENCIES
The Company is involved in certain claims and lawsuits arising in the
normal course of business. Management does not believe that uninsured losses,
if any, resulting form the ultimate resolution of these matters will have a
material adverse effect on the financial position, results of operations or
liquidity of the Company.
F-37
<PAGE>
INDEPENDENT AUDITORS' REPORT
Richbourg's Sales & Rentals, Inc.:
We have audited the accompanying balance sheets of Richbourg's Sales &
Rentals, Inc. (the "Company") as of December 31, 1996 and 1997, and the related
statements of income, stockholder's equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1996 and
1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Charlotte, North Carolina
February 27, 1998
F-38
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT PAR VALUE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
ASSETS (NOTE 8)
Cash and cash equivalents ...................................................... $ 338 $ 161
Marketable securities--trading (Note 1) ........................................ 670 593
Trade accounts receivable, net of allowance for doubtful accounts of $35 in 1996
and $81 in 1997 .............................................................. 4,214 3,126
Inventories .................................................................... 396 420
Rental fleet, net of accumulated depreciation of $27,856 in 1996 and $34,351 in
1997 (Note 1) ................................................................ 55,029 57,604
Property and equipment, net (Note 2) ........................................... 4,250 3,068
Other assets ................................................................... 171 12
------- -------
TOTAL .......................................................................... $65,068 $64,984
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable--trade and accrued expenses .................................. $ 2,283 $ 930
Accounts payable--equipment purchases ......................................... 6,468 --
Revolving credit loan (Note 3) ................................................ 16,296 26,526
Notes payable (Note 4) ........................................................ 5,054 --
------- -------
Total liabilities ............................................................ 30,101 27,456
------- -------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)
STOCKHOLDER'S EQUITY:
Common stock, $100 par value, 500 shares authorized, 100 shares issued and
outstanding ................................................................. 10 10
Additional paid-in capital .................................................... 20 20
Retained earnings ............................................................. 34,937 37,498
------- -------
Total stockholder's equity ................................................... 34,967 37,528
------- -------
TOTAL .......................................................................... $65,068 $64,984
======= =======
</TABLE>
See notes to financial statements.
F-39
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Rental of equipment ............................................. $ 26,507 $ 29,717 $ 28,894
Sales of equipment .............................................. 5,402 5,305 6,510
-------- -------- --------
Total revenues ................................................. 31,909 35,022 35,404
-------- -------- --------
COST OF REVENUES:
Depreciation of rental fleet .................................... 6,366 7,899 10,928
Maintenance of rental fleet ..................................... 10,063 10,284 10,714
Cost of equipment sold .......................................... 2,416 1,851 1,956
-------- -------- --------
Total cost of revenues ......................................... 18,845 20,034 23,598
-------- -------- --------
GROSS MARGIN ..................................................... 13,064 14,988 11,806
-------- -------- --------
OPERATING EXPENSES:
Selling ......................................................... 1,342 1,403 1,445
General and administrative ...................................... 2,193 2,692 2,715
Other depreciation .............................................. 840 1,006 880
-------- -------- --------
Total operating expenses ....................................... 4,375 5,101 5,040
-------- -------- --------
INCOME FROM OPERATIONS ........................................... 8,689 9,887 6,766
OTHER INCOME (EXPENSE):
Interest expense ................................................ (1,726) (1,749) (2,406)
Investment income ............................................... 127 84 11
Realized gain on sale of marketable securities .................. 13 75 41
Unrealized holding gain (loss) on marketable securities ......... 51 (29) 58
Other ........................................................... 150 90 30
-------- -------- --------
Total other expense, net ....................................... (1,385) (1,529) (2,266)
-------- -------- --------
INCOME BEFORE EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT ......................................... 7,304 8,358 4,500
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF
DEBT (Note 3) .................................................. -- (225) --
-------- -------- --------
NET INCOME (Note 1) .............................................. $ 7,304 $ 8,133 $ 4,500
======== ======== ========
</TABLE>
See notes to financial statements.
F-40
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ ADDITIONAL
OUTSTANDING PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 ........... 100 $10 $20 $ 23,484 $ 23,514
Net income .......................... -- -- -- 7,304 7,304
Distribution to stockholder ......... -- -- -- (1,445) (1,445)
--- --- --- -------- --------
BALANCE, DECEMBER 31, 1995 ........... 100 10 20 29,343 29,373
Net income .......................... -- -- -- 8,133 8,133
Distribution to stockholder ......... -- -- -- (2,539) (2,539)
--- --- --- -------- --------
BALANCE, DECEMBER 31, 1996 ........... 100 10 20 34,937 34,967
Net income .......................... -- -- -- 4,500 4,500
Distribution to stockholder ......... -- -- -- (1,939) (1,939)
--- --- --- -------- --------
BALANCE, DECEMBER 31, 1997 ........... 100 $10 $20 $ 37,498 $ 37,528
=== === === ======== ========
</TABLE>
See notes to financial statements.
F-41
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 7,304 $ 8,133 $ 4,500
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary loss on early extinguishment
of debt .................................................... -- 225 --
Depreciation .................................................. 7,206 8,905 11,808
Gain on sale of rental fleet and equipment .................... (1,385) (1,065) (1,481)
Realized gain on sale of marketable securities ................ (13) (75) (41)
Unrealized (gain) loss on marketable securities ............... (51) 29 (58)
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts
receivable ................................................ (1,143) (121) 1,088
Decrease (increase) in inventories ........................... 807 (287) (24)
(Decrease) increase in accounts payable and accrued
expenses .................................................. 136 1,018 (1,353)
Decrease (increase) in other assets .......................... (663) 543 159
Purchase of trading marketable securities .................... (979) (1,938) (77)
Proceeds from sale of trading marketable securities .......... 1,025 1,711 252
--------- --------- ---------
Net cash provided by operating activities ................... 12,244 17,078 14,773
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental fleet and equipment ......................... (19,309) (20,648) (22,123)
Proceeds from sale of rental fleet and equipment ................ 1,538 3,557 3,937
--------- --------- ---------
(17,771) (17,091) (18,186)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances under revolving credit facility .................... -- 16,296 10,230
Borrowings under notes payable .................................. 19,069 3,136 2,364
Repayment of notes payable ...................................... (11,378) (18,998) (7,419)
Distributions to stockholder .................................... (1,445) (2,539) (1,939)
--------- --------- ---------
Net cash (used in) provided by financing activities ......... 6,246 (2,105) 3,236
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS .................................................... 719 (2,118) (177)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR .............................................. 1,737 2,456 338
--------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF YEAR .................................................... $ 2,456 $ 338 $ 161
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--Cash paid during the year
for interest ................................................... $ 1,599 $ 1,665 $ 2,260
========= ========= =========
</TABLE>
See notes to financial statements.
F-42
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS--Richbourg's Sales & Rentals, Inc. (the "Company")
is engaged in the rental and sale of construction and industrial machinery and
equipment. The Company presently operates from sixteen locations in the
southeastern United States.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS--The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
INVESTMENT IN MARKETABLE SECURITIES--The Company's securities investments
are classified as trading securities and are primarily investments in stocks of
publicly traded companies. Trading securities are recorded at fair value in the
accompanying balance sheets, with the change in fair value during the period
included in earnings. Realized gains or losses in the sale of securities are
based on the specific identification method. The fair value of securities is
based on quoted market prices.
Proceeds from sales of investments for the years ended December 31, 1995,
1996 and 1997 were $1.0 million, $1.7 million and $0.3 million, respectively.
Realized and unrealized gains (losses) on trading securities during 1995, 1996
and 1997 were not significant.
ACCOUNTS RECEIVABLE--The Company carries trade accounts receivable at the
amount it deems to be collectible. Accordingly, the Company provides allowances
for trade accounts receivable it deems to be uncollectible based on
management's best estimates. Recoveries are recognized in the period they are
received. The ultimate amount of accounts receivable that becomes uncollectible
could differ from those estimated. The majority of the Company's customers are
engaged in the construction business. The Company assesses its customers'
credit worthiness prior to extending credit. The collectibility of these
receivables is dependent, in part, on the economic conditions within the
construction industry.
INVENTORIES--Inventories, which consist principally of repair parts and
supplies, are stated at the lower of cost or market (cost is determined on the
first-in, first-out basis).
RENTAL FLEET--Rental fleet is comprised principally of heavy construction
equipment which is leased by the Company to customers under operating leases.
The rental fleet is stated at cost less accumulated depreciation. Depreciation
is computed using the straight-line method over the estimated useful lives of
the related assets, which range from five to seven years, giving effect to an
estimated salvage value of one-tenth of original cost. Routine repairs and
maintenance are expensed as incurred; improvements are capitalized at cost. The
Company sells equipment in its rental fleet as part of its regular operations;
accordingly, a portion of the rental fleet may be sold within one year. The
remaining book value is charged to cost of equipment when sold.
PROPERTY AND EQUIPMENT--Property and equipment, which consists of land,
buildings, service and office equipment utilized in the Company's operations,
is stated at cost less accumulated depreciation.
F-43
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
Depreciation is recorded using the straight-line method over the estimated
useful lives of the related assets. Significant improvements are capitalized at
cost; repairs and maintenance are expensed as incurred.
ADVERTISING COSTS--The Company expenses advertising costs as incurred.
Advertising costs for the years ending December 31, 1995, 1996 and 1997
amounted to $0.1 million each year.
REVENUE RECOGNITION--Rental revenues are recognized over the rental period
using the straight-line method. Sales of assets in the rental fleet are
recognized at the time of shipment.
INCOME TAXES--The Company has elected S Corporation status for income tax
purposes. Accordingly, no provision for federal and state income taxes has been
made in these financial statements because any income tax liability is the
responsibility of the stockholder.
LONG-LIVED ASSETS--Effective January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This standard
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. The adoption of this standard had no effect on the Company's
results of operations or financial position. On an ongoing basis, the Company
will evaluate its long-lived assets. If circumstances suggest that their value
may be impaired, an assessment of recoverability will be performed.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
------------------------- USEFUL LIVES
1996 1997 (IN YEARS)
----------- ----------- -------------
<S> <C> <C> <C>
Land ......................................... $ 428 $ 428 --
Buildings and leasehold improvements ......... 2,529 1,779 7-31
Service equipment ............................ 4,558 4,625 2-5
Office furniture and equipment ............... 583 569 2-5
-------- --------
8,098 7,401
Less accumulated depreciation ................ (3,848) (4,333)
-------- --------
$ 4,250 $ 3,068
======== ========
</TABLE>
NOTE 3. REVOLVING CREDIT LOAN
In September 1996, the Company entered into a revolving credit line
(revolving loan) with a bank. Initial proceeds from this revolving loan were
used to pay off existing notes payable with another bank, as well as to fund
new equipment purchases. In connection with this refinancing, the Company was
charged a penalty of $0.2 million by the former bank lender for early payoff of
the notes payable. This charge is shown as "Extraordinary Loss on Early
Extinguishment of Debt" in the accompanying Statements of Income.
F-44
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
NOTE 3. REVOLVING CREDIT LOAN--(CONTINUED)
The revolving loan provided for maximum borrowings up to $35.0 million
based on qualified machinery and equipment. Outstanding borrowings were due in
September 1999, with interest based on the 90 day LIBOR rate plus 1.85 (7.787%
at December 31, 1997). At December 31, 1996 and 1997, the Company had $16.3
million and $26.5 million, respectively, in outstanding borrowings on the
revolving loan. Subsequent to December 31, 1997, the Company paid off all
borrowings under its revolving credit agreement (see Note 8).
NOTE 4. NOTES PAYABLE
The Company has historically financed a portion of its rental fleet and
other fixed asset purchases through notes payable to banks, equipment vendors,
finance companies and others. In contemplation of sale of the business (see
Note 8), during December 1997 the Company paid off all its outstanding notes
payable.
Notes payable at December 31, 1996 consisted of the following (in
thousands, except payment amounts):
<TABLE>
<S> <C>
Series of 24 installment purchase notes, payable in monthly installments ranging
from $276 to $797, plus interest at 6.9%.............................................. $ 204
6.8% installment purchase note, payable in monthly installments of $7,116, including
interest ............................................................................. 165
7.3% installment purchase note, payable in monthly installments of $9,576, including
interest ............................................................................. 222
6.5% installment purchase note, payable in monthly installments of $4,841, including
interest ............................................................................. 126
6.5% installment purchase note, payable in monthly installments of $4,841, including
interest ............................................................................. 121
7.25%, 10.25% and 10.5% installment purchase notes, payable in monthly
installments ranging from $1,426 to $3,440, including interest........................ 1,755
Installment purchase note, payable in monthly installments of $43,858.................. 570
Series of seven installment purchase notes, payable in monthly installments ranging
from $3,084 to $15,770, including interest (interest rates vary per note from 4.90%
to 7.75%) ............................................................................ 840
Mortgage payable in monthly installments of $5,000 plus interest at prime (81/4% at
December 31, 1996) ................................................................... 445
Mortgage payable in monthly installments of $3,334 plus interest at prime.............. 268
Note payable in monthly installments of $5,000 plus interest at prime.................. 225
Note payable in monthly installments of $1,050 plus interest at prime.................. 113
------
Total notes payable ................................................................... $5,054
======
</TABLE>
NOTE 5. RELATED PARTY TRANSACTIONS
The Company rents certain office and yard space from its sole stockholder
on a month to month basis. During 1995, 1996 and 1997, the Company paid rental
expense to its sole stockholder of approximately $0.4 million, $0.4 million and
$0.5 million, respectively.
F-45
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
NOTE 5. RELATED PARTY TRANSACTIONS--(CONTINUED)
The Company purchases automobiles and receives automotive electric
services from certain companies owned by its sole stockholder. During 1995,
1996 and 1997, the Company paid $0.1 million, $0.1 million and $0.1 million to
these related parties.
NOTE 6. RETIREMENT PLAN
The Company maintains a 401(k) defined contribution plan which covers
substantially all employees. Employees may contribute up to 5% of their
compensation. Employer matching contributions are not mandatory but the Company
is allowed to match employee contributions up to limits specified in the plan.
The Company did not make any contributions in 1995, 1996 or 1997.
NOTE 7. LEGAL MATTERS
The Company is a defendant in legal proceedings arising out of the conduct
of the Company's business. In the opinion of management, the ultimate outcome
of these legal proceedings will not have a material adverse affect on the
financial position or future results of operations and cash flows of the
Company.
NOTE 8. SUBSEQUENT EVENT--SALE OF BUSINESS
Effective January 1, 1998, the Company sold its rental fleet and certain
other tangible and intangible assets to Neff Corp., Miami, Florida, for $100.0
million cash. In addition, the purchaser assumed certain liabilities, as
defined in the purchase agreement, which consist principally of accounts
payable and accrued expenses. After the sale, the Company's assets consist of
cash, marketable securities, land, buildings and leasehold improvements. The
Company or other affiliated entities will rent certain real estate to Neff
Corp. under operating lease agreements.
The sale of net assets resulted in a significant gain, which will be
recorded in 1998. Subsequent to receipt of the sale proceeds the Company paid
off the entire balance of borrowings under its revolving loan agreement with
bank (see Note 3).
********
F-46
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
INTERNATIONAL PROSPECTUS COVER
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED , 1998
SHARES
NEFF CORP.
CLASS A COMMON STOCK
---------------
OF THE SHARES OF CLASS A COMMON STOCK OFFERED, SHARES ARE
BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND SHARES ARE BEING OFFERED INITIALLY IN
THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." ALL
OF THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY
THE COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
CLASS A COMMON STOCK OF THE COMPANY. SEE "UNDERWRITERS" FOR A DISCUSSION OF
THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
---------------
APPLICATION WILL BE MADE TO LIST THE CLASS A COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "NFF."
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
PRICE $ A SHARE
---------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
PER SHARE $ $ $
TOTAL(3) $ $ $
- -------
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT
$ .
(3) THE COMPANY HAS GRANTED U.S. UNDERWRITERS AN OPTION, EXERCISABLE WITHIN
30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF
ADDITIONAL SHARES OF CLASS A COMMON STOCK AT THE PRICE TO PUBLIC LESS
UNDERWRITING DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF COVERING
OVERALLOTMENTS, IF ANY. IF THE U.S. UNDERWRITERS EXERCISE SUCH OPTION IN
FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS
AND PROCEEDS TO COMPANY WILL BE $ , $ AND $
RESPECTIVELY. SEE "UNDERWRITERS."
---------------
THE SHARES OF CLASS A COMMON STOCK ARE OFFERED, SUBJECT TO PRIOR SALE,
WHEN, AS AND IF ACCEPTED BY THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO
APPROVAL OF CERTAIN LEGAL MATTERS BY CAHILL GORDON & REINDEL, COUNSEL FOR THE
UNDERWRITERS. IT IS EXPECTED THAT DELIVERY OF THE SHARES WILL BE MADE ON OR
ABOUT , 1998 AT THE OFFICE OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK,
N.Y., AGAINST PAYMENT THEREFOR IN IMMEDIATELY AVAILABLE FUNDS.
---------------
MORGAN STANLEY DEAN WITTER
BT ALEX. BROWN INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following sets forth expenses and costs payable by the Company (other
than underwriting discounts and commissions) expected to be incurred in
connection with the issuance and distribution of the securities described in
this Registration Statement. All amounts are estimated except for the SEC
registration fee and the NASD filing fee.
AMOUNT
--------------
Registration fee under Securities Act .......... $
NASD filing fee ................................
New York Stock Exchange fees ...................
Legal fees and expenses ........................
Accounting fees and expenses ...................
Blue Sky fees and expenses .....................
Printing and engraving expenses ................
Registrar and transfer agent fees ..............
Miscellaneous expenses .........................
-------------
Total ........................................ $
=============
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation provides that the Company shall
indemnify to the fullest extent authorized by the DGCL, each person who is
involved in any litigation or other proceeding because such person is or was a
director or officer of the Company, against all expense, loss or liability
reasonably incurred or suffered in connection therewith. The Company's
Certificate of Incorporation provides that a director or officer may be paid
expenses incurred in defending any proceeding in advance of its final
disposition upon receipt by the Company of an undertaking, by or on behalf of
the director or officer, to repay all amounts so advanced if it is ultimately
determined that such director or officer is not entitled to indemnification.
Section 145 of the DGCL permits a corporation to indemnify any director or
officer of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding brought by reason of
the fact that such person is or was a director or officer of the corporation,
if such person acted in good faith and in a manner that he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, if he had no reason to believe
his conduct was unlawful. In a derivative action, (I.E., one brought by or on
behalf of the corporation), indemnification may be made only for expenses,
actually and reasonably incurred by any director or officer in connection with
the defense or settlement of such an action or suit, if such person acted in
good faith and in a manner that he reasonably believed to be in or not opposed
to the best interests of the corporation, except that no indemnification shall
be made if such person shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which the action
or suit was brought shall determine that the defendant is fairly and reasonably
entitled to indemnity for such expenses despite such adjudication of liability.
Pursuant to Section 102(b)(7) of the DGCL, the Company's Certificate of
Incorporation eliminates the liability of a director to the corporation or its
stockholders for monetary damages for such breach of fiduciary duty as a
director, except for liabilities arising (i) from any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) from acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) from any
transaction from which the director derived an improper personal benefit.
II-1
<PAGE>
The Company intends to obtain primary and excess insurance policies
insuring the directors and officers of the Company and its subsidiaries against
certain liabilities they may incur in their capacity as directors and officers.
Under such policies, the insurer, on behalf of the Company, may also pay
amounts for which the Company has granted indemnification to the directors or
officers.
Additionally, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 hereto, which provide for indemnification by the Underwriters of
the Company, its directors and officers who sign the Registration Statement and
persons who control the Company, under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement,
the Company has issued securities in the following transactions, each of which
was intended to be exempt from the registration requirements of the Securities
Act by virtue of Section 4(2) thereunder.
On December 29, 1995, the Company issued warrants to GE Capital to acquire
2,257,362 shares of Common Stock pursuant to the terms of the Stock Purchase
Warrant dated as of December 29, 1995 between GE Capital and the Company.
On December 22, 1995, the Company issued 300,000 shares of Series A
Preferred Stock to GE Capital in consideration for the receipt of $12,000,000
pursuant to the terms of the Securities Purchase Agreement dated as of December
22, 1995 between GE Capital and the Company.
On December 30, 1996, GE Capital exercised the Stock Purchase Warrant
dated as of December 29, 1995 and acquired 2,257,362 shares of Common Stock,
which it exchanged, pursuant to the terms of the Securities Exchange Agreement
dated as of December 23, 1996 between GE Capital and the Company, for 800,000
shares of Series B Convertible Preferred Stock of the Company. Also, on December
30, 1996, GE Capital purchased 800,000 shares of Series C Convertible Preferred
Stock of the Company in exchange for consideration of $32,000,000 pursuant to
the terms of the Securities Purchase Agreement dated as of December 30, 1996
between GE Capital and the Company.
On March , 1998, GE Capital exchanged 800,000 shares of Series B
Preferred Stock and 800,000 shares of Series C Preferred Stock for shares
of Class B Common Stock, pursuant to the terms of the Securities Exchange
Agreement dated as of March , 1998 between GE Capital and the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as exhibits to this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Company, as amended and restated.*
3.2 By-Laws of the Company, as amended and restated.*
4.1 Form of Certificate of Common Stock.*
4.2 Registration Rights Agreement, between the Company and GE Capital, dated as of
December 29, 1995.*
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson.*
10.1 Amended and Restated Credit Agreement, by and among Neff Corp., Neff Machinery, Inc.
and Neff Rental, Inc., and General Electric Capital Corporation, as Agent, dated as of
December 31, 1997.*
10.2 Form of John Deere Light Industrial Equipment Dealer Agreement.*
10.3 Form of John Deere Light Industrial Equipment Security Agreement.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
10.4 Stock Purchase and Redemption Agreement by and among Neff Corp., Industrial Equipment
Rentals, Inc. and all of the Shareholders and Holders of Subordinated Debentures, dated
July 14, 1997.
10.5 The Asset Purchase Agreement by and among Richbourg's Sales & Rentals, Inc., Bruce E.
Richbourg and Neff Corp., dated December 23, 1997.
10.6 Amended and Restated Stockholders' Agreement by and among Neff Corp., General Electric
Capital Corporation, Jorge Mas, Jose Ramon Mas, Juan Carlos Mas, Kevin P. Fitzgerald,
Santos and Santos Capital, dated March 1998.*
21.1 Subsidiaries of the Company.
23.1 Consents of Deloitte & Touche, LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 5.1 above).
24.1 Power of Attorney (included on Signature Page of this Registration Statement).
27.1 Financial data schedule.
</TABLE>
- ----------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual reports pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) To provide to the Underwriters at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the
II-3
<PAGE>
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(3) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miami, State of Florida,
on March 16, 1998.
NEFF CORP.
By: /s/ KEVIN P. FITZGERALD
-------------------------------------
Kevin P. Fitzgerald
President and Chief Executive Officer
The undersigned directors and officers of Neff Corp. hereby constitute and
appoint Kevin P. Fitzgerald and Bonnie S. Biumi and each of them with full
power to act without the other and with full power of substitution and
resubstitution, our true and lawful attorneys-in-fact with full power to
execute in our name and behalf in the capacities indicated below this
Registration Statement on Form S-1 and any and all amendments thereto and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the SEC and hereby ratify and confirm all that such
attorneys-in-fact, or any of them, or their substitutes shall lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JORGE MAS Chairman of the Board March 16, 1998
- -------------------------------
Jorge Mas
/s/ KEVIN P. FITZGERALD President and Chief Executive Officer March 16, 1998
- ------------------------------- (Principal Executive Officer)
Kevin P. Fitzgerald
/s/ JOSE RAMON MAS Director March 16, 1998
- -------------------------------
Jose Ramon Mas
/s/ BONNIE S. BIUMI Chief Financial Officer March 16, 1998
- ------------------------------- (Principal Financial Officer and
Bonnie S. Biumi Accounting Officer)
</TABLE>
II-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Neff Corp.:
We have audited the financial statements of Neff Corp. and subsidiaries
(the "Company") as of December 31, 1996 and 1997, and for each of the three
years in the period ended December 31, 1997, and have issued our report thereon
dated March 11, 1998 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed in Item 16 of this
Registration Statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Miami, Florida
March 13, 1997
S-1
<PAGE>
SCHEDULE II
NEFF CORP.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
AT BEGINNING COSTS AND AT END
OF PERIOD EXPENSES OTHER DEDUCTIONS(1) OF PERIOD
-------------- ------------ ------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Classification
YEAR ENDED 12/31/95:
Allowance for doubtful accounts ......... $246 $270 $ -- $ (219) $ 297
==== ==== ===== ====== ======
YEAR ENDED 12/31/96:
Allowance for doubtful accounts ......... $297 $520 $ -- $ (442) $ 375
==== ==== ===== ====== ======
YEAR ENDED 12/31/97:
Allowance for doubtful accounts ......... $375 $957 $(240) $ -- $1,092
==== ==== ===== ====== ======
</TABLE>
- ----------------
(1) Deductions represent bad debt write-offs and adjustments to accumulated
amortization for assets sold.
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ----
<S> <C> <C>
10.4 Stock Purchase and Redemption Agreement by and among Neff Corp.,
Industrial Equipment Rentals, Inc. and all of the Shareholders and Holders of
Subordinated Debentures, dated July 14, 1997.
10.5 The Asset Purchase Agreement by and among Richbourg's Sales & Rentals, Inc.,
Bruce E. Richbourg and Neff Corp., dated December 23, 1997.
21.1 Subsidiaries of the Company.
23.1 Consents of Deloitte & Touche, LLP
23.2 Consent of Arthur Andersen LLP
27.1 Financial data schedule.
</TABLE>
EXHIBIT 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
OF
INDUSTRIAL EQUIPMENT RENTALS, INC.
----------------------------
JULY 14, 1997
----------------------------
<PAGE>
PAGE
----
ARTICLE I - SALE AND PURCHASE OF SHARES; REDEMPTION OF PREFERRED STOCK
AND PURCHASE AND CANCELLATION OF SUBORDINATED DEBENTURES......... 1
1.01 Sale and Purchase of Company Common Stock........................ 1
1.02 Tender and Redemption of Redemption Shares....................... 3
1.03 Surrender, Payment and Cancellation of Subordinated Debentures... 3
1.04 Payments at Closing.............................................. 4
1.05 Common Stock Purchase Price Adjustment........................... 5
1.06 Sellers' Representative.......................................... 6
1.07 Waivers and Consents............................................. 7
1.08 Timing........................................................... 7
ARTICLE II - CLOSING...................................................... 7
2.01 Closing.......................................................... 7
2.02 Deliveries by Sellers to the Buyer............................... 8
2.03 Deliveries by the Company........................................ 8
2.04 Deliveries by the Buyer.......................................... 9
2.05 Termination in Absence of Closing................................ 9
ARTICLE III- REPRESENTATIONS AND WARRANTIES
OF STOCKHOLDERS AND COMPANY...................................... 10
3.01 Corporate Existence and Qualification; Corporate Documents....... 10
3.02 Authority, Approval and Enforceability........................... 10
3.03 Capitalization and Ownership..................................... 10
3.04 Preemptive Rights; Registration Rights........................... 11
3.05 No Company Defaults or Consents.................................. 11
3.06 No Proceedings................................................... 12
3.07 Financial Statements............................................. 12
3.08 Liabilities and Obligations...................................... 12
3.09 Accounts Receivable.............................................. 12
3.10 Employee Matters................................................. 12
3.11 Employee Benefit Matters......................................... 13
3.12 Absence of Certain Changes....................................... 14
3.13 Commitments...................................................... 15
3.14 Insurance........................................................ 17
3.15 Patents, Trade-marks, Service Marks and Copyrights............... 17
3.16 Trade Secrets and Customer Lists................................. 18
3.17 Title to Assets; Condition of Assets............................. 18
3.18 Compliance with Laws............................................. 18
3.19 Litigation; Default.............................................. 18
3.20 Environmental Matters............................................ 19
3.21 Banks............................................................ 20
3.22 Suppliers and Customers Sales.................................... 20
3.23 Brokerage........................................................ 20
3.24 Disclosure; Due Diligence........................................ 20
3.25 Ownership Interests of Interested Persons........................ 20
3.26 Investments in Competitors....................................... 21
3.27 Certain Payments................................................. 21
3.28 Government Inquiries............................................. 21
3.29 Other Transactions............................................... 21
3.30 Tax Matters...................................................... 21
i
<PAGE>
PAGE
----
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF EACH SELLER................ 23
4.01 Title to the Shares.............................................. 23
4.02 Authority to Execute and Perform Agreement....................... 23
4.03 No Sellers Defaults or Consents.................................. 23
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF THE BUYER................... 24
5.01 Corporate Existence and Qualification............................ 24
5.02 Authority, Approval and Enforceability........................... 24
5.03 No Default or Consents........................................... 24
5.04 No Proceedings................................................... 24
5.05 Brokerage........................................................ 25
5.06 Representations and Warranties on Closing Date................... 25
ARTICLE VI - OBLIGATIONS PRIOR TO CLOSING................................. 25
6.01 Buyer's Access to Information and Assets......................... 25
6.02 Company's Conduct of Business and Operations..................... 25
6.03 General Restrictions............................................. 26
6.04 Notice Regarding Changes......................................... 27
6.05 Preferential Purchase Rights..................................... 27
6.06 Consents and Best Efforts........................................ 27
6.07 Termination of Insurance Policies................................ 27
6.08 Casualty Loss.................................................... 28
6.09 Employee Matters................................................. 28
6.10 No Solicitation.................................................. 28
6.11 Employment Agreements............................................ 28
6.12 Consulting Agreement............................................. 28
ARTICLE VII - CONDITIONS TO SELLERS' AND BUYER'S OBLIGATIONS.............. 29
7.01 Conditions to Obligations of All Parties......................... 29
7.02 Conditions to Obligations of Sellers............................. 29
7.03 Conditions to Obligations of the Buyer........................... 30
ARTICLE VIII - SURVIVAL; RELEASE OF ESCROW FUND........................... 31
8.01 Survival of Representations and Warranties of the Company and
the Stockholders................................................. 31
ARTICLE IX - INDEMNIFICATION.............................................. 32
9.01 Obligation of the Sellers to Indemnify........................... 32
9.02 Obligation of the Buyer to Indemnify............................. 32
9.03 Notice and Opportunity to Defend................................. 32
9.04 Limitations on Indemnification................................... 33
9.05 Set-Off Rights................................................... 34
ARTICLE X- POST-CLOSING OBLIGATIONS....................................... 35
10.01 Further Assurances............................................... 35
10.02 Publicity........................................................ 35
10.03 Access to Records................................................ 35
ii
<PAGE>
PAGE
----
ARTICLE XI - MISCELLANEOUS................................................ 35
11.01 Brokers.......................................................... 35
11.02 Costs and Expenses............................................... 35
11.03 Notices.......................................................... 36
11.04 Governing Law.................................................... 36
11.05 Representations and Warranties................................... 37
11.06 Entire Agreement, Amendments and Waivers......................... 37
11.07 Binding Effect and Assignment.................................... 37
11.08 Remedies......................................................... 37
11.09 Exhibits and Schedules........................................... 37
11.10 Multiple Counterparts............................................ 37
11.11 References....................................................... 37
11.12 Survival......................................................... 38
11.13 Attorneys' Fees.................................................. 38
ARTICLE XII - DEFINITIONS................................................. 39
12.01 Affiliate........................................................ 39
12.02 Collateral Agreements............................................ 39
12.03 Company Assets................................................... 39
12.04 Damages.......................................................... 39
12.05 Environmental Law................................................ 39
12.06 Governmental Authorities......................................... 40
12.07 Hazardous Substances............................................. 40
12.08 Knowledge........................................................ 40
12.9 Legal Requirements............................................... 40
12.10 Permits.......................................................... 40
12.11 Properties....................................................... 40
12.12 Proportionate Share.............................................. 40
12.13 Regulations...................................................... 40
12.14 Used............................................................. 40
iii
<PAGE>
LIST OF SCHEDULES
Schedule 3.01(a)......Certificate of Incorporation and By-laws of the
Company
Schedule 3.03(a)......Options, Warrants, Subscription Rights, Agreement
Relating to Company Capital Stock, and Accrued and
Unpaid Dividends
Schedule 3.03(b)......Capital Stock of the Subsidiary
Schedule 3.04.........Preemptive Rights
Schedule 3.05.........Company Defaults or Consents
Schedule 3.06.........Proceedings
Schedule 3.07.........Financial Statements
Schedule 3.08.........Liabilities and Obligations
Schedule 3.09.........Accounts Receivable
Schedule 3.10(a)......Compensation Plans
Schedule 3.10(b)......Compensation Plans
Schedule 3.10(c)......Employment Agreements
Schedule 3.10(f)......Compliance with Employment Laws
Schedule 3.10(h)......Continuation of Employment
Schedule 3.11.........Employee Benefit Plans
Schedule 3.12.........Absence of Certain Changes
Schedule 3.13.........Commitments
Schedule 3.15(a)......Proprietary Rights
Schedule 3.16.........Trade Secrets
Schedule 3.17(a)......Real Property Owned
Schedule 3.17(b)......Title to Company Assets
Schedule 3.17(c)......Real Property Leases
Schedule 3.19.........Litigation and Defaults
Schedule 3.20(a)......PCBs, TCE, PCE or Asbestos Containing Materials
Schedule 3.20(b)......Underground Storage Tanks
Schedule 3.20(c)......Releases of Hazardous Substances
Schedule 3.20(d)......Notices of Potential Liability
Schedule 3.20(e)......Hazardous Substances
Schedule 3.20(f)......Disposal and Recycling of Hazardous Substances
Schedule 3.21.........Banks, Accounts and Authorized Signatories
Schedule 3.22.........Suppliers and Customers
Schedule 3.23.........Brokers
Schedule 3.25.........Ownership Interests of Interested Persons
Schedule 3.27.........Certain Payments
Schedule 3.28.........Government Inquiries
Schedule 3.30.........Tax Matters
Schedule 4.03.........Sellers Defaults or Consents
Schedule 5.03.........Buyer Defaults or Consents
iv
<PAGE>
LIST OF EXHIBITS
Exhibit A-1 - Common Stockholders
Exhibit A-2 - Preferred Stockholders
Exhibit A-3 - Debenture Holders
Exhibit B - Escrow Agreement
Exhibit C - Employment Agreement between the Company and William G. Derenbecker
Exhibit D - Employment Agreement between the Company and Barry J. De Roche
Exhibit E - Employment Agreement between the Company and Donald G. Charbonnet
Exhibit F - Employment Agreement between the Company and George R. Gros
Exhibit G - Non-Competition Agreement between the Company and Robert T. Buckner
Exhibit H - Opinion of Baker & McKenzie
Exhibit I - Opinion of Latham & Watkins
v
<PAGE>
STOCK PURCHASE AND REDEMPTION AGREEMENT
This STOCK PURCHASE AND REDEMPTION AGREEMENT (the "Agreement")
is made and entered into as of July 14, 1997, by and among (i) NEFF CORP., a
Delaware corporation (the "Buyer"), (ii) INDUSTRIAL EQUIPMENT RENTALS, INC., a
Delaware corporation (the "Company"), (iii) each of the holders listed on
EXHIBIT A-1 hereto (the "Common Stockholders") of Common Stock, par value $0.01
per share ("Company Common Stock"), of the Company, (iv) each of the holders
listed on EXHIBIT A-2 hereto ("Preferred Stockholders and together with the
Common Stockholders, the "Stockholders") of (A) Junior Preferred Stock, par
value $100 per share ("Junior Preferred Stock"), of the Company, (B) Series A
Convertible Preferred Stock, par value $20 per share ("Series A Preferred
Stock"), of the Company and (C) Series B Preferred Stock, par value $3.70 per
share ("Series B Preferred Stock" and, together with the Series A Preferred
Stock and the Junior Preferred Stock, the "Redemption Shares"), of the Company,
and (v) each of the holders listed on EXHIBIT A-3 hereto (the "Debenture
Holders") of (A) the Company's 9% Subordinated Debentures (the "9% Debentures")
and (B) the Company's 12% Subordinated Debentures (the "12% Debentures" and,
together with the 9% Debentures, the "Subordinated Debentures") (the persons and
entities referred to in clauses (iii)-(v) above are hereinafter individually
referred to as a "Seller" and collectively as the "Sellers").
PRELIMINARY STATEMENT:
A. The Buyer desires to purchase all of the issued and outstanding
shares of Company Common Stock, and the Common Stockholders desire to sell such
Company Common Stock to the Buyer, upon the terms and subject to the conditions
set forth herein.
B. Contemporaneously with the consummation of the purchase and sale of
the Company Common Stock, (i) the Preferred Stockholders desire to tender to the
Company for redemption, and the Company desires to redeem, all of the issued and
outstanding Redemption Shares held by the Preferred Stockholders, and (ii) the
Debenture Holders desire to surrender to the Company for payment and
cancellation, and the Company desires to pay and cancel, all of the Subordinated
Debentures held by the Debenture Holders.
C. Capitalized terms used herein which have not been defined prior to
such use shall have the respective meanings given such terms in Article XII
hereof.
AGREEMENT
In consideration of the premises and the respective mutual agreements,
covenants, representations and warranties herein contained, the parties hereto
agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES; REDEMPTION OF PREFERRED STOCK AND PURCHASE
AND CANCELLATION OF SUBORDINATED DEBENTURES
SECTION 1.01. SALE AND PURCHASE OF COMPANY COMMON STOCK.
(a) On the terms and subject to the conditions of this
Agreement, at the Closing referred to in Section 2.01 hereof, each Common
Stockholder shall sell, transfer, convey and deliver to the Buyer, and the Buyer
shall purchase, acquire and accept from each Common Stockholder, the number of
shares of Company Common Stock set forth opposite the name of each such Common
Stockholder on
<PAGE>
EXHIBIT A-1 hereto under the heading "Number of Shares of Company Common Stock
Purchased", constituting all of the issued and outstanding shares of Company
Common Stock. The sale and purchase of the Company Common Stock pursuant to this
Agreement is sometimes hereinafter referred to as the "Stock Purchase."
(b) To effect the transfers contemplated by Section 1.01(a),
at the Closing, each Common Stockholder shall deliver, or cause to be delivered,
to the Sellers' Representative (as defined and provided for in Section 1.07
hereof), for redelivery to the Buyer, stock certificates representing the
Company Common Stock being sold by such Common Stockholder hereunder, together
with stock powers duly executed in blank or otherwise in proper form acceptable
to the Buyer for transfer to the Buyer on the books of the Company, against
payment therefor in accordance with Sections 1.04(a)(i) and 1.04(a)(ii) hereof.
(c) Upon the terms and subject to the conditions of this
Agreement, the aggregate purchase price (the "Stock Purchase Price") for (i) the
Company Common Stock being purchased by the Buyer from the Common Stockholders
hereunder and (ii) the Series B Preferred Stock being redeemed by the Company
pursuant to Section 1.02 (which Series B Preferred Stock will be treated as if
converted into Company Common Stock immediately prior to the Closing), shall be
an amount equal to:
(i) $51,676,693 (representing $63,950,000 less
(x) the Series A / Junior Preferred Stock
Redemption Price referred to in Section
1.02(d) below and (y) the Subordinated
Debenture Purchase Price referred to in
Section 1.03(c) below, PLUS
(ii) the excess, if any, of (x) the Company's
Working Capital (as defined below) as of the
Closing Date referred to in Section 2.01
hereof OVER (y) $5,119,624;
LESS the sum of:
(iii) the excess, if any, of (x) $5,119,624 OVER
(y) the Company's Working Capital as of the
Closing Date, PLUS
(iv) the Net Debt (as defined below) of the
Company as of the Closing Date.
That portion of the Stock Purchase Price (i) to be paid by the Buyer to the
Common Stockholders as set forth on EXHIBIT A-1 is referred to herein as the
"Common Stock Purchase Price" and (ii) to be paid by the Company to the holders
of shares of Series B Preferred Stock (the "Series B Stockholders") as set forth
on EXHIBIT A-1 is referred to herein as the "Series B Redemption Price." The net
amount of the adjustments required by Section 1.01(c) (ii), (iii) and (iv) is
hereinafter referred to as the "Preliminary Stock Purchase Price Adjustment.")
The Stock Purchase Price is subject to further adjustment as provided in Section
1.05.
As used in this Agreement, the Company's (i) "Working Capital" shall be
an amount equal to the excess, if any, of (A) total current assets minus cash,
over (B) the total current liabilities minus the sum of aggregate current
indebtedness and total accrued interest due and unpaid on indebtedness of the
Company and (ii) "Net Debt" shall be an amount equal to the sum of (A) the
outstanding amount of any of the interest bearing liabilities together with
accrued interest payable thereon and any prepayment penalties as of the Closing
Date (excluding therefrom the Redemption Shares and the Subordinated
Debentures), minus (B) cash in excess of $600,000, in each case as determined by
reference to the Company's Closing Date Unaudited Balance Sheet (as defined in
subparagraph (d) below).
2
<PAGE>
(d) The Common Stockholders shall cause to be prepared and
delivered to the Buyer at Closing (i) an unaudited consolidated balance sheet
for the Company forecasted as of the Closing Date (the "Closing Date Unaudited
Balance Sheet"), (ii) a calculation of the Preliminary Stock Purchase Price
Adjustment and (iii) a certificate executed by the Company's Controller to the
effect that the Closing Date Unaudited Balance Sheet has been prepared from the
books and records of the Company using those assumptions which the Company
believes are reasonable in light of the circumstances in which they were made.
SECTION 1.02 TENDER AND REDEMPTION OF REDEMPTION SHARES.
(a) On the terms and subject to the conditions of this
Agreement, at the Closing, contemporaneously with the Stock Purchase
contemplated by Section 1.01 and the payment and cancellation of Subordinated
Debentures contemplated by Section 1.03, each Preferred Stockholder shall tender
to the Company for redemption, and the Company shall redeem, the number and
series of Redemption Shares set forth opposite the name of such Preferred
Stockholder on EXHIBIT A-2 hereof under the headings "Number of Shares of Junior
Preferred Stock Redeemed," "Number of Shares of Series A Preferred Stock
Redeemed," and "Number of Shares of Series B Preferred Stock Redeemed",
constituting all of the issued and outstanding Redemption Shares.
(b) To effect the transfers contemplated by Section 1.02(a),
at the Closing, each Preferred Stockholder shall deliver, or cause to be
delivered, to the Company, stock certificates representing the Redemption Shares
being sold by such Preferred Stockholder hereunder, together with stock powers
duly executed in blank or otherwise in proper form acceptable to the Company for
transfer to the Company and cancellation on the books of the Company, against
payment therefor in accordance with Section 1.04(b)(i) hereof.
(c) The purchase price for the shares of Series B Preferred
Stock being redeemed by the Company from the Series B Stockholders shall be the
Series B Redemption Price set forth in Section 1.01(c).
(d) The purchase price for the shares of Series A Preferred
Stock and Junior Preferred Stock being redeemed by the Company from the
Preferred Stockholders shall be an aggregate of $4,063,818 (the "Series A /
Junior Preferred Stock Redemption Price").
(e) Upon such redemption by the Company as provided in this
Section 1.02 (the "Redemption"), all rights of each Preferred Stockholder with
respect to such shares of Junior Preferred Stock, Series A Preferred Stock and
Series B Preferred Stock to be so redeemed shall forthwith terminate and such
shares of Junior Preferred Stock, Series A Preferred Stock and Series B
Preferred Stock of the Company shall be retired and shall cease to exist.
SECTION 1.03 SURRENDER, PAYMENT AND CANCELLATION OF SUBORDINATED
DEBENTURES.
(a) On the terms and subject to the conditions of this
Agreement, at the Closing, contemporaneously with the Stock Purchase
contemplated by Section 1.01 and the Redemption contemplated by Section 1.02,
each Debenture Holder shall tender to the Company for payment and cancellation,
and the Company shall pay and cancel, the Subordinated Debentures set forth
opposite the name of each such Debenture Holder on EXHIBIT A-3 hereto under the
headings "9% Subordinated Debentures Canceled," and "12% Subordinated Debentures
Canceled." Such tender shall be effected by the delivery of the original 9%
Debentures, 12% Debentures or other debt instrument evidencing the indebtedness
of the Company to each such Debenture Holder under such instruments.
(b) To effect the transfers contemplated by Section 1.03(a),
at the Closing, each Debenture Holder shall deliver, or cause to be delivered,
to the Company, certificates representing the original Subordinated Debentures
being repaid by the Company hereunder, or otherwise in proper form
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acceptable to the Company for transfer to the Company and cancellation on the
books of the Company, against payment therefor in accordance with Section
1.04(b)(ii) hereof.
(c) The purchase price for the Subordinated Debentures being
purchased by the Company from the Debenture Holders shall be an aggregate of
$8,209,489 (the "Subordinated Debenture Purchase Price"), representing the
aggregate principal amount of, and all accrued and unpaid interest on, the
Subordinated Debentures as of the Closing Date.
(d) Upon payment for and cancellation of the Subordinated
Debentures as provided in this Section 1.03, all rights of each Debenture Holder
with respect to the Subordinated Debentures so to be canceled shall forthwith
terminate and such Subordinated Debentures shall cease to exist.
SECTION 1.04 PAYMENTS AT CLOSING. At the Closing, the following
payments shall be made by the Buyer and the Company as indicated below:
(a) PAYMENTS BY THE BUYER:
(i) the Buyer shall deliver to the Common
Stockholders to be allocated among the Common Stockholders as set forth on
EXHIBIT A-1 an aggregate amount equal to the Common Stock Purchase Price
(subject to adjustment under Sections 1.05 hereof) less that portion of the
Escrow Fund (as defined below) allocated to the Common Stockholders as set forth
in EXHIBIT A-1;
(ii) the Buyer and the Sellers' Representative shall
appoint an Escrow Agent and the Buyer shall deliver to the Escrow Agent an
aggregate amount of $3,500,000 (the "Escrow Fund") to be held in escrow in
accordance with the terms of an Escrow Agreement in the form of EXHIBIT B (the
"Escrow Agreement") among the Buyer, the Escrow Agent and each of the Common
Stockholders and Series B Stockholders; and
(iii) the Buyer shall deliver to the Company, as a
contribution to capital, an aggregate amount equal to (A) the Series B
Redemption Price less that portion of the Escrow Fund allocated to the Series B
Stockholders as set forth in EXHIBIT A-2, plus (B) the Series A / Junior
Preferred Stock Redemption Price plus (C) the Debenture Purchase Price.
(b) PAYMENTS BY THE COMPANY:
(i) The Company shall deliver to the Series B
Stockholders an aggregate amount equal to the Series B Redemption Price less
that portion of the Escrow Fund allocated to the Series B Stockholders as set
forth in EXHIBIT A-1;
(ii) The Company shall deliver to the Series A and
Junior Preferred Stockholders an aggregate amount of $4,063,818, representing
the Series A / Junior Preferred Stock Purchase Price, to be allocated among the
Series A and Junior Preferred Stockholders as set forth on EXHIBIT A-2; and
(iii) The Company shall deliver to the Debenture
Holders an aggregate amount of $8,209,489, to be allocated among the Debenture
Holders as set forth on EXHIBIT A-3.
(c) All payments required to be made pursuant to this Section
1.04 shall be made by wire transfer of immediately available funds to accounts
designated in writing by the Sellers, the Escrow Agent, the Company and the
Sellers' Representative, as the case may be.
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SECTION 1.05 STOCK PURCHASE PRICE ADJUSTMENT.
(a) No later than September 30, 1997, the Company shall, at
its expense, cause to be prepared and delivered to the Buyer, the Common
Stockholders and the Series B Stockholders (i) an audited consolidated balance
sheet for the Company dated as of the Closing Date (the "Closing Date Audited
Balance Sheet") prepared by Arthur Andersen LLP, the Company's independent
certified public accountants ("Sellers' Accountants"), in accordance with
generally accepted accounting principles ("GAAP") applied on a basis consistent
with those applied in the preparation of the Closing Date Unaudited Balance
Sheet and (ii) a calculation of the amount (the "Final Stock Purchase Price
Adjustment") by which the Preliminary Stock Purchase Price Adjustment exceeds or
is less than the Stock Purchase Price adjustments calculated on the basis of the
Closing Date Audited Balance Sheet.
(b) The following clauses (i) through (ii) set forth the
procedures for resolving disputes among the parties with respect to the
determination of the Final Stock Purchase Price Adjustment:
(i) Within thirty (30) days after delivery to the
Buyer of the calculation of the Final Stock Purchase Price Adjustment, the Buyer
may deliver to the Common Stockholders and Series B Stockholders a written
report (the "Buyer's Report") prepared by Deloitte & Touche L.L.P. (the "Buyer's
Accountants") advising the Common Stockholders and Series B Stockholders either
that the Buyer's Accountants (A) agree with the calculation of the Final Stock
Purchase Price Adjustment, or (B) believe that one or more adjustments are
required. The costs and expenses of the services of the Buyer's Accountants
shall be borne by the Buyer and the costs and expenses of the services of the
Sellers' Accountants (other than the costs and expenses of preparing the Closing
Date Audited Balance Sheet, which shall be borne by the Company as a
post-Closing expense) shall be borne by the Common Stockholders and Series B
Stockholders. If Sellers' Accountants shall concur with the adjustments proposed
by the Buyer's Accountants, or if the Common Stockholders and Series B
Stockholders shall not object thereto in a writing delivered to the Buyer within
thirty (30) days after the Common Stockholders' and Series B Stockholders
receipt of the Buyer's Report, the calculation of the Final Stock Purchase Price
Adjustment (as so adjusted as provided in the Buyer's Report) shall become final
and shall not be subject to further review, challenge or adjustment absent
fraud. If the Buyer does not submit the Buyer's Report within the 30-day period
provided herein, then the Final Stock Purchase Price Adjustment (as determined
by Sellers' Accountants) shall become final and shall not be subject to further
review, challenge or adjustment absent fraud.
(ii) In the event that the Buyer submits the Buyer's
Report and the Buyer's Accountants and Sellers' Accountants are unable to
resolve the disagreements set forth in such report within thirty (30) days after
the date of the Buyer's Report, then such disagreements shall be referred to a
recognized firm of independent certified public accountants experienced in
auditing heavy equipment rental companies and selected by mutual agreement of
Sellers' Accountants and the Buyer's Accountants (the "Settlement Accountants'),
and the determination of the Settlement Accountants shall be final and shall not
be subject to further review, challenge or adjustment absent fraud. In the event
that Sellers' Accountants and Buyer's Accountants cannot agree on the selection
of Settlement Accountants, the Settlement Accountants shall be selected by
lottery from among recognized firms of independent certified public accountants,
with preference being given to the "Big Six" accounting firms (other than
Buyer's Accountants or Sellers' Accountants), until one such firm is willing to
compute the Settlement Accountants' Final Adjustment. The Settlement Accountants
shall use their best efforts to reach a determination not more than forty-five
(45) days after such referral. The costs and expenses of the services of the
Settlement Accountants shall be paid by the Common Stockholders and Series B
Stockholders if (x) the difference between the Final Adjustment determined by
the Settlement Accountants (the "Settlement Accountants' Final Adjustment") and
the Final Adjustment set forth on the Sellers' Report is greater than (y) the
difference between the Settlement Accountants' Final Adjustment and the Final
Adjustment set forth on the Buyer's Report; otherwise, such costs and expenses
of the Settlement Accountants shall be paid by the Buyer.
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(c) Promptly after the final determination of the Final Stock
Purchase Price Adjustment or the Settlement Accountants' Final Adjustment, as
applicable, the amount thereof shall be (i) paid by the Buyer to the Sellers'
Representative to be allocated among the Common Stockholders and Series B
Stockholders in accordance their respective Proportionate Share in the event the
Stock Purchase Price determined pursuant to Section 1.01(c) using the Closing
Date Unaudited Balance Sheet (the "Preliminary Stock Purchase Price") is less
than the Stock Purchase Price determined pursuant to this Section 1.05 using the
Closing Date Audited Balance Sheet (the "Final Stock Purchase Price"), or (ii)
paid from the Escrow Fund to the Buyer in the event the Final Stock Purchase
Price determined pursuant to Section 1.01(c) is less than the Preliminary Stock
Purchase Price, provided however, if the amount of the Final Stock Adjustment or
Settlement Accountants' Final Adjustment exceeds the Escrow Amount or the
portion thereof remaining at the time payment pursuant to this Section 1.05(c)
is required to be made, the balance of the Final Adjustment or Settlement
Accountants' Final Adjustment, as the case may be, shall be paid to the Buyer by
each Common Stockholder and Series B Stockholder in accordance with its, his or
her Proportionate Share.
SECTION 1.06 SELLERS' REPRESENTATIVE.
(a) As used in this Agreement, the "Sellers' Representative"
shall mean Michael Rakestraw or any person appointed as a successor Sellers'
Representative pursuant to Section 1.06(b) hereof.
(b) During the period ending upon the date when all
obligations under this Agreement have been discharged (including all
indemnification obligations hereunder and all obligations under the Escrow
Agreement), the Sellers who, immediately prior to the Effective Time, held
Company Common Stock representing an aggregate number of shares of Company
Common Stock which exceeded 50% of the amount of such Company Common Stock
outstanding immediately prior to the Effective Time (a "Majority"), may, from
time to time upon written notice to the Sellers' Representative and Buyer,
remove the Sellers' Representative or appoint a new Sellers' Representative to
fill any vacancy created by the death, incapacitation, resignation or removal of
the Sellers' Representative. Furthermore, if the Sellers' Representative dies,
becomes incapacitated, resigns or is removed by a Majority, the Majority shall
appoint a successor Sellers' Representative to fill the vacancy so created. If
the Majority is required to but has not appointed a successor Sellers'
Representative within 20 business days from a request by Buyer to appoint a
successor Sellers' Representative, the Buyer shall have the right to appoint a
Sellers' Representative to fill any vacancy so created, and shall advise all
those who were holders of Company Common Stock immediately prior to the
Effective Time of such appointment by written notice. A copy of any appointment
by the Majority of any successor Sellers' Representative shall be provided to
Buyer promptly after it shall have been effected.
(c) The Sellers' Representative shall be authorized, upon
approval by a Majority, to take any action and to make and deliver any
certificate, notice, consent or instrument required or permitted to be made or
delivered under this Agreement or under the documents referred to in this
Agreement (an "Instrument") which the Sellers' Representative determines to be
necessary, appropriate or desirable, and, in connection therewith, to hire or
retain, at the sole expense of the Common Stockholders, such counsel, investment
bankers, accountants, representatives and other professional advisors as he
determines in his sole and absolute discretion to be necessary, advisable or
appropriate in order to carry out and perform his rights and obligations
hereunder. The Stockholders hereby grant each of the Sellers' Representatives
the right and power to execute the Escrow Agreement on their behalf with such
changes or amendments thereto as the Sellers' Representative, or either of them,
shall determine to be necessary or desirable in their sole and absolute
discretion. Any party receiving an Instrument from the Sellers' Representative
shall have the right to rely in good faith upon such Instrument, and to act in
accordance with the Instrument without independent investigation.
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(d) Buyer shall have no liability to any Common Stockholder or
otherwise arising out of the acts or omissions of the Sellers' Representative or
any disputes among the Common Stockholders or with the Sellers' Representative.
Buyer may rely entirely on its dealings with, and notices to and from, the
Shareholder Representatives to satisfy any obligations it might have under this
Agreement, any agreement referred to herein or otherwise to the Common
Stockholder.
(e) The Common Stockholders shall indemnify, defend and hold
harmless the Sellers' Representative from and against any and all claims,
demands, actions, suits, causes of action, damages, costs and expenses
(including, without limitation, attorneys' fees) (collectively, "Claims") which
are hereafter made, sustained or brought against the Sellers' Representative by
any person arising out of the acts or omissions of the Sellers' Representative
or any disputes among the Common Stockholders, unless such Claims allegedly
occurred as a result of the willful misconduct or negligence by the Sellers'
Representative.
SECTION 1.07 WAIVERS AND CONSENTS.
(a) Each Seller is a signatory to one or more of the following
documents: Industrial Equipment Rentals, Inc. Stockholders Agreement, dated as
of July 17, 1995 (the "Stockholders Agreement"), that certain Securities
Purchase Agreement by and among Industrial Equipment Rentals, Inc. and
NationsBanc Capital Corporation and Equus II, Inc. and Premier Venture Capital
Corporation, dated as of July 17, 1995 (the "1995 Agreement"), and The
Industrial Equipment Rentals, Inc. Purchase Agreement, dated as of June 18, 1993
(the "1993 Agreement").
(b) Each Seller consents to the transactions described in this
Agreement and waives, as of the Closing, any rights it may have pursuant to the
Stockholders Agreement, the 1995 Agreement and the 12% Debentures issued
thereunder, and the 1993 Agreement and the 9% Debentures issued thereunder,
including, without limitation, rights pursuant to Sections 2 and 3 of the
Stockholders Agreement, Section 5.2(d) of the 1993 Agreement, Section 4.5 of the
1995 Agreement and Section 11(d) of the 9% Debentures.
SECTION 1.08 TIMING. The Closing of each of the purchase and redemption
transactions contemplated by this Agreement is conditioned upon the closing of
all of the other purchase and redemption transactions contemplated by this
Agreement. However, for purposes of the Closing, Buyer's purchase of the Common
Stock shall be deemed to have occurred immediately prior to its contribution of
cash for payment by the Company of the purchase of the Preferred Stock and the
Subordinated Debentures, which contribution shall be deemed to have occurred
immediately prior to the purchase of such Preferred Stock and Subordinated
Debentures.
ARTICLE II
CLOSING
SECTION 2.01 CLOSING. Subject to the satisfaction of the conditions
stated in Article VII of this Agreement, the closing of the transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m., Miami time, on
July 31, 1997 or, if the conditions set forth in Sections 7.01 through 7.03 have
not been satisfied or waived on such date, no later than seven (7) days after
all such conditions shall have been satisfied or waived, at the offices of Baker
& McKenzie, 701 Brickell Avenue, Suite 1600, Miami, Florida 33131 (or, at the
request of the Buyer, at the offices of legal counsel to the lender providing
financing in connection with the transactions contemplated hereby), unless
another date or place is agreed to in writing by the parties hereto. The date
upon which the Closing occurs is hereinafter referred to as the "Closing Date."
The Closing shall be deemed completed as of 11:59 p.m. Miami time on the night
of the Closing Date, and all transactions described in Article I hereof shall be
deemed to have occurred concurrently.
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SECTION 2.02 DELIVERIES BY SELLERS TO THE BUYER. At or prior to the
Closing, the Sellers shall deliver to the Buyer (or to the Sellers'
Representative for re-delivery to the Buyer):
(i) certificates representing all of the
outstanding shares of the Company Common
Stock, duly endorsed in blank for transfer,
or with appropriate stock powers in blank
attached;
(ii) certificates representing all of the
outstanding shares of Junior Preferred
Stock, Series A Preferred Stock and Series B
Preferred Stock, duly endorsed in blank with
all signatures guaranteed and all requisite
stock transfer taxes paid and stamps
affixed;
(iii) the original 9% Debentures and 12%
Debentures;
(iv) the resignations of all members of the board
directors of the Company and the Subsidiary
as set forth in Section 7.03(l);
(v) the stock books, stock ledgers, minute books
and corporate seals of the Company and the
Subsidiary;
(vi) a certificate executed by the Company to the
effect that the conditions set forth in
Sections 7.03(d) through 7.03(g), have been
satisfied;
(vii) the opinion of counsel set forth in Section
7.03(h);
(viii) the executed Escrow Agreement as set forth
in Section 7.03(i);
(ix) the executed Employment Agreements as set
forth in Section 6.11 and 7.03(j);
(x) the executed Non-Competition Agreement as
set forth in Section 6.12 and 7.03(k); and
(xi) evidence of the consents required pursuant
to Section 7.03(n).
SECTION 2.03 DELIVERIES BY THE COMPANY.
(a) At or prior to Closing, the Company shall deliver by
wire transfer in immediately available funds:
(i) to the Preferred Stockholders, the payment
described in Section 1.04(b)(i) as being
required to be paid by the Company at
Closing; and
(ii) to the Debenture Holders, the payment
described in Section 1.04(b)(ii) as being
required to be paid by the Company.
(b) At or prior to the Closing, the Company shall deliver
to the Buyer:
(i) evidence of the redemption and cancellation
of the Redemption Shares; and
(ii) evidence of the cancellation and payment of
the Subordinated Debentures.
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SECTION 2.04 DELIVERIES BY THE BUYER.
(a) At or prior to the Closing, the Buyer shall deliver to the
Sellers' Representative:
(i) by wire transfer in immediately available
funds to the Common Stockholders, the
payment described in Section 1.04(a)(i) as
being required to be paid by the Buyer at
Closing;
(ii) a certified copy of all necessary corporate
action on the Buyer's behalf approving its
execution, delivery and performance of this
Agreement pursuant to Section 7.02(a);
(iii) a certificate executed by an authorized
officer of the Buyer on behalf of the Buyer
to the effect that the conditions set forth
in Sections 7.02(b) and 7.02(c) have been
satisfied;
(iv) the opinion of counsel set forth in Section
7.02(d); and
(v) the executed Escrow Agreement as set forth
in Section 7.02(e).
(b) At or prior to the Closing, the Buyer shall deliver the
Escrow Fund to the Escrow Agent, by cashiers or other official bank check(s) or
by bank or wire transfer in immediately available funds.
(c) At or prior to Closing, the Buyer shall deliver to the
Company, as a capital contribution, the sum of (i) the Preferred Stock Payment
plus (ii) the Subordinated Debenture Payment, by cashier's or other official
bank check(s) or by bank or wire transfer in immediately available funds.
SECTION 2.05 TERMINATION IN ABSENCE OF CLOSING.
(a) Subject to the provisions of Section 2.03(b), if by the
close of business on August 31, 1997, the Closing has not occurred then any
party hereto may thereafter terminate this Agreement by written notice to such
effect, to the other parties hereto, without liability of or to any party to
this Agreement or any shareholder, director, officer, employee or
representatives of such party unless the reason for Closing having not occurred
is (i) such party's willful breach of the provisions of this Agreement, or (ii)
if all of the conditions to such party's obligations set forth in Article VII
have been satisfied or waived in writing by the date scheduled for the Closing
pursuant to Section 2.01, the failure of such party to perform its obligations
under this Article II on such date; provided, however, that the provisions of
Sections 9 and 10 of that certain letter of intent (the "Letter of Intent")
dated May 30, 1997 between the Buyer, and the Company and the Subsidiary shall
survive any such termination; and provided further, however, that any
termination pursuant to this Section 2.05 shall not relieve any party hereto who
was responsible for Closing having not occurred as described in clauses (i) or
(ii) above of any liability for (x) such party's willful breach of the
provisions of this Agreement, or (y) if all of the conditions to such party's
obligations set forth in Article VII have been satisfied or waived in writing by
the date scheduled for the Closing pursuant to Section 2.01, the failure of such
party to perform its obligations under this Article II on such date.
(b) Any Schedule referred to in this Agreement that was not
furnished to the Buyer (including copies of all instruments, if any, referred to
therein) at least five days prior to the date of this Agreement is noted on the
face thereof as being a "Section 2.05(b) Schedule." Notwithstanding any other
provision of this Agreement, the Buyer shall have the right to terminate this
Agreement without liability to any party by so notifying the Sellers at any time
within seven days after the date of this Agreement if, in the Buyer's sole
discretion, any Section 2.05(b) Schedule (or any instrument referred to therein)
contains
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or refers to any matter that, or may cause or lead to any result that, in the
Buyer's sole discretion and judgment, is adverse to the Buyer in any way,
provided, however, that the provisions of Sections 9 and 10 of the Letter of
Intent shall survive any such termination.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer that:
SECTION 3.01 CORPORATE EXISTENCE AND QUALIFICATION: CORPORATE
DOCUMENTS.
(a) Each of the Company and Buckner Rental Services, Inc., a
wholly-owned subsidiary of the Company (the "Subsidiary"), is a corporation duly
organized, validly existing and in good standing under the laws of Delaware, and
is not required to be qualified to do business as a foreign corporation in any
other jurisdiction where the failure to so qualify would have a material adverse
effect on the Company and the Subsidiary, taken as a whole. The Company and the
Subsidiary have all required corporate power and authority to own their
respective properties and to carry on their respective businesses as presently
conducted. The Company has all required corporate power and authority to execute
and deliver this Agreement and the documents, instruments and agreements
contemplated hereby. The Certificate of Incorporation and By-laws of the Company
and the Subsidiary, copies of which are attached as Schedule 3.01(a), are
complete and reflect all amendments thereto through the date hereof.
(b) The stock and minute books of the Company and the
Subsidiary that have been made available to the Buyer for review contain a
complete and accurate record of all stockholders of the Company and Subsidiary,
respectively, and all material actions of the stockholders and directors (and
any committees thereof) of the Company and the Subsidiary, respectively.
(c) Except for the Subsidiary, the Company does not have any
subsidiaries, participate in any partnership or joint venture, or own any
outstanding capital stock of any other corporation.
SECTION 3.02 AUTHORITY, APPROVAL AND ENFORCEABILITY. This Agreement has
been duly executed and delivered by the Company, and the Company has all
requisite power and legal authority to execute and deliver this Agreement and
all Collateral Agreements executed and delivered or to be executed and delivered
in connection with the transactions provided for hereby, to consummate the
transactions contemplated hereby and by the Collateral Agreements, and to
perform its obligations hereunder and under the Collateral Agreements. This
Agreement and each Collateral Agreement to which any of the Company is a party
constitutes, or upon execution and delivery will constitute, the legal, valid
and binding obligation of the Company, enforceable in accordance with its terms,
except as such enforceability may be limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally, and except as the availability of
equity remedies may be limited by the application of general principles of
equity (regardless of whether such equitable principles are applied in a
proceeding at law or in equity).
SECTION 3.03 CAPITALIZATION AND OWNERSHIP.
(a) As of the date of this Agreement, the entire authorized
capital stock of the Company consists of 2,000,000 shares of Company Common
Stock and 900,000 shares of Preferred Stock, of which 19,000 shares have been
designated as Junior Preferred Stock, 107,500 shares have been designated as
Series A Preferred Stock and 495,000 shares have been designated as Series B
Preferred Stock. The issued and outstanding shares of Company Common Stock,
Junior Preferred Stock,
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Series A Preferred Stock and Series B Preferred Stock are owned of record and,
to the knowledge of the Company, beneficially, by the Stockholders shown on
EXHIBITS A-1 through A-3 hereof. All of the presently outstanding shares of
capital stock of the Company have been validly authorized and issued and are
fully paid and nonassessable. Except as provided in Schedule 3.03(a), the
Company has not issued any other shares of its capital stock and there are no
outstanding options, warrants, subscriptions or other rights or obligations to
purchase or acquire any of such shares, nor any outstanding securities
convertible into or exchangeable for such shares. Except as disclosed on
Schedule 3.03(a) or as contemplated under this Agreement, there are no
agreements to which the Company is a party or has knowledge regarding the
issuance, registration, voting or transfer of its outstanding shares of its
capital stock. Except as set forth on Schedule 3.03(a), no dividends are accrued
but unpaid on any capital stock of the Company.
(b) The authorized and issued capital stock of the Subsidiary
and the names and ownership interest of each holder of such capital stock is as
set forth in Schedule 3.03(b). Except as set forth on Schedule 3.03(b), there
are no outstanding shares of capital stock of the Subsidiary and there are no
options, warrants, subscriptions or other rights or obligations to purchase or
acquire any of such shares of capital stock, nor any outstanding securities
convertible into or exchangeable for such shares. There is no agreement pending
or contemplated to which the Subsidiary is a party regarding the issuance,
registration, voting or transfer of any shares of capital stock of the
Subsidiary.
SECTION 3.04 PREEMPTIVE RIGHTS; REGISTRATION RIGHTS. Except as set
forth in Schedule 3.04, there are no preemptive rights affecting the issuance or
sale of the Company's capital stock. Immediately following the Closing, the
Company will not be under any contractual obligation to register (in compliance
with the filing requirements and being deemed effective under any applicable
federal or state securities laws and the rules and regulations promulgated
thereunder) any of its presently outstanding securities or any of its securities
which may hereafter be issued.
SECTION 3.05 NO COMPANY DEFAULTS OR CONSENTS. Except as otherwise set
forth in Schedule 3.05 attached hereto, neither the execution and delivery of
this Agreement nor the carrying out of the transactions contemplated hereby
will:
(i) violate or conflict with any of the terms,
conditions or provisions of the certificate of incorporation or bylaws of the
Company or the Subsidiary;
(ii) violate any Legal Requirements applicable to the
Company or the Subsidiary;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any Contract or Permit
applicable to the Company or the Subsidiary;
(iv) result in the creation of any lien, charge or
other encumbrance on the shares of capital stock or any Property of the Company
or the Subsidiary; or
(v) require any of the Sellers, the Company or the
Subsidiary to obtain or make any waiver, consent, action, approval or
authorization of, or registration, declaration, notice or filing with, any
private non-governmental third party or any Governmental Authority. Any and all
consents required to be obtained by the Company and the Subsidiary as set forth
in Schedule 3.05 shall be obtained and copies thereof delivered to the Buyer
upon execution of this Agreement;
except in the case of each of clauses (ii)-(v) for any such conflicts,
violations, breaches, defaults or other occurrences which would not,
individually or in the aggregate, result in a material adverse effect on the
Company.
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SECTION 3.06 NO PROCEEDINGS. Except as set forth on Schedule 3.06, no
suit, action or other proceeding is pending or, to the Knowledge of the Company,
threatened before any Governmental Authority seeking to restrain any of the
Stockholders or prohibit their entry into this Agreement or prohibit the
Closing, or seeking damages against the Company or the Subsidiary, or their
respective Properties, as a result of the consummation of this Agreement.
SECTION 3.07 FINANCIAL STATEMENTS. Attached as Schedule 3.07 are true
and correct copies of the Company's and Subsidiary's unaudited balance sheets at
April 30, 1997 (the "Interim Balance Sheet") and the related statements of
income, stockholders' equity and cash flow for the nine months ended April 30,
1997 (the "Interim Financial Statements"), as well as the Company's and
Subsidiary's balance sheet and statements of income, stockholders' equity and
cash flow as of and for the fiscal year ended July 31, 1996 (the "Audited 1996
Financial Statements"). The foregoing financial statements (collectively the
"Financial Statements") (i) have been prepared from the books and records of the
Company and Subsidiary, (ii) present fairly the financial condition of the
Company and Subsidiary and its results of operations as at and for the
respective periods then ended, and (iii) have been prepared in accordance with
generally accepted accounting principles applied consistently throughout the
periods indicated (except for the omission of footnotes in the Interim Financial
Statements).
SECTION 3.08 LIABILITIES AND OBLIGATIONS. Except as set forth in
Schedule 3.08, the Financial Statements reflect all liabilities of the Company
and the Subsidiary as determined in accordance with generally accepted
accounting principles arising out of transactions effected or events occurring
on or prior to the date of the Interim Balance Sheet, except for liabilities not
exceeding $10,000 in the aggregate. All reserves shown in the Financial
Statements are appropriate and reasonable to provide for losses thereby
contemplated. Except as set forth in the Financial Statements, neither the
Company nor the Subsidiary is liable upon or with respect to, or obligated in
any other way to provide funds in respect of or to guarantee or assume in any
manner, any debt, obligation or dividend of any person, corporation,
association, partnership, joint venture, trust or other entity.
SECTION 3.09 ACCOUNTS RECEIVABLE. Except as otherwise set forth in
Schedule 3.09, the accounts receivable reflected on the Interim Balance Sheet
and all accounts receivable arising between April 30, 1997 and the date hereof,
arose from bona fide transactions in the ordinary course of business, and the
goods and services involved have been sold, delivered and performed to the
account of the obligors, and no further filings (with Governmental Authorities,
insurers or others) are required to be made, no further goods are required to be
provided and no further services are required to be rendered in order to
complete the sales and fully render the services and to entitle the Company or
the Subsidiary to collect the accounts receivable in full. Except as set forth
in Schedule 3.09, no such account has been assigned or pledged to any other
person, firm or corporation, and, except only to the extent fully reserved
against as set forth in the Interim Balance Sheet, no defense or setoff to any
such account has been asserted by the account obligor.
SECTION 3.10 EMPLOYEE MATTERS.
(a) Schedule 3.10(a) contains a complete and accurate list of
the names, titles and compensation of all executive officers of the Company and
the Subsidiary, regardless of compensation levels, and other employees who are
currently compensated at a rate in excess of $100,000 per year (including any
reasonably anticipated bonus) or who earned in excess of $100,000 during the
Company's fiscal year ended July 31, 1996 (collectively, the "Key Employees").
In addition, Schedule 3.10(a) contains a complete and accurate description of
(i) all increases in compensation of the Key Employees of the Company and the
Subsidiary during the fiscal years of the Company and the Subsidiary ending July
31, 1996 and July 31, 1995, respectively, and (ii) any promised increases in
compensation of the Key Employees of the Company and the Subsidiary that have
not yet been effected.
(b) Schedule 3.10(b) contains a complete and accurate list of
all Compensation Plans sponsored by the Company or the Subsidiary or to which
the Company or the Subsidiary
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contributes on behalf of its employees, other than Employee Benefit Plans listed
in Schedule 3.11. As used herein, "Compensation Plans" shall mean and include,
without limitation, plans, arrangements or practices that provide for severance
pay, deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
(c) Schedule 3.10(c) contains a complete and accurate list of
all Employment Agreements. As used herein "Employment Agreements" shall mean and
include, without limitation, employee leasing agreements, employee services
agreements and noncompetition agreements.
(d) The Company has provided the Buyer with a complete and
accurate list of all significant written employee policies and procedures.
(e) To the Knowledge of the Company, no unwritten material
amendments have been made, whether by oral communication, pattern of conduct or
otherwise, with respect to any Compensation Plans, Employment Agreements or
employee policies and procedures.
(f) Except as set forth in Schedule 3.10(f), the Company and
the Subsidiary (i) have been and are in material compliance with all laws,
rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours, and (ii) are
not liable in any material amount for any arrears of wages or penalties for
failure to comply with any of the foregoing. Neither the Company nor the
Subsidiary has engaged in any unfair labor practice or discriminated on the
basis of race, color, religion, sex, national origin, age or handicap in its
employment conditions or practices. To the Knowledge of the Company, there are
no (i) material unfair labor practice charges or complaints or racial, color,
religious, sex, national origin, race or handicap discrimination charges or
complaints pending or threatened against the Company or the Subsidiary before
the National Labor Relations Board or any similar state or foreign commission or
agency or (ii) existing or threatened material labor strikes, disputes,
grievances, controversies or other labor troubles affecting the Company or the
Subsidiary.
(g) Neither the Company nor the Subsidiary have ever been a
party to any agreement with any union, labor organization or collective
bargaining unit. No employees of the Company or the Subsidiary are represented
by any union, labor organization or collective bargaining unit. To the Knowledge
of the Company, the employees of the Company and the Subsidiary have not
threatened to organize or join a union, labor organization or collective
bargaining unit.
(h) Except as disclosed on Schedule 3.10(h), no member of
executive management of the Company or the Subsidiary has indicated his or her
desire or intent to terminate employment with the Company or the Subsidiary, and
neither the Company nor the Subsidiary has any present intent of terminating any
member of management.
SECTION 3.11 EMPLOYEE BENEFIT MATTERS.
(a) Schedule 3.11 contains a complete and accurate list of all
Employee Benefit Plans sponsored by the Company or the Subsidiary or to which
the Company or the Subsidiary contributes on behalf of its employees and all
Employee Benefit Plans previously sponsored or contributed to on behalf of its
employees within the three years preceding the date hereof. No unwritten
amendment exists with respect to any Employee Benefit Plan. For purposes of this
Agreement an "Employee Benefit Plan" means each employee benefit plan, as such
term is defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").
(b) Each Employee Benefit Plan has been administered and
maintained in compliance with all laws, rules and regulations, except for such
noncompliance that would not have a material adverse effect on the Company. No
Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency.
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No prohibited transactions (within the meaning of Section 4975 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(the "Code")) have occurred with respect to any Employee Benefit Plan. No
pending or, to the Knowledge of the Company, threatened, claims, suits or other
proceedings exist with respect to any Employee Benefit Plan other than normal
benefit claims filed by participants or beneficiaries.
(c) The Company has received a favorable determination letter
or ruling from the Internal Revenue Service for each Employee Benefit Plan
intended to be qualified within the meaning of Section 401 (a) of the Code
and/or tax exempt within the meaning of Section 501(a) of the Code, which letter
or ruling is current and covers all required amendments to each such Employee
Benefit Plan through the Closing Date. No proceedings exist or, to the Knowledge
of the Company, have been threatened that could result in the revocation of any
such favorable determination letter or ruling.
(d) No accumulated funding deficiency (within the meaning of
Section 412 of the Code), whether waived or unwaived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a "controlled
group" (as defined in Section 414(b) of the Code ("Controlled Group"). With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal in value to the present value of accrued
benefits determined on an ongoing basis as of the date hereof. With respect to
each Employee Benefit Plan described in Section 501(c)(9) of the Code, the
assets of each such plan are at least equal in value to the present value of
accrued benefits as of the date hereof. Neither the Company nor the Subsidiary
or any member of a Controlled Group has any liability to pay excise taxes with
respect to any Employee Benefit Plan under applicable provisions of the Code or
ERISA. Neither the Company nor the Subsidiary nor any member of a Controlled
Group is or ever has been obligated to contribute to a multiemployer plan within
the meaning of Section 3(37) of ERISA.
(e) No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) Neither the Company nor the Subsidiary has any obligation
or commitment to provide medical, dental or life insurance benefits to or on
behalf of any of its employees who may retire or any of its former employees who
have retired from employment with the Company or the Subsidiary.
SECTION 3.12 ABSENCE OF CERTAIN CHANGES. Except as set forth in
Schedule 3.12, from the date of the Interim Balance Sheet to the date of this
Agreement, neither the Company nor the Subsidiary has:
(a) suffered any material adverse change, whether or not
caused by any deliberate act or omission of the Company, the Subsidiary or any
stockholder of the Company, in its condition (financial or otherwise),
operations, assets, liabilities, business or prospects;
(b) contracted for the purchase of any capital assets having a
cost in excess of $50,000 or paid any capital expenditures in excess of $50,000,
except in the ordinary course of business consistent with past practices;
(c) incurred any indebtedness for borrowed money or issued or
sold any debt securities, except in the ordinary course of business;
(d) incurred or discharged any liabilities or obligations
except in the ordinary course of business;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business;
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(f) mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its Properties or Company
Assets, except in the ordinary course of business;
(g) suffered any damage or destruction to or loss of any
Company Assets (whether or not covered by insurance) that has materially
adversely affected, or could materially adversely affect, its business;
(h) acquired or disposed of any Company Assets except in the
ordinary course of business;
(i) written up or written down the carrying value of any of
the Company Assets, except in the ordinary course of business;
(j) changed any accounting principles methods or practices
followed or changed the costing system or depreciation methods of accounting for
the Company Assets;
(k) waived any material rights or forgiven any material
claims;
(l) lost, terminated or experienced any change in the
relationship with any employee, customer, joint venture partner or supplier,
which termination or change has materially and adversely affected, or could
reasonably be expected to materially and adversely affect, its business or
Company Assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business;
(o) made any payments to or loaned any money to any person or
entity except in the ordinary course of business;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such rights or, except
pursuant to the terms of existing preferred stock of the Company, paid any
dividends or made any distribution to the holders of the Company's capital
stock;
(r) entered into any material agreement with any person or
group, or modified or amended in any material respect the terms of any material
existing agreement except in the ordinary course of business;
(s) entered into, adopted or amended any Employee Benefit
Plan; or
(t) entered into any agreement (written or oral) to do any of
the foregoing, except in the ordinary course of business consistent with past
practice.
SECTION 3.13 COMMITMENTS. Except the material contracts, agreements,
commitments and other arrangements, whether oral or written, to which the
Company or the Subsidiary is a party (the "Contracts") set forth in Schedule
3.13, neither the Company nor the Subsidiary has entered into, nor is
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the capital stock, the assets or the business of the Company or the Subsidiary
bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement,
except in the ordinary course of business
(iii) guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iv) employment, consulting or compensation agreement
or arrangement, including the election or retention in office of any director or
officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another, except in the ordinary course of business;
(vii) deed or other document evidencing an interest
in or contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission
agents, investment bankers, financial advisors, business brokers, public
relations or advertising agencies, accountants or attorneys, except with respect
to confidentiality agreements;
(ix) lease of real or personal property, whether as
lessor, lessee, sublessor or sublessee, except in the ordinary course of
business and excluding the real estate leases set forth on Schedule 3.18(c);
(x) agreement between the Company and any Affiliate;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
affiliate of the Company;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than $50,000
in the aggregate, except in the ordinary course of business;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that involves
either an unperformed commitment in excess of $50,000 or that terminates more
than thirty (30) days after the date hereof, except in the ordinary course of
business;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity referred to in
Section 3.27;
(xvii) agreement providing for the purchase from a
supplier of all or substantially all of the requirements of the Company or the
Subsidiary of a particular product where such product accounts for more than 10%
of the Company's or the Subsidiary's gross inventory; or
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(xviii) any other agreement or commitment not made in
the ordinary course of business that is material to the business or financial
condition of the Company or the Subsidiary.
True, correct and complete copies of the written Contracts, and true, correct
and complete written descriptions of the oral Contracts, have heretofore been
delivered or made available to the Buyer. There are no existing material
defaults, material events of default or events, occurrences, acts or omissions
that, with the giving of notice or lapse of time or both, would constitute
material defaults by the Company or the Subsidiary, and no material penalties
have been incurred nor are amendments pending, with respect to the Contracts.
The Contracts are in full force and effect and are valid and enforceable
obligations of the Company or the Subsidiary, except as such enforceability may
be limited by any applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally,
and except as the availability of equity remedies may be limited by the
application of general principles of equity (regardless of whether such
equitable principles are applied in a proceeding at law or in equity). Neither
the Company nor the Subsidiary has received notice of any material default with
respect to any Contracts. For the purposes of this Section 3.13(a), the term
"material" shall mean a condition the existence or breach of which could result
in damage or loss to the Company valued in excess of $50,000 individually or
$150,000 in the aggregate.
(b) Except as contemplated hereby, neither the Company nor the
Subsidiary has received notice of any plan or intention of any other party to
any Contract to exercise any right to cancel or terminate any Contract. Neither
the Company nor the Subsidiary currently contemplates, or has reason to believe
any person or entity currently contemplates, any amendment or change to any
Contract. None of the customers, joint venture partners or suppliers of the
Company or the Subsidiary has refused, or communicated that it will or may
refuse, to purchase or supply goods or services, as the case may be, or has
communicated that it will or may substantially reduce the amounts of goods or
services that it is willing to purchase from, or sell to, the Company or the
Subsidiary.
SECTION 3.14 INSURANCE. The Company has previously delivered or made
available to the Buyer all insurance policies of the Company. All of such
policies are valid and enforceable against the Company, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and except as the availability of equity remedies
may be limited by the application of general principles of equity (regardless of
whether such equitable principles are applied in a proceeding at law or in
equity).
SECTION 3.15 PATENTS, TRADE-MARKS, SERVICE MARKS AND COPYRIGHTS.
(a) The Company and the Subsidiary owns all patents,
trade-marks, service marks and copyrights (collectively "Proprietary Rights"),
if any, necessary to conduct its business, or possesses adequate licenses or
other rights, if any, therefor, without conflict with the rights of others. Set
forth in Schedule 3.15(a) is a true and correct description of all Proprietary
Rights.
(b) The Company has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties. Use of the Proprietary Rights does not require the consent of any other
person and the Proprietary Rights are freely transferable. No claim has been
asserted by any person to the ownership of or right to use any Proprietary Right
or challenging or questioning the validity or effectiveness of any license or
agreement constituting a part of any Proprietary Right. Each of the Proprietary
Rights is valid and subsisting, has not been canceled, abandoned or otherwise
terminated and, if applicable, has been duly issued or filed.
(c) The Company has no knowledge of any claim that, or inquiry
as to whether, any product, activity or operation of the Company or the
Subsidiary infringes upon or involves, or has resulted in the infringement of,
any proprietary rights of any other person, corporation or other entity; and no
proceedings have been instituted, are pending or, to the knowledge of the
Company, are threatened that
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challenge the rights of the Company or the Subsidiary with respect thereto. The
Company has not given and is not bound by any agreement of indemnification for
any Proprietary Right as to any property manufactured, used or sold by it.
SECTION 3.16 TRADE SECRETS AND CUSTOMER LISTS. Either the Company or
the Subsidiary has the right to use, free and clear of any claims or rights of
others except claims or rights specifically set forth in Schedule 3.17 all trade
secrets, customer lists and proprietary information required for the marketing
of all merchandise and services presently sold or marketed by the Company or the
Subsidiary. Neither the Company nor the Subsidiary is using or in any way making
use of any confidential information or trade secrets of any third party,
including without limitation any past or present employee of the Company or the
Subsidiary.
SECTION 3.17 TITLE TO ASSETS; CONDITION OF ASSETS.
(a) A description of all interests in real property owned by
the Company and Subsidiary is set forth in Schedule 3.17(a).
(b) Except as disclosed on Schedule 3.17(b), the Company and
the Subsidiary have good and marketable title to their respective Company
Assets, including, without limitation, those reflected on the Interim Balance
Sheet (other than those since disposed of in the ordinary course of business),
free and clear of all security interests, liens, charges and other encumbrances,
except for (i) liens for taxes not yet due and payable or being contested in
good faith in appropriate proceedings, and (ii) encumbrances that are incidental
to the conduct of their respective businesses or ownership of property, not
incurred in connection with the borrowing of money or the obtaining of credit,
and which do not in the aggregate materially detract from the value of the
assets affected or materially impair their use by the Company or the Subsidiary,
as the case may be. All facilities, machinery, equipment, fixtures, vehicles and
other properties owned, leased or used by the Company or the Subsidiary are in
good operating condition and repair (it being understood that a certain portion
of the rental fleet is constantly being repaired), normal wear and tear
excepted, are adequate and sufficient for the Company's and the Subsidiary's
respective businesses and conform in all material respects with all applicable
ordinances, regulations and laws relating to their use and operation.
(c) A listing of all real property leases, their terms and
total lease payments is attached hereto as Schedule 3.17(c). The Company and the
Subsidiary enjoy peaceful and undisturbed possession under all real property
leases under which the Company and the Subsidiary are operating, and all such
leases are valid and subsisting and none of them is in default, except for those
defaults that do not have a material adverse effect on the Company's or the
Subsidiary's results of operations, business, assets or financial condition.
SECTION 3.18 COMPLIANCE WITH LAWS. The Company and the Subsidiary have
all material franchises, Permits, licenses and other rights and privileges
necessary to permit them to own their respective properties and to conduct their
respective businesses as presently conducted. The business and operations of the
Company and the Subsidiary have been and are being conducted in accordance in
all material respects with all applicable laws, rules and regulations, and
neither the Company nor the Subsidiary is in violation of any judgment, law or
regulation except where any such violation would not have a material adverse
effect on the Company's or the Subsidiary's results of operations, business,
assets or financial condition.
SECTION 3.19 LITIGATION: DEFAULT. Except as otherwise set forth in
Schedule 3.19, there are no claims, actions, suits, investigations or
proceedings against the Company or the Subsidiary pending or, to the Knowledge
of the Company, threatened in any court or before or by any Governmental
Authority, or before any arbitrator, that could reasonably be expected to have a
material adverse effect (whether covered by insurance or not) on the business,
operations, prospects, Properties, securities or financial condition of the
Company or the Subsidiary. Except as otherwise set forth in Schedule 3.19,
neither the
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Company nor the Subsidiary is in default under, and no condition exists (whether
covered by insurance or not) that with or without notice or lapse of time or
both would (i) constitute a default under, or breach or violation of, any Legal
Requirement, Permit or Contract applicable to the Company or the Subsidiary, or
(ii) accelerate or permit the acceleration of the performance required under, or
give any other party the right to terminate, any Contract applicable to the
Company or the Subsidiary, other than defaults, breaches, violations or
accelerations that would not have a material adverse effect on the business,
operations, prospects, Properties, securities or financial condition of the
Company or the Subsidiary.
SECTION 3.20 ENVIRONMENTAL MATTERS.
(a) Except as listed in Schedule 3.20(a), there are no PCBs,
TCE, PCE, or asbestos containing materials generated, used, treated, stored,
maintained, disposed of, or otherwise deposited in, or located on any premises
at which the Company's or the Subsidiary's business (the "Business") is or was,
or at which the business or, to the Knowledge of the Company, its predecessors
was, located.
(b) Except as described in Schedule 3.20(b), there are and
were no underground storage tanks used, stored, maintained, located on any
premises at which Business of the Company is or was, or, to knowledge of the
Company, at which the business of its predecessors was, located. With respect to
underground storage tanks, Schedule 3.21(b) sets forth the size, location,
construction, installation date, use and testing history of all underground
storage tanks (whether or not excluded from regulation under Environmental Law),
including all underground storage tanks in use, out of service, closed,
abandoned, decommissioned, or sold to a third party.
(c) Except as listed in Schedule 3.20(c), there has been no
"release" as defined in 42 U.S.C. 9601(22) or, to the best knowledge of the
Company, threat of a "release" of any Hazardous Substance on, from or under any
premises from which (i) the Company's operations have been or are being
conducted related to the Business. or (ii) to the Knowledge of the Company, the
operations of any predecessor of the Company.
(d) Except as listed in Schedule 3.20(d), the Company the
Subsidiary and their respective predecessors have not received written notice
alleging any potential liability with respect to the contamination,
investigation, or cleanup of any site at which Hazardous Substances have been or
have alleged to have been generated, treated, stored, discharged, emitted or
disposed of and there are no past or present events, facts, conditions or
circumstances which may interfere with or prevent compliance by the Company or
the Subsidiary with Environmental Law, or with any order, decree, judgment,
injunction, notice or demand issued, entered, promulgated or approved
thereunder, or which may give rise to any liability under applicable law
including, without limitation, any Environmental Law, or otherwise form the
basis of any claim, action, demand, suit, proceeding, hearing, notice of
violation, study or investigation, based on or related to the manufacture,
process, distribution, use, treatment, storage, disposal, transport or handling,
or the emission, discharge, release or threatened release into the environment
of Hazardous Substances by the Company, the Subsidiary or, to the Knowledge of
the Company, predecessor, as a result of any act or omission of the Company or
predecessors related to the Business.
(e) Schedule 3.20(e) contains a true, correct and complete
listing of all Hazardous Substances used by the Company, the Subsidiary in the
conduct of the operation of the Business since January 1, 1980, and a list of
the methods used by the Company, the Subsidiary and their respective
predecessors (including, without limitation, a list of past and present disposal
or recycling sites, waste haulers, and manifest numbers) to dispose of or
recycle Hazardous Substances generated by Company's, the Subsidiary's and their
respective predecessor's operations and activities.
(f) Except as disclosed in Schedule 3.20(f), all of the
Company's and, to the Knowledge of the Company, its predecessor's, Hazardous
Substances disposal and recycling practices related to the Business have been
accomplished in accordance with all applicable Environmental Law.
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The Company's representation(s) with respect to this Section 3.20 shall
not be interpreted to imply that the Buyer has constructive knowledge regarding
any aspect of the Business with respect to environmental matters nor to limit
the scope of any of the Company's or any Stockholders' representations under
this Agreement. No such due diligence examination or related activities of, or
on behalf of, the Buyer however, shall constitute a waiver or relinquishment by
the Buyer of its right to rely upon the Company's or any Stockholders'
representations, warranties, covenants and agreements as made herein or pursuant
hereto, and no such disclosure shall constitute an assumption by the Buyer of an
conditions or liabilities, and such disclosure shall not relieve the Company or
any Stockholder of its duties and obligations hereunder.
SECTION 3.21 BANKS. Schedule 3.21 sets forth (i) the name of each bank,
trust company or other financial institution and stock or other broker with
which the Company and the Subsidiary has an account, credit line or safe deposit
box or vault, (ii) the names of all persons authorized to draw thereon or to
have access to any safe deposit box or vault, (iii) the purpose of each such
account, safe deposit box or vault, and (iv) the names of all persons authorized
by proxies, powers of attorney or other like instrument to act on behalf of the
Company or the Subsidiary in matters concerning any of its business or affairs.
Except as otherwise set forth in Schedule 3.21, no such proxies, powers of
attorney or other like instruments are irrevocable.
SECTION 3.22 SUPPLIERS AND CUSTOMERS SALES. Schedule 3.22 sets forth
all the Company's and the Subsidiary's material suppliers during the twelve
month period ended July 31, 1996 and the nine month period ended April 30, 1997,
together with the dollar amount of goods purchased by the Company or the
Subsidiary from each such supplier during the twelve month period ended July 31,
1996 and the nine month period ended May 31, 1997, as well as each of the
principal customers of the Company or the Subsidiary during the twelve month
period ended July 31, 1996 and the ten month period ended April 30, 1997. Except
as otherwise set forth in Schedule 3.22, since December 31, 1996, there has been
no material adverse change in the business relationship of the Company with any
supplier or customer named in Schedule 3.22. No customer or supplier named in
Schedule 3.22 has terminated or materially altered, or notified the Company of
any intention to terminate or materially alter, its relationship with the
Company, and the Company has no reason to believe that any such customer or
supplier will terminate or materially alter its relationship with the Company or
to materially decrease its services or supplies to the Company or the Subsidiary
or its direct or indirect usage of the services or products of the Company or
the Subsidiary. For purposes of Sections 3.22 and 3.25, "material suppliers"
refers to suppliers from whom Company purchased five percent (5%) or more of the
total amount of the goods purchased by the Company during the twelve month
period ended July 31, 1996 and the ten month period ended April 30, 1997, and
"principal customers" refers to customers who accounted for 5% or more of the
Company's total revenues during the twelve month period ended July 31, 1996 and
the ten month period ended April 30, 1997.
SECTION 3.23 BROKERAGE. Except as set forth in Schedule 3.23, there are
no claims for brokerage commissions, finder's fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by the Company or the Subsidiary.
SECTION 3.24 DISCLOSURE; DUE DILIGENCE. This Agreement and the Exhibits
and Schedules hereto, when taken as a whole with other documents and
certificates furnished by the Company and the Subsidiary to the Buyer or its
counsel, do not contain any untrue statement of material fact or omit any
material fact necessary in order to make the statements therein not misleading;
provided, however, certain materials provided to the Buyer contain projections
and estimates of future events, and such projections and estimates have been
based upon certain assumptions that management of the Company and the Subsidiary
made in good faith and believed are reasonable at the time such materials were
prepared.
SECTION 3.25 OWNERSHIP INTERESTS OF INTERESTED PERSONS. Except as set
forth in Schedule 3.25, no director or executive officer of the Company or the
Subsidiary or their respective spouses or children, owns directly or indirectly,
on an individual or joint basis, any material interest in, or serves as an
officer or
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director of, any principal customer or material supplier which has a business
relationship with the Company or the Subsidiary or any organization that has a
material contract or arrangement with the Company or the Subsidiary.
SECTION 3.26 INVESTMENTS IN COMPETITORS. No director or executive
officer of the Company owns directly or indirectly any material interests or has
any investment equal to 5% or more of the outstanding voting securities in any
corporation, business or other person that is a direct competitor of the Company
or the Subsidiary.
SECTION 3.27 CERTAIN PAYMENTS. To the Knowledge of the Stockholders,
neither the Company, the Subsidiary nor any director, officer or employee of the
Company or the Subsidiary, has paid or caused to be paid, directly or
indirectly, in connection with the business of the Company or the Subsidiary:
(a) to any government or agency thereof or any agent of any supplier or customer
any bribe, kick-back or other similar payment; or (b) except as set forth in
Schedule 3.27, any material contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
SECTION 3.28 GOVERNMENT INQUIRIES. Except as set forth on Schedule
3.28, there have been no material inspection reports, questionnaires, inquiries,
demands or requests for information received by the Company or the Subsidiary
from, or any material statement, report or other document filed by the Company
or the Subsidiary with, the federal government or any federal administrative
agency (including but not limited to, the Commission, Justice Department,
Internal Revenue Service, Department of Labor, Occupational Safety and Health
Administration, Federal Trade Commission, National Labor Relations Board, and
Interstate Commerce Commission), any state securities administrator or any local
or state taxing authority.
SECTION 3.29 OTHER TRANSACTIONS. Neither the Company nor the Subsidiary
has entered into any agreements or arrangements and there are no pending offers
or discussions concerning or providing for the merger or consolidation of the
Company or the Subsidiary or all or any substantial portion of its assets, the
sale by the Company or the Subsidiary or any material stockholder of the Company
or the Subsidiary of any securities of the Company or the Subsidiary or any
similar transaction affecting the Company or the Subsidiary or its
securityholders.
SECTION 3.30 TAX MATTERS.
(a) Except as set forth in Schedule 3.30 hereto, the each of
the Company and the Subsidiary:
(i) has filed all federal income Tax Returns, and all
other material Tax Returns which it is required to file under applicable laws
and regulations;
(ii) all such Tax Returns are true and accurate in
all material respects;
(iii) has paid all Taxes due and owing by it (whether
or not such Taxes are required to be shown on a Tax Return) and has withheld and
paid over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except where the amounts of such unpaid Taxes or the amounts
that have not been withheld and paid over do not, in the aggregate, exceed
$25,000;
(iv) the accrual for Taxes on the Closing Date
Unaudited Balance Sheet (excluding any amount recorded which is attributable to
timing differences between book and Tax income) would be adequate to pay all
material Tax liabilities of the Company and the Subsidiary if its respective
current tax year were treated as ending on the date of the Closing Date
Unaudited Balance Sheet;
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(v) the federal income Tax Returns of the Company and
the Subsidiary have been filed through July 31, 1996, and, as of the date
hereof, none of such Tax Returns has been audited.
(b) To the Knowledge of the Company and the Subsidiary, no
claim has been made by a taxing authority in a jurisdiction where the Company or
the Subsidiary does not file tax returns that the Company or the Subsidiary is
or may be subject to taxation by that jurisdiction.
(c) To the Knowledge of the Company and the Subsidiary;
(i) there are no foreign, federal, state or local tax
audits or administrative or judicial proceedings pending or being conducted with
respect to the Company or the Subsidiary;
(ii) no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by the Company or the Subsidiary from any foreign, federal, state or
local taxing authority; and
(iii) there are no material unresolved claims
concerning the Company's or the Subsidiary Tax liability.
(d) No waivers of statutes of limitation have been given or
requested with respect to the Company in connection with any Tax Returns
covering the Company or the Subsidiary, except where such waiver would not have
a material adverse effect on the Company and the Subsidiary taken as a whole.
(e) Neither the Company nor the Subsidiary has executed or
entered into a closing agreement pursuant to IRC Section 7121 or any predecessor
provision thereof or any similar provision of state, local or foreign law; nor
has the Company or the Subsidiary agreed to or is required to make any
adjustments pursuant to IRC Section 481(a) or any similar provision of state,
local or foreign law by reason of a change in accounting method initiated by the
Company or the Subsidiary. Neither the Company nor the Subsidiary has any
knowledge that the IRS has proposed any such adjustment or change in accounting
method, or has any knowledge with respect to any application pending with any
taxing authority requesting permission for any changes in accounting methods
that relate to the business or operations of the Company or the Subsidiary.
(f) The Company has not made an election under IRC Section
341(f).
(g) The Company is not liable for the Taxes of another person.
(h) The Company is not a party to any tax sharing agreement.
(I) The Company has not made any payments nor is it obligated
to make payments nor is it a party to an agreement that could obligate it to
make any payments that would not be deductible under IRC ss. 280G.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH SELLER
Each Stockholder (with respect to Sections 4.01, 4.02 and 4.03) and
each Debenture Holder (with respect to Sections 4.02 and 4.03) represents and
warrants to the Buyer as follows:
SECTION 4.01 TITLE TO THE SHARES. As of the Closing Date, such
Stockholder shall own beneficially and of record, free and clear of any lien,
option or other encumbrance, or shall own of record and have full power and
authority to convey free and clear of any liens or other encumbrances, the
shares of Company Common Stock and Redemption Shares set forth opposite such
Stockholders' name on EXHIBITS A-1 and A-2 hereof respectively, and, upon
delivery of and payment for such shares as herein provided, such Stockholder
will convey to the Buyer (in the case of the Company Common Stock) and the
Company (in the case of the Redemption Shares) good and valid title thereto,
free and clear of any lien or other encumbrance.
SECTION 4.02 AUTHORITY TO EXECUTE AND PERFORM AGREEMENT. Such Seller
has the full legal right and power and all authority and approval required to
enter into, execute and deliver this Agreement and to perform fully such
Sellers' obligations hereunder. This Agreement has been duly executed and
delivered by such Seller and is a valid and binding obligation of such Seller
enforceable in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equity remedies may be limited by the application
of general principles of equity (regardless of whether such equitable principles
are applied in a proceeding at law or in equity). The execution and delivery by
such Seller of this Agreement and the performance by such Seller of this
Agreement in accordance with its terms and conditions will not (i) require the
approval or consent of any foreign, federal, state, county, local or other
governmental or regulatory body or the approval or consent of any other person;
(ii) conflict with or result in any breach or violation of any of the terms and
conditions of, or constitute (or with notice or lapse of time or both
constitute) a default under, any statute, regulation, order, judgment or decree
applicable to such Seller or to the shares of Company Common Stock, Redemption
Shares or Subordinated Notes held by such Seller, or any instrument, contract or
other agreement to which such Seller is a party or by or to which such Seller is
or the shares of Company Common Stock, held by such Seller are bound or subject;
or (iii) result in the creation of any lien or other encumbrance on the
Redemption Shares or Subordinated Notes, as the case may be, held by such
Seller.
SECTION 4.03 NO SELLERS DEFAULTS OR CONSENTS. Except as otherwise set
forth in Schedule 4.03 hereto, the execution and delivery of this Agreement and
the Collateral Agreements by each Seller and the performance by each Seller who
is a party thereto of his, her or its obligations hereunder and thereunder will
not violate any provision of law or any judgment, award or decree or any
indenture, agreement or other instrument to which such Seller is a party, or by
which such Seller or any properties or assets of such Seller is bound or
affected, or conflict with, result in a breach of or constitute (with due notice
or lapse of time or both) a default under, any such indenture, agreement or
other instrument, or result in the creation or imposition of any lien, charge,
security interest or encumbrance of any nature whatsoever upon any of the
properties or assets of such Seller. Any and all consents required to be
obtained such Seller as set forth in Schedule 4.03 shall be obtained and copies
thereof delivered to the Buyer upon execution of this Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Sellers that:
SECTION 5.01 CORPORATE EXISTENCE AND QUALIFICATION. The Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware; has the corporate power to own, manage, lease and hold
its Properties and to carry on its business as and where such Properties are
presently located and such business is presently conducted; and is duly
qualified to do business and is in good standing as a foreign corporation in
each of the jurisdictions where the character of its Properties or the nature of
its business requires it to be so qualified.
SECTION 5.02 AUTHORITY, APPROVAL AND ENFORCEABILITY. This Agreement has
been duly executed and delivered by the Buyer and the Buyer has all requisite
corporate power and legal capacity to execute and deliver this Agreement and all
Collateral Agreements executed and delivered or to be executed and delivered by
the Buyer in connection with the transactions provided for hereby, to consummate
the transactions contemplated hereby and by the Collateral Agreements, and to
perform its obligations hereunder and under the Collateral Agreements. The
execution and delivery of this Agreement and the Collateral Agreements and the
performance of the transactions contemplated hereby and thereby have been duly
and validly authorized and approved by all corporate action necessary on behalf
of the Buyer. This Agreement and each Collateral Agreement to which the Buyer is
a party constitutes, or upon execution and delivery will constitute, the legal,
valid and binding obligation of the Buyer, enforceable in accordance with its
terms, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and except as the
availability of equity remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity).
SECTION 5.03 NO DEFAULT OR CONSENTS. Except as otherwise set forth in
Schedule 5.03, neither the execution and delivery of this Agreement nor the
carrying out of the transactions contemplated hereby will:
(i) violate or conflict with any of the terms,
conditions or provisions of the Buyer's articles of incorporation or bylaws;
(ii) violate any Legal Requirements applicable to the
Buyer;
(iii) violate, conflict with, result in a breach of,
constitute a default under (whether with or without notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or give any other party the right to terminate, any contract or Permit
applicable to the Buyer;
(iv) result in the creation of any lien, charge or
other encumbrance on the shares of capital stock or any Property of the Buyer;
or
(v) require the Buyer to obtain or make any waiver,
consent, action, approval or authorization of, or registration, declaration,
notice or filing with, any private nongovernmental third party or any
Governmental Authority.
SECTION 5.04 NO PROCEEDINGS. No suit, action or other proceeding is
pending or, to the Buyer's knowledge, threatened before any Governmental
Authority seeking to restrain the Buyer or prohibit its entry into this
Agreement or prohibit the Closing, or seeking Damages against the Buyer or its
Properties as a result of the consummation of this Agreement.
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SECTION 5.05 BROKERAGE. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by the
Company.
SECTION 5.06 REPRESENTATIONS AND WARRANTIES ON CLOSING DATE. The
representations and warranties contained in this Article V shall be true in all
material respects on and as of the Closing Date with the same force and effect
as though such representations and warranties had been made on and as of the
Closing Date.
ARTICLE VI
OBLIGATIONS PRIOR TO CLOSING
From the date of this Agreement through the Closing:
SECTION 6.01 BUYER'S ACCESS TO INFORMATION AND ASSETS. The Company and
the Subsidiary shall permit the Buyer and its authorized employees, agents,
accountants, legal counsel and other representatives, at Buyer's own expense, to
have access to the books, records, employees, counsel, accountants, and other
representatives of the Company and the Subsidiary at all times reasonably
requested by the Buyer for the purpose of conducting an investigation of each of
the Company's and the Subsidiary's financial condition, corporate status,
operations, business and Properties. The Company and the Subsidiary shall make
available to the Buyer for examination and reproduction, at Buyer's own expense,
all documents and data of every kind and character relating to the Company and
the Subsidiary in possession or control of, or subject to reasonable access by,
the Sellers, the Company or the Subsidiary, including, without limitation, all
files, records, data and information relating to the Company Assets (whether
stored in paper, magnetic or other storage media) and all agreements,
instruments, contracts, assignments, certificates, orders, and amendments
thereto. Also, the Company shall allow the Buyer, at Buyer's own expense, access
to, and the right to inspect, the Company Assets, except to the extent that such
Company Assets are operated by a third-party operator, in which case the Company
shall use its best efforts to cause the operator of such Company Assets to allow
the Buyer access to, and the right to inspect, such Company Assets.
SECTION 6.02 COMPANY'S CONDUCT OF BUSINESS AND OPERATIONS. Company
shall keep the Buyer advised as to all material operations and proposed material
operations relating to the Company, the Subsidiary or the Company Assets. The
Company and the Subsidiary shall (a) conduct their respective business in the
ordinary course, (b) use their reasonable efforts to keep available to the
Company or the Subsidiary, as the case may be, the services of present
employees, (c) maintain and operate Company Assets in a good and workmanlike
manner, (d) pay or cause to be paid all costs and expenses (including but not
limited to insurance premiums) incurred in connection therewith in a timely
manner, (e) use reasonable efforts to keep all Contracts listed or required to
be listed on Schedule 3.13 in full force and effect, (f) comply with all of the
covenants contained in all such material Contracts, (g) maintain in force until
the Closing Date insurance policies (subject to the provisions of Section 6.07)
equivalent to those in effect on the date hereof, and (h) comply in all material
respects with all applicable Legal Requirements. Except as otherwise
contemplated in this Agreement, the Company and the Subsidiary shall use their
best efforts to preserve the present relationships of the Company and the
Subsidiary with persons having significant business relations therewith.
SECTION 6.03 GENERAL RESTRICTIONS. Except as otherwise expressly
permitted in this Agreement, without the prior written consent of the Buyer,
neither the Company nor the Subsidiary will:
(i) (x) declare, set aside or pay any dividends on,
or make any other distribution (whether in cash, stock or property) in
respect of, any of its capital stock, (y) split,
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combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in view of or in
substitution for shares of its capital stock, or (z) purchase, redeem
or otherwise acquire any shares of capital stock of the Company or the
Subsidiary or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock, any other voting securities
or any securities convertible into, or any rights, warrants or options
to acquire, any such shares, voting securities or convertible
securities;
(iii) amend its Certificates of Incorporation or
By-laws;
(iv) acquire or agree to acquire (x) by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business of any corporation,
partnership, joint venture, association or other business organization
or division thereof or (y) any assets that are material, individually
or in the aggregate, to the Company or the Subsidiary, except purchases
of assets in the ordinary course of business consistent with past
practice;
(v) sell, lease, license, mortgage or otherwise
encumber or otherwise dispose of, or agree to sell, transfer, lease,
mortgage, encumber or otherwise dispose of, any Properties except (i)
in the ordinary course of business consistent with past practice, or
(ii) pursuant to any Contract;
(vi) (y) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any
debt securities or warrants or other rights to acquire any debt
securities of the Company or the Subsidiary, guarantee any debt
securities of another person, enter into any "keep well" or other
agreements to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of the
foregoing, except for borrowings incurred in the ordinary course of
business consistent with past practice, or (z) make any loans, advances
or capital contributions to, or investments in, any other person;
(vii) make or agree to make any new capital
expenditure or expenditures which, in the aggregate, are in excess of
$50,000 (other than those required pursuant to currently outstanding
Contracts or in the ordinary course of business consistent with past
practice);
(viii) make any material tax election or settle or
compromise any material tax liability;
(ix) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement
or satisfaction, in the ordinary course of business consistent with
past practice or in the accordance with their terms, of liabilities
reflected or reserved against in, or contemplated by, the Financial
Statements (or the notes thereto) or incurred in the ordinary course of
business consistent with past practice, or waive any material benefits
of, or agree to modify in any material respect, any confidentiality,
standstill or similar agreements to which the Company or the Subsidiary
is a party;
(x) except in the ordinary course of business
consistent with past practice, modify, amend or terminate any Contract;
(xi) except in the ordinary course of business
consistent with past practice, enter into any contracts, agreements,
arrangements or understandings relating to the rental,
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distribution, sale or marketing by third parties of the Company's or
the Subsidiary's rental equipment, inventory or other products;
(xii) except as required to comply with applicable
law (A) adopt, enter into, terminate or amend any Benefit Plan or other
arrangement for the benefit or welfare of any director, officer or
current or former employee, (B) increase in any manner the compensation
or fringe benefits of, or pay any bonus to, any director, officer or
employee (except for normal increases or bonuses in the ordinary course
of business consistent with past practice), (c) pay any benefit not
provided for under any Benefit Plan, (D) grant any awards under any
bonus, incentive, performance or other compensation plan or arrangement
or Benefit Plan (including the grant of stock options, stock
appreciation rights, stock based or stock related awards, performance
units or restricted stock, or the removal of existing restrictions in
any Benefit Plans or agreement or awards made thereunder) or (E) take
any action to fund or in any other way secure the payment of
compensation or benefits under any employee plan, agreement, contract
or arrangement or Benefit Plan;
(xiii) make any change in any method of accounting or
accounting practice or policy other than those required by generally
accepted accounting principles; or
(xiv) authorize any of, or commit or agree to take
any of, the foregoing actions.
SECTION 6.04 NOTICE REGARDING CHANGES. The Sellers shall promptly
inform the Buyer in writing of any change in facts and circumstances that could
render any of the representations and warranties made herein by the Sellers
inaccurate or misleading if such representations and warranties had been made
upon the occurrence of the fact or circumstance in question. The Buyer shall
promptly inform the Sellers in writing of any change in facts and circumstances
that could render any of the representations and warranties made herein by it
inaccurate or misleading if such representations and warranties had been made
upon the occurrence of the fact or circumstance in question.
SECTION 6.05 PREFERENTIAL PURCHASE RIGHTS. To the extent there are any
parties entitled or who may become entitled to exercise preferential purchase or
consent rights with respect to the transactions contemplated hereby, the Sellers
shall promptly obtain the agreement in writing of such parties to waive or not
exercise such rights, which request shall be in form and substance reasonably
satisfactory to and approved by the Buyer.
SECTION 6.06 CONSENTS AND BEST EFFORTS. Each of the parties hereto
shall use all commercially reasonable good faith efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations, and consult and fully
cooperate with and provide reasonable assistance to each other party and their
respective representatives in order to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable
hereafter, including without limitation, (i) using all commercially reasonable
good faith efforts to make all filings, applications, notifications, reports,
submissions and registrations with, and to obtain all consents, approvals,
authorizations or permits of, governmental entities or other persons or entities
as are necessary for the consummation of the transactions contemplated by this
Agreement (including, without limitation, pursuant to the HSR Act and other
applicable laws and regulations), and (ii) taking such actions and doing such
things as any other party hereto may reasonably request in order to cause any of
the conditions to such other party's obligation to consummate the transactions
contemplated hereby as specified in Article VII of this Agreement to be fully
satisfied.
SECTION 6.07 TERMINATION OF INSURANCE POLICIES. The Sellers shall take
(or cause the Company and the Subsidiary to take) all actions necessary or
appropriate to cause any and all insurance coverage currently carried by or for
the benefit of the Company and the Subsidiary to remain in full force and
effect; provided, however, that the Sellers shall cooperate with the Buyer to
cause termination as of the Closing Date of the insurance coverage identified in
writing for this purpose by the Buyer to the Company at least
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___ days prior to the Closing, and the Sellers shall take (or cause the Company
and the Subsidiary to take) all actions necessary to discharge any and all
liabilities or obligations of the Company or the Subsidiary arising with respect
to any such coverage that is to be terminated hereunder.
SECTION 6.08 CASUALTY LOSS. If, between the date of this Agreement and
the Closing, any of the Properties of the Company or the Subsidiary shall be
destroyed or damaged in whole or in part by fire, earthquake, flood, other
casualty or any other cause, then the Sellers shall, at the Buyer's election,
(i) cause the Company or the Subsidiary to cause such Properties to be repaired
or replaced prior to the Closing with Property of substantially the same
condition and function, (ii) cause the Company or the Subsidiary to deposit in a
separate account an amount sufficient to cause such Property to be so repaired
or replaced, or (iii) enter into contractual arrangements with the Company or
the Subsidiary satisfactory to the Buyer so that the Company or the Subsidiary
will have at the Closing the same economic value as if such casualty had not
occurred.
SECTION 6.09 EMPLOYEE MATTERS. The Sellers shall take (or cause the
Company or the Subsidiary to take) all actions necessary or appropriate to cause
each Plan or Benefit Program or Agreement in effect on the date of this
Agreement to remain in full force and effect until the Closing Date; provided,
however, that, to the extent requested in writing by the Buyer at least ten (10)
days prior to the Closing Date, the Sellers shall cause the Company or the
Subsidiary to cease to sponsor, maintain or contribute to any Plan or Benefit
Program or Agreement specified by the Buyer in such written request, and shall
further assume all past, present and future obligations and liabilities of the
Company and the Subsidiary (including contingent liabilities) with respect to
each such Plan or Benefit Program or Agreement effective as of the last business
day prior to the Closing Date.
SECTION 6.10 NO SOLICITATION. The Sellers and the Company and its
officers, directors, employees, representatives and agents shall immediately
cease any discussions or negotiations with any parties that may be ongoing with
respect to a Third Party Acquisition Proposal (as defined below). Neither the
Company nor any of the Sellers shall, nor shall they permit any of their
Affiliates to, nor shall they authorize or permit any of their officers,
directors or employees or any investment banker, attorney or other advisor or
representatives retained by them or any of their Affiliates to, (i) solicit,
initiate or knowingly encourage the submission of, any Third Party Acquisition
Proposal, or (ii) participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect to, or take any
other action knowingly to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Third Party
Acquisition Proposal. For purposes of this Agreement, "Third Party Acquisition
Proposal" means any inquiry, proposal or offer from any person relating to any
direct or indirect acquisition or purchase of all or a portion or more of the
consolidated assets of the Company and the Subsidiary or all or a portion any
class of equity securities of the Company or the Subsidiary or any offer to
acquire or purchase that if consummated would result in any person beneficially
owning all or a portion of any class of equity securities of the Company or the
Subsidiary, or any merger, consolidation, business combination, sale of assets,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or the Subsidiary, other than the transactions contemplated by this
Agreement, or any other transaction the consummation of which could reasonably
be expected to impede, interfere with, prevent or materially delay, or dilute
materially the benefits to the Buyer of the transactions contemplated hereby.
SECTION 6.11 EMPLOYMENT AGREEMENTS. On or before Closing, William K.
Derenbecker, Barry De Roche, Donald Charbonnet and George Gros shall have
entered into employment agreements in the form of EXHIBITS C, D, E and F
respectively (collectively, the "Employment Agreements"), to take effect on and
after the Closing Date.
SECTION 6.12 CONSULTING AGREEMENT. On or before Closing, Robert T.
Buckner shall have entered into a two-year non-competition agreement in the
EXHIBIT G (the "Non-Competition Agreement").
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ARTICLE VII
CONDITIONS TO SELLERS' AND BUYER'S OBLIGATIONS
SECTION 7.01 CONDITIONS TO OBLIGATIONS OF ALL PARTIES. The respective
obligations of each party to carry out the transactions contemplated by this
Agreement are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
(a) All filings with all Governmental Authorities required to
be made in connection with the transactions contemplated hereby shall have been
made, and all orders, permits, waivers, authorizations, exemptions, and
approvals of such entities required to be in effect on the date of the Closing
in connection with the transactions contemplated hereby including, without
limitation, approvals by the Department of Justice and the Federal Trade
Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"), shall have been issued, all such orders, permits, waivers,
authorizations. exemptions or approvals shall be in full force and effect on the
date of the Closing; provided, however, that no provision of this Agreement
shall be construed as requiring any party to accept, in connection with
obtaining any other requisite approval, clearance or assurance of
non-opposition, avoiding any challenge, or negotiating settlement, any condition
that would materially change or restrict the manner in which the Company or the
Buyer conducts or proposes to conduct its business.
(b) None of the parties hereto shall be subject to any
statute, rule, regulation, decree, ruling, injunction or other order issued by
any Governmental Entity of competent jurisdiction (collectively, an
"Injunction") which prohibits, restrains, enjoins or restricts the consummation
of the transactions contemplated by this Agreement.
SECTION 7.02 CONDITIONS TO OBLIGATIONS OF SELLERS. The obligations of
the Sellers to carry out the transactions contemplated by this Agreement are
subject, at the option of Sellers, to the satisfaction, or waiver by Sellers, of
the following conditions:
(a) The Buyer shall have furnished Sellers with a certified
copy of all necessary corporate action on its behalf approving its execution,
delivery and performance of this Agreement.
(b) All representations and warranties of the Buyer contained
in this Agreement qualified by materiality shall be true and correct in all
respects at Closing and all other representations and warranties of the Buyer
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing, as if such representations and warranties were made at
and as of the Closing, except for changes contemplated by the terms of this
Agreement except as and to the extent that the facts and conditions upon which
such representations and warranties are based are expressly required or
permitted to be changed by the terms thereof, and the Buyer shall have performed
and satisfied in all material respects all covenants and agreements required by
this Agreement to be performed and satisfied by the Buyer at or prior to the
Closing; provided, however, that no Seller shall not be entitled to refuse to
consummate the transaction in reliance upon its own breach or failure to
perform.
(c) As of the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by or on behalf of the Sellers
or the Company) shall be pending or threatened before any Governmental Authority
seeking to restrain Sellers or prohibit the Closing or seeking Damages against
Sellers or the Company as a result of the consummation of this Agreement.
(d) Sellers shall have received the opinion of Baker &
McKenzie, counsel to the Buyer, dated as of the Closing Date, in form and
substance reasonably satisfactory to the Sellers, as to the matters set forth on
EXHIBIT H. In rendering such opinion, Baker & McKenzie may rely as to factual
matters on certificates of officers and directors of the Buyer and on
certificates of governmental officials, and as to legal matters on opinions of
other counsel reasonably acceptable to Sellers.
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(e) The Buyer shall have executed and delivered to Sellers and
the Company the Escrow Agreement.
SECTION 7.03 CONDITIONS TO OBLIGATIONS OF THE BUYER. The obligations of
the Buyer to carry out the transactions contemplated by this Agreement are
subject, at the option of the Buyer, to the satisfaction, or waiver by the
Buyer, of the following conditions:
(a) All of the Company Common Stock shall have been tendered
to Buyer.
(b) All Redemption Shares shall have been tendered to the
Company for redemption and shall have been redeemed and canceled by the Company.
(c) All of the Subordinated Debentures shall have been
tendered to the Company and shall have been paid and canceled by the Company.
(d) All representations and warranties of Sellers and the
Company contained in this Agreement qualified by materiality shall be true and
correct in all respects at Closing and all other representations and warranties
of the Sellers and the Company contained in this Agreement shall be true and
correct in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing, except for
changes contemplated by the terms of this Agreement except as and to the extent
that the facts and conditions upon which such representations and warranties are
based are expressly required or permitted to be changed by the terms thereof,
and the Sellers and the Company shall have performed and satisfied in all
material respects all agreements and covenants required by this Agreement to be
performed and satisfied by Sellers and the Company at or prior to the Closing;
provided, however, that the Buyer shall not be entitled to refuse to consummate
the transaction in reliance upon its own breach or failure to perform.
(e) As of the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by or on behalf of the Buyer)
shall be pending or threatened before any court or governmental agency seeking
to restrain the Buyer or prohibit the Closing or seeking Damages against the
Buyer, the Company or the Subsidiary or their respective Properties as a result
of the consummation of this Agreement.
(f) All notices required to be given in connection with the
transactions contemplated by this Agreement shall have been duly and timely
given, and there shall not be any preferential purchase rights or consent
requirements with respect to the transactions contemplated by this Agreement
that have not expired or been waived.
(g) Except for matters disclosed in Schedules 3.08, 3.09 or
3.12 hereto, since the date of the Interim Balance Sheet and up to and including
the Closing there shall not have been:
(i) any change in the business, operations, prospects
or financial condition of the Company or the Subsidiary that had or would
reasonably be likely to have a material adverse effect on the business,
operations, prospects, Properties, securities or financial condition of the
Company or the Subsidiary; and
(ii) any damage, destruction or loss to the Company
or the Subsidiary (whether or not covered by insurance) that had or would
reasonably be likely to have a material adverse effect on the business,
operations, prospects, Properties, securities or financial condition of the
Company or the Subsidiary.
(h) The Buyer shall have received the opinion of Latham &
Watkins, counsel to the Company and the Sellers, dated as of the Closing Date,
in form and substance reasonably satisfactory to the Buyer, as to the matters
set forth on EXHIBIT I. In rendering such opinion, Latham & Watkins may rely
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as to factual matters on certificates of officers, directors and shareholders of
the Company and on certificates of governmental officials, and as to legal
matters on opinions of other counsel reasonably acceptable to the Buyer.
(i) Sellers and Company shall have executed and delivered to
the Buyer the Escrow Agreement.
(j) The Buyer shall have received the executed Employment
Agreements.
(k) The Buyer shall have received the executed Non-Competition
Agreement.
(l) The Buyer shall have received the resignation of all of
the members of the board of directors of the Company and the Subsidiary
effective as of the Closing Date.
(m) All proceedings to be taken by Sellers and the Company in
connection with the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to the Buyer and its
counsel, and the Buyer and said counsel shall have received all such counterpart
originals or certified or other copies of such documents as it or they may
reasonably request.
(n) The Buyer shall have received written evidence, in form
and substance satisfactory to it, of the termination or subordination,
concurrent with the Closing, of those liens that encumber any of the assets or
other properties of the Company or the Subsidiary in favor of Atlas Copco.
(o) The Buyer shall have received written evidence, in form
and substance satisfactory to the Buyer, of the consent to the transactions
contemplated by this Agreement of all governmental, quasi-governmental and
private third parties (including, without limitation, persons or other entities
leasing real or personal property to the Company), except where the failure to
have obtained any such consent would not have an adverse effect on the Company
following the Closing.
ARTICLE VIII
SURVIVAL; RELEASE OF ESCROW FUND
SECTION 8.01. SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS. Notwithstanding any right of the Buyer fully to
investigate the affairs of the Company and notwithstanding any knowledge of
facts determined or determinable by the Buyer pursuant to such investigation or
right of investigation, the Buyer has the right to rely fully upon the
representations, warranties, covenants and agreements of the Company and the
Stockholders contained in this Agreement, or in any certificate delivered
pursuant to any of the foregoing; provided, that the Buyer shall not be entitled
to rely on any representation or warranty made by the Company or the
Stockholders herein to the extent that the Buyer has actual knowledge, and the
Company or the Stockholders (or any of them) are not aware, that such
representation or warranty is untrue or incorrect in any material respect. All
such representations, warranties, covenants and agreements shall survive the
execution and delivery of this Agreement and the Closing hereunder, and, except
as otherwise specifically provided in this Agreement and, except for all
representations and warranties of the Sellers contained in Article IV, shall
thereafter terminate and expire (i) on December 31, 1997, with respect to any
General Claim (as herein defined) based upon, arising out of or otherwise in
respect of any fact, circumstance, action or proceeding of which the party
asserting such claim shall not have given notice on or prior to December 31,
1997 to the party against which such General Claim is asserted, at which time an
amount equal to $500,000 less the
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amount of any Losses (as defined in Section 9.01) for General Claims shall be
released from the Escrow Fund to the Stockholders, (ii) on December 31, 1998,
with respect to any Tax Claim (as herein defined) based upon, arising out of or
otherwise in respect of any fact, circumstance, action or proceeding of which
the party asserting such claim shall not have given notice on or prior to
December 31, 1998 to the Stockholders, at which time the remainder of the Escrow
Fund shall be released to the Stockholders, and (iii) on July 31, 1998, with
respect to any Environmental Claim (as herein defined) based upon, arising out
of or otherwise in respect of any fact, circumstance, action or proceeding of
which the Buyer shall not have given notice on or prior to July 31, 1998 to the
Stockholders, at which time an amount equal to $2,500,000 less the amount of any
Losses for Environmental Claims shall be released from the Escrow Fund to the
Stockholders. As used in this Agreement, the following terms have the following
meanings:
(i) "GENERAL CLAIM" means any claim (other than a Tax
Claim or an Environmental Claim) based upon, arising out of or otherwise in
respect of any inaccuracy in or any breach of any representation, warranty,
covenant or agreement of the Company or the Stockholders or of any Stockholder
contained in this Agreement.
(ii) "TAX CLAIM" means any claim based upon, arising
out of or otherwise in respect of any inaccuracy in or any breach of any
representation or warranty of the Company or the Stockholders contained in
Section 3.30 of this Agreement related to Taxes.
(iii) "ENVIRONMENTAL CLAIM" means any claim based
upon, arising out of or otherwise in respect of any inaccuracy in or breach of
any representation or warranty of the Company or the Stockholders contained in
Section 3.20 of this Agreement related to Environmental Laws.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01 OBLIGATION OF THE SELLERS TO INDEMNIFY.
(i) Subject to the limitations contained in Article
VIII and Article IX hereof, the holders of Common Stock and Series B Preferred
Stock, jointly and severally, agree to indemnify, defend and hold harmless the
Buyer (and its directors, officers, affiliates, successors and assigns) from and
against all losses, liabilities, damages, deficiencies, costs or expenses
(including interest, penalties and reasonable attorneys' fees and disbursements,
but offset by any proceeds from insurance and taking into account any tax
savings to the Buyer or the Company resulting from such losses, liabilities,
damages, deficiencies, costs or expenses) ("Losses") based upon, arising out of
or otherwise in respect of any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of the Company or the holders of
Common Stock and Series B Preferred Stock contained in this Agreement (other
than in Article IV).
(ii) Each Seller agrees to indemnify, defend and hold
harmless the Buyer (and its directors, officers, affiliates, successors and
assigns) from and against any Losses based upon, arising out of or otherwise in
respect of any inaccuracy in any representation or warranty of such Seller
contained in Article IV or in any document or other papers delivered pursuant to
Article IV.
SECTION 9.02 OBLIGATION OF THE BUYER TO INDEMNIFY. The Buyer agrees to
indemnify, defend and hold harmless the Company and the Sellers from and against
any Losses based upon, arising out of or otherwise in respect of any inaccuracy
in or any breach of any representation, warranty, covenant or agreement of the
Buyer contained in this Agreement.
SECTION 9.03 NOTICE AND OPPORTUNITY TO DEFEND.
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(a) NOTICE OF ASSERTED LIABILITY. Promptly after receipt by
any party hereto (the "Indemnitee") of notice of any demand, claim or
circumstances which, with the lapse of time, would or might give rise to a claim
or the commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give notice thereof (the "Claims Notice") to any other party
(or parties) obligated to provide indemnification pursuant to Section 9.01 or
9.02 (the "Indemnifying Party"). The Claims Notice shall describe the Asserted
Liability in reasonable detail, and shall indicate the amount (estimated, if
necessary and to the extent feasible) of the Loss that has been or may be
suffered by the Indemnitee.
(b) OPPORTUNITY TO DEFEND. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the Indemnitee of its election as herein provided or contests
its obligation to indemnify under this Agreement, the Indemnitee may pay,
compromise or defend such Asserted Liability. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnitee may settle or compromise any
claim over the objection of the other, provided, however, that consent to
settlement or compromise shall not be unreasonably withheld. In any event, the
Indemnitee and the Indemnifying Party may participate, at their own expense, in
the defense of such Asserted Liability. If the Indemnifying Party chooses to
defend the claim, the Indemnitee shall make available to the Indemnifying Party
any books, records or other documents within its control that are necessary or
appropriate for such defense.
(c) DISPUTES WITH CUSTOMERS, DISTRIBUTORS, SALES AGENTS OR
SUPPLIERS. Anything in Section 9.03(b) to the contrary notwithstanding, in the
case of any Asserted Liability by any supplier, distributor, sales agent or
customer of the Company with respect to the business conducted by the Company
prior to the Closing in connection with which the Buyer may make a claim against
the Sellers for indemnification pursuant to Section 9.01, the Buyer shall give a
Claims Notice with respect thereto but, unless the Buyer and the Indemnifying
Party otherwise agree, the Buyer shall have the exclusive right at its option to
defend, at its own expense, any such matter, subject to the duty of the Buyer to
consult with the Indemnifying Party and its attorneys in connection with such
defense and provided that no such matter shall be compromised or settled by the
Buyer without the prior consent of the Indemnifying Party, which consent shall
not be unreasonably withheld. The Indemnifying Party shall have the right to
recommend in good faith to the Buyer proposals to compromise or settle claims
brought by a supplier, distributor or customer, and the Buyer agrees to present
such proposed compromises or settlements to such supplier, distributor or
customer. All amounts required to be paid in connection with any such Asserted
Liability pursuant to the determination of any court, governmental or regulatory
body or arbitrator, and all amounts required to be paid in connection with any
such compromise or settlement consented to by the Indemnifying Party, shall be
borne and paid by the Indemnifying Party. The parties agree to cooperate fully
with one another in the defense, compromise or settlement of any Asserted
Liability.
SECTION 9.04 LIMITATIONS ON INDEMNIFICATION. The indemnification
provided for in Section 9.01 shall be subject to the following limitations:
(i) The Sellers shall not be obligated to pay any
amounts for indemnification under this Article IX arising out of any Losses
based upon, arising out of or otherwise in respect of any inaccuracy or breach
disclosed in writing to the Buyer and specifically waived in writing by the
Buyer prior to the Closing; and
(ii) The Stockholders shall not be obligated to pay
any amounts for indemnification under this Article IX, except those based upon,
arising out of or otherwise in respect of Sections 3.23, 11.01 and 11.02 and
Article IV hereof (the "Basket Exclusions"), until the aggregate indemnification
payments, exclusive of the Basket Exclusions, equals $250,000 (the "Basket
Amount"),
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whereupon the Sellers shall be obligated to pay any such indemnification
payments and any subsequent indemnification payments in full. It is expressly
understood that the Basket Amount shall serve as a "trigger" for the
indemnification and not as a "deductible" (for example, if the indemnity claims
for which the Stockholders would, but for the provisions of this subparagraph
(ii), be liable aggregate $300,000, the Stockholders would then be liable for
the full $300,000 and not just $50,000). This Section 9.04(ii) will not apply to
any breach of any representations and warranties of which any Stockholder had
actual Knowledge at any time prior to the date on which such representation and
warranty is made or any intentional breach by any Stockholder of any covenant or
obligation, and the Stockholders will be jointly and severally liable for all
damages with respect to such breaches.
(iii) No Seller shall be obligated to pay any amount
for indemnification under this Article IX in excess of the gross proceeds
received by such Seller from the sale of Company Common Stock, Redemption Shares
and/or Subordinated Notes, as the case may be.
(iv) The Sellers shall be obligated to pay the Basket
Exclusions without regard to the individual or aggregate amounts thereof and
without regard to whether the aggregate amount of all other indemnification
payments shall have exceeded, in the aggregate, the Basket Amounts.
(v) Notwithstanding anything to the contrary in this
Agreement, except with respect to the Basket Exclusions, the Stockholders shall
have no obligation to indemnify the Buyer for any misrepresentation or breach of
warranty under this Agreement for any amount of Losses in excess of $3,500,000
in the aggregate.
(vi) After the Closing, the indemnification rights
set forth in this Article IX shall be the Buyer's sole and exclusive remedy
against any of the Sellers for any breach of any representation, warranty or
covenant of the Company or the Sellers contained in this Agreement.
Notwithstanding the foregoing, nothing herein shall prevent the Buyers from
bringing an action based upon allegations of fraud in connection with this
Agreement. In the event such action is brought, the prevailing party's
attorneys' fees and costs shall be paid by the nonprevailing party.
SECTION 9.05 SET-OFF RIGHTS.
(a) Each Stockholder specifically agrees that, subject to
paragraphs (b) and (c) of this Section 9.05 (i) any claims for indemnification
by the Buyer against the Stockholders (or any of them) hereunder may be
satisfied against the Escrow Fund pursuant to the Escrow Agreement, and (ii)
that, to the extent that there remain unsatisfied indemnification claims after
the deductions and set-offs described above, the Buyer shall have full recourse
against each of the Stockholders (including their assets of whatsoever kind or
nature) for payment of such indemnification claims, subject to Section 9.04(v)
hereof.
(b) The Buyer shall give Stockholders not less than fifteen
(15) days' notice (the "Buyer's Notice") of its intention to deduct or set-off
any amounts pursuant to this Section 9.05, including in such notice a
description of the Buyer's indemnification claim. If none of the Stockholders
object to such deduction or set-off at least two business days prior to the date
of the proposed set-off set forth in the Buyer's Notice (the "Set-Off Date"),
then such proposed deduction or set-off shall become effective on such date and
shall not be subject to further review, challenge or adjustment absent fraud.
(c) If any of the Stockholders timely object to the set-off
proposed in the Buyer's Notice, and if the Buyer and the objecting Seller(s) are
unable to resolve such dispute on or prior to the Set-Off Date, then (i) the
proposed deduction or set-off shall be effective only as to undisputed amounts,
and (ii) any undisputed amounts shall be retained in the Escrow Account to be
held and disbursed by the Escrow Agent in accordance with the terms of the
Escrow Agreement or shall be paid in accordance with Section 1.05 hereof. In the
event that a dispute among the parties pursuant to this Section 9.05(c), the
party who is later determined to have been in error in attempting to enforce or
disputing the payment or set-off shall (i) pay the reasonable legal and
accounting fees, costs and expenses incurred by the
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prevailing party in presenting, arguing and resolving such dispute and (ii) pay
to the party to which such payment or set-off is determined to be payable an
amount sufficient to equal a return at the rate of ten percent (10%) per annum
on the disputed amount from the date payment of such amount was originally due
through the date payment is actually made.
ARTICLE X
POST-CLOSING OBLIGATIONS
SECTION 10.01 FURTHER ASSURANCES. Following the Closing, each of the
Company, the Sellers and the Buyer shall execute and deliver such documents, and
take such other action, as shall be reasonably requested by any other party
hereto to carry out the transactions contemplated by this Agreement.
SECTION 10.02 PUBLICITY. None of the parties hereto shall issue or
make, or cause to have issued or made, any public release or announcement
concerning this Agreement or the transactions contemplated hereby, without the
advance approval in writing of the form and substance thereof by each of the
other parties, and the parties shall endeavor jointly to agree on the text of
any announcement or circular so approved or required.
SECTION 10.03 ACCESS TO RECORDS. From and after the Closing, (i) each
of the Sellers shall (A) permit the Buyer and its authorized employees, agents,
accountants, legal counsel and other representatives to have access to the
books, records, files, agreements and other information in the possession of the
Sellers or their respective Affiliates, and (B) use his best efforts to permit
the Buyer and its authorized employees, agents, accountants, legal counsel and
other representatives to have access to the employees, counsel, accountants and
other representatives of the Sellers and their respective Affiliates, in each
case, to the extent and at all times reasonably requested by the Buyer for the
purpose of investigating or defending any claim made against the Sellers, the
Company or the Subsidiary in connection with periods ending on or before the
Closing Date and (ii) the Buyer shall use its best efforts to permit the Sellers
and their respective authorized employees, agents, accountants, legal counsel
and other representatives to have access to the employees, counsel, accountants
and other representatives of the Buyer, the Company and their Affiliates, in
each case, to the extent and at all time reasonably requested by the Sellers, or
any of them, for the purpose of investigating or defending any claim made
against the Sellers in connection with Article IX.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01 BROKERS. Regardless of whether the Closing shall occur,
(i) each Seller shall jointly and severally indemnify and hold harmless the
Buyer and the Company from and against any and all liability for any brokers or
finders' fees arising with respect to brokers or finders retained or engaged by
the Company or any of the Sellers in respect of the transactions contemplated by
this Agreement, including, without limitation, the fees described in Schedule
3.23 hereof, and (ii) the Buyer shall indemnify and hold harmless Sellers from
and against any and all liability for any brokers' or finders' fees arising with
respect to brokers or finders retained or engaged by the Buyer in respect of the
transactions contemplated by this Agreement.
SECTION 11.02 COSTS AND EXPENSES. Each of the parties to this Agreement
shall bear its own expenses incurred in connection with the negotiation,
preparation, execution and closing of this Agreement and the transactions
contemplated hereby; provided that the Sellers shall bear and pay any such
expenses incurred by the Company or the Subsidiary, except such expenses
incurred in connection
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with preparing the Closing Date Audited Balance Sheet and determining the
purchase price adjustment pursuant to Section 1.05, which shall be borne by the
parties as provided in Section 1.05; and provided, further, that the Sellers
shall pay one-half of the fee for filings under the HSR Act unless the
transactions hereby are consummated on or before August 31, 1997, in which event
the Buyer shall pay such HSR Act filing fee in full.
SECTION 11.03 NOTICES. Any notice, request, instruction, correspondence
or other document to be given hereunder by any party hereto to another (herein
collectively called "Notice") shall be in writing and delivered personally or
mailed by registered or certified mail, postage prepaid and return receipt
requested, or by telecopier, as follows:
BUYER: Neff Corp.
3750 N.W. 87th Avenue
Suite 400
Miami, Florida 33178
Attention: Mr. Kevin Fitzgerald
Telecopy No.: (305) 513-3350
WITH A COPY TO:
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
Attention: Andrew Hulsh, Esq.
Telecopy No.: (305) 789-8953
THE COMPANY OR ANY
OF THE SELLERS: Industrial Equipment Rentals, Inc.
c/o Atticus Capital
3 Corporate Plaza, Suite 201
Newport Beach, California 92660
Attention: Mr. Michael Rakestraw
Telecopy No.:(714) 719-1454
WITH A COPY TO:
Latham & Watkins
650 Town Center Drive
Costa Mesa, California 92626
Attention: Patrick Seaver, Esq.
Telecopy No.: (714) 755-8290
Each of the above addresses for notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or registered
mail shall be effective upon actual receipt. Notice given by telecopier shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next normal business day after
receipt if not received during the recipient's normal business hours. All
Notices by telecopier shall be confirmed by the sender thereof promptly after
transmission in writing by registered mail or personal delivery. Anything to the
contrary contained herein notwithstanding, notices to any party hereto shall not
be deemed effective with respect to such party until such Notice would, but for
this sentence, be effective both as to such party and as to all other persons to
whom copies are provided above to be given.
SECTION 11.04 GOVERNING LAW. The provisions of this agreement and the
documents delivered pursuant hereto shall be governed by and construed in
accordance with the laws of the State of New York
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(excluding any conflict of law rule or principle that would refer to the laws of
another jurisdiction). Each party hereto irrevocably submits to the jurisdiction
of the Circuit Court located in New York, New York, in any action or proceeding
arising out of or relating to this Agreement or any of the Collateral
Agreements, and each party hereby irrevocably agrees that all claims in respect
of any such action or proceeding must be brought and/or defended in such court;
provided, however, that matters which are under the exclusive jurisdiction of
the Federal courts shall be brought in the Federal District Court for the
Southern District of New York. Each party hereto consents to service of process
by any means authorized by the applicable law of the forum in any action brought
under or arising out of this Agreement or any of the Collateral Agreements, and
each party irrevocably waives, to the fullest extent each may effectively do so,
the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
SECTION 11.05 REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of each of the parties to this Agreement shall be
deemed to have been made at the date hereof and at and as of the Closing Date.
SECTION 11.06 ENTIRE AGREEMENT, AMENDMENTS AND WAIVERS. This Agreement,
together with all exhibits and schedules attached hereto, constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof except as set forth specifically herein or contemplated
hereby. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (regardless of whether similar), nor shall any such
waiver constitute a continuing waiver unless otherwise expressly provided.
SECTION 11.07 BINDING EFFECT AND ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; but neither this Agreement nor any of the
rights, benefits or obligations hereunder shall be assigned, by operation of law
or otherwise, by any party hereto without the prior written consent of the other
party, provided, however, that nothing herein shall prohibit the assignment of
the Buyer's rights to any lender providing financing in connection with the
transactions contemplated hereby. Nothing in this Agreement, express or implied,
is intended to confer upon any person or entity other than the parties hereto
and their respective permitted successors and assigns, any rights, benefits or
obligations hereunder.
SECTION 11.08 REMEDIES. The rights and remedies provided by this
Agreement are cumulative, and the use of any one right or remedy by any party
hereto shall not preclude or constitute a waiver of its right to use any or all
other remedies. Such rights and remedies are given in addition to any other
rights and remedies a party may have by law, statute, or otherwise.
SECTION 11.09 EXHIBITS AND SCHEDULES. The exhibits and schedules
referred to herein are attached hereto and incorporated herein by this
reference. Disclosure of a specific item in any one schedule shall be deemed
restricted only to the Section to which such disclosure specifically relates
except where (i) there is an explicit cross-reference to another Schedule, and
(ii) the Buyer could reasonably be expected to ascertain the scope of the
modification to a representation intended by such cross-reference.
SECTION 11.10 MULTIPLE COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 11.11 REFERENCES. Whenever required by the context, and is used
in this Agreement, the singular number shall include the plural and pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identification the person may require.
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References to monetary amounts and specific named statutes are intended to be
and shall be construed as references to United States dollars and statutes of
the United States of the stated name, respectively, unless the context otherwise
requires.
SECTION 11.12 SURVIVAL. Any provision of this Agreement which
contemplates performance or the existence of obligations after the Closing Date,
and any and all representations and warranties set forth in this Agreement,
shall not be deemed to be merged into or waived by the execution and delivery of
the instruments executed at the Closing, but shall expressly survive Closing and
shall be binding upon the party or parties obligated thereby in accordance with
the terms of this Agreement, subject to any limitations expressly set forth in
this Agreement.
SECTION 11.13 ATTORNEYS' FEES. In the event any suit or other legal
proceeding is brought for the enforcement of any of the provisions of this
Agreement, the parties hereto agree that the prevailing party or parties shall
be entitled to recover from the other party or parties upon final judgment on
the merits reasonable attorneys' fees (and sales taxes thereon, if any),
including attorneys' fees for any appeal, and costs incurred in bringing such
suit or proceeding.
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ARTICLE XII
DEFINITIONS
Capitalized terms used in this Agreement shall have the respective
meanings ascribed to such terms in this Article XII, unless otherwise defined in
this Agreement.
SECTION 12.01 AFFILIATE. The term "Affiliate" shall mean, with respect
to any Person, any other Person controlling, controlled by or under common
control with such Person. The term "Control" as used in the preceding sentence
means, with respect to a corporation, the right to exercise, directly or
indirectly, more than fifty percent (50%) of the voting rights attributable to
the shares of the controlled corporation and, with respect to any Person other
than a corporation, the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person.
SECTION 12.02 COLLATERAL AGREEMENTS. The term "Collateral Agreements"
shall mean any or all of the following agreements, the forms of which are
attached hereto as exhibits to this Agreement as indicated in parentheses:
Exhibit B - Escrow Agreement
Exhibit C - Employment Agreement between the Company and William G. Derenbecker
Exhibit D - Employment Agreement between the Company and Barry J. De Roche
Exhibit E - Employment Agreement between the Company and Donald G. Charbonnet
Exhibit F - Employment Agreement between the Company and George R. Gros
Exhibit G - Non-Competition Agreement between the Company and Robert T. Buckner
and any and all other agreements, instruments or documents required or expressly
provided under this Agreement to be executed and delivered in connection with
the transactions contemplated by this Agreement.
SECTION 12.03 COMPANY ASSETS. The term "Company Assets" shall mean,
with respect to the Company and the Subsidiary, all of the Properties,
Contracts, and Permits, that were Used by the Company or the Subsidiary as of
the Interim Balance Sheet Date and those Used by the Company or the Subsidiary
at any time after that date until the Closing Date.
SECTION 12.04 DAMAGES. The term "Damages" shall mean any and all
damages, liabilities, obligations, penalties, fines, Judgments, claims,
deficiencies, losses, costs, expenses and assessments (including without
limitation income and other taxes, interest, penalties and attorneys' and
accountants' fees and disbursements).
SECTION 12.05 ENVIRONMENTAL LAW. "Environmental Law" shall mean any
governmental statute, law, ordinance, code, rule, regulation, order or decree
relating to or imposing liability or standards of conduct as may now in effect
regarding any air emission, water discharge or use, storage, handling,
generation or disposal of any Hazardous Substances, including, without
limitation, the following, and all regulations promulgated thereunder or in
connection therewith: the Comprehensive Environmental Response, Compensation,
and Liability Act, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, the Used Oil Recycling
Act, the Occupational Safety and Health Act, the Federal Safe Drinking Water
Act, the Federal Water Pollution Control Act, the Oil Pollution Act, the
Emergency Planning and Community Right-to-Know Act, and all other federal,
state, tribal and local laws, rules and regulations relating to protection of
human health and the environment, reclamation of land,
39
<PAGE>
wetlands and waterways or relating to the use, storage, emissions, discharge,
clean-up or release of Hazardous Substances on or into the work-place or the
environment (including, without limitation, ambient air, oceans, waterways,
wetlands, surface water, ground water (tributary and nontributary), land surface
or subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation or handling of
contaminants, as all of the foregoing may be amended, supplemented and
reauthorized from time to time.
SECTION 12.06 GOVERNMENTAL AUTHORITIES. The term "Governmental
Authorities" shall mean any nation or country (including but not limited to the
United States) and any commonwealth, territory or possession thereof and any
political subdivision of any of the foregoing, including but not limited to
courts, departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.
SECTION 12.07 HAZARDOUS SUBSTANCES. "Hazardous Substances" shall mean
industrial, toxic or hazardous substances or wastes or other pollutants,
contaminants, petroleum products, asbestos, polychlorinated biphenyls ("PCBs")
or chemicals, all as defined and regulated under Environmental Law.
SECTION 12.08 KNOWLEDGE. The term "Knowledge" shall mean the actual
knowledge of a party or, in the case of the Company or the Buyer, any of their
respective directors or executive officers (and, in the case of the Company, the
directors and executive officers of the Subsidiary) with respect to the
representation being made, and such knowledge of any such persons as reasonably
should have obtained upon due investigation and inquiry into the representation
being made.
SECTION 12.09 LEGAL REQUIREMENTS. The term "Legal Requirements", when
described as being applicable to any Person, shall mean any and all laws
(statutory, judicial or otherwise), ordinances, regulations, judgments, orders,
directives, injunctions, writs, decrees or awards of, and any Contracts with,
any Governmental Authority, in each case as and to the extent applicable to such
Person or such Person's business, operations or Properties.
SECTION 12.10 PERMITS. The term "Permits" shall mean any and all
permits or orders under any Legal Requirement or otherwise granted by any
Governmental Authority.
SECTION 12.11 PROPERTIES. The term "Properties" shall mean any and all
properties and assets (real, personal or mixed, tangible or intangible).
SECTION 12.12 PROPORTIONATE SHARE. The term "Proportionate Share" shall
mean each Common Stockholder's respective percentage ownership interest in the
Company as set forth on EXHIBIT A-1.
SECTION 12.13 REGULATIONS. The term "Regulations" shall mean any and
all regulations promulgated by the Department of the Treasury pursuant to the
Code.
SECTION 12.14 USED. The term "Used" shall mean, with respect to the
Properties, Contracts or Permits of the Company or the Subsidiary, those owned,
leased, licensed or otherwise held by the Company or the Subsidiary which were
acquired for use or held for use by the Company or the Subsidiary in connection
with the Company's or the Subsidiary's business and operations, whether or not
reflected on the Company's or the Subsidiary's books of account.
EXECUTED as of the date first written above.
BUYER:
NEFF CORPORATION
By:
--------------------------------------
Kevin Fitzgerald, President
40
<PAGE>
COMPANY:
INDUSTRIAL EQUIPMENT RENTALS, INC.
By:
--------------------------------------
William G. Derenbecker, President
SELLERS' REPRESENTATIVE:
By:
--------------------------------------
Michael E. Rakestraw
SELLERS:
NATIONSBANC CAPITAL CORPORATION
By: _____________________________________
Name: _______________________________
Title: ______________________________
EQUUS II INCORPORATED
By: _____________________________________
Name: _______________________________
Title: ______________________________
EQUUS CAPITAL PARTNERS, LP
By: _____________________________________
Its: _________________________________
By: _____________________________________
Name: _______________________________
Title: ______________________________
PREMIER VENTURE CAPITAL CORP.
By: _____________________________________
Name: _______________________________
Title: ______________________________
LOUISIANA FUND CORPORATION
By: _____________________________________
Name: _______________________________
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<PAGE>
Title: ______________________________
THE CATALYST FUND LTD.
By: _____________________________________
Name: _______________________________
Title: ______________________________
HUB ASSOCIATES, GP
By: _____________________________________
Its: _________________________________
-----------------------------------------
Samuel J. Parker
-----------------------------------------
Daniel Moore
-----------------------------------------
Eleanor Moore
-----------------------------------------
Barbara K. Buckner
-----------------------------------------
Douglas Greenburg
-----------------------------------------
Joseph Philip LeBlanc
-----------------------------------------
Wayne D. Morrison
-----------------------------------------
Robert W. Lemoine
-----------------------------------------
Robert T. Buckner
-----------------------------------------
Donald G. Charbonnet
42
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-----------------------------------------
Barry J. DeRoche
-----------------------------------------
William G. Derenbecker
-----------------------------------------
George R. Gros
-----------------------------------------
Eddie Chiasson
-----------------------------------------
Shelly B. Martin
-----------------------------------------
Travis Bergeron
43
EXHIBIT 10.5
ASSET PURCHASE AGREEMENT
by and among
RICHBOURG'S SALES & RENTALS, INC.,
BRUCE RICHBOURG,
and
NEFF CORP.
dated as of
December 23, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS 1
1.1. Certain Definitions................................................1
1.2. Exhibits and Schedules.............................................6
1.3. Plurals, Etc.......................................................6
ARTICLE II PURCHASE AND SALE OF ASSETS.........................................6
2.1. Purchase and Sale of Assets........................................6
2.2. Excluded Assets....................................................8
ARTICLE III ASSUMPTION OF LIABILITIES..........................................8
3.1. Assumed Liabilities................................................8
3.2. Excluded Liabilities...............................................9
ARTICLE IV PURCHASE PRICE AND CLOSING.........................................11
4.1. Purchase Price....................................................11
4.2. Closing...........................................................11
4.3. Closing Actions...................................................11
4.4. Assignment of Contracts, Rights and Obligations...................11
4.5. Allocation of Consideration.......................................12
4.6. Notices of Sale...................................................13
4.7. Escrow............................................................14
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER
AND THE SELLER'S SHAREHOLDER.....................................14
5.1. Organization and Good Standing; Power and Authority;
Qualifications...................................................14
5.2. Due Authorization of Seller.......................................14
5.2. Due Authorization of the Seller's Shareholder.....................15
5.4. No Conflict.......................................................15
5.5. Financial Statements..............................................15
5.6. Absence of Undisclosed Liabilities................................16
5.7. Absence of Material Changes.......................................16
5.8. Agreements........................................................17
5.9. Intellectual Property Rights......................................19
5.10. Corporate Minute Books...........................................21
5.11. Assets...........................................................21
5.12. Employee Benefit Plans...........................................21
5.13. Labor Relations; Employees.......................................23
5.14. Litigation; Orders...............................................24
5.15. Compliance with Laws; Permits....................................24
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5.16. Related Transactions.............................................24
5.17. Disclosure.......................................................25
5.18. Taxes............................................................25
5.19. Environmental Protection.........................................25
5.19. Consents.........................................................28
5.21. Insurance........................................................28
5.22. Brokers..........................................................28
5.23. Suppliers and Customers..........................................28
5.24. Accounts Receivable..............................................29
5.25. Fleet............................................................29
5.26. Net Assets.......................................................29
5.27. Indemnification Obligations......................................29
5.28. Tax Sharing Agreements...........................................29
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER............................30
6.1. Due Organization, Valid Existence; Due Authorization;
Enforceability................................................30
6.2. No Conflict.......................................................30
6.3. Consents..........................................................30
6.4. Brokers...........................................................30
ARTICLE VII PRE-CLOSING COVENANTS.............................................31
7.1. Cooperation.......................................................31
7.2. Conduct of Business...............................................31
7.3. Required Notices..................................................33
7.4. Access............................................................34
7.5. Acquisition Proposals.............................................34
7.6. Subsequent Financial Statements...................................35
7.7. Name Change.......................................................36
7.8. H-S-R............................................................ 36
ARTICLE VIII POST-CLOSING AGREEMENTS..........................................36
8.1. Non-Competition; Non-Solicitation; Non-Disclosure; Non-
Disparagement.................................................36
8.2. Further Assurances................................................38
8.3. Mail; Payments....................................................39
8.4. Rights of Enforcement and Settlement..............................39
8.5. Accounts Receivable; Collection Claims............................39
8.6. Books and Records.................................................40
8.7. Liens.............................................................40
8.8. Confidentiality Agreements........................................40
8.9. No Sale...........................................................40
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ARTICLE IX CONDITIONS TO PARTIES' OBLIGATIONS.................................40
9.1. Conditions to Seller's and the Seller's Shareholder' Obligations..40
9.2. Conditions to the Buyer' Obligations..............................42
ARTICLE X EMPLOYMENT AND EMPLOYEE BENEFITS
ARRANGEMENTS.....................................................45
10.1. Employment.......................................................44
10.2. Assumed Plans....................................................45
10.3. 401(k) Plan......................................................45
ARTICLE XI TERMINATION PRIOR TO CLOSING.......................................46
11.1. Termination......................................................46
11.2. Effect on Obligations............................................46
ARTICLE XII INDEMNIFICATION...................................................47
12.1. Survival of Representations, Warranties and Covenants............47
12.2. Indemnification by Seller and the Seller's Shareholder...........47
12.3. Indemnification by Buyer.........................................47
12.4. Procedure for Indemnification....................................48
12.5. Payment..........................................................49
12.6. Setoff...........................................................49
12.7 Indemnity Limitations.............................................49
12.8 Insurance.........................................................50
ARTICLE XIII MISCELLANEOUS....................................................50
13.1. Transfer Taxes...................................................50
13.2. Further Assurances...............................................50
13.3. Interpretive Provisions..........................................50
13.4. Entire Agreement.................................................51
13.5. Successors and Assigns; Benefits.................................51
13.6. Headings.........................................................51
13.7. Modification and Waiver..........................................51
13.8. Expenses.........................................................51
13.9. Notices..........................................................52
13.10. Specific Performance............................................53
13.11. Governing Law...................................................53
13.12. Bulk Sales Laws.................................................54
13.13. Public Announcements............................................54
13.14. Counterparts....................................................54
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SCHEDULES
Schedule 2.1(c) Business and Financial Records
Schedule 2.2(d) Excluded Assets
Schedule 3.1(a)(i) Certain Liabilities
Schedule 4.5 Allocation
Schedule 5.4 Conflicts
Schedule 5.5(a) Financial Statements
Schedule 5.5(b) Accounting Consistency Exceptions
Schedule 5.6 Undisclosed Liabilities
Schedule 5.7 Material Changes
Schedule 5.7(a)(xiii) Capital Expenditures and Commitments
Schedule 5.8(a) Agreements
Schedule 5.8(a)(xvi) Confidentiality Agreements
Schedule 5.8(b) Material Contract Exceptions
Schedule 5.8(c)(i) Form of Rental Contract
Schedule 5.8(c)(ii) Form of Personal Guarantee
Schedule 5.9(a) Intellectual Property Ownership
Schedule 5.9(b) Intellectual Property Infringement
Schedule 5.9(c) Royalties, etc.
Schedule 5.9(d) Proprietary Information Disclosure
Schedule 5.9(f) Third Party Software
Schedule 5.10(a) Corporate Records
Schedule 5.10(b) Corporate Minute Books
Schedule 5.11(a) Encumbrances
Schedule 5.11(b) Condition of Assets
Schedule 5.12(a) Employee Benefit Plans and Employment Agreements
Schedule 5.13 Labor Relations; Employees
Schedule 5.14 Litigation; Orders
Schedule 5.15 Compliance with Laws; Permits
Schedule 5.16(a) Related Transactions
Schedule 5.18(a) Tax Returns
Schedule 5.18(b) Tax Jurisdictions
Schedule 5.19(a) Environmental Compliance
Schedule 5.19(b) Environmental Permits
Schedule 5.19(c) Environmental Claims
Schedule 5.19(d) Environmental Conditions
Schedule 5.19(e) Storage Tanks
Schedule 5.19(f) Environmental Notices
Schedule 5.19(g) Waste Disposal
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Schedule 5.19(h) Liens
Schedule 5.19(i) Hazardous Substance Releases
Schedule 5.19(j) Environmental Violations
Schedule 5.20 Consents
Schedule 5.21 Insurance
Schedule 5.23 Suppliers and Customers
Schedule 5.24(b) Accounts Receivable
Schedule 5.25 Year End Rental Fleet
Schedule 8.1 Other Businesses
Schedule 8.5 Collection Claims
Schedule 8.9 CASE CRE Equipment
Schedule 9.2(g) Leases
Schedule 10.1 Employment
EXHIBITS
Exhibit A Confidentiality Agreement
Exhibit B Form of Escrow Agreement
Exhibit C Seller's Representations Letter
Exhibit D Form of Lease
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement, dated as of December 23, 1997 (the
"AGREEMENT"), by and among Richbourg's Sales & Rentals, Inc., a South Carolina
corporation ("SELLER"), Bruce Richbourg (the "SELLER'S SHAREHOLDER"), and Neff
Corp., a Delaware corporation ("BUYER").
W I T N E S S E T H :
WHEREAS, the parties hereto desire to enter into this Agreement
pursuant to which Seller will sell to Buyer, and Buyer will purchase from
Seller, the Business (as defined in Section 1.1) and all of the properties and
assets thereof, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises herein contained and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, each of the
parties hereto agrees as follows:
ARTICLE I
DEFINITIONS
1.1. CERTAIN DEFINITIONS. For all purposes of this Agreement, the
following terms have the respective meanings set forth below:
"ACQUIRED ASSETS": as defined in Section 2.1.
"ADDITIONAL PAYMENT": as defined in Section 4.5(b).
"AFFILIATES": with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person, means the power to
direct or cause the direction of the management and policies of such Person,
directly or indirectly, whether through ownership of voting securities, by
contract, credit arrangement or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"AGREEMENT": as defined in the first paragraphs of this agreement.
"ANCILLARY DOCUMENTS": collectively, all contracts, agreements,
instruments, deeds, certificates, affidavits and documents being delivered
pursuant to or in connection with this Agreement by any party hereto at or prior
to the Closing.
<PAGE>
"ASSIGNED CONTRACTS": as defined in Section 2.1(d).
"ASSUMED LIABILITIES": as defined in Section 3.1.
"BENEFIT PLAN": as defined in Section 5.12(a).
"BUSINESS": the business conducted, or currently proposed to be
conducted, by Seller and the assets, operations and goodwill owned by Seller and
used in connection therewith.
"BUSINESS DAY": any day other than a Saturday, Sunday or day on which
banks in the City of New York are required or authorized by law to be closed.
"BUYER": as defined in the first paragraph of this agreement.
"BUYER DETERMINATION": as defined in Section 4.5(b).
"BUYER'S OBJECTION": as defined in Section 7.6(c).
"BUYER TAX BENEFIT": as defined in Section 4.5(b).
"CASH PAYMENT": as defined in Section 4.1(a).
"CLOSING": as defined in Section 4.2.
"CODE": the Internal Revenue Code of 1986, as amended and any
regulations promulgated or proposed thereunder.
"COMPILED FINANCIAL STATEMENTS": as defined in Section 5.5.
"CONFIDENTIALITY AGREEMENT": means the Confidentiality Agreement
between Buyer and Seller dated as of June 1, 1997, a copy of which is attached
hereto as EXHIBIT A.
"CONSIDERATION": as defined in Section 4.1.
"CONTRACT": as defined in Section 2.1(d).
"CURRENT FINANCIAL STATEMENT": as defined in Section 5.5.
"DIRECT CLAIM": as defined in Section 12.4(a).
"DISPUTES AUDITOR": such public accounting firm, experienced in
auditing heavy equipment rental companies, as may be mutually selected by the
Seller and the Buyer.
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"DISTRIBUTIONS": any declaration or payment of dividends on, or other
distribution with respect to, or any direct or indirect redemption or
acquisition of, any securities of Seller.
"DOCUMENTATION": all documentation, specifications, manuals and other
materials relating to the Software, including programmer and user manuals which
are used to install, operate, maintain, correct, test, repair, enhance, extend,
modify, prepare derivative works based upon, design, develop, reproduce and
package such Software.
"EMPLOYEE(S)": as defined in Section 5.12.
"EMPLOYMENT AGREEMENT": as defined in Section 5.12(a).
"ENCUMBRANCES": with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"ENVIRONMENTAL PERMITS": as defined in Section 5.19(b).
"ESCROW AMOUNT": as defined in Section 4.7.
"EXCESS SELLER TAX LIABILITY": as defined in Section 4.5(b).
"EXCLUDED ASSETS": as defined in Section 2.2.
"EXCLUDED LIABILITIES": as defined in Section 3.2.
"EXPENSES": as defined in Section 13.8.
"FINAL YEAR END FINANCIAL STATEMENTS": as defined in Section 7.6(e).
"INDEMNITEE": any Person that may be entitled to seek indemnification
under this Agreement.
"INDEMNITOR": any Person that may be required to provide
indemnification under this Agreement.
"INSURANCE POLICIES": as defined in Section 5.21.
"INTELLECTUAL PROPERTY": all intellectual property owned, leased, or
licensed, and used or held for use by Seller in connection with the Acquired
Assets or the Business,
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including without limitation, (i) all world wide inventions and discoveries
(whether patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof, (ii)
all trademarks, service marks, trade dress, logos, Tradenames and corporate
names, together with all translations, adaptations, derivations and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations and renewals in connection therewith, (iii) all copyrightable
works, all copyrights and all applications, registrations and renewals in
connection therewith, (iv) all mask works and all applications, registrations
and renewals in connection therewith, (v) all trade secrets and confidential
business information, whether patentable or unpatentable and whether or not
reduced to practice (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
addresses, phone numbers, pricing and cost information, and business and
marketing plans and proposals), (vi) all Software, (vii) all other proprietary
rights of any type or description (regardless of whether the same have been
formally registered, (viii) all copies and tangible embodiments thereof (in
whatever form or medium) and (ix) all licenses and agreements in connection with
the foregoing.
"INTERIM PERIOD": The period beginning immediately following the date
and time of this Agreement until the Closing Date.
"LOSS OR LOSSES": each and all of the following items: claims, losses,
liabilities, obligations, payments, damages (actual, punitive or consequential),
charges, judgments, fines, penalties, amounts paid in settlement, costs and
expenses (including, without limitation, interest which may be imposed in
connection therewith, costs and expenses of investigation, actions, suits,
proceedings, demands, assessments and fees, expenses and disbursements of
counsel, consultants and other experts).
"MATERIAL ADVERSE EFFECT": as defined in Section 5.7.(a)
"MATERIAL CONTRACT": as defined in Section 5.8(b).
"NOTICE": as defined in Section 12.4(b).
"OTHER BUSINESSES": The businesses owned and controlled by the Seller's
Shareholder, other than the Business, as of the Closing Date as such businesses
operate as of the Closing Date, in each case as described on Schedule 8.1.
"PERSON": an individual, partnership (general or limited), corporation,
joint venture, business trust, cooperative, association or other form of
business organization
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(whether or not regarded as a legal entity under applicable law), trust, estate,
agency or any other entity.
"PRELIMINARY YEAR END FINANCIAL STATEMENTS": as defined in Section
7.6(b).
"RETURN": any report, return, statement, estimate, declaration, notice,
form or other information required to be supplied to a taxing authority in
connection with Taxes.
"REVIEWED FINANCIAL STATEMENTS": as defined in Section 5.5.
"SELLER": as defined in the first paragraph of this agreement.
"SELLER DETERMINATION": as defined in Section 4.5(b).
"SELLER INDEMNITEES": as defined in Section 12.3.
"SELLER'S ACCOUNTANTS": Webster, Rogers, West, Berry & Grady, LLP.
"SELLER'S RESPONSE": as defined in Section 7.6(d).
"SELLER'S SHAREHOLDER": as defined in the first paragraph of this
agreement.
"SOFTWARE": any and all versions, releases, and predecessors of
software and computer programs owned by Seller and used or held by Seller in
connection with the Business, including all such software and computer programs
in machine readable source code forms and in machine executable object code
forms and all related specifications (including, without limitation, all logic
architectures, algorithms and logic flows and all physical, functional,
operating and design parameters), any data used by or related to Software, work
in progress relating to corrections, modifications or enhancements, operating
systems and procedures (including development methodology), designs, design
revisions, related applications, work benches, software in any language,
concepts, ideas, processes, techniques, software designs and test tools, Third
Party Software interfaces written by Seller's Employees and all methods of
implementation and packaging, together with all associated know-how and show-how
and all related documentation (but excluding any know-how or show-how as may be
possessed by Rhonda Chamberlain or the Seller's Shareholder).
"TAXES": any taxes, assessments, duties, fees, levies, imposts,
deductions, withholdings, including without limitation, income, gross receipts,
ad valorem, value added, excise, real or personal property, asset, sales, use,
license, payroll, transaction, capital, net worth and franchise taxes, estimated
taxes, withholding, employment, social security, workers compensation, utility,
severance, production, unemployment compensation, occupation, premium, windfall
profits, transfer and gains taxes, including any penalties, additions to tax,
fines or interest thereon.
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"THIRD PARTY CLAIM": as defined in Section 12.4(b).
"THIRD PARTY SOFTWARE": software or computer programs used in the
operation of the Business as presently conducted or currently anticipated to be
conducted and that are not owned by Seller.
"TRADENAMES": the tradename "Richbourg's Sales & Rentals, Inc." and all
other tradenames and trademarks and all variations thereof in which the name
"Richbourg" appears that are or have been used by Seller in connection with the
Business.
"TRANSFER TAXES": as defined in Section 13.1(a).
Certain definitions used primarily in Section 5.19 are defined therein.
1.2. EXHIBITS AND SCHEDULES. References made to an "Exhibit" or a
"Schedule," unless otherwise specified, refer to one of the Exhibits or
Schedules attached to this Agreement, and references made to an "Article" or a
"Section," unless otherwise specified, refer to one of the Articles or Sections
of this Agreement.
1.3. PLURALS, ETC. As used herein, the plural form of any noun shall
include the singular and the singular shall include the plural, unless the
context requires otherwise. Each of the masculine, neuter and feminine forms of
any pronoun shall include all such forms unless the context requires otherwise.
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.1. PURCHASE AND SALE OF ASSETS. At the Closing (as defined in Section
4.2), on the terms and subject to the conditions set forth in this Agreement,
Seller shall sell, convey, transfer, assign and deliver to Buyer (or at the
direction of Buyer, to a subsidiary of Buyer), and Buyer shall purchase and
acquire from Seller, all of Seller's right, title and interest in and to all of
Seller's assets (other than the Excluded Assets (as defined in Section 2.2)) as
the same may exist as of the Closing Date (as defined in Section 4.2), and
whether tangible or intangible, and wherever located, including, without
limitation, all of Seller's right, title and interest in and to the following
assets, properties and businesses (the assets, properties and businesses
described in this Section 2.1 are referred to as the "ACQUIRED ASSETS"):
(a) all accounts and notes receivable and all documents and
business books and records relating thereto;
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(b) all equipment, vehicles, furniture, supplies, materials
and other personal property;
(c) all documents and records relating to the Acquired Assets
or the Business (including, without limitation, employment and personnel
records, customer lists, sales records, customer service records and collection
records, and electronic data processing materials), except for Seller's
accounting books, general ledger, bank statements and other similar financial
records, documents and materials which shall remain the property of Seller; it
being agreed between the parties, however, that all such financial records and
information of Seller shall be stored, maintained, and made available to Buyer
in accordance with the terms and conditions set forth in Schedule 2.1(c), or as
otherwise subsequently agreed by the parties;
(d) to the extent assignable or assumable, all contracts,
agreements, plans, policies and arrangements ("CONTRACTS") to which Seller is a
party or to which the Business is subject (including, without limitation, all
customer orders and purchase orders for services to be rendered by the Business
which are yet to be performed, fulfilled or completed) and which are NOT SET
FORTH ON SCHEDULE 2.2(D) and, in each case, any claim or right or any benefit
thereunder or resulting therefrom (including, without limitation, any right to
indemnification) (the "ASSIGNED CONTRACTS");
(e) all Intellectual Property, all Documentation and all
rights and incidents of interest in all Third Party Software;
(f) all rights, claims or entitlements arising from the
conduct of the Business or which relate to or arise from or in connection with
the Acquired Assets or the Assumed Liabilities (as defined in Section 3.1),
including all goodwill associated with the Business, if any;
(g) all transferable prepayments, claims and other prepaid
expenses related to the Acquired Assets, the Assigned Contracts or the Business;
(h) all rights and incidents of interest in and to all
licenses, franchises, grants, easements, exceptions, certificates, consents,
permits, approvals, orders and other authorizations of any governmental
authority to the extent transferable;
(i) all known and unknown, liquidated or unliquidated,
contingent or fixed, rights, claims, credits, rights of setoff against third
parties, choices of action, causes of action or rights to commence any causes of
action; and
(j) all other tangible or intangible, personal property,
vested or unvested, contingent or otherwise, of every kind and description,
wherever located, used, held for use, or relating to the Business.
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2.2. EXCLUDED ASSETS. Notwithstanding anything in Section 2.1 to the
contrary, the following assets of Seller (the "EXCLUDED ASSETS") are not
included in the Acquired Assets:
(a) Seller's investments in securities and mutual funds (and
similar investments) and cash, excluding any cash held as sales tax deposits,
telephone deposits or utility deposits;
(b) the corporate seal, minute books and stock record books of
Seller;
(c) consideration received by, and the rights of, Seller and
the Seller's Shareholder under or pursuant to this Agreement and the Ancillary
Documents; and
(d) the assets set forth on Schedule 2.2(d).
ARTICLE III
ASSUMPTION OF LIABILITIES
3.1. ASSUMED LIABILITIES. (a) Subject to the terms and conditions of
this Agreement, upon the transfer of the Acquired Assets at the Closing and
subject to Section 3.2, Buyer shall assume only the following liabilities and
obligations of Seller (the "ASSUMED LIABILITIES"):
(i) Seller's accounts payable and accrued expenses
arising in the operation of the Business in the ordinary course (including,
without limitation, payroll taxes payable in the ordinary course of the
Business), which shall in no event include (A) any liability relating to
indebtedness of Seller for borrowed money, or (B) other than as set forth on
Schedule 3.1(a)(i), liabilities resulting from any transaction between Seller
and the Seller's Shareholder or officer or director of Seller;
(ii) Subject to Section 4.4, Seller's obligations
arising or to be performed after the Closing under the Assigned Contracts;
(iii) Rental obligations of Seller as lessor or owner
under equipment rental contracts arising in the operation of the Business in the
ordinary course;
(iv) All Taxes of every kind associated with Buyer's
operation of the Business after the Closing;
(v) Sales taxes related to the period prior to
Closing, but for which Buyer receives payment from any Person after Closing; and
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(vi) All expenses, liabilities and obligations
associated with Seller's active and open collection claims and lawsuits.
(b) The assumption by Buyer of the Assumed Liabilities shall
not enlarge any rights of any Person.
(c) Nothing contained herein shall prevent Buyer from
contesting any of the Assumed Liabilities with any third party obligee.
3.2. EXCLUDED LIABILITIES. Except as otherwise expressly provided in
this Agreement, neither Buyer nor any of its Affiliates assumes, agrees to pay,
performs, discharges or indemnifies Seller, the Seller's Shareholder or any of
their Affiliates against, or otherwise has any responsibility for, any and all
liabilities or obligations of Seller, the Seller's Shareholder or any of their
Affiliates of any kind, character or nature whatsoever, whether known or
unknown, accrued, absolute, contingent, determined, determinable or otherwise,
and whether arising or to be performed prior to, on or after the Closing,
including, without limitation, any of the following liabilities and obligations
(collectively, the "EXCLUDED LIABILITIES"):
(a) any liability or obligation pertaining to any Excluded
Assets;
(b) any liability or obligation in respect of any Taxes of
Seller or the Seller's Shareholder, including, without limitation, all Taxes of
every kind associated with the operation of the Business prior to the Closing
and Taxes of Seller or Seller's Shareholder arising as a result of the
transactions contemplated by this Agreement;
(c) any liabilities or obligations related to (i) willful
misconduct or (ii) personal injury or wrongful death or any similar claim;
(d) any liability or obligation arising under or relating to
any account or note receivable collected by the Seller prior to the Closing to
the extent such receivable is not included in the Acquired Assets;
(e) except for liabilities or obligations arising under
equipment rental contracts, any liability or obligation with respect to any
litigation, investigation or other proceeding pending or threatened in respect
of Seller or the Business on or prior to the Closing Date or subsequently
asserted with respect to events or omissions giving rise to the cause of action
which occurred on or prior to the Closing Date;
(f) any liability or obligation relating to any period prior
to the Closing Date to any third party arising by reason of a claim that the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby constitutes a
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breach, termination or impairment of, or gives a right to payment under, any
contract, plan, program, policy, arrangement or understanding;
(g) any liability relating to any indebtedness of Seller or
the Seller's Shareholder for borrowed money;
(h) all employee benefit, compensation, pension, welfare,
severance and other employee-related liabilities and obligations associated with
any Employee which relate to the period prior to the Closing, including without
limitation, any liability or obligation under any Benefit Plan or Employment
Agreement or to any Employee or any third party arising by reason of a claim
that the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby constitutes a breach, termination or impairment
of, or gives a right to payment under, any contract, plan, program, policy,
arrangement or understanding;
(i) any liability or obligation of the Seller for its costs
and expenses incurred in connection with this Agreement or any Ancillary
Document and the transactions contemplated hereby and thereby;
(j) any liability or obligation of the Seller under this
Agreement or the Ancillary Documents;
(k) except for liabilities or obligations arising under
equipment rental contracts, any liability or obligation arising as a result of
breach of contract by Seller, any default or failure to perform by Seller under
any obligations, and any violations by Seller of any Law;
(l) all liabilities and obligations arising under any
agreements or arrangements not expressly assumed by Buyer hereunder;
(m) liabilities or obligations arising out of Environmental
Matters or violation of Environmental Laws relating to the ownership or
operation of the Business prior to the Closing Date; and
(n) all liabilities and obligations incurred by Seller on or
after the Closing Date which are not expressly assumed by Buyer hereunder.
ARTICLE IV
PURCHASE PRICE AND CLOSING
4.1. PURCHASE PRICE. The aggregate consideration (the "CONSIDERATION")
to be paid to Seller for the Acquired Assets shall consist of:
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(a) subject to Section 4.7, a cash payment in the amount of
$100,000,000 (the "CASH Payment"); and
(b) the assumption by Buyer of the Assumed Liabilities.
4.2. CLOSING. The Closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Fried, Frank,
Harris, Shriver & Jacobson, 1001 Pennsylvania Avenue, N.W., Suite 800,
Washington, D.C. 20004, on January 6, 1998 or at such other date, time and place
as the parties may hereafter agree (the opening time of the Business Day on such
date being the "CLOSING DATE"). For all purposes, the Closing Date shall be as
of 12:01 A.M. January 1, 1998.
4.3. CLOSING ACTIONS. (a) At the Closing, (i) Buyer shall deliver by
wire transfer to an account designated by Seller an amount in cash equal to the
Cash Payment and (ii) execute and deliver appropriate instruments evidencing
Buyer's assumption of the Assumed Liabilities in accordance with Section 3.1
hereof, and such other documents and instruments as may be required to complete
the transactions herein contemplated.
(b) Except as otherwise agreed, at the Closing, Seller and the
Seller's Shareholder shall deliver to Buyer such bills of sale, assignments,
licenses and other good and sufficient instruments of transfer, conveyance and
assignment in form and substance reasonably acceptable to Buyer and effective to
vest in Buyer all of Seller's right, title and interest in and to the Acquired
Assets and the Business in accordance with the terms of this Agreement.
4.4. ASSIGNMENT OF CONTRACTS, RIGHTS AND OBLIGATIONS. Notwithstanding
anything in this Agreement to the contrary, this Agreement shall not constitute
an agreement to assign any contract if an attempted assignment thereof, without
the consent of a third party thereto, would constitute a breach or default
thereof or cause or permit the acceleration or termination thereof. Buyer shall
not assume any liability with respect to any contract until such consent is
obtained by Buyer or a reasonable arrangement is designed to provide Buyer with
the benefits under the contract, at which time the contract will become an
Assigned Contract.
4.5. ALLOCATION OF CONSIDERATION.
(a) The Consideration shall be allocated among the Acquired
Assets as set forth on Schedule 4.5. Seller and Buyer each agree to report the
sale and purchase of the Acquired Assets for all federal, state, local and
foreign tax purposes in a manner consistent with such allocation and upon either
party's request, the other party shall execute and file such other documents as
may be necessary to document such allocation.
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(b) Subject to the limitations set forth in this Section 4.5,
Buyer shall make an additional payment (the "ADDITIONAL PAYMENT") to Seller if
the following four conditions are met:
(i) there is a determination (as defined in Section
1313 of the Internal Revenue Code) that the Seller is required to allocate more
than $60 million of the Consideration to Acquired Assets with respect to which
the Seller has claimed depreciation deductions (the "SELLER DETERMINATION"),
(ii) there is a determination (as defined in Section
1313 of the Code) that the Buyer is required to allocate more than $60 million
of the Consideration to Acquired Assets with respect to which the Seller has
claimed depreciation deductions (the "BUYER DETERMINATION"), and
(iii) the Seller suffers a tax detriment as a result
of the re-allocation effected by the Seller Determination (the "EXCESS SELLER
TAX LIABILITY"), and
(iv) the Buyer receives a tax benefit as a result of
the re-allocation effected by the Buyer Determination (the "BUYER TAX BENEFIT").
(c) The amount of the Additional Payment shall equal the
lesser of the Excess Seller Tax Liability and the Buyer Tax Benefit, but in no
event shall exceed $3 million. The Buyer Tax Benefit shall be the net present
value of all benefits to Buyer created by the Buyer Determination, computed
using a discount rate of 10 percent. The amount of the Additional Payment shall
be determined by the Seller and submitted in writing to the Buyer for approval.
If Buyer disputes Seller's determination of the Additional Payment, Buyer shall,
within thirty (30) days of receipt of Seller's determination, notify Seller in
writing of its objection and the detailed reasons therefor. If Seller and Buyer
cannot agree on the amount of the Additional Payment within thirty (30) days
after receipt by Seller of Buyer's objections to Seller's determination, the
matter shall be referred to the Disputes Auditor for resolution in accordance
with the provisions of subsection (f) of this Paragraph.
(d) Buyer shall make the Additional Payment to Seller not
later than thirty (30) days after the latest of (i) receipt of Seller's
determination of the amount of the Additional Payment; or (ii) if Buyer disputes
Seller's determination, the Seller and the Buyer agree in writing on the amount
of the Additional Payment; or (iii) if Buyer and Seller are unable to agree, the
Disputes Auditor submits its decision to the Seller and the Buyer.
(e) (i) Within 30 days after any party receives notice that
the allocation of the Consideration set forth in Schedule 4.5 may be challenged
by the Internal Revenue Service, such party shall provide written notice to the
other parties, (ii) such party shall
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permit the other parties to participate in all phases of the audit (as it
relates to the challenge to the allocation of the Consideration among the
Acquired Assets), including the right to attend conferences with the Internal
Revenue Service and to make written submissions in connection therewith, and
(iii) such party agrees to settle the audit (as it relates to the challenge to
the allocation of the Consideration among the Acquired Assets) only after the
other parties first consent in writing to such settlement, such consent not to
be unreasonably withheld.
(f) Disputes between Buyer and Seller relating to the amount
of the Additional Payment may be referred for decision at the insistence of
either party to the Disputes Auditor. The Disputes Auditor shall establish the
procedures to be followed (including procedures with regard to presentation of
evidence) giving due regard to the intention of the parties to resolve disputes
as quickly, efficiently and inexpensively as possible. The parties shall, as
promptly as practicable, submit evidence in accordance with the procedures
established, and the Disputes Auditor shall decide the dispute in accordance
therewith. The Disputes Auditor's decision on any matter referred to it shall be
final and binding on Seller and Buyer. The fee of the Disputes Auditor shall be
borne by Seller and Buyer in equal portions. Buyer and Seller shall make readily
available to the Disputes Auditor all relevant books and records and any work
papers (including those of the parties' respective accountants) relating to all
items reasonably requested by the Disputes Auditor.
4.6. NOTICES OF SALE. As requested in writing by Buyer from time to
time after the Closing, Seller shall prepare and mail notices to the other party
under each of the Assigned Contracts and to the account debtors of the accounts
and notes receivable sold, transferred, assigned, delivered and conveyed to
Buyer pursuant to this Agreement advising such other party that such Assigned
Contracts, accounts and notes receivable and the Business have been sold to
Buyer and directing such other party to send to Buyer all future payments,
notices and correspondences relating to the foregoing; provided, however, that
Seller shall have no obligation to send such notices to the other parties under
the equipment rental contracts.
4.7. ESCROW. In order to secure the obligations of Seller and the
Seller's Shareholder to Buyer under this Agreement, Buyer and Seller agree to
establish an escrow of $3,000,000 (the "ESCROW AMOUNT") for which American
National Bank and Trust Company of Chicago, a national banking association, will
act as escrow agent for the period and subject to the terms, conditions and
procedures set forth in the escrow agreement in the form of EXHIBIT B attached
hereto (the "ESCROW Agreement"). The Escrow Amount shall be funded by the Seller
by depositing a portion of the Cash Payment amount equal to the Escrow Amount
with the escrow agent. The escrow agent shall hold the Escrow Amount in
accordance with the terms, conditions and procedures set forth in the Escrow
Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
SELLER AND THE SELLER'S SHAREHOLDER
Seller and the Seller's Shareholder hereby, jointly and
severally, represent and warrant to Buyer as of the date hereof and as of the
Closing as follows:
5.1. ORGANIZATION AND GOOD STANDING; POWER AND AUTHORITY;
QUALIFICATIONS. Seller (a) is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization, (b) has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as currently conducted and (c) has all requisite power and
authority to enter into and consummate the transactions contemplated by this
Agreement and the Ancillary Documents to which it is a party. Seller is
qualified to transact business as a foreign corporation in, and is in good
standing in each jurisdiction in which such qualification is necessary. The
Seller's Shareholder has the legal capacity to execute, deliver and perform his
obligations under this Agreement and each of the Ancillary Documents to which he
is a party and to consummate the transactions contemplated hereby and thereby.
5.2. DUE AUTHORIZATION OF SELLER. The execution, delivery and
performance by Seller of the Agreement and the Ancillary Documents to which it
is a party have been duly authorized by all requisite corporate action on the
part of Seller. The Agreement and each of the Ancillary Documents to which
Seller is a party have been duly and validly executed and delivered by Seller
and each constitutes the legal, valid and binding obligation of Seller,
enforceable against it in accordance with the terms thereof except to the extent
that enforceability may be limited by bankruptcy, insolvency or other similar
laws affecting creditors' rights generally.
5.3. DUE AUTHORIZATION OF THE SELLER'S SHAREHOLDER. The execution,
delivery and performance by the Seller's Shareholder of the Agreement and the
Ancillary Documents to which he is a party have been duly authorized by all
requisite individual action on the part of the Seller's Shareholder. The
Agreement and each of the Ancillary Documents to which the Seller's Shareholder
is a party have been duly and validly executed and delivered by the Seller's
Shareholder and each constitutes the legal, valid and binding obligation of the
Seller's Shareholder, enforceable against him in accordance with the terms
thereof except to the extent that enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights generally.
5.4. NO CONFLICT. Except as set forth on Schedule 5.4, the execution
and delivery of the Agreement and the Ancillary Documents by Seller and the
Seller's
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Shareholder and the consummation of the transactions contemplated hereby and
thereby (including, without limitation, the sale of the Acquired Assets) will
not (a) violate any material provision of any domestic (federal, state or local)
law, statute, rule or regulation, or any ruling, writ, injunction, order,
judgment or decree of any court, administrative agency or other governmental
body to which the Acquired Assets or the Business are subject or derive benefit,
(b) materially conflict with, or result in any violation or breach of, or
default or loss of a benefit under, or cause or permit the cancellation or
termination of, or cause or permit the acceleration under, the terms, conditions
or provisions of any Assigned Contract, (c) result in the creation or imposition
of any Encumbrance (as defined in Section 1.1) upon any of the Acquired Assets
or the Business or (d) violate Seller's Articles of Incorporation, Bylaws, or
other organization documents.
5.5. FINANCIAL STATEMENTS. Attached hereto as Schedule 5.5 (a) are
copies of (i) the statements of assets, liabilities and equity as of December
31, 1996, prepared on the income tax basis, the related statement of revenues,
expenses and retained earnings for the year then ended, prepared on the income
tax basis, and the cash flows for the years then ended, prepared on the income
tax basis, reviewed by Seller's Accountants (the "REVIEWED FINANCIAL
STATEMENT"), (ii) the compiled statements of assets, liabilities, and equity as
of December 31, 1995, prepared on the income tax basis, and the related
statements of revenues and expenses for the year then ended, prepared on the
income tax basis and compiled by Seller's Accountants (the "COMPILED FINANCIAL
STATEMENTS") and (iii) the compiled statement of assets, liabilities, and equity
as of September 30, 1997, prepared on the income tax basis, and the related
statements of revenues and expenses for the nine (9) months then ended, prepared
on the income tax basis and compiled by Seller's Accountants (the "CURRENT
FINANCIAL STATEMENT"). Except as set forth on Schedule 5.5(b), the Reviewed
Financial Statements, the Compiled Financial Statements and the Current
Financial Statements have been prepared on a basis consistent with Sellers'
accounting practices for prior periods. The Reviewed Financial Statements and
the Current Financial Statements are (i) in all material respects in accordance
with the books and records of Seller, (ii) except as set forth on Schedule
5.5(b) have been prepared on a basis consistent with Seller's accounting
practices for prior periods; (iii) have been prepared on an income tax basis of
accounting, and (iv) except as set forth in Schedule 5.5(b) fairly present in
all material respects the financial condition, results of operations, and in the
case of the Reviewed Financial Statements, the cash flows of the Business as of
the dates and for the periods indicated in accordance with income tax basis
accounting.
5.6. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed on
Schedule 5.6, or otherwise addressed herein, the Business does not have any
material liabilities or obligations (whether accrued, absolute, contingent,
unliquidated or otherwise, whether or not known, whether due or to become due
and regardless of when asserted) other than (i) liabilities or obligations
reserved against or otherwise disclosed in the Current Financial Statements or
the footnotes thereto, and (ii) liabilities or obligations incurred
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after the date of the Current Financial Statements in the ordinary course of
business consistent (in amount and kind) with past practice.
5.7. ABSENCE OF MATERIAL CHANGES. (a) Except as set forth on Schedule
5.7 and except as otherwise expressly contemplated by this Agreement, since
September 30, 1997 Seller has conducted the Business in the ordinary course,
consistent with past practice, and there has not been (i) any material adverse
change in the condition (financial or otherwise), results of operations,
business, assets, or liabilities of the Business or a material adverse change in
the Acquired Assets or the Assumed Liabilities (collectively, a "MATERIAL
ADVERSE EFFECT") or any event or condition that could reasonably be expected to
have a Material Adverse Effect, (ii) any waiver or cancellation of any valuable
right of the Business, or the cancellation of any material debt or claim held by
the Business, (iii) any payment, discharge or satisfaction of any claim,
liability or obligation of the Business other than in the ordinary course of
business, (iv) any Encumbrance upon the Acquired Assets, (v) any sale,
assignment or transfer of any tangible or intangible assets of the Business
except in the ordinary course of business, (vi) any damage, destruction or loss
(whether or not covered by insurance) materially and adversely affecting in the
aggregate the Acquired Assets or the assets, property, financial condition or
results of operations of the Business, (vii) any increase, direct or indirect,
in the compensation paid or payable to any officer or director of Seller or,
other than in the ordinary course of business, to any other employee, consultant
or agent of Seller, (viii) any change in the accounting methods, practices or
policies of the Business, (ix) any indebtedness incurred for borrowed money by
the Business other than in the ordinary course of business, (x) any amendment to
or termination of any Assigned Contract other than the expiration or termination
of any such agreement in accordance with its terms, (xi) any change with respect
to the regulation of the Business or its activities by any administrative agency
or governmental body to the extent such change has had or could reasonably be
expected to have a Material Adverse Effect, (xii) any material change in the
manner of business or operations of the Business (including, without limitation,
any accelerations or deferral of the payment of accounts payable or other
current liabilities or deferral of the collection of accounts or notes
receivable), (xiii) any capital expenditures or commitments therefor by the
Business, except as set forth on Schedule 5.7(a)(xiii), (xiv) any transaction
entered into by the Business other than in the ordinary course of business or
any other transaction entered into by the Business (exclusive of payroll)
whether or not in the ordinary course of business involving the aggregate
consideration of $100,000 or more in a single transaction or series of related
transactions or (xv) any agreement or commitment (contingent or otherwise) by
Seller to do any of the foregoing.
(b) The liabilities included in Section 3.1(a)(i) as reflected
in the Final Year End Financial Statements shall not exceed $1,000,000.
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5.8. AGREEMENTS. (a) Except for equipment rental contracts, Schedule
5.8(a) contains a complete and correct list of all material Contracts, written
or oral, relating to the Business, including:
(i) Contracts relating to the purchase or collection
of accounts receivable or the provision of billing and collection services
(including, without limitation, all customer orders and purchase orders for
services to be rendered by the Business which are yet to be performed, fulfilled
or completed as of the Closing);
(ii) Contracts relating to the lease of real or
personal property other than those Contracts which are cancelable by Buyer on
not more than thirty days' notice and do not in any case provide for a rental of
more than $500 per month;
(iii) Contracts, licenses or other agreements
(whether as licenser or licensee, assignor or assignee) relating to Intellectual
Property;
(iv) Contracts with officers, employees, agents or
consultants providing for annual payments in excess of $20,000;
(v) Excluding equipment rental contracts, contracts
for the sale of goods or the provision of services involving payments to the
Business in excess of $20,000 individually or for an original term of more than
12 months;
(vi) Excluding equipment rental contracts, Contracts
for the purchase of materials, supplies or services or for any capital
expenditures involving payments by the Business of more than $30,000
individually or which is for an original term of more than 12 months;
(vii) Contracts with any distributor, dealer, sales
agent in excess of $25,000 or representative in excess of $25,000;
(viii) Collective bargaining or other agreements with
any labor union;
(ix) Contracts granting any Person an Encumbrance on
any of the Acquired Assets;
(x) Contracts pursuant to which a joint venture or
partnership has been formed or will be formed or is governed;
(xi) Contracts relating to the lending or borrowing
of money, including indentures, mortgages, notes, bonds or other evidences of
indebtedness and any credit or similar agreement in respect of borrowed money,
and any guarantee of or agreement to acquire any such obligation of any other
Person;
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(xii) Contracts containing covenants not to compete
or which otherwise restrict the Business from entering into any line of business
or any agreement which contains geographic restrictions on the activities of the
Business;
(xiii) Contracts relating to the investigation or
remediation of any environmental matters or relating to the performance of any
environmental audit, study or report with respect to the Business;
(xiv) Contracts relating to the acquisition by Seller
of any business or the capital stock of any other Person that have not been
consummated or that have been consummated but contain representations,
covenants, guaranties, indemnities or other obligations that remain in effect;
(xv) Contracts under which Seller agrees to indemnify
any Person or to share tax liability of any Person;
(xvi) Other than as set forth on Schedule
5.8(a)(xvi), confidentiality agreements with any other Person;
(xvii) Contracts with the government of the United
States or any other country or any subdivision, department or agency thereof;
and
(xviii) Other than equipment rental contracts, any
other Contract that is material to the business operations, results of
operations or condition (financial or otherwise) of the Business, the Acquired
Assets or the Assumed Liabilities.
(b) Correct and complete copies of all Contracts (or, where
they are oral, true and complete written summaries thereof) required to be
listed on Schedule 5.8(a) (each, a "MATERIAL CONTRACT") have previously been
delivered to Buyer or its representatives. Except as otherwise set forth on
Schedule 5.8(b), (i) each Material Contract is valid, in full force and effect
and enforceable in accordance with its terms and (ii) there has not occurred any
default or any event that, with the lapse of time, the giving of notice or the
election of any Person, or any combination thereof, will become a default, under
any Material Contract except where such default has not and could not reasonably
be expected to have a Material Adverse Effect.
(c) FORM AGREEMENTS. Correct copies of Seller's form of (i)
rental contract is contained on Schedule 5.8(c)(i); (ii) personal guarantee and
credit application is contained on Schedule 5.8(c)(ii). All such rental
contracts to which Seller is a party comply in all material respects with the
form of rental contract. All of such agreements contain adequate provisions for
enforcing payment of the obligations governed thereby. All such contracts are
assignable to Buyer without the consent of any Person.
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5.9. INTELLECTUAL PROPERTY RIGHTS. (a) Except as set forth on Schedule
5.9(a), Seller owns the entire right, title and interest in and to the
Intellectual Property free and clear of any claims, liens or Encumbrances of any
kind. Schedule 5.9(a) sets forth a true and correct list and description
(including the country of registration) of (i) all patents, patent applications,
registered and unregistered trademarks, trademark applications, registered and
unregistered copyrights and copyright applications associated with the
Intellectual Property, and (ii) all licenses or agreements in connection with
the foregoing. All patent, copyright and trademark registrations with respect to
the Intellectual Property are valid, subsisting, enforceable and in full force
and effect, and all patent applications, copyright applications and trademark
applications with respect to the Intellectual Property are pending and in good
standing, all without challenge of any kind; and no aspect thereof is subject to
any outstanding order, ruling, decree, judgment or stipulation by or with any
governmental authority or arbitrator. Seller has taken and is presently taking
all steps necessary to prevent any impairment of the right of the Business to
make use of the Intellectual Property, and Seller has filed all appropriate
renewals, extensions, affidavits of continued use and/or incontestability, and
has paid all fees associated therewith, necessary to maintain the Intellectual
Property. There is no claim or demand of any Person, dispute with any Person, or
any suit, action, proceeding or litigation pending or, to Seller's best
knowledge, threatened, with respect to any Intellectual Property.
(b) Except as set forth on Schedule 5.9(b), to Seller's best
knowledge, the Business has not interfered with, infringed upon or
misappropriated any intellectual property right of any third party nor does any
interference, infringement, or misappropriation result from the manufacture,
use, or sale of any of the Acquired Assets. Seller has not received any charge,
complaint, claim, demand or notice alleging any such interference, infringement
or misappropriation (including any claim that it must license or refrain from
using any intellectual property right of any third party), nor does Seller have
knowledge or any basis for any such claim. To Seller's best knowledge, no third
party has interfered with, infringed upon or misappropriated (whether or not
such use constitutes infringement) any Intellectual Property.
(c) Except as set forth on Schedule 5.9(c), the Business is
not obligated to pay any amount, whether as a royalty, license fee or other
payment, to any Person in order to make, use, or sell any Intellectual Property.
(d) Except as to the Persons set forth on Schedule 5.9(d),
Seller has not disclosed any of its proprietary information that, if disclosed,
would adversely affect the Business other than (i) in the regular and ordinary
course of business, to employees and consultants whose knowledge of the contents
thereof is necessary to the performance of their duties to Seller, (ii) in
connection with entering into this Agreement, (iii) to governmental authorities
from time to time as requested, (iv) to other persons subject to agreements
regarding the confidential treatment thereof.
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(e) Except to the extent Seller may be regarded as the owner
of Software set forth on Schedule 5.9(f), Seller does not own any Software used
in the operation of the Business as currently conducted or currently proposed to
be conducted.
(f) Schedule 5.9(f) lists and identifies all Third Party
Software that is material to the operation of the Business. Except as set forth
on Schedule 5.9(f), Seller has the right to use all such Third Party Software,
including all Intellectual Property rights associated therewith, pursuant to
license, sublicense or contract. Seller has delivered to Buyer a true, correct
and complete copy of each license identified in Schedule 5.9(f). All royalties
due under said licenses have been paid and there exists no default by Seller or
by any other party under the terms of said licenses, and no event has occurred
which, upon the passage of time or the giving of notice, or both, would result
in any default by Seller or by any other party to the license or prevent Seller
from exercising and obtaining the benefits of any options contained therein.
Except as set forth in Schedule 5.9(f), Seller has all right, title and interest
of the licensee under the terms of said licenses, free of all Encumbrances, all
such licenses are valid and in full force and effect and Seller is in compliance
with the terms thereof. There is no basis for acceleration under any of said
licenses as a result of the transactions contemplated by this Agreement. Seller
has not received any written or oral notice of infringement, violation or
conflict with any intellectual property right of any Person with respect to
Seller's use of any Third Party Software.
5.10. CORPORATE MINUTE BOOKS. Except as set forth on Schedule 5.10(a),
the corporate records of Seller and the Business are correct and complete and
maintained in accordance with good business practices and all applicable laws.
Except as set forth on Schedule 5.10(b), true and correct copies of all minutes
of meetings or other actions by the directors, stockholders or incorporators of
Seller since its inception have previously been provided to Buyer.
5.11. ASSETS. (a) Seller has, and upon consummation of the transactions
contemplated hereby, except as disclosed on Schedule 5.11(a) (on a category of
asset basis), Buyer will have, good and marketable title to all of the Acquired
Assets, free and clear of any Encumbrances except Encumbrances for taxes not yet
due and payable.
(b) Except as set forth on Schedule 5.11(b), as of December 1,
1997 all of the tangible Acquired Assets (i) are in good operating condition and
repair (normal wear and tear excepted), (ii) are subject to continued repair and
replacement in accordance with past practice and all applicable regulations, and
(iii) are suitable for their current use.
(c) The Acquired Assets include all assets and personal
property (other than the Excluded Assets) which are currently used or held for
use in connection with the
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conduct and operation of the Business, and, as of the Closing Date, the Acquired
Assets will include all of the assets and properties required to conduct and
operate the Business substantially as it is now being conducted and operated.
5.12. EMPLOYEE BENEFIT PLANS. (a) Schedule 5.12(a) hereto contains a
true and complete list, summary or copy of (i) each plan, program, policy,
payroll practice, contract, agreement or other arrangement, or commitment
therefor, providing for compensation, severance, termination pay, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits of any kind, whether formal or informal, funded or unfunded, written or
oral, and whether or not legally binding, pursuant to which Seller has any
liability, contingent or otherwise, including, but not limited to, any "employee
benefit plan" within the meaning of Section 3(3) of ERISA and each
"multi-employer plan" within the meaning of Sections 3(37) or 4001(a)(3) of
ERISA (each, a "BENEFIT PLAN"), and (ii) each management, employment, bonus,
option, equity (or equity related), severance, consulting, non compete,
confidentiality or similar agreement or contract between the Seller and any
Employee pursuant to which the Seller has any liability, contingent or otherwise
(each, an "EMPLOYMENT AGREEMENT"), and (iii) Employee policy manual (provided
that any Benefit Plan or Employment Agreement need not be listed or summarized
on Schedule 5.12(a) to the extent that the terms of any such Benefit Plan or
Employment Agreement are set forth in the Employee policy manual) pursuant to
which Seller has any liability, contingent or otherwise, between Seller and any
current, former or retired employee, officer, consultant, independent
contractor, agent or director of Seller (an "EMPLOYEE"). Neither Seller nor any
ERISA Affiliate (as defined below) currently sponsors, maintains, contributes
to, or has any liability to, nor is it required to contribute to, nor has Seller
or any ERISA Affiliate ever sponsored, maintained, contributed to or been
required to contribute to, or incurred any liability to, (i) any Benefit Plan
which is an "employee pension benefit plan" within the meaning of Section 3(2)
of ERISA and which is subject to Title IV of ERISA or Section 412 of the Code,
(ii) any "multiemployer plan" (as defined in ERISA Sections 3(37) or 4001(a)(3))
or (iii) any Benefit Plan which provides, or has any liability to provide, life
insurance, medical, severance or other employee welfare benefits to any Employee
upon his or her retirement or termination of employment, except as required by
Section 4980B of the Code nor has the Seller ever represented, promised or
contracted (whether in oral or written form) to any Employee (either
individually or as a group) that such Employee(s) would be provided with life
insurance, medical or other employee welfare benefits upon their retirement or
termination of employment. For purposes of this Section 5.12(a), "ERISA
Affiliate" means each business or entity which is a member of a "controlled
group of corporations," under "common control" or an "affiliated service group"
with Seller within the meaning of Sections 414(b), (c) or (m) of the Code, or
required to be aggregated with Seller under Section 414(o) of the Code, or is
under "common control" with Seller, within the meaning of Section 4001(a)(14) of
ERISA.
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(b) Seller has previously provided to Buyer current, accurate
and complete copies of all documents embodying or relating to each Benefit Plan
and each Employee Agreement, including all amendments thereto, written
interpretations thereof, trust or funding agreements relating thereto (if any),
the two most recent annual reports (Series 5500 and related schedules) required
under ERISA (if any) in connection with each Benefit Plan or related trust, the
most recent determination letter (if any) received from the Internal Revenue
Service or other opinion letter with respect to the qualified status under Code
Section 401(a) of any Benefit Plan for each Benefit Plan and related trust which
is intended to satisfy the requirements of Code Section 401(a), the two most
recent actuarial reports, valuations or annual or periodic accounting (if any),
for each Benefit Plan, the most recent summary plan description (with the most
recent summary of material modifications) (if any) and all material
communications to any Employee or Employees relating to any Benefit Plan or
Employee Agreement.
(c) Each Benefit Plan has been established and maintained in
accordance with its terms and in compliance with all applicable, laws, statutes,
orders, rules and regulations, including but not limited to ERISA and the Code,
and each Benefit Plan intended to qualify under Section 401 of the Code is, and
since its inception has been, so qualified and there have been no audits or
investigations by the IRS, the Department of Labor or the Pension Benefit
Guarantee Corporation which could affect such qualification or result in
liability to Seller. In addition, (i) no "prohibited transaction," within the
meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred with
respect to any Benefit Plan; (ii) no action or failure to act and no transaction
or holding of any asset by, or with respect to, any Benefit Plan has or may
subject Seller or any fiduciary to any tax, penalty or other liability, whether
by way of indemnity or otherwise; (iii) there are no actions, proceedings,
arbitrations, suits or claims pending, or to the knowledge of Seller or the
Seller's Shareholder, threatened or anticipated (other than routine claims for
benefits) against Seller or any administrator, trustee or other fiduciary of any
Benefit Plan with respect to any Benefit Plan, or against any Benefit Plan or
against the assets of any Benefit Plan; (iv) each Benefit Plan can be amended,
terminated or otherwise discontinued without liability to Seller or Buyer; (v)
Seller has made all payments with respect to all periods through the date
hereof, and will make a pro-rata payment for the period ending as of the Closing
Date, in each case which are required by each Benefit Plan, each related trust,
each collective bargaining agreement or by law to be made to, or with respect to
each Benefit Plan (including all insurance premiums with respect to each Company
Benefit Plan); and (vi) no liability under any Benefit Plan has been funded nor
has any such obligation been satisfied with the purchase of a contract from an
insurance company as to which Seller or the Seller's Shareholder has received
notice that such insurance company is insolvent or is in rehabilitation or any
similar proceeding.
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5.13. LABOR RELATIONS; EMPLOYEES. (a) Schedule 5.13 hereto
lists all employees of Seller with an annual salary in excess of $50,000. Except
as set forth on Schedule 5.13 hereto, (b) Seller is not delinquent in any
material respect in payments to any of its employees, for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
the date hereof or amounts required to be reimbursed by them to the date hereof,
(c) Seller is compliance, in all material respects, with all applicable federal,
state and local laws, rules and regulations respecting employment, employment
practices, labor, terms and conditions of employment and wages and hours, (d)
has withheld all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to Employees, (e) is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing, (f) is not liable for any payment to any trust or other fund or
to any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits for Employees, (g)
Seller is not bound by or subject to (and none of its assets or properties is
bound by or subject to ) any commitment or arrangement, written or oral, express
or implied, with any labor union, and no labor union has requested or, to
Seller's best knowledge, has sought to represent any of Seller's employees,
representatives or agents or (h) there is no labor strike, dispute, slowdown or
stoppage actually pending, or, to Seller's best knowledge, threatened against or
involving Seller or the Business. Seller will not terminate more than five
Employees during the 90-day period immediately prior to Closing, and all such
terminations will have been in the ordinary course of the operations of the
Business.
5.14. LITIGATION; ORDERS. Except as set forth on Schedule 5.14, there
is no civil, criminal or administrative action, suit, claim, notice, hearing,
inquiry, proceeding or investigation at law or in equity by or before any court,
arbitrator or similar panel, governmental instrumentality or other agency now
pending or, to Seller's best knowledge, threatened (i) against the Acquired
Assets or the Business or (ii) which seeks to enjoin or obtain damages in
respect of the consummation of the transactions contemplated by this Agreement
and the Ancillary Documents. Except as set forth in Schedule 5.14, none of the
Acquired Assets or the Business is subject to any order, writ, injunction or
decree of any court of any federal, state, municipal or other domestic or
foreign governmental department, commission, board, bureau, agency or
instrumentality.
5.15. COMPLIANCE WITH LAWS; PERMITS. Except as provided in Schedule
5.15, and/or except where the failure to comply could not reasonably be expected
to have a Material Adverse Effect, the Business is in compliance, and has been
conducted in compliance, with all federal, state and local laws, rules,
ordinances, codes, consents, authorizations, registrations, regulations,
decrees, directives, judgments and orders applicable to it. Seller has all
federal, state, local and foreign governmental licenses, permits and
authorizations (each, a "PERMIT") necessary in the conduct of the Business as
currently conducted except where the failure to have such Permits could not
reasonably
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be expected to have a Material Adverse Effect. All such Permits are in full
force and effect; no violations have been recorded in respect of any such
Permits except where such violation could not reasonably be expected to have a
Material Adverse Effect; no material proceeding is pending or, to the Seller's
best knowledge, threatened to revoke or limit any such Permit.
5.16. RELATED TRANSACTIONS. (a) Except as set forth (by category and
annual dollar amounts for the last complete fiscal year and the nine months
ending on September 30, 1997) on Schedule 5.16(a), no current stockholder,
director, officer or employee of Seller and no relative of any of the foregoing
persons is currently, or during the stated period of time has been, directly or
indirectly through a Person it controls, a party to any agreement, transaction
or series of similar transactions with the Business, other than in connection
with any such Person's duties as a director, officer or employee of Seller.
(b) Each category of ongoing transaction set forth on Schedule
5.16(a) is on terms that are consistent with the past practice of the Business.
(c) No current stockholder, director, officer or employee of
Seller or relative of any of the foregoing, other than the Seller's Shareholder,
has any interest, directly or indirectly through a Person it controls, in any
Acquired Assets or any property or asset used, held for use, or related to the
Business.
5.17. DISCLOSURE. Neither this Agreement nor any certificate,
instrument or written statement furnished or made to the Buyer by or on behalf
of Seller or the Seller's Shareholder in connection with this Agreement contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein and therein not
misleading; PROVIDED, HOWEVER, that Seller makes no representation regarding any
projections as to the line items contained in the Current Financial Statements,
which projections were provided to Buyer prior to the delivery of the Current
Financial Statements. The form of representation letter to Deloitte Touche, LLP
from Seller, and attached hereto as EXHIBIT C, does not contain any untrue
statement of material fact necessary in order to make the statements contained
therein not misleading. There is no fact that Seller or the Seller's Shareholder
has not disclosed to the Buyer or their counsel in writing and of which Seller
or the Seller's Shareholder is aware could reasonably be expected to have a
Material Adverse Effect or materially affect the ability of Seller or the
Seller's Shareholder to perform its obligations under the Agreement and the
Ancillary Documents.
5.18. TAXES. (a) To the best of their knowledge, Seller and the
Seller's Shareholder have (i) timely filed in accordance with any applicable
laws, rules and regulations, all Tax Returns required to be filed by it, and
(ii) paid all Taxes for which a notice of, or assessment or demand for, payment
has been received or which are
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otherwise due and payable, other than Taxes which are being contested in good
faith, which contests are set forth on Schedule 5.18(a). All Tax Returns filed
by Seller and the Seller's Shareholder are true, correct and complete in all
material respects, and all Taxes for which Seller may be liable have been paid
or adequate reserves have been established in respect thereof on, and are
reflected on, the Balance Sheet or on Schedule 5.18(a). Except as set forth on
Schedule 5.18(a), in respect of the Seller (A) there is no action, suit,
proceeding, investigation, audit, claim, lien, or material assessment pending or
proposed with respect to Taxes or with respect to any Tax Return, (B) all
amounts required to be collected or withheld by Seller with respect to Taxes
have been duly collected or withheld and any such amounts that are required to
be remitted to any taxing authority have been duly remitted, and (C) there are
no waivers or extensions of any applicable statute of limitations for the
assessment or collection of Taxes with respect to any Tax Return which remain in
effect.
(b) No taxing authority in a jurisdiction where Seller does
not file Returns has made a claim, assertion or threat that such non-filing
entity is or may be subject to taxation by such jurisdiction. Schedule 5.18(b)
contains a list of states, territories and jurisdictions (whether foreign or
domestic) in which Seller has filed an income, franchise, sales and use tax
return for taxable periods ending on or after the applicable statutes of
limitation.
(c) The Seller has been at all times since January 1, 1992, a
corporation subject to Taxes under Subchapter S of the Code. Nothing in the
preceding sentence should be interpreted to mean that Seller was not treated
prior to January 1, 1992 as a corporation subject to Taxes under Subchapter S of
the Code.
5.19. ENVIRONMENTAL PROTECTION. Except as set forth in Schedule
5.19(a), the Business is, and at all times has been conducted, in compliance
with all applicable federal, state and local laws, rules, regulations, codes,
ordinances, orders, decrees, directives and judgments relating to Environmental
Matters (as defined below), including all limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in all applicable Environmental Laws (as defined below). Except as set
forth in Schedule 5.19(b), the Business has obtained, and is in compliance with,
all permits, licenses, authorizations, registrations and other governmental
consents required by applicable Environmental Laws ("ENVIRONMENTAL Permits"),
except where the failure to obtain or comply with such Environmental Permit
could not reasonably be expected to have a Material Adverse Effect, including,
without limitation, those regulating emissions, discharges, or releases of
Hazardous Substances (as defined below), or the use, storage, treatment,
transportation, release, emission and disposal of raw materials, by-products,
wastes and other substances used or produced by or otherwise relating to its
business. Except as set forth on Schedule 5.19(c), there are no claims, notices,
civil, criminal or administrative actions, suits, hearings, investigations,
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inquiries or proceedings pending or, to the best knowledge of Seller, threatened
against the Business that are based on or relate to any Environmental Matters or
the failure to have any required Environmental Permits, except to the extent
that such events could not reasonably be expected to have a Material Adverse
Effect. Except as set forth on Schedule 5.19(d), there are no material past or
present conditions, events or circumstances (a) that may interfere with or
prevent continued compliance by the Business with Environmental Laws and the
requirements of Environmental Permits, (b) that may give rise to any liability
or other obligation under any Environmental Laws that may require the Business
to incur any actual or potential Environmental Costs (as defined below) or (c)
that may form the basis of any claim, action, suit, proceeding, hearing,
investigation or inquiry against or involving the Business based on or related
to any Environmental Matter or which could require the Business to incur any
Environmental Costs. Except as set forth in Schedule 5.19(e), no underground or
aboveground storage tanks, incinerators or surface impoundments have been used
by the Business or at any place where the Business operates or has operated or
on any property owned, leased or controlled or formerly owned, leased or
controlled by the Business. Except as set forth in Schedule 5.19(f), Seller has
not received any written notice or other communication that it is or may be a
potentially responsible person or otherwise liable in connection with any waste
disposal site allegedly containing any Hazardous Substances, or other location
used for the disposal of any Hazardous Substances, or notice of any failure on
its behalf to comply in any respect with any Environmental Law or the
requirements of any Environmental Permit. Except as set forth on Schedule
5.19(g), the Business has not used any waste disposal site, or otherwise
disposed of, transported, or arranged for the transportation of, any Hazardous
Substances to any place or location, or in violation of any Environmental Laws.
Except as set forth in Schedule 5.19(h), no lien exists, and no condition exists
which could result in the filing of a lien, against any Acquired Asset under any
Environmental Law or relating to any Environmental Matter. Except as set forth
in Schedule 5.19(i), there has been no material release or other dissemination
at any time of any Hazardous Substances at, on, or about, under or within any
real property currently or formerly owned or leased by the Business or any real
properties operated or controlled by the Business (other than pursuant to and in
accordance with permits held by the Business). Except as set forth in Schedule
5.19(j), Seller has not been requested or required by any governmental authority
to perform any investigatory or remedial activity or other action in connection
with any Environmental Matter.
For the purposes of this Section 5.19, the following terms shall have
the meanings indicated:
"ENVIRONMENTAL COSTS" means, without limitation, any actual or
potential cleanup costs, remediation, removal, or other response costs (which,
without limitation, shall include costs to cause the Business to come into
compliance with Environmental
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Laws), investigation costs (including, without limitation, fees of consultants,
counsel, and other experts in connection with any environmental investigation,
testing, audits or studies), losses, liabilities or obligations (including,
without limitation, liabilities or obligations under any lease or other
contract), payments, damages (including, without limitation, any actual,
punitive or consequential damages under any statutory laws, common law cause of
action or contractual obligations or otherwise, including, without limitation,
damages (a) of third parties for personal injury or property damage or (b) to
natural resources), civil or criminal fines or penalties, judgments, and amounts
paid in settlement arising out of or relating to or resulting from any
Environmental Matter.
"ENVIRONMENTAL LAWS" means, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
section 9601, ET SEQ.; the Emergency Planning and Community Right-to-Know Act of
1986, 42 U.S.C. section 11001, ET SEQ.; the Resource Conservation and Recovery
Act, 42 U.S.C. section 6901, ET SEQ.; the Toxic Substances Control Act, 15
U.S.C. section 2601, ET SEQ.; the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. section 136, ET SEQ.; the Clean Air Act, 42 U.S.C.
section 7401, ET SEQ.; the Clean Water Act (FederaL Water Pollution Control
Act), 33 U.S.C. section 1251, ET SEQ.; the Safe Drinking Water Act, 42 U.S.C.
section 300f, ET SEQ.; The Occupational Safety and Health Act, 29 U.S.C. section
641, ET SEQ.; the Hazardous Materials Transportation Act, 49 U.S.C. section
1801, ET SEQ.; as any of the above statutes have been amended from time to time,
all rules and regulations promulgated pursuant to any of the above statutes, and
any other federal, state or local law, statute, ordinance, rule or regulation
governing Environmental Matters, as the same have been amended from time to
time, including any common law cause of action providing any right or remedy
relating to Environmental Matters, all indemnity agreements and other
contractual obligations (including leases, asset purchase and merger agreements)
relating to environmental matters, and all applicable judicial and
administrative decisions, orders, and decrees relating to Environmental Matters.
"ENVIRONMENTAL MATTER" means any matter arising out of,
relating to, or resulting from pollution, contamination, protection of the
environment, human health or safety, health or safety of employees, sanitation,
and any matters relating to emissions, discharges, disseminations, releases or
threatened releases, of Hazardous Substances into the air (indoor and outdoor),
surface water, groundwater, soil, land surface or subsurface, buildings,
facilities, real or personal property or fixtures or otherwise arising out of,
relating to, or resulting from the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, handling, release or threatened release
of Hazardous Substances.
"HAZARDOUS SUBSTANCES" means any pollutants, contaminants,
toxic or hazardous substances, materials, wastes, constituents, compounds,
chemicals, natural or manmade elements or forces (including, without limitation,
petroleum or any by-products
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or fractions thereof, any form of natural gas, lead, asbestos and
asbestos-containing materials, building construction materials and debris,
polychlorinated biphenyls ("PCBS") and PCB-containing equipment, radon and other
radioactive elements, ionizing radiation, electromagnetic field radiation and
other non-ionizing radiation, sonic forces and other natural forces, infectious,
carcinogenic, mutagenic, or etiologic agents, pesticides, defoliants,
explosives, flammables, corrosives and urea formaldehyde foam insulation) that
are regulated by, or may form the basis of liability under, any Environmental
Laws as such Environmental Laws exist as of or existed prior to the Closing
Date.
5.20. CONSENTS. Except as set forth on Schedule 5.20, no permit,
authorization, consent or approval of or by, or any notification of or filing
with, any person (governmental or private) is required by Seller or the Seller's
Shareholder in connection with the execution, delivery and performance of the
Agreement and the Ancillary Documents to which it is a party or any
documentation relating thereto, the consummation by Seller or the Seller's
Shareholder of the transactions contemplated hereby and thereby, or the sale of
the Acquired Assets.
5.21. INSURANCE. Schedule 5.21 sets forth a list of all insurance
coverage carried by Seller, the carrier and the terms and amount of coverage
(the insurance policies required to be set forth on Schedule 5.21, the
"INSURANCE POLICIES"). All of the Insurance Policies are in full force and
effect and all premiums with respect thereto up to the Closing Date have been,
or will be, paid. Seller has not failed to give any notice or present any claim
under any of the Insurance Policies in due and timely fashion or as required
thereunder and has not otherwise, through any act, omission or non-disclosure,
jeopardized or impaired full recovery under such policies, and there are no
claims by Seller under any of the Insurance Policies to which any insurance
company is denying applicability of or coverage under the Insurance Policy or
defending under a reservation of rights or similar clause. Seller has not
received notice of any pending or threatened termination of any of the Insurance
Policies or any premium increases for the current policy period with respect to
any of such policies. Seller is entitled to receive any unearned insurance
premiums paid with respect to such policies and returned to Seller following
Closing.
5.22. BROKERS. Neither the Seller's Shareholder, Seller nor any of its
officers, directors, employees or stockholders has employed any broker or finder
in connection with the transactions contemplated by this Agreement, except for
Vine Street Partners.
5.23. SUPPLIERS AND CUSTOMERS. Schedule 5.23 sets forth a correct and
complete list of the ten largest customers and the ten largest suppliers/dealers
(by dollar volume) of the Business for the twelve months ended December 31, 1996
and the nine months ended September 30, 1997. Except as set forth on Schedule
5.23, Seller does not have any knowledge of any termination, cancellation or
threatened termination or cancellation or
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limitation of, or any material
modification or change in, or expressed material dissatisfaction with the
business relationship between Seller and (A) any supplier, dealer or vendor of
the Business in each case of materials, equipment or services, in an amount in
excess of $50,000 per year or (B) customer or client of the Business, in each
case of materials, equipment or services, in an amount in excess of $50,000 per
year.
5.24. ACCOUNTS RECEIVABLE. (a) The accounts receivable and notes
receivable reflected on the Current Balance Sheet and those accounts receivable
and notes receivable of the Business acquired or created thereafter through the
date hereof (each, a "RECEIVABLE") (i) are bona fide accounts receivable and
notes receivable created in the ordinary and usual course of business in
connection with bona fide transactions and consistent with past practice and
(ii) are recorded net of discounts, if any, provided to customers.
(b) Except as set forth on Schedule 5.24(b), as of the date
hereof there is (i) to Seller's best knowledge, no debtor of a Receivable which
is insolvent or bankrupt and (ii) no Receivable is pledged to any third party.
(c) There will be at least $3,200,000 of collectible
Receivables reflected in the Final Year End Financial Statement; PROVIDED,
HOWEVER, that the calculation of such amount shall include in addition to the
booked receivables Buyer's receipt of (i) unbooked receivables, (ii) finance
charges on overdue Receivables existing as of or arising after the Closing Date
and (iii) proceeds from collection claims existing as of the Closing Date (net
of collection expenses and counterclaims).
5.25. FLEET. The Final Year End Financial Statements will reflect that
rental fleet will consist as of the Closing Date of at least the number of units
by class and type as is reflected in Schedule 5.25.
5.26. NET ASSETS. On the Final Year End Financial Statements, Acquired
Assets minus Assumed Liabilities will be equal to at least $3,400,000.
5.27. INDEMNIFICATION OBLIGATIONS. Within the past five years, Seller
has not made any payment under any indemnification obligation.
5.28. TAX SHARING AGREEMENTS. Seller is not a party to, and never has
been a party to, any agreement relating to the sharing of Taxes with any other
Person.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller and the Seller's Shareholder as
of the date hereof and as of the Closing as follows:
6.1. DUE ORGANIZATION, VALID EXISTENCE; DUE AUTHORIZATION;
ENFORCEABILITY. Buyer is a corporation duly organized and validly existing under
the laws of the State of Delaware and has all requisite power and authority to
enter into and consummate the transactions contemplated by the Agreement and the
Ancillary Documents. The execution, delivery and performance by Buyer of the
Agreement and the Ancillary Documents have been duly authorized by all requisite
corporate action on its part. The Agreement and each of the Ancillary Documents
have been duly and validly executed and delivered by Buyer and constitute the
legal, valid and binding obligation of Buyer, enforceable against it in
accordance with its terms except to the extent that enforceability may be
limited by bankruptcy, insolvency or other similar laws affecting creditors'
rights generally.
6.2. NO CONFLICT. The execution, delivery and performance by Buyer of
each of the Agreement and the Ancillary Documents and the consummation by Buyer
of the transactions contemplated hereby and thereby will not violate any
provision of any domestic (federal, state or local) or foreign law, statute,
rule or regulation, or any ruling, writ, injunction, order, judgment or decree
of any court, administrative agency or other governmental body applicable to it,
except for such violations which, in the aggregate, would not have material
adverse effect on the ability of Buyer to consummate the transactions
contemplated by this Agreement or the Ancillary Documents.
6.3. CONSENTS. No permit, authorization, consent or approval of or by,
or any notification of or filing with, any person (governmental or private) is
required by Buyer in connection with its execution, delivery and performance of
the Agreement and the Ancillary Documents or its consummation of the
transactions contemplated hereby and thereby, other than notifications and
filings required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
6.4. BROKERS. Neither Buyer nor any of its officers, directors,
employees or stockholders has employed any broker or finder in connection with
the transactions contemplated by this Agreement.
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ARTICLE VII
PRE-CLOSING COVENANTS
7.1. COOPERATION. Each of the parties hereto shall cooperate with each
other and use all commercially reasonable efforts to cause the conditions set
forth in Article IX to be satisfied and to consummate and make effective the
transactions contemplated by this Agreement and the Ancillary Documents,
including consummation of the lease transactions contemplated by Section 9.2(g),
and obtaining all consents, approvals, transfers, permissions, waivers, orders,
licenses, registrations or authorizations of all courts, authorities and other
third parties which are necessary or advisable to consummate and make effective
the transactions contemplated by this Agreement and the Ancillary Documents, and
to transfer the Business and the Acquired Assets to Buyer.
7.2. CONDUCT OF BUSINESS. (a) During the Interim Period, except as
Buyer may otherwise consent to in writing or as otherwise specifically
contemplated by this Agreement, Seller will:
(i) operate the Business only in the usual, regular
and ordinary course and in accordance with past practice;
(ii) use its best efforts to preserve intact the
business organization of the Business and keep available the services of its
current officers, employees, agents and consultants involved with the Business;
(iii) maintain all the Acquired Assets in good
operating condition and repair, ordinary wear and tear excepted, and subject the
Acquired Assets to continued repair and maintenance in accordance with past
practice, in an effort to enable them to be operated after the Closing in the
manner in which they are currently operated;
(iv) maintain insurance in full force and effect with
respect to the Business with responsible companies, comparable in amount, scope
and coverage to that in effect on the date of this Agreement;
(v) use its best efforts to preserve its favorable
business relationships with the clients, lenders, suppliers, customers,
licensors and licensees and others having business dealings with the Business,
and to preserve the goodwill and ongoing operations of the Business;
(vi) maintain its books and records in the usual,
regular and ordinary manner, on a basis consistent with prior years (except as
set forth on Schedule 5.5(b); and
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(vii) perform and comply with its obligations under
the Assigned Contracts.
(b) During the Interim Period except as Buyer may otherwise
consent to in writing or as otherwise specifically contemplated by this
Agreement, Seller will not:
(i) acquire, by purchase or otherwise, any assets,
except in the ordinary course of business, consistent with past practice;
(ii) vary or amend the terms of any Assumed Liability
except in the ordinary course of business, consistent with past practice;
(iii) incur, assume, guaranty or otherwise become
liable in respect of any indebtedness for money borrowed or subject any of the
Acquired Assets, to any Encumbrance, except for those incurred in the ordinary
course of business, consistent with past practice;
(iv) sell, lease, transfer, assign or otherwise
dispose of any of the Acquired Assets except for sales of inventory including
fleet equipment in the ordinary course of business, consistent with past
practice;
(v) will not make any Distributions other than of the
Excluded Assets on a basis consistent with past practices;
(vi) enter into, modify, terminate, amend or grant
any waiver in respect of any material Contract (including any of the Assigned
Contracts) except in the ordinary course of business, consistent with past
practice;
(vii) grant to any Employee any increase in
compensation in any form (other than pursuant to existing Employee Agreements)
or enter into, vary the terms of, or terminate any Employee Agreement or
establish, propose to establish, amend or terminate any Company Benefit Plan
except in the ordinary course of business consistent with past practice;
(viii) transfer, grant, amend or knowingly terminate
any of its rights relating to any of the Intellectual Property;
(ix) accelerate the collection of accounts or notes
receivable or delay the payment of accounts payable or otherwise operate the
Business or take action other than in the ordinary course of business;
(x) except as necessary to satisfy Section 9.2(i),
discharge or satisfy any Encumbrance or liability or obligation (fixed or
contingent), other than in the ordinary course of business, consistent with past
practice, or in accordance with the
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existing terms thereof or compromise, settle or otherwise adjust any claim or
litigation, except in the ordinary course of business, and except, in any case,
any liability, obligations, claims or litigation which are Excluded Liabilities;
(xi) make any changes in its accounting methods or
practices;
(xii) enter into any transaction or agreement of any
kind with any stockholder, director, officer or employee of Seller, or relative
of any of the foregoing, or any Person controlled by any of the foregoing,
including the making of any loans, advances or investments to or in such entity,
except for those categories of transactions and agreements set forth on Schedule
5.16(a) and in a manner consistent with past practices;
(xiii) enter any transaction, take any action, or by
inaction permit any event to occur, that would result in any of the
representations and warranties of Seller or the Seller's Shareholder contained
herein or in any Ancillary Document not being true and correct immediately after
the occurrence of such transaction, action or event or on the Closing Date; or
(xiv) agree or otherwise commit to take any of the
actions set forth in the foregoing subparagraphs (i) through (xiii).
7.3. REQUIRED NOTICES. (a) At all times prior to the Closing Date,
Seller, or the Seller's Shareholder as appropriate under the circumstances,
shall promptly give written notice to Buyer of (a) any facts or circumstances or
the occurrence of any event or the failure of any event to occur, which has or
is reasonably likely to have, (x) a Material Adverse Effect, (y) a material
adverse effect on Seller's or the Seller's Shareholder' ability to consummate
the transactions contemplated hereby or by the Ancillary Documents or to satisfy
its obligations hereunder or thereunder, or (z) a breach of any representation
or warranty made by Seller or the Seller's Shareholder in this Agreement or in
any Ancillary Document, (b) any failure by Seller or the Seller's Shareholder to
comply with any of its covenants or agreements contained in this Agreement, (c)
any material complaints, investigations or hearings (or communications
indicating that the same may be contemplated) of any authority with respect to
this Agreement, the Business, the Acquired Assets or the transactions
contemplated hereby or by the Ancillary Documents, (d) the institution or the
threat of institution of any material litigation or similar action with respect
to this Agreement, the Business, the Acquired Assets or the consummation of the
transactions contemplated hereby and (e) the occurrence of any event which will
or is reasonably likely to result in the failure to satisfy any condition set
forth in Article IX. Seller and the Seller's Shareholder will keep Buyer
continually informed of such events. During the period from the date of this
Agreement
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to the Closing Date, Seller and the Seller's Shareholder will confer on a
regular basis with Buyer to report on the general status of the ongoing
operations of the Business.
(b) At all times prior to the Closing Date, Buyer shall
promptly give written notice to Seller of (a) any facts or circumstances or the
occurrence of any event or the failure of any event to occur, which has or is
reasonably likely to have, (x) a material adverse effect on Buyer's ability to
consummate the transactions contemplated hereby or by the Ancillary Documents or
to satisfy its obligations hereunder or thereunder or (y) a breach of any
representation or warranty made by Buyer in this Agreement or in any Ancillary
Document, (b) any failure by Buyer to comply with any of its covenants or
agreements contained in this Agreement, (c) any complaints, investigations or
hearings (or communications indicating that the same may be contemplated) of any
authority with respect to this Agreement or the transactions contemplated
hereby, (d) the institution or the threat of institution of any litigation or
similar action with respect to this Agreement or the consummation of the
transactions contemplated hereby and (e) the occurrence of any event which will
or is reasonably likely to result in the failure to satisfy any condition set
forth in Article IX.
7.4. ACCESS. During the Interim Period, (i) Seller or the Seller's
Shareholder as is appropriate under the circumstances, shall provide to Buyer
and its representatives (A) such financial and operating data and other
information as Buyer or its representatives may from time to time reasonably
request with respect to the Business, the Acquired Assets and the transactions
contemplated by this Agreement and (B) full access during normal business hours
to the assets, properties, plants, offices, warehouses and other facilities,
Contracts and books and records of the Business, and to the outside auditors of
Seller and their work papers relating thereto, as Buyer may from time to time
reasonably request and at Buyer's expense; and (ii) Buyer and its
representatives shall be entitled to consult with the representatives, officers,
employees and accountants of Seller with respect to the Business and Seller will
instruct such persons to cooperate reasonably with Buyer.
7.5. ACQUISITION PROPOSALS. During the period from the date of this
Agreement until the earlier of the termination of this Agreement and the Closing
Date, neither Seller nor any the Seller's Shareholder shall solicit or
encourage, directly or indirectly, any inquiries, discussions or proposals for,
furnish any information to any Person for the purpose of evaluating or
determining whether to make or pursue any inquiries or proposals with respect
to, continue, propose or enter into negotiations looking toward, or enter into
or consummate any agreement or understanding providing for, any sale or other
disposition of all or any portion of the Business, the Acquired Assets or any of
the Seller's equity securities (whether newly issued or currently outstanding),
or any merger or business combination involving Seller or for the purpose of
otherwise effecting a transaction inconsistent with the transactions
contemplated by this Agreement; and Seller
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and the Seller's Shareholder will use their best efforts to prohibit any of
their respective officers, directors, representatives, agents or Affiliates from
doing any of the above. Seller and the Seller's Shareholder will promptly notify
Buyer if any such inquiries or proposals are received by, any such information
is requested from, or any such negotiations or discussions are sought to be
initiated with, Seller, the Seller's Shareholder or any of their respective
representatives or agents or any Affiliate of Seller or the Seller's
Shareholder. Upon receipt of such notice, Buyer may take only such action as is
reasonable under the circumstances.
7.6. SUBSEQUENT FINANCIAL STATEMENTS. (a) As soon as practicable after
the end of each month during the Interim Period, Seller will prepare and
promptly deliver to Buyer copies of a compiled balance sheet as of the end of
such month and a compiled income statement for the month then ended for the
Business. All financial statements delivered hereunder shall (a) subject to
Schedule 5.5(b), be prepared on a basis consistent with past practice and (b)
fairly present the financial position of the Business as at the dates thereof
and the results of its operations for the periods then ended.
(b) As soon as possible following December 31, 1997, Seller
will prepare statements of assets, liabilities and equity as of December 31,
1997 and the related statement of revenues, expenses and retained earnings for
the year then ended (the "Preliminary Year End Financial Statements"). The
Preliminary Year End Financial Statements shall be prepared on a basis
consistent with the Current Financial Statements and Seller shall cause, at
Seller's expense, such statements to be compiled by Seller's Accountants. The
Preliminary Year End Financial Statements shall fairly present in all material
respects the financial condition and results of operations of the Business as of
and for the year ending December 31, 1997 in accordance with the income tax
basis accounting.
(c) The Preliminary Year End Financial Statements shall be
binding and conclusive upon, and deemed accepted by, Buyer unless the Buyer
shall have notified the Seller in writing (the "Buyer's Objection") of any
objections thereto within thirty (30) days after the delivery by the Seller of
the Preliminary Year End Financial Statements. The Buyer's Objection shall
specify in reasonable detail the reasons for such objection and the adjustments
to the Preliminary Year End Financial Statements which Buyer believes should be
made.
(d) Seller shall have thirty (30) days to review and respond
in writing (the "Seller's Response") to Buyer's Objection. Disputes between
Buyer and Seller relating to the Preliminary Year End Financial Statements that
cannot be resolved by them within thirty (30) days after receipt by Buyer of the
Seller's Response to the Buyer's Objection may be referred thereafter for
decision at the insistence of either party to the Disputes Auditor. The Disputes
Auditor shall establish the procedures to be followed
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(including procedures with regard to presentation of evidence) giving due regard
to the intention of the parties to resolve disputes as quickly, efficiently and
inexpensively as possible. The parties shall, as promptly as practicable, submit
evidence in accordance with the procedures established, and the Disputes Auditor
shall decide the dispute in accordance therewith. The Disputes Auditor's
decision on any matter referred to it shall be final and binding on Seller and
Buyer. The fee of the Disputes Auditor shall be borne by Seller and Buyer in
equal portions. The Buyer and the Seller shall make readily available to the
Disputes Auditor all relevant books and records and any work papers (including
those of the parties' respective accountants) relating to all items reasonably
requested by the Disputes Auditor.
(e) The "Final Year End Financial Statements" shall be (i) the
Preliminary Year End Financial Statements in the event that (x) no Buyer's
Objection is delivered to the Seller during the 30-day period referred to in
Section 7.6(b) above, or (y) the Seller and the Buyer so agree, (ii) the
Preliminary Year End Financial Statements adjusted in accordance with the
Buyer's Objection in the event that Seller does not respond to Buyer's Objection
within the 30-day period referred to in Section 7.6(d) above, or (iii) the
Preliminary Year End Financial Statements, as adjusted by either (x) the
agreement of the Seller and the Buyer or (y) the Disputes Auditor.
7.7. NAME CHANGE. Simultaneously with the Closing, Seller shall amend
its Articles of Incorporation to delete the name "Richbourg's Sales & Rentals,
Inc."; "Richbourg"; and any derivation thereof.
7.8. H-S-R. Each of Buyer and Seller shall make any and all filings and
notifications required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, as promptly as practicable following the date of the
Agreement. Each of Buyer and Seller shall take all commercially reasonable steps
to ensure the waiting period under such statute expires or terminates early.
Buyer shall be solely responsible for all filing fees associated with the
Hart-Scott-Rodino application PROVIDED, HOWEVER, that if the transactions
contemplated by this Agreement are not consummated for any reason whatsoever,
Seller shall be responsible for fifty percent (50%) of such fees up to a maximum
contribution by Seller of $22,500.
ARTICLE VIII
POST-CLOSING AGREEMENTS
8.1. NON-COMPETITION; NON-SOLICITATION; NON-DISCLOSURE:
NON-DISPARAGEMENT. (a) In consideration of the benefits to Seller and the
Seller's Shareholder hereunder and in order to induce Buyer to enter into this
Agreement, if the Closing
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occurs, Seller and the Seller's Shareholder hereby covenant and agree that for a
period of five (5) years after the Closing Date, Seller and the Seller's
Shareholder shall not, and shall cause their respective Affiliates not to,
directly or indirectly, (i) in the United States of America, as a proprietor,
partner, stockholder, director, officer, employee, joint venturer, investor,
lender or in any other capacity own, engage in, conduct, manage, operate or
control, or participate in, be associated with or be connected in any manner
whatsoever in the ownership, management, operation or control of, any business
which, directly or indirectly, engages in the Business (or any business which is
substantially similar to the Business) as currently conducted by Seller or as
conducted at any time during the preceding five-year period; or (ii) recruit,
solicit, encourage, entice or induce any Person who is then an employee,
customer or otherwise has a business relationship with the Business to terminate
his or her relationship with the Business. Notwithstanding the foregoing, for
purposes of this Section 8.1, the term "Business" shall not include Other
Businesses. Nothing herein shall limit the right of Seller, the Seller's
Shareholder or their respective Affiliates to own less than five (5%) percent of
the voting securities of any company having securities registered under the
Securities Exchange Act of 1934, as amended. If, at any time during the period
beginning six months after the Closing Date and ending on the third anniversary
of the Closing Date, Buyer shall, in its sole reasonable discretion, determine
that the activities conducted by Richbourg's Cranes, Inc. are in competition
with Buyer, then Buyer shall so inform the Seller's Shareholder by written
notice. Within nine months following the receipt of such notice by the Seller's
Shareholder, the Seller's Shareholder shall dispose of Richbourg's Cranes, Inc.
(b) From and after the Closing Date, neither Seller nor the
Seller's Shareholder shall, or shall allow any of its Affiliates to, disclose to
third parties or use for their own account any information with respect to the
Business (including, without limitation, trade "know-how," secrets, consultant
contracts, customer lists, subscription lists, pricing policies, operational
methods, marketing plans or strategies, product development techniques or plans,
business acquisition plans, new personnel acquisition plans, and research
projects of the Business) except (i) to the extent that such information shall
have become generally available to the public without breach of this Agreement;
or (ii) to the extent that such information is required to be disclosed by law,
by a governmental authority or by a final, non-appealable order of a court of
competent jurisdiction; PROVIDED, HOWEVER, that in the event that disclosure of
such information is requested or required by any law, a governmental authority
or court order, Seller and the Seller's Shareholder shall provide Buyer with
prompt notice of such request or requirement and shall, prior to disclosing such
information, cooperate with Buyer with respect to any such disclosure including,
without limitation, assisting Buyer, at Buyer's expense, in obtaining an
appropriate protective order if Buyer so elects and (iii) to the extent such
activity is conducted in association with the Other Businesses. From and after
the Closing Date, Seller and the Seller's Shareholder shall use their best
efforts not
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to allow any officer, director, employee, agent or consultant of theirs or of
any of their Affiliates to disclose to third parties or to use for their own
account any information with respect to the Business subject to the same
limitations set forth in the prior sentence.
(c) Seller and the Seller's Shareholder acknowledge and agree
that neither they nor their respective Affiliates shall publish any statement or
make any statement (under circumstances reasonably likely to become public)
critical or in any way adversely affecting or otherwise maligning the reputation
of Buyer, Buyer's Subsidiaries, or Buyer's and Buyer's Subsidiaries'
shareholders, debtholders, directors, management, Affiliates and Employees.
(d) Seller and the Seller's Shareholder acknowledge and agree
that, if they or their respective Affiliates breach any provision of this
Section 8.1, any remedy at law would be inadequate and that Buyer, in addition
to seeking monetary damages in connection with any such breach, shall be
entitled to specific performance, injunctive and other equitable relief in the
form of preliminary and permanent injunctions (without bond or other security)
upon any breach of any such covenant to prevent or restrain a breach of this
Section 8.1 or to enforce the provisions of this Section 8.1.
(e) The parties hereto agree that the duration, area and scope
that the covenants not-to-compete, not-to-solicit, not-to-disclose and
not-to-disparage set forth in subsections (a), (b) and (c) of this Section 8.1
are designed to ensure such covenants are effective and adequately protect the
Business, and are essential elements of this Agreement. The Buyer, Seller and
the Seller's Shareholder have independently consulted with their respective
counsel and have been advised concerning the reasonableness and propriety of
such covenants with specific regard to the nature of the Business.
(f) In the event that any court determines that the duration,
area or scope of the covenants not-to-compete, not-to-solicit, not-to-disclose
and not-to-disparage set forth in subsections (a), (b) and (c) of this Section
8.1 are unreasonable and that any covenant is to that extent unenforceable, the
parties hereto agree that such restriction shall remain in full force and effect
for the greatest duration and in the greatest area and scope that would not
render it unenforceable. The parties intend that each covenant shall be deemed
to be a series of separate covenants, one for each of the jurisdictions within
the United States of America where these covenants are intended to be effective.
8.2. FURTHER ASSURANCES. At any time and from time to time after the
Closing, the parties agree to cooperate with each other, to execute and deliver
such other documents, instruments of transfer or assignment or assumption,
files, books and records and do all such further acts and things as may be
necessary or desirable (a) to sell, transfer, assign, deliver and convey to
Buyer the Acquired Assets and the Business free
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and clear of all Encumbrances, (b) to arrange for the assumption by Buyer of the
Assumed Liabilities, and (c) to otherwise carry out the intent of the parties
hereunder.
8.3. MAIL; PAYMENTS. (a) Seller authorizes and empowers Buyer on and
after the Closing Date to receive and open all mail and other communications
received by Buyer relating to the Acquired Assets, the Assigned Contracts and
the Business and to deal with the contents of such communications in any proper
manner. Seller shall promptly deliver to Buyer any mail or other communication
received by it after the Closing Date pertaining to the Business. Buyer shall
not open any mail or other communication received by it that is addressed to,
delivered for, or otherwise intended for the Seller's Shareholder personally or
the Other Businesses, and Buyer agrees to expeditiously deliver to Seller any
such mail or other communication or payments for the Other Businesses, as well
as any mail or other communication received by it that does not relate to the
Business, the Acquired Assets or the Assigned Contracts.
(b) Seller shall promptly (but, in any event, not more than
five Business Days after receipt thereof) pay or deliver to Buyer any monies or
checks which have been mistakenly sent by customers to it and which should
properly have been sent to Buyer (including, without limitation, any payments in
respect of notes or accounts receivable transferred to Buyer pursuant to this
Agreement).
(c) Seller agrees that Buyer has the right and authority to
endorse, without recourse, any check or other evidence of indebtedness received
by Buyer in respect of any note or account receivable transferred to Buyer
pursuant to this Agreement or other Acquired Asset, and Seller shall furnish
Buyer such evidence of this authority as Buyer may request.
8.4. RIGHTS OF ENFORCEMENT AND SETTLEMENT. From and after the Closing,
Buyer shall have complete control over the payment, settlement or other
disposition of, or any dispute involving the Assumed Liabilities and the right
at its sole expense to commence, conduct and control all negotiations and
proceedings with respect thereto. Seller shall notify Buyer promptly of any
claim made with respect to any Assumed Liabilities or Acquired Assets and shall
not, without Buyer's prior written consent, voluntarily pay, settle or offer to
settle, or consent to any compromise or admit liability with respect to, any
Assumed Liabilities or Acquired Assets. Seller and the Seller's Shareholder
shall cooperate with Buyer in any reasonable manner requested by Buyer in
connection with any negotiations or proceedings involving any Assumed
Liabilities or Acquired Assets, all of which shall be solely at Buyer's expense.
8.5. ACCOUNTS RECEIVABLE; COLLECTION CLAIMS. Seller hereby irrevocably
appoints Buyer as its attorney and agent commencing with the Closing Date for
the purpose of collecting, solely at Buyer's expense, all of Seller's
outstanding accounts
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and notes receivable, with full authority in Buyer, at Buyer's sole expense, to
take any and all steps which it considers necessary or appropriate to accomplish
said purpose. Seller shall cooperate reasonably with Buyer in collecting said
accounts and notes receivable. Schedule 8.5 sets forth a listing of Seller's
active and open collection claims and lawsuits.
8.6. BOOKS AND RECORDS. Seller and the Seller's Shareholder shall allow
Buyer and its agents reasonable access to any operating data or books and
records relating to the Business not previously delivered to Buyer or delivered
to Buyer pursuant to this Agreement during normal working hours at Seller's
principal place of business or any location where such operating data or books
and records are stored, as Buyer may from time to time reasonably request and,
in connection therewith, Buyer shall have the right, at its own expense, to make
copies of any such operating data or books and records; PROVIDED, HOWEVER, that
any such access or copying shall be had or done so as not to interfere with the
normal conduct of Seller's business, shall be done at reasonable times, and
shall be subject to the Confidentiality Agreement.
8.7. LIENS. Seller and the Seller's Shareholder shall take all actions
necessary to have the title documents related to all Acquired Assets delivered
to Buyer.
8.8. CONFIDENTIALITY AGREEMENTS. Seller and the Seller's Shareholder
shall use reasonable efforts to assist Buyer in obtaining the assignment of any
confidentiality agreements to which Seller is a party and are not assignable.
8.9 NO SALE. Buyer agrees to not sell any of the equipment subject to
Seller's CASE CRE program and as set forth on Schedule 8.9 prior to July 31,
1998.
ARTICLE IX
CONDITIONS TO PARTIES' OBLIGATIONS
9.1. CONDITIONS TO SELLER'S AND THE SELLER'S SHAREHOLDER' OBLIGATIONS.
The obligations of Seller and the Seller's Shareholder to complete the
transactions provided for herein shall be subject to the following conditions:
(a) REPRESENTATIONS AND AGREEMENTS. Each of the
representations and warranties of Buyer contained in this Agreement and the
Ancillary Documents shall be true and correct in all material respects, on and
as of the Closing, as though made as of the Closing, except to the extent that
any representation or warranty is made as of a specified date, in which case
such representation or warranty shall be true in all material
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respects as of such date, and Buyer shall have performed, in all material
respects, each of the agreements to be performed by it hereunder or thereunder
on or before the Closing.
(b) OFFICER'S CERTIFICATE. Seller shall have received a
certificate from an officer of Buyer dated as of the Closing Date reasonably
satisfactory to Seller and its counsel certifying as to the satisfaction of the
condition specified in Section 9.1(a).
(c) NO PROCEEDING OR LITIGATION. No suit, action,
investigation, or other proceeding by any governmental body shall have been
instituted (and be pending) or threatened, and no suit, action, investigation or
other proceeding by any other Person shall have been instituted (and be
pending), in each case which seeks to prevent or prohibit the consummation of
the transactions contemplated by this Agreement and the Ancillary Documents.
(d) CORPORATE PROCEEDINGS. Seller shall have received a
certificate executed by the Secretary of Buyer certifying a true and accurate
copy of (i) resolutions of the Board of Directors of Buyer authorizing the
transactions contemplated hereby and (ii) incumbency matters reasonably
satisfactory to Seller and its counsel.
(e) ANCILLARY DOCUMENTS. Each of the Ancillary Documents to
which Buyer is a party shall have been executed and delivered by Buyer, and each
such agreement shall be in full force and effect as of the Closing.
(f) OPINION OF BUYER'S COUNSEL. Seller shall have received at
the Closing the favorable opinion of Fried, Frank, Harris, Shriver & Jacobson,
counsel for Buyer, to the effect that:
(i) Buyer is a corporation validly existing and in
good standing under the laws of the State of Delaware, is duly qualified and in
good standing as a foreign corporation in each other jurisdiction in which it
owns or leases property or in which the conduct of its business requires it to
so qualify or be licensed except where the failure to so qualify or be licensed
would not be reasonably likely to have a Material Adverse Effect, has all
requisite corporate power and authority to enter into and carry out the
transactions contemplated by this Agreement and the Ancillary Documents to which
Buyer is a party;
(ii) This Agreement and the Ancillary Documents to
which Buyer is a party have been duly authorized, executed and delivered by
Buyer and are the valid and binding obligations of Buyer, enforceable in
accordance with their terms except as enforcement thereof may be limited by
applicable bankruptcy, insolvency, or similar laws affecting the rights of
creditors generally, and subject to judicial limitations which may be imposed
upon the availability of equitable remedies; and
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(iii) The execution and delivery of the Agreement and
the Ancillary Documents by Buyer and the consummation of the transactions
contemplated thereby will not violate any provision of any applicable law,
statute, rule or regulation, or any ruling, order, judgment, or decree known to
counsel of any court, agency, or other governmental body to which the Buyer is
subject, or violate Buyer's Certificate of Incorporation or Bylaws.
9.2. CONDITIONS TO THE BUYER'S OBLIGATIONS. The obligations of Buyer to
complete the transactions provided for herein shall be subject to the following
conditions:
(a) REPRESENTATIONS AND AGREEMENTS. Each of the
representations and warranties of Seller and the Seller's Shareholder contained
in this Agreement and the Ancillary Documents shall be true and correct in all
material respects, on and as of the Closing, as though made as of the Closing,
except to the extent that any representation or warranty is made as of a
specified date, in which case such representation or warranty shall be true in
all material respects as of such date, and Seller and the Seller's Shareholder
shall have performed, in all material respects, each of the agreements to be
performed by it hereunder or thereunder on or before the Closing.
(b) OFFICER'S AND THE SELLER'S SHAREHOLDER'S CERTIFICATE.
Buyer shall have received a certificate from (i) an officer of Seller and (ii)
the Seller's Shareholder dated as of the Closing reasonably satisfactory to
Buyer and its counsel certifying as to the satisfaction of the condition
specified in Section 9.2(a).
(c) NO PROCEEDING OR LITIGATION. No suit, action,
investigation or other proceeding by any governmental body shall have been
instituted (and be pending) or threatened, and no suit, action, investigation,
or other proceeding by any other Person shall have been instituted (and be
pending), that seeks to prevent or prohibit the consummation of the transactions
contemplated by this Agreement or the Ancillary Documents or which is likely to
have a Material Adverse Effect.
(d) ANCILLARY DOCUMENTS. Except as otherwise specifically
provided for herein or in any Ancillary Documents, each of the Ancillary
Documents shall have been executed and delivered by the various parties thereto
other than Buyer, and each such agreement shall be in full force and effect as
of the Closing.
(e) NO MATERIAL ADVERSE EFFECT. There shall have been no event
which has, or reasonably could be expected to have, a Material Adverse Effect.
(f) LEASES. (a) The leases between Buyer and the Seller or the
Seller's Shareholder, as appropriate, relating to the following properties shall
have been executed and delivered prior to or contemporaneously with the Closing:
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(i) Athens, GA, 1460 Chase Street;
(ii) Augusta, GA, 2051 Mike Padgett Highway;
(iii) Charleston, SC, 8008 Dorchester Road;
(iv) Fayetteville, NC, 140 Pepsi Lane;
(v) Florence, SC, 1500 West Lucas Street;
(vi) Columbia, SC, 108 North Montague Drive;
(vii) Greenville, NC, 101 Hooker Road;
(viii) Sumter, SC, 765 North Pike West;
(ix) Macon, GA, 5340 Hawkinsville Road;
(x) Greer, SC, 1936 Highway 101 South;
(xi) Albany, GA, 1107 Centennial Avenue;
(xii) Durham, NC, 2323 South Alston Avenue;
(xiii) Monroe, NC, 2711 Chamber Drive;
(xiv) Brunswick, GA, 117 Indigo Drive;
(xv) Wilmington, NC, 304 Raleigh Street;
(xvi) Myrtle Beach, SC, 749 Jason Boulevard; and
(xvii) Tallahassee, FL, 3971 Woodville Highway.
(g) FORM OF LEASE. Subject to Schedule 9.2(g), each lease to
be entered pursuant to this Section 9.2(g) shall be substantially equivalent to
the lease attached hereto as EXHIBIT D.
(h) OPINION OF SELLER'S COUNSEL. Buyer shall have received at
the Closing the favorable opinion of Turner, Padget, Graham & Laney, P.A.,
counsel for Seller, to the effect that:
(i) Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of South Carolina,
which has all requisite corporate power and authority to enter into and carry
out the transactions contemplated by this Agreement and the Ancillary Documents
to which Seller is a party;
(ii) This Agreement and the Ancillary Documents to
which Seller is a party have been duly authorized, executed and delivered by
Seller and are the valid and binding obligations of Seller, enforceable in
accordance with their terms except as enforcement thereof may be limited by
applicable bankruptcy, insolvency, or similar laws
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affecting the rights of creditors generally, and subject to judicial limitations
which may be imposed upon the availability of equitable remedies; and
(iii) The execution and delivery of the Agreement and
the Ancillary Documents by Seller and the Seller's Shareholder and the
consummation of the transactions contemplated thereby will not violate any
provision of any applicable law, statute, rule or regulation, or any ruling,
order, judgment or decree known to counsel of any court, agency or other
governmental body to which the Business is subject, result in the creation or
imposition of any Encumbrance on any of the Acquired Assets or violate Seller's
Certificate of Incorporation or By-Laws.
(iv) No consent, approval, authorization or order of,
or registration or filing with, any court or government agency, other than as
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1978, is
required on the part of Seller or the Seller's Shareholder in connection with
the consummation of the transactions herein contemplated.
(i) REPAYMENT OF EXISTING DEBT. Seller and the Seller's
Shareholder shall have taken all steps reasonably necessary to ensure that any
of Seller's existing debt that in any way causes or creates an Encumbrance on
the Acquired Assets is extinguished prior to or concurrently with the Closing.
(j) CONFIDENTIALITY AGREEMENTS. Seller shall assign to Buyer
prior to or concurrently with the Closing Seller's rights under any assignable
confidentiality agreements to which Seller is a party.
ARTICLE X
EMPLOYMENT AND EMPLOYEE BENEFITS ARRANGEMENTS
10.1. EMPLOYMENT. Buyer may offer employment on an at-will basis to all
of Seller's Employees who are currently actively employed on the Closing Date on
terms and conditions determined by Buyer, in its sole discretion, which shall be
substantially similar to their current terms and conditions of employment.
Seller and the Seller's Shareholder will cooperate in good faith to assist Buyer
in (i) obtaining the continued employment of the foregoing employees, except for
Bruce Richbourg, Jeff Finch, and Rhonda Chamberlain and (ii) in identifying and
obtaining the continued employment of the key employees of Seller, including,
without limitation, those set forth on Schedule 10.1; but excluding Bruce
Richbourg and Rhonda Chamberlain. Nothing contained in this Agreement shall be
construed so as to prohibit Buyer from terminating, discharging or laying off
any employees after their employment by Buyer at any time. Nothing
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contained in this Agreement shall prevent Buyer from terminating or modifying
any or all benefits or level of benefits or any or all benefit plans at any
time.
10.2. GROUP INSURANCE PLAN. Effective as of the Closing Date, Buyer
shall adopt and become the successor sponsor of the Richbourg's Sales & Rental,
Inc. Family and Medical Plan Policies (the "Group Insurance Plan"); PROVIDED,
HOWEVER, Buyer's obligation to adopt the Group Insurance Plan shall be
conditioned on and subject to the receipt of any necessary consents of the
issuer of the group health insurance policy pursuant to which such policy is
provided. Upon becoming the sponsor of the Group Insurance Plan, Buyer shall
assume all of the responsibilities of plan sponsor with respect to events
occurring after the Closing but shall not by this Section 10.2 be deemed to
assume any liabilities that are Excluded Liabilities as set forth in Section
3.2(h) hereof. Buyer shall execute such documents as may reasonably be requested
by Seller to effect such adoption and assumption.
10.3. 401(K) PLAN. (a) On the Closing Date, Buyer shall establish or
designate, and maintain, a defined contribution plan ("Buyer's Plan") in which
Employees who, on the Closing Date, are participants ("401(k) Plan
Participants") in the 401(k) listed on Schedule 5.12(a) (the "401(k) Plan") and
who are also employees of Seller may participate. Buyer's Plan is intended to be
qualified under Sections 401(a) and 401(k) of the Code.
(b) Effective as of the Closing Date, Seller shall cause the
trustee of the 401(k) Plan to transfer to the trust forming a part of Buyer's
Plan cash (or with respect to participant loans granted prior to the Closing
Date, if any, such loans and any promissory notes or other documents evidencing
such loans) in an amount equal to the account balances (the "Account Balances")
of 401(k) Plan Participants as of the date of transfer (the "Transfer Date").
(c) In consideration for the provisions contained in this
Section 10.3 for the transfer by the 401(k) Plan of the Account Balances to the
trust forming a part of Buyer's Plan, Buyer shall, effective as of the Transfer
Date, assume all of the responsibilities of plan sponsor with respect to the
Account Balances but shall not by this Section 10.3 be deemed to assume any
liabilities that are Excluded Liabilities as set forth in Section 3.2(h) hereof.
Buyer shall execute such documents as may reasonably be requested by Seller to
effect such transfer
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ARTICLE XI
TERMINATION PRIOR TO CLOSING
11.1. TERMINATION. This Agreement may be terminated at any time prior
to the Closing:
(a) by the mutual written consent of Buyer and Seller;
(b) by written notice given by Seller to Buyer or Buyer to
Seller, if the Closing shall not have occurred by January 6, 1998; PROVIDED,
FURTHER, that the party electing so to terminate this Agreement shall have
performed and complied with all of the covenants and agreements on its part set
forth in this Agreement and the Ancillary Documents;
(c) by written notice given by either Seller to Buyer or Buyer
to Seller, if any court of competent jurisdiction or governmental authority
shall have issued an injunction, order, decree or ruling or taken any other
action, restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby (which the party seeking to terminate this Agreement shall
have used all commercially reasonable efforts pursuant to Section 8.2 to have
lifted or reversed), and such order, decree, ruling or other action shall have
become final and non-appealable;
(d) by written notice given by Seller to Buyer if there shall
have been a breach by Buyer of Buyer's representations, warranties, covenants or
agreements contained herein which breach would entitle Seller to decline to
consummate the transactions contemplated hereby pursuant to Section 9.1, or if
an event occurs which renders impracticable with the use of commercially
reasonable efforts compliance with or satisfaction of any of the conditions to
Seller's obligations hereunder; or
(e) by written notice given by Buyer to Seller, if there shall
have been a breach by Seller of Seller's representations, warranties, covenants
or agreements contained herein which breach would entitle Buyer to decline to
consummate the transactions contemplated hereby pursuant to Section 9.2, or if
an event occurs which renders impracticable with the use of commercially
reasonable efforts compliance with or satisfaction of any of the conditions to
Buyer's obligations hereunder.
11.2. EFFECT ON OBLIGATIONS. Termination of this Agreement pursuant to
this Article XI shall terminate all obligations of the parties hereunder, except
for the obligations under Section 13.8; PROVIDED, HOWEVER, that termination
pursuant to Section 11.1 (other than clause (a) thereof) shall not relieve any
defaulting or breaching party or parties from any liability to the other parties
hereto.
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ARTICLE XII
INDEMNIFICATION
12.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Each
representation and warranty made in this Agreement and each Ancillary Document
shall survive the Closing and any investigation at any time made by or on behalf
of the parties hereto and each such representation and warranty shall expire at
the end of the eighteenth (18) month following the Closing Date, except for (i)
the representations and warranties set forth in Sections 5.2, 5.11, 5.18 and
5.19, which shall survive the Closing until the expiration of all applicable
statute of limitations, if any, including any extensions thereof, with respect
to when a third party, including any governmental body, could assert a claim due
to the conduct or condition covered by such representation or warranty and (ii)
the representations and warranties set forth in Section 5.25, which shall expire
at the end of the ninetieth (90th) day following the Closing Date. After the
expiration of such periods, any claim by a party hereto based upon any such
representation or warranty, shall be of no further force and effect, except to
the extent a party has asserted a claim for breach of any such representation or
warranty prior to the expiration of such period, in which event any
representation or warranty to which such claim relates shall survive with
respect to such claim until such claim is resolved as provided in this Article
XII. As appropriate, the covenants and agreements set forth in this Agreement
shall survive the Closing and shall continue in accordance with their terms.
12.2. INDEMNIFICATION BY SELLER AND THE SELLER'S SHAREHOLDER. From and
after the Closing, Seller and the Seller's Shareholder, jointly and severally,
shall indemnify and hold harmless Buyer and its Affiliates, and their respective
officers, directors, employees, agents, representatives, successors and assigns
(the "BUYER INDEMNITEES"), from and against any and all Losses incurred by any
of them arising out of, relating to or resulting from any of the following:
(i) the failure by Seller to pay, perform or
discharge when due any of the Excluded Liabilities;
(ii) any breach by Seller or the Seller's Shareholder
of any of the representations or warranties made by Seller or the Seller's
Shareholder in this Agreement or in any Ancillary Document; or
(iii) any failure by Seller or the Seller's
Shareholder to perform any of its covenants or agreements contained in this
Agreement or in any Ancillary Document.
12.3. INDEMNIFICATION BY BUYER. From and after the Closing, Buyer shall
indemnify and hold harmless Seller, the Seller's Shareholder, their Affiliates
and their
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respective officers, directors, employees, agents, consultants, representatives,
successors and assigns (the "SELLER INDEMNITEES"), from and against any and all
Losses incurred by any of them arising out of, relating to or resulting from any
of the following:
(a) the failure by Buyer to pay, perform or discharge when due
any of the Assumed Liabilities;
(b) any breach by Buyer of any of the representations or
warranties made by Buyer in this Agreement or in any Ancillary Document;
(c) any failure by Buyer to perform any of its covenants or
agreements contained in this Agreement or in any Ancillary Document; or
(d) Claims brought under the Work Adjustment and Retraining
Act, 29 U.S.C. section 2102 and equivalent state laws relating to actions taken
by Buyer within the ninety (90) day period beginning immediately prior to the
Closing.
12.4. PROCEDURE FOR INDEMNIFICATION. (a) In the event that any of the
Buyer Indemnitees or any of the Seller Indemnitees has a claim for
indemnification under Section 12.2 or 12.3, as the case may be, other than a
Third Party Claim, the party asserting such claim (a "DIRECT CLAIM"), shall
promptly, and in every event not longer than thirty (30) days after the Claim
becomes known to the party asserting the claim, provide a written notice to the
Indemnitor, which notice shall state the facts giving rise to an alleged basis
for the claim and the amount of liability asserted against the other party by
reason of the claim; PROVIDED, that failure of the Indemnitee to give the
Indemnitor prompt notice as provided herein shall not relieve the Indemnitor of
any of its obligations hereunder except to the extent that the Indemnitor is
materially prejudiced thereby.
(b) Promptly after receipt by an Indemnitee of written notice
of the assertion of a claim or the commencement of any action, litigation or
proceeding by any third party (a "THIRD PARTY CLAIM"), and in no event longer
than thirty (30) days after receipt of such notice by an Indemnitee, with
respect to any matter for which indemnification is or may be owing pursuant to
Section 12.2 or 12.3, the Indemnitee shall give written notice thereof (the
"NOTICE") to the Indemnitor; PROVIDED, THAT failure of the Indemnitee to give
the Indemnitor prompt notice as provided herein shall not relieve the Indemnitor
of any of its obligations hereunder except to the extent that the Indemnitor is
materially prejudiced thereby. The Indemnitor shall have the right, at its
option and at its own expense, to participate in or, by giving written notice to
the Indemnitee no later than 15 days after delivery of the Notice, to take
control of, the defense, negotiation and/or settlement of any such Third Party
Claim with counsel reasonably satisfactory to the Indemnitee. The Indemnitee
shall have the right to participate in the defense, negotiation and/or
settlement of any such Third Party Claim with counsel of its own choosing;
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PROVIDED, THAT, after notice from the Indemnitor to the Indemnitee of the
Indemnitor's election to take control of the defense, negotiation and/or
settlement of any Third Party Claim, the Indemnitor shall not be liable to the
Indemnitee for any legal or other expenses incurred by the Indemnitee in
connection with the defense, negotiation and/or settlement thereof other than
reasonable costs of investigation. Notwithstanding the foregoing, with respect
to any such Third Party Claim, the defense, negotiation and/or settlement of
which the Indemnitor has taken control, the Indemnitee shall have the right to
retain separate counsel to represent it and the Indemnitor shall pay the fees
and expenses of such separate counsel if (i) in the Indemnitee's good faith
judgment, it is advisable for the Indemnitee to be represented by separate
counsel because the Indemnitee and Indemnitor have significantly divergent
interests or (ii) the named parties to any such Third Party Claim include both
the Indemnitee and Indemnitor and the Indemnitee in good faith determines that
defenses are available to it that are unavailable to the Indemnitor. If the
Indemnitor fails or refuses to undertake the defense of any such Third Party
Claim within 15 days after delivery of the Notice, the Indemnitee shall have the
right to take exclusive control of the defense, negotiation and/or settlement of
such Third Party Claim at the Indemnitor's expense. Notwithstanding anything in
this Section 12.4(b) to the contrary, if the Indemnitor shall assume control of
the defense of any Third Party Claim, the Indemnitor shall not settle or
compromise such Third Party Claim without the consent of the Indemnitee, which
shall not be unreasonably withheld.
12.5. PAYMENT. With respect to Third Party Claims for which
indemnification is payable hereunder, such indemnification shall be paid by the
Indemnitor promptly upon (i) the entry of a judgment against the Indemnitee and
the expiration of any applicable appeal period; (ii) the entry of a
non-appealable judgment or final appellate decision against the Indemnitee; or
(iii) the closing under any settlement agreement. Notwithstanding the foregoing,
expenses of the Indemnitee for which the Indemnitor is responsible shall be
reimbursed on a current basis by the Indemnitor. With respect to Direct Claims
for which indemnification is payable hereunder, the Indemnitor shall promptly
pay the amount of the Losses for which indemnification is required.
12.6. SETOFF. Buyer shall be entitled to set off any amounts owed to it
by Seller or the Seller's Shareholder under this Agreement, including by
operation of Section 12.2, against any amounts owed by Seller and or the
Seller's Shareholder to Buyer under this Agreement. Buyer shall not, however, be
entitled to set off any amounts owed by it to Seller or the Seller's Shareholder
with respect to the real property leases referenced in this Agreement.
12.7 INDEMNITY LIMITATIONS. Notwithstanding anything in this Agreement
or any of the Ancillary Documents to the contrary (except for Sections 5.7(c),
5.24, 5.25 and 5.26), Buyer agrees it shall not assert against Seller or the
Seller's Shareholder any claim or claims for indemnity of any kind unless and
until Buyer has determined that it is
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entitled to indemnity for such claims that, in the aggregate, exceed $200,000.
In that event, Seller and the Seller's Shareholder shall be liable for the
entire amount of all valid indemnity claims. The maximum liability of Seller and
the Seller's Shareholder for all claims of indemnity shall never exceed
$15,000,000.
12.8 INSURANCE. The amount of damages otherwise recoverable by either
party under this Article 12 shall be reduced to the extent that the party
seeking indemnification receives insurance proceeds with respect to the matter
for which indemnification is sought.
ARTICLE XIII
MISCELLANEOUS
13.1. TRANSFER TAXES. (a) The cost of all transfer, value added, use
and other taxes, that are payable by reason of the sale, transfer and assignment
contemplated by this Agreement or the Ancillary Documents (the "TRANSFER
TAXES"), shall be borne by Buyer.
(b) Buyer will timely file all Tax Returns required to be
filed in connection with Transfer Taxes related to the Acquired Assets. Buyer
shall prepare all Tax Returns in connection with Transfer Taxes required to be
filed pursuant to this Section 13.1 in a manner that is consistent with the
allocation that is made pursuant to Section 4.5 of this Agreement. After the
Closing, if any additional liability for Transfer Taxes is determined by any
taxing authority to be due, Buyer shall make any such payments in a timely
manner.
13.2. FURTHER ASSURANCES. At any time or from time to time after the
Closing, the Seller and the Seller's Shareholder, on the one hand, and Buyer, on
the other hand, agree to cooperate with each other, and at the request of the
other party, to execute and deliver or cause to be executed or delivered any
further instruments or documents (in addition to those delivered at closing) and
to take all such further action as the other party may reasonably request in
order to evidence or effectuate the consummation of the transactions
contemplated hereby and to otherwise carry out the intent of the parties
hereunder.
13.3. INTERPRETIVE PROVISIONS. With the exception of the Cash Payment
and the Purchase Price, it is understood and agreed that the specification of
any dollar amount in the representations and warranties contained in this
Agreement or the inclusion of any specific item in any Schedule hereto is not
intended to imply that such amounts or any higher or lower amounts, or the items
so included or other items, are or are not material, and neither party shall use
the fact of the setting of such amounts or the fact of the inclusion of any such
item in any Schedule hereto as to whether any obligation, item or
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matter not described herein or included in a schedule is or is not material for
purposes of this Agreement.
13.4. ENTIRE AGREEMENT. This Agreement (including the exhibits, any
other schedules and other documents referred to herein), and the Ancillary
Documents and the Confidentiality Agreement constitute the entire agreement
between the parties hereto and supersede all prior agreements and
understandings, oral and written, between the parties hereto, with respect to
the subject matter hereof, including, without limitation, the Letter of Intent
between Buyer and Seller and the Seller's Shareholder dated October 20, 1997.
13.5. SUCCESSORS AND ASSIGNS; BENEFITS. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto; PROVIDED, however, that this
Agreement may not be assigned by Seller or the Seller's Shareholder without the
prior written consent of Buyer or by Buyer without the prior written consent of
Seller, except that Buyer may, at its election, assign this Agreement to any one
or more of its direct or indirect wholly owned Subsidiaries so long as the
representations and warranties of Buyer made herein are equally true of such
assignee, and so long as such assignment does not materially alter the
obligations of Seller hereunder or Seller's costs of consummating the
transactions contemplated hereby. Any such assignee shall execute a counterpart
of this Agreement agreeing to be bound by the provisions hereof. Nothing in this
Agreement, express or implied, is intended to, or shall confer on, any Person
other than any of the parties hereto any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement.
13.6. HEADINGS. The headings of the articles, Sections and paragraphs
of this Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
13.7. MODIFICATION AND WAIVER. No amendment, modification or alteration
of the terms or provisions of this Agreement shall be binding unless the same
shall be in writing and duly executed by the parties hereto, except that any of
the terms or provisions of this Agreement may be waived in writing at any time
by the party which is entitled to the benefits of such waived terms or
provisions. No waiver of any of the provisions of this Agreement shall be deemed
to or shall constitute a waiver of any other provision hereof (whether or not
similar). No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof.
13.8. EXPENSES. Except as otherwise expressly contemplated by this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, each of the parties hereto shall be solely responsible for and
shall pay all of its own costs and expenses incurred by it or on its behalf in
connection with the negotiation, preparation,
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execution and performance of this Agreement, the Ancillary Documents and the
transactions contemplated hereby and thereby, including, without limitation,
fees, expenses and disbursements of its own financial consultants, environmental
consultants accountants and counsel (collectively, "EXPENSES"). Buyer is solely
responsible for (i) all fees and expenses due to Deloitte & Touche, L.L.P. in
connection with the audit of the Seller's financial statements and (ii) all fees
and expense due to Seller's Accountants as described in the engagement letter
between Buyer and Seller's Accountants dated as of November 13, 1997.
13.9. NOTICES. Any notice, request, instruction or other document to be
given hereunder or in any Ancillary Document by any party hereto to any other
party shall be in writing and delivered (a) personally, (b) by telecopy
(provided that a copy of any notice delivered pursuant to this clause (b) shall
also be sent pursuant to clause (c) or (d) below), (c) by a generally recognized
overnight courier service which guarantees overnight delivery and provides
written acknowledgment by the addressee of receipt or (d) by registered or
certified mail (or by air mail if addressed to an address outside of the United
States), postage prepaid, return receipt requested,
if to Seller to:
Richbourg's Sales & Rentals, Inc.
1500 West Lucas Street
Florence, SC 29501
Attention: Bruce Richbourg
with a copy to:
Turner, Padget, Graham & Laney, P.A.
1831 West Evans Street
Suite 400
P.O. Box 5478
Florence, SC 29502-5478
Attention: Hugh M. Claytor
if to the Seller's Shareholder to:
Mr. Bruce Richbourg
181 East Evans Street
BTC-013
Florence, SC 29506
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with a copy to:
Turner, Padget, Graham & Laney, P.A.
1831 West Evans Street
Suite 400
P.O. Box 5478
Florence, SC 29502-5478
Attention: Hugh M. Claytor
if to Buyer to:
Neff Corp.
3750 N.W. 87th Avenue
Miami, FL 33178
Telecopier: (305) 513-4155
Attention: Kevin P. Fitzgerald
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue, N.W.
Suite 800
Washington, D.C. 20004
Telecopier: (202) 639-7003
Attention: Stephen I. Glover
or at such other address for a party as shall be specified by like notice. Any
notice which is delivered in the manner provided herein shall be deemed to have
been duly given to the party to whom it is directed upon actual receipt by such
party (evidenced, in the case of a telecopy, by the receipt of telephone
confirmation thereof).
13.10. SPECIFIC PERFORMANCE. The parties hereto hereby acknowledge that
each party hereto would suffer irreparable injury and would not have an adequate
remedy at law for money damages if the provisions of this Agreement were not
performed in accordance with their terms. Each party hereto agrees that the
other parties hereto shall be entitled to specific enforcement of the terms of
this Agreement in addition to any other remedy to which they are entitled, at
law or in equity. Furthermore, if any action or proceeding shall be instituted
to enforce the provisions hereof, any party against whom such action or
proceeding is brought hereby waives the claim or defense therein that there is
an adequate remedy at law, and agrees not to urge in any such action or
proceeding the claim or defense that such remedy at law exists.
13.11. GOVERNING LAW. The validity, performance and enforcement of this
Agreement and all Ancillary Documents, unless expressly provided to the
contrary, shall
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be governed by the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof, except that with respect to matters
regarding the transfer of right, title to and interest in any Assigned Contract
or permit, the laws governing such Assigned Contract or permit shall govern,
without giving effect to the principles of conflicts of law thereof.
13.12. BULK SALES LAWS. The parties hereto waive compliance with the
so-called "bulk sales" provisions of Article 6 of the Uniform Commercial Code as
it is in effect in the states where Seller owns assets to be conveyed to the
Buyer hereunder and any other "bulk sales" provisions or laws of any
jurisdiction that may be applicable to the transactions contemplated hereby.
Buyer shall indemnify and hold harmless Seller from and against any and all
Losses which may be incurred by Seller as a result of noncompliance with any
such "bulk sales" provisions or laws or other transfer laws.
13.13. PUBLIC ANNOUNCEMENTS. Neither Seller nor the Seller's
Shareholder shall make any public announcements, including, without limitation,
any press releases, pertaining in any way to this Agreement and the transactions
contemplated hereby without the prior consent of the Buyer except as may be
required by law.
13.14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the date first above written.
RICHBOURG'S SALES & RENTALS, INC.
By:
Name: Bruce Richbourg
Title: President
Bruce Richbourg, Individually
NEFF CORP.
By:
Name: Kevin P. Fitzgerald
Title: President & Chief Executive Officer
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EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Neff Machinery, Inc., Florida Corporation
Neff Rental, Inc., Florida Corporation
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Neff Corp. on Form
S-1 of our report dated March 11, 1998 on the financial statements of Neff
Corp. and subsidiaries as of December 31, 1996 and 1997 and for each of the
three years in the period ended December 31, 1997, appearing in the Prospectus,
which is part of this Registration Statement, and of our report also dated
March 11, 1998 relating to the financial statement schedule appearing elsewhere
in this Registration Statement.
We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE, LLP
Miami, Florida
March 13, 1998
----------------
The consolidated financial statements reflect the 84.65 for one stock
split of the Company's outstanding common stock which is to be effected on or
about April 24, 1998. The above consent is in the form which will be furnished
by Deloitte & Touche LLP upon completion of such stock split, which is
described in Note 1 to the consolidated financial statements and assuming that
from March 13, 1998 to the date of such stock split, no other events shall have
occurred that would affect the accompanying consolidated financial statements
and notes thereto.
DELOITTE & TOUCHE, LLP
Miami, Florida
March 13, 1998
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Neff Corp. on Form
S-1 of our report dated February 27, 1998 on the financial statements of
Richbourg's Sales & Rentals, Inc. as of December 31, 1996 and 1997 and for each
of the three years in the period ended December 31, 1997, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Selected
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE, LLP
Charlotte, North Carolina
March 13, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The independent auditors' report of Deloitte & Touche LLP related to the
consolidated financial statements of Neff Corp. for the three years in the
period ended December 31, 1997 has not been issued. Deloitte & Touche LLP has
indicated the form of report which will be furnished upon completion of a Neff
Corp. stock split and so long as no other events shall have occurred that would
affect the Neff Corp. consolidated financial statements. After Deloitte &
Touche issues their report on Neff Corp., we expect to be in a position to
render the following consent so long as no other events shall have occurred that
would affect the Industrial Equipment Rentals, Inc. consolidated financial
statements.
Arthur Andersen LLP
Houston, Texas
March 13, 1998
As independent public accountants, we hereby consent to the use of our
report dated September 18, 1997 on the financial statements of Industrial
Equipment Rentals, Inc. and subsidiary (and to all references to our Firm)
included in or made a part of this registration statement filed by Neff Corp.
Houston, Texas
March 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,885
<SECURITIES> 0
<RECEIVABLES> 25,007
<ALLOWANCES> 1,092
<INVENTORY> 6,072
<CURRENT-ASSETS> 0
<PP&E> 208,524<F1>
<DEPRECIATION> 41,077<F1>
<TOTAL-ASSETS> 280,790
<CURRENT-LIABILITIES> 0
<BONDS> 228,523
53,747
0
<COMMON> 85
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 280,790
<SALES> 142,019
<TOTAL-REVENUES> 142,019
<CGS> 98,745
<TOTAL-COSTS> 98,745
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 957
<INTEREST-EXPENSE> 14,338
<INCOME-PRETAX> (8,141)
<INCOME-TAX> (1,748)
<INCOME-CONTINUING> 6,197
<DISCONTINUED> 0
<EXTRAORDINARY> (451)
<CHANGES> 0
<NET-INCOME> (6,844)
<EPS-PRIMARY> (1.74)
<EPS-DILUTED> (1.74)
<FN>
<F1>Includes Rental Equipment
</FN>
</TABLE>
