AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1998
REGISTRATION STATEMENT NO. 333-48077
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------
NEFF CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7353 65-0626400
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
3750 N.W. 87TH AVENUE
MIAMI, FLORIDA 33178
(305) 513-3350
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KEVIN P. FITZGERALD
CHIEF EXECUTIVE OFFICER AND PRESIDENT
NEFF CORP.
3750 N.W. 87TH AVENUE
MIAMI, FLORIDA 33178
(305) 513-3350
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
STEPHEN I. GLOVER, ESQ. WILLIAM M. HARTNETT, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON CAHILL GORDON & REINDEL
1001 PENNSYLVANIA AVENUE, N.W. 80 PINE STREET
WASHINGTON, D.C. 20004 NEW YORK, NEW YORK 10005
(202) 639-7000 (212) 701-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED MAY , 1998
6,700,000 SHARES
[NEFF LOGO]
CLASS A COMMON STOCK
---------------
OF THE 6,700,000 SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY, 5,360,000
SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE
U.S. UNDERWRITERS AND 1,340,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE
THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
CLASS A COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE
INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $14 AND $16 PER SHARE. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
---------------
THE CLASS A COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "NFF."
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
PRICE $ A SHARE
---------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------- ---------------- ------------
PER SHARE ......... $ $ $
TOTAL (3) ......... $ $ $
- -------
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $700,000.
(3) THE COMPANY HAS GRANTED TO THE U.S. UNDERWRITERS AN OPTION, EXERCISABLE
WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF
1,005,000 ADDITIONAL SHARES AT THE PRICE TO PUBLIC LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, IF
ANY. IF THE U.S. UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL
PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO
COMPANY WILL BE $ , $ AND $ , RESPECTIVELY. SEE
"UNDERWRITERS."
---------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY CAHILL GORDON & REINDEL, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1998 AT THE OFFICE OF
MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREFOR IN
IMMEDIATELY AVAILABLE FUNDS.
---------------
MORGAN STANLEY DEAN WITTER
BT ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1998
<PAGE>
PHOTOGRAPHS OF CONSTRUCTION EQUIPMENT
COMPANY LOGO
2
<PAGE>
Certain statements contained in this Prospectus that are not related to
historical results are forward-looking statements. Actual results may differ
materially from those projected or implied in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed under "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
Further, certain forward-looking statements are based upon assumptions as to
future events that may not prove to be accurate. These forward-looking
statements involve risks and uncertainties including, but not limited to, those
set forth under "Risk Factors."
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary ............................. 4
Risk Factors ................................... 11
Use of Proceeds ................................ 18
Dividend Policy ................................ 18
Capitalization ................................. 19
Dilution ....................................... 20
Unaudited Pro Forma Consolidated
Financial Data .............................. 21
Selected Consolidated Financial Data ........... 26
Management's Discussion and Analysis
of Financial Condition and
Results of Operations ....................... 28
Business ....................................... 35
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Management ..................................... 45
Principal Stockholders ......................... 53
Certain Relationships and Transactions ......... 54
Description of Certain Indebtedness ............ 55
Description of Capital Stock ................... 56
Shares Eligible for Future Sale ................ 64
Underwriters ................................... 66
Certain United States Tax Considerations for
Non-United States Holders ................... 70
Legal Matters .................................. 73
Experts ........................................ 73
Additional Information ......................... 74
Index to Financial Statements .................. F-1
</TABLE>
No person is authorized in connection with any offering made hereby to
give any information or to make any representation not contained in this
Prospectus and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company or any Underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the shares of Class A Common Stock offered
hereby, nor does it constitute an offer to sell or solicitation of an offer to
buy any of the securities offered hereby to any person in any jurisdiction in
which it is unlawful to make such an offer or solicitation to such person.
Neither the delivery of this Prospectus nor any sale made in the Offering shall
under any circumstances imply that the information contained herein is correct
as of any date subsequent to the date hereof.
---------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR, AND PURCHASE, SHARES OF CLASS A COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE
READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO AND THE UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL DATA APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE
CONTEXT OTHERWISE REQUIRES, ALL REFERENCES TO "NEFF" OR THE "COMPANY" INCLUDE
NEFF CORP. AND ITS WHOLLY OWNED SUBSIDIARIES, NEFF RENTAL, INC. ("NEFF RENTAL")
AND NEFF MACHINERY, INC. ("NEFF MACHINERY"). UNLESS THE CONTEXT OTHERWISE
REQUIRES, ALL REFERENCES TO GENERAL ELECTRIC CAPITAL CORPORATION ("GE CAPITAL")
INCLUDE ITS AFFILIATE GECFS, INC. UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL
REFERENCES TO "COMMON STOCK" INCLUDE THE COMPANY'S CLASS A COMMON STOCK, PAR
VALUE $.01 PER SHARE (THE "CLASS A COMMON STOCK"), AND THE COMPANY'S CLASS B
SPECIAL COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "CLASS B COMMON STOCK"), AND
REFLECT AN 84.65 FOR 1.00 STOCK SPLIT FOR EACH CLASS OF COMMON STOCK. 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 71 rental locations in 15 states. The Company rents
a wide variety of equipment, including backhoes, air compressors, loaders,
lifts and compaction equipment to construction and industrial customers. The
Company also acts as a dealer of new equipment on behalf of several nationally
recognized equipment manufacturers. In addition, the Company sells used
equipment, spare parts and merchandise and provides ongoing repair and
maintenance services. The Company has increased its total revenues from $67.3
million in 1995 to $142.0 million in 1997; pro forma for the Acquisitions (as
defined) and the Argentina Acquisition (as defined), the Company's total
revenues for 1997 were $255.6 million.
According to industry sources, the U.S. equipment rental industry grew
from approximately $600 million in revenues in 1982 to an estimated $18 billion
in 1997. This growth has been driven primarily by construction and industrial
companies that have increasingly outsourced equipment needs to reduce
investment in non-core assets and convert costs from fixed to variable. The
equipment rental industry is highly fragmented, with an estimated 17,000
equipment rental companies in the United States. As a result, the Company
believes that there are substantial consolidation opportunities for
well-capitalized operators such as the Company. According to RENTAL EQUIPMENT
REGISTER and studies prepared by Manfredi & Associates, Inc. on the size of the
equipment rental market, no single company's revenues represented more than 2%
of total market revenues in 1996. Relative to smaller competitors, the Company
has several advantages, including increased purchasing power, larger
inventories to service larger accounts and the ability to transfer equipment
among rental locations in response to changing patterns of customer demand.
COMPETITIVE STRENGTHS
The Company believes it has several competitive strengths which provide it
with the opportunity for continued growth and increased profitability.
STRONG MARKET POSITION. The Company is one of the largest and fastest
growing construction and industrial equipment rental companies in the United
States, and is a leading competitor with a significant presence in the
Southeast and Gulf Coast regions. The Company operates 71 rental locations in
15 states, including Florida, Georgia, Alabama, Mississippi, South Carolina,
North Carolina, Tennessee, Louisiana, Texas, Oklahoma, Arizona, Nevada, Utah,
California and Colorado. From December 31, 1995 to March 31, 1998, the Company
increased its equipment rental locations from eight
4
<PAGE>
to 70 and expanded its rental fleet from $62 million to $346 million based on
original cost. The Company believes its dealership operations complement its
equipment rental operations by providing it with competitive advantages over
competitors which only rent equipment. These advantages include the ability to
achieve favorable pricing by combining equipment purchases for its dealership
and rental fleets; the reduction of costs in certain locations by sharing
service, maintenance and administrative personnel; and better knowledge of
certain local markets by pooling management information. In addition,
management believes the Company's size and geographic diversity help insulate
it from regional economic downturns. The Company's efforts to improve its
market position have caused it to increase its debt and incur significant
operating expenses, and thus have adversely affected its short-term cash flow
and net income. The Company believes, however, that these efforts are essential
to its future performance. See "Risk Factors--Risks Inherent in Growth
Strategy," "Risk Factors--Dependence on Additional Capital for Future Growth;
Restrictions Under Terms of Indebtedness" and "Risk Factors--Substantial
Leverage."
HIGH QUALITY RENTAL FLEET. Management believes the Company has one of the
newest, most comprehensive and well-maintained rental fleets in the equipment
rental industry. As of March 31, 1998, the average age of the Company's rental
fleet was approximately 21 months. The Company makes ongoing capital investment
in new equipment, engages in regular sales of new equipment and conducts an
advanced preventative maintenance program. Management believes this maintenance
program increases fleet utilization, extends the useful life of equipment and
produces higher resale values.
EXCELLENT CUSTOMER SERVICE. The Company differentiates itself from its
competitors by providing high quality, responsive service to its customers.
Service initiatives include (i) reliable on-time equipment delivery directly to
customers' job sites; (ii) on-site repairs and maintenance of rental equipment
by factory trained mechanics, generally available 24 hours a day, seven days a
week; and (iii) ongoing training of an experienced sales force to consult with
customers regarding their equipment needs.
STATE-OF-THE-ART MANAGEMENT INFORMATION SYSTEM. The Company has developed
a customized, state-of-the-art management information system capable of
monitoring operations at up to 300 sites. The Company uses this system to
maximize fleet utilization and determine the optimal fleet composition by
market. The system links all of the Company's rental locations and allows
management to track customer and sales information, as well as the location,
rental status and maintenance history of every piece of equipment in the rental
fleet. Rental location managers can search the Company's entire rental fleet
for needed equipment, quickly determine the closest location of such equipment,
and arrange for delivery to the customer's work site, thus maximizing equipment
utilization.
EXPERIENCED MANAGEMENT TEAM. Since 1995, the Company has significantly
increased the quality and depth of its management team to help oversee its
growth strategy. Neff's senior management team has extensive experience in the
equipment rental industry and its seven regional managers have, on average, 17
years of experience and substantial knowledge of the local markets served
within their regions. The Company believes that its management team has the
ability to continue the Company's strong growth as well as manage the Company
on a much larger scale. The Company is not dependent on recruiting additional
operating, acquisition, finance or other personnel to implement its growth
strategy. The Mas family, the majority owner of the Company, is also the
majority owner of MasTec, Inc., a public company engaged in the
telecommunications construction business with operations in South America.
Management believes the Mas family and GE Capital, the Company's other major
stockholder, will be valuable to the Company in identifying and evaluating
acquisitions in both North and South America.
5
<PAGE>
GROWTH STRATEGY
The Company's objective is to increase revenue, cash flow and
profitability by building and maintaining a leading market position in the
equipment rental industry. Key elements of the Company's growth strategy
include:
ACQUIRE EQUIPMENT RENTAL COMPANIES. Management intends to expand the
Company through acquisitions of equipment rental companies and believes there
are a significant number of acquisition opportunities in North and South
America which would complement the Company's existing operations. After
completing an acquisition, the Company generally integrates the operations of
the acquired company into its management information system, consolidates
equipment purchasing and resale functions and centralizes fleet management as
quickly as possible while assuring consistent, high-quality service to the
acquired company's customers. Since July 1997, the Company has made two
strategic acquisitions which have more than doubled the Company's number of
rental locations, significantly enhanced the Company's geographic presence and
further diversified the Company's customer base. The Company has also entered
into a letter of intent to acquire 51% of the outstanding stock of Sullair
Argentina Sociedad Anonima ("S.A. Argentina"), a leading equipment rental
company and dealer of new equipment in South America, and the Company has four
letters of intent outstanding to acquire the assets of additional equipment
rental companies in the United States. See "--Recent Acquisitions." To date,
the Company has financed its acquisitions primarily with debt, which has
resulted in increased interest expense. See "Risk Factors--Substantial
Leverage."
INCREASE PROFITABILITY OF RECENTLY OPENED RENTAL LOCATIONS. Since March 1,
1995, the Company has opened 25 start-up rental equipment locations including
11 locations in 1997 and four locations in the first quarter of 1998.
Management believes the Company's financial performance does not yet fully
reflect the benefit of these rental locations. The Company incurs significant
expenses in connection with the opening of new locations. See "Risk
Factors--Risks Inherent in Growth Strategy." Based on the Company's historical
experience, a new equipment rental location tends to realize significant
increases in revenues, cash flow and profitability during the first three years
of operation as more prospective customers become aware of its operation and as
the rental equipment fleet is customized to local market demand. Because there
is relatively little incremental operating expense associated with such
revenues, cash flow and profitability increase significantly as a rental
location matures. Although the Company intends to expand primarily through
acquisitions, management intends to open additional start-up locations in
markets where the Company has not been able to identify attractive acquisition
candidates.
INCREASE FLEET AT EXISTING LOCATIONS. Management believes it can
capitalize on the demand for rental equipment in the markets it serves and
increase revenues by increasing the size of the rental fleet and adding new
product lines at existing locations. Management believes that this strategy
allows the Company to attract new customers and serve as a single source
supplier for its customers. Because the start-up expenditures associated with
increasing the fleet and expanding product lines at existing locations are
relatively modest, these investments typically generate higher and faster
returns than investments in new locations.
SELECTIVE EXPANSION OF DEALERSHIP OPERATIONS. The Company intends to
selectively expand its dealership operations. The Company believes it can
realize significant economies of scale by expanding its dealership operations
in areas where it has already established equipment rental operations. The
Company's distributor relationships and the combined purchasing volume of its
dealership and rental operations allow it to acquire inventory at favorable
prices and terms. The Company's dealership operations also allow it to reduce
overhead costs by sharing service, maintenance and administrative personnel
with its rental operations, as well as generating better knowledge of local
markets through the sharing of information. The Company also intends to expand
its dealership operations to areas where it does not yet have equipment rental
operations.
6
<PAGE>
RECENT ACQUISITIONS
On August 1, 1997, the Company acquired, for a purchase price of $63.6
million, Industrial Equipment Rentals, Inc., the parent company of Buckner
Rental Service, Inc. ("Buckner," such acquisition, the "Buckner Acquisition").
Buckner is a leading provider of rental equipment in the Gulf Coast region with
26 locations in Texas, Louisiana, Mississippi and Alabama. During 1997, Buckner
served over 39,500 customers in the oil and gas, industrial/petrochemical and
construction industries. The Buckner Acquisition gives the Company a greater
presence in the Gulf Coast region and further diversifies the Company's
customer base by significantly increasing its strength in the industrial
sector.
Effective January 1, 1998, the Company acquired, for a purchase price of
$100 million, substantially all of the assets of Richbourg's Sales and Rentals,
Inc. ("Richbourg," such acquisition, the "Richbourg Acquisition" and, together
with the Buckner Acquisition, the "Acquisitions"). Richbourg is a leading
provider of rental equipment in the Southeast region with 15 locations in
Florida, North Carolina, South Carolina and Georgia. During 1997, Richbourg
served over 15,500 customers in the industrial and construction industries. The
Richbourg Acquisition gives the Company a greater presence in the Southeast
region and additional customers in the industrial sector.
In March 1998, the Company entered into a letter of intent to acquire 51%
of the outstanding stock of S.A. Argentina (such acquisition, the "Argentina
Acquisition") for $28 million and earn-out payments equal to 65% of S.A.
Argentina's net income for 1998 and 1999, with such earn-out payments not to
exceed $10 million in the aggregate. S.A. Argentina rents and sells industrial
and construction equipment throughout South America, including Argentina,
Brazil, Uruguay, Paraguay, Chile and Bolivia. S.A. Argentina's revenues for
1997 were approximately $57.3 million; its revenues for the first quarter of
1998 were approximately $13.2 million. S.A. Argentina's principal operations
are located in Buenos Aires, Argentina; it also has locations in Cordoba and
Rosario, Argentina and an assembly plant in San Luis, Argentina. The current
management of S.A. Argentina will continue to oversee the day-to-day management
of S.A. Argentina. The Argentina Acquisition will enable the Company to expand
internationally and take advantage of the opportunities for equipment rental
businesses in the emerging South American market. The Argentina Acquisition is
subject to a number of closing conditions, including the execution of a
definitive purchase agreement, and there can be no assurance that the Argentina
Acquisition will be consummated. See "Risk Factors--Risks Associated with the
Argentina Acquisition," and "Business--Acquisition Strategy."
In addition, in May 1998, the Company acquired the assets of RCH, Co.,
an equipment rental business with one location in Austin, Texas, for $7.4
million. RCH, Co. had revenues of approximately $7 million and $2 million for
1997 and the first quarter of 1998, respectively. Also, in February and March
1998, the Company entered into letters of intent to acquire the assets of three
equipment rental companies with aggregate 1997 revenues of approximately $12
million. These businesses have a total of four equipment rental locations in
Florida and California. 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 principal executive offices are located at 3750 N.W. 87th
Avenue, Miami, Florida, 33178 and its telephone number is (305) 513-3350.
7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock Offered by the Company
U.S. Offering ........................... 5,360,000 shares
International Offering .................. 1,340,000 shares
Total .................................. 6,700,000 shares
Common Stock to be outstanding immediately
after the Offering
Class A Common Stock .................... 16,065,350 shares(1)
Class B Common Stock(2) ................. 5,100,000 shares(2)
Total .................................. 21,165,350 shares
Use of Proceeds to the Company ............ The net proceeds of the
Offering will be used for the
repayment of indebtedness. See
"Use of Proceeds".
New York Stock Exchange Symbol ............ NFF
</TABLE>
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(1) Excludes (i) 240,000 additional shares of Class A Common Stock reserved for
issuance in connection with options granted pursuant to the Company's
Incentive Stock Plan; (ii) 657,220 additional shares of Class A Common
Stock reserved for issuance in connection with options granted to Kevin P.
Fitzgerald, the Chief Executive Officer and President of the Company,
(688,299 shares if the U.S. Underwriters' over-allotment option is
exercised); and (iii) 84,650 additional shares of Class A Common Stock
reserved for issuance in connection with options granted to Robert G.
Warren, Senior Vice President of Neff Machinery. See "Management--Options
Grants and Exercises."
(2) The holders of Class A and Class B Common Stock are entitled to one vote
per share on all matters submitted to a vote of the stockholders. Upon the
liquidation, dissolution or winding up of the Company, after satisfaction
of all of the Company's liabilities and the payment of the liquidation
preference of any preferred stock that may be outstanding, the holder of
each share of Class B Common Stock is entitled to receive before any
distribution or payment is made upon any other capital stock of the
Company, an amount in cash equal to $11.67.
RISK FACTORS
See "Risk Factors" for information concerning certain factors that should
be considered by prospective investors.
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
PRO FORMA AS
ADJUSTED(2)
--------------
1993(1) 1994 1995 1996 1997 1997
------------ ------------ ----------- ----------- ------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE AND LOCATION DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ........................ $ 36,659 $ 49,526 $ 67,254 $ 95,013 $ 142,019 $255,633
Gross profit(4) ....................... 10,549 14,711 17,972 25,320 43,274 79,529
Selling, general and administrative
expenses ............................. 6,078 8,493 10,956 18,478 30,129 47,541
Officer stock option
compensation(5) ...................... -- -- -- -- 4,400 4,400
Income from operations ................ 3,857 5,993 6,100 5,410 6,197 21,193
Income (loss) before
extraordinary items(6) ............... 1,663 2,712 1,834 (1,388) (6,393) (4,448)
Income (loss) before
extraordinary items per
common share ......................... ( .21)
Weighted average common shares
outstanding(7) ....................... 21,165
BALANCE SHEET DATA
(END OF PERIOD):
Net book value of rental
equipment ............................ $ 17,846 $ 29,602 $ 45,596 $ 76,794 $ 184,787
Total assets .......................... 29,263 46,851 68,816 109,118 280,790
Total debt ............................ 25,378 37,983 48,345 58,250 226,203
Redeemable preferred stock ............ -- -- 11,430 46,299 53,747
Total common stockholders'
equity (deficit) ..................... 571 4,205 (1,931) (7,508) (24,735)
OTHER DATA:
Adjusted EBITDA(8) .................... $ 10,255 $ 15,129 $ 18,763 $ 26,695 $ 37,635 $ 77,592
Adjusted EBITDA margin(9) ............. 28.0% 30.5% 27.9% 28.1% 26.5% 30.4%
Rental equipment purchases ............ $ 21,353 $ 31,185 $ 52,795 $ 86,886 $ 143,999 N/A
Number of rental locations
(end of period) ...................... 5 6 8 16 53 71
<CAPTION>
FIRST QUARTER ENDED
--------------------------------------
PRO FORMA AS
ADJUSTED(3)
-------------
MARCH 25, MARCH 31, MARCH 31,
1997 1998 1998
----------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE AND
LOCATION DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ........................ $ 24,356 $ 62,365 $ 75,564
Gross profit(4) ....................... 6,268 20,081 24,108
Selling, general and administrative
expenses ............................. 3,969 12,025 13,479
Officer stock option
compensation(5) ...................... -- -- --
Income from operations ................ 1,950 6,307 8,748
Income (loss) before
extraordinary items(6) ............... 250 (1,946) (707)
Income (loss) before
extraordinary items per
common share ......................... ( .03)
Weighted average common shares
outstanding(7) ....................... 21,165
BALANCE SHEET DATA
(END OF PERIOD):
Net book value of rental
equipment ............................ $254,403 $272,519
Total assets .......................... 408,276 485,438
Total debt ............................ 345,755 317,251
Redeemable preferred stock ............ 10,950 --
Total common stockholders'
equity (deficit) ..................... 16,113 106,169
OTHER DATA:
Adjusted EBITDA(8) .................... $ 6,742 $ 19,377 $ 23,178
Adjusted EBITDA margin(9) ............. 27.7% 31.1% 30.7%
Rental equipment purchases ............ $ 25,048 $ 47,157 N/A
Number of rental locations
(end of period) ...................... 18 70 73
</TABLE>
(FOOTNOTES ON NEXT PAGE)
9
<PAGE>
- --------------
(1) The consolidated balance sheet data and statement of operations data for
the year ended December 31, 1993 is derived from financial statements of
the Company's two wholly-owned subsidiaries, Neff Rental and Neff
Machinery, each of which was individually audited by independent certified
public accountants.
(2) The pro forma as adjusted financial data for the year ended December 31,
1997 are derived from the Company's Unaudited Pro Forma Consolidated
Financial Data for the year ended December 31, 1997 appearing elsewhere in
this Prospectus. The Unaudited Pro Forma Consolidated Financial Data for
the year ended December 31, 1997 were prepared by the Company to
illustrate the estimated effects of the Offering, the Private Debt
Offering (as defined), the Argentina Acquisition, the Buckner Acquisition
and the Richbourg Acquisition as if they had occurred as of January 1,
1997 for purposes of the unaudited pro forma consolidated statements of
operations.
(3) The pro forma as adjusted financial data for the first quarter ended March
31, 1998 are derived from the Company's Unaudited Pro Forma Consolidated
Financial Data for the first quarter ended March 31, 1998 appearing
elsewhere in this Prospectus. The Unaudited Pro Forma Consolidated
Financial Data for the first quarter ended March 31, 1998 were prepared by
the Company to illustrate the estimated effects of the Offering, the
Private Debt Offering and the Argentina Acquisition as if they had
occurred as of January 1, 1998 for purposes of the unaudited pro forma
consolidated statement of operations and as of March 31, 1998 for purposes
of the unaudited pro forma consolidated balance sheet.
(4) Gross profit for 1996 and 1997 reflect the Company's change in
depreciation policy to recognize extended estimated service lives and
increased residual values of its rental equipment. See the Consolidated
Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus.
(5) Officer stock option compensation expense represents a noncash charge with
respect to the change in estimated market value of the shares to be issued
to Kevin P. Fitzgerald under the Option Agreement (as defined).
(6) Prior to December 26, 1995, the Company operated as a Subchapter S
corporation under the provisions of the Internal Revenue Code. Income
(loss) before extraordinary items for 1993, 1994 and 1995 is restated to
reflect what the data would have been if the Company had Subchapter C
status in these years.
(7) Based on the number of shares of Common Stock which will be outstanding
upon completion of the Offering.
(8) Adjusted EBITDA represents income from operations plus depreciation and
amortization and officer stock option compensation expenses. Adjusted
EBITDA is not intended to represent cash flow from operations and should
not be considered as an alternative to operating or net income computed in
accordance with generally accepted accounting principles ("GAAP"), as an
indicator of the Company's operating performance, as an alternative to
cash flows from operating activities (as determined in accordance with
GAAP) or as a measure of liquidity. The Company believes that Adjusted
EBITDA is a standard measure commonly reported and widely used by analysts
and investors as a measure of profitability for companies with significant
depreciation and amortization expense. However, not all companies
calculate Adjusted EBITDA using the same methods; therefore, the Adjusted
EBITDA figures set forth above may not be comparable to Adjusted EBITDA
reported by other companies.
(9) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total
revenues.
10
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS, IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, IN
EVALUATING AN INVESTMENT IN THE CLASS A COMMON STOCK OFFERED HEREBY.
RISKS INHERENT IN GROWTH STRATEGY
The Company has recently accelerated its growth, expanding the rental
equipment fleet at existing locations and adding eight locations in 1996 and 37
locations in 1997. The Company intends to continue this rapid growth over the
next five years by continuing to make acquisitions, expand its rental equipment
fleet at existing locations and open several new locations each year. There can
be no assurance that the Company will be able to identify acquisition
candidates and attractive new locations or obtain financing for acquisitions
and internal expansion on satisfactory terms, or at all. The Company's growth
strategy presents the risks inherent in assessing the value, strengths and
weaknesses of growth opportunities, in evaluating the costs and uncertain
returns of expanding the operations of the Company, and in integrating
acquisitions with existing operations. The Company expects that its growth
strategy will affect short-term cash flow and net income as the Company
increases the amount of its indebtedness and incurs expenses to open new
locations, make acquisitions and expand the rental fleet. There can be no
assurance that the Company will successfully expand, that any acquired
businesses will be successfully integrated into the Company's operations or
that any expansion will result in profitability. The Company's anticipated
growth will place significant demands on the Company's management and its
operational, financial and marketing resources. Generally, start-up locations
become profitable in their third year of operation. In connection with
acquisitions and the start-up of new branches, the Company anticipates
experiencing growth in the number of its employees, the scope of its operating
and financial systems and the geographic area of its operations. The Company
believes this growth will increase the operating complexity of the Company and
the level of responsibility exercised by both existing and new management
personnel. To manage this expected growth, the Company intends to invest
further in its operating and financial systems and to continue to expand, train
and manage its employee base. There can be no assurance that the Company will
be able to attract and retain qualified management and employees or that the
Company's current operating and financial systems and controls will be adequate
as the Company grows or that any steps taken to improve such systems and
controls will be sufficient. See "Business--Growth Strategy."
DEPENDENCE ON ADDITIONAL CAPITAL FOR FUTURE GROWTH; RESTRICTIONS UNDER TERMS OF
INDEBTEDNESS
The Company's ability to remain competitive, sustain its growth and expand
rental operations through start-up locations and acquisitions largely depends
on its access to capital. The Company must make ongoing capital expenditures to
maintain the age and condition of its rental equipment fleet in order to
provide its customers with high-quality equipment. Historically, the Company
has financed capital expenditures, start-up locations and acquisitions
primarily through the incurrence of indebtedness, cash flow from operations
and, to a lesser extent, the issuance of equity securities. To implement its
growth strategy and meet its capital needs, the Company may in the future issue
additional equity securities or may incur additional indebtedness. Such
additional indebtedness may make the Company more vulnerable to economic
downturns and may limit its ability to withstand competitive pressures. There
can be no assurance that additional capital, if and when required, will be
available on terms acceptable to the Company, or at all. Failure by the Company
to obtain sufficient additional capital in the future could force the Company
to curtail its growth or delay capital expenditures, which could have a
material adverse effect on the Company and the market price of the Class A
Common Stock.
On May 1, 1998, the Company amended and restated its $250 million
revolving credit facility (the "Senior Credit Facility," and, as amended and
restated, the "New Credit Facility"), a $260 million revolving credit facility
pursuant to a modification increasing the size of the facility, such increase to
terminate on June 15, 1998. The Company's ability to finance future
acquisitions, start-ups and internal growth is limited by the covenants
contained in the New Credit Facility, including a number of
11
<PAGE>
covenants that, among other things, restrict the ability of the Company to
dispose of assets or merge, incur debt, pay dividends, repurchase or redeem
capital stock, create liens, make capital expenditures and make certain
investments or acquisitions and otherwise restrict corporate activities. The New
Credit Facility also contains, among other covenants, requirements that the
Company maintain specified financial ratios, including minimum cash flow levels
and interest coverage. At December 31, 1997, the Company was not in compliance
with the minimum EBITDA covenant, as defined in the Senior Credit Facility. For
the year ended December 31, 1997 the minimum EBITDA calculation was $44.8
million but was required to be $45.9 million. The lenders under the Senior
Credit Facility waived this non-compliance. The Company is in compliance with
all of the covenants under the New Credit Facility.
The Company expects to offer approximately $150 million in debt securities
(the "Notes") for sale to qualified investors concurrently with this Offering
(the "Private Debt Offering.") There can be no assurance that the Private Debt
Offering will be consummated. This Offering is not conditioned upon the
consummation of the Private Debt Offering. If the Company were to consummate the
Private Debt Offering, the indenture governing the Notes is likely to contain
certain restrictive covenants that will affect, and in some cases will
significantly limit or prohibit, among other things, the ability of the Company
to pay dividends, make investments, engage in transactions with stockholders and
affiliates, issue capital stock, incur indebtedness, create liens, sell assets
and engage in mergers and consolidations. As a result of these covenants, the
ability of the Company and its subsidiaries to respond to changing business and
economic conditions and to secure additional financing may be significantly
restricted, and the Company may be prevented from engaging in transactions,
including acquisitions, that might be considered important to the Company's
growth strategy or otherwise beneficial to the Company. If the Private Debt
Offering yields proceeds which are significantly less than currently
anticipated, or is not consummated, the Company will need to obtain additional
financing in the immediate future. Although the Company believes it would be
able to obtain such financing, there can be no assurance that it will be able to
do so on terms favorable to the Company or at all. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources," "Business--Growth Strategy" and "Description of Certain
Indebtedness."
SUBSTANTIAL LEVERAGE
The Company has a substantial amount of indebtedness. As of March 31,
1998, on a pro forma basis after giving effect to the Argentina Acquisition,
the Offering and the Private Debt Offering and the application of the estimated
net proceeds therefrom, the Company would have had total indebtedness of
approximately $317.3 million and would have had approximately $100.1 million of
availability under the New Credit Facility.
The degree to which the Company is leveraged could have important
consequences to holders of the Class A Common Stock including, but not limited
to, (i) the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions or general corporate or
other purposes may be limited; (ii) a substantial portion of the Company's cash
flow from operations will be dedicated to the payment of the principal of, and
interest on, its indebtedness; (iii) the agreements governing the Company's
long-term indebtedness will contain certain restrictive financial and operating
covenants that could limit the Company's ability to compete and expand; and
(iv) the Company's substantial leverage may make it more vulnerable to economic
downturns, limit its ability to withstand competitive pressures and reduce its
flexibility in responding to changing business and economic conditions. See
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources," "Description of
Certain Indebtedness" and the Consolidated Financial Statements and the Notes
thereto included elsewhere in this Prospectus.
GENERAL ECONOMIC CONDITIONS; REGIONAL CONDITIONS AND CYCLICALITY
The Company's business is affected by general economic and competitive
conditions, including national, regional and local slowdowns in construction
activity. The Company currently operates in 15 states located throughout the
southern and western United States. As a result, the Company's operating
12
<PAGE>
results may be adversely affected by events or conditions, such as regional
economic slowdowns, adverse weather conditions and other factors, in the areas
in which it operates.
DEPENDENCE ON EQUIPMENT MANUFACTURERS
The Company sells John Deere, Bomag and Terex Americas construction and
industrial equipment through dealership agreements. The dealership agreements
may be terminated by either party upon 120 days' written notice, or immediately
by the equipment manufacturer for cause, which generally includes, among other
things, default by Neff Machinery under any security agreement between Neff
Machinery and the equipment manufacturer, dissolution or liquidation of Neff
Machinery, or a significant change in the control, ownership or capital
structure of Neff Machinery without the equipment manufacturer's prior written
consent. See "Business--Dealership Agreements." There can be no assurance that
the Company will be able to continue its current, or obtain additional,
dealership agreements with any of the manufacturers.
In May 1998, the Company and John Deere entered into an agreement
providing that John Deere may terminate the John Deere dealership agreements if
the Mas family, Kevin Fitzgerald, Santos and Santos Capital do not own at least
30% of the equity interests in the Company or if GE Capital attempts to obtain
control of or exercise influence over the Company. To resolve issues with John
Deere relating to the size of GE Capital's equity interest in the Company, GE
Capital and the Company have entered into a standstill agreement dated as of
April 29, 1998 (the "Standstill Agreement") providing that, subject to certain
exceptions, GE Capital and its affiliates will maintain their equity interest
in the Company below 25% during the period ending October 29, 1999, and will
maintain their equity interest below 20% during the period from October 29,
1999 until Neff Machinery is no longer a dealer for John Deere or certain other
conditions are satisfied. Santos has agreed to exercise its option to acquire
Company stock from GE Capital if necessary to reduce GE Capital's equity
ownership to these levels. The Company's operating results could be materially
adversely impacted if the John Deere dealership agreements were terminated for
any reason.
RECENT NET LOSSES
The Company incurred net losses of $2.2 million, $6.8 million and $1.9
million in 1996, 1997 and the first quarter of 1998, respectively. There can be
no assurance that the Company will operate profitably in the future or have
earnings or cash flow sufficient to comply with the financial covenants to
which it is subject or to cover its fixed charges.
COMPETITION
The equipment rental and sales industries are highly competitive. The
Company's competitors include large national rental companies, regional
corporations, smaller independent businesses, and equipment vendors and dealers
who both sell and rent equipment to customers. Some of the Company's
competitors have greater financial resources, are more geographically diverse,
and have greater name recognition than the Company. There can be no assurance
that the Company will not encounter increased competition from existing
competitors or new market entrants, such as manufacturers, that may be
significantly larger and have greater financial and marketing resources than
the Company. If existing or future competitors reduce prices to gain or retain
market share and the Company must also reduce prices to remain competitive, the
Company's operating results would be adversely affected. Additionally, existing
or future competitors may seek to compete with the Company for start-up
locations or acquisition candidates, which may have the effect of increasing
acquisition prices and reducing the number of suitable acquisition candidates
or expansion locations. See "Business-- Competition."
SEASONALITY AND QUARTERLY FLUCTUATIONS IN REVENUES AND OPERATING RESULTS
Historically, the Company's revenues and operating results have varied
throughout the year and are expected to continue to fluctuate in the future.
These fluctuations have been due to a number of factors, including (i) general
economic conditions in the Company's markets; (ii) the timing of start-up
locations
13
<PAGE>
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.
RISKS ASSOCIATED WITH THE ARGENTINA ACQUISITION
The letter of intent with respect to the Argentina Acquisition provides
that the existing stockholders of S.A. Argentina will have the option to
require the Company to purchase all of the remaining shares of S.A. Argentina
(the "Put Option"). The Put Option will be exercisable for a period of 30
months commencing 30 months after the consummation of the Argentina Acquisition
(the "Put Period"). The Put Option may also become exercisable before and/or
after the Put Period if the Company makes a decision affecting S.A. Argentina
with respect to certain matters, including, for example, mergers and
acquisitions, strategic alliances or dividends, with which the existing
stockholders of S.A. Argentina disagree. The exercisability of the Put Option
may be subject to certain additional restrictions imposed by the terms of the
Company's indebtedness on the Company's ability to make acquisitions and incur
additional indebtedness. The purchase price for the shares subject to the Put
Option shall be the fair market value of such shares as determined by an
independent appraiser. There can be no assurance that the Put Option will be
exercised at a time when such exercise will not have a material adverse effect
on the Company.
If the Argentina Acquisition is consummated, the Company will be subject
to the risks and uncertainties attendant to doing business in countries which
may be exposed to, or may have recently experienced, economic or governmental
instability. The South American operations, earnings, asset values and
prospects of the Company may be materially adversely affected by developments
with respect to inflation, interest rates, currency fluctuations, governmental
policies, price and wage controls, exchange control regulations, taxation,
expropriation, social instability and other political or economic developments
in or affecting the countries in which the Company may operate.
In addition, there can be no assurance that the Company will be able to
obtain the financing necessary to consummate the Argentina Acquistion on terms
favorable to the Company or at all.
LIABILITY AND INSURANCE
The Company's business exposes it to possible claims for personal injury
or death resulting from the use of equipment rented or sold by the Company and
from injuries caused in motor vehicle accidents in which Company delivery and
service personnel are involved. The Company carries comprehensive insurance
subject to a deductible at a level it believes is sufficient to cover existing
and future claims. There can be no assurance that existing or future claims
will not exceed the level of the Company's insurance or that such insurance
will continue to be available on economically reasonable terms, or at all.
ENVIRONMENTAL AND SAFETY REGULATION
The Company's facilities and operations are subject to certain federal,
state and local laws and regulations relating to environmental protection and
occupational health and safety, including those governing wastewater
discharges, the treatment, storage and disposal of solid and hazardous wastes
and materials, and the remediation of contamination associated with the release
of hazardous substances. The Company believes that it is in material compliance
with such requirements and does not currently anticipate any material capital
expenditures for environmental compliance or remediation for the
14
<PAGE>
current or succeeding fiscal years. Certain of the Company's present and former
facilities have used substances and generated or disposed of wastes which are or
may be considered hazardous, and the Company may incur liability in connection
therewith. Moreover, there can be no assurance that environmental and safety
requirements will not become more stringent or be interpreted and applied more
stringently in the future. Such future changes or interpretations, or the
identification of adverse environmental conditions currently unknown to the
Company, could result in additional environmental compliance or remediation
costs to the Company. Such compliance and remediation costs could be material to
the Company's financial condition or results of operations. See
"Business--Environmental and Safety Regulation."
DEPENDENCE ON SENIOR MANAGEMENT
The Company is managed by a small number of key executive officers. The
loss of the services of certain of these key executives could have a material
adverse effect on the Company. The Company presently does not maintain any key
man life insurance policies on any of its officers. The Company's success also
depends on its ability to hire and retain additional qualified management
personnel. There can be no assurance that the Company will be able to hire and
retain such personnel. See "Management."
CONTROLLING STOCKHOLDERS
The Company is controlled by the Mas family and GE Capital. Jorge Mas, the
Company's Chairman, his brothers, Juan Carlos Mas and Jose Ramon Mas, and
Santos, a limited partnership controlled by the Mas family and Mr. Fitzgerald,
beneficially own all of the Company's outstanding Class A Common Stock, which
represents 66% of the fully diluted equity of the Company prior to the Offering
and 46% of the fully diluted equity of the Company upon completion of the
Offering. GE Capital owns Class B Common Stock which is convertible into Class
A Common Stock that represents 34% of the fully diluted equity of the Company
prior to the Offering and 23% of the fully diluted equity of the Company upon
completion of the Offering. The holders of a majority of the Series A
Cumulative Redeemable Preferred Stock, par value $.01 per share, of the
Company, (the "Series A Preferred Stock"), voting separately as a single class
in the election of directors of the Company, with each share of Series A
Preferred Stock entitled to one vote, are entitled to elect one director to
serve on the Company's Board of Directors. Upon the Company's failure to pay
certain dividends on the Series A Preferred Stock, the holders thereof have the
right to elect up to five additional directors to the Company's Board of
Directors. See "Description of Capital Stock--Preferred Stock." GE Capital owns
all of the issued and outstanding Series A Preferred Stock and, therefore, is
entitled to elect one director to the Company's Board of Directors. The Company
expects to redeem the Series A Preferred Stock with the proceeds of the Private
Debt Offering. See "Capitalization." Santos Capital Advisers, Inc. ("Santos
Capital"), a Florida corporation owned by the Mas family and Mr. Fitzgerald,
has an option to acquire 1.5 million shares of Common Stock from GE Capital;
these shares represent 10% of the fully diluted equity of the Company prior to
the Offering and 7% of the fully diluted equity of the Company upon completion
of the Offering. As a result, the Mas family, and Mr. Fitzgerald are able to
exercise a controlling influence over the outcome of matters submitted to the
Company's stockholders for approval and will have the power to delay, defer or
prevent a change in control of the Company. In addition, pursuant to an Amended
and Restated Stockholders' Agreement by and among the Company, GE Capital,
Jorge Mas, Jose Ramon Mas, Juan Carlos Mas, Mr. Fitzgerald, Santos Capital and
Santos, if GE Capital transfers Common Stock representing 15% or more of the
equity of the Company to a third party (the "Transferee"), the Company's Board
of Directors will increase from six to seven members and the Transferee will be
entitled to designate the additional director. At each meeting of the
stockholders of the Company held for the purpose of electing the class of
directors of which the director designated by the Transferee is a member, the
parties to the Stockholders Agreement, in accordance with such agreement, will
cast their votes so as to cause such designee to be elected as a director. In
accordance with the Standstill Agreement, GE Capital and its Affiliates (as
defined in the Standstill Agreement) must not make any attempt to exercise
control over the Company and all investments in
15
<PAGE>
the Company by such entities must remain solely passive for the duration of
such investments. See "Principal Stockholders" and "Certain Relationships and
Transactions--GE Capital, Santos and Santos Capital."
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the consummation of the Offering, the Company will
have outstanding 16,065,350 shares of Class A Common Stock (17,070,350 shares
outstanding if the U.S. Underwriters' over-allotment option is exercised in
full), including 9,365,350 outstanding shares of Class A Common Stock
beneficially owned by existing stockholders. The 6,700,000 shares of Class A
Common Stock to be sold pursuant to the Offering (7,705,000 if the U.S.
Underwriters' over-allotment option is exercised in full) will be eligible for
sale without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), in the public market after the consummation of the Offering
by persons other than affiliates of the Company. Sales of shares by
"affiliates" of the Company as the term is defined in Rule 144 under the
Securities Act ("Affiliates") will be subject to Rule 144. The Company and all
existing common stockholders have agreed with the Underwriters not to offer,
sell or otherwise dispose of any shares of Class A Common Stock (other than
issuances by the Company pursuant to the employee stock option plan) for a
period of 180 days after the date of the Prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated.
GE Capital holds 5,100,000 shares of Class B Common Stock which it may
exchange for 5,100,000 shares of Class A Common Stock. Upon such exchange, GE
Capital has the right to demand registration of its shares of Class A Common
Stock under the Securities Act. The Mas family, and Santos have the right to
demand registration of their shares of Class A Common Stock under the
Securities Act. Mr. Fitzgerald and Santos Capital each also have the right to
demand registration of shares he or it may acquire from the exercise of certain
options. Registration of any shares held by the Mas family, Santos, Santos
Capital, Mr. Fitzgerald or GE Capital would permit the sale of these shares
without regard to the restrictions of Rule 144. These parties have agreed to
waive their right to exercise their registration rights in connection with the
Offering and for 180 days thereafter. See "Description of Capital Stock--Common
Stock--Registration Rights."
Based on shares outstanding as of April 27, 1998, following the expiration
or waiver of the foregoing restrictions on dispositions and any applicable
holding periods under Rule 144, 9,365,350 outstanding shares of Class A Common
Stock owned by existing stockholders will be available for sale in the public
market pursuant to Rule 144 (including the volume and other limitations set for
therein). The Company intends to register on Form S-8 1,741,870 shares of Class
A Common Stock reserved for issuance upon exercise of options granted to
certain employees under the Company's Incentive Stock Plan, and shares of Class
A Common Stock reserved for issuance upon the exercise of certain options
granted to Mr. Fitzgerald and Robert G. Warren, the Senior Vice President of
the Company. Options to purchase 741,870 shares granted to Mr. Fitzgerald and
Mr. Warren and other employees are currently exercisable or will be exercisable
upon completion of the Offering.
No prediction can be made as to the effect, if any, that market sales of
shares held by the Mas family, GE Capital, Santos, Santos Capital, Mr.
Fitzgerald, Mr. Warren, other employees, or other stockholders, or the
availability of such shares for future sales, or market sales of shares sold in
the Offering pursuant to this Prospectus or the availability of such shares for
future sales, will have on the market price of shares of Class A Common Stock
prevailing from time to time. Sales of substantial amounts of Class A Common
Stock in the public market could adversely affect the prevailing market price
of the Class A Common Stock and could materially impair the Company's future
ability to realize capital through an offering of equity securities. See
"Shares Eligible for Future Sale."
ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and By-Laws and certain provisions of the
Delaware General Corporation Law (the "DGCL") may make it difficult in some
respects to effect a change in control of the Company and replace incumbent
management. The existence of these provisions may have a negative impact on the
16
<PAGE>
price of the Class A Common Stock, may discourage third party bidders from
making a bid for the Company, or may reduce any premiums paid to stockholders
for their Common Stock. For example, the directors may only be removed for cause
and only the directors may fill vacancies that occur prior to the end of a
director's term. In addition, the Board of Directors of the Company has the
authority to fix the rights and preferences of, and to issue shares of, the
Company's Preferred Stock. The Company must obtain the consent of the holders of
a majority of the outstanding shares of Series A Preferred Stock before it may
authorize, recommend or enter into an agreement with any person to effect a
Change of Control (as defined in the Certificate of Incorporation). Moreover,
prior to the closing of the Offering, the Company intends to adopt a
Stockholders' Rights Plan (the "Rights Plan"). The Rights Plan will permit the
Board to adjust the number and kind of shares subject to the Rights Plan so as
to prevent dilution or enlargement of rights in the event of a merger or other
events which could affect control of the Company. In accordance with the
Standstill Agreement, GE Capital and its affiliates must not make any attempt to
exercise control over the Company and all investments in the Company by such
entities must remain solely passive for the duration of such investments. See
"Management," "Certain Relationships and Transactions--GE Capital, Santos and
Santos Capital" and "Description of Capital Stock--Stockholders' Rights Plan."
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of shares of Class A Common Stock pursuant to the Offering
will experience immediate and substantial dilution of approximately $16.09 in
net tangible book value per share of Class A Common Stock from the initial
public offering price. See "Dilution."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Company's
Class A Common Stock, and there can be no assurance that an active trading
market will develop or be sustained after this Offering. The initial public
offering price will be determined through negotiations between the Company and
representatives of the Underwriters; however, there can be no assurance that
future market prices for the Class A Common Stock will equal or exceed the
range for the initial public offering price set forth on the cover page of this
Prospectus. After completion of this Offering, the market price of the Class A
Common Stock could be subject to significant variation due to fluctuations in
the Company's operating results, changes in earnings estimates by investment
analysts, the success or failure of the Company's growth strategies, and
changes in business or regulatory conditions affecting the Company. In
addition, the stocks listed on the New York Stock Exchange have experienced
extreme price fluctuations in recent years which have often been unrelated to
the operating performance of the affected companies. Such fluctuations could
adversely affect the market price of the Company's Class A Common Stock.
DIVIDEND RESTRICTIONS
The terms of the Company's Series A Preferred Stock, New Credit Facility
and the Private Debt Offering if consummated, restrict the Company from paying
dividends on its Class A Common Stock. The Company does not expect to pay
dividends on its Class A Common Stock in the foreseeable future. See "Dividend
Policy."
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements, including
without limitation, statements concerning the Company's operations, economic
performance and financial condition. The words "believe," "expect,"
"anticipate" and other similar expressions identify forward-looking statements.
Investors are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. These forward-looking
statements are based largely on the Company's current expectations and are
subject to a number of important risks and uncertainties, including those
identified under "Risk Factors" and elsewhere in this Prospectus. Actual
results could differ materially from the forward-looking statements. In light
of these risks and uncertainties, there can be no assurance that the results
referred to in the forward-looking statements contained in this Prospectus will
in fact occur.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Class A
Common Stock offered hereby are estimated to be approximately $92.9 million
assuming an initial public offering price of $15.00 per share ($107.0 million if
the U.S. Underwriters' over-allotment option is exercised in full), after
deducting underwriting discounts and commissions and offering expenses payable
by the Company. The Company intends to use the net proceeds from the Offering to
repay $92.9 million of a $100 million loan which the Company incurred to finance
the Richbourg Acquisition (the "Term Loan"); the entire Term Loan, as well as
$14.1 million under the New Credit Facility will be repaid with the net proceeds
from the Offering if the U.S. Underwriters' over-allotment option is exercised
in full. The Term Loan carried interest at LIBOR plus 3.5% for January through
March 1998 and at LIBOR plus 4% for April through June 1998 and matures on
January 31, 1999. The interest rate on the indebtedness under the New Credit
Facility is variable based on the Company's leverage and ranges from Prime rate
or LIBOR plus 1% to Prime plus 1.25% or LIBOR plus 2.25%. The New Credit
Facility terminates on October 31, 1998; however, upon repayment of the Term
Loan, this date will be extended to April 30, 2003. See "Description of Certain
Indebtedness--Credit Facilities."
DIVIDEND POLICY
The Company did not pay any cash dividends during 1996 and 1997. The
Company anticipates that, following the completion of the Offering, earnings
will be retained for the development of its business and will not be
distributed to stockholders as dividends. The declaration and payment by the
Company of any future dividends and the amounts thereof will depend upon the
Company's results of operations, financial condition, cash requirements, future
prospects, limitations imposed by the New Credit Facility, the Private Debt
Offering (if consummated), the terms of its Preferred Stock and other factors
deemed relevant by the Board of Directors. See "Description of Capital Stock."
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998, (i) on an actual basis, (ii) pro forma for the Argentina
Acquisition and related borrowings under the New Credit Facility and (iii) pro
forma as adjusted to give effect to the Offering assuming an initial public
offering price per share of $15.00 and the Private Debt Offering and the
application of the estimated net proceeds therefrom. This table should be read
in conjunction with "Use of Proceeds," "Unaudited Pro Forma Consolidated
Financial Data," "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- --------------- ------------
Debt (DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Credit facility ....................................................... $ 231,705 $ 259,705 $ 149,899
Term loan ............................................................. 100,000 100,000 --
Notes payable ......................................................... 14,050 31,402(1) 17,352
Senior Subordinated Notes ............................................. -- -- 150,000
--------- ----------- ---------
Total debt ........................................................... 345,755 391,107 317,251
--------- ----------- ---------
Redeemable preferred stock
Series A Cumulative Redeemable Preferred Stock, $.01 par value;
519,503 shares authorized; 340,907 shares issued and outstanding ..... 10,950 10,950 --
--------- ----------- ---------
Total redeemable preferred stock ..................................... 10,950 10,950 --
--------- ----------- ---------
Minority interest ...................................................... -- 14,618 14,618
--------- ----------- ---------
Common stockholders' equity
Class A Common Stock, $.01 par value, 100,000,000 shares authorized;
8,738,350 and 15,438,350 shares issued and outstanding(2) ............ 88 88 154
Class B Common Stock, $.01 par value, liquidation preference $11.67;
20,000,000 shares authorized; 5,727,000 shares issued and outstanding 57 57 57
Additional paid-in capital ............................................ 44,876 44,876 134,866
Accumulated deficit(3) ................................................ (28,908) (28,908) (28,908)
--------- ----------- ---------
Total common stockholders' equity .................................... 16,113 16,113 106,169
--------- ----------- ---------
Total capitalization ................................................ $ 372,818 $ 432,788 $ 438,038
========= =========== =========
</TABLE>
- ---------------
(1) This increase is a result of the consolidation of approximately $17.4
million of debt incurred by S.A. Argentina, however, this debt is solely
the responsibility of S.A. Argentina without recourse to the Company.
(2) Excludes (i) 240,000 additional shares of Class A Common Stock reserved for
issuance in connection with options granted pursuant to the Company's
Incentive Stock Plan; (ii) 657,220 additional shares of Class A Common
Stock reserved for issuance in connection with options granted to Kevin P.
Fitzgerald, the Chief Executive Officer and President of the Company,
(688,299 shares if the over-allotment option is exercised); (iii) 84,650
additional shares of Class A Common Stock reserved for issuance in
connection with options granted to Robert G. Warren, Senior Vice President
of Neff Machinery and (iv) 627,000 additional shares of Class A Common
Stock which are to be issued upon the anticipated conversion of 627,000
shares of Class B Common Stock into Class A Common Stock prior to the
consummation of the Offering. See "Management--Options Grants and
Exercises."
(3) No effect is given to the write-off of deferred debt costs upon the
repayment of the Term Loan and the replacement of the Senior Credit
Facility with the New Credit Facility.
19
<PAGE>
DILUTION
As of March 31, 1998, adjusted for the conversion of 627,000 shares of
Class B Common Stock into Class A Common Stock and for the exercise of
additional shares of Class A Common Stock reserved for issuance pursuant to
certain options exercisable upon consummation of the Offering, including (i)
100,000 additional shares of Class A Common Stock reserved for issuance to
Jorge Mas and 100,000 additional shares of Class A Common Stock reserved for
issuance to Kevin P. Fitzgerald in connection with options granted pursuant to
the Company's Incentive Stock Plan for an aggregate purchase price equal to the
initial public offering price set forth on the cover of this Prospectus, (ii)
657,220 additional shares of Class A Common Stock reserved for issuance in
connection with options granted to Mr. Fitzgerald for an aggregate purchase
price of $1.6 million; and (iii) 84,650 additional shares of Class A Common
Stock reserved for issuance in connection with an option granted to Robert G.
Warren for an aggregate purchase price of $0.5 million, the Company had an
aggregate of 15,407,220 shares of Common Stock outstanding, including
10,307,220 shares of Class A Common Stock and 5,100,000 shares of Class B
Common Stock. Net tangible book value per share of Class A Common Stock
represents the amount of total tangible assets less the sum of (i) total
liabilities and (ii) the liquidation preference of the Series A Preferred Stock
and the Class B Common Stock of the Company. After giving effect to the sale of
the Class A Common Stock in the Offering at an assumed initial public offering
price of $15.00 per share and the application of the estimated net proceeds
therefrom, the pro forma net tangible book value as of March 31, 1998 would
have been ($18.5) million or ($1.09) per share. This represents an immediate
increase in net tangible book value of $9.72 per share of Class A Common Stock
to existing stockholders and an immediate dilution in pro forma net tangible
book value of $16.09 per share of Class A Common Stock to new investors
purchasing shares in the Offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share .................... $ 15.00
Net tangible book value per share before the Offering ............. $ 10.81)
Increase per share attributable to new investors .................. 9.72
--------
Less pro forma net tangible book value per share after the Offering ( 1.09)
--------
Dilution per share to new investors(1) ............................. $ 16.09
========
</TABLE>
- ----------------
(1) Assuming the conversion of the remaining shares of Class B Common Stock
into Class A Common Stock, pro forma net tangible book value per share of
Class A Common Stock and dilution per share of Class A Common Stock to new
investors would be $1.85 and $13.15, respectively.
The following table summarizes, as of March 31, 1998, on a pro forma
basis after giving effect to the Offering, and as adjusted for the conversion of
627,000 shares of Class B Common Stock and the exercise of the stock options
discussed above, the differences between existing stockholders and new investors
in this Offering with respect to (i) the number of shares of Class A and Class B
Common Stock purchased from the Company; (ii) the total consideration paid to
the Company; and (iii) the average price paid per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders ......... 15,407,220 70% $ 50,121,000 33% $ 3.25
New Investors ................. 6,700,000 30 100,500,000 67 15.00
---------- -- ------------ --
Total ......................... 22,107,220 100% $150,621,000 100%
========== === ============ ===
</TABLE>
The tables above exclude 40,000 additional shares of Class A Common Stock
reserved for issuance in connection with options granted pursuant to the
Company's Incentive Stock Plan which will not be exercisable upon consummation
of the Offering.
20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth the unaudited pro forma consolidated
balance sheet of the Company as of March 31, 1998, adjusted to give effect to
(i) the Argentina Acquisition and the financing of such acquisition; (ii) the
Offering and the application of the estimated net proceeds therefrom; and (iii)
the Private Debt Offering and the application of the estimated net proceeds
therefrom; as if these transactions had occurred as of March 31, 1998. The
second and third tables set forth the unaudited pro forma consolidated
statement of operations of the Company for the year ended December 31, 1997 and
the first quarter ended March 31, 1998, respectively, adjusted to give effect
to (i) the Buckner Acquisition (August 1, 1997), the Richbourg Acquisition
(January 2, 1998) (together, "Completed Acquisitions") and the financing of
these acquisitions; (ii) the Argentina Acquisition and the financing of such
acquisition; (iii) the Offering and the application of the estimated net
proceeds therefrom; and (iv) the Private Debt Offering and the application of
the estimated net proceeds therefrom, as if these transactions had occurred on
the beginning of the periods presented. All acquisitions are accounted for
using the purchase method of accounting. The unaudited pro forma consolidated
financial data are based upon certain assumptions and estimates which are
subject to change. These statements are not necessarily indicative of the
actual results of operations that might have occurred, nor are they necessarily
indicative of expected future results. The unaudited pro forma consolidated
financial data should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ARGENTINA ACQUISITION
------------------------------------
HISTORICAL PRO FORMA
COMPANY(A) HISTORICAL(A) ADJUSTMENTS
------------ --------------- --------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ............. $ 2,620 $ 344
Accounts receivable, net .............. 27,792 17,599
Inventories ........................... 14,767 13,832
Rental equipment, net ................. 254,403 18,116
Property and equipment, net ........... 27,738 8,843 $ 29(b)
Goodwill, net ......................... 69,844 -- 12,848 (c)
Intangible assets, net ................ 448 --
Prepaid expenses and other assets ..... 10,664 301
-------- -------
Total assets ........................ $408,276 $59,035
======== =======
LIABILITIES AND COMMON
STOCKHOLDERS' EQUITY
Liabilities
Accounts payable ..................... $ 18,427 $ 9,159
Accrued expenses ..................... 14,885 975 93 (d)
Senior Credit Facility ............... 231,705 -- 28,000 (e)
Term loan payable .................... 100,000 --
Senior subordinated notes ............ -- --
Notes payable ........................ 14,050 17,352
Capitalized lease obligations ........ 2,146 --
Deferred income taxes ................ -- 1,717 (2) (f)
-------- -------
Total liabilities ................... 381,213 29,203
-------- -------
Redeemable preferred stock ............ 10,950 --
-------- -------
Minority interest ..................... -- -- 14,618 (g)
-------- -------
Common stockholders' equity ........... 16,113 29,832 (29,832)(h)
-------- -------
Total liabilities and common
stockholders' equity ............... $408,276 $59,035
======== =======
<CAPTION>
PRIVATE DEBT
OFFERING OFFERING PRO FORMA
ADJUSTMENTS ADJUSTMENTS AS ADJUSTED(B)
--------------------- ------------------- ---------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ............. $ 2,964
Accounts receivable, net .............. 45,391
Inventories ........................... 28,599
Rental equipment, net ................. 272,519
Property and equipment, net ........... 36,610
Goodwill, net ......................... 82,692
Intangible assets, net ................ 448
Prepaid expenses and other assets ..... $ 5,250(j) 16,215
--------
Total assets ........................ $485,438
========
LIABILITIES AND COMMON
STOCKHOLDERS' EQUITY
Liabilities
Accounts payable ..................... $ 27,586
Accrued expenses ..................... 15,953
Senior Credit Facility ............... $ 7,084(i) (116,890)(k) 149,899
Term loan payable .................... (100,000) (i) --
Senior subordinated notes ............ 150,000 (k) 150,000
Notes payable ........................ (14,050)(k) 17,352
Capitalized lease obligations ........ 2,146
Deferred income taxes ................ 1,715
--------
Total liabilities ................... 364,651
--------
Redeemable preferred stock ............ (10,950)(k) --
--------
Minority interest ..................... 14,618
--------
Common stockholders' equity ........... 92,916 (i) (2,860)(k) 106,169
--------
Total liabilities and common
stockholders' equity ............... $485,438
========
</TABLE>
(FOOTNOTES ON NEXT PAGE)
21
<PAGE>
- ---------------
(a) The following table presents the allocation of purchase price for each of
the companies acquired or proposed to be acquired:
<TABLE>
<CAPTION>
BUCKNER RICHBOURG ARGENTINA
-------------- --------------- --------------
<S> <C> <C> <C>
Purchase Price ............... $63,605,000 $100,000,000 $28,000,000
----------- ------------ -----------
Net Assets Acquired .......... 33,636,000 63,300,000 15,152,000
Fair Value Adjustments:
Rental Fleet ................ 1,019,000 (4,090,000) --
----------- ------------ -----------
Goodwill ..................... $28,950,000 $ 40,790,000 $12,848,000
=========== ============ ===========
</TABLE>
<TABLE>
<S> <C>
(b) Adjustment for capitalized interest not recorded under Argentine GAAP.
(c) Adjustment reflects the allocation of the Argentina Acquisition purchase price of $28.0 million to the fair value of
the net assets acquired resulting in an increase of $12.8 million to goodwill. The historical carrying values of net
assets acquired approximate fair value.
(d) Adjustment for vacation accrual not recorded under Argentine GAAP.
(e) Records acquisition consideration funded through the New Credit Facility in connection with the Argentina
Acquisition.
(f) Adjustment for deferred income taxes not recorded under Argentine GAAP.
(g) Records minority interest.
(h) Records elimination of the stockholders' equity related to the Argentina Acquisition.
(i) Records the Offering and the application of the estimated net proceeds therefrom together with the proceeds from
additional borrowings under the New Credit Facility to repay the Term Loan.
(j) Records deferred financing costs related to the Private Debt Offering.
(k) Records the Private Debt Offering and the application of the estimated net proceeds therefrom to repay the Mortgage,
redeem the Series A Preferred Stock and reduce borrowings outstanding under the New Credit Facility with remaining
proceeds.
</TABLE>
22
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMPLETED ACQUISITIONS
---------------------------------------------------------
HISTORICAL
---------------------------
HISTORICAL PRO FORMA
COMPANY INDUSTRIAL(A) RICHBOURG ADJUSTMENTS PRO FORMA
------------ --------------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues
Rental revenue ................................. $ 68,056 $15,710 $28,894 $ 112,660
Equipment sales ................................ 50,578 2,468 6,510 59,556
Parts and service .............................. 23,385 2,709 -- 26,094
-------- ------- ------- ---------
Total revenues ................................ 142,019 20,887 35,404 198,310
-------- ------- ------- ---------
Cost of revenues
Cost of equipment sold ......................... 40,766 1,750 1,956 44,472
Depreciation of rental equipment ............... 24,490 4,161 10,928 $ (83)(b) 39,496
Maintenance of rental equipment ................ 19,748 2,799 10,714 33,261
Cost of parts and service ...................... 13,741 1,047 -- 14,788
-------- ------- ------- ---------
Total cost of revenues ........................ 98,745 9,757 23,598 132,017
-------- ------- ------- ---------
Gross profit .................................... 43,274 11,130 11,806 66,293
-------- ------- ------- ---------
Other operating expenses
Selling, general and administrative
expenses ...................................... 30,129 8,616 4,160 42,905
Other depreciation and amortization ............ 2,548 855 880 1,372 (c) 5,655
Officer stock option compensation(d) ........... 4,400 -- -- 4,400
-------- ------- ------- ---------
Total other operating expenses ................ 37,077 9,471 5,040 52,960
-------- ------- ------- ---------
Income from operations .......................... 6,197 1,659 6,766 13,333
-------- ------- ------- ---------
Other (income) expense
Interest expense ............................... 11,976 1,862 2,406 7,357 (e) 23,601
Amortization of debt issue costs ............... 2,362 21 -- 1,125 (f) 3,508
Other (income) expense ......................... -- 260 (140) 120
-------- ------- ------- ---------
Total other expense, net ...................... 14,338 2,143 2,266 27,229
-------- ------- ------- ---------
Income (loss) before (provision for)
benefit from income taxes and
extraordinary item ............................. (8,141) (484) 4,500 (13,896)
(Provision for) benefit from
income taxes ................................... 1,748 80 -- 1,976 (g) 3,804
-------- ------- ------- ---------
Income (loss) before extraordinary item and
minority interest .............................. (6,393) (404) 4,500 (10,092)
Minority interest ............................... -- -- -- --
-------- ------- ------- ---------
Income (loss) before extraordinary item ......... $ (6,393) $ (404) $ 4,500 $ (10,092)
======== ======= ======= =========
Basic and diluted Earnings
per common share:
Income (loss) before Extraordinary Item ........ $ (2.07)
=========
Weighted average common shares
outstanding .................................... 8,465
=========
<CAPTION>
ARGENTINA ACQUISITION
-----------------------------
PRIVATE DEBT
PRO FORMA OFFERING OFFERING PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
------------ ---------------- ------------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues
Rental revenue ................................. $ 19,919 $132,579
Equipment sales ................................ 37,404 96,960
Parts and service .............................. -- 26,094
-------- --------
Total revenues ................................ 57,323 255,633
-------- --------
Cost of revenues
Cost of equipment sold ......................... 31,075 75,547
Depreciation of rental equipment ............... 6,108 45,604
Maintenance of rental equipment ................ 6,904 40,165
Cost of parts and service ...................... -- 14,788
-------- --------
Total cost of revenues ........................ 44,087 176,104
-------- --------
Gross profit .................................... 13,236 79,529
-------- --------
Other operating expenses
Selling, general and administrative
expenses ...................................... 4,606 $ 30(h) 47,541
Other depreciation and amortization ............ 431 309 (i) 6,395
Officer stock option compensation(d) ........... -- 4,400
-------- --------
Total other operating expenses ................ 5,037 58,336
-------- --------
Income from operations .......................... 8,199 21,193
-------- --------
Other (income) expense
Interest expense ............................... 1,118 2,513 (j) (8,362) (m) 1,177 (n) 20,047
Amortization of debt issue costs ............... -- (600)(o) 2,908
Other (income) expense ......................... 48 168
-------- --------
Total other expense, net ...................... 1,166 23,123
-------- --------
Income (loss) before (provision for)
benefit from income taxes and
extraordinary item ............................. 7,033 (1,930)
(Provision for) benefit from
income taxes ................................... (2,013) 1,070 (k) (3,136) (g) 217 (g) (58)
-------- --------
Income (loss) before extraordinary item and
minority interest .............................. 5,020 (1,988)
Minority interest ............................... -- (2,460)(l) (2,460)
-------- --------
Income (loss) before extraordinary item ......... $ 5,020 $ (4,448)
======== ========
Basic and diluted Earnings
per common share:
Income (loss) before Extraordinary Item ........ $ (.21)
========
Weighted average common shares
outstanding .................................... 21,165
========
</TABLE>
(fOOTNOTES ON PAGE 25)
23
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FIRST QUARTER ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ARGENTINA ACQUISITION
----------------------------
HISTORICAL PRO FORMA
COMPANY HISTORICAL ADJUSTMENTS
------------ ------------ ---------------
<S> <C> <C> <C>
Revenues
Rental revenues ...................................................... $ 29,923 $ 5,751
Equipment sales ...................................................... 23,448 7,448
Parts and service .................................................... 8,994 --
-------- -------
Total revenues ...................................................... 62,365 13,199
-------- -------
Cost of revenues
Cost of equipment sold ............................................... 16,699 5,701
Depreciation of rental equipment ..................................... 11,321 1,228
Maintenance of rental equipment ...................................... 8,268 2,243
Cost of parts and service ............................................ 5,996 --
-------- -------
Total cost of revenues .............................................. 42,284 9,172
-------- -------
Gross profit .......................................................... 20,081 4,027
-------- -------
Other operating expenses(d)
Selling, general and administrative expenses ......................... 12,025 1,148 $ 306(h)
Other depreciation and amortization .................................. 1,749 52 80 (i)
-------- -------
Total other operating expenses ...................................... 13,774 1,200
-------- -------
Income from operations ................................................ 6,307 2,827
-------- -------
Other (income) expense
Interest expense ..................................................... 7,556 316 616 (j)
Amortization of debt issue costs ..................................... 1,865 --
Other income ......................................................... -- (72)
-------- -------
Total other expense, net ............................................ 9,421 244
-------- -------
Income (loss) before (provision for) benefit from income taxes ........ (3,114) 2,583
(Provision for) benefit from income taxes ............................. 1,168 (818) 341 (k)
-------- -------
Income (loss) before minority interest ................................ (1,946) 1,765
Minority interest ..................................................... -- -- (865)(l)
-------- -------
Net income (loss) before extraordinary item ........................... $ (1,946) $ 1,765
======== =======
Basic and diluted earnings per common share
Net income (loss) before extraordinary items per
common share ........................................................
Weighted average common shares outstanding ............................
<CAPTION>
PRIVATE
DEBT
OFFERING OFFERING PRO FORMA
ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
------------------ --------------- -----------------
<S> <C> <C> <C>
Revenues
Rental revenues ...................................................... $ 35,674
Equipment sales ...................................................... 30,896
Parts and service .................................................... 8,994
----------
Total revenues ...................................................... 75,564
----------
Cost of revenues
Cost of equipment sold ............................................... 22,400
Depreciation of rental equipment ..................................... 12,549
Maintenance of rental equipment ...................................... 10,511
Cost of parts and service ............................................ 5,996
----------
Total cost of revenues .............................................. 51,456
----------
Gross profit .......................................................... 24,108
----------
Other operating expenses(d)
Selling, general and administrative expenses ......................... 13,479
Other depreciation and amortization .................................. 1,881
----------
Total other operating expenses ...................................... 15,360
----------
Income from operations ................................................ 8,748
----------
Other (income) expense
Interest expense ..................................................... $ (2,090)(m) $ 294(n) 6,692
Amortization of debt issue costs ..................................... (150)(o) 1,715
Other income ......................................................... (72)
----------
Total other expense, net ............................................ 8,335
----------
Income (loss) before (provision for) benefit from income taxes ........ 413
(Provision for) benefit from income taxes ............................. (1,000)(g) 54 (g) (255)
----------
Income (loss) before minority interest ................................ 158
Minority interest ..................................................... (865)
----------
Net income (loss) before extraordinary item ........................... $ (707)
==========
Basic and diluted earnings per common share
Net income (loss) before extraordinary items per
common share ........................................................ $ (.03)
==========
Weighted average common shares outstanding ............................ 21,165 (p)
==========
</TABLE>
(FOOTNOTES ON NEXT PAGE)
24
<PAGE>
- --------------
<TABLE>
<S> <C>
(a) Reflects seven months of operations prior to the Buckner Acquisition in August 1997.
(b) Reflects the adjustment of Buckner's historical depreciation expense to conform to the Company's depreciation policy
adopted on Janu
1997.
(c) Records the increase in amortization of goodwill, using an estimated life of 40 years, of $0.4 million and $1.0
million attributable
and Richbourg Acquisitions, respectively.
(d) No effect has been given to the officer stock option compensation expense to be recognized in connection with the
increase in market
the Company resulting from the consummation of the Offering.
(e) Records interest expense related to the portion of the Acquisitions funded through borrowings under the Term Loan and
Senior Credit
using the Company's historical rate of 9.0% per annum and eliminates interest expense related to indebtedness of the
acquired compan
was not assumed by the Company.
(f) Records the amortization of debt issue costs related to the Term Loan.
(g) Adjusts historical income taxes expense to reflect an estimated rate of 38%.
(h) Adjustment for vacation accrual not recorded under Argentine GAAP.
(i) Records the increase in amortization of goodwill, using an estimated life of 40 years, attributable to the Argentina
Acquisition.
(j) Adjustment for capitalized interest not recorded under Argentine GAAP and records interest expense related to the
portion of the Arg
Acquisition funded through borrowings under the Senior Credit Facility, using the Company's historical rate of 9.0%
per annum.
(k) Adjustment for deferred income taxes not recorded under Argentine GAAP and records a provision for income taxes at an
estimated rate
38%.
(l) Records minority interest.
(m) Reduces interest expense resulting from a reduction of debt outstanding from the use of proceeds of the Offering.
(n) Records interest expense related to the Private Debt Offering at an assumed rate of 8.75%.
(o) Eliminates deferred financing costs that would not have been incurred and records deferred financing costs related to
the Private De
(p) Assumes exchange by GE Capital of the Series B and Series C Cumulative Convertible Preferred Stock for Class B Common
Stock, liquida
value $11.67, as if this transaction had occurred on January 1, 1998.
</TABLE>
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for each of the five years ended December 31, 1997 and the first
quarters ended March 25, 1997 and March 31, 1998. The consolidated statements
of operations data for the years ended December 31, 1995, 1996 and 1997, and
the consolidated balance sheet data as of December 31, 1996 and 1997 are
derived from financial statements audited by Deloitte & Touche LLP, independent
certified public accountants. The consolidated statement of operations data for
the year ended December 31, 1994 and the consolidated balance sheet data as of
December 31, 1994 and 1995 are derived from audited financial statements of the
Company not included in this Prospectus. The consolidated statement of
operations and balance sheet data for and as of the year ended December 31,
1993 is derived from financial statements of the Company's two wholly-owned
subsidiaries, Neff Rental and Neff Machinery, audited by other independent
certified public accountants, and, in the opinion of management, reflect all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of such information in accordance
with generally accepted accounting principles. The selected consolidated
financial data for the first quarters ended March 25, 1997 and March 31, 1998
is derived from the unaudited consolidated financial statements of the Company,
which, in the opinion of management, reflect all adjustments (consisting only
of normal recurring adjustments) that the Company considers necessary for a
fair presentation of such information in accordance with generally accepted
accounting principles. The historical results are not necessarily indicative of
results to be expected for any future period. The data set forth below should
be read in conjunction with, and are qualified by reference to, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- --------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues
Rental revenue .................................. $ 10,305 $ 16,226 $ 20,019 $ 35,808 $ 68,056
Equipment sales ................................. 17,207 22,996 33,943 44,160 50,578
Parts and service ............................... 9,147 10,304 13,292 15,045 23,385
-------- -------- -------- ---------- ----------
Total revenues ................................. 36,659 49,526 67,254 95,013 142,019
-------- -------- -------- ---------- ----------
Cost of revenues
Cost of equipment sold .......................... 14,075 17,111 26,562 33,605 40,766
Depreciation of rental equipment ................ 5,784 8,911 11,747 19,853(1) 24,490(1)
Maintenance of rental equipment ................. 260 2,806 3,469 8,092 19,748
Cost of parts and service ....................... 5,991 5,987 7,504 8,143 13,741
-------- -------- -------- ------------ ------------
Total cost of revenues ......................... 26,110 34,815 49,282 69,693 98,745
-------- -------- -------- ------------ ------------
Gross profit ..................................... 10,549 14,711 17,972 25,320 43,274
-------- -------- -------- ------------ ------------
Selling, general and administrative expenses ..... 6,078 8,493 10,956 18,478 30,129
Other depreciation and amortization .............. 614 225 916 1,432 2,548
Officer stock option compensation(2) ............. -- -- -- -- 4,400
-------- -------- -------- ------------ ------------
Income from operations ........................... 3,857 5,993 6,100 5,410 6,197
-------- -------- -------- ------------ ------------
Other expense .................................... 1,175 1,669 3,090 6,337 14,338
-------- -------- -------- ------------ ------------
Income (loss) before (provision for) benefit
from income taxes and extraordinary items ....... 2,682 4,324 3,010 (927) (8,141)
(Provision for) benefit from income taxes(3) ..... (1,019) (1,612) (1,176) (461) 1,748
-------- -------- -------- ------------ ------------
Income (loss) before extraordinary items ......... 1,663 2,712 1,834 (1,388) (6,393)
Net income (loss) ................................ $ 1,663 $ 2,712 $ 1,834 $ (2,197) $ (6,844)
======== ======== ======== ============ ============
Net income (loss) before extraordinary items
per common share (basic and diluted) ............ $ .20 $ .32 $ .22 $ (.56) $ (1.64)
Weighted average common shares outstanding........ 8,465 8,465 8,465 8,465 8,465
<CAPTION>
FIRST QUARTER ENDED
------------------------
MARCH 25, MARCH 31,
1997 1998
----------- ------------
(IN THOUSANDS, EXCEPT PER
SHARE
AMOUNTS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues
Rental revenue .................................. $ 8,892 $ 29,923
Equipment sales ................................. 10,505 23,448
Parts and service ............................... 4,959 8,994
------- --------
Total revenues ................................. 24,356 62,365
------- --------
Cost of revenues
Cost of equipment sold .......................... 8,814 16,699
Depreciation of rental equipment ................ 4,443 11,321
Maintenance of rental equipment ................. 1,830 8,268
Cost of parts and service ....................... 3,001 5,996
------- --------
Total cost of revenues ......................... 18,088 42,284
------- --------
Gross profit ..................................... 6,268 20,081
------- --------
Selling, general and administrative expenses ..... 3,969 12,025
Other depreciation and amortization .............. 349 1,749
Officer stock option compensation(2) ............. -- --
------- --------
Income from operations ........................... 1,950 6,307
------- --------
Other expense .................................... 1,550 9,421
------- --------
Income (loss) before (provision for) benefit
from income taxes and extraordinary items ....... 400 (3,114)
(Provision for) benefit from income taxes(3) ..... (150) 1,168
------- --------
Income (loss) before extraordinary items ......... 250 (1,946)
Net income (loss) ................................ $ 250 $ (1,946)
======= ========
Net income (loss) before extraordinary items
per common share (basic and diluted) ............ (.19) (.46)
Weighted average common shares outstanding........ 8,465 8,865
</TABLE>
(FOOTNOTES ON NEXT PAGE)
26
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, FIRST QUARTER ENDED
------------------------------------------------------------- -------------------------
MARCH 25, MARCH 31,
1993 1994 1995 1996 1997 1997 1998
------------ ------------ ----------- ----------- ----------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD)
Net book value of rental equipment ...... $ 17,846 $ 29,602 $ 45,596 $ 76,794 $ 184,787 $ 254,403
Total assets ............................ 29,263 46,851 68,816 109,118 280,790 408,276
Total debt .............................. 25,378 37,983 48,345 58,250 226,203 345,755
Redeemable preferred stock .............. -- -- 11,430 46,299 53,747 10,950
Total common stockholders' equity
(deficit) .............................. 571 4,205 (1,931) (7,508) (24,735) 16,113
OTHER DATA
Adjusted EBITDA(4) ...................... $ 10,255 $ 15,129 $ 18,763 $ 26,695 $ 37,635 $ 6,742 $ 19,377
Adjusted EBITDA margin(5) ............... 28.0% 30.5% 27.9% 28.1% 26.5% 27.7% 31.1%
Rental equipment purchases .............. $ 21,353 $ 31,185 $ 52,795 $ 86,886 $ 143,999 $25,048 $ 47,157
Number of locations (end of period) ..... 5 6 8 16 53 18 70
</TABLE>
- --------------
(1) Depreciation of rental equipment for 1996 and 1997 reflect the Company's
change in depreciation policy to recognize extended estimated service
lives and increased residual values of its rental equipment. See the
Consolidated Financial Statements and the Notes thereto included elsewhere
in this Prospectus.
(2) Officer stock option compensation expense represents a noncash charge with
respect to the change in estimated market value of the shares to be issued
to Kevin P. Fitzgerald under an option agreement.
(3) Prior to December 26, 1995, the Company operated as a Subchapter S
corporation under the provisions of the Internal Revenue Code. Income
(loss) before extraordinary items for 1993, 1994 and 1995 is restated to
reflect what the data would have been if the Company had Subchapter C
status in these years.
(4) Adjusted EBITDA represents income from operations plus depreciation and
amortization and officer stock option compensation expenses. Adjusted
EBITDA is not intended to represent cash flow from operations and should
not be considered as an alternative to operating or net income computed in
accordance with GAAP, as an indicator of the Company's operating
performance, as an alternative to cash flows from operating activities (as
determined in accordance with GAAP) or as a measure of liquidity. The
Company believes that Adjusted EBITDA is a standard measure commonly
reported and widely used by analysts and investors as a measure of
profitability for companies with significant depreciation and amortization
expense. However, not all companies calculate Adjusted EBITDA using the
same methods; therefore, the Adjusted EBITDA figures set forth above may
not be comparable to Adjusted EBITDA reported by other companies.
(5) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total
revenues.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The matters discussed herein may include forward-looking statements that
involve risks and uncertainties which could result in operating performance
that is materially different from management's projections. The section of this
Prospectus entitled "Risk Factors" should be read in conjunction with this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
The following discussion and analysis of the Company's consolidated
financial condition and consolidated results of operations should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto and the Company's Unaudited Pro Forma Consolidated Financial Data and
the Notes thereto, appearing elsewhere in this Prospectus.
OVERVIEW
The Company is one of the largest and fastest growing equipment rental
companies in the United States. In addition to its rental business, the Company
acts as a dealer of new equipment on behalf of several nationally recognized
equipment manufacturers. The Company also sells used equipment, spare parts and
merchandise and provides ongoing repair and maintenance services. Prior to
1995, the Company primarily acted as a dealer of new equipment on behalf of
several nationally recognized equipment manufacturers. During this time, many
of the Company's dealer locations (six locations) also operated as rental
locations. In 1995, the Company, responding to changes in the industry, began
to modify its operating structure to focus resources of the Company on the
rental equipment business. As part of this strategy, in December 1995, the
Company entered into a strategic partnership with GE Capital to take advantage
of the growth and consolidation opportunities in the equipment rental industry.
Since 1995, the Company has pursued an aggressive growth strategy,
increasing its number of equipment rental and sales locations to 70, as of
March 31, 1998. The Company has achieved this growth through (i) the addition
of 26 equipment rental locations as a result of the Buckner Acquisition, (ii)
the addition of 15 equipment rental locations as a result of the Richbourg
Acquisition; and (iii) the opening of 25 new equipment rental locations
primarily throughout the southeast and southwest regions of the United States.
The Company intends to continue to pursue its aggressive growth strategy by (i)
making additional acquisitions of equipment rental companies; (ii) increasing
fleet at its existing equipment rental locations in both existing and new
product lines; (iii) continuing to open new equipment rental locations; and
(iv) expanding its dealership operations.
Since March 1, 1995, the Company has opened 25 start-up rental equipment
locations. Management believes the Company's recent financial performance does
not fully reflect the benefit of these rental locations. Based on the Company's
historical experience, a new equipment rental location realizes significant
increases in revenues and cash flow during the first three years of operation
as more equipment is added to the rental fleet and as the location matures.
Because there is relatively little incremental operating expense associated
with such revenues, there is a greater proportionate increase in cash flow and
profitability as a rental location matures. The Company believes the revenues,
cash flow and profitability of the 25 start-up locations opened since March 1,
1995 will increase significantly as these locations mature.
The Company primarily derives revenue from (i) the rental of equipment;
(ii) sales of new and used equipment and (iii) sales of parts and service. On a
pro forma basis for the Acquisitions, the Company's primary source of revenue
is the rental of equipment to construction and industrial customers. Growth in
rental revenue is dependent upon several factors, including the demand for
rental equipment, the amount of equipment available for rent, rental rates and
the general economic environment. The level of new and used equipment sales is
primarily a function of the supply and demand for such equipment, price and
general economic conditions. The age, quality and mix of the
28
<PAGE>
Company's rental fleet also affect revenues from the sale of used equipment.
Revenues derived from the sale of parts and service is generally correlated
with sales of new equipment.
Costs of revenues include cost of equipment sold, depreciation and
maintenance costs of rental equipment and cost of parts and service. Cost of
equipment sold consists of the net book value of rental equipment at the time
of sale and cost for new equipment sales. Depreciation of rental equipment
represents the depreciation costs attributable to rental equipment. Maintenance
of rental equipment represents the costs of servicing and maintaining rental
equipment on an ongoing basis. Cost of parts and service represents costs
attributable to the sale of parts directly to customers and service provided
for the repair of customer owned equipment.
Depreciation of rental equipment is calculated on a straight-line basis
over the estimated service life of the asset (generally four to seven years
with a 10% residual value). Since January 1, 1996, the Company has made certain
changes to its depreciation assumptions to recognize extended estimated service
lives and increased residual values of its rental equipment. The Company
believes that these changes in estimates will more appropriately reflect its
financial results by better allocating the cost of its rental equipment over
the service lives of these assets. In addition, the new lives and residual
values more closely conform to those prevalent in the industry.
Selling, general and administrative expenses include sales and marketing
expenses, payroll and related costs, professional fees, property and other
taxes and other administrative overhead. Other depreciation and amortization
represents the depreciation associated with property and equipment (other than
rental equipment) and the amortization of goodwill and intangible assets.
Prior to December 26, 1995, the Company had Subchapter S Corporation
status under the provisions of the Internal Revenue Code. As a result, the
stockholders of the Company were responsible for income taxes for the period
prior to December 26, 1995. In 1995, the Company recorded a deferred tax
liability for timing differences which existed at the time the Company changed
its tax status (see the Consolidated Financial Statements and the Notes thereto
included elsewhere in this Prospectus).
RESULTS OF OPERATIONS
In view of the Company's growth, management believes that the
period-to-period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future
performance. In addition, the Company's results of operations may fluctuate
from period to period in the future as a result of the cyclical nature of the
industry in which the Company operates. See "Risk Factors--Seasonality and
Quarterly Fluctuations in Revenues and Operating Results."
29
<PAGE>
The following table sets forth, for the periods indicated, information
derived from the consolidated statements of operations of the Company expressed
as a percentage of total revenues. There can be no assurance that the trends in
the table below will continue in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, FIRST QUARTER ENDED
------------------------------------ ------------------------
MARCH 25, MARCH 31,
1995 1996 1997 1997 1998
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues
Rental revenue .................................. 29.8% 37.7% 47.9% 36.5% 48.0%
Equipment sales ................................. 50.5 46.5 35.6 43.1 37.6
Parts and service ............................... 19.7 15.8 16.5 20.4 14.4
----- ----- ----- ----- -----
Total revenues ................................. 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Cost of revenues
Cost of equipment sold .......................... 39.5 35.4 28.7 36.3 26.7
Depreciation of rental equipment ................ 17.5 20.9 17.2 18.2 18.2
Maintenance of rental equipment ................. 5.2 8.5 13.9 7.5 13.3
Cost of parts and service ....................... 11.1 8.6 9.7 12.3 9.6
----- ----- ----- ----- -----
Total cost of revenues ......................... 73.3 73.4 69.5 74.3 67.8
----- ----- ----- ----- -----
Gross profit ..................................... 26.7 26.6 30.5 25.7 32.2
Selling, general and administrative expenses..... 16.3 19.4 21.2 16.3 19.3
Other depreciation and amortization ............. 1.4 1.5 1.8 1.4 2.8
Officer stock option compensation ............... -- -- 3.1 -- --
----- ----- ----- ----- -----
Income from operations ........................... 9.0% 5.7% 4.4% 8.0% 10.1%
----- ----- ----- ----- -----
</TABLE>
- ----------------
FIRST QUARTER ENDED MARCH 31, 1998 COMPARED TO FIRST QUARTER ENDED MARCH 25,
1997
REVENUES. Total revenues for the quarter ended March 31, 1998 increased
156% to $62.4 million from $24.4 million for the quarter ended March 25, 1997.
This growth in revenues primarily resulted from an increase in revenues of (i)
approximately $7.3 million attributable to the continued maturation of existing
rental locations; (ii) approximately $20.5 million attributable to the Buckner
Acquisition and Richbourg Acquisition which occurred in August 1997 and January
1998, respectively; and (iii) approximately $2.8 million from the opening of 13
new rental locations since April 1, 1997.
GROSS PROFIT. Gross profit for the quarter ended March 31, 1998 increased
220% to $20.1 million or 32.2% of total revenues from $6.3 million or 25.7% of
total revenues for the quarter ended March 25, 1997. This increase is primarily
attributable to an increase in gross profit of (i) approximately $2.0 million
associated with the continued maturation of existing rental locations; (ii)
approximately $8.5 million associated with the growth in revenues arising from
the Acquisitions; and (iii) approximately $0.9 million from the opening of 13
new rental locations since April 1, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the quarter ended March 31, 1998 increased 203% to
$12.0 million or 19.3% of total revenues from $4.0 million or 16.3% of total
revenues for the quarter ended March 25, 1997. The increase in selling, general
and administrative expenses as a percentage of revenues is primarily
attributable to the opening of 13 new rental locations since April 1, 1997 and
the increase in regional and corporate personnel in anticipation of continued
growth through acquisitions and new location openings. Based upon the Company's
historical experience, a new location tends to incur costs during the early
period of operations without the benefit of the revenue stream representative
of a mature location. As new locations mature, selling, general and
administrative expenses as a percentage of revenues are expected to decline.
Generally, new locations become profitable in their third year of operation.
OTHER DEPRECIATION AND AMORTIZATION. Other depreciation and amortization
expense for the quarter ended March 31, 1998 increased 401% to $1.7 million or
2.8% of total revenues from $0.3
30
<PAGE>
million or 1.4% of total revenues. The increase is primarily attributable to
amortization of goodwill resulting from the Acquisitions and to increased
expenditures on computer equipment, management information systems and property
and equipment needed to support the Company's expansion.
INTEREST EXPENSE. Interest expense for the quarter ended March 31, 1998
increased 454% to $7.6 million or 12.1% of total revenues from $1.4 million or
5.6% of total revenues. The increase is primarily attributable to the Company's
borrowings related to the Acquisitions and to additional borrowings related to
the Company's continued investment in rental equipment.
1997 COMPARED TO 1996
REVENUES. Total revenues for 1997 increased 49.5% to $142.0 million from
$95.0 million in 1996. This growth in revenues primarily resulted from an
increase in revenues of (i) approximately $12.3 million attributable to the
continued maturation of existing rental locations; (ii) approximately $16.1
million associated with the Company's acquisition of 26 rental locations in
August 1997; and (iii) approximately $9.2 million from the opening of 11 new
rental locations during the period.
GROSS PROFIT. Gross profit for 1997 increased 70.9% to $43.3 million or
30.5% of total revenues from $25.3 million or 26.6% of total revenues in 1996.
These increases can primarily be attributed to an increase in gross profit of
(i) approximately $9.3 million from the continued growth of revenues from the
10 locations opened during 1995 and 1996; (ii) approximately $4.8 million from
the growth in revenues arising from the acquisition of 26 rental locations in
August 1997; and (iii) approximately $3.2 million from the growth in revenues
associated with the opening of 11 new rental locations during 1997. These
increases in gross profit include approximately $3.3 million related to the
change in the Company's depreciation policy to recognize extended service lives
and increased salvage values of its rental equipment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1997 increased 63.1% to $30.1 million or 21.2% of
total revenues from $18.5 million or 19.4% of total revenues in 1996. The
increase in selling, general and administrative expenses as a percent of
revenues is primarily attributable to the opening of 11 new rental locations
and the increase in regional and corporate personnel in anticipation of
continued growth through acquisitions and new location openings. Based upon the
Company's historical experience, a new location tends to incur costs during the
early period of operations without the benefit of the revenue stream
representative of a mature location. As new locations mature, selling, general
and administrative expenses as a percentage of revenue are expected to decline.
In 1996, selling, general and administrative expenses included approximately
$0.9 million of expenses related to the investigation of alternative financing
arrangements.
OTHER DEPRECIATION AND AMORTIZATION. Other depreciation and amortization
expense for 1997 increased 77.9% to $2.5 million from $1.4 million in 1996. The
increase in other depreciation and amortization is primarily attributable to
increased expenditures on computer equipment, management information systems
and property and equipment needed to support the Company's expansion.
OFFICER STOCK OPTION COMPENSATION EXPENSE. Officer stock option
compensation expense of $4.4 million represents changes in estimated market
value of the shares to be issued to a key employee under an option agreement.
INTEREST EXPENSE. Interest expense for 1997 increased to $12.0 million
from $6.0 million in 1996. This increase is attributable to additional
borrowings related to the Company's continued investment in rental equipment
and the Company's acquisition of 26 locations in August 1997.
EXTRAORDINARY LOSS. During 1997, as a result of modifications to the
Company's credit facility, the Company recorded extraordinary losses from the
write-off of debt issue costs associated with the early extinguishment of debt
of $0.5 million, net of related income taxes.
31
<PAGE>
1996 COMPARED TO 1995
REVENUES. Total revenues for 1996 increased 41.3% to $95.0 million from
$67.3 million in 1995. This increase was primarily attributable to the increase
in the number of rental locations operated by the Company. The increase in
rental locations resulted from the opening of eight new rental locations during
1996. In addition, several changes were made to the Company's operating
structure to focus resources of the Company on the rental equipment business
which also increased revenues at existing locations.
GROSS PROFIT. Gross profit for 1996 increased 40.9% to $25.3 million, or
26.6% of total revenues from $18.0 million or 26.7% of total revenues in 1995.
The increase in gross profit is primarily attributable to (i) the continued
growth of revenues from the two locations opened during 1995; (ii) the growth
in revenues associated with the opening of eight new rental locations during
1996; and (iii) the change in the Company's depreciation policy to recognize
extended service lives of its rental equipment. The increases were offset by
lower margins at new rental locations. As a result, gross profit as a
percentage of total revenues was relatively consistent year to year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1996 increased 68.7% to $18.5 million, or 19.4% of
total revenues from $11.0 million or 16.3% of total revenues in 1995. The
increase in selling, general and administrative expenses is primarily
attributable to the opening of eight new rental locations. Based upon the
Company's historical experience, a new location tends to incur costs during the
early period of operations without the benefit of the revenue stream
representative of a mature location. In addition, the Company incurred
approximately $0.9 million of expenses related to the investigation of
alternative financing arrangements during 1996. No such costs were incurred in
1995.
OTHER DEPRECIATION AND AMORTIZATION. Other depreciation and amortization
expense for 1996 increased 56.3% to $1.4 million from $0.9 million in 1995. The
increase in other depreciation and amortization is primarily attributable to
increased expenditures on computer equipment as a result of the Company's new
location expansion.
INTEREST EXPENSE. Interest expense for 1996 increased to $6.0 million from
$3.1 million in 1995. This increase is attributable to additional borrowings
related to the Company's investment in rental equipment for its new locations.
EXTRAORDINARY LOSS. During 1996, as a result of modifications to the
Company's credit facility, the Company recorded extraordinary losses from the
write-off of deferred financing costs associated with the early extinguishment
of debt of $0.8 million, net of related income taxes. There were no such
transactions in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations, acquisitions and new rental
locations primarily through cash flow from operations, proceeds received from
the issuance of preferred stock and borrowings under credit facilities and term
loans.
During 1997, the Company's operating activities provided net cash flow of
$9.4 million as compared to $7.2 million for 1996. For the quarter ended March
31, 1998, net cash flows provided by operating activities amounted to $8.5
million as compared to net cash used in operating activities of $2.0 million
for the quarter ended March 25, 1997. These increases are primarily
attributable to the growth in the Company's operations resulting from an
increase in the number of rental locations operated by the Company.
Net cash used in investing activities was $173.8 million for 1997 as
compared to $44.7 million in the same period for the prior year. This increase
is primarily attributable to the Buckner Acquisition,
32
<PAGE>
increased expenditures for fleet, computer equipment and other property and
equipment necessary to support the Company's expansion. Net cash used in
investing activities for the quarter ended March 31, 1998 was $125.8 million as
compared to $16.5 million for the quarter ended March 25, 1997. This increase
is primarily attributable to the Richbourg Acquisition.
Net cash provided by financing activities was $162.3 million for 1997 as
compared to $37.2 million for 1996. The net cash provided by financing
activities was primarily attributable to borrowings under the Company's Senior
Credit Facility and a term loan used to finance the Buckner Acquisition and
capital expenditures supporting the Company's expansion. Net cash provided by
financing activities for the quarter ended March 31, 1998 was $117.1 million as
compared to $17.4 million for the quarter ended March 25, 1997. This increase
is primarily attributable to borrowings under the Term Loan used to finance the
Richbourg Acquisition.
On May 1, 1998, the Company amended and restated its $250 million credit
facility (the "New Credit Facility"). The New Credit Facility allows borrowings
based upon eligible accounts receivable, rental fleet and inventory amounts.
The interest rates on balances outstanding under the New Credit Facility vary
based upon the leverage ratio maintained by the Company and range from Prime
rate or LIBOR plus 1.00% to Prime plus 1.25% or LIBOR plus 2.25%. Based upon
the Company's anticipated leverage ratio upon completion of the Offering, the
interest rate would be Prime plus .875% or LIBOR plus 1.875%. The New Credit
Facility terminates on October 31, 1998; however, upon repayment of the Term
Loan, this date will be extended to April 30, 2003. The New Credit Facility is
secured by substantially all of the Company's assets and contains restrictive
covenants which, among other things, place restrictions on indebtedness,
require the Company to maintain certain interest coverage and leverage ratios
and place certain restrictions on the payment of dividends.
The Company plans to use the net proceeds from the Offering to repay a
portion of the Term Loan; the entire Term Loan, as well as a portion of the New
Credit Facility, will be repaid with the net proceeds from the Offering if the
U.S. Underwriters' over-allotment option is exercised in full. As of March 31,
1998, on a pro forma basis after giving effect to the Offering and the Private
Debt Offering and the application of proceeds therefrom, and the Argentina
Acquisition, the Company would have had approximately $100.1 million available
under the New Credit Facility. Based upon current expectations, the Company
believes that cash flow from operations, together with amounts which may be
borrowed under the New Credit Facility will be adequate for it to meet its
capital requirements and pursue its business strategy for the next twelve
months. If the Private Debt Offering yields proceeds which are significantly
less than currently anticipated, or is not consummated, the Company may need to
obtain additional financing in the future. Although the Company believes it
would be able to obtain such financing , there can be no assurance that it will
be able to do so on terms favorable to the Company or at all.
YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer and software systems as the millennium ("Year 2000")
approaches. The Year 2000 problem is pervasive and complex, as virtually every
computer operation could be affected in some way by the rollover of the
two-digit year value to "00". The issue is whether systems will properly
recognize date sensitive information when the year changes to 2000. Systems
that do not properly recognize such information could generate erroneous data
or cause complete system failures. The Company has received confirmation from
all of its current systems' vendors that each of their systems will properly
handle the rollover to the Year 2000. Although there can be no assurance,
management believes the Year 2000 problem will not have a material effect on
the financial position, results of operations or cash flows of the Company.
INFLATION AND GENERAL ECONOMIC CONDITIONS
Although the Company cannot accurately anticipate the effect of inflation
on its operations, it does not believe that inflation has had, or is likely in
the foreseeable future to have, a material impact on its results of operations.
The Company's operating results may be adversely affected by events or
conditions in a particular region, such as regional economic, weather and other
factors. In addition, the Company's operating results may be adversely affected
by increases in interest rates that may lead to a
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decline in economic activity, while simultaneously resulting in higher interest
payments by the Company under its variable rate credit facilities.
Although much of the Company's business is with customers in industries
that are cyclical in nature, management believes that certain characteristics
of the equipment rental industry and the Company's operating strategies should
help to mitigate the effects of an economic downturn. These characteristics
include (i) the flexibility and low cost offered to customers by renting, which
may be a more attractive alternative to capital purchases; (ii) the Company's
ability to redeploy equipment during regional recessions; and (iii) the
diversity of the Company's industry and customer base.
34
<PAGE>
BUSINESS
GENERAL
Neff is one of the largest and fastest growing equipment rental companies
in the United States, with 70 rental locations in 15 states. The Company rents
a wide variety of equipment, including backhoes, air compressors, loaders,
lifts and compaction equipment to construction and industrial customers. The
Company also acts as a dealer of new equipment on behalf of several nationally
recognized equipment manufacturers. In addition, the Company sells used
equipment, spare parts and merchandise and provides ongoing repair and
maintenance services. The Company has increased its total revenues from $67.3
million in 1995 to $142.0 million in 1997; pro forma for the Acquisitions and
the Argentina Acquisition, the Company's total revenues for 1997 were $255.6
million.
According to industry sources, the equipment rental industry grew from
approximately $600 million in revenues in 1982 to an estimated $18 billion in
1997. This growth has been driven primarily by construction and industrial
companies that have increasingly outsourced equipment needs to reduce
investment in non-core assets and convert costs from fixed to variable. The
equipment rental industry is highly fragmented, with an estimated 17,000
equipment rental companies in the United States. As a result, the Company
believes that there are substantial consolidation opportunities for
well-capitalized operators such as the Company. According to RENTAL EQUIPMENT
REGISTER and studies prepared by Manfredi & Associates, Inc. on the size of the
equipment rental market, no single company's revenues represented more than 2%
of total market revenues in 1996. Relative to smaller competitors, the Company
has several advantages, including increased purchasing power, larger
inventories to service larger accounts and the ability to transfer equipment
among rental locations in response to changing patterns of customer demand.
COMPETITIVE STRENGTHS
The Company believes it has several competitive strengths which provide it
with the opportunity for continued growth and increased profitability.
STRONG MARKET POSITION. The Company is one of the largest and fastest
growing construction and industrial equipment rental companies in the United
States, and is a leading competitor with a significant presence in the
Southeast and Gulf Coast regions. The Company operates 71 rental locations in
15 states, including Florida, Georgia, Alabama, Mississippi, South Carolina,
North Carolina, Tennessee, Louisiana, Texas, Oklahoma, Arizona, Nevada, Utah,
California and Colorado. From December 31, 1995 to March 31, 1998, the Company
increased its equipment rental locations from eight to 70 and expanded its
rental fleet from $62 million to $346 million based on original cost. The
Company believes its dealership operations complement its equipment rental
operations by providing it with competitive advantages over competitors which
only rent equipment. These advantages include the ability to achieve favorable
pricing by combining equipment purchases for its dealership and rental fleets;
the reduction of costs in certain locations by sharing service, maintenance and
administrative personnel; and better knowledge of certain local markets by
pooling management information. In addition, management believes the Company's
size and geographic diversity help insulate it from regional economic
downturns. The Company's efforts to improve its market position have caused it
to increase its debt and incur significant operating expenses, and thus have
adversely affected its short-term cash flow and net income. The Company
believes, however, that these efforts are essential to its future performance.
See "Risk Factors--Risks Inherent in Growth Strategy," "Risk Factors--Dependence
on Additional Capital for Future Growth; Restrictions Under Terms of
Indebtedness" and "Risk Factors--Substantial Leverage."
HIGH QUALITY RENTAL FLEET. Management believes the Company has one of the
newest, most comprehensive and well-maintained rental fleets in the equipment
rental industry. As of March 31, 1998 the average age of the Company's rental
fleet was approximately 21 months. The Company makes ongoing capital investment
in new equipment, engages in regular sales of new equipment and conducts
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an advanced preventative maintenance program. Management believes this
maintenance program increases fleet utilization, extends the useful life of
equipment and produces higher resale values.
EXCELLENT CUSTOMER SERVICE. The Company differentiates itself from its
competitors by providing high quality, responsive service to its customers.
Service initiatives include (i) reliable on-time equipment delivery directly to
customers' job sites; (ii) on-site repairs and maintenance of rental equipment
by factory trained mechanics, generally available 24 hours a day, seven days a
week; and (iii) ongoing training of an experienced sales force to consult with
customers regarding their equipment needs.
STATE-OF-THE-ART MANAGEMENT INFORMATION SYSTEM. The Company has developed
a customized, state-of-the-art management information system capable of
monitoring operations at up to 300 sites. The Company uses this system to
maximize fleet utilization and determine the optimal fleet composition by
market. The system links all of the Company's rental locations and allows
management to track customer and sales information, as well as the location,
rental status and maintenance history of every piece of equipment in the rental
fleet. Rental location managers can search the Company's entire rental fleet
for needed equipment, quickly determine the closest location of such equipment,
and arrange for delivery to the customer's work site, thus maximizing equipment
utilization.
EXPERIENCED MANAGEMENT TEAM. Since 1995, the Company has significantly
increased the quality and depth of its management team to help oversee its
growth strategy. Neff's senior management team has extensive experience in the
equipment rental industry and its seven regional managers have, on average, 17
years of experience and substantial knowledge of the local markets served
within their regions. The Company believes that its management team has the
ability to continue the Company's strong growth as well as manage the Company
on a much larger scale. The Company is not dependent on recruiting additional
operating, acquisition, finance or other personnel to implement its growth
strategy. The Mas family, the majority owner of the Company, is also the
majority owner of MasTec, Inc., a public company engaged in the
telecommunications construction business with operations in South America.
Management believes the Mas family and GE Capital, the Company's other major
stockholder, will be valuable to the Company in identifying and evaluating
acquisitions in both North and South America.
GROWTH STRATEGY
The Company's objective is to increase revenue, cash flow and
profitability by building and maintaining a leading market position in the
equipment rental industry. Key elements of the Company's growth strategy
include:
ACQUIRE EQUIPMENT RENTAL COMPANIES. Management intends to expand the
Company through acquisitions of equipment rental companies and believes there
are a significant number of acquisition opportunities in North and South
America which would complement the Company's existing operations. After
completing an acquisition, the Company generally integrates the operations of
the acquired company into its management information system, consolidates
equipment purchasing and resale functions and centralizes fleet management as
quickly as possible while assuring consistent, high-quality service to the
acquired company's customers. Since July 1997, the Company has made two
strategic acquisitions which have more than doubled the Company's number of
rental locations, significantly enhanced the Company's geographic presence and
further diversified the Company's customer base. The Company has also entered
into a letter of intent to acquire 51% of the outstanding stock of S.A.
Argentina, a leading equipment rental company and dealer of new equipment in
South America, and the Company has four letters of intent outstanding to
acquire the assets of additional equipment rental companies in the United
States. To date, the Company has financed its acquisitions primarily with debt,
which has resulted in increased interest expense. See "Risk
Factors--Substantial Leverage."
INCREASE PROFITABILITY OF RECENTLY OPENED RENTAL LOCATIONS. Since March 1,
1995, the Company has opened 25 start-up rental equipment locations including
11 locations in 1997 and four locations in the
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<PAGE>
first quarter of 1998. Management believes the Company's financial performance
does not yet fully reflect the benefit of these rental locations. The Company
incurs significant expenses in connection with the opening of new locations.
See "Risk Factors--Risks Inherent in Growth Strategy." Based on the Company's
historical experience, a new equipment rental location tends to realize
significant increases in revenues, cash flow and profitability during the first
three years of operation as more prospective customers become aware of its
operation and as the rental equipment fleet is customized to local market
demand. Because there is relatively little incremental operating expense
associated with such revenues, cash flow and profitability increases
significantly as a rental location matures. Although the Company intends to
expand primarily through acquisitions, management intends to open additional
start-up locations in markets where the Company has not been able to identify
attractive acquisition candidates.
INCREASE FLEET AT EXISTING LOCATIONS. Management believes it can
capitalize on the demand for rental equipment in the markets it serves and
increase revenues by increasing the size of the rental fleet and adding new
product lines at existing locations. Management believes that this strategy
allows the Company to attract new customers and serve as a single source
supplier for its customers. Because the start-up expenditures associated with
increasing the fleet and expanding product lines at existing locations are
relatively modest, these investments typically generate higher and faster
returns than investments in new locations.
SELECTIVE EXPANSION OF DEALERSHIP OPERATIONS. The Company intends to
selectively expand its dealership operations. The Company believes it can
realize significant economies of scale by expanding its dealership operations
in areas where it has already established equipment rental operations. The
Company's distributor relationships and the combined purchasing volume of its
dealership and rental operations allow it to acquire inventory at favorable
prices and terms. The Company's dealership operations also allow it to reduce
overhead costs by sharing service, maintenance and administrative personnel
with its rental operations, as well as generating better knowledge of local
markets through the sharing of information. The Company also intends to expand
its dealership operations to areas where it does not yet have equipment rental
operations.
ACQUISITION STRATEGY
The Company believes it can successfully implement its acquisition
strategy because of (i) the Company's access to financial resources; (ii) the
potential for increased profitability due to the centralizing of certain
administrative functions, enhanced systems capabilities, greater purchasing
power and economies of scale; and (iii) the potential for owners of the
businesses being acquired to participate in the Company's planned growth while
realizing liquidity. The Company has developed a set of financial, geographic
and management criteria designed to assist management in the evaluation of
acquisition candidates. These criteria are used to evaluate a variety of
factors, including, but not limited to, (i) historical and projected financial
performance; (ii) composition and size of the candidate's customer base; (iii)
relationship of the candidate's geographic location to the Company's market
areas; (iv) potential synergies gained through acquisition of the candidate;
and (v) liabilities, contingent or otherwise, of the candidate.
The Company intends to evaluate acquisition candidates in South America as
well as the United States. Management believes it can capitalize on the
business relationships of its major stockholders, GE Capital and the Mas
family, and its affiliate, MasTec Inc., in South America in locating potential
South American acquisition candidates and consummating such acquisitions. Based
on the RENTAL EQUIPMENT REGISTER and the Company's experience evaluating
potential acquisitions in South America, the Company estimates that the
equipment rental market in South America is 20 to 30 years behind the North
American market and will experience significant growth in the next five to ten
years.
The Company recently acted on its plan to expand its operations into South
America by entering into a letter of intent to acquire 51% of the outstanding
stock of S.A. Argentina. S.A. Argentina rents and sells industrial and
construction equipment throughout South America, including Argentina, Brazil,
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<PAGE>
Uruguay, Paraguay, Chile and Bolivia. S.A. Argentina's revenues for 1997 were
approximately $57.3 million, its revenues for the first quarter of 1998 were
approximately $13.2 million. S.A. Argentina's principal operations are located
in Buenos Aires, Argentina; it also has locations in Cordoba and Rosario,
Argentina and an assembly plant in San Luis, Argentina. The current management
of S.A. Argentina will continue to oversee the day-to-day management of S.A.
Argentina. The letter of intent provides that the Company will have the option
to purchase the remaining 49% of the outstanding stock of S.A. Argentina from
the existing stockholders. This option will be exercisable for a period of 30
months commencing 30 months after the consummation of the Argentina
Acquisition. In addition, the existing stockholders of S.A. Argentina will have
the option during the same period to require the Company to purchase the
remaining 49% of the outstanding stock of S.A. Argentina. The exercisability of
these options may be subject to certain additional terms and conditions,
including restrictions imposed by the terms of the Company's indebtedness on
the Company's ability to make acquisitions and incur additional indebtedness.
The Argentina Acquisition is subject to a number of closing conditions,
including the execution of a definitive purchase agreement, and there can be no
assurance that the Argentina Acquisition will be consummated. See "Risk
Factors--Risks Associated with the Argentina Acquisiton."
OPERATIONS
The Company's operations primarily consist of renting equipment, and, to a
lesser extent, selling used equipment, complementary parts and merchandise to a
wide variety of construction and industrial customers. In addition, to service
its customer base more fully, the Company also acts as a dealer of new
equipment on behalf of several nationally known equipment manufacturers and
provides ongoing maintenance and repair services for the equipment it sells and
rents. The Company's locations are grouped together by geographic area and a
regional manager oversees operations within each region.
EQUIPMENT RENTALS. The Company is one of the largest and fastest growing
equipment rental companies in the United States, with 71 rental locations in 15
states. The Company's rental fleet is comprised of a complete line of light and
heavy construction and industrial equipment from a wide variety of
manufacturers, including John Deere, Case, Bomag, Terex Americas, JCB, Sullivan
Industries, Ingersoll-Rand, Gradall, Lull, JLG, Bobcat, MultiQuip and Wacker.
Major categories of equipment represented the following percentages (based on
original cost) of the Company's total rental fleet as of December 31, 1997 on a
pro forma basis for the Richbourg Acquisition:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL RENTAL FLEET
MAJOR EQUIPMENT CATEGORY (BASED ON ORIGINAL COST)
- ------------------------------ ---------------------------------
<S> <C>
Earthmoving ............... 41.0%
Material Handling ......... 16.1
Aerial .................... 12.7
Compressors ............... 6.2
Compaction ................ 6.1
Trucks .................... 4.2
Cranes .................... 3.8
Welders ................... 2.7
Pumps ..................... 1.3
Generators ................ 1.3
Lighting .................. 1.3
Other ..................... 3.3
</TABLE>
The Company attempts to differentiate itself from its competitors by
providing a broad selection of new and well-maintained rental equipment, and
through high-quality, responsive service to its customers. As of March 31,
1998, the Company's equipment rental fleet had an original cost of
approximately $346 million and an average age of 21 months, which management
believes compares favorably with other leading equipment rental companies. The
Company makes ongoing capital investments in new equipment, engages in regular
sales of used equipment and conducts an advanced
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preventative maintenance program. This program increases fleet utilization,
extends the useful life of equipment and produces higher resale values.
In addition to providing a new and reliable equipment rental fleet,
management believes providing high quality customer service is essential to the
Company's future success. The equipment rental business is a service industry
requiring quick response times to satisfy customers' needs. Though some
activity is arranged with lead-time, much of the rental initiation process
takes place within a 48-hour period. Consequently, equipment availability,
branch location and transportation capabilities play a major role in earning
repeat business. Rental customers prefer a quick selection process and seek
quick, concise communication when ordering equipment. Punctuality and
reliability are key components of the servicing process, as well as maintenance
performance, timely equipment removal at the rental termination, and simplified
billing. The Company's service initiatives include (i) reliable on-time
equipment delivery directly to customers' job sites; (ii) on-site repairs and
maintenance of rental equipment by factory trained mechanics, which are
generally available 24 hours a day, seven days a week; and (iii) ongoing
training of an experienced sales force to consult with customers regarding
their equipment needs.
NEW EQUIPMENT SALES. The Company is a distributor of new equipment on
behalf of several nationally known equipment manufacturers. The Company is the
sole authorized distributor of John Deere industrial and construction equipment
in central and southern Florida; it is one of the largest John Deere
construction equipment dealerships in the United States. The Company also has
distributor arrangements with Bomag to sell heavy compaction equipment, and
with Terex Americas to sell off-road trucks, in central and southern Florida.
The Company's sales line consists of nine categories of John Deere, Bomag and
Terex Americas equipment and a total of 58 different machines, including: John
Deere backhoe loaders, forklifts, crawler dozers, four-wheel-drive loaders,
scrapers, skid steers, motor graders and excavators; Bomag vibratory rollers,
static rollers, recyclers and trash compacters; and a complete line of
articulated off-road trucks manufactured by Terex Americas.
The Company's ability to sell new equipment offers flexibility to its
customers and enhances the Company's customer relations. In addition, the
Company's dealership operations provide it with several competitive advantages,
including the opportunity to achieve favorable pricing by combining equipment
purchases for its dealership and rental fleets, the reduction of costs in
certain locations by sharing service, maintenance and administrative personnel
and better knowledge of its local markets by pooling management information.
The Company currently operates new equipment dealerships at six of its
locations.
In addition to standard equipment sales, the Company also offers customers
the option to rent-to-purchase equipment for a period of time. Under this
program, the customer applies a portion of the rental payment to the purchase
price, thus accruing equity over the term of the rental period. The Company's
rent-to-purchase customers generally rent new equipment for a period of six to
18 months with the option to purchase at the end of the rental period. Sales
under the Company's rent-to-purchase program represented approximately 35% of
the Company's new equipment sales in 1997.
The Company effectively competes against other dealers by offering John
Deere and other quality equipment lines for sale, and by providing high quality
service. All personnel, from management to mechanics, are factory trained. The
training of mechanics is continually upgraded as new product lines are
introduced. The Company can transfer equipment from one store to another based
upon a particular customer's needs. Customers also have the opportunity to rent
equipment from the Company's rental fleet if their own equipment is under
repair. The parts department features ample stock to limit customer down time.
Maintenance vehicles are equipped to handle minor repairs in the field to
prevent costly down time.
USED EQUIPMENT SALES. The Company maintains a regular program of selling
used equipment in order to adjust the size and composition of its rental fleet
to changing market conditions and to maintain the quality and low average age
of its rental fleet. Management attempts to balance the
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objective of obtaining acceptable prices from equipment sales against the
revenues obtainable from used equipment rentals. The Company is generally able
to achieve favorable resale prices for its used equipment due to its strong
preventative maintenance program and its practice of selling used equipment
before it becomes obsolete or irreparable. The Company believes the proactive
management of its rental fleet allows it to adjust the rates of new equipment
purchases and used equipment sales to maximize equipment utilization rates and
respond to changing economic conditions. Such proactive management, together
with the Company's broad geographic diversity, minimizes the impact of regional
economic downturns.
PARTS AND SERVICE. The Company sells a full complement of parts, supplies
and merchandise to its customers in conjunction with its equipment rental and
sales business. The Company also offers maintenance service to its customers
that own equipment and generates revenues from damage waiver charges, delivery
charges and warranty income. Management believes that these revenues are more
stable than equipment sales revenues because of the recurring nature of the
parts and service business. Management also believes that during economic
downturns, the parts and service business may actually increase as customers
postpone new equipment purchases and instead attempt to maintain their existing
equipment.
MANAGEMENT INFORMATION SYSTEM
The Company has developed a state-of-the-art, customized management
information system, capable of monitoring operations on a real-time basis at up
to 300 sites that can be upgraded to support additional locations or terminals.
The Company currently employs six management information system employees who
continually update and refine the system. The Company uses this system to
maximize fleet utilization and determine the optimal fleet composition by
market. This system links all of the Company's rental locations and allows
management to track customer and sales information, as well as the location,
rental status and maintenance history of every piece of equipment in the rental
fleet. Using this system, rental equipment branch managers can search the
Company's entire rental fleet for needed equipment, quickly determine the
closest location of such equipment and arrange for delivery to the customer's
work site. This practice helps diminish "lost rents," improve utilization and
make equipment available in markets where it can earn increased revenues. The
Company's communications system can handle multiple protocols and allows the
integration of systems running on different platforms. This feature allows the
Company to include systems used by locations acquired in an acquisition of an
existing equipment rental company in its central databases while the acquired
locations are integrated into the Company's system. The Company is in the
process of integrating the locations acquired in the Acquisitions into its
management information system.
CUSTOMERS
The Company's customers include commercial, industrial and civil
construction contractors, manufacturers, public utilities, municipalities, golf
courses, shippers, commercial farmers, military bases, offshore platform
operators and maintenance contractors, refineries and petrochemical facilities
and a variety of other industrial accounts. Pro forma for the Acquisitions,
during 1997 the Company served over 75,000 customers. Pro forma for the
Acquisitions, the Company's top 10 customers in 1997 represented 7.6% of the
Company's total revenues.
The Company's rental equipment customers vary in size from large Fortune
500 companies who have elected to outsource much of their equipment needs to
small construction contractors, subcontractors, and machine operators whose
equipment needs are job-based and not easily measured in advance. The Company's
new and used equipment sales customers are generally large construction
contractors who regularly purchase wholesale goods and annually budget for
fleet maintenance purchases.
The Company does not currently provide its own purchase financing to
customers. The Company rents equipment, sells parts, and provides repair
services on account to customers who are screened
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through a credit application process. Customers can finance purchases of large
equipment with a variety of creditors, including manufacturers, banks, finance
companies and other financial institutions.
SALES AND MARKETING
The Company maintains a strong sales and marketing orientation throughout
its organization in order to increase its customer base and better understand
and serve its customers. Managers at each of the Company's branches are
responsible for supervising and training all sales employees at that location
and directing the salesforce by conducting regular sales meetings and
participating in selling activities. Managers develop relationships with local
customers and assist them in planning their equipment requirements. Managers
are also responsible for managing the mix of equipment at their locations,
keeping abreast of local construction activity and monitoring competitors in
their respective markets.
To stay informed about their local markets, salespeople track new
equipment sales and construction projects in the area through EQUIPMENT DATA
REPORTS, FW DODGE REPORTS and PEC Reports (Planning, Engineering and
Construction), follow up on referrals and visit construction sites and
potential equipment users who are new to the local area. The Company's
salespeople also use targeted marketing strategies to address the specific
needs of local customers.
PURCHASING
The Company purchases equipment from vendors with reputations for product
quality and reliability. The Company believes its size and the quantity of
equipment it purchases enable it to purchase equipment directly from vendors
pursuant to national purchasing agreements at lower prices and on more
favorable terms than many smaller competitors. The Company seeks to maintain
close relationships with its vendors to ensure the timely delivery of new
equipment.
The Company believes that it has sufficient alternative sources of supply
for the equipment it purchases in each of its principal product categories. The
following table summarizes the Company's principal categories of equipment and
specifies the Company's major suppliers of such equipment:
<TABLE>
<CAPTION>
PRODUCT CATEGORY PRIMARY VENDORS
- ----------------------------------------- ---------------------------------------------------
<S> <C>
Air Compressors and Equipment ........... Sullivan, Ingersoll-Rand and Atlas Copco
Earthmoving Equipment (such as Backhoes,
Loaders, Dozers, Excavators and Material
Handling Equipment) .................... John Deere, Case, JCB, Daewoo and Bobcat
Compaction Equipment, Rollers
and Recyclers .......................... Bomag, Wacker, MultiQuip and Stone
Pumps ................................... MultiQuip, Wacker and Thompson
Generators .............................. MultiQuip, Wacker and Atlas Copco
Welders ................................. MultiQuip and Miller
Electric Tools .......................... Bosch, Kango and Hitachi
Light Towers ............................ Specialty Lighting, Coleman and Amida
Forklifts ............................... JCB, Gradall, Lull and Ingersoll-Rand
Trucking ................................ Terex Americas, Ford and International
Aerial .................................. Skyjack, JLG, Mark Industries and Genie Industries
Concrete ................................ Partner, Edco, Whiteman, Miller, MultiQuip, Wacker
and Stone
Hydraulic Hammers ....................... Kent
</TABLE>
LOCATIONS
The Company's locations typically include (i) offices for sales,
administration and management; (ii) a customer showroom displaying equipment
and parts; (iii) an equipment service area; and (iv) outdoor and indoor storage
facilities for equipment. Each location offers a full range of rental
41
<PAGE>
equipment for rental, with the mix designed to meet the anticipated needs of
the customers in each location. The Company's equipment dealerships typically
operate at the same sites as rental equipment locations.
Each stand-alone rental equipment location is staffed by, on average,
approximately 15 full-time employees, including a branch manager, a rental
coordinator, service manager, sales representatives, an office administrator,
mechanics and drivers. Each dealership has approximately 25 full-time employees
including a branch manager, parts manager, service manager, sales
representatives, departmental personnel, including mechanics, and
administrative staff. These employees are in addition to the full-time
employees used to staff the rental equipment operations located at the same
sites.
DEALERSHIP AGREEMENTS
Neff Machinery has entered into several dealership agreements with each of
John Deere, Bomag and Terex Americas in central and southern Florida. These
dealership agreements appoint Neff Machinery as the equipment manufacturer's
authorized dealer in certain "Areas of Responsibility," which generally
includes 100% of certain counties in southern and central Florida. Under the
dealership agreements, the equipment manufacturers agree to sell equipment to
Neff Machinery for resale in these areas. The dealership agreements typically
do not have a specific term, but may be terminated by either party upon 120
days written notice, or immediately by the equipment manufacturer for cause,
which generally includes, among other things, default by Neff Machinery under
any security agreement between Neff Machinery and the equipment manufacturer,
dissolution or liquidation of Neff Machinery, or a significant change in the
control, ownership or capital structure of Neff Machinery without the equipment
manufacturer's prior written consent.
In May 1998, the Company and John Deere entered into an agreement
providing that John Deere may terminate the John Deere dealership agreements if
the Mas family, Kevin Fitzgerald, Santos and Santos Capital do not own at least
30% of the equity interests in the Company or if GE Capital attempts to obtain
control of or exercise influence over the Company. To resolve issues with John
Deere relating to the size of GE Capital's equity interest in the Company, GE
Capital and the Company entered into the Standstill Agreement which provides
that, subject to certain exceptions, GE Capital and its affiliates will
maintain their equity interest in the Company below 25% during the period
ending October 29, 1999, and will maintain their equity interest below 20%
during the period from October 29, 1999 until Neff Machinery is no longer a
dealer for John Deere or certain other conditions are satisfied. Santos has
agreed to exercise its option to acquire Company stock from GE Capital if
necessary to reduce GE Capital's equity ownership to these levels.
The Company receives cash incentives and volume-related discounts from the
equipment manufacturers which it represents. The Company uses most of these
cash rebates and marketing fund contributions to give customers price
discounts. In addition, John Deere, Bomag and Terex Americas offer the Company
standard dealer cash discounts or limited interest-free financing.
COMPETITION
EQUIPMENT RENTALS. The equipment rental industry is highly fragmented and
very competitive. The Company competes with independent third parties in all of
the markets in which it operates. Most of the Company's competitors in the
rental business tend to operate in specific, limited geographic areas, although
some larger competitors do compete on a national basis. The Company also
competes with equipment manufacturers which sell and rent equipment directly to
customers. Some of the Company's competitors have greater financial resources
and name recognition than the Company.
EQUIPMENT SALES. The equipment distribution market consists of many firms
which operate dealerships representing equipment manufacturers, such as
Caterpillar, John Deere, Case and Komatsu. As the authorized dealer of John
Deere equipment in central and southern Florida, the Company competes with
dealers who sell other manufacturers' equipment in the same area. Key
competitive
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factors include fleet quality, pricing and the ability of a particular dealer
to provide satisfactory service and parts. John Deere provides promotional
programs which help the dealerships increase market share against competitors.
ENVIRONMENTAL AND SAFETY REGULATION
The Company's facilities and operations are subject to certain federal,
state and local laws and regulations relating to environmental protection and
occupational health and safety, including those governing wastewater
discharges, the treatment, storage and disposal of solid and hazardous wastes
and materials, and the remediation of contamination associated with the release
of hazardous substances. The Company believes that it is in material compliance
with such requirements and does not currently anticipate any material capital
expenditures for environmental compliance or remediation for the current or
succeeding fiscal years. Certain of the Company's present and former facilities
have used substances and generated or disposed of wastes which are or may be
considered hazardous, and the Company may incur liability in connection
therewith. Moreover, there can be no assurance that environmental and safety
requirements will not become more stringent or be interpreted and applied more
stringently in the future. Such future changes or interpretations, or the
identification of adverse environmental conditions currently unknown to the
Company, could result in additional environmental compliance or remediation
costs to the Company. Such compliance and remediation costs could be material
to the Company's financial condition or results of operations.
In particular, at its owned and leased facilities the Company stores and
dispenses petroleum products from aboveground storage tanks and has in the past
stored and dispensed petroleum products from underground storage tanks. The
Company also uses hazardous materials, including solvents, to clean and
maintain equipment, and generates and disposes of solid and hazardous wastes,
including used motor oil, radiator fluid and solvents. In connection with such
activities, the Company has incurred capital expenditures and other compliance
costs which are expensed on a current basis and which, to date, have not been
material to the Company's financial condition. Based on currently available
information, the Company believes that it will not be required to incur
material capital expenditures or other compliance or remediation costs on
environmental and safety matters in the foreseeable future. See "Risk
Factors--Environmental and Safety Regulation."
EMPLOYEES
As of April 27, 1998, the Company had approximately 1,100 employees. None
of the Company's employees is represented by a union or covered by a collective
bargaining agreement. The Company believes its relations with its employees are
good.
RETENTION OF MANAGEMENT OF ACQUIRED COMPANIES
The Company's policy is to retain any available members of an acquired
company's management who have strengths that are beneficial to the Company. In
connection with the Buckner Acquisition, the Company retained all members of
Buckner's senior management. Those management personnel are now responsible for
the day-to-day operation of Neff Rental's Gulf Region. In connection with the
Richbourg Acquisition, the Company retained substantially all management
personnel with the exception of Richbourg's founder, Bruce Richbourg. Those
personnel continue to hold management positions at the Neff Rental branch
locations acquired in the Richbourg Acquisition.
PROPERTIES
The Company leases 13,000 square feet for its corporate headquarters in an
office building in Miami, Florida. The Company owns the buildings and/or the
land at 11 of its locations. In May 1997, the Company purchased the buildings
and land at six of its locations in Florida from Atlantic Real Estate Holdings
Corp., an affiliate of the Company controlled by the Mas family which formerly
leased these locations to the Company. The Company also owns the buildings
and/or the land at its locations in
43
<PAGE>
Phoenix, Arizona; Hardeeville, Georgia; Texas City, Texas; Pasadena, Texas; and
Corpus Christi, Texas. All other sites are leased, generally for terms of five
years. Owned and leased sites range from approximately 10,000 to 25,000 square
feet on lots ranging up to 22 acres, and include showrooms, equipment service
areas and storage facilities. The Company does not consider any specific leased
location to be material to its operations. The Company believes that equally
suitable alternative locations are available in all areas where it currently
does business.
LEGAL PROCEEDINGS
The Company is a party to pending legal proceedings arising in the
ordinary course of business. While the results of such proceedings cannot be
predicted with certainty, the Company does not believe any of these matters are
material to the Company's financial condition or results of operations.
44
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The table below sets forth the names and ages of the directors, executive
officers and significant employees of the Company and its subsidiaries as well
as the positions and offices held by such persons, as of May 1, 1998. Jorge
Mas, Juan Carlos Mas and Jose Ramon Mas, all of whom are members of the Board
of Directors, are brothers. There are no other family relationships among the
directors or officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ ----- -------------------------------------------------
<S> <C> <C>
Jorge Mas .................... 35 Chairman of the Board of Directors
Kevin P. Fitzgerald .......... 41 Chief Executive Officer, President and Director
Peter A. Gladis .............. 47 Senior Vice President--Neff Rental
Robert G. Warren ............. 41 Senior Vice President--Neff Machinery
Bonnie S. Biumi .............. 36 Chief Financial Officer
William Derenbecker .......... 43 Regional Vice President--Neff Rental--Gulf Coast
Steve Halliwell .............. 39 Regional Vice President--Neff Rental--Florida
Graham Hood .................. 42 Regional Vice President--Neff Rental--Southeast
Wes Parks .................... 35 Regional Vice President--Neff Rental--Atlantic
Bruce Pope ................... 52 Regional Vice President--Neff Rental--Southwest
Thomas Vandever .............. 52 Regional Vice President--Neff Rental--Central
Jon Zier ..................... 42 Regional Vice President--Neff Rental--West
Juan Carlos Mas .............. 31 Director
Jose Ramon Mas ............... 28 Director
</TABLE>
JORGE MAS. Mr. Mas has been Chairman of Neff Corp. and its predecessor, MP
Equipment ("MP") since he founded MP in 1988. Since 1994, Mr. Mas has been the
President and CEO, and a director of MasTec, Inc., a provider of
telecommunications related engineering and construction services. Mr. Mas has
been Chairman of MasTec, Inc. since November 1997. Mr. Mas is a member of the
boards of directors of Supercanal Holdings, S.A., Primera Fila, S.A. and Santos
Capital. Mr. Mas has an M.B.A. and a B.A. in business administration.
KEVIN P. FITZGERALD. Mr. Fitzgerald joined the Company in 1995 as
President and CEO. From 1991 through July, 1995, he was a Senior Vice President
for the investment banking firm of Houlihan Lokey Howard and Zukin. He is also
a member of the boards of directors of Supercanal Holdings, S.A., Primera Fila,
S.A. and Santos Capital. Mr. Fitzgerald holds an M.B.A. in finance and a B.S.
in electrical engineering.
PETER A. GLADIS. Mr. Gladis joined the Company in 1995 after 20 years of
employment with Hertz Corporation, most recently, as Regional Vice President of
western region operations. Mr. Gladis is the Senior Vice President of Neff
Rental. Mr. Gladis has a B.S. in business administration and marketing and a
total of 25 years of experience in the equipment rental industry.
ROBERT G. WARREN. Mr. Warren joined the Company in 1988 after being
employed by Hertz Corporation as Regional Vice President. Mr. Warren is Senior
Vice President of Neff Machinery. Mr. Warren has a total of 20 years of
experience in the equipment sales and rental industry.
BONNIE S. BIUMI. Ms. Biumi is Chief Financial Officer of the Company. She
joined the Company in 1997 after being employed as Executive Vice President and
Chief Financial Officer of Peoples Telephone Company, Inc., a publicly traded
telecommunication services company, from 1994 to 1997. From 1983 to 1994, Ms.
Biumi was employed by Price Waterhouse LLP in Miami, Florida, most recently as
a Senior Manager. Ms. Biumi is a certified public accountant and holds a B.S.
in business administration.
WILLIAM G. DERENBECKER. Mr. Derenbecker joined the Company in August 1997
as Neff Rental's Vice President for the Gulf Coast Region. He previously served
for 11 years in a variety of senior management positions at Buckner.
45
<PAGE>
STEVE HALLIWELL. Mr. Halliwell joined the Company in 1990 after one year
with Wacker as Territory Manager and two years with Hood Equipment as a Sales
Representative. Mr. Halliwell serves as Neff Rental's Vice President for the
Florida Region. Mr. Halliwell has a total of 12 years of experience in the
equipment rental industry.
GRAHAM HOOD. Mr. Hood joined the Company in 1995 after 17 years of
employment with Hertz Corporation, where he most recently served as Regional
Vice President. Mr. Hood serves as Neff Rental's Vice President for the
Southwest Region. Mr. Hood has a total of 20 years of experience in the
equipment rental industry.
WES PARKS. Mr. Parks joined the Company in 1995 after eight years of
employment with Hertz Corporation, where he served as Branch Manager. Mr. Parks
serves as Neff Rental's Vice President for the Atlantic Region. Mr. Parks has a
total of 13 years in the equipment rental industry.
BRUCE POPE. Mr. Pope joined the Company in 1995 after being employed by
Hertz Corporation as Branch Manager. Mr. Pope serves as Neff Rental's Vice
President for the Southwest Region. Mr. Pope has a total of 33 years of
experience in the equipment rental industry.
THOMAS VANDEVER. Mr. Vandever joined the Company in 1997 after being
employed by Hertz Corporation as Regional Manager. Mr. Vandever serves as Neff
Rental's Vice President for the Central Region. Mr. Vandever has a total of 16
years of experience in the equipment rental industry.
JON ZIER. Mr. Zier joined the Company in 1996 after being employed by
Hertz Corporation as Regional Manager. Mr. Zier serves as Neff Rental's Vice
President for the West Region. Mr. Zier has a total of 20 years of experience
in the equipment rental industry.
JUAN CARLOS MAS. Mr. Mas has been a Director of the Company and MP since
1989. He is currently Director and President of the Construction Division of
Church and Tower, a subsidiary of MasTec, Inc., where he has been employed for
the past five years. Mr. Mas holds a B.A. in business administration and a J.D.
JOSE RAMON MAS. Jose Ramon Mas has been a Director of the Company and MP
since 1989. Mr. Mas is Director and President of the Telecommunications
Division of Church and Tower, a subsidiary of MasTec, Inc., where he has been
employed for the past five years. He has a B.A. in business administration and
an M.B.A.
BOARD OF DIRECTORS
The Company's Board of Directors is currently composed of four directors,
Jorge Mas, Mr. Fitzgerald, Juan Carlos Mas and Jose Ramon Mas. The Company
intends to expand the Board to include two outside directors following the
Offering. The Company's Certificate of Incorporation provides that the Board of
Directors shall be divided into three classes. The members of each class of
directors will serve for staggered three-year terms. Following the consummation
of the Offering, the Board will be composed of two Class I directors, two Class
II directors and three Class III directors. Jorge Mas and Kevin P. Fitzgerald
will serve as Class I directors for an initial term which will expire at the
time of the annual stockholder meeting in June 2000. Juan Carlos Mas and Jose
Ramon Mas will serve as Class II directors for the initial term which will
expire at the time of the annual stockholders meeting in June 1999; and the two
outside directors to be selected will serve as Class III directors for the
initial term which will expire at the time of the annual stockholder meeting in
June 1998. Thereafter, each class will serve three-year terms.
The Company must select one independent director within 90 days after the
date of this Prospectus and an additional independent director within one year
after the date of this Prospectus in order to maintain its New York Stock
Exchange listing. Failure to select such directors within this period could
result in a delisting of the Class A Common Stock from the New York Stock
Exchange.
The holders of a majority of the Series A Preferred Stock, voting
separately as a single class in the election of directors of the Company, with
each share of Series A Preferred Stock entitled to one vote,
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<PAGE>
are entitled to elect one director to serve on the Company's Board of
Directors. See "Description of Capital Stock--Preferred Stock." GE Capital owns
all of the issued and outstanding Series A Preferred Stock and, therefore, is
entitled to elect one director to the Company's Board of Directors. The Company
expects to redeem the Series A Preferred Stock with the proceeds of the Private
Debt Offering. See "Capitalization."
Pursuant to an Amended and Restated Stockholders Agreement dated as of
March 25, 1998, if GE Capital transfers Common Stock representing at least 15%
of the equity of the Company to a third party (the "GE Transferee") the Company
will increase the Board of Directors from six to seven members and the parties
to the Stockholders' Agreement, in accordance with such agreement, have agreed
to vote their shares of Common Stock to elect the GE Transferee's nominee as a
director to fill the vacancy.
COMMITTEES OF THE BOARD OF DIRECTORS
After completion of the Offering, the Company intends to establish an
Audit Committee and a Compensation Committee, each composed of two independent
directors. The Audit Committee will recommend the annual appointment of the
Company's auditors, with whom the Audit Committee will review the scope of
audit and non-audit assignments and related fees, accounting principles used by
the Company in financial reporting, internal auditing procedures and the
adequacy of the Company's internal control procedures. The Compensation
Committee will administer the Company's Incentive Stock Plan and make
recommendations to the Board of Directors regarding compensation for the
Company's executive officers.
COMPENSATION OF DIRECTORS
Each of the Company's nonemployee directors will receive an annual
retainer. In addition, nonemployee directors will receive meeting attendance
fees for special board meetings or committee meetings not held in conjunction
with a regular board meeting. Jorge Mas, Jose Ramon Mas and Juan Carlos Mas
will not receive any such retainers or fees, however. All directors will be
reimbursed for expenses incurred in connection with attending board and
committee meetings. Pursuant to the Company's Stock Incentive Plan, the
Company's nonemployee directors will receive options to purchase Common Stock
upon their initial appointment. These options will have an exercise price equal
to 100% of the fair market value on the date of the grant, and will vest over a
five year period (20% each year). The options will expire in ten years, unless
(i) the director leaves the Board of Directors for any reason other than
disability, death or cause, in which case the director will have three months
after termination to exercise his vested options; (ii) the director is
dismissed from the Board of Directors for cause, in which case all options will
terminate immediately; (iii) the director's service terminates by reason of
disability or resignation, in which case the director will have one year after
the termination date to exercise vested options; or (iv) the director dies, in
which case the director's estate will have one year to exercise vested options.
Jorge Mas, the Chairman of the Board of Directors, will receive an option
to purchase 100,000 shares of Class A Common Stock at the initial public
offering price per share to the public as set forth on the cover of this
Prospectus. These options will be currently exercisable and have a 10 year
term.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that a director of the
Company will not be personally liable to the Company or its stockholders for
monetary damages for any breach of fiduciary duty as a director, except in
certain cases where liability is mandated by the DGCL. The provision has no
effect on any non-monetary remedies that may be available to the Company or its
stockholders, nor does it relieve the Company or its directors from compliance
with federal or state securities laws. The Certificate of Incorporation of the
Company generally provide that the Company shall indemnify, to the fullest
extent permitted by law, any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit,
investigation, administrative hearing or any other proceeding (each, a
"Proceeding") by reason of the fact that he is or was a director or officer of
the
47
<PAGE>
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another entity, against expenses (including
attorneys' fees) and losses, claims, liabilities, judgments, fines and amounts
paid in settlement actually incurred by such person in connection with such
Proceeding. The Company has entered into, or intends to enter into, agreements
to provide indemnification for its directors and executive officers in addition
to the indemnification provided for in the Certificate of Incorporation. These
agreements, among other things, will indemnify the Company's directors and
executive officers for certain expenses (including attorneys' fees), and all
losses, claims, liabilities, judgments, fines and settlement amounts incurred
by such persons arising out of or in connection with their service as a
director or officer of the Company to the fullest extent permitted by
applicable law. In addition, the Company has obtained director and officer
liability insurance that insures the Company's directors and officers against
certain liabilities.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During its fiscal year ended December 31, 1997, the Company had no
Compensation Committee or other committee of the Board of Directors performing
similar functions. Decisions concerning compensation of executive officers were
made by certain executive officers of the Company. It is contemplated that the
Board of Directors will establish a Compensation Committee consisting of
nonemployee directors following consummation of the Offering. See "--Board of
Directors."
EXECUTIVE COMPENSATION
The following table sets forth a summary of compensation for services
rendered in all capacities to the Company by the Chief Executive Officer and
President and each of the Company's most highly compensated executive officers
as to whom the total annual base salary, bonus and other compensation for the
fiscal year ended December 31, 1997 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- -------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS OPTIONS/SARS
- ----------------------------------------------- ------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Kevin P. Fitzgerald 1995 $ 50,000 -- 150,000
President and Chief Executive 1996 150,000 $ 75,000 300,000
Officer(1) .................................... 1997 246,000 150,000 --
Robert G. Warren 1995 $ 90,000 $ 50,000 84,650
Senior Vice President, Neff Machinery ......... 1996 126,000 40,000 --
1997 155,000 25,000 --
Peter A. Gladis 1995 $ 42,000 -- --
Senior Vice President, Neff Rental(2) ......... 1996 145,000 $ 40,000 --
1997 150,000 75,000 --
Bonnie S. Biumi
Chief Financial Officer(3) .................... 1997 -- -- --
</TABLE>
- ----------------
(1) Mr. Fitzgerald commenced work for the Company in August 1995. He was paid
at the rate of $145,000 per year during fiscal year 1995. The salary set
forth above for 1995 represents his salary for the five-month period from
August to December, 1995.
(2) Mr. Gladis commenced work for the Company in September 1995. He was paid at
the rate of $145,000 per year during fiscal year 1995. The salary set
forth above represents his salary for the four-month period from September
to December, 1997.
(3) Ms. Biumi commenced work for the Company on December 29, 1997. Her annual
salary was $175,000.
OPTION GRANTS AND EXERCISES
The Company did not grant any options to purchase any of its capital stock
in 1997 and no options to purchase any of its capital stock were exercised in
1997.
48
<PAGE>
Pursuant to an option agreement, dated December 1, 1997 between the
Company and Mr. Fitzgerald (the "Option Agreement"), options to purchase shares
of Class A Common Stock representing 3% of the issued and outstanding Common
Stock of the Company for an aggregate purchase price of approximately $1.6
million have been granted to Mr. Fitzgerald. Upon consummation of the Offering,
Mr. Fitzgerald will receive options to purchase an additional 207,220 shares of
Class A Common Stock (238,299 if the over-allotment option is exercised), in
order to maintain Mr. Fitzgerald's 3% ownership interest in the Company.
Thereafter no further options will be granted to Mr. Fitzgerald pursuant to the
Option Agreement. One-third of Mr. Fitzgerald's options expire on December 1,
2005, one-third expire on December 31, 2005 and the remaining one-third expire
on December 31, 2006. These options are not intended to qualify as incentive
stock options. In 1998, options to purchase 100,000 shares of Class A Common
Stock at the initial offering price set forth on the front cover of the
Prospectus were granted to Mr. Fitzgerald. These options have a 10 year term.
These options are intended to qualify as incentive stock options. All of Mr.
Fitzgerald's options are exercisable. Options to purchase 84,650 shares of
Class A Common Stock for an aggregate purchase price of $0.5 million have been
granted to Mr. Warren. These options are not intended to qualify as incentive
stock options and all of these options are exercisable. Mr. Warren's options
expire on June 28, 2006.
Pursuant to the Stock Incentive Plan, options to purchase 10,000 shares of
Class A Common Stock will be granted to each of Mr. Gladis and Ms. Biumi and
options to purchase 20,000 shares of Class A Common Stock will be granted to
Mr. Warren, at the initial offering price set forth on the front cover of this
Prospectus. These options will have a ten year term and are intended to qualify
as incentive stock options. These options will vest in equal installments over
three years. The Company intends to issue additional options to purchase shares
of Class A Common Stock under the Stock Incentive Plan to other employees.
The following table sets forth information concerning the year-end value
of unexercised options held by Messrs. Fitzgerald and Warren:
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS "IN-THE-MONEY"
AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END(1)
------------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Kevin P. Fitzgerald,
Chief Executive Officer
and President ............. 450,000 -- $5,146,990 --
Robert G. Warren,
Senior Vice President,
Neff Machinery ............ 84,650 -- $ 767,568 --
Peter A. Gladis,
Senior Vice President,
Neff Rental ............... -- -- -- --
Bonnie S. Biumi, Chief
Financial Officer ......... -- -- -- --
</TABLE>
- ----------------
(1) Options are "in-the-money" at the fiscal year end if the fair market value
of the underlying securities on such date exceeds the exercise price of
the option. For the purposes of this calculation, the fair market value of
the Class A Common Stock is $15.00, the mid-point of the range of the
initial public offering price set forth on the cover of this Prospectus.
Mr. Fitzgerald also has certain rights to cause the Company to register
Class A Common Stock issued to him upon exercise of his options. At any time
during the period from December 1, 1995 until December 1, 2010 (the
"Registration Period") Mr. Fitzgerald may make one demand upon the Company and
require it to register any shares of Class A Common Stock issued to him upon
exercise of his options. If the Company files a registration statement to
register Class A Common Stock during the Registration Period, Mr. Fitzgerald
may demand that the Company include any shares of Class A Common Stock issued
to him upon exercise of his options in such registration statement. Mr.
Fitzgerald has agreed to waive any rights he may have to register any shares of
Class A Common Stock prior to the Offering or to demand an offering within 180
days of the closing of the Offering.
49
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS
Effective January 1, 1997, the Company adopted a phantom stock plan (the
"Phantom Stock Plan"). The Phantom Stock Plan is designed to reward employees
for improvements in the Company's performance. Pursuant to the terms of this
plan, employees are eligible to receive individual units representing a
hypothetical share of the Company's Common Stock (a "Phantom Share"). Each
Phantom Share is assigned a value on the date granted as determined by the
administrator of the Phantom Stock Plan. The difference between the greater of
either (i) the calculated share value of the Phantom Share on the date redeemed
by the employee as determined pursuant to a formula set forth in the Phantom
Stock Plan or (ii) the average closing price of the Class A Common Stock as
quoted on the New York Stock Exchange for the previous 30 trading days, and the
value assigned on the date of grant represents the cash award the employee is
entitled to receive on the redemption date. The Phantom Shares generally vest
over five years and must be redeemed by the Company within one year of vesting.
The following table sets forth awards made in 1997 under the Phantom Stock
Plan to the officers named in the Summary Compensation Table above.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERIOD UNTIL
PHANTOM MATURATION OR
NAME SHARES PAYOUT
- --------------------------------- --------------- ---------------
<S> <C> <C>
Kevin P. Fitzgerald,
Chief Executive Officer
and President ................... -- --
Robert G. Warren,
Senior Vice President,
Neff Machinery .................. -- --
Peter A. Gladis, Phantom Shares
vest in equal
Senior Vice President,
installments
Neff Rental ..................... 25,000(1) over 5 years
Phantom Shares
vest in equal
Bonnie S. Biumi,
installments
Chief Financial Officer ......... 25,000(2) over 3 years
</TABLE>
- ----------------
(1) Phantom Share assigned value as of the date of grant of $9.00.
(2) Phantom Share assigned value as of the date of grant of $10.50.
The Company made an additional grant of 25,000 Phantom Shares to Mr.
Gladis in 1998. These Phantom Shares vest in equal installments over three
years and have an assigned value of $11.50 per Phantom Share as of the date of
grant.
COMPANY COMPENSATION AND BENEFITS
SALARY AND BENEFITS. It is contemplated that the Company will establish
annual base salaries for Messrs. Warren and Gladis and Ms. Biumi in the amounts
of $160,000, $185,000 and $175,000 respectively, effective upon the closing of
the Offering. The Company will also establish an annual bonus plan for
executive officers and other key employees under which bonuses will be paid
based on sales increases, increases in earnings per share and return on equity.
The Company will provide medical and dental benefits, life and disability
insurance, vacation and holidays, and will implement the other benefit plans
described below.
INCENTIVE STOCK PLAN
Under the Company's Incentive Stock Plan (the "Incentive Stock Plan"),
designated officers, employees and consultants of the Company will be eligible
to receive awards in the form of stock
50
<PAGE>
options, stock appreciation rights, restricted stock grants, performance awards
or dividend equivalent rights. The Incentive Stock Plan is intended to promote
the long-term financial interests of the Company by encouraging employees to
acquire an ownership position in the Company and to provide incentives for
employee performance. The Incentive Stock Plan, which is expected to be
approved by the Board of Directors, will be effective upon consummation of the
Offering.
An aggregate of 1,000,000 shares of Class A Common Stock will be reserved
for issuance under the Incentive Stock Plan, subject to adjustment in the event
of a stock split, stock dividend or other change in the Class A Common Stock or
the capital structure of the Company. In the aggregate, not more than one-third
of these shares may be made the subject of restricted Class A Common Stock
awards. In addition, no individual may be granted options or awards in respect
of more than 300,000 shares in one year.
The Incentive Stock Plan will be administered by the Compensation
Committee of the Board of Directors. Subject to the provisions of the Incentive
Stock Plan, the Compensation Committee will be authorized to determine who may
participate in the Incentive Stock Plan, the number and types of awards made to
each participant and the terms, conditions and limitations applicable to each
award. In addition, the Compensation Committee will have the exclusive power to
interpret the Incentive Stock Plan and to adopt such rules and regulations as
it may deem necessary or appropriate for purposes of administering the plan.
Subject to certain limitations, the Board of Directors will be authorized to
amend, modify or terminate the Incentive Stock Plan to meet any changes in
legal requirements or for any other purpose permitted by law.
STOCK OPTIONS. Under the Incentive Stock Plan, the Committee is authorized
to grant options to purchase shares of Class A Common Stock, including options
qualifying as "incentive stock options" ("ISOs") under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and options that do not
so qualify ("NSOs") to employees as additional compensation for their services
to the Company. Options granted will be subject to adjustment in the event of a
stock split, stock dividend or other change in the Class A Common Stock or the
capital structure of the Company.
Options shall be exercisable over such period as may be determined by the
Compensation Committee, but no stock option may be exercised after ten years
from the date of grant. Options may be exercisable in installments and upon
such other terms as determined by the Compensation Committee. Options will be
evidenced by option agreements. No option may be transferable other than by
will or by the laws of descent and distribution or pursuant to certain domestic
relations orders. The purchase price of such Class A Common Stock subject to an
ISO shall not be less than 100% of the Fair Market Value (as defined in the
Incentive Stock Plan) of such Class A Common Stock on the date of grant, (110%
in the case of an ISO granted to an individual holding more than 10% of the
Company's capital stock). Such purchase price shall be paid in full in cash,
Class A Common Stock or a combination of both.
STOCK APPRECIATION RIGHTS. Under the Incentive Stock Plan, the
Compensation Committee also may grant stock appreciation rights either in
tandem with an option or alone. Stock appreciation rights granted in tandem
with a stock option may be granted at the same time as the stock option or at a
later time. A stock appreciation right shall entitle the participant to receive
from the Company an amount payable in cash, in shares of Class A Common Stock
or in a combination of cash and Class A Common Stock, equal to the positive
difference between the fair market value of a share of Class A Common Stock on
the date of exercise and the grant price, or such lesser amount as the
Compensation Committee may determine.
RESTRICTED STOCK AWARDS. Under the Incentive Stock Plan, the Compensation
Committee may grant shares of restricted Class A Common Stock, which are
subject to forfeiture under such conditions and for such period of time (not
less than one year) as the Compensation Committee may determine. The
Compensation Committee shall determine the conditions or restrictions of any
restricted Class A Common Stock awards, which may include restrictions on
transferability, requirements of continued employment, individual performance
or the Company's financial performance.
PERFORMANCE AWARDS. The Compensation Committee in its discretion may grant
awards of performance units or performance shares to an employee contingent
upon the attainment of a specified
51
<PAGE>
objective during a specified period of time. Performance units may be
denominated in shares of Class A Common Stock or a specified dollar amount and
are contingent upon attainment of the specified performance objectives within
the specified period of time. Performance shares will be awarded in the form of
shares of Class A Common Stock. The Compensation Committee will determine the
total number of performance shares subject to an award, the terms and the time
at which the performance shares will be issued. Performance shares may not be
sold, transferred, assigned, pledged or otherwise encumbered so long as such
performance shares remain restricted.
DIVIDEND EQUIVALENT RIGHTS. Dividend equivalent rights, defined as a right
to receive all or some portion of the cash dividends that are or would be
payable with respect to shares of Class A Common Stock, may be awarded in
tandem with stock options or other awards under the Incentive Stock Plan. The
Committee will determine the terms and conditions of these rights. The rights
may be paid in cash or shares or a combination of both.
EFFECT OF CHANGE IN CONTROL. The Incentive Stock Plan provides for the
acceleration of certain benefits in the event of a "Change in Control" of the
Company. A Change in Control will be deemed to have occurred if either (i) any
person or group other than the Mas brothers acquires beneficial ownership
equivalent to 30% of the voting securities of the Company; (ii) individuals who
are directors as of the closing of the Offering, or individuals who became
directors after being approved by two-thirds of such individuals (and other
directors previously so approved) cease to constitute at least two-thirds of
the members of the Board of Directors; and (iii) the consummation of certain
mergers, the sale of substantially all of the assets of the Company or a
complete liquidation or dissolution of the Company.
401(K) PLAN
The Company maintains a 401(k) Retirement Savings Plan (the "401(k) Plan")
to provide retirement and other benefits to employees of the Company and to
permit employees a means to save for their retirement. The 401(k) Plan is
intended to be a tax-qualified plan under Section 401(a) of the Code. Subject
to legal limitations, participants may elect, by salary reduction, to have
401(k) contributions of 1% to 15% of their compensation made to their accounts.
The Company may make discretionary profit sharing contributions on behalf of
participants based on the participant's contribution amounts. Participants in
the 401(k) Plan always have a 100% vested and nonforfeitable interest in the
value of their 401(k) contributions. In certain circumstances, participants may
receive loans and hardship withdrawals from their accounts in the 401(k) Plan.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
The DGCL authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of the directors' fiduciary duty of care. The Company's
Certificate of Incorporation limits the liability of directors of the Company
to the Company or its stockholders to the fullest extent permitted by Delaware
law. Specifically, directors of the Company will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its stockholders; (ii) for acts or omissions not in good faith
or which involve intentional misconduct or knowing violations of law; (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the DGCL; or (iv) for any transaction from which the
director derived an improper personal benefit. The inclusion of this provision
in the Certificate of Incorporation may have the effect of reducing the
likelihood of derivative litigation against directors, and may discourage or
deter stockholders or management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if successful, might
otherwise have benefited the Company and its stockholders.
The Certificate of Incorporation provides mandatory indemnification rights
to any officer or director of the Company who, by reason of the fact that he or
she is an officer or director of the Company, is involved in a legal proceeding
of any nature. Such indemnification rights include reimbursement for expenses
incurred by such officer in advance of the final disposition of such proceeding
in accordance with the applicable provisions of the DGCL.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of April 27, 1998, adjusted for the
conversion of 627,000 shares of Class B Common Stock into Class A Common Stock,
information with respect to the beneficial ownership of the Company's Common
Stock by (i) each person known to the Company to beneficially own more than 5%
of the outstanding shares of the Company's Class A Common Stock; (ii) each
person known to the Company to beneficially own more than 5% of the outstanding
shares of the Company's Class B Common Stock; (iii) each director of the
Company and each executive officer named in the Summary Compensation Table; and
(iv) all directors and executive officers of the Company as a group. Unless
otherwise indicated, (i) each such stockholder has sole voting and investment
power with respect to the shares beneficially owned by such stockholder and
(ii) has the same address as the Company.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
BEFORE THE OFFERING
---------------------------------------------------------------
NUMBER OF NUMBER OF
SHARES OF PERCENT SHARES OF PERCENT
CLASS A OF CLASS B OF
COMMON CLASS COMMON CLASS
STOCK OWNED STOCK OWNED
------------------------ --------- ------------------ ---------
<S> <C> <C> <C> <C>
Jorge Mas .................... 3,802,744(1)(2) 26.1% -- --
Juan Carlos Mas .............. 2,381,303(1) 16.5 -- --
Jose Ramon Mas ............... 2,381,303(1) 16.5 -- --
GE Capital ................... 5,100,000(3) 35.2 5,100,000(3) 100%
Santos ....................... 900,000(4) 6.2 -- --
Santos Capital ............... 1,500,000(5) 10.4 -- --
Kevin P. Fitzgerald .......... 550,000(1)(6) 3.7 -- --
Robert G. Warren ............. 104,650(7) * -- --
Peter A. Gladis .............. 10,000(8) * -- --
Bonnie S. Biumi .............. 10,000(9) * -- --
All executive officers and
directors as a group
(7 persons) ................. 9,240,000 60.6 -- --
<CAPTION>
SHARES BENEFICIALLY OWNED
AFTER THE OFFERING
--------------------------------------------------------------
NUMBER OF NUMBER OF
SHARES OF PERCENT SHARES OF PERCENT
CLASS A OF CLASS B OF
COMMON CLASS COMMON CLASS
STOCK OWNED STOCK OWNED
------------------------ --------- ------------------ --------
<S> <C> <C> <C> <C>
Jorge Mas .................... 3,802,744(1)(2) 17.9% -- --
Juan Carlos Mas .............. 2,381,303(1) 11.3 -- --
Jose Ramon Mas ............... 2,381,303(1) 11.3 -- --
GE Capital ................... 5,100,000(3) 24.1 5,100,000(3) 100%
Santos ....................... 900,000(4) 4.3 -- --
Santos Capital ............... 1,500,000(5) 7.1 -- --
Kevin P. Fitzgerald .......... 757,220(1)(6) 3.5 -- --
Robert G. Warren ............. 104,650(7) * -- --
Peter A. Gladis .............. 10,000(8) * -- --
Bonnie S. Biumi .............. 10,000(9) * -- --
All executive officers and
directors as a group
(7 persons) ................. 9,447,220 42.7 -- --
</TABLE>
- ----------------
* Less than 1%.
(1) Does not include shares beneficially owned through Santos or Santos
Capital.
(2) The amount shown includes shares covered by options the Company intends to
grant to Mr. Mas and which will be immediately exercisable by Mr. Mas.
(3) The amount shown includes shares owned by GECFS, Inc., an affiliate of GE
Capital. All of these shares are convertible into Class A Common Stock.
The amount shown includes 1,500,000 shares of Class B Common Stock subject
to an option held by Santos Capital. Santos Capital has agreed to convert
these shares to Class A Common Stock upon exercise. GE Capital's and
GECFS, Inc.'s address is: 777 Long Ridge Road, Building B, First Floor,
Stamford, CT., 06927.
(4) Santos is beneficially owned by Jorge Mas, Juan Carlos Mas, Jose Ramon Mas
and Kevin P. Fitzgerald.
(5) The amount shown includes an option currently exercisable by Santos
Capital, an affiliate of Santos, to purchase 1,500,000 shares of Common
Stock from GE Capital. Santos Capital is beneficially owned by Jorge Mas,
Juan Carlos Mas, Jose Ramon Mas and Kevin P. Fitzgerald.
(6) The amount shown consists of shares covered by options currently
exercisable by Mr. Fitzgerald.
(7) The amount shown consists of 84,650 shares covered by options currently
exercisable by Mr. Warren and 20,000 shares covered by options which the
Company intends to grant to Mr. Warren and which will not be immediately
exercisable upon grant.
(8) The amount shown consists of 10,000 shares covered by options which the
Company intends to grant to Mr. Gladis. These options will not be
immediately exercisable upon grant.
(9) The amount shown consists of 10,000 shares covered by options which the
Company intends to grant to Ms. Biumi. These options will not be
immediately exercisable upon grant.
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<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
MASTEC, INC.
MasTec, Inc., an affiliate of the Company controlled by the Mas family,
purchases and leases construction equipment from the Company. During the years
ended December 31, 1996 and 1997, revenues from MasTec, Inc. amounted to
approximately $1.5 million and $0.7 million, respectively. The Company believes
that these payments were substantially equivalent to the payments that would
have been made between unrelated parties acting at arm's length.
ATLANTIC REAL ESTATE HOLDINGS CORPORATION
In May 1997, the Company acquired six properties that it previously leased
from Atlantic Real Estate Holdings Corp., an affiliate of the Company owned by
Jorge Mas, Juan Carlos Mas and Jose Ramon Mas, for approximately $13.9 million.
The Company operated its Miami, West Palm Beach, Fort Myers, Orlando, Pompano
Beach and Tampa equipment rental and dealership locations at these properties.
The Company does not intend to acquire any other assets owned by the Mas
family.
GE CAPITAL, SANTOS AND SANTOS CAPITAL
The Company and GE Capital have entered into a registration rights
agreement with respect to the Class B Common Stock held by GE Capital (the "GE
Capital Shares"). The registration rights agreement provides that GE Capital
may, after the earlier of (i) December 29, 1998 or (ii) an initial public
offering of the Company's Common Stock and subject to certain limitations, make
two demand registrations with respect to all or part of the GE Capital Shares.
The GE Capital Shares being registered must be converted to shares of Class A
Common Stock prior to registration. The registration rights agreement also
provides GE Capital with piggyback registration rights with respect to certain
registration statements filed by the Company. In any registration, the Company
must pay the registration expenses of GE Capital, excluding GE Capital's legal
fees, underwriting commissions and discounts. The Company has agreed to
indemnify GE Capital against certain liabilities under the Securities Act in
connection with the registration of the GE Capital Shares.
In 1998, GE Capital and the Company consummated a series of transactions
pursuant to which GE Capital (i) exchanged its 800,000 shares of the Company's
Series B Preferred Stock and 800,000 shares of Series C Preferred Stock for
6,000,000 shares of the Company's Class B Common Stock and (ii) sold 900,000
shares of Class B Common Stock to Santos, which Santos then converted into
Class A Common Stock. Santos Capital purchased an option from GE Capital to
acquire an additional 1,500,000 shares of Common Stock, exercisable for a
period of 18 months. The $16.5 million purchase price for the shares of Class A
Common Stock was paid in part by the delivery by Santos of a promissory note to
GE Capital for $11.5 million. This promissory note is secured by the shares of
Class A Common Stock Santos purchased from GE Capital.
In response to concerns raised by John Deere regarding the size of GE
Capital's equity interest in the Company, GE Capital and the Company have
entered into the Standstill Agreement which provides that, subject to certain
exceptions, GE Capital and its affiliates will maintain their equity interest
in the Company below 25% during the period ending October 29, 1999, and will
maintain their equity interest below 20% during the period from October 29,
1999 until Neff Machinery is no longer a dealer for John Deere or certain other
conditions are satisfied. Santos has agreed to exercise its option to acquire
Company stock from GE Capital if necessary to reduce GE Capital's equity
ownership to these levels. GE Capital has also agreed that it will not seek to
obtain control of or exercise influence over the Company.
Santos, Santos Capital and the Company have entered into a registration
rights agreement with respect to the shares of Class A Common Stock held by
Santos and Santos Capital. The terms of this agreement are substantially
equivalent to the terms of the registration rights agreement for GE Capital and
the Company.
PEP CONSULTING
PEP Consulting receives a consultant fee of $5,663 per month for services
rendered to Neff Rental. The owner of PEP Consulting, Jose Perez, was a
director of Neff Rental from December 1995 until October 1997.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITIES
The Company has established the New Credit Facility with a syndicate of
Lenders and Bankers Trust Company, as agent, dated May 1, 1998, which consists
of a $250 million revolving line of credit, under which each of Neff, Neff
Rental and Neff Machinery can borrow, repay and reborrow funds for general
corporate purposes. The New Credit Facility terminates on October 31, 1998;
however, upon repayment of the Term Loan, this date will be extended to April
30, 2003. Credit facilities with syndicates of lenders and GE Capital, as
agent, have been the Company's principal source of liquidity since December
1995.
The Company's New Credit Facility allows borrowings based upon eligible
accounts receivable, rental fleet and inventory amounts. The interest rates on
balances outstanding under the New Credit Facility will vary based upon the
leverage ratio maintained by the Company and range from Prime rate or LIBOR
plus 1.00% to Prime plus 1.25% or LIBOR plus 2.25%. Based upon the Company's
anticipated leverage ratio upon completion of the Offering, the interest rate
would be Prime plus .875% or LIBOR plus 1.875%. The New Credit Facility is
secured by substantially all of the Company's assets and contains various
restrictive covenants which, among other things, place restrictions on
indebtedness, require the Company to maintain certain interest coverage and
leverage ratios and place certain restrictions on payment of dividends.
The Company has also entered into a Term Loan with GE Capital, Bankers
Trust Company and BankAmerica Business Credit, Inc., dated December 31, 1997,
pursuant to which the Company received $100 million for the purpose of (i)
repaying a July 31, 1997 term loan and (ii) funding a portion of the Richbourg
Acquisition.
The terms and conditions of the indebtedness of the Company under the
above facilities impose restrictions that prohibit the Company from taking
certain actions without the prior written consent of the members of the
syndicate, including but not limited to merging with another company, incurring
certain kinds of indebtedness, changing the Company's capital structure,
selling assets other than in the ordinary course of business and declaring
dividends other than in connection with the Series A Preferred Stock of the
Company. See "Risk Factors--Dependence on Additional Capital for Future Growth;
Reliance on Credit Facilities."
PRIVATE DEBT OFFERING
The Company expects to consummate the Private Debt Offering for estimated
gross proceeds of approximately $150 million, and estimated net proceeds of
$144.75 million after fees and expenses, on or after the consummation of the
Offering. The notes offered in the Private Debt Offering (the "Notes") are
expected to be general unsecured obligations of the Company and subordinated in
right of payment to all existing and future senior indebtedness of the Company.
The Notes will rank PARI PASSU in right of payment with any future senior
subordinated indebtedness of the Company and will rank senior in right of
payment to all other subordinated indebtedness of the Company. The indenture
governing the Notes (the "Indenture"), if issued, will contain certain
covenants that, among other things, limit the ability of the Company and its
subsidiaries to incur indebtedness, pay certain payments, create liens securing
certain indebtedness, pay dividends, make certain payments affecting
subsidiaries or sell assets. There can be no assurance that the Private Debt
Offering will be consummated.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Class A Common Stock, $.01 par value, 20,000,000 shares of Class B Common
Stock, $.01 par value, 519,503 shares of Series A Preferred Stock and 1,000,000
shares of Series B Junior Participating Preferred Stock, $.01 par value (the
"Series B Junior Preferred Stock"). Upon completion of the Offering, there will
be issued and outstanding 16,065,350 shares of Class A Common Stock, 5,100,000
shares of Class B Common Stock, 340,907 shares of Series A Preferred Stock, and
no shares of Series B Junior Participating Preferred Stock. In addition,
1,741,870 shares of Class A Common Stock have been reserved for issuance in
connection with the grant of options to purchase Class A Common Stock, and
5,100,000 shares have been reserved in connection with the conversion of Class
B Common Stock.
COMMON STOCK
The Company's Class A Common Stock and Class B Common Stock are equal in
all respects except for dividend and liquidation rights and conversion rights
of the Class B Common Stock, as discussed more fully below. Immediately upon
consummation of this Offering, all of the then outstanding shares of Common
Stock will be validly issued, fully paid and nonassessable.
VOTING RIGHTS; CONVERSION OF CLASS B COMMON STOCK INTO CLASS A COMMON
STOCK. The holders of Class A and Class B Common Stock are entitled to one vote
per share on all matters submitted to a vote of the stockholders. Holders of
Class A and Class B Common Stock do not have cumulative rights, so that holders
of more than 50% of the shares of Common Stock present at a meeting at which a
quorum is present are able to elect all of the Company's directors eligible for
election in a given year. Shares of Class B Common Stock are convertible into
shares of Class A Common Stock, in whole or part, at any time and from time to
time at the option of the holder, on the basis of one share of Class A Common
Stock for each share of Class B Common Stock converted. In the event of any
increase or reduction in the number of shares of Class A Common Stock, or the
exchange of Class A Common Stock for a different number or kind of securities
of the Company, by reason of a reclassification, recapitalization, merger,
consolidation, reorganization, spin-off, split-up, stock split or reverse stock
split, change in corporate structure or otherwise, the number of shares of
Class B Common Stock and the liquidation preference of each share thereof will
be proportionately increased or reduced, as appropriate. The Company is
obligated to at all times reserve and keep available out of its authorized but
unissued shares of Class A Common Stock, such number of shares of Class A
Common Stock issuable upon the conversion of all outstanding shares of Class B
Common Stock. Class A Common Stock has no conversion rights.
LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding up of the
Company, after satisfaction of all the Company's liabilities and the payment of
the liquidation preference of any Preferred Stock that may be outstanding, the
holder of each share of Class B Common Stock is entitled to receive before any
distribution or payment is made upon any other capital stock of the Company, an
amount in cash equal to $11.67. The holders of Class B Common Stock shall not
be entitled to any further payment. Upon the liquidation, dissolution or
winding up of the Company, the holders of shares of Class A Common Stock are
entitled to share pro rata in the distribution of all of the Company's assets
remaining available for distribution after satisfaction of all the Company's
liabilities and the payment of the liquidation preference of any Preferred
Stock that may be outstanding and the payment of the liquidation preference to
holders of Class B Common Stock described above.
DIVIDEND RIGHTS. Following consummation of the Offering, holders of the
Class A Common Stock and the Class B Common Stock are entitled to receive
ratably such dividends, if any, as are declared by the Company's Board of
Directors out of funds legally available for that purpose, subject to the
preferential rights of any holder of Preferred Stock that may from time to time
be outstanding. Prior to the consummation of the Offering, the holders of Class
B Common Stock are entitled to receive, in the aggregate, 75% of the total
amount of any cash dividend paid to the holders of Common Stock. The
56
<PAGE>
terms of the Company's credit facilities, Series A Preferred Stock and the
Private Debt Offering limit the Company's ability to pay dividends on the
Common Stock. See "Dividend Policy" and "--Preferred Stock."
OTHER PROVISIONS. The holders of Class A Common Stock and Class B Common
Stock have no preemptive or other subscription rights to purchase shares of
stock of the Company, and there are no redemptive or sinking fund provisions
applicable to the Class A Common Stock and Class B Common Stock.
REGISTRATION RIGHTS. The Company is a party to agreements pursuant to
which GE Capital, the Mas family, Santos, Santos Capital and Mr. Fitzgerald
have the right, among other matters, to require the Company to register their
shares of Class A Common Stock under the Securities Act under certain
circumstances. These rights cover approximately 15,122,570 shares of Class A
Common Stock. See "Management--Company Compensation and Benefits" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
PREFERRED STOCK
The Certificate of Incorporation, a copy of which is filed as an exhibit
to the Registration Statement of which this Prospectus constitutes a part,
authorizes the Company's Board of Directors to issue Preferred Stock in series
and to establish the number of shares to be included in each such series and to
fix the designations, powers, preferences and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof. Because the
Board of Directors has the power to establish the preferences and rights of the
shares of any such series of Preferred Stock, it may afford the holders of any
Preferred Stock that may be outstanding, preferences, powers and rights
(including voting rights) senior to the rights of the holders of Class A Common
Stock. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company. See "Risk Factors--
Anti-Takeover Provisions."
The Board of Directors has established a class of Preferred Stock
designated Series A Preferred Stock consisting of 519,503 authorized shares,
par value $.01 per share. The Series A Preferred Stock has the dividend,
redemption, liquidation and other rights described below.
DIVIDEND RIGHTS. Dividends on each share of Series A Preferred Stock
accrue on a semi-annual basis at a rate of 5% per annum of the "Liquidation
Value," or $40 per share, thereof, plus all accumulated and unpaid dividends
thereon. Such dividends accrue whether or not they have been declared and
whether or not there are profits, surplus or other funds of the Company legally
available for the payment of dividends. During the period from December 31,
1995 until the earlier of December 31, 1999 or the termination of the New
Credit Facility (the "PIK Period"), under certain circumstances, the Company
may pay dividends on the Series A Preferred Stock in kind by issuing additional
shares of Series A Preferred Stock to the holders thereof that have an
aggregate Liquidation Value equal to the amount of the accrued and unpaid
dividend. At the end of the PIK Period, all accrued and unpaid dividends on the
Series A Preferred Stock must be paid in cash.
PRIORITY OF SERIES A PREFERRED STOCK ON DIVIDENDS AND REDEMPTIONS. As long
as any shares of Series A Preferred Stock remain outstanding, the Company must
obtain the prior written consent of the holders of a majority of the
outstanding shares of Series A Preferred Stock before it may redeem, retire,
purchase or otherwise acquire any stock of the Company other than Series A
Preferred Stock ("Junior Securities"), or pay or declare any dividend or make
any distribution (in cash or property) upon any Junior Securities, other than
dividends payable solely in the securities in respect of which such dividends
are paid or such that are payable upon the conversion of convertible preferred
stock into common stock.
LIQUIDATION RIGHTS. Upon any liquidation, dissolution or winding up of the
Company, holders of Series A Preferred Stock will be entitled to be paid,
before any distribution or payment is made upon
57
<PAGE>
any Junior Securities, an amount in cash equal to the aggregate Liquidation
Value (plus all accrued and unpaid dividends thereon) of all such Series A
Preferred Stock outstanding. The holders of Series A Preferred Stock will not
be entitled to receive any further payment. Prior to the time of any
liquidation, dissolution or winding up of the Company, to the extent permitted
by applicable law, the Company shall declare for payment all accrued and unpaid
dividends with respect to the Series A Preferred Stock.
REDEMPTION RIGHTS. On December 31, 2002 (the "Scheduled Redemption Date")
the Company is obligated to redeem all issued and outstanding shares of Series
A Preferred Stock at a price per share equal to the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon). If the Company's funds which
are legally available for the redemption of the Series A Preferred Stock are
insufficient to redeem the total number of shares to be redeemed, those funds
which are legally available shall be used to redeem the maximum number of
shares of Series A Preferred Stock possible. At any time thereafter when
additional funds of the Company are legally available for the redemption of
shares of Series A Preferred Stock, such funds will immediately be used to
redeem the balance of the shares of Series A Preferred Stock.
ELECTION OF DIRECTORS. The holders of a majority of the Series A Preferred
Stock, voting separately as a single class in the election of directors of the
Company, with each share of Series A Preferred Stock entitled to one vote,
shall be entitled to elect one director to serve on the Company's Board of
Directors until his successor is elected by holders of a majority of the Series
A Preferred Stock or he is removed from office by a majority of the holders of
the Series A Preferred Stock. During the PIK Period, if dividends on the
outstanding shares of Series A Preferred Stock shall have not been paid in an
amount equal to one full semiannual dividend thereon, and if at any time after
the PIK Period, dividends on the outstanding shares of Series A Preferred Stock
shall have not been paid in an amount equal to two full semiannual dividends
thereon, the number of directors on the Company's Board of Directors shall be
increased by five. The holders of all Series A Preferred Stock then outstanding
shall be entitled to elect five directors to fill these five new positions on
the Board of Directors. These directors will serve on the Company's Board of
Directors until it has declared and paid to all holders of the Series A
Preferred Stock then outstanding, all accrued and unpaid dividends and two
consecutive semiannual dividends.
VOTING RIGHTS. So long as any shares of Series A Preferred Stock are
outstanding, the Company shall not, without first obtaining the consent of the
holders of a majority of the outstanding shares of Series A Preferred Stock,
(i) authorize, create or issue any shares of stock of any other class or series
which shall rank in any respect on a parity with the Series A Preferred Stock,
or authorize, create or issue any obligations, bonds, notes, debentures, stock
or other securities by their terms convertible into shares of stock of any
other class or series which shall rank in any respect on a parity with the
Series A Preferred Stock; (ii) increase the authorized number of shares of
Series A Preferred Stock or (iii) authorize, recommend or enter into an
agreement with any person to effect a Change of Control (as defined in the
Certificate). In addition, the Company shall not, without first obtaining the
consent of the holders of at least 80% of the outstanding shares of Series A
Preferred Stock, (i) authorize, create or issue any shares of stock of any
other class or series which shall rank in any respect prior to the Series A
Preferred Stock, or authorize, create or issue any obligations, bonds, notes,
debentures, stock or other securities by their terms convertible into shares of
stock of any other class or series which shall rank in any respect prior to the
Series A Preferred Stock or (ii) amend, alter, change or repeal any of the
express terms and provisions of the Series A Preferred Stock in a manner which
would materially adversely affect the rights or preferences of the Series A
Preferred Stock.
The Board of Directors has established a class of Preferred Stock
designated Series B Junior Preferred Stock, consisting of 1,000,000 shares. The
Series B Junior Preferred is reserved for issuance in connection with the
Stockholder Rights Plan. See "--Stockholder Rights Plan."
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<PAGE>
DELAWARE LAW AND CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation, the Company's By-Laws and Section 203 of
the DGCL contain certain provisions that may make the acquisition of control of
the Company by means of a tender offer, open market purchase, proxy fight or
otherwise, more difficult.
BUSINESS COMBINATIONS. The Company is a Delaware corporation and is
subject to Section 203 of the DGCL. In general, subject to certain exceptions,
Section 203 of the DGCL prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) upon consummation of such
transaction, the interested stockholder owned 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding for
purposes of determining the number of shares outstanding those shares owned by
(x) persons who are directors and also officers and (y) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer); (ii) the business combination is, or the transaction in which
such person became an interested stockholder was, approved by the board of
directors of the corporation before the stockholder became an interested
stockholder; or (iii) the business combination is approved by the board of
directors of the corporation and authorized at an annual or special meeting of
the corporation's stockholders by the affirmative vote of at least 662/3% of
the outstanding voting stock which is not owned by the interested stockholder.
For purposes of Section 203, a "business combination" includes mergers, asset
sales and other transactions resulting in a financial benefit to the interested
stockholder; an "interested stockholder" is a person who, together with
affiliates and associates, owns (or, in the case of affiliates and associates
of the issuer, did own within the last three years) 15% or more of the
corporation's voting stock other than a person who owned such shares on
December 23, 1987. An interested stockholder who became an interested
stockholder at a time when the restrictions of Section 203 did not apply to the
corporation shall not be subject to such restrictions.
BOARD OF DIRECTORS AND RELATED PROVISIONS. The Certificate of
Incorporation provides that the number of directors of the Company shall be
fixed from time to time by a resolution of a majority of the Board of Directors
of the Company. The Certificate of Incorporation provides that the Board of
Directors shall have no less than three and no more than 11 members and shall
be divided into three classes. The members of each class of directors will
serve for staggered three-year terms. Thereafter, the number of directors may
be fixed, from time to time, by the affirmative vote of a majority of the
entire Board of Directors by action of the stockholders of the Company. The
holders of a majority of the Series A Preferred Stock, voting separately as a
single class in the election of directors of the Company, with each share of
Series A Preferred Stock entitled to one vote, have the right to elect one
member of the Board of Directors, as well as certain other rights to elect
directors if the Company does not declare and pay dividends on the Series A
Preferred Stock, as described above. See "Description of Capital
Stock--Preferred Stock." In accordance with the DGCL, directors serving on
classified boards of directors may only be removed from office for cause.
Vacancies on the Board of Directors may be filled by a majority of the
remaining directors, or by the sole remaining director or by the stockholders.
The Certificate provides that stockholders may take action by the written
consent of 662/3% of the stockholders, and that a special meeting of
stockholders may be called only by the Board of Directors. The By-Laws of the
Company provide that stockholders must follow an advance notification procedure
for certain stockholder nominations of candidates for the Board of Directors
and for certain other stockholder business to be conducted at an annual
meeting. These provisions could, under certain circumstances, operate to delay,
defer or prevent a change in control of the Company.
AUTHORIZED AND UNISSUED PREFERRED STOCK. Upon consummation of the
Offering, there will be 18,350,000 authorized and unissued shares of Preferred
Stock. The Company's Certificate of Incorporation authorizes the Board of
Directors to issue one or more series of Preferred Stock and to establish the
designations, powers, preferences and rights of each series of Preferred Stock.
The existence of authorized and unissued Preferred Stock may enable the Board
of Directors to render more difficult or to discourage an attempt to obtain
control of the Company by means of a merger,
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tender offer, proxy contest or otherwise. For example, if in the due exercise
of its fiduciary obligations, the Board of Directors were to determine that a
takeover proposal is not in the Company's best interests, the Board of
Directors could cause shares of Preferred Stock to be issued without
stockholder approval in one or more private offerings or other transactions
that might dilute the voting or other rights of the proposed acquirer or
insurgent stockholder or stockholder group or create a substantial voting block
in institutional or other hands that might undertake to support the position of
the incumbent Board of Directors. See "--Preferred Stock."
SPECIAL MEETINGS OF STOCKHOLDERS. The By-Laws provide that special
meetings of the stockholders of the Company may be called only by the Board of
Directors of the Company, the Chairman of the Board of the Company or the
President of the Company. This provision will render it more difficult for
stockholders to take action opposed by the Board of Directors.
INDEMNIFICATION. The Certificate of Incorporation provides that the
Company shall indemnify each director, officer, employee or agent of the
Company to the fullest extent permitted by law. The Certificate of
Incorporation limits the liability of the Company's directors and stockholders
for monetary damages in certain circumstances. The Certificate of Incorporation
also provides that the Company may purchase insurance on behalf of the
directors, officers, employees and agents of the Company against certain
liabilities they may incur in such capacity, whether or not the Company would
have the power to indemnify against such liabilities.
STOCKHOLDERS' RIGHTS PLAN
The Company intends to declare a dividend distribution of one right (a
"Right") for each outstanding share of Class A Common Stock, without par value
(the "Common Shares"), of the Company. The dividend will be payable to the
stockholders of record on a certain date (the "Record Date"), and with respect
to Common Shares issued thereafter until the Distribution Date (as defined
below) and, in certain circumstances, with respect to Common Shares issued
after the Distribution Date. Except as set forth below, each Right, when it
becomes exercisable, entitles the registered holder to purchase from the
Company one one-thousandth of a share of Series B Junior Preferred Stock,
without par value (the "Preferred Shares"), of the Company (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights will be
set forth in a Rights Agreement (the "Rights Agreement") between the Company
and a Rights Agent (the "Rights Agent").
Initially, the Rights will be attached to all certificates representing
Common Shares then outstanding, and no separate Right Certificates will be
distributed. The Rights will separate from the Common Shares upon the earliest
to occur of (i) the date of a public announcement that, without the prior
consent of a majority of the members of the Board of Directors, a person or
group of affiliated or associated persons having acquired beneficial ownership
of 15% or more of the outstanding Common Shares (except pursuant to a Permitted
Offer (as defined) or except for certain transactions by Grandfathered
Stockholders (as defined in the Rights Agreement) including the Mas Family, Mr.
Fitzgerald, Santos, Santos Capital or GE Capital, and certain of their
affiliates) or (ii) 10 days (or such later date as the Board may determine)
following the commencement or announcement of an intention to make a tender or
exchange offer, the consummation of which would result in a person or group
becoming an Acquiring Person (as defined) (the earliest of such dates being
called the "Distribution Date"). A person or group whose acquisition of Common
Shares causes a Distribution Date pursuant to clause (i) above is an "Acquiring
Person." The date that a person or group announces publicly that it has become
an Acquiring Person is the "Shares Acquisition Date."
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the Record Date upon transfer or new
issuance of Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Shares outstanding as of the Record Date, even without
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such notation or a copy of the Summary of Rights being attached thereto, will
also constitute the transfer of the Rights associated with the Common Shares
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Shares as of
the close of business on the Distribution Date (and to each initial record
holder of certain Common Shares issued after the Distribution Date), and such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date and will expire
on the tenth anniversary of the Record Date unless earlier redeemed by the
Company as described below.
In the event that any person becomes an Acquiring Person (except pursuant
to a tender or exchange offer which is for all outstanding Common Shares at a
price and on terms which a majority of the members of the Board of Directors
determines to be adequate and in the best interests of the Company and its
stockholders, other than such Acquiring Person, its affiliates and associates
(a "Permitted Offer")), each holder of a Right will thereafter have the right
(the "Flip-In Right") to receive upon exercise the number of units of one
one-thousandth of a Preferred Share (or, in certain circumstances, other
securities of the Company) having a value (immediately prior to such triggering
event) equal to two times the exercise price of the Right. Notwithstanding the
foregoing, following the occurrence of the event described above, all Rights
that are, or (under certain circumstances specified in the Rights Agreement)
were, beneficially owned by any Acquiring Person or any affiliate or associate
thereof will be null and void.
In the event that, at any time following the Shares Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction
in which the holders of all of the outstanding Common Shares immediately prior
to the consummation of the transaction are not the holders of all of the
surviving corporation's voting power or (ii) more than 50% of the Company's
assets or earning power is sold or transferred, in either case with or to an
Acquiring Person or any Affiliate or Associate thereof, or any other person in
which such Acquiring Person, Affiliate or Associate has an interest, or any
person acting on behalf of or in concert with such Acquiring Person, Affiliate
or Associate, or, if in such transaction all holders of Common Shares are not
treated alike, any other person, then each holder of a Right (except Rights
which previously have been voided as set forth above) shall thereafter have the
right (the "Flip-Over Right") to receive, upon exercise, common shares of the
acquiring company having a value equal to two times the Purchase Price. The
holder of a Right will continue to have the Flip-Over Right whether or not such
holder exercises or surrenders the Flip-In Right.
The Purchase Price payable, and the number of Preferred Shares, Common
Shares or other securities issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares; (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price,
less than the then current market price of the Preferred Shares; or (iii) upon
the distribution to holders of the Preferred Shares of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
The number of outstanding Rights and the Purchase Price payable are also
subject to adjustment in the event of a stock split of the Common Shares or a
stock dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such
case, prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share but, if greater, will be entitled
to an aggregate dividend per share of 1,000 times the dividend declared per
Common Share. In the event of liquidation, the holders of the Preferred Shares
will be entitled to a minimum preferential liquidation payment of $1,000 per
share; thereafter, and after the holders of the
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Common Shares receive a liquidation payment of $1.00 per share, the holders of
the Preferred Shares and the holders of the Common Shares will share the
remaining assets in the ratio of 1,000 to 1 (as adjusted) for each Preferred
Share and Capital Share so held, respectively. Finally, in the event of any
merger, consolidation or other transaction in which Common Shares are
exchanged, each Preferred Share will be entitled to receive 1,000 times the
amount received per Common Share. These rights are protected by customary
antidilution provisions. In the event that the amount of accrued and unpaid
dividends on the Preferred Shares is equivalent to six full quarterly dividends
or more, the holders of the Preferred Shares shall have the right, voting as a
class, to elect two directors in addition to the directors elected by the
holders of the Common Shares until all cumulative dividends on the Preferred
Shares have been paid through the last quarterly dividend payment date or until
non-cumulative dividends have been paid regularly for at least one year.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are one one-thousandth or integral multiples of one one-
thousandth of a Preferred Share, which may, at the election of the Company, be
evidenced by depository receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Preferred Shares on the last
trading day prior to the date of exercise.
At any time after a person becomes an Acquiring Person and prior to the
acquisition by such person or group of 50% or more of the Common Shares, the
Board of Directors of the Company may exchange the Rights (other than the
Rights owned by the Acquiring Person or its Associates and Affiliates, which
shall have become void) at an exchange ratio of one Common Share per Right
(subject to adjustment).
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Rights the Company may redeem
the Rights in whole, but not in part, at a price of $0.001 per Right (the
"Redemption Price") which redemption shall be effective upon the action of the
Board of Directors. Additionally, following the Shares Acquisition Date, the
Company may redeem the then outstanding Rights in whole, but not in part, at
the Redemption Price, that such redemption is in connection with a merger or
other business combination transaction or series of transactions involving the
Company in which all holders of Common Shares are treated alike but not
involving an Acquiring Person or Transaction Person or any Affiliates or
Associates thereof. Upon the effective date of the redemption of the Rights,
the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
All of the provisions of the Rights Agreement may be amended by the Board
of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, defect or inconsistency, to make changes
which do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person), or, subject to certain limitations, to
shorten or lengthen any time period under the Rights Agreement.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to stockholders of the Company, stockholders may, depending
upon the circumstances, recognize taxable income should the Rights become
exercisable or upon the occurrence of certain events thereafter.
Each outstanding Common Share on the Record Date will receive one Right.
As long as the Rights are attached to the Common Shares, the Company will issue
one Right with each new Common Share so that all such shares will have attached
rights. 1,000,000 Preferred Shares will be reserved for issuance upon exercise
of the Rights.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on (i) the Rights being
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redeemed; (ii) a substantial number of Rights being acquired; or (iii) that the
offer will be deemed a "Permitted Offer" under the Rights Agreement. However,
the Rights should not interfere with any merger or other business combination
in connection with a Permitted Offer or that is approved by the Company because
the Rights are redeemable under certain circumstances.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock is First
Union National Bank. The Company has not appointed a transfer agent for the
Class B Common Stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the consummation of the Offering, the Company will
have outstanding 16,065,350 shares of Class A Common Stock (17,070,350 shares
outstanding if the Underwriters' over-allotment option is exercised in full),
including 9,365,350 outstanding shares of Class A Common Stock beneficially
owned by existing stockholders. In addition, immediately following the
consummation of Offering, the Company will have 5,100,000 shares of Class B
Common Stock outstanding, all of which are convertible into shares of Class A
Common Stock. The 6,700,000 shares of Class A Common Stock to be sold pursuant
to the Offering (7,705,000 if the Underwriters' over-allotment option is
exercised in full) will be eligible for sale without restriction under the
Securities Act of 1933, as amended (the "Securities Act") in the public market
after the consummation of the Offering by persons other than affiliates of the
Company. Sales of shares by "affiliates" of the Company as the term is defined
in Rule 144 under the Securities Act ("Affiliates") will be subject to Rule
144. The Company and all existing common stockholders have agreed with the
Underwriters not to offer, sell or otherwise dispose of any shares of Class A
Common Stock (other than issuances by the Company pursuant to the employee
stock option plan) for a period of 180 days after the date of the Prospectus
without the prior written consent of Morgan Stanley & Co. Incorporated.
GE Capital owns all of the outstanding shares of Class B Common Stock. GE
Capital has the right to convert its Class B Common Stock to Class A Common
Stock and demand registration of its shares of Class A Common Stock under the
Securities Act. Registration of any shares held by GE Capital would permit the
sale of these shares without regard to the restrictions of Rule 144. Kevin P.
Fitzgerald, President and Chief Executive Officer of the Company, also has the
right to demand registration of shares he may acquire from the exercise of
certain options. Registration of any shares held by Mr. Fitzgerald would permit
the sale of these shares without regard to the restrictions of Rule 144. The
Mas family and Santos also have the right to demand registration of their
shares of Class A Common Stock under the Securities Act. Registration of any
shares held by the Mas family or Santos would permit the sale of these shares
without regard to the restrictions of Rule 144. Santos Capital has the right to
demand registration of shares it may acquire upon the exercise of certain
options. Registration of these shares would permit their sale without regard to
the restrictions of Rule 144. Mr. Fitzgerald, GE Capital, the Mas family,
Santos and Santos Capital have agreed to waive their right to exercise their
registration rights in connection with the Offering and for 180 days
thereafter. See "Description of Capital Stock-- Registration Rights." Based on
shares outstanding as of April 27, 1998, following the expiration or waiver of
the foregoing restrictions on dispositions and any applicable holding periods
under Rule 144, 9,365,350 shares of Class A Common Stock owned by existing
stockholders will be available for sale in the public market pursuant to Rule
144 (including the volume and other limitations set for therein). See
"Underwriting." The Company intends to register on Form S-8 1,741,870 shares of
Class A Common Stock reserved for issuance upon exercise of options granted to
certain employees under the Company's Incentive Stock Plan, and shares of Class
A Common Stock reserved for issuance upon the exercise of certain options
granted to Mr. Fitzgerald and Mr. Warren. Options to purchase 741,870 shares of
Class A Common Stock are currently exercisable or will be exercisable upon
completion of the Offering.
Prior to the Offering, there has been no market for the Class A Common
Stock of the Company. The Company can make no predictions as to the effect, if
any, that sales of shares or the availability of shares for sale will have on
market prices prevailing from time to time. Nevertheless, sales of substantial
amounts of the Class A Common Stock of the Company in the public market, or the
prospect of such sales, could adversely affect the market price of the Class A
Common Stock.
In general, under Rule 144 as presently in effect, beginning 90 days after
the date of this Prospectus, if a period of at least one year has elapsed since
the later of the date shares of Class A Common Stock that are "restricted
securities" (as that term is defined in Rule 144) were acquired from the
Company or the date they were acquired from an affiliate (as that term is
defined in Rule 144) of the Company, as applicable, then the holder of such
restricted shares (including an Affiliate) is entitled to sell a number of
shares within any three-month period that does not exceed the greater of 1% of
the
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then outstanding shares of Class A Common Stock (approximately 16,065,350
shares immediately after the consummation of the Offering, assuming that the
Underwriters' over-allotment option is not exercised) or the average weekly
trading volume of the Class A Common Stock on the New York Stock Exchange
during the four calendar weeks preceding such sale. The holder may only sell
such shares through unsolicited brokers' transactions. Sales under Rule 144 are
also subject to certain requirements pertaining to the manner of such sales,
notices of such sales and the availability of current public information
concerning the Company. Affiliates may sell shares not constituting restricted
securities in accordance with the foregoing volume limitations and other
requirements but without regard to the two-year holding period requirement.
Under Rule 144(k), if a period of at least two years has elapsed since the
later of the date restricted shares were acquired from the Company or the date
they were acquired from an Affiliate of the Company, as applicable, then a
holder of such restricted shares who is not an Affiliate of the Company at the
time of the sale and who has not been an Affiliate of the Company for at least
three months prior to the sale would be entitled to sell the shares immediately
without regard to the volume limitations and other conditions described above.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below for whom Morgan Stanley & Co. Incorporated, BT Alex.
Brown Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation are
acting as U.S. Representatives, and the International Underwriters named below
for whom Morgan Stanley & Co. International Limited, BT Alex. Brown
International, a division of Bankers Trust International PLC, and Donaldson,
Lufkin & Jenrette International are acting as International Representatives,
have severally agreed to purchase, and the Company has agreed to sell to them,
severally, the respective number of shares of Class A Common Stock set forth
opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAME -----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated ...........................
BT Alex. Brown Incorporated .................................
Donaldson, Lufkin & Jenrette Securities Corporation .........
Subtotal ................................................... 5,360,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited ..................
BT Alex. Brown International, a division of
Bankers Trust International PLC ...........................
Donaldson, Lufkin & Jenrette International ..................
Subtotal ................................................... 1,340,000
---------
Total ..................................................... 6,700,000
=========
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively
referred to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Class A Common
Stock offered hereby are subject to the approval of certain legal matters by
their counsel and to certain other conditions. The Underwriters are obligated
to take and pay for all of the shares of Class A Common Stock offered hereby
(other than those covered by the U.S. Underwriters' over-allotment option
described below) if any such shares are taken.
Pursuant to the Agreement between U.S. and International Underwriters,
each U.S. Underwriter has represented and agreed that, with certain exceptions,
(i) it is not purchasing any Shares (as defined herein) for the account of
anyone other than a United States or Canadian Person (as defined herein) and
(ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any Shares or distribute any prospectus relating to the Shares
outside the United States or Canada or to anyone other than a United States or
Canadian Person. Pursuant to the Agreement between U.S. and International
Underwriters, each International Underwriter has represented and agreed that,
with certain exceptions, (i) it is not purchasing any Shares for the account of
any United States or Canadian Person and (ii) it has not offered or sold, and
will not offer or sell, directly or indirectly, any Shares or distribute any
prospectus relating to the Shares in the United States or Canada or to any
United States or Canadian Person. With respect to any Underwriter that is a
U.S. Underwriter and an International Underwriter, the foregoing
representations and agreements (i) made by it in its capacity as a U.S.
Underwriter apply
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only to it in its capacity as a U.S. Underwriter and (ii) made by it in its
capacity as an International Underwriter apply only to it in its capacity as an
International Underwriter. The foregoing limitations do not apply to
stabilization transactions or to certain other transactions specified in the
Agreement between U.S. and International Underwriters. As used herein, "United
States or Canadian Person" means any national or resident of the United States
or Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person), and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Class A Common Stock to be purchased
by the Underwriters under the Underwriting Agreement are referred to herein as
the "Shares."
Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed. The per share price of any
Shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters,
each U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any Shares, directly or indirectly, in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and has represented that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus in
the province or territory of Canada in which such offer or sale is made. Each
U.S. Underwriter has further agreed to send to any dealer who purchases from it
any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, directly or indirectly, any of such Shares in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made, and that
such dealer will deliver to any other dealer to whom it sells any of such
Shares a notice containing substantially the same statement as is contained in
this sentence.
Pursuant to the Agreement between U.S. and International Underwriters,
each International Underwriter has represented and agreed that (i) it has not
offered or sold and, prior to the date six months after the closing date for
the sale of the Shares to the International Underwriters, will not offer or
sell, any Shares to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the Shares in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and
will only issue or pass on in the United Kingdom any document received by it in
connection with the offering of the Shares to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document
may otherwise lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters,
each International Underwriter has further represented that it has not offered
or sold, and has agreed not to offer or sell, directly or indirectly, in Japan
or to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or
sales to Japanese International Underwriters or dealers and except pursuant to
any exemption from the registration requirements of the Securities and Exchange
Law and otherwise in compliance with applicable
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provisions of Japanese law. Each International Underwriter has further agreed
to send to any dealer who purchases from it any of the Shares a notice stating
in substance that, by purchasing such Shares, such dealer represents and agrees
that it has not offered or sold, and will not offer or sell, any of such
Shares, directly or indirectly, in Japan or to or for the account of any
resident thereof except for offers or sales to Japanese International
Underwriters or dealers and except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law and otherwise in
compliance with applicable provisions of Japanese law, and that such dealer
will send to any other dealer to whom it sells any of such Shares a notice
containing substantially the same statement as is contained in this sentence.
The Underwriters initially propose to offer part of the shares of Class A
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $ a share to other Underwriters or to certain dealers. After the
initial offering of the shares of Class A Common Stock, the offering price and
other selling terms may from time to time be varied by the Representatives.
The Company has granted to the U.S. Underwriters an option, exercisable
for 30 days from the date of this Prospectus, to purchase up to an aggregate of
1,005,000 additional shares of Class A Common Stock at the public offering
price set forth on the cover page hereof, less underwriting discounts and
commissions. The U.S. Underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, made in connection with the
offering of the shares of Class A Common Stock offered hereby. To the extent
such option is exercised, each U.S. Underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares of Class A Common Stock as the number set forth next to such
U.S. Underwriter's name in the preceding table bears to the total number of
shares of Class A Common Stock set forth next to the names of all U.S.
Underwriters in the preceding table.
The Underwriters have informed the Company that they do not intend sales
to discretionary accounts to exceed five percent of the total number of shares
of Class A Common Stock offered by them.
The Class A Common Stock has been approved for listing on the New York
Stock Exchange under the symbol "NFF."
The Company and the directors, executive officers and certain other
stockholders of the Company have agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will
not, during the period ending 180 days after the date of this Prospectus, (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise transfer or dispose of, directly or indirectly, any
shares of Class A Common Stock or any securities convertible into or
exercisable or exchangeable for Class A Common Stock or (ii) enter into any
swap or other arrangement that transfers to another, in whole or in part, any
of the economic consequences of ownership of the Class A Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Class A Common Stock or such other securities, in cash or
otherwise. The restrictions described in this paragraph do not apply to (i) the
sale of Shares to the Underwriters; (ii) the issuance by the Company of shares
of Class A Common Stock upon the exercise of an option or a warrant or the
conversion of a security outstanding on the date of this Prospectus of which
the Underwriters have been advised in writing; or (iii) transactions by any
person other than the Company relating to shares of Class A Common Stock or
other securities acquired in open market transactions after the completion of
the offering of the Shares.
In order to facilitate the offering of the Class A Common Stock, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class A Common Stock. Specifically, the Underwriters
may overallot in connection with the offering, creating a short position in
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the Class A Common Stock for their own account. In addition, to cover
over-allotments or to stabilize the price of the Class A Common Stock, the
Underwriters may bid for, and purchase, shares of Class A Common Stock in the
open market. Finally, the underwriting syndicate may reclaim selling
concessions allowed to an Underwriter or a dealer for distributing the Class A
Common Stock in the offering, if the syndicate repurchases previously
distributed Class A Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Class A Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
Bankers Trust Company, an affiliate of BT Alex. Brown Incorporated, acts
as agent under the New Credit Facility. In addition, Bankers Trust Company is
one of the lenders under the Term Loan. In each case, Bankers Trust Company
receives usual and customary fees. From time to time, Morgan Stanley & Co.
Incorporated has provided, and continues to provide, investment banking
services to the Company and its affiliates, in each case, receiving the usual
and customary fees.
Pursuant to the repayment of the Term Loan, Bankers Trust Company will
receive an amount greater than 10% of the net proceeds of the Offering. Bankers
Trust Company is an affiliate of BT Alex. Brown Incorporated, which is a member
of the National Association of Securities Dealers, Inc. (the "NASD").
Accordingly, the underwriting arrangements for the Offering will be made in
compliance with Rule 2710 (c)(8) and Rule 2720 of the Conduct Rules of the
NASD, which provides that, among other things, when an NASD member is to
receive an amount greater than 10% of the net proceeds of an offering, the
initial public offering price can be no higher than that recommended by a
"qualified independent underwriter" meeting certain standards. In accordance
with this requirement, Morgan Stanley & Co. Incorporated will serve in such
role and will recommend a price in compliance with the requirements of Rule
2720. In connection with the Offering, Morgan Stanley & Co. Incorporated, in
its role as a qualified independent underwriter, has performed due diligence
investigations and reviewed and participated in the preparation of the
Prospectus and the Registration Statement of which this Prospectus forms a
part.
At the request of the Company, the Underwriters have reserved for sale, at
the initial offering price, up to shares offered hereby for directors,
officers, employees, business associates, and related persons of the Company.
The number of shares of Class A Common Stock available for sale to the general
public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares which are not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares
offered hereby.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the Class A
Common Stock. The initial public offering price will be determined by
negotiations between the Company and the U.S. Representatives. Among the
factors to be considered in determining the initial public offering price will
be the future prospects of the Company and its industry in general, sales,
earnings and certain other financial operating information of the Company in
recent periods, and the price-earnings ratios, price-sales ratios, market
prices of securities and certain financial and operating information of
companies engaged in activities similar to those of the Company. The estimated
initial public offering price range set forth on the cover page of this
Preliminary Prospectus is subject to change as a result of market conditions
and other factors.
69
<PAGE>
CERTAIN UNITED STATES TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
GENERAL
The following is a general discussion of the principal United States
federal income and estate tax consequences of the ownership and disposition of
Class A Common Stock by a Non-U.S. Holder, as defined below. As used herein,
the term "Non-U.S. Holder" means a holder that for United States federal income
tax purposes is an individual or entity other than (i) a citizen or individual
resident of the United States; (ii) a corporation or partnership created or
organized in or under the laws of the United States or of any political
subdivision thereof (other than a partnership treated as foreign under U.S.
Treasury regulations); (iii) an estate the income of which is subject to U.S.
federal income taxation regardless of its source; or (iv) a trust if both (A) a
U.S. court is able to exercise primary supervision over the administration of
the trust and (B) one or more U.S. persons have the authority to control all
substantial decisions of the trust.
This discussion does not address all aspects of United States federal
income and estate taxes that may be relevant to Non-U.S. Holders in light of
their personal circumstances (including the fact that in the case of a Non-U.S.
Holder that is a partnership, the U.S. tax consequences of holding and
disposing of shares of Class A Common Stock may be affected by certain
determinations made at the partner level), or to certain types of Non-U.S.
Holders which may be subject to special treatment under United States federal
income tax laws (for example, insurance companies, tax-exempt organizations,
financial institutions, dealers in securities and holders of securities held as
part of a "straddle," "hedge," or "conversion transaction") and does not
address U.S. state or local or foreign tax consequences. Furthermore, this
discussion is based on provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed regulations promulgated thereunder
and administrative and judicial interpretations thereof, all as of the date
hereof, and all of which are subject to change, possibly with retroactive
effect. The following summary is included herein for general information.
ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS
REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER
TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF SHARES OF COMMON STOCK.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a nonresident alien) by virtue of being present
in the United States for at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-year period ending in the current
calendar year (counting for such purposes all of the days present in the
current year, one-third of the days present in the immediately preceding year
and one-sixth of the days present in the second preceding year). Resident
aliens are subject to U.S. federal tax as if they were U.S. citizens.
DIVIDENDS
The Company does not anticipate paying cash dividends on its capital stock
in the foreseeable future. See "Dividend Policy." In the event, however, that
dividends are paid on shares of Class A Common Stock, dividends paid to a
Non-U.S. Holder of Class A Common Stock generally will be subject to
withholding of United States federal income tax at a 30% rate, or such lower
rate as may be provided by an income tax treaty between the United States and a
foreign country if the Non-U.S. Holder is treated as a resident of such foreign
country within the meaning of the applicable treaty. Non-U.S. Holders should
consult their tax advisors regarding their entitlement to benefits under a
relevant income tax treaty.
Dividends that are effectively connected with a Non-U.S. Holder's conduct
of a trade or business in the United States (or, if an income tax treaty
applies, attributable to a permanent establishment), or, in the case of the
individual, a "fixed base" in the United States ("U.S. trade or business
income"), are generally subject to U.S. federal income tax on a net income
basis at regular graduated rates, but are
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<PAGE>
not generally subject to the 30% withholding tax if the Non-U.S. Holder files
the appropriate U.S. Internal Revenue Service ("IRS") form with the payor
(which form under U.S. Treasury regulations generally effective for payments
made after December 31, 1998 (the "Final Regulations"), will require the
Non-U.S. Holder to provide a U.S. taxpayer identification number). Any U.S.
trade or business income received by a Non-U.S. Holder that is a corporation
may also, under certain circumstances, be subject to an additional "branch
profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Under currently applicable U.S. Treasury regulations, dividends paid to an
address in a foreign country are presumed (absent actual knowledge to the
contrary) to be paid to a resident of such country for purposes of the
withholding discussed above and for purposes of determining the applicability
of a tax treaty rate. Under the Final Regulations, however, a Non-U.S. Holder
of Class A Common Stock who wishes to claim the benefit of an applicable treaty
rate generally will be required to satisfy applicable certification and other
requirements. In addition, under the Final Regulations, in the case of Class A
Common Stock held by a foreign partnership, (i) the certification requirement
will generally be applied to the partners of the partnership and (ii) the
partnership will be required to provide certain information, including a United
States taxpayer identification number. The Final Regulations also provide
look-through rules for tiered partnerships.
A Non-U.S. Holder of Class A Common Stock that is eligible for a reduced
rate of U.S. withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for a
refund with the IRS.
The Final Regulations also provide special rules for dividend payments
made to foreign intermediaries, U.S. or foreign wholly owned entities that are
disregarded for U.S. federal income tax purposes and entities that are treated
as fiscally transparent in the United States, the applicable income tax treaty
jurisdiction, or both. In addition, recently enacted legislation, effective
August 4, 1997, denies income tax treaty benefits to foreigners receiving
income derived through a partnership (or otherwise fiscally transparent entity)
in certain circumstances. Prospective investors should consult with their own
tax advisers concerning the effect, if any, of these new Treasury regulations
and the recent legislation on an investment in the Class A Common Stock.
GAIN ON DISPOSITION OF CLASS A COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of Class A Common Stock unless
(i) the gain is U.S. trade or business income (in which case, the branch
profits tax described above may also apply to a corporate Non-U.S. Holder);
(ii) the Non-U.S. Holder is an individual who holds the Class A Common Stock as
a capital asset within the meaning of Section 1221 of the Code, is present in
the United States for 183 or more days in the taxable year of the disposition
and meets certain other requirements; (iii) the Non-U.S. Holder is subject to
tax pursuant to the provisions of the U.S. tax law applicable to certain United
States expatriates; or (iv) the Company is or has been a "U.S. real property
holding corporation" for federal income tax purposes at any time during the
shorter of the five-year period preceding such disposition or the period that
the Non-U.S. Holder held the Class A Common Stock. Generally, a corporation is
a "U.S. real property holding corporation" if the fair market value of its
"U.S. real property interests" equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interests plus its other assets
used or held for use in a trade or business. The Company believes that it has
not been, is not currently, and does not anticipate becoming, a "U.S. real
property holding corporation" for U.S. federal income tax purposes. The tax
with respect to stock in a "U.S. real property holding corporation" does not
apply to a Non-U.S. Holder whose holdings, direct and indirect, at all times
during the applicable period, constituted 5% or less of the Class A Common
Stock, provided that the Class A Common Stock was regularly traded on an
established securities market. If the Company were, or were to become, a U.S.
real property holding corporation, the Company believes that the Class A Common
Stock would be treated as "regularly traded."
71
<PAGE>
If a Non-U.S. Holder who is an individual is subject to tax under clause
(i) above, such individual generally will be taxed on the net gain derived from
a sale of Class A Common Stock under regular graduated United States federal
income tax rates. If an individual Non-U.S. Holder is subject to tax under
clause (ii) above, such individual generally will be subject to a flat 30% tax
on the gain derived from a sale, which may be offset by certain United States
capital losses (notwithstanding the fact that such individual is not considered
a resident alien of the United States). Thus, individual Non-U.S. Holders who
have spent (or expect to spend) more than a DE MINIMIS period of time in the
United States in the taxable year in which they contemplate a sale of Class A
Common Stock are urged to consult their tax advisers prior to the sale
concerning the U.S. tax consequences of such sale.
If a Non-U.S. Holder that is a foreign corporation is subject to tax under
clause (i) above, it generally will be taxed on its net gain under regular
graduated United States federal income tax rates and, in addition, will be
subject to the branch profits tax equal to 30% of its "effectively connected
earnings and profits," within the meaning of the Code for the taxable year, as
adjusted for certain items, unless it qualifies for a lower rate under an
applicable tax treaty.
FEDERAL ESTATE TAX
Class A Common Stock owned or treated as owned by an individual who is
neither a United States citizen nor a United States resident (as defined for
United States federal estate tax purposes) at the time of death will be
included in the individual's gross estate for United States federal estate tax
purposes, unless an applicable estate tax or other treaty provides otherwise
and, therefore, may be subject to United States federal estate tax.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under United States Treasury regulations, the Company must report annually
to the IRS and to each Non-U.S. Holder the amount of dividends paid to such
holder and the tax withheld with respect to such dividends. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder is
a resident under the provisions of an applicable income tax treaty or
agreement.
Currently, United States backup withholding (which generally is a
withholding tax imposed at the rate of 31% on certain payments to persons that
fail to furnish certain information under the United States information
reporting requirements) generally will not apply (i) to dividends paid to
Non-U.S. Holders that are subject to the 30% withholding discussed above (or
that are not so subject because a tax treaty applies that reduces such 30%
withholding) or (ii) before January 1, 1999, to dividends paid to a Non-U.S.
Holder at an address outside of the United States unless the payor has actual
knowledge that the payee is a U.S. Holder. Backup withholding and information
reporting generally will apply to dividends paid to addresses inside the United
States on shares of Class A Common Stock to beneficial owners that are not
"exempt recipients" and that fail to provide in the manner required certain
identifying information.
The payment of the proceeds of the disposition of Class A Common Stock by
a holder to or through the U.S. office of a broker or through a non-U.S. branch
of a U.S. broker generally will be subject to information reporting and backup
withholding at a rate of 31% unless the holder either certifies its status as a
Non-U.S. Holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a Non-U.S. Holder
of Class A Common Stock to or through a non-U.S. office of a non-U.S. broker
will not be subject to backup withholding or information reporting unless the
non-U.S. broker has certain U.S. relationships. In the case of the payment of
proceeds from the disposition of Class A Common Stock effected by a foreign
office of a broker that is a U.S. person or a "U.S. related person," existing
regulations require information reporting on the payment unless the broker
receives a statement from the owner, signed under penalty of perjury,
certifying its non-U.S. status or the broker has documentary evidence in its
files as to the Non-U.S. Holder's foreign status and the broker has no actual
knowledge to the contrary. For this
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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), Washington, D.C. Certain legal matters in
connection with the Common Stock offered hereby will be passed upon for the
Underwriters by Cahill Gordon & Reindel, (a partnership including a
professional corporation), New York, New York.
EXPERTS
The audited financial statements of Neff Corp. and subsidiaries and of
Richbourg's Sales & Rentals, Inc. as of December 31, 1996 and 1997 and for each
of the three years in the period ended December 31, 1997 included in this
Prospectus and the related financial statement schedule of Neff Corp. and
subsidiaries included elsewhere in the Registration Statement have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the registration statement, and are included
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
The consolidated balance sheets as of July 31, 1996 and July 31, 1997 and
the consolidated statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended July 31, 1997 of Industrial
Equipment Rentals, Inc. and subsidiary included in this Registration Statement
have been audited by Arthur Andersen LLP, independent public accountants, as
set forth in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
The consolidated financial statements of Sullair Argentina Sociedad
Anonima and its subsidiaries as of December 31, 1997 and 1996 and for each of
the three years in the period ended December 31, 1997 included in this
Registration Statement have been so included in reliance upon the report of
Price Waterhouse & Co. Buenos Aires, Argentina, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
73
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Class A Common Stock
offered hereby. This Prospectus, which constitutes part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Class A Common Stock, reference
is hereby made to such Registration Statement and the exhibits and schedules
thereto, copies of which may be inspected without charge at the public
reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its regional offices at: 75 Park
Place, Room 1228, New York, New York 10007 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60621. Copies of such material may be obtained from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C.
at prescribed rates. The summaries in this Prospectus of additional information
included in the Registration Statement or any exhibit thereto are qualified in
their entirety by reference to such information or exhibit. The Class A Common
Stock has been approved for listing on the New York Stock Exchange under the
symbol "NFF." Reports and other information concerning the Company will be
available for inspection at the New York Stock Exchange, 70 Broad Street, New
York, NY 10005. In addition, registration statements and certain other filings
are publicly available through the Commission's site on the Internet's World
Wide Web, located at http://www.sec.gov. The Registration Statement, including
all exhibits thereto and amendments thereof, has been filed with the Commission
through EDGAR.
74
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
NEFF CORP.
Independent Auditors' Report ......................................................... F-3
Consolidated Balance Sheets as of December 31, 1996 and 1997 ......................... F-4
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1997 .............................................. F-5
Consolidated Statements of Common Stockholders' Deficit
for each of the three years in the period ended December 31, 1997 .................. F-6
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1997 .............................................. F-7
Notes to Consolidated Financial Statements ........................................... F-8
Consolidated Balance Sheets as of December 31, 1997 and March 31, 1998 (unaudited) ... F-23
Consolidated Statements of Operations for the first quarter ended
March 25, 1997 and March 31, 1998 (unaudited) ...................................... F-24
Consolidated Statement of Common Stockholders' Equity (Deficit)
for the first quarter ended March 31, 1998 (unaudited) ............................. F-25
Consolidated Statements of Cash Flows for the first quarter ended
March 25, 1997 and March 31, 1998 (unaudited) ...................................... F-26
Notes to Consolidated Financial Statements (unaudited) ............................... F-27
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
Report of Independent Public Accountants ............................................. F-30
Consolidated Balance Sheets as of July 31, 1996 and 1997 ............................. F-31
Consolidated Statements of Operations for each of the three years
in the period ended July 31, 1997 .................................................. F-32
Consolidated Statements of Stockholders' Equity for each of the three years
in the period ended July 31, 1997 .................................................. F-33
Consolidated Statements of Cash Flows for each of the three years
in the period ended July 31, 1997 .................................................. F-34
Notes to Consolidated Financial Statements ........................................... F-35
RICHBOURG'S SALES AND RENTALS, INC.
Independent Auditors' Report ......................................................... F-46
Balance Sheets as of December 31, 1996 and 1997 ...................................... F-47
Statements of Income for each of the three years
in the period ended December 31, 1997 .............................................. F-48
Statements of Common Stockholders' Equity for each of the three years
in the period ended December 31, 1997 .............................................. F-49
Statements of Cash Flows for each of the three years
in the period ended December 31, 1997 .............................................. F-50
Notes to Financial Statements ........................................................ F-51
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SULLAIR ARGENTINA SOCIEDAD ANONIMA AND ITS SUBSIDIARY
SULLAIR SAN LUIS SOCIEDAD ANONIMA
Report of Independent Accountants .................................................... F-55
Consolidated Balance Sheets as of December 31, 1997 and 1996 ......................... F-56
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995 ................................................... F-57
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995 ................................................... F-58
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 ................................................... F-59
Notes to the Consolidated Financial Statements ....................................... F-60
Consolidated Balance Sheets as of March 31, 1998 (unaudited) ......................... F-78
Consolidated Statements of Income for the three months ended March 31, 1998 and 1997
(unaudited) ........................................................................ F-79
Consolidated Statement of Changes in Shareholders' Equity for the three months ended
March 31, 1998 (unaudited) ......................................................... F-80
Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1997 (unaudited) ................................................ F-81
Notes to Consolidated Financial Statements (unaudited) ............................... F-82
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Neff Corp.:
We have audited the accompanying consolidated balance sheets of Neff Corp.
and subsidiaries (the "Company"), as of December 31, 1996 and 1997, and the
related consolidated statements of operations, common stockholders' deficit and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1996 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Miami, Florida
March 11, 1998, except for the third
paragraph of Note 5 and the fourth paragraph
of Note 1 as to which the dates are April 23, 1998
and May 20, 1998, respectively
F-3
<PAGE>
NEFF CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents ................................................................ $ 4,989 $ 2,885
Accounts receivable, net of allowance for doubtful accounts of $375 in 1996 and $1,092 in
1997 .................................................................................... 10,313 25,007
Inventories .............................................................................. 7,429 6,072
Rental equipment, net .................................................................... 76,794 184,787
Property and equipment, net .............................................................. 4,304 23,737
Goodwill, net ............................................................................ 667 29,444
Intangible assets, net ................................................................... 200 622
Prepaid expenses and other assets ........................................................ 4,422 8,236
-------- ---------
Total assets .......................................................................... $109,118 $ 280,790
======== =========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities
Accounts payable ........................................................................ $ 7,291 $ 10,871
Accrued expenses ........................................................................ 1,068 11,248
Senior credit facility .................................................................. 58,250 161,825
Term loan payable ....................................................................... -- 49,916
Notes payable ........................................................................... -- 14,462
Capitalized lease obligations ........................................................... 1,454 2,320
Deferred income taxes ................................................................... 2,264 1,136
-------- ---------
Total liabilities ..................................................................... 70,327 251,778
-------- ---------
Redeemable preferred stock
Series A Cumulative Redeemable Preferred Stock, $.01 par value; 520 shares
authorized; 324 and 341 shares issued and outstanding in
1996 and 1997, respectively ........................................................... 9,486 10,649
Series B Cumulative Convertible Redeemable Preferred Stock,
$.01 par value; 800 shares authorized, issued and outstanding.......................... 5,324 8,336
Series C Cumulative Convertible Redeemable Preferred Stock,
$.01 par value; 800 shares authorized, issued and outstanding.......................... 31,489 31,562
Preferred stock dividend payable--Series B and C ........................................ -- 3,200
-------- ---------
Total redeemable preferred stock ...................................................... 46,299 53,747
-------- ---------
Commitments and contingencies (Note 12) .................................................. -- --
Common stockholders' deficit
Class A Common Stock, $.01 par value; 100,000 shares authorized;
8,465 shares issued and outstanding ................................................... 85 85
Additional paid-in capital .............................................................. -- --
Accumulated deficit ..................................................................... (7,593) (24,820)
-------- ---------
Total common stockholders' deficit .................................................... (7,508) (24,735)
-------- ---------
Total liabilities and common stockholders' equity (deficit) ........................... $109,118 $ 280,790
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
NEFF CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
---------- ------------ ------------
<S> <C> <C> <C>
Revenues
Rental revenue .................................................. $ 20,019 $ 35,808 $ 68,056
Equipment sales ................................................. 33,943 44,160 50,578
Parts and service ............................................... 13,292 15,045 23,385
-------- -------- --------
Total revenues ................................................ 67,254 95,013 142,019
-------- -------- --------
Cost of revenues
Cost of equipment sold .......................................... 26,562 33,605 40,766
Depreciation of rental equipment ................................ 11,747 19,853 24,490
Maintenance of rental equipment ................................. 3,469 8,092 19,748
Cost of parts and service ....................................... 7,504 8,143 13,741
-------- -------- --------
Total cost of revenues ........................................ 49,282 69,693 98,745
-------- -------- --------
Gross profit ..................................................... 17,972 25,320 43,274
-------- -------- --------
Other operating expenses
Selling, general and administrative expenses .................... 10,956 18,478 30,129
Other depreciation and amortization ............................. 916 1,432 2,548
Officer stock option compensation ............................... -- -- 4,400
-------- -------- --------
Total other operating expenses ................................ 11,872 19,910 37,077
-------- -------- --------
Income from operations ........................................... 6,100 5,410 6,197
-------- -------- --------
Other expense
Interest expense ................................................ 3,090 6,012 11,976
Amortization of debt issue costs ................................ -- 325 2,362
-------- -------- --------
Total other expense ........................................... 3,090 6,337 14,338
-------- -------- --------
Income (loss) before (provision for) benefit from income taxes and
extraordinary item .............................................. 3,010 (927) (8,141)
(Provision for) Benefit from income taxes ........................ (2,860) (461) 1,748
-------- -------- --------
Income (loss) before extraordinary item .......................... 150 (1,388) (6,393)
Extraordinary loss, net of income taxes .......................... -- (809) (451)
-------- -------- --------
Net income (loss) ................................................ $ 150 $ (2,197) $ (6,844)
======== ======== ========
Unaudited pro forma net income
Income before pro forma provision for income taxes .............. $ 3,010
Pro forma provision for income taxes ............................ (1,176)
--------
Pro forma net income ............................................. $ 1,834
========
Basic and diluted earnings per common share (pro forma for 1995)
Income (loss) before extraordinary item .......................... $ .22 $ (.56) $ (1.64)
Extraordinary loss, net .......................................... -- (.10) ( .05)
-------- -------- --------
Net income (loss) ................................................ $ .22 $ (.66) $ (1.69)
======== ======== ========
Weighted average common shares outstanding
(basic and diluted) ............................................. 8,465 8,465 8,465
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
NEFF CORP.
CONSOLIDATED STATEMENT OF COMMON
STOCKHOLDERS' DEFICIT FOR EACH OF THE
THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 (after giving retroactive effect to the
transaction discussed in Note 1) ................................ 8,465 $85 $2,799 $ 1,321 $ 4,205
Net income ....................................................... -- -- -- 150 150
Distributions to common stockholders ............................. -- -- (2,799) (3,487) (6,286)
----- --- ------ -------- --------
Balance, December 31, 1995 ....................................... 8,465 85 -- (2,016) (1,931)
Net loss ......................................................... -- -- -- (2,197) (2,197)
Preferred stock dividend ......................................... -- -- -- (980) (980)
Accretion of Series A Preferred Stock and
Detachable Stock Purchase Warrant ............................... -- -- -- (2,400) (2,400)
----- --- ------ -------- --------
Balance, December 31, 1996 ....................................... 8,465 85 -- (7,593) (7,508)
Net loss ......................................................... -- -- -- (6,844) (6,844)
Adjustment for acquired property and equipment
(Note 13), net of taxes ......................................... -- -- -- (2,936) (2,936)
Dividends in kind--Series A Preferred Stock ...................... -- -- -- (657) (657)
Preferred stock dividends accrued--Series B and C ................ -- -- -- (3,200) (3,200)
Accretion of Series A, B and C Preferred Stock ................... -- -- -- (3,590) (3,590)
----- --- ------ -------- --------
Balance, December 31, 1997 ....................................... 8,465 $85 $ -- $(24,820) $(24,735)
===== === ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
NEFF CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ................................................ $ 150 $ (2,197) $ (6,844)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities
Depreciation and amortization ................................... 12,663 21,610 29,399
Officer stock option compensation ............................... -- -- 4,400
Gain on sale of rental equipment ................................ (8,846) (8,328) (11,856)
Extraordinary loss on debt extinguishment ....................... -- 1,298 722
Provision (benefit) for/(from) deferred income taxes ............ 2,860 (596) (1,748)
Change in operating assets and liabilities
Accounts receivable ............................................ (1,487) (3,329) (8,341)
Inventories .................................................... 1,465 (2,227) 2,528
Other assets ................................................... (191) 255 (4,093)
Accounts payable and accrued expenses .......................... 866 2,831 5,240
Accrued financing costs ........................................ 2,143 (2,143) --
--------- --------- ----------
Net cash provided by operating activities ..................... 9,623 7,174 9,407
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of rental equipment .................................... (52,795) (86,886) (143,999)
Proceeds from sale of rental equipment ........................... 33,943 44,160 50,578
Purchases of property and equipment .............................. (1,483) (1,972) (16,747)
Cash paid for acquisitions ....................................... -- -- (63,605)
--------- --------- ----------
Net cash used in investing activities ......................... (20,335) (44,698) (173,773)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issue costs ................................................. (1,623) (3,989) (2,425)
Net borrowings (repayments) under Senior Credit Facility ......... (250) -- 103,576
Advances under revolving credit facility ......................... -- 58,250 --
Borrowings under mortgage note ................................... -- -- 13,400
Borrowings under capitalized lease obligations ................... -- -- 866
Net borrowings (repayments) under floor plans payable ............ 10,039 (31,493) --
Borrowings under term loan ....................................... 17,135 -- 49,916
Repayments of notes payable ...................................... (11,285) (16,852) (135)
Repayments of notes payable to stockholders ...................... (4,836) -- --
Repayments under capitalized lease obligations ................... -- (222) --
Issuance of Series A Preferred Stock with detachable stock
purchase warrant, net of costs .................................. 11,430 -- --
Issuance of Series C Preferred Stock, net of costs ............... -- 31,489 --
Distributions to stockholders .................................... (6,286) -- (2,936)
--------- --------- ----------
Net cash provided by financing activities ..................... 14,324 37,183 162,262
--------- --------- ----------
Net increase (decrease) in cash and cash equivalents ............. 3,612 (341) (2,104)
Cash and cash equivalents, beginning of year ..................... 1,718 5,330 4,989
--------- --------- ----------
Cash and cash equivalents, end of year ........................... $ 5,330 $ 4,989 $ 2,885
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--GENERAL
DESCRIPTION OF BUSINESS
Neff Corp. (the "Company") owns and operates equipment rental locations
throughout the southern and western regions of the United States. In addition
to its rental business, the Company acts as a dealer of new equipment on behalf
of several nationally recognized equipment manufacturers. The Company also
sells used equipment, spare parts and merchandise and provides ongoing repair
and maintenance services.
Neff Corp. was formed in 1995 to serve as a holding company for its
wholly-owned subsidiaries, Neff Machinery, Inc. ("Machinery") and Neff Rental,
Inc. ("Rental"). On December 26, 1995, the stockholders of Machinery and Rental
contributed 100% of their ownership interest in Machinery and Rental to Neff
Corp. in exchange for a 100% ownership interest in Neff Corp. The transaction
was accounted for as a reorganization of entities under common control (similar
to a pooling of interest business combination due to their common ownership).
As a result, the financial statements of Neff Corp. have been presented herein
as if Neff Corp. had conducted Machinery's and Rental's businesses since their
inception.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
STOCK SPLIT
The Company has effected a 84.65 for 1.00 stock split. The accompanying
financial statements reflect the stock split on a retroactive basis from the
beginning of the periods presented.
ACQUISITION
In August 1997, the Company purchased the common stock of Industrial
Equipment Rentals, Inc. ("IER") for approximately $63.6 million. This purchase
was funded by a $50 million term loan and borrowings under the Company's Senior
Credit Facility (see Note 5). IER has rental equipment operations similar to
the Company's in Alabama, Louisiana, Mississippi and Texas. The transaction was
accounted for under the purchase method. In connection with this purchase,
goodwill of approximately $29.2 million was recorded. Subsequent to the
acquisition, IER was merged into Neff Rental, Inc.
F-8
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--GENERAL--(CONTINUED)
UNAUDITED PRO FORMA INFORMATION
The following unaudited pro forma information has been prepared to reflect
the IER acquisition as if it was consummated as of January 1, 1996, after
giving effect to certain pro forma adjustments described below (in thousands).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Revenues ......................................................... $129,172 $162,906
======== ========
(Loss) income before (provision for) benefit from income taxes and
extraordinary item .............................................. $ (63) $ (8,625)
======== ========
Net (loss) income ................................................ $ (1,895) $ (6,797)
======== ========
Basic and diluted earnings per common share
Basic ........................................................... $ (.62) $ (1.68)
======== ========
Diluted ......................................................... $ (.62) $ (1.68)
======== ========
</TABLE>
Pro forma adjustments reflect amortization of intangible assets,
depreciation of property and equipment and increased interest on borrowings to
finance the acquisitions. The unaudited pro forma information is based upon
certain assumptions and estimates and does not necessarily represent operating
results that would have occurred had the acquisitions been consummated as of
the beginning of the periods presented, nor is it necessarily indicative of
expected future operating results.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RECOGNITION OF REVENUE
Rental agreements are structured as operating leases and the related
revenues are recognized over the rental period. Sales of equipment and parts
are recognized at the time of shipment or, if out on lease, at the time a sales
contract is finalized. Equipment may at times be delivered to customers for a
trial period. Revenue on such sales are recognized at the time a sales contract
is finalized. Service revenues are recognized at the time the services are
rendered.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories, which consist principally of parts and new equipment held for
sale, are stated at the lower of cost or market, with cost determined on the
first-in, first-out basis for parts and specific identification basis for
equipment. Substantially all inventory represents finished goods held for sale.
F-9
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
RENTAL EQUIPMENT
Rental equipment is stated at cost less accumulated depreciation.
Depreciation is recorded using the straight-line method over the estimated
useful life of the related equipment (generally four to seven years with a 10%
residual value). For certain equipment, depreciation is matched against the
related rental income earned by computing depreciation on individual equipment
at the rate of 80% of the rental income earned. Routine repairs and maintenance
are expensed as incurred; improvements are capitalized at cost.
The Company routinely reviews the assumptions utilized in computing
depreciation of its rental equipment. Changes to the assumptions (such as
service lives and/or residual values) are made when, in the opinion of
management, such changes more appropriately allocate asset costs to operations
over the service life of the assets. Management utilizes, among other factors,
historical experience and industry comparison in determining the propriety of
any such changes.
During 1996 and 1997, the Company made certain changes to its depreciation
assumptions to recognize extended estimated service lives and increased
residual values of its rental equipment. The Company believes that these
changes in estimates will more appropriately reflect its financial results by
better allocating the cost of its rental equipment over the service life of
these assets.
This change in accounting estimate reduced depreciation of rental
equipment, loss before extraordinary item and net loss by approximately $5.3
million and $3.3 million or $.63 and $.39 per common share, for the years ended
December 31, 1996 and 1997, respectively.
Rental Fleet accumulated depreciation at December 31, 1996 and 1997 was
approximately $20.6 million and $34.8 million, respectively.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is recorded using accelerated and straight-line methods over the
estimated useful lives of the related assets. Significant improvements are
capitalized at cost. Repairs and maintenance are expensed as incurred.
The capitalized cost of equipment and vehicles under capital leases is
amortized over the lesser of the lease term or the asset's estimated useful
life, and is included in depreciation and amortization expense in the
consolidated statements of operations.
INTANGIBLE ASSETS
Intangible assets primarily result from business combinations and include
agreements not to compete and other identifiable intangible assets. These
assets are amortized on a straight-line basis over the estimated useful life
(five to 15 years). Accumulated amortization at December 31, 1996 and 1997 was
approximately $0.2 million and $2.5 million, respectively.
Goodwill arising from acquisitions is being amortized over 40 years using
the straight-line method. Accumulated amortization at December 31, 1996 and
1997 was approximately $0.1 million and $0.5 million, respectively.
F-10
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The carrying value of intangible assets is periodically reviewed by the
Company and impairments, if any, are recognized when the expected future
undiscounted cash flows derived from such intangible assets are less than their
carrying value.
During the first quarter of 1996, the Company adopted Statement No. 121,
("SFAS 121"), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
adoption of SFAS 121 did not have a material impact on the financial results of
the Company for the year ended December 31, 1996.
PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets primarily include debt issue costs,
prepaid expenses and deposits. Debt issue are amortized over the term of the
debt on a straight-line basis. For the years ended December 31, 1996 and 1997,
amortization of debt issue costs was $0.3 million and $2.4 million,
respectively. There was no amortization in 1995.
STOCK OPTIONS
In October 1995, the FASB issued Statement No. 123 ("SFAS 123"),
ACCOUNTING FOR STOCK-BASED COMPENSATION, which requires companies to either
recognize expense for stock-based awards based on their fair value on the date
of grant or provide footnote disclosures regarding the impact of such changes.
The Company adopted the provisions of SFAS 123 on January 1, 1996, but will
continue to account for options issued to employees or directors under the
Company's non-qualified stock option plans in accordance with Accounting
Principles Board Opinion No. 25 ("APB 25"), ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130 ("SFAS 130"), REPORTING
COMPREHENSIVE INCOME, which is required to be adopted in the first quarter of
1998. SFAS 130 established standards for the reporting and display of
comprehensive income and its components. Comprehensive income includes certain
non-owner changes in equity that are currently excluded from net income.
In June 1997, Statement No. 131 ("SFAS 131"), DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION, was issued. SFAS 131 establishes
standards for the way that public companies disclose selected information about
operating segments in annual financial statements and requires that those
companies disclose selected information about segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997. Accordingly, the Company is not required to adopt SFAS 131
until the fiscal year ending December 31, 1998. SFAS 131 relates solely to
disclosure provisions, and therefore will not have any effect on the results of
operations, financial position and cash flows of the Company.
RECLASSIFICATIONS
Certain amounts for the prior years have been reclassified to conform with
the current year presentation.
F-11
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--ACCOUNTS RECEIVABLE
The majority of the Company's customers are engaged in the construction
and industrial business throughout the southern and western regions of the
United States. The Company extends credit to its customers based upon an
evaluation of the customer's financial condition and credit history. For sales
of certain construction equipment, the Company's policy is to secure its
accounts receivable by obtaining liens on the customer's projects and issuing
notices thereof to the projects' owners and general contractors. All other
receivables are generally unsecured.
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
------------------------- USEFUL LIVES
1996 1997 (IN YEARS)
----------- ----------- -------------
<S> <C> <C> <C>
Land ................................... $ -- $ 5,407 --
Buildings and improvements ............. -- 6,540 2-30
Office equipment ....................... 2,944 2,768 2-7
Service equipment and vehicles ......... 2,784 9,994 2-5
Shop equipment ......................... 1,060 2,075 7
Capitalized lease equipment ............ 1,706 3,230 3-5
-------- --------
8,494 30,014
Less accumulated depreciation .......... (4,190) (6,277)
-------- --------
$ 4,304 $ 23,737
======== ========
</TABLE>
The Company has entered into lease arrangements for certain property and
equipment which are classified as capital leases. Future minimum lease payments
under capitalized lease obligations are as follows (in thousands):
<TABLE>
<CAPTION>
1997
---------
<S> <C>
1998 ......................................................... $ 802
1999 ......................................................... 813
2000 ......................................................... 466
2001 ......................................................... 390
2002 ......................................................... 215
------
Total future minimum lease payments .......................... 2,686
Less amounts representing interest (6.00% to 13.5%) .......... (366)
------
Present value of net future minimum lease payments ........... $2,320
======
</TABLE>
F-12
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--NOTES PAYABLE AND DEBT
Notes payable and debt consist of the following (in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- -----------
<S> <C> <C>
$250 million revolving line of credit with interest rates ranging from the
Lender's Prime rate plus 1.5% to LIBOR plus 3.5%. At December 31,
1997, the Lender's Prime rate was 8.5% and the LIBOR rate was
5.718% ...................................................................... $58,250 $161,825
$50 million Term Loan with an interest rate of LIBOR plus 3.5%................ -- 49,916
Mortgage note payable with an interest rate of LIBOR plus 2% ................. -- 13,400
Various notes payable assumed through acquisition of IER with interest
rates ranging from 7% to 12% and maturity dates through 2001. ............... -- 1,062
------- --------
$58,250 $226,203
======= ========
</TABLE>
In December 1996, the Company and its subsidiaries (collectively referred
to as the "Borrowers") executed a $250 million revolving credit facility (the
"Senior Credit Facility") with a syndicate of lenders (the "Lenders").
Borrowings under the Senior Credit Facility are based upon eligible accounts
receivable, rental fleet and inventory amounts.
During July and December 1997, the Borrowers amended the Senior Credit
Facility (the "Amendments") with the Lenders. The Amendments, among other
things, allowed the Company to complete the IER and Richbourg acquisitions (see
Note 1 and Note 15) and revised certain financial covenants. The interest rates
on balances outstanding under the amended facility vary based upon the leverage
ratio maintained by the Borrowers. All outstanding principal balances are due
in October 1998 unless the Borrowers successfully complete the sale of at least
$200 million of Qualified Debt Securities (as defined in the Amendments) in
which case they become due in October 2001. A commitment fee of 1/2 of 1% is
charged on the aggregate daily unused balance of the Senior Credit Facility.
The Senior Credit Facility is secured by substantially all of the
Borrowers' assets and contains certain restrictive covenants which, among other
things, require the Borrowers to maintain certain financial coverage ratios and
places certain restrictions on the payment of dividends. At December 31, 1997,
the Company was not in compliance with the minimum EBITDA covenant, as defined
in the Senior Credit Facility. For the year ended December 31, 1997, the
minimum EBITDA calculation was $44.8 million of EBITDA but was required to be
$45.9 million. The lenders under the Senior Credit Facility have waived this
non-compliance.
During August 1997, the Company entered into a $50 million term loan (the
"Term Loan") in connection with its acquisition of IER (see Note 1). The Term
Loan is secured by assets acquired and is due in January 1999. During January
1998, the Company repaid all outstanding principal balances due under the Term
Loan with borrowings under its Senior Credit Facility.
In May 1997, the Company purchased land and buildings related to several
of its locations (see Note 13). The purchase was financed with a lender in the
principal amount $13.4 million. The interest rate on the outstanding balance
varies based upon the leverage ratio of the Company. As of December 31, 1997
interest was being charged at an annual rate of LIBOR plus 2%. Five annual
principal payment installments commence in May 2002. The mortgage is secured by
the land and buildings acquired.
F-13
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--NOTES PAYABLE AND DEBT--(CONTINUED)
During 1996 and 1997, the Company recorded extraordinary losses of
approximately $1.3 million and $0.7 million from the write-off of debt issue
costs associated with the early extinguishment of debt, before the related
income tax benefit of approximately $0.5 million and $0.3 million,
respectively.
Future maturities of the notes payable and debt, based upon amounts
outstanding as of December 31, 1997, are as follows (in thousands)
<TABLE>
<S> <C>
1998 ............... $212,077
1999 ............... 312
2000 ............... 274
2001 ............... 140
2002 ............... 2,680
Thereafter ......... 10,720
--------
$226,203
========
</TABLE>
NOTE 6--REDEEMABLE PREFERRED STOCK AND DETACHABLE STOCK PURCHASE WARRANT
During December 1995, the Company issued 300,000 shares of Series A
Cumulative Redeemable Preferred Stock ("Series A"), and a detachable stock
purchase warrant (the "Redeemable Warrant") for $12.0 million ($11.4 million
net of certain related costs). Series A provides for the semiannual payment of
preferential dividends at an annual rate of 8% (5% beginning January 1, 1997)
of the liquidation value. The dividends are payable in cash or in additional
shares through the later of December 31, 1999 or the expiration of the
Company's Senior Credit Facility (see Note 5). Series A is scheduled to be
redeemed by the Company in December 2002 and restricts the payment of dividends
or any other distributions to holders of the Company's common stock.
The Redeemable Warrant granted the holder the right to acquire
approximately 20% of the common stock of the Company at a purchase price of
$.01 per share. The Redeemable Warrant was redeemable at the holder's option
during a specified period and at a price equal to its fair market value. The
Company had the option for a specified period of time to redeem the Redeemable
Warrant from the holder at a price equal to its fair market value as defined.
Series A and the Redeemable Warrant were recorded at their pro rata estimated
fair value in relation to the proceeds received on the date of issuance ($8.0
million for the Series A and $3.4 million for the Redeemable Warrant, net of
issue costs). Series A will be accreted to its liquidation value at maturity of
$12.0 million utilizing the effective interest method. The Redeemable Warrant
was being accreted to its fair value on a prospective basis until the mandatory
redemption date in December 2000. Through December 31, 1996, accretion to the
Series A and the Redeemable Warrant amounted to approximately $0.5 million and
$1.9 million, respectively.
During December 1996, in connection with the execution of the Senior
Credit Facility, the Company, and GE Capital, entered into certain agreements,
including an agreement to exercise the Redeemable Warrant for approximately 20%
of the Company's common stock. Simultaneously with this exercise, the Company
and GE Capital agreed to exchange the shares of common stock for 800,000 shares
of Series B Cumulative Convertible Redeemable Preferred Stock ("Series B"). The
accreted balance of the Redeemable Warrant on the date these agreements were
entered into was approximately $5.3 million which represented the carrying
value of Series B as of December 31, 1996. Series B is
F-14
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--REDEEMABLE PREFERRED STOCK AND DETACHABLE STOCK PURCHASE
WARRANT--(CONTINUED)
scheduled to be redeemed in December 2003 and provides for the payment of
dividends upon redemption of or upon conversion into common stock at an annual
rate of 5%. For the year ended December 31, 1997, accretion of Series A and
Series B amounted to approximately $0.5 million and $3.0 million, respectively.
In a separate transaction related to the Senior Credit Facility, the
Company issued 800,000 shares of Series C Cumulative Convertible Redeemable
Preferred Stock ("Series C") to GE Capital in exchange for $32.0 million ($31.5
million net of certain related costs). Series C is scheduled to be redeemed in
December 2003 and provides for the payment of dividends upon redemption or upon
conversion into common stock at an annual rate of 5%. For the year ended
December 31, 1997, accretion of Series C amounted to approximately $0.1
million. Series B and C may be converted to common stock for a conversion fee
of $1 per share. The conversion fee shall increase by $1 per share in June and
December of each year until conversion. Similarly to Series A, Series B and
Series C will be accreted to their ultimate total liquidation value of $64
million.
NOTE 7--STOCK OPTION PLANS
In December 1995, the Company granted a key employee the option to
purchase 3% (on a fully-diluted basis) of the common stock of the Company.
Since the number of shares ultimately issuable to the key employee is not known
at the grant date, the Company estimates compensation expense at each reporting
date based upon the estimated market value of the shares to be issued. Changes
in the estimated market value of the shares to be issued continue to affect the
amount of compensation expense until the number of shares issuable are known.
No compensation expense was recognized in 1995 and 1996 since the exercise
price approximated the market value of the shares to be issued. Compensation
expense of $4.4 million was recognized in 1997. This option was one-third
vested on December 7, 1995, two-thirds vested on December 31, 1995 and fully
vested on December 31, 1996. The total exercise price for each one-third option
block, determined based upon a multiple of the Company's adjusted earnings, is
approximately $0.4 million, $0.5 million and $0.7 million, respectively. The
portion of the option that vested in 1995 expires in the year 2005 and the
balance of the option expires in the year 2006.
In May 1996, the Company also granted to another key employee an option to
purchase 84,650 shares of the Company's common stock at an exercise price of
approximately $0.5 million, determined based upon a multiple of the Company's
adjusted earnings. Since the number of shares ultimately issuable to the key
employee and the exercise price is known at the date, compensation expense is
measured only at the date of grant. No compensation expense has been recognized
at the date of grant since the exercise price of these options approximated the
estimated market value of the shares to be issued at the date of grant.
F-15
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--STOCK OPTION PLANS--(CONTINUED)
The following table sets forth pro forma net loss and earnings per share
as if the stock options were accounted for under the fair value method:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1995 1996
---------- ------------
<S> <C> <C>
Pro forma net loss (in thousands) ......... $ (189) $ (2,439)
====== ========
Pro forma earnings per share
Basic ................................... $ (.02) $ (.69)
====== ========
Diluted ................................. $ (.02) $ (.69)
====== ========
</TABLE>
The fair value of options granted, in accordance with the provisions of
SFAS 123, were determined using the Black-Scholes option pricing model with a
risk-free interest rate of 6.74%, zero volatility and expected life of 10
years.
Effective January 1, 1997, the Company adopted a phantom stock plan (the
"Phantom Plan"). The Phantom Plan is designed to reward employees for increases
in the Company's performance. The Phantom Plan enables the Company to award
employees individual units representing a hypothetical share of the Company's
stock (the "Phantom Share"). Each Phantom Share is assigned a share value on
the date granted as determined by the administrator of the Phantom Plan. The
difference between the calculated share value, as determined pursuant to a
formula set forth in the Phantom Plan, of the Phantom Share on the date
redeemed by the employee and the value assigned on the date of grant represents
the cash award the employee is entitled to receive on the redemption date. The
Phantom Shares generally vest over five years. As of December 31, 1997, the
Company had granted 155,500 Phantom Shares with an assigned per share value of
$9. No compensation expense had been recorded in the accompanying statements
of operations as the assigned share value on the date of grant exceeds the
calculated share value as of December 31, 1997.
The Company has granted to GE Capital an option to acquire common stock of
the Company in an amount that would equal 51% ownership after conversion of the
Series B and Series C preferred stock. In connection with the conversion of the
Series B and Series C preferred stock, (see Note 15), the Company and GE
Capital plan to cancel this option. The exercise price for this option is based
upon fair market value of the Company determined on the date the option is
exercised. GE Capital may exercise the option at any time from July 1, 1998
until June 30, 1999.
NOTE 8--RETIREMENT PLAN
In February 1996, the Company adopted a qualified 401(k) profit sharing
plan (the "401(k) Plan"). The 401(k) Plan covers substantially all employees of
the Company. Participating employees may contribute to the 401(k) Plan through
salary reductions. The Company may contribute, at its discretion, matching
contributions equal to 50% of the employee's contribution not to exceed 3% of
the employee's annual salary. The Company contributed approximately $0.2
million and $0.3 million to the 401(k) Plan for the years ended December 31,
1996 and 1997, respectively.
F-16
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--INCOME TAXES
As a result of the contribution by the stockholders of their ownership
interest as described in Note 1, the Company lost its Subchapter S Corporation
status under the provisions of the Internal Revenue Code. The Subchapter S
provisions provide that taxable income be included in the federal income tax
returns of the individual stockholders. As a result, the Company's net income
for the period from January 1, 1994 through December 26, 1995 is included in
the individual tax returns of the stockholders of the Company and therefore a
provision for income taxes related to this period is not included in the
accompanying statements of operations. Additionally, under the provisions of
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES, the Company recorded a deferred tax liability upon losing Subchapter S
status for existing timing differences in the amount of approximately $2.9
million. The components of the (provision for) benefit from income taxes is as
follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------
1995 1996 1997
=========== ============ =========
<S> <C> <C> <C>
Current .......... $ -- $ (1,057) $ --
Deferred ......... (2,860) 596 1,748
-------- -------- ------
Total ............ $ (2,860) $ (461) $1,748
======== ======== ======
</TABLE>
The following table summarizes the tax effects comprising the Company's
net deferred tax liabilities (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards ............................. $ 809 $ 4,347
Alternative minimum tax credits .............................. 247 874
Deferred stock option compensation ........................... -- 1,672
Intangible assets, allowance for bad debts and other ......... 219 1,037
-------- --------
Total deferred tax assets ................................. 1,275 7,930
Valuation allowance ........................................... (809) (1,368)
DEFERRED TAX LIABILITIES--Depreciation ........................ (2,730) (7,698)
-------- --------
NET DEFERRED TAX LIABILITY .................................... $ (2,264) $ (1,136)
======== ========
</TABLE>
As of December 31, 1997, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $11.4 million and
$12.7 million, respectively, expiring in 2012 (includes net operating loss
carryforwards for federal and state income tax purposes of approximately $4.4
million and $5.6 million, respectively, acquired in connection with the
acquisition of IER described in Note 1). IER's net operating loss carryforwards
may only be utilized by Rental. In addition, the Company has reduced the
adjustment to stockholders' equity by $1.8 million related to the tax benefit
of the acquisition of property from a related party (see Note 13).
Current accounting standards require that deferred income taxes reflect
the tax consequences on future years of differences between the tax bases of
assets and liabilities and their bases for financial reporting purposes. In
addition, future tax benefits, such as net operating loss (NOL) carryforwards,
are
F-17
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--INCOME TAXES--(CONTINUED)
required to be recognized to the extent that realization of such benefits is
more likely than not. A valuation allowance is established for those benefits
that do not meet the more likely than not criteria.
Even though the Company has incurred tax losses for the past two years,
management believes that it is more likely than not that the Company will
generate taxable income sufficient to realize the majority of the tax benefits
associated with future deductible temporary differences and NOL carryforwards
prior to their expiration. This belief is based upon, among other factors, the
fact that all of the Company's taxable temporary differences will reverse
within the period that the deductible temporary differences will be realized,
the availability of tax planning strategies, and projection of future taxable
income.
The following table summarizes the differences between the statutory
federal income tax rate and the Company's effective income tax rate (in dollars
thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1995 1996 1997
-------------------------- ------------------------- ------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
----------- ------------ ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax
rate ............................... $ -- --% $ 315 34.0% $2,768 34.0%
State income tax, net of
federal income tax benefit ......... -- -- 33 3.5 171 2.1
Change in valuation allowance -- -- (809) (87.3) (559) (6.9)
Non-deductible expenses ............. -- -- -- -- (716) (8.8)
Loss of Subchapter S status on
December 26, 1995 .................. (2,860) (95.0) -- -- --
Other ............................... -- -- -- -- 84 1.1
-------- ----- ------ ----- ------ ----
$ (2,860) (95.0)% $ (461) (49.8)% $1,748 21.5%
======== ===== ====== ===== ====== ====
</TABLE>
Pro forma net income is presented in the accompanying statements of
operations to show the effects of income taxes as if the Company had been
subject to federal and applicable state income taxes based on the tax laws and
rates in effect during the applicable period. In addition, pro forma net income
has been adjusted for the effect of the deferred tax liability recognized by
the Company upon Machinery and Rental losing their Subchapter S Corporation
status in December 1995 as if the entities lost their Subchapter S status at
the beginning of each period presented.
F-18
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--EARNINGS PER SHARE
For the years ended December 31, 1995, 1996 and 1997, the treasury stock
method was used to determine the dilutive effect of the options and warrants on
earnings per share data. Net loss from continuing operations per share and the
weighted average number of shares outstanding used in the computations are
summarized as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997
----------------------- ------------------------- -------------------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED
----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) ...................... $ 1,834 $ 1,834 $ (2,197) $ (2,197) $ (6,844) $ (6,844)
Deduct:
Preferred stock dividend .............. -- -- 980 980 3,857 3,857
Accretion of preferred stock .......... -- -- 2,400 2,400 3,590 3,590
------- ------- -------- -------- --------- ---------
Income (loss) per share
computations .......................... 1,834 1,834 (5,577) (5,577) (14,291) (14,291)
Number of shares:
Weighted average common
shares outstanding .................. 8,465 8,465 8,465 8,465 8,465 8,465
Add:
Net additional shares
issued(1) ........................... -- -- -- -- -- --
------- ------- -------- -------- --------- ---------
Weighted average shares used
in the per share computations ......... 8,465 8,465 8,465 8,465 8,465 8,465
======= ======= ======== ======== ========= =========
Net income (loss) ...................... $ .22 $ .22 $ (.66) $ (.66) $ (1.69) $ (1.69)
======= ======= ======== ======== ========= =========
</TABLE>
- ----------------
(1) Assumes exercise of outstanding Common Stock equivalents (options and
warrants) at the beginning of the period, net of 20% limitation, if
applicable, on the assumed repurchase of stock.
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair market value of financial instruments held by the Company at
December 31, 1997 are based on a variety of factors and assumptions and may not
necessarily be representative of the actual gains or losses that will be
realized in the future and do not include expenses that could be incurred in an
actual sale or settlement.
DEBT
The fair value of the Company's credit facility is assumed to be equal to
its carrying value. At December 31, 1996 and 1997 approximately $58.2 million
and $161.8 million was outstanding under the credit facility, respectively.
The Company's Term Loan, mortgage note payable, other notes payable and
capitalized lease obligations are estimated to approximate fair value as
determined based on rates currently available to the Company from other
lenders.
PREFERRED STOCK
Series A, Series B and Series C do not have a quoted market price and the
Company does not believe it is practicable to estimate a fair value different
from each of the security's carrying value because of features unique to these
securities including, but not limited to, the right to appoint two
F-19
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
directors and super majority voting requirements. The amounts due upon
redemption of Series A, Series B and Series C is approximately $13.6 million,
$32.0 million and $32.0 million plus accrued and unpaid dividends,
respectively.
NOTE 12--COMMITMENTS AND CONTINGENCIES
The Company has agreements with certain equipment manufacturers which
appoint the Company, through its subsidiary, as the manufacturer's authorized
dealer in certain defined geographic areas. These agreements may be terminated
by dealers at any time. There can be no assurance that the Company will be able
to continue its current, or obtain additional, dealership agreements. The
Company's operating results could be materially adversely impacted if these
dealership agreements were terminated for any reason.
The Company is a party to certain legal actions arising in the normal
course of business. In the opinion of management, the ultimate outcome of such
litigation is not expected to have a material effect on the financial position,
results of operations or cash flows of the Company.
NOTE 13--RELATED PARTY TRANSACTIONS AND OTHER COMMITMENTS
In May 1997, the Company acquired certain land and buildings used in its
Florida operations for approximately $13.9 million from Atlantic Real Estate
Holdings Corp. ("Atlantic"), an affiliate of the Company through common
ownership ("Atlantic Acquisition"). Prior to the acquisition of these assets,
the Company leased these properties from Atlantic. The Company financed
approximately $13.4 million of the purchase price with a mortgage note payable
(see Note 5). The remaining purchase price consisted of the forgiveness of
approximately $0.5 million in notes receivable from Atlantic. The assets have
been recorded at Atlantic's historical carrying value and approximately $2.9
million, net of income tax benefit of approximately $1.8 million, has been
recorded as a distribution to common stockholders in the accompanying statement
of common stockholders' deficit.
During 1995, 1996, and 1997, revenues from affiliated companies amounted
to approximately $1.7 million, $1.5 million and $0.7 million, respectively.
OPERATING LEASES
Prior to the Atlantic Acquisition the Company leased certain office and
operating facilities from Atlantic and from other unaffiliated entities under
noncancellable operating leases expiring from 2000 through 2007. During 1995,
1996, and 1997, rental expense under operating lease arrangements amounted to
approximately $1.7 million, $2.1 million, and $3.4 million, respectively.
F-20
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--RELATED PARTY TRANSACTIONS AND OTHER COMMITMENTS--(CONTINUED)
As of December 31, 1997, future minimum rental payments under operating
lease arrangements are as follows for the years ending December 31 (in
thousands):
<TABLE>
<S> <C>
1998 ............... $ 2,400
1999 ............... 2,192
2000 ............... 1,999
2001 ............... 1,549
2002 ............... 957
Thereafter ......... 2,029
-------
$11,126
=======
</TABLE>
NOTE 14--SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------------
1995 1996 1997
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ............................................ $3,173 $6,012 $10,367
====== ====== =======
Cash paid for taxes ............................................... $ -- $ -- $ 711
====== ====== =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Purchase of equipment under capitalized lease obligations ......... $ -- $1,235 $ --
====== ====== =======
</TABLE>
NOTE 15--SUBSEQUENT EVENTS
During January 1998, the Company acquired substantially all of the assets
of Richbourg's Sales and Rentals, Inc. ("Richbourg") for approximately $100
million. Richbourg has rental equipment operations similar to the Company's
with 15 locations in three states. In connection with this acquisition, the
Company amended its Senior Credit Facility (see Note 5) and executed a $100
million term loan (the "Richbourg Term Loan") with terms and requirements
similar to the Company's Senior Credit Facility.
In February 1998, the Company entered into letters of intent to acquire
three equipment rental companies. These businesses have a total of three
equipment rental locations in California and Texas. Each of these acquisitions
is subject to a number of closing conditions, including the execution of
definitive purchase agreements, and there can be no assurance that these
acquisitions will be consummated.
The Company plans to commence an initial public offering of its Class A
Common Stock (the "Public Offering"). The Company expects to receive
approximately $100 million in proceeds from the Public Offering. The Company
intends to use the net proceeds to repay the Richbourg Term Loan.
Prior to the Public Offering, the Company's Senior Credit Facility is
expected to be amended (the "New Credit Facility"). Borrowings under the New
Credit Facility will continue to be based upon eligible accounts receivable,
rental fleet and inventory amounts. The interest rates on balances outstanding
under the New Credit Facility will vary based upon the leverage ratio
maintained by the Company and range from prime rate or LIBOR plus 1% to prime
plus 1.25% or LIBOR plus 2.25%. In
F-21
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--SUBSEQUENT EVENTS--(CONTINUED)
the event the Company repays the Richbourg Term Loan prior to October 31, 1998,
the maturity of the New Credit Facility will be due in April 2003, otherwise,
the New Credit Facility will mature on October 31, 1998.
In addition, GE Capital is expected to exchange its Series B and Series C
preferred stock for shares of the Company's Class B Common Stock, liquidation
preference $11.67, prior to the Public Offering. It is also contemplated that
the Company will establish an incentive stock plan for officers and employees
concurrent with the Public Offering.
The Company also expects to commence a private debt offering (the "Private
Debt Offering"). Proceeds from the Private Debt Offering will be used to redeem
Series A and reduce amounts outstanding under the New Credit Facility.
There can be no assurance that the Public Offering or Private Debt
Offering will be consummated.
* * * * * *
F-22
<PAGE>
NEFF CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents ..................................................... $ 2,885 $ 2,620
Accounts receivable, net of allowance for doubtful accounts of
$1,342 in 1998 and $1,092 in 1997............................................. 25,007 27,792
Inventories ................................................................... 6,072 14,767
Rental equipment, net ......................................................... 184,787 254,403
Property and equipment, net ................................................... 23,737 27,738
Goodwill, net ................................................................. 29,444 69,844
Intangible assets, net ........................................................ 622 448
Prepaid expenses and other assets ............................................. 8,236 10,664
--------- ---------
Total assets ............................................................... 280,790 408,276
========= =========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities
Accounts payable ............................................................. $ 10,871 $ 18,427
Accrued expenses ............................................................. 11,248 14,885
Senior credit facility ....................................................... 161,825 231,705
Term loan payable ............................................................ 49,916 100,000
Notes payable ................................................................ 14,462 14,050
Capitalized lease obligations ................................................ 2,320 2,146
Deferred income taxes ........................................................ 1,136 --
--------- ---------
Total liabilities .......................................................... 251,778 381,213
--------- ---------
Redeemable preferred stock
Series A Cumulative Redeemable Preferred Stock, $.01 par value;
520 shares authorized; 341 shares issued and outstanding ................... 10,649 10,950
Series B Cumulative Convertible Redeemable Preferred Stock,
$.01 par value; 800 shares authorized, issued and outstanding in 1997....... 8,336 --
Series C Cumulative Convertible Redeemable Preferred Stock,
$.01 par value; 800 shares authorized, issued and outstanding in 1997....... 31,562 --
Preferred stock dividend payable--Series B and C ............................. 3,200 --
--------- ---------
Total redeemable preferred stock ........................................... 53,747 10,950
--------- ---------
Commitments and contingencies -- --
Common stockholders' equity (deficit)
Class A Common Stock, $.01 par value; 100,000 shares authorized; 8,465 and
8,738 shares issued and outstanding in 1997 and 1998, respectively ......... 85 88
Class B Special Common Stock, $.01 par value, liquidation preference
$11.67; 20,000 shares authorized; 5,727 shares issued and outstanding....... -- 57
Additional paid-in capital .................................................... -- 44,876
Accumulated deficit ........................................................... (24,820) (28,908)
--------- ---------
Total common stockholders' equity (deficit) ................................. (24,735) 16,113
--------- ---------
Total liabilities and common stockholders' equity (deficit) ................. $ 280,790 $ 408,276
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE>
NEFF CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FIRST QUARTER ENDED
---------------------------
MARCH 25, MARCH 31,
1997 1998
----------- ------------
<S> <C> <C>
Revenues
Rental revenue ........................................................ $ 8,892 $ 29,923
Equipment sales ....................................................... 10,505 23,448
Parts and service ..................................................... 4,959 8,994
------- --------
Total revenues ...................................................... 24,356 62,365
------- --------
Cost of revenues
Cost of equipment sold ................................................ 8,814 16,699
Depreciation of rental equipment ...................................... 4,443 11,321
Maintenance of rental equipment ....................................... 1,830 8,268
Cost of parts and service ............................................. 3,001 5,996
------- --------
Total cost of revenues .............................................. 18,088 42,284
------- --------
Gross profit ........................................................... 6,268 20,081
------- --------
Other operating expenses
Selling, general and administrative expenses .......................... 3,969 12,025
Other depreciation and amortization ................................... 349 1,749
------- --------
Total other operating expenses ...................................... 4,318 13,774
------- --------
Income from operations ................................................. 1,950 6,307
------- --------
Other expense
Interest expense ...................................................... 1,363 7,556
Amortization of debt issue costs ...................................... 187 1,865
------- --------
Total other expense ................................................. 1,550 9,421
------- --------
Income (loss) before (provision for) benefit from income taxes ......... 400 (3,114)
(Provision for) Benefit from income taxes .............................. (150) 1,168
------- --------
Net income (loss) ...................................................... $ 250 $ (1,946)
======= ========
Basic and diluted earnings per common share
Net income (loss) ...................................................... $ (.19) $ (.46)
======= ========
Weighted average common shares outstanding
(basic and diluted) ................................................... 8,465 8,865
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
NEFF CORP.
STATEMENT OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE FIRST QUARTER ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK A COMMON STOCK B ADDITIONAL
----------------- ----------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------- -------- -------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 ............ 8,465 $85 $ (24,820) $ (24,735)
Net loss .............................. (1,946) (1,946)
Preferred stock dividends accrued--
Series B and C ....................... (736) (736)
Accretion of Series A, B and C
Preferred Stock ...................... (1,236) (1,236)
Exchange of Preferred Stock
Series B and C for Class B
Common Stock ......................... 6,000 $60 $44,876 44,936
Conversion of Class B
Common Stock to
Class A Common Stock ................. 273 3 (273) (3) -- -- --
Dividend accrued--Series A
Preferred Stock ...................... (170) (170)
--------- ---------
Balance, March 31, 1998 ............... 8,738 $88 5,727 $57 $44,876 $ (28,908) $ 16,113
===== === ===== ===== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE>
NEFF CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FIRST QUARTER ENDED
---------------------------
MARCH 25, MARCH 31,
1997 1998
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ................................................ $ 250 $ (1,946)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities
Depreciation and amortization .................................. 4,979 14,935
Gain on sale of rental equipment ............................... (1,246) (3,714)
Provision (benefit) for/(from) deferred income taxes ........... 150 (1,168)
Change in operating assets and liabilities
Accounts receivable ............................................ (1,630) 341
Inventories .................................................... (445) (8,275)
Other assets ................................................... (1,202) (1,927)
Accounts payable and accrued expenses .......................... (2,892) 10,263
--------- ----------
Net cash (used in) provided by operating activities ........... (2,036) 8,509
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of rental equipment .................................... (25,048) (47,157)
Proceeds from sale of rental equipment ........................... 10,505 23,448
Purchases of property and equipment .............................. (1,950) (2,118)
Cash paid for acquisitions ....................................... -- (100,000)
--------- ----------
Net cash used in investing activities ......................... (16,493) (125,827)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issue costs ................................................. (124) (2,325)
Net borrowings (repayments) under Senior Credit Facility ......... 17,510 69,880
Repayments under notes payable ................................... -- (412)
Repayments under capitalized lease obligations ................... -- (174)
Borrowings under term loan ....................................... -- 100,000
Repayments under term loan ....................................... -- (49,916)
--------- ----------
Net cash provided by financing activities ..................... 17,386 117,053
--------- ----------
Net decrease in cash and cash equivalents ........................ (1,143) (265)
Cash and cash equivalents, beginning of quarter .................. 4,989 2,885
--------- ----------
Cash and cash equivalents, end of quarter ........................ $ 3,846 $ 2,620
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1997 AND MARCH 31, 1998
(UNAUDITED)
NOTE 1--UNAUDITED INTERIM INFORMATION
The accompanying interim consolidated financial data are unaudited;
however, in the opinion of management, the interim data include all adjustments
necessary for a fair presentation of the results for the interim periods. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
The results of operations for the three months ended March 31, 1998 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1998.
The interim unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for
the year ended December 31, 1997 appearing elsewhere in this Prospectus.
NOTE 2--FISCAL QUARTERS
Effective October 1, 1997, the Company changed to calendar quarters. Prior
to October 1997, the Company's fiscal quarters were based on three four-week
periods.
NOTE 3--CHANGE IN ACCOUNTING POLICIES
During the first quarter of 1998, the Company adopted Statement No. 130
("SFAS 130"), Reporting Comprehensive Income, which establishes standards for
the reporting and display of comprehensive income and its components.
Comprehensive income includes certain non-owner changes in equity that are
currently excluded from net income. The adoption of SFAS 130 had no effect on
the Company's consolidated financial statements for the quarter ended March 31,
1998.
NOTE 4--ACQUISITIONS
During January 1998, the Company acquired substantially all of the assets
of Richbourg's Sales and Rentals, Inc. ("Richbourg") for approximately $100
million. Richbourg has rental equipment operations similar to the Company's
with 15 locations in three states. In connection with this acquisition, the
Company amended its Senior Credit Facility and executed a $100 million term
loan (the "Richbourg Term Loan") with terms and requirements similar to the
Company's Senior Credit Facility. This transaction was accounted for under the
purchase method. In connection with this purchase, goodwill of approximately
$40.8 million was recorded.
In March 1998, the Company entered into a letter of intent to acquire 51%
of the outstanding stock of Sullair Argentina Sociedad Anonima ("S.A.
Argentina") for $28 million and 65% of S.A. Argentina's net income for 1998 and
1999, such earn-out payments not to exceed $10 million in the aggregate. S.A.
Argentina rents and sells industrial and construction equipment throughout
South America.
F-27
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 25, 1997 AND MARCH 31, 1998
(UNAUDITED)
NOTE 4--ACQUISITIONS--(CONTINUED)
The following pro forma information has been prepared to reflect the
Industrial Equipment Rentals, Inc. (August 1997) and Richbourg (January 1,
1998) acquisitions as if they were consummated on January 1, 1997, after giving
effect to certain pro forma adjustments described below (in thousands):
<TABLE>
<CAPTION>
MARCH 25, 1997
---------------
<S> <C>
Revenues .................................. $41,159
=======
Net (loss) income ......................... $ 1,117
=======
Basic and diluted earnings per common share
Basic .................................... $ (.13)
=======
Diluted .................................. $ (.13)
=======
</TABLE>
Pro forma adjustments reflect amortization of intangible assets,
depreciation of property and equipment and increased interest on borrowings to
finance the acquisitions. The unaudited pro forma information is based upon
certain assumptions and estimates and does not necessarily represent operating
results that would have occurred had the acquisitions been consummated as of
the beginning of the periods presented, nor is it necessarily indicative of
expected future operating results.
NOTE 5--EARNINGS PER SHARE
The treasury stock method was used to determine the dilutive effect of
options and warrants on earnings per share data. For 1998 and 1997, common
stock equivalents were excluded since the effect would be anti-dilutive.
Net loss from continuing operations per share and the weighted average
number of shares outstanding used in the computations are summarized as follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
----------------------------------
MARCH 25, 1997 MARCH 31, 1998
---------------- ---------------
<S> <C> <C>
Net income (loss) $ 250 $ (1,946)
Deduct:
Preferred stock dividend .......................... 964 906
Accretion of preferred stock ...................... 898 1,236
-------- --------
Income (loss) per share computations ............... $ (1,612) $ (4,088)
Number of shares:
Weighted average common shares oustanding ......... 8,465 8,865
Add:
Net additional common shares issued(1) ............ -- --
Weighted average common shares used in the
per share computations .......................... 8,465 8,865
======== ========
Net income (loss) per common share ................. $ (.19) $ (.46)
======== ========
</TABLE>
- ----------------
(1) Assumes exercise of outstanding common stock equivalents (options and
warrants) at the beginning of the period, net of 20% limitation, if applicable,
on the assumed repurchase of stock.
F-28
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 25, 1997 AND MARCH 31, 1998
(UNAUDITED)
NOTE 6--DEBT
On May 1, 1998, the Company amended and restated its $250 million
revolving credit facility (as amended and restated, the "New Credit Facility").
Borrowings under the New Credit Facility are based upon eligible accounts
receivable, rental fleet and inventory amounts. The interest rates on balances
outstanding under the New Credit Facility will vary based upon the leverage
ratio maintained by the Company and range from Prime rate or LIBOR plus 1% to
Prime plus 1.25% or LIBOR plus 2.25%. The New Credit Facility terminates on
October 31, 1998; however, upon repayment of the Richbourg Term Loan, this date
will be extended to April 30, 2003.
NOTE 7--PREFERRED STOCK
Effective March 25, 1998, General Electric Capital Corporation exchanged
their Series B and Series C Cumulative Convertible Redeemable Preferred Stock
for Class B Common Stock, liquidation preference $11.67.
NOTE 8--SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
------------------------
MARCH 25, MARCH 31,
1997 1998
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash paid for interest ........................ $1,224 $6,752
====== ======
Cash paid for taxes ........................... $ 507 $ --
====== ======
</TABLE>
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The independent auditors' report of Deloitte & Touche LLP related to the
consolidated financial statements of Neff Corp. for the three years in the
period ended December 31, 1997 has not been issued. Deloitte & Touche LLP has
indicated the form of report which will be furnished upon completion of a Neff
Corp. stock split and so long as no other events shall have occurred that would
affect the Neff Corp. consolidated financial statements. After Deloitte &
Touche issues their report on Neff Corp., we expect to be in a position to
render the following audit report so long as no other events shall have
occurred that would affect the Industrial Equipment Rentals, Inc. consolidated
financial statements.
Arthur Andersen LLP
Houston, Texas
September 18, 1997
To the Stockholders of
Industrial Equipment Rentals, Inc.
We have audited the accompanying consolidated balance sheets of Industrial
Equipment Rentals, Inc. (a Delaware corporation), and subsidiary (the Company)
as of July 31, 1996 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended July 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of July 31, 1996 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended July 31, 1997, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements do not reflect any
adjustments associated with the sale of the Company on August 1, 1997 (see Note
2).
Houston, Texas
September 18, 1997
F-30
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
JULY 31,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ............................................... $ 2,160 $ 1,582
Accounts receivable, net ................................................ 5,487 6,058
Inventories ............................................................. 1,321 1,247
Prepaid expenses and other .............................................. 1,006 1,100
--------- ---------
Total Current Assets ................................................... 9,974 9,987
Property, Plant and Equipment, at Cost
Rental equipment ........................................................ 37,890 39,812
Other ................................................................... 4,626 5,100
--------- ---------
42,516 44,912
Less: Accumulated depreciation .......................................... (10,729) (16,779)
--------- ---------
31,787 28,133
Other Assets, net ........................................................ 2,306 1,787
--------- ---------
Total Assets ........................................................... $ 44,067 $ 39,907
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable ........................................................ $ 2,345 $ 1,956
Accrued expenses ........................................................ 1,845 1,602
Current portion of subordinated debentures .............................. 0 8,171
Capital lease obligation ................................................ 103 74
Current portion of long-term debt ....................................... 5,809 22,630
--------- ---------
Total Current Liabilities .............................................. 10,102 34,433
Long-Term Liabilities
Long-term debt, less current portion .................................... 21,288 621
Other long-term liabilities ............................................. 454 225
Subordinated debentures, less current portion ........................... 7,811 0
Deferred taxes .......................................................... 831 1,078
--------- ---------
Total Long-Term Liabilities ............................................ 30,384 1,924
--------- ---------
Total Liabilities ...................................................... 40,486 36,357
--------- ---------
Senior mandatorily redeemable convertible preferred stock, Series A $1
par; 107,500 shares outstanding; $20 per share redemption value......... 1,226 1,347
--------- ---------
Stockholders' Equity
Senior redeemable convertible preferred stock, Series B ................. 495 495
Junior preferred stock .................................................. 19 19
Common stock, $.01 par; 876,500 and 881,500 shares
outstanding, respectively ............................................. 9 9
Paid-in capital ......................................................... 2,806 2,806
Retained deficit ........................................................ (974) (1,126)
--------- ---------
Total Stockholders' Equity ............................................. 2,355 2,203
--------- ---------
Total Liabilities and Stockholders' Equity ............................. $ 44,067 $ 39,907
========= =========
</TABLE>
The following notes are an integral part of these consolidated financial
statements.
F-31
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rentals and related revenues ............................................ $17,522 $26,056 $30,012
Sales revenues .......................................................... 3,841 4,225 3,999
Sales of fixed assets ................................................... 1,798 2,925 1,860
------- ------- -------
Total Revenues ......................................................... 23,161 33,206 35,871
Costs and Expenses:
Rentals and related expenses ............................................ 4,374 6,663 7,019
Cost of sales ........................................................... 2,611 3,353 3,155
Cost of fixed assets disposed ........................................... 748 2,016 1,203
Wages and benefits ...................................................... 6,461 8,671 9,075
Depreciation ............................................................ 3,454 5,961 7,308
Facilities .............................................................. 864 1,400 1,636
Selling and administrative expenses ..................................... 1,446 1,796 1,659
Amortization expense .................................................... 533 596 689
------- ------- -------
Total Costs and Expenses ............................................... 20,491 30,456 31,744
------- ------- -------
Operating Income ......................................................... 2,670 2,750 4,127
Interest expense ........................................................ 2,001 3,057 3,291
Other ................................................................... 97 97 328
------- ------- -------
Income (Loss) Before Taxes ............................................... 572 (404) 508
Income Tax Expense (Benefit) ............................................ 267 (47) 296
------- ------- -------
Net Income (Loss) Before Extraordinary Item .............................. 305 (357) 212
Extraordinary loss on debt refinancing, net of tax benefit of $83........ -- (136) --
------- ------- -------
Net Income (Loss) ........................................................ $ 305 $ (493) $ 212
======= ======= =======
</TABLE>
The following notes are an integral part of these consolidated financial
statements.
F-32
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SENIOR
REDEEMABLE
CONVERTIBLE
PREFERRED JUNIOR
STOCK PREFERRED COMMON PAID-IN RETAINED
SERIES B STOCK STOCK CAPITAL DEFICIT TOTAL
------------ ----------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1994 .................... $ -- $19 $ 9 $1,490 $ (58) $1,460
Net Income ................................ -- -- -- -- 305 305
Proceeds from Preferred Stock Issuance .... 495 -- -- 1,318 -- 1,813
Dividends ................................. -- -- -- -- (243) (243)
Accretion of Preferred Stock .............. -- -- -- -- (121) (121)
---- --- --- ------ -------- ------
Balance, July 31, 1995 .................... 495 19 9 2,808 (117) 3,214
Net Loss .................................. -- -- -- -- (493) (493)
Cost of Preferred Stock
Issuance ................................ -- -- -- (2) -- (2)
Dividends ................................. -- -- -- -- (243) (243)
Accretion of Preferred Stock .............. -- -- -- -- (121) (121)
---- --- --- ------- -------- -------
Balance, July 31, 1996 .................... 495 19 9 2,806 (974) 2,355
Net Income ................................ -- -- -- -- 212 212
Dividends ................................. -- -- -- -- (243) (243)
Accretion of Preferred Stock .............. -- -- -- -- (121) (121)
---- --- --- ------- -------- -------
Balance, July 31, 1997 .................... $495 $19 $ 9 $2,806 $ (1,126) $2,203
==== === === ======= ======== =======
</TABLE>
The following notes are an integral part of these consolidated
financial statements.
F-33
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31,
----------------------------------------
1995 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) ................................................... $ 305 $ (493) $ 212
Depreciation and amortization expense ............................... 3,987 6,557 7,997
Less: Gain on sale of property and equipment ........................ (966) (909) (657)
Increase (decrease) in deferred tax liability ....................... 259 (192) 247
Increase (decrease) in operating cash flows resulting from:
Accounts receivable ................................................ (1,088) (746) (311)
Inventories ........................................................ (534) 511 73
Prepaid expense and other .......................................... 165 69 151
Accounts payable ................................................... 973 (395) (402)
Accrued expenses ................................................... 309 479 (257)
-------- --------- --------
Net Cash Provided by Operating Activities ............................ 3,410 4,881 7,053
Cash Flows from Investing Activities:
Cost of acquisitions, net ........................................... (96) (3,481) (1,710)
Purchases of property and equipment
Rental equipment ................................................... (4,866) (10,101) (3,376)
Other property and equipment ....................................... (1,070) (1,277) (432)
Proceeds from sale of property and equipment ........................ 1,798 2,925 1,860
-------- --------- --------
Net Cash used for Investing Activities ............................... (4,234) (11,934) (3,658)
Cash Flows from Financing Activities:
Payments of equipment contracts ..................................... (752) (1,924) (2,675)
Retirement of debt on equipment contracts ........................... (397) (1,600) (328)
Payments/principal reductions on term loan .......................... (3,015) (2,166) (995)
Payments of other long-term capital financings ...................... (139) (229) (3,891)
Net borrowings under revolving facility ............................. 1,156 1,818 332
Proceeds from Capex notes ........................................... 4,362 7,151 3,466
Proceeds from issuance of subordinated debentures, including interest
payable ........................................................... 3,666 337 361
Cost relating to issuance of subordinated debentures ................ (42) -- --
Proceeds from issuance of Series B senior redeemable convertible
preferred stock, net .............................................. 1,813 -- --
Cost relating to refinancing of debt agreement ...................... -- 129 --
Dividends paid on preferred stock ................................... (243) (243) (243)
-------- --------- --------
Net Cash Provided by (used for) Financing Activities ................. 6,409 3,273 (3,973)
Net Increase (Decrease) in Cash and cash equivalents ................. 5,585 (3,780) (578)
Cash and cash equivalents at beginning of period .................... 355 5,940 2,160
-------- --------- --------
Cash and cash equivalents at end of period .......................... $ 5,940 $ 2,160 $ 1,582
======== ========= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Vendor financing of equipment purchases ............................. $ 618 $ 8,408 $ 1,430
Business assets acquired through seller financing ................... 90 750 266
Proceeds from capital lease obligations ............................. -- 79 --
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest ........................................................... $ 1,972 $ 3,010 $ 2,926
Income taxes ....................................................... 25 70 48
</TABLE>
The following notes are an integral part of these consolidated financial
statements.
F-34
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
The accompanying consolidated financial statements include the accounts of
Industrial Equipment Rentals, Inc. ("IER") and its wholly-owned subsidiary,
Buckner Rental Service, Inc. ("BRS," formerly IER Acquisition Corp.). IER and
BRS (the "Company"), were incorporated in the state of Delaware in May 1993.
The Company is a full service equipment rental company servicing industrial,
commercial and construction customers along the Gulf Coast. The Company rents,
sells and services a broad line of construction and industrial equipment at
each of its rental locations.
NOTE 2--SALE OF BUSINESS AND BASIS OF ACCOUNTING
Effective August 1, 1997, the Company shareholders sold their stock in the
Company to Neff Corp. The accompanying consolidated financial statements
present the Company's financial position as of July 31, 1996 and 1997 and the
results of operations and cash flows for the three years in the period ended
July 31, 1997, prior to the sale. Accordingly, the consolidated financial
statements do not include any of the expected purchase price adjustments
associated with the sale of the Company listed below, among others.
a. A pushdown of the buyer's purchase accounting, (including elimination of
existing goodwill) was made immediately following the sale of the Company.
b. In connection with the above transaction, the Company's corporate
structure has been reorganized. As part of the restructuring, IER was
merged into its wholly-owned subsidiary ("BRS"), which has become the
wholly-owned subsidiary of another corporate entity. Shortly after closing
the transaction, the newly merged entity was merged into its new owner.
c. Due to the redemption of the 107,500 shares of non-voting $1 par Series
A Senior Redeemable Convertible Preferred Stock (the "Senior Series A") on
August 1, 1997, there was a charge to retained earnings of $0.8 million to
accrete the stock to its redemption value (see Note 9). A similar charge
of $0.4 million was made for the redemption of the 18,936 shares of
non-voting, $1 par Junior Preferred Stock (the "Junior Series") along with
adjustments for conversion of the 495,000 shares of voting $1 par Series B
Redeemable Convertible Preferred Stock (the "Senior Series B") into one
share of common stock which were redeemed for $10.2 million immediately
upon sale of the Company (see Note 9).
d. On August 1, 1997, substantially all of the Company's long-term debt was
repaid using proceeds from the sale. As a result, the Company was required
to pay approximately $81,000 in prepayment penalties and write off a total
of $0.1 milion in unamortized debt issue costs immediately after the
long-term debt was paid.
e. The Company incurred $1 million in closing fees, including $0.3 million
in closing bonuses, in conjunction with the sale.
f. Due to the change of control and separate return limitations as a result
of the sale of the Company, the deferred tax assets recorded for federal
and state tax net operating losses and alternative minimum tax
carryforwards of approximately $2.1 million as of July 31, 1997 will be
subject to restrictions on use. No adjustment has been reflected in the
accompanying financial statements to allow for such potential
restrictions.
F-35
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and BRS. All significant intercompany accounts and transactions
have been eliminated.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
The Company recognizes revenue on monthly contracts and other open
contracts based on the number of days of equipment usage occurring prior to the
end of the fiscal year. Accounts receivable are net of allowances for doubtful
accounts of $0.2 million at July 31, 1996 and 1997.
INVENTORIES
The Company maintains inventories of equipment for resale, parts,
merchandise and tools. Inventories are valued at the lower of cost (first-in,
first-out) or market. There was no work-in-process inventory at July 31, 1996
or 1997.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets. Rental
equipment with useful lives of five, seven and ten years is depreciated to a 20
percent salvage value at the end of their useful lives. All other property and
equipment is fully depreciated with no salvage value assumed. Prior to August
1, 1994, no salvage values were assumed on rental equipment with useful lives
of five and seven years. The change in estimate reduced depreciation expense by
approximately $0.6 million in the fiscal year ended July 31, 1995. Expenditures
for major additions and improvements are capitalized while minor replacements,
maintenance and repairs are charged to expense as incurred. Sales of the
Company's rental fleet are common but incidental to the Company's primary
rental business and are typically made to rental customers. When property is
retired, sold or otherwise disposed of, the cost and accumulated depreciation
are removed from the related accounts, and any proceeds are recognized as
revenues and included in the statement of operations.
F-36
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
In March 1995, Statement of Financial Accounting Standards SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," was issued. SFAS No. 121, which became effective for fiscal
years beginning after December 15, 1995, requires that certain long-lived
assets be reviewed for impairment whenever events indicate that the carrying
amount of an asset may not be recoverable and that an impairment loss be
recognized under certain circumstances in the amount by which the carrying
value exceeds the fair market value of the asset. The Company adopted SFAS No.
121 in the fiscal year ended July 31, 1997, as required, and the adoption did
not have a material effect on the Company's results of operations or financial
position.
OTHER ASSETS
Other assets consist of the following at July 31 (in thousands):
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD 1996 1997
------------- ----------- -----------
<S> <C> <C> <C>
Long-term portion of note receivable ......... N/A $ 247 $ --
Debt issue costs ............................. 5 yrs 204 204
Goodwill ..................................... 5,20 yrs 775 990
Non-competition agreements ................... 2,5 yrs 2,572 2,772
Other ........................................ N/A 36 38
-------- --------
3,834 4,004
Less: Accumulated amortization ............... (1,528) (2,217)
-------- --------
$ 2,306 $ 1,787
======== ========
</TABLE>
ACCOUNTING FOR INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109
"Accounting for Income Taxes," which requires that deferred income taxes be
computed using the liability method. Under the liability method, deferred
income taxes are recognized for the tax consequences of "temporary differences"
by applying statutory tax rates to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. Under
SFAS No. 109, the effect on deferred taxes of a change in tax rates is
recognized in the consolidated statement of operations in the period of the
enactment date.
RECLASSIFICATIONS
Certain amounts for the prior years have been reclassified to conform with
the current year presentation.
NOTE 4--ACQUISITIONS
A-L RENTAL CENTER
On June 14, 1995, the Company purchased substantially all of the assets of
A-l Rental Center. The acquisition price of $186,000 consisted of $90,000 in
cash, a $90,000 promissory note with 60 equal
F-37
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--ACQUISITIONS--(CONTINUED)
monthly payments with final payment due June 14, 2000, and directly related
acquisition expenses of $6,000. As part of the transaction, the Company entered
into a noncompetition agreement with the seller for the payment of $1,333 per
month commencing on July 14, 1995, with the last payment due and payable on
June 14, 2000. The Company also entered into an agreement to lease a facility
owned by the seller. The lease is an operating lease and requires payments of
$2,200 a month over a period of five years.
RENTAL WORLD
On August 1, 1995, the Company purchased substantially all of the assets
of Rental World of the Valley, Inc. ("Rental World"). The acquisition price of
$4.3 million consisted of $3.5 million in cash, $1.5 million of which was
funded using proceeds of a term loan, a $0.8 million promissory note dated
August 1, 1995 bearing interest at 7%, along with directly related acquisition
expenses of $55,600, of which $52,800 had been incurred as of July 31, 1995.
The promissory note is payable in twenty-four interest-only monthly
installments of $4,375 beginning September 1, 1995, and is equal to the
interest accrued on the principal, and forty-eight consecutive monthly
installments of principal and interest of $17,960 beginning on September 1,
1997. As part of the transaction, the Company entered into a noncompetition
agreement with the seller for the payment of $8,333 per month commencing on
September 1, 1995 with the last payment due and payable on August 1, 2000.
In conjunction with the acquisition, the Company entered into five year
lease agreements, commencing on the purchase date, to lease four of the rental
properties of the previous owner. The yearly rental expense of the four
payments is $0.2 million and is included in facilities expense.
CAMERON
On October 1, 1996, the Company purchased all of the assets of Cameron
Rental and Tank, Inc. (Cameron). The acquisition price of $1.5 million
consisted of $1.2 million in cash, a $0.3 million non-interest bearing
promissory note dated October 1, 1996 and acquisition expenses of $13,500. A
portion of the cash purchase price was funded using proceeds from the Capex
facility. The promissory note matured on January 28, 1997 and the face amount
was reduced by $6,453 in accordance with the terms of the note which required
an adjustment for the amount of cash collected by the Company 90 days after the
closing from accounts receivable and accrued or unbilled revenue of Cameron
above or below $0.3 million. As part of the transaction, the Company entered
into non-competition agreements for a period of two years with the two officers
of Cameron for the payment of $0.1 million to each payable at closing.
In conjunction with the acquisition, the Company entered into an agreement
to lease a facility owned by one of the officers of Cameron. The lease is an
operating lease and requires payments of $2,250 a month over a period of five
years.
The A-1 Rental Center, Rental World and Cameron acquisitions were
accounted for as purchases and accordingly, the purchase prices were allocated
to assets acquired based on their estimated fair market values. The results of
operations of the acquired assets are included in the accompanying financial
statements since the effective date of each acquisition.
The pro forma operating results for these acquisitions have not been
disclosed either because the effect of the acquisitions was not material (in
the case of A-1 Rental Center) or the acquisitions took place at or near the
beginning of the fiscal year.
F-38
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of July 31, 1996 and
1997 (in thousands):
<TABLE>
<CAPTION>
USEFUL LIFE 1996 1997
------------- ------------ ------------
<S> <C> <C> <C>
Rental fleet ...................................... 2-10 yrs $ 37,890 $ 39,812
Autos and trucks .................................. 3, 5, 7yrs 621 678
Buildings ......................................... 31.5 yrs 432 432
Furniture, fixtures and office equipment .......... 5 yrs 1,010 1,091
Leasehold improvements ............................ 5, 10 yrs 1,375 1,572
Land .............................................. N/A 322 322
Shop equipment .................................... 5 yrs 866 1,005
--------- ---------
42,516 44,912
Less: Accumulated depreciation .................... (10,729) (16,779)
--------- ---------
$ 31,787 $ 28,133
========= =========
</TABLE>
NOTE 6--LONG-TERM DEBT AND SUBORDINATED DEBT
Substantially all of the Company's debt was repaid subsequent to July 31,
1997 as a result of the sale of the Company and accordingly, is classified as
current liabilities in the accompanying consolidated balance sheet (see Note
2).
Secured and unsecured long-term debt consists of the following at July 31,
1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
---------- ------------
<S> <C> <C>
The Credit Agreement:
Term Loan and Revolving Facility ................ $ 11,227 $ 8,417
Capex Facility .................................. 5,897 6,435
-------- ---------
17,124 14,852
Equipment Contracts .............................. 9,149 7,592
Promissory Notes ................................. 824 807
-------- ---------
Senior Secured Borrowings ........................ 27,097 23,251
Less: Current Portion ............................ (5,809) (22,630)
-------- ---------
Total Long-Term Debt ........................... $ 21,288 $ 621
======== =========
9% Subordinated Debentures plus interest ......... $ 4,011 $ 4,371
12% Subordinated Debentures ...................... 3,800 3,800
-------- ---------
Total Subordinated Debentures .................. $ 7,811 $ 8,171
======== =========
</TABLE>
THE CREDIT AGREEMENT
On July 31, 1997, the Company had in place a credit facility that
originated on June 18, 1993 under a loan and security agreement (the "Credit
Agreement") with a financial institution (the "Lender") that initially provided
BRS with a borrowing base of up to $12 million which was increased to $18
million on July 21, 1994 ("Amendment No. 1") and $27 million on August 18, 1995
("Amendment No. 3"). The
F-39
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LONG-TERM DEBT AND SUBORDINATED DEBT--(CONTINUED)
Credit Agreement provides for a term loan (the "Term Loan") as well a revolving
line of credit (the "Revolving Facility") and a capital expenditure facility
(the "Capex Facility").
The Credit Agreement was significantly amended through Amendment No. 3 to
include equipment and other eligible inventory held for resale in the borrowing
base and extend the original term of the Credit Agreement to August 31, 2000.
The existing balances as of August 18, 1995, in the Revolving Facility and the
Capex Facility were converted into the Term Loan and an additional $1 million
was funded by the Lender to increase the principal balance in the Term Loan to
$15 million. Borrowing capacity under the Capex Facility was increased to $12
million. In consideration of Amendment No. 3, the Company agreed to pay the
Lender an amendment fee of $90,000 which was paid upon the execution by
Borrower. As of July 31, 1996, the unamortized amount of this fee was $72,000
of which a total of $18,000 was expensed ratably during fiscal year 1997. Due
to the significant modification of the Credit Agreement, the remaining
unamortized balance of previous debt issue costs related to this Credit
Agreement of $0.2 million was expensed during fiscal year ended July 31, 1996
and have been reflected in the Company's consolidated statement of operations
as an extraordinary item net of income tax benefit of $83,355. During fiscal
1996 and 1997, minor modifications were made to the Credit Agreement covenants
by amendments No. 4, No. 5 and No. 6; the associated costs of these minor
amendments were expensed in the respective periods.
The Lender has a security interest in substantially all of the Company's
assets except for otherwise encumbered equipment financed by creditors other
than the Lender. The Credit Agreement requires the maintenance of certain
covenants. As of July 31, 1997, the Company was in compliance with or obtained
waivers for all such covenants. The Credit Agreement restricts BRS from
advancing or paying dividends to IER if BRS is in default under the Credit
Agreement or if its available borrowings under the Revolving Facility are below
a specified amount. Amounts outstanding under the Credit Agreement bear
interest at a rate equal to prime rate plus 2.0 percent (10.75 percent
effective rate) at July 31, 1995 prior to Amendment No. 3 and prime plus 1.5
percent thereafter or, alternatively, at the Company's option, LIBOR plus 4
percent. The Company elected the LIBOR option and as of July 31, 1996 and 1997,
the effective rates were 9.45 percent and 9.63 percent, respectively.
The Revolving Facility may be used by the Company to meet general working
capital requirements, purchase equipment, finance down payments on certain
third-party financed equipment purchases, and issue letters of credit. The
total borrowings available under the Revolving Facility are approximately equal
to 80 percent of the Company's eligible accounts receivable, 65 percent of
eligible inventory of equipment held for sale, and 50 percent of eligible
inventory comprised of all goods (other than equipment) intended for sale,
rental or lease and all work in process and raw materials not to exceed $0.4
million. Additionally, the Revolving Facility is limited to remaining
borrowings under the $27 million total credit facility after subtraction of the
Term Loan and the Capex Facility. As of July 31, 1996 and 1997, there were no
outstanding balances on the Revolving Facility. As calculated, $3.2 million and
$4.7 million of additional borrowing was available as of July 31, 1996 and
1997, respectively.
In accordance with the Credit Agreement, proceeds from the sale of
collateralized rental equipment sold in the ordinary course of business of $1.3
million during fiscal 1996 and $1 million during fiscal 1997 were applied to
the outstanding principal balance of the Term Loan and, as a result, the
scheduled monthly payments of principal were reduced. The outstanding balance
on the Term Loan and Revolving Facility was $11.2 million and $8.4 million as
of July 31, 1996 and 1997, respectively, and was paid in full on August 1, 1997
in conjunction with the sale of the Company (see Note 2).
F-40
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LONG-TERM DEBT AND SUBORDINATED DEBT--(CONTINUED)
The Capex Facility may be used by the Company to finance up to 80 percent
of the purchase price of capital expenditures. At six month intervals, any
outstanding Capex Loan balance is converted into a Capex Note which must be
repaid in sixty ratable monthly payments. During August 1996 and March 1997,
portions of the Capex Loan were converted into Capex Notes in the amount of
$6.1 million and $1.3 million, respectively. During fiscal 1997, $1.2 million
in principal payments were made against these notes. Interest on the Capex Loan
is charged against the Revolving Facility each month.
EQUIPMENT CONTRACTS
The equipment contracts, bearing interest at rates ranging from 7.5
percent to 11 percent, are secured by equipment purchased and are payable in
various monthly principal installments.
SUBORDINATED DEBENTURES
The total amount of subordinated debentures outstanding was $7.8 million
and $8.2 million as of July 31, 1996 and 1997, respectively. These amounts
include $3.8 million as of July 31, 1996 and 1997 of subordinated debentures
that bear interest which is payable quarterly at a rate of 12 percent per annum
(the "12% Subordinated Debentures") and $3.7 million in subordinated debentures
that bear interest at a rate of nine percent per annum (the "9% Subordinated
Debentures") as well as accrued interest payable of $0.3 million at July 31,
1996 and $0.7 million at July 31, 1997 on the 9% Subordinated Debentures. All
debentures are owed to a group of the Company's preferred shareholders and were
paid in full on August 1, 1997 in conjunction with the sale of the Company (see
Note 2). As of July 31, 1996 and 1997, accrued interest payable on the 12%
Subordinated Debentures was $38,000.
DEBT MATURITIES
The aggregate annual maturities of the senior secured subordinated and
unsecured debt as of July 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED CREDIT EQUIPMENT CONTRACTS SUBORDINATED
JULY 31 AGREEMENT AND PROMISSORY NOTES DEBENTURES TOTAL
- ----------------------- ----------- ---------------------- ------------- ----------
<S> <C> <C> <C> <C>
1998 ............. $14,852 $7,778 $8,171 $30,801
1999 ............. -- 200 -- 200
2000 ............. -- 213 -- 213
2001 ............. -- 208 -- 208
2002 ............. -- -- -- --
Thereafter ......... -- -- -- --
------- ------ ------ -------
$14,852 $8,399 $8,171 $31,422
======= ====== ====== =======
</TABLE>
F-41
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--LEASES
At July 31, 1997, the Company had minimum annual lease commitments under
noncancelable operating leases as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31 OPERATING LEASES
- -------------------- -----------------
<S> <C>
1998 .......... $ 698
1999 .......... 403
2000 .......... 367
2001 .......... 148
2002 .......... 48
------
$1,664
======
</TABLE>
The Company leases its facilities at various monthly rental terms which
expire at various dates through September 2006. The above amounts include
commitments from the A-l Rental Center, Rental World, and Cameron acquisitions
(see Note 4). Total rent of $0.4 million, $0.7 million and $0.7 million for the
periods ended July 31, 1995, 1996, and 1997 were charged to facilities expense.
At July 31, 1997, the Company had future payments under capital leases as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31 CAPITAL LEASE OBLIGATIONS
- --------------------------------------- --------------------------
<S> <C>
1998 ............................. $ 85
1999 ............................. --
2000 ............................. --
2001 ............................. --
2002 ............................. --
-----
85
Less: Interest ..................... (11)
-----
Capital Lease Obligations .......... $ 74
=====
</TABLE>
The Company is party to several capital leases primarily related to
computers and computer-related equipment. These leases have been capitalized
using interest rates ranging from 7 percent to 12 percent. Amortization on the
capitalized amounts is included in depreciation expense. All of the capitalized
leases were repaid subsequent to July 31, 1997 as a result of the sale of the
Company and accordingly, all capital leases payable were classified as current
liabilities in the accompanying consolidated balance sheets.
F-42
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--INCOME TAXES
The provision (benefit) for income taxes consists of the following for the
years ended July 31 (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ --------- -------
<S> <C> <C> <C>
Current
Federal ......... $ -- $ -- $ --
State ........... 8 -- --
---- ------ ----
8 -- --
---- ------ ----
Deferred
Federal ......... 233 (117) 266
State ........... 26 (13) 29
---- ------ ----
259 (130) 296
---- ------ ----
$267 $ (130) $296
==== ====== ====
</TABLE>
The reconciliation of the tax provision to the tax provision computed at
statutory rates is as follows for the years ended July 31 (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ---------- -------
<S> <C> <C> <C>
Federal tax at statutory rate (34%) .......... $195 $ (212) $173
Nondeductible expenses ....................... 42 54 48
State taxes .................................. 22 (25) 20
Valuation allowance and other ................ 8 53 55
---- ------ ----
$267 $ (130) $296
==== ====== ====
</TABLE>
The deferred income tax balances consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Property and equipment basis differences .......... $2,694 $3,336
------ ------
Total deferred tax liabilities .................... 2,694 3,336
------ ------
DEFERRED TAX ASSETS:
Net operating loss carryforwards .................. 1,371 1,721
Alternative minimum tax credit .................... 627 627
Other ............................................. 279 324
------ ------
Total deferred tax assets ......................... 2,277 2,672
Valuation allowance for deferred tax assets ......... (177) (226)
------ ------
Net deferred tax assets ............................. 2,100 2,446
------ ------
Net deferred tax liabilities ........................ $ 594 $ 890
====== ======
</TABLE>
Included in prepaid expense and other are current deferred tax assets of
$237 and $188 at July 31, 1996 and 1997, respectively.
F-43
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--INCOME TAXES--(CONTINUED)
The Company had net operating loss carryforwards for federal and state
income tax purposes of approximately $0.8 million and $2.2 million,
respectively, at July 31, 1995, $3.5 million and $4.4 million, respectively, at
July 31, 1996 and $4.4 million and $5.7 million, respectively, at July 31,
1997. The Company also has alternative minimum tax credit carryovers of
approximately $627,000 for federal income tax purposes at July 31, 1995, 1996
and 1997. For financial reporting, the loss and credit carryforwards were
recognized as deferred tax assets and an appropriate valuation allowance was
recorded to reflect the uncertainty about ultimate realization.
NOTE 9--PREFERRED STOCK
SERIES A SENIOR MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
The holders of the 107,500 shares of non-voting, $1 par Senior Series A
are entitled to receive dividends thereon in cash at the rate of 6% per annum
based on a face value of $20 per share when, as and if declared by the
Company's Board of Directors, out of legally available funds. The dividends
compound and accrue quarterly and are cumulative from the date of issuance. As
of July 31, 1996 and 1997, accrued dividends payable for Senior Series A shares
were $10,750. The Senior Series A was recorded at issuance at its estimated
fair market value of $0.9 million ($7.93 per Senior Series A share) and is
being accreted up to its redemption value through charges to retained earnings
over the period from June 18, 1993 to the date it is mandatorily redeemable. As
of July 31, 1996 and 1997, accumulated accretion from June 18, 1993 on Senior
Series A shares were $0.4 million and $0.5 million, respectively. Also,
dividends on the Senior Series A shares are accrued, whether or not declared,
during the period to which they relate since the mandatory redemption amount
includes dividends and are included in accrued expenses in the accompanying
consolidated balance sheets. On August 1, 1997, the holders of the Senior
Series A redeemed their shares upon a change in ownership for $20 per share
(see Note 2).
SERIES B SENIOR REDEEMABLE CONVERTIBLE PREFERRED STOCK
The holders of the 495,000 shares of voting $1 par Senior Series B are not
entitled to receive dividends but have the option to redeem their shares upon a
change in ownership. The Senior Series B is not mandatorily redeemable.
Accretion of the Senior Series B is not necessary as it was recorded at its
redemption value of $3.704 per share not including the share of common stock to
be received upon redemption. The Senior Series B shares were recorded upon
issuance at the amount of net proceeds of $1.8 million which included par value
of $0.5 million with excess proceeds over par recorded as additional paid in
capital. On August 1, 1997 the holders of the Senior Series B converted their
shares into one share of common stock which were redeemed for $10.2 million
immediately upon the sale of the Company (see Note 2).
JUNIOR PREFERRED STOCK
The holders of the 18,936 shares of non-voting, $1 par Junior Series are
entitled to receive dividends in cash at the rate of 6% per annum based on a
face value of $100 per share when, as and if declared by the Board. The
dividends compound and accrue quarterly and are cumulative from the date of
issuance. As of July 31, 1996 and 1997, accrued dividends payable for Junior
Series shares were $9,468. No dividends shall be declared or paid on the Junior
Series unless full cumulative dividends have been declared or paid on the
Senior Series. The Junior Series was recorded at issuance at its
F-44
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--PREFERRED STOCK--(CONTINUED)
estimated fair market value of $1.5 million ($80.75 per Junior Series share).
Since the Junior Series is not mandatorily redeemable, it is not being accreted
up to its redemption value. Also, dividends on the Junior Series are accrued,
whether or not declared, during the period to which they relate and are
included in accrued expenses in the accompanying consolidated balance sheets.
On August 1, 1997, the holders of the Junior Series redeemed for $1.9 million
their shares upon a change in ownership (see Note 2).
NOTE 10--EMPLOYEE BENEFIT PLAN
The Company has a defined contribution profit sharing plan (the "Plan")
covering substantially all of its employees. All employees who are at least
20.5 years old, perform at least 1,000 hours of service annually and have
satisfied the six month service requirement, are eligible to participate.
Participants accumulate ownership in the Plan assets according to a vesting
schedule over a period of six years. Company contributions to the Plan are made
on an annual basis at the discretion of management, and are allocated to
participants' accounts according to annual compensation. No contribution to the
plan was made for the plan years ended July 31, 1995, 1996 or 1997.
Effective January 1, 1994, an amendment was made to the Plan to allow
401(k) contributions by the employee. The employer matches these contributions
at a rate based on a discretionary formula. Since the amendment, the Company
agreed to match 50 percent of the employee's contribution up to 6 percent of
the participants' gross pay. Such employer contributions vest over a period of
six years and totaled $67,263 during fiscal 1995, $86,318 during fiscal 1996
and $104,451 during fiscal 1997. As of July 31, 1995, 1996 and 1997, no
material amounts were outstanding and payable from the Company to the Plan.
NOTE 11--RELATED PARTY TRANSACTIONS
The Company leases eleven facilities from a corporation owned by a
stockholder, director and officer of the Company. Lease costs totaling
approximately $0.3 million for the years ended July 31, 1995, 1996 and 1997
were incurred under these lease agreements. As of July 31, 1997, these lease
agreements require minimum lease payments of approximately $346,800 per year
and expire at various times during the years from 1998 to 2002. No amendments
or terminations of any of these leases have been made as a result of the sale
of the Company (see Note 2).
The Company held one 5.33 percent interest bearing note receivable as of
July 31, 1996 and two 5.33 percent interest bearing notes receivable as of July
31, 1997 totaling approximately $301,000 and $297,000, respectively, from
certain stockholders and officers of the Company. Both notes receivable were
collected by the Company in full subsequent to July 31, 1997.
The Company paid a related party $120,000 for consulting services in
fiscal years ended July 31, 1995, 1996 and 1997, and subsequently, this
agreement was mutually terminated as of August 1, 1997.
NOTE 12--COMMITMENTS AND CONTINGENCIES
The Company is involved in certain claims and lawsuits arising in the
normal course of business. Management does not believe that uninsured losses,
if any, resulting form the ultimate resolution of these matters will have a
material adverse effect on the financial position, results of operations or
liquidity of the Company.
F-45
<PAGE>
INDEPENDENT AUDITORS' REPORT
Richbourg's Sales & Rentals, Inc.:
We have audited the accompanying balance sheets of Richbourg's Sales &
Rentals, Inc. (the "Company") as of December 31, 1996 and 1997, and the related
statements of income, stockholder's equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1996 and
1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Charlotte, North Carolina
February 27, 1998
F-46
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT PAR VALUE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
ASSETS (NOTE 8)
Cash and cash equivalents ...................................................... $ 338 $ 161
Marketable securities--trading (Note 1) ........................................ 670 593
Trade accounts receivable, net of allowance for doubtful accounts of $35 in 1996
and $81 in 1997 .............................................................. 4,214 3,126
Inventories .................................................................... 396 420
Rental fleet, net of accumulated depreciation of $27,856 in 1996 and $34,351 in
1997 (Note 1) ................................................................ 55,029 57,604
Property and equipment, net (Note 2) ........................................... 4,250 3,068
Other assets ................................................................... 171 12
------- -------
TOTAL .......................................................................... $65,068 $64,984
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable--trade and accrued expenses .................................. $ 2,283 $ 930
Accounts payable--equipment purchases ......................................... 6,468 --
Revolving credit loan (Note 3) ................................................ 16,296 26,526
Notes payable (Note 4) ........................................................ 5,054 --
------- -------
Total liabilities ............................................................ 30,101 27,456
------- -------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)
STOCKHOLDER'S EQUITY:
Common stock, $100 par value, 500 shares authorized, 100 shares issued and
outstanding ................................................................. 10 10
Additional paid-in capital .................................................... 20 20
Retained earnings ............................................................. 34,937 37,498
------- -------
Total stockholder's equity ................................................... 34,967 37,528
------- -------
TOTAL .......................................................................... $65,068 $64,984
======= =======
</TABLE>
See notes to financial statements.
F-47
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Rental of equipment ............................................. $ 26,507 $ 29,717 $ 28,894
Sales of equipment .............................................. 5,402 5,305 6,510
-------- -------- --------
Total revenues ................................................. 31,909 35,022 35,404
-------- -------- --------
COST OF REVENUES:
Depreciation of rental fleet .................................... 6,366 7,899 10,928
Maintenance of rental fleet ..................................... 10,063 10,284 10,714
Cost of equipment sold .......................................... 2,416 1,851 1,956
-------- -------- --------
Total cost of revenues ......................................... 18,845 20,034 23,598
-------- -------- --------
GROSS MARGIN ..................................................... 13,064 14,988 11,806
-------- -------- --------
OPERATING EXPENSES:
Selling ......................................................... 1,342 1,403 1,445
General and administrative ...................................... 2,193 2,692 2,715
Other depreciation .............................................. 840 1,006 880
-------- -------- --------
Total operating expenses ....................................... 4,375 5,101 5,040
-------- -------- --------
INCOME FROM OPERATIONS ........................................... 8,689 9,887 6,766
OTHER INCOME (EXPENSE):
Interest expense ................................................ (1,726) (1,749) (2,406)
Investment income ............................................... 127 84 11
Realized gain on sale of marketable securities .................. 13 75 41
Unrealized holding gain (loss) on marketable securities ......... 51 (29) 58
Other ........................................................... 150 90 30
-------- -------- --------
Total other expense, net ....................................... (1,385) (1,529) (2,266)
-------- -------- --------
INCOME BEFORE EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT ......................................... 7,304 8,358 4,500
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF
DEBT (Note 3) .................................................. -- (225) --
-------- -------- --------
NET INCOME (Note 1) .............................................. $ 7,304 $ 8,133 $ 4,500
======== ======== ========
</TABLE>
See notes to financial statements.
F-48
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ ADDITIONAL
OUTSTANDING PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 ........... 100 $10 $20 $ 23,484 $ 23,514
Net income .......................... -- -- -- 7,304 7,304
Distribution to stockholder ......... -- -- -- (1,445) (1,445)
--- --- --- -------- --------
BALANCE, DECEMBER 31, 1995 ........... 100 10 20 29,343 29,373
Net income .......................... -- -- -- 8,133 8,133
Distribution to stockholder ......... -- -- -- (2,539) (2,539)
--- --- --- -------- --------
BALANCE, DECEMBER 31, 1996 ........... 100 10 20 34,937 34,967
Net income .......................... -- -- -- 4,500 4,500
Distribution to stockholder ......... -- -- -- (1,939) (1,939)
--- --- --- -------- --------
BALANCE, DECEMBER 31, 1997 ........... 100 $10 $20 $ 37,498 $ 37,528
=== === === ======== ========
</TABLE>
See notes to financial statements.
F-49
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 7,304 $ 8,133 $ 4,500
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary loss on early extinguishment
of debt .................................................... -- 225 --
Depreciation .................................................. 7,206 8,905 11,808
Gain on sale of rental fleet and equipment .................... (1,385) (1,065) (1,481)
Realized gain on sale of marketable securities ................ (13) (75) (41)
Unrealized (gain) loss on marketable securities ............... (51) 29 (58)
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts
receivable ................................................ (1,143) (121) 1,088
Decrease (increase) in inventories ........................... 807 (287) (24)
(Decrease) increase in accounts payable and accrued
expenses .................................................. 136 1,018 (1,353)
Decrease (increase) in other assets .......................... (663) 543 159
Purchase of trading marketable securities .................... (979) (1,938) (77)
Proceeds from sale of trading marketable securities .......... 1,025 1,711 252
--------- --------- ---------
Net cash provided by operating activities ................... 12,244 17,078 14,773
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental fleet and equipment ......................... (19,309) (20,648) (22,123)
Proceeds from sale of rental fleet and equipment ................ 1,538 3,557 3,937
--------- --------- ---------
(17,771) (17,091) (18,186)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances under revolving credit facility .................... -- 16,296 10,230
Borrowings under notes payable .................................. 19,069 3,136 2,364
Repayment of notes payable ...................................... (11,378) (18,998) (7,419)
Distributions to stockholder .................................... (1,445) (2,539) (1,939)
--------- --------- ---------
Net cash (used in) provided by financing activities ......... 6,246 (2,105) 3,236
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS .................................................... 719 (2,118) (177)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR .............................................. 1,737 2,456 338
--------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF YEAR .................................................... $ 2,456 $ 338 $ 161
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--Cash paid during the year
for interest ................................................... $ 1,599 $ 1,665 $ 2,260
========= ========= =========
</TABLE>
See notes to financial statements.
F-50
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS--Richbourg's Sales & Rentals, Inc. (the "Company")
is engaged in the rental and sale of construction and industrial machinery and
equipment. The Company presently operates from sixteen locations in the
southeastern United States.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS--The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
INVESTMENT IN MARKETABLE SECURITIES--The Company's securities investments
are classified as trading securities and are primarily investments in stocks of
publicly traded companies. Trading securities are recorded at fair value in the
accompanying balance sheets, with the change in fair value during the period
included in earnings. Realized gains or losses in the sale of securities are
based on the specific identification method. The fair value of securities is
based on quoted market prices.
Proceeds from sales of investments for the years ended December 31, 1995,
1996 and 1997 were $1.0 million, $1.7 million and $0.3 million, respectively.
Realized and unrealized gains (losses) on trading securities during 1995, 1996
and 1997 were not significant.
ACCOUNTS RECEIVABLE--The Company carries trade accounts receivable at the
amount it deems to be collectible. Accordingly, the Company provides allowances
for trade accounts receivable it deems to be uncollectible based on
management's best estimates. Recoveries are recognized in the period they are
received. The ultimate amount of accounts receivable that becomes uncollectible
could differ from those estimated. The majority of the Company's customers are
engaged in the construction business. The Company assesses its customers'
credit worthiness prior to extending credit. The collectibility of these
receivables is dependent, in part, on the economic conditions within the
construction industry.
INVENTORIES--Inventories, which consist principally of repair parts and
supplies, are stated at the lower of cost or market (cost is determined on the
first-in, first-out basis).
RENTAL FLEET--Rental fleet is comprised principally of heavy construction
equipment which is leased by the Company to customers under operating leases.
The rental fleet is stated at cost less accumulated depreciation. Depreciation
is computed using the straight-line method over the estimated useful lives of
the related assets, which range from five to seven years, giving effect to an
estimated salvage value of one-tenth of original cost. Routine repairs and
maintenance are expensed as incurred; improvements are capitalized at cost. The
Company sells equipment in its rental fleet as part of its regular operations;
accordingly, a portion of the rental fleet may be sold within one year. The
remaining book value is charged to cost of equipment when sold.
PROPERTY AND EQUIPMENT--Property and equipment, which consists of land,
buildings, service and office equipment utilized in the Company's operations,
is stated at cost less accumulated depreciation.
F-51
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
Depreciation is recorded using the straight-line method over the estimated
useful lives of the related assets. Significant improvements are capitalized at
cost; repairs and maintenance are expensed as incurred.
ADVERTISING COSTS--The Company expenses advertising costs as incurred.
Advertising costs for the years ending December 31, 1995, 1996 and 1997
amounted to $0.1 million each year.
REVENUE RECOGNITION--Rental revenues are recognized over the rental period
using the straight-line method. Sales of assets in the rental fleet are
recognized at the time of shipment.
INCOME TAXES--The Company has elected S Corporation status for income tax
purposes. Accordingly, no provision for federal and state income taxes has been
made in these financial statements because any income tax liability is the
responsibility of the stockholder.
LONG-LIVED ASSETS--Effective January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This standard
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. The adoption of this standard had no effect on the Company's
results of operations or financial position. On an ongoing basis, the Company
will evaluate its long-lived assets. If circumstances suggest that their value
may be impaired, an assessment of recoverability will be performed.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
------------------------- USEFUL LIVES
1996 1997 (IN YEARS)
----------- ----------- -------------
<S> <C> <C> <C>
Land ......................................... $ 428 $ 428 --
Buildings and leasehold improvements ......... 2,529 1,779 7-31
Service equipment ............................ 4,558 4,625 2-5
Office furniture and equipment ............... 583 569 2-5
-------- --------
8,098 7,401
Less accumulated depreciation ................ (3,848) (4,333)
-------- --------
$ 4,250 $ 3,068
======== ========
</TABLE>
NOTE 3. REVOLVING CREDIT LOAN
In September 1996, the Company entered into a revolving credit line
(revolving loan) with a bank. Initial proceeds from this revolving loan were
used to pay off existing notes payable with another bank, as well as to fund
new equipment purchases. In connection with this refinancing, the Company was
charged a penalty of $0.2 million by the former bank lender for early payoff of
the notes payable. This charge is shown as "Extraordinary Loss on Early
Extinguishment of Debt" in the accompanying Statements of Income.
F-52
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
NOTE 3. REVOLVING CREDIT LOAN--(CONTINUED)
The revolving loan provided for maximum borrowings up to $35.0 million
based on qualified machinery and equipment. Outstanding borrowings were due in
September 1999, with interest based on the 90 day LIBOR rate plus 1.85 (7.787%
at December 31, 1997). At December 31, 1996 and 1997, the Company had $16.3
million and $26.5 million, respectively, in outstanding borrowings on the
revolving loan. Subsequent to December 31, 1997, the Company paid off all
borrowings under its revolving credit agreement (see Note 8).
NOTE 4. NOTES PAYABLE
The Company has historically financed a portion of its rental fleet and
other fixed asset purchases through notes payable to banks, equipment vendors,
finance companies and others. In contemplation of sale of the business (see
Note 8), during December 1997 the Company paid off all its outstanding notes
payable.
Notes payable at December 31, 1996 consisted of the following (in
thousands, except payment amounts):
<TABLE>
<S> <C>
Series of 24 installment purchase notes, payable in monthly installments ranging
from $276 to $797, plus interest at 6.9%.............................................. $ 204
6.8% installment purchase note, payable in monthly installments of $7,116, including
interest ............................................................................. 165
7.3% installment purchase note, payable in monthly installments of $9,576, including
interest ............................................................................. 222
6.5% installment purchase note, payable in monthly installments of $4,841, including
interest ............................................................................. 126
6.5% installment purchase note, payable in monthly installments of $4,841, including
interest ............................................................................. 121
7.25%, 10.25% and 10.5% installment purchase notes, payable in monthly
installments ranging from $1,426 to $3,440, including interest........................ 1,755
Installment purchase note, payable in monthly installments of $43,858.................. 570
Series of seven installment purchase notes, payable in monthly installments ranging
from $3,084 to $15,770, including interest (interest rates vary per note from 4.90%
to 7.75%) ............................................................................ 840
Mortgage payable in monthly installments of $5,000 plus interest at prime (81/4% at
December 31, 1996) ................................................................... 445
Mortgage payable in monthly installments of $3,334 plus interest at prime.............. 268
Note payable in monthly installments of $5,000 plus interest at prime.................. 225
Note payable in monthly installments of $1,050 plus interest at prime.................. 113
------
Total notes payable ................................................................... $5,054
======
</TABLE>
NOTE 5. RELATED PARTY TRANSACTIONS
The Company rents certain office and yard space from its sole stockholder
on a month to month basis. During 1995, 1996 and 1997, the Company paid rental
expense to its sole stockholder of approximately $0.4 million, $0.4 million and
$0.5 million, respectively.
F-53
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
NOTE 5. RELATED PARTY TRANSACTIONS--(CONTINUED)
The Company purchases automobiles and receives automotive electric
services from certain companies owned by its sole stockholder. During 1995,
1996 and 1997, the Company paid $0.1 million, $0.1 million and $0.1 million to
these related parties.
NOTE 6. RETIREMENT PLAN
The Company maintains a 401(k) defined contribution plan which covers
substantially all employees. Employees may contribute up to 5% of their
compensation. Employer matching contributions are not mandatory but the Company
is allowed to match employee contributions up to limits specified in the plan.
The Company did not make any contributions in 1995, 1996 or 1997.
NOTE 7. LEGAL MATTERS
The Company is a defendant in legal proceedings arising out of the conduct
of the Company's business. In the opinion of management, the ultimate outcome
of these legal proceedings will not have a material adverse affect on the
financial position or future results of operations and cash flows of the
Company.
NOTE 8. SUBSEQUENT EVENT--SALE OF BUSINESS
Effective January 1, 1998, the Company sold its rental fleet and certain
other tangible and intangible assets to Neff Corp., Miami, Florida, for $100.0
million cash. In addition, the purchaser assumed certain liabilities, as
defined in the purchase agreement, which consist principally of accounts
payable and accrued expenses. After the sale, the Company's assets consist of
cash, marketable securities, land, buildings and leasehold improvements. The
Company or other affiliated entities will rent certain real estate to Neff
Corp. under operating lease agreements.
The sale of net assets resulted in a significant gain, which will be
recorded in 1998. Subsequent to receipt of the sale proceeds the Company paid
off the entire balance of borrowings under its revolving loan agreement with
bank (see Note 3).
********
F-54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Sullair Argentina Sociedad Anonima
1. We have audited the accompanying consolidated balance sheets of Sullair
Argentina Sociedad Anonima and its subsidiary Sullair San Luis Sociedad Anonima
as of December 31, 1997 and 1996, and the related consolidated statements of
income and of changes in shareholders' equity and in financial position (cash
flows) for the years ended December 31, 1997, 1996 and 1995, all expressed in
constant Argentine pesos--P$--through August 31, 1995 and in nominal pesos
thereafter (see Note 1.2.). These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
2. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statements presentation. We believe that our
audits provide a reasonable basis for our opinion.
3. Accounting principles generally accepted in Argentina require companies
with controlling financial interest in the other companies to present both
parent company, where investments in subsidiaries are accounted for by the
equity method, and consolidated financial statements, as primary and
supplementary information, respectively. Because of the special purpose of
these financial statements, parent company financial statements are not
included. This procedure has been adopted for the convenience of the reader of
the financial statements.
4. In our opinion, the consolidated financial statements audited by us
present fairly, in all material respects, the financial position of Sullair
Argentina Sociedad Anonima and its subsidiary Sullair San Luis Sociedad Anonima
at December 31, 1997 and 1996, and the results of their operations, the changes
in their shareholders' equity and the changes in their financial position (cash
flows) for the years ended December 31, 1997, 1996 and 1995 in conformity with
accounting principles generally accepted in Argentina.
5. Accounting principles generally accepted in Argentina vary in certain
important respects from accounting principles generally accepted in the United
States of America. The application of the latter would have affected the
determination of consolidated net income expressed in constant Argentine pesos
through August 31, 1995 and in nominal pesos thereafter (see Note 1.2.) for
each of the three mentioned years, and the determination of consolidated
shareholders' equity and financial position also expressed in constant
Argentine pesos through August 31, 1995 and in nominal pesos thereafter (see
Note 1.2.) at December 31, 1997, 1996 and 1995 to the extent summarized in
Notes 10, 11, and 12 to the consolidated financial statements.
6. The accompanying consolidated financial statements expressed in
constant Argentine pesos through August 31, 1995 and in nominal pesos
thereafter include a column that gives effect to the translation into U.S.
dollars of the balances at December 31, 1997, on the basis described in Note
1.2.c). This translation should not be construed as representing that the peso
amounts actually represent or have been, or could be, converted into U.S.
dollars.
<TABLE>
<S> <C>
Buenos Aires, Argentina PRICE WATERHOUSE & CO.
March 25, 1998 Daniel A. Lopez Lado (Partner)
</TABLE>
F-55
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1997 1996
------------- ------------- -------------
US$(1) P$
------------- -----------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and banks .......................................... 305,876 305,876 542,989
Accounts receivable (Note 2.a)) ......................... 13,961,371 13,961,371 10,533,229
Other receivables (Note 2.b)) ........................... 2,321,217 2,321,217 4,694,592
Inventories (Note 2.c)) ................................. 12,687,639 12,687,639 11,596,926
---------- ---------- ----------
Total current assets .................................... 29,276,103 29,276,103 27,367,736
---------- ---------- ----------
NON-CURRENT ASSETS
Other receivables (Note 2.d)) ........................... 657,658 657,658 657,658
Long-term investments (Note 2.e)) ....................... 233,756 233,756 266,756
Property and equipment, net (Note 3) .................... 26,477,686 26,477,686 24,702,859
Other ................................................... 67,377 67,377 67,377
Total non-current assets ................................ 27,436,477 27,436,477 25,694,650
Total assets ............................................ 56,712,580 56,712,580 53,062,386
========== ========== ==========
LIABILITIES
CURRENT LIABILITIES
Accounts payable (Note 2.f)) ............................ 11,737,769 11,737,769 13,138,278
Short-term bank borrowings (Note 2.g)) .................. 6,613,730 6,613,730 8,311,896
Taxes payables .......................................... 1,059,209 1,059,209 181,630
Payroll and social security ............................. 274,995 274,995 238,974
Advances from customers ................................. 116,978 116,978 593,339
Other ................................................... -- -- 490,440
---------- ---------- ----------
Total current liabilities ............................... 19,802,681 19,802,681 22,954,557
---------- ---------- ----------
NON-CURRENT LIABILITIES
Long-term bank borrowings (Note 2.h)) ................... 5,342,376 5,342,376 3,560,501
---------- ---------- ----------
Total non-current liabilities ........................... 5,342,376 5,342,376 3,560,501
---------- ---------- ----------
Total liabilities ....................................... 25,145,057 25,145,057 26,515,058
---------- ---------- ----------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY ............................................ 727 727 450
---------- ---------- ----------
SHAREHOLDERS' EQUITY (as per related statement) ......... 31,566,796 31,566,796 26,546,878
---------- ---------- ----------
Total liabilities and shareholders' equity .............. 56,712,580 56,712,580 53,062,386
========== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c)
The accompanying notes are an integral part of these consolidated financial
statements.
F-56
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENTS OF INCOME
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1997 1996 1995
---------------- ---------------- ---------------- ----------------
US$(1) P$
---------------- --------------------------------------------------
<S> <C> <C> <C> <C>
Net sales, rentals and services (Note 2.j)) ......... 57,322,289 57,322,289 39,368,237 35,297,551
Operating costs
Cost of sales, rentals and services
(Note 2.k)) ...................................... (44,086,860) (44,086,860) (29,151,402) (28,096,627)
Administrative expenses ............................ (1,830,707) (1,830,707) (1,446,250) (1,222,513)
Selling expenses ................................... (3,205,862) (3,205,862) (2,763,704) (2,707,561)
Other .............................................. (676,674) (676,674) (690,775) (778,873)
----------- ----------- ----------- -----------
Operating income .................................... 7,522,186 7,522,186 5,316,106 2,491,977
Non-operating income (expenses)
Financial expenses (Note 2.l)) ..................... (1,118,454) (1,118,454) (1,545,224) (925,601)
Other non-operating income net
(Note 7.a)) ...................................... 629,000 629,000 681,521 628,734
----------- ----------- ----------- -----------
Income before taxes, minority interest and
extraordinary results .............................. 7,032,732 7,032,732 4,452,403 2,195,110
Income tax .......................................... (2,012,537) (2,012,537) (1,128,499) (300,578)
----------- ----------- ----------- -----------
Income before minority interest and
extraordinary results .............................. 5,020,195 5,020,195 3,323,904 1,894,532
Minority interest in results of
consolidated subsidiaries .......................... (277) (277) (172) (161)
----------- ----------- ----------- -----------
Net income before extraordinary results ............. 5,019,918 5,019,918 3,323,732 1,894,371
----------- ----------- ----------- -----------
Extraordinary results (Note 9)(2) ................... -- -- (709,666) --
----------- ----------- ----------- -----------
Net income for the year ............................. 5,019,918 5,019,918 2,614,066 1,894,371
=========== =========== =========== ===========
</TABLE>
- ----------------
(1) See Note 1.2.c).
(2) This amount includes P$349,537 (Gain) corresponding to the effect of income
taxes.
The accompanying notes are an integral part of these consolidated
financial statements.
F-57
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.)
<TABLE>
<CAPTION>
EARNINGS
ADJUSTMENTS ---------------------------
TO CAPITAL UNAPPROPRIATED TOTAL
CAPITAL STOCK LEGAL RETAINED SHAREHOLDERS'
STOCK (NOTE 1.5. I)) RESERVE EARNINGS EQUITY
--------- ---------------- --------- --------------- --------------
<S> <C> <C> <C> <C> <C>
At December 31, 1994 ................... 86,000 12,723 26,708 21,913,010 22,038,441
Net income for the year ................ -- -- -- 1,894,371 1,894,371
------ ------ ------ ---------- ----------
At December 31, 1995 ................... 86,000 12,723 26,708 23,807,381 23,932,812
Net income for the year ................ -- -- -- 2,614,066 2,614,066
------ ------ ------ ---------- ----------
At December 31, 1996 ................... 86,000 12,723 26,708 26,421,447 26,546,878
Net income for the year ................ -- -- -- 5,019,918 5,019,918
------ ------ ------ ---------- ----------
At December 31, 1997 ................... 86,000 12,723 26,708 31,441,365 31,566,796
====== ====== ====== ========== ==========
At December 31, 1997 in US$(1) ......... 86,000 12,723 26,708 31,441,365 31,566,796
====== ====== ====== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c).
The accompanying notes are an integral part of these consolidated
financial statements.
F-58
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1997 1996 1995
--------------- --------------- ----------------- ---------------
US$(1) P$
--------------- -------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the year ................................ 5,019,918 5,019,918 2,614,066 1,894,371
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation ......................................... 6,360,947 6,360,947 3,272,048 2,281,111
Allowance for doubtful accounts ...................... 300,176 300,176 307,633 527,235
Minority interest .................................... 277 277 172 161
Fixed assets disposals ............................... 1,526,084 1,526,084 658,570 966,698
Taxes on income ...................................... 2,012,537 2,012,537 778,962 300,578
Financial and holding results on assets other than
cash or cash equivalents and on liabilities ........ (163,833) (163,833) 281,219 1,831,085
Decrease (increase) in assets:
Accounts receivable ................................. (3,699,866) (3,699,866) (5,097,293) 106,500
Other receivables ................................... 2,643,375 2,643,375 (556,051) (1,926,963)
Other assets ........................................ -- -- (3) 34
Inventories ......................................... (1,090,713) (1,090,713) (1,337,138) (2,079,787)
Increase (decrease) in liabilities:
Accounts payable .................................... (1,400,509) (1,400,509) 5,554,258 385,394
Payroll and social security ......................... 36,021 36,021 14,062 (56,403)
Other liabilities ................................... (490,440) (490,440) 12,143 452,310
Taxes payable ....................................... 848,287 848,287 (48,074) (1,530,653)
Advances from customers ............................. (476,361) (476,361) (106,140) 413,295
---------- ---------- ------------ ----------
Cash provided by operations ............................ 11,425,900 11,425,900 6,348,434 3,564,966
---------- ---------- ------------ ----------
CASH FLOWS FROM INVESTMENT
ACTIVITIES
Purchases of property and equipment .................... (9,580,339) (9,580,339) (4,524,287) (3,405,256)
Investments other than cash equivalents ................ 33,000 33,000 537,384 --
---------- ---------- ------------ ----------
Cash used in investment activities ..................... (9,547,339) (9,547,339) (3,986,903) (3,405,256)
---------- ---------- ------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans ............................... 39,132,529 39,132,529 13,269,291 6,388,024
Repayments of bank loans ............................... (39,476,652) (39,476,652) (13,838,018) (5,617,809)
Interest and related cost payments ..................... (1,771,551) (1,771,551) (1,632,095) (716,609)
----------- ----------- ------------- ----------
Cash (used in) provided by financing activities ........ (2,115,674) (2,115,674) (2,200,822) 53,606
----------- ----------- ------------- ----------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ...................................... (237,113) (237,113) 160,709 213,316
Cash and cash equivalents at the beginning of year ..... 542,989 542,989 382,280 168,964
----------- ----------- ------------- ----------
CASH AND CASH EQUIVALENTS AT THE END
OF YEAR ............................................... 305,876 305,876 542,989 382,280
=========== =========== ============= ==========
</TABLE>
- ----------------
(1) See Note 1.2.c).
The accompanying notes are an integral part of these consolidated financial
statements.
F-59
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
1.1. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
These consolidated financial statements include the accounts of Sullair
Argentina Sociedad Anonima and its subsidiary, Sullair San Luis Sociedad
Anonima. All material intercompany balances, transactions and profits have been
eliminated.
Sullair Argentina Sociedad Anonima holds 99.99% of the shares of Sullair
San Luis Sociedad Anonima. In addition to its participation in Sullair San Luis
Sociedad Anonima, Sullair Argentina Sociedad Anonima holds 100% of the shares
of Bahian S.A., a company located in Uruguay. Bahian S.A. holds 49% of the
shares of Sullair Do Brasil Ltd., a Brazilian company.
The participation in Bahian S.A. has not been consolidated in view of its
low materiality and is shown in the consolidated financial statements under
non-current investments, at its cost value. This situation does not give rise
to any significant distortion that could affect the valuation and disclosure of
the consolidated financial statements.
The preparation of the financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the balance
sheet dates, and the reported amounts of revenues and expenses during the
reporting years. Actual results may differ from these estimates.
1.2. RECOGNITION OF THE EFFECTS OF INFLATION
a) Pursuant to the restatement methodology established under technical
pronouncements issued by the Federacion Argentina de Consejos Profesionales de
Ciencias Economicas (Argentine Federation of Professional Councils in Economic
Sciences, or "FACPCE"), the consolidated financial statements of Sullair
Argentina Sociedad Anonima were stated in constant Argentine pesos through
August 31, 1995. To account for the effects of inflation in Argentina and in
accordance with Argentine GAAP, prior to September 1, 1995, the Company's
financial statements were periodically restated based on the changes in the
Precios Mayoristas Nivel General (General Wholesale Price Index, or "WPI").
However, pursuant to resolutions of the Inspeccion General de Justicia (General
Inspection of Justice or "IGJ"), Argentine companies are not permitted to
reflect the effects of inflation on their financial statements as of any date
or for any period after September 1, 1995.
Accordingly, for fiscal year 1995, Sullair Argentina Sociedad Anonima and
Sullair San Luis Sociedad Anonima are required to reflect the effects of
inflation on their financial statements through August 31, 1995, but are not
permitted to do so for the four-month period ended December 31, 1995 or for
subsequent periods. Except for the portion of the fiscal year ended December
31, 1995 prior to August 31, 1995, which has been restated in constant pesos at
August 31, 1995, financial data at and for such fiscal year has not been
restated in constant pesos. For the years ended December 31, 1997 and 1996, as
the change in the WPI since August 31, 1995 has been less than 8%, financial
statements prepared in accordance with Argentine GAAP need not be adjusted for
inflation after that date. Financial statements that are not restated to
reflect the effects of inflation will not include the
F-60
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
restatement of non-monetary assets and the net gain or loss (holding gains or
losses) on exposure of monetary assets and liabilities to price level changes.
In March 1992, the monetary correction system was discontinued for tax purposes
in Argentina.
b) On January 1, 1992 the peso replaced the austral as Argentina's
official currency at a convertion rate of 10,000 australes per peso. One peso
currently is, and current Argentine law requires that one peso will continue to
be, exchangeable for not less than one dollar.
The following table shows, for the years indicated, certain information
regarding the exchange rates for U.S. dollars, expressed in nominal pesos per
dollar. The Federal Reserve Bank of New York does not report a non-buying rate
for Argentine pesos.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, HIGH LOW AVERAGE(1) END OF PERIOD
- ------------------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
1995 ......... 1.0000 0.9990 0.9995 1.0000
1996 ......... 1.0000 1.0000 1.0000 1.0000
1997 ......... 1.0000 1.0000 1.0000 1.0000
</TABLE>
- ----------------
(1) Average of month-end rates.
SOURCES: CENTRAL BANK--BANCO DE LA NACION ARGENTINA.
c) The consolidated financial statements of Sullair Argentina Sociedad
Anonima at December 31, 1997, as well as the related notes and exhibits, have
been prepared in Argentine pesos on the basis of accounting records carried in
Argentina in that currency. These financial statements include a column that
gives effect to the translation into U.S. dollars of the balances at December
31, 1997. Balances have been translated at the exchange rate at December 31,
1997, indicated in Note 1.2.b).
1.3. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance
with Argentine GAAP and with the requirements of the IGJ, and are presented in
Argentine pesos ("P$").
1.4. CASH AND CASH EQUIVALENTS
In the consolidated statements of cash flows, the Company considers cash
and cash equivalents all its highly liquid investments purchased with an
original maturity at three months or less.
F-61
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
1.5. VALUATION CRITERIA
The principal valuation criteria used in the preparation of the
consolidated financial statements are as follows:
a) Foreign currency
Assets and liabilities denominated in foreign currency are presented at
the nominal value of the foreign currency converted to local currency at
year-end exchange rates. Exchange differences have been included in the
determination of the net income.
b) Accounts and other receivables
Accounts receivable are stated at estimated realizable values and an
allowance for doubtful accounts is provided in an amount considered by
management to be sufficient to meet probable future losses related to
uncollectible accounts. Accounts and other receivables deemed uncollectible by
management are charged against the allowance for doubtful accounts at the time
of such determination.
c) Inventories
Inventories are valued at replacement cost which, in the aggregate, is
less than recoverable value on the following basis:
Imported raw materials and supplies: at replacement cost in the currency
of origin converted at the year-end exchange rate plus the percentage of
import duties incurred.
Domestic raw materials and supplies: at replacement cost.
Imports in progress: at their import cost in the currency of origin
converted at the year-end exchange rate plus expenses incurred since the
date of origin through each year end.
d) Property and equipment
Property and equipment are presented at cost restated through August 31,
1995 (Note 1.2.), less accumulated depreciation.
Depreciation commences in the month following acquisition or placement of
the assets in service and is computed on a straight-line basis over the
estimated useful lives of the assets. Aggregate net value does not exceed
recoverable value.
Management considers that there has been no impairment in the carrying
value of property and equipment.
F-62
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
e) Long-term investments
The government bond of "Argentina Bond" has been valued at its cost,
increased on a exponential basis according to the internal rate of return at
the time of its incorporation to assets and time elapsed thereafter.
Equity investment in Bahian S.A. (Note 1.1.)
f) Administrative and selling expenses
Administrative and selling expenses are charged to income when incurred.
g) Employee severance indemnities
Employee severance indemnities are expensed as paid.
h) Income tax
Income taxes are those estimated to be paid for each year. The income tax
has been estimated by applying the 33% statutory tax rate to taxable income of
the years ended December 31, 1997 and 1996 and the 30% statutory tax rate to
taxable income of the year ended December 31, 1995. The resulting amount was
charged to income tax in the consolidated statement of income.
i) Shareholders' equity
Shareholders' equity accounts have been restated in constant pesos as of
the end of each year (Note 1.2.), except for the capital stock account which is
stated at nominal value. The adjustment required to restate such value into
constant pesos is included in the "Adjustment to capital" account.
j) Sales, rentals and services recognition
Sales, rentals and services are recognized on an accrual basis. The
Company's revenues are presented net of sales discounts.
k) Statement of income
These accounts have been restated on a constant Argentine pesos basis
through August 31, 1995 (Note 1.2.), as follows:
--Accounts accumulating monetary transactions throughout the year
(revenues, direct operating costs and non-operating expenses) have been
restated as from the month when the transaction took place.
F-63
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
--Charges to income related to non-monetary assets reflect their adjustment
to restated cost (depreciation of property and equipment), and charges
related to materials reflect their adjustment to replacement cost.
NOTE 2--ANALYSIS OF CERTAIN BALANCE SHEETS AND STATEMENTS OF INCOME ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1997 1996
-------------- -------------- ---------------
US$(1) P$
-------------- --------------------------------
<S> <C> <C> <C>
BALANCE SHEETS
CURRENT ASSETS
a) Accounts receivable
Trade receivable ...................................... 11,359,844 11,359,844 7,577,756
Notes receivable ...................................... 2,009,205 2,009,205 3,099,894
Export letters receivable ............................. 864,046 864,046 1,462,404
Less: Allowance for doubtful account (Note 4) ......... (271,724) (271,724) (1,606,825)
---------- ---------- ----------
13,961,371 13,961,371 10,533,229
========== ========== ==========
b) Other receivables
Recoverable taxes ..................................... 1,399,761 1,399,761 2,055,431
Advances to employees ................................. 132,078 132,078 72,173
Prepaid expenses ...................................... 355,698 355,698 225,731
Commissions receivable ................................ 165,228 165,228 73,917
Prepaid insurance ..................................... 196,362 196,362 106,743
Loans to Directors .................................... 34,651 34,651 1,348,933
Others ................................................ 37,439 37,439 688,848
Export credit bonds ................................... -- -- 122,816
---------- ---------- ----------
2,321,217 2,321,217 4,694,592
========== ========== ==========
c) Inventories
Finished goods ........................................ 7,458,646 7,458,646 7,919,539
Manufactured materials ................................ 2,505,660 2,505,660 1,795,516
Supplies in transit ................................... 2,427,091 2,427,091 1,856,765
Advances to suppliers ................................. 296,242 296,242 25,106
---------- ---------- ----------
12,687,639 12,687,639 11,596,926
========== ========== ==========
</TABLE>
F-64
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 2--ANALYSIS OF CERTAIN BALANCE SHEETS AND STATEMENTS OF INCOME
ACCOUNTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1997 1996
------------- ------------- -------------
US$(1) P$
------------- -----------------------------
<S> <C> <C> <C>
NON-CURRENT ASSETS
d) Other receivables
Receivables due to the partial suspension of the
tax credit ...................................... 41,396 41,396 41,396
Credits Decree No. 2054/92--VAT Purchases ......... 608,604 608,604 608,604
------- ------- -------
Subtotal (Note 7.b)) .............................. 650,000 650,000 650,000
Other tax credits ................................. 7,658 7,658 7,658
------- ------- -------
657,658 657,658 657,658
======= ======= =======
e) Long-term investments
Bahian S.A. ....................................... 199,756 199,756 199,756
Argentina Bond .................................... 34,000 34,000 67,000
------- ------- -------
233,756 233,756 266,756
======= ======= =======
CURRENT LIABILITIES
f) Accounts payable
Trade
Suppliers ........................................ 10,627,915 10,627,915 12,379,320
Related companies ................................ 1,109,854 1,109,854 758,958
---------- ---------- ----------
11,737,769 11,737,769 13,138,278
========== ========== ==========
g) Short-term bank borrowings (Note 5)
Banks
Overdrafts ....................................... 596,176 596,176 211,165
Unsecured notes .................................. 6,017,554 6,017,554 8,100,731
---------- ---------- ----------
6,613,730 6,613,730 8,311,896
========== ========== ==========
NON-CURRENT LIABILITIES
h) Long-term bank borrowings
Banks
Unsecured notes .................................. 5,342,376 5,342,376 3,560,501
========== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c).
F-65
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 2--ANALYSIS OF CERTAIN BALANCE SHEETS AND STATEMENTS OF INCOME
ACCOUNTS--(CONTINUED)
i) Aging breakdown of balance sheet accounts (amounts expressed in P$)
<TABLE>
<CAPTION>
NOT DUE
-------------------------------------------------------------------------
1ST 2ND 3RD 4TH 2ND
ITEMS QUARTER QUARTER QUARTER QUARTER YEAR TOTAL
- -------------------------------------- ----------- ----------- ------------ --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Accounts receivable ............... 8,697,997 5,202,381 332,717 -- -- 14,233,095
Other receivables ................. 731,402 866,588 670,226 53,001 657,658 2,978,875
--------- --------- ------- ------ ------- ----------
Total assets ...................... 9,429,399 6,068,969 1,002,943 53,001 657,658 17,211,970
========= ========= ========= ====== ======= ==========
LIABILITIES
Accounts payable .................. 5,519,884 6,217,885 -- -- -- 11,737,769
Notes payable to banks(1) ......... 3,181,602 1,771,986 889,308 770,834 5,342,376 11,956,106
Social security charges ........... 274,995 -- -- -- -- 274,995
Accrued taxes ..................... 162,041 897,168 -- -- -- 1,059,209
Advances from customers ........... 116,978 -- -- -- -- 116,978
--------- --------- --------- ------- --------- ----------
Total liabilities ................. 9,255,500 8,887,039 889,308 770,834 5,342,376 25,145,057
========= ========= ========= ======= ========= ==========
</TABLE>
- ----------------
(1) Corresponding to an annual rate of 7.70%.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1997 1997 1996 1995
---------------- ---------------- ---------------- ----------------
US$(1) P$
---------------- ------------------------------------------------------
<S> <C> <C> <C> <C>
STATEMENTS OF INCOME
j) Net revenues
Sales, rentals and services
Sales ............................. 37,403,570 37,403,570 25,000,149 25,067,779
Rentals and services .............. 20,673,613 20,673,613 14,927,114 10,433,168
Discounts ......................... (754,894) (754,894) (559,026) (203,396)
---------- ---------- ---------- ----------
57,322,289 57,322,289 39,368,237 35,297,551
========== ========== ========== ==========
k) Cost of sales, rentals and services
Sales .............................. (31,074,571) (31,074,571) (19,739,648) (19,566,701)
Rentals and services ............... (13,012,289) (13,012,289) (9,411,754) (8,529,926)
----------- ----------- ----------- -----------
(44,086,860) (44,086,860) (29,151,402) (28,096,627)
=========== =========== =========== ===========
l) Financial expenses
On assets .......................... 670,402 670,402 998,317 (19,979)
On liabilities ..................... (1,788,856) (1,788,856) (2,543,541) (905,622)
----------- ----------- ----------- -----------
(1,118,454) (1,118,454) (1,545,224) (925,601)
=========== =========== =========== ===========
</TABLE>
- ----------------
(1) See Note 1.2.c).
F-66
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 3--PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------
AVERAGE
USEFUL ANNUAL ORIGINAL ACCUMULATED NET BOOK NET BOOK
LIVES RATE VALUE DEPRECIATION VALUE VALUE
-------- -------- ------------ -------------- ------------ ------------
YEARS % P$ US$(1)
-------- -------- ------------------------------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Fixed assets
Land ................................ -- -- 2,638,964 -- 2,638,964 2,638,964
Buildings ........................... 50 2 3,740,035 713,284 3,026,751 3,026,751
Fixtures ............................ 50 2 273,077 38,650 234,427 234,427
Vehicles ............................ 5 20 1,917,016 1,308,577 608,439 608,439
Machines and equipment .............. 10 10 1,119,784 771,071 348,713 348,713
Office and equipment ................ 10 10 1,004,644 558,161 446,483 446,483
Other ............................... 4 25 1,393,747 1,050,953 342,794 342,794
--------- --------- --------- ---------
Subtotal .............................. 12,087,267 4,440,696 7,646,571 7,646,571
Rental machines and equipment ......... 5 20 17,838,062 8,161,271 9,676,791 9,676,791
Fixed assets investment Petrolera
Argentina San Jorge S.A. ............ 12.5 8 11,908,436 2,754,112 9,154,324 9,154,324
---------- --------- --------- ---------
Total ................................. 41,833,765 15,356,079 26,477,686 26,477,686
========== ========== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c).
Depreciation for 1997 amounted to P$6,360,947 of which P$6,107,952 was
allocated to "Cost of sales, rentals and services"; P$126,497 to
"Administrative expenses" and P$126,498 to "Selling expenses".
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------
AVERAGE
USEFUL ANNUAL ORIGINAL ACCUMULATED NET BOOK
LIVES RATE VALUE DEPRECIATION VALUE
-------- -------- ------------ -------------- ------------
YEARS % P$
-------- -------- -----------------------------
<S> <C> <C> <C> <C> <C>
Fixed assets
Land .................................... -- -- 2,638,964 -- 2,638,964
Buildings ............................... 50 2 3,348,076 638,484 2,709,592
Fixtures ................................ 50 2 265,812 33,189 232,623
Vehicles ................................ 5 20 1,632,683 1,079,824 552,859
Machines and equipment .................. 10 10 962,189 685,937 276,252
Office and equipment .................... 10 10 780,130 481,577 298,553
Other ................................... 4 25 1,212,486 1,010,100 202,386
--------- --------- ---------
Subtotal .................................. 10,840,340 3,929,111 6,911,229
Rental machines and equipment ............. 7 14 12,178,247 4,675,613 7,502,634
Fixed assets investment Petrolera Argentina
San Jorge S.A. .......................... 12.5 8 11,725,018 1,436,022 10,288,996
---------- --------- ----------
Total ..................................... 34,743,605 10,040,746 24,702,859
========== ========== ==========
</TABLE>
F-67
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 3--PROPERTY AND EQUIPMENT--(CONTINUED)
Depreciation for 1996 amounted to P$3,272,048; of which P$3,133,470 was
allocated to "Cost of sales, rentals and services"; P$55,491 to "Administrative
expenses" and P$69,140 to "Selling expenses" and P$13,947 to "Other".
NOTE 4--ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 1997 1996
--------------- ----------------------- ------------
US$(1) P$
--------------- --------------------------------------
<S> <C> <C> <C>
Balance at the beginning of the year ......... 1,606,825 1,606,825 1,309,587
Increase ..................................... 300,176 300,176 307,633
Decrease ..................................... (1,635,277) (1,635,277) (2) (10,395)
---------- ---------- ---------
Balance at the end of the year ............... 271,724 271,724 1,606,825
========== ========== =========
</TABLE>
- ----------------
(1) See Note 1.2.c).
(2) Until the year ended December 31, 1996 the Company held in its accounts
receivable an amount of long-outstanding bad debts which was offset by a
corresponding allowance. During 1997 the Company reduced the bad debt
allowance by P$1,635,277 with a corresponding reduction in the related
accounts receivable. This adjustment has had no impact on results for the
year.
NOTE 5--SHORT-TERM BANK BORROWINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1997 1996
-------------- -------------- --------------
US$(1) P$
-------------- -------------------------------
<S> <C> <C> <C>
Credit balances with banks ............. 596,176 596,176 211,165
Loans .................................. 6,017,554 6,017,554 8,100,731
--------- --------- ---------
6,613,730 6,613,730 8,311,896
========= ========= =========
Weighted average interest rate ......... 7.70% 7.70% 9.50%
</TABLE>
- ----------------
(1) See Note 1.2.c).
NOTE 6--TRANSACTIONS WITH RELATED PARTIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1997 1996
----------- ----------- --------
US$(1) P$
----------- ----------------------
<S> <C> <C> <C>
Sullair Corporation(2)
Accounts payable ......... 1,109,854 1,109,854 758,958
========= ========= =======
</TABLE>
- ----------------
(1) See Note 1.2.c).
(2) Sullair Argentina Sociedad Anonima and Sullair San Luis Sociedad Anonima
buy Sullair Corporation machines and equipment.
F-68
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 7--SUBSTITUTION OF THE INDUSTRIAL PROMOTION REGIME IN SULLAIR SAN LUIS
SOCIEDAD ANONIMA
a) The fiscal benefits obtained by Sullair San Luis Sociedad Anonima under
the industrial promotion regime were substituted as established by Decree No.
2054/92 of the National Government. These benefits are currently ruled by a DGI
(tax authorities) computerized current account which can be applied, up to a
maximum per year, to the payment of tax obligations corresponding to the
remaining years of the project.
Accordingly, these benefits are accounted for under the accrual basis once
the Company complies with the obligations that produce the benefit. During the
year ended December 31, 1997 Sullair San Luis Sociedad Anonima has used
US$629,000 from the computerized current account, accounted in the consolidated
statement of income under the "Other non-operating income net" line, and
"current other receivable--recoverable taxes" (Note 2.b.).
b) In accordance with Decree No. 2054/92, the companies which were exempt
from payment of VAT on purchases until Decree No. 435/90 was annulled were
granted a tax credit for an amount equivalent to the tax paid to suppliers of
raw material and semi-manufactured products from April 1, 1990 up to November
30, 1992. Decree No. 2054/92 also established the maximum amount of the tax
credit to be recognized which cannot be exceeded. Despite the total amount of
the VAT credit paid during the abovementioned period by Sullair San Luis
Sociedad Anonima amounted to US$ 1,599,128, the Company management believes
that, although the Company is entitled to file claims, the amount to be
credited by the DGI in accordance with the provisions of the abovementioned
decree will not exceed US$650,000. This amount is shown as a receivable (see
Note 2d) and was charged to income in previous years, as the benefits were
accrued.
During June 1995, in compliance with the terms of DGI Resolutions Nos.
3838 and 3905, Sullair San Luis Sociedad Anonima applied to this authority for
the fiscal credit certificates. The DGI has resolved to grant $232,144.68 as an
anticipated refund without recognizing the origin of the credit requested under
the terms of General Resolution No. 3838, pursuant to the provisions of General
Resolution No. 4182 by virtue of the period of suspension of the promotion
benefits implemented by sections IV and V of Law No. 23697 and complementary
regulations. The DGI has not as yet issued any opinion as regards General
Resolution No. 3905.
NOTE 8--CONTRACT WITH PETROLERA ARGENTINA SAN JORGE S.A.
During March 1995, the Company signed a contract with Petrolera Argentina
San Jorge S.A. for a term of 10 years for the execution of work for the
expansion of the power station located at the "El Trapial" field in the
province of Neuquen, and for the providing of an electricity supply service
that includes the making available of certain turbo-generators and power
plants, as well as their maintenance and commissioning.
In fiscal 1997, income has been generated for approximately US$4,107,113
and costs have been generated for approximately US$1,721,770.
F-69
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 9--EXTRAORDINARY RESULTS
In 1996, during the execution of work carried out under the agreement with
Petrolera Argentina San Jorge S.A., the Company incurred in extraordinary costs
in the amount, net of the effect of income taxes, of P$ 709,666, from the
incorporation of equipment of a higher standard than originally planned to
improve service and client attention, as well as in the absorption of unplanned
expenditure during the construction and development stage of this new business.
NOTE 10--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA
The consolidated financial statements have been prepared in accordance
with Argentine GAAP, which differ in certain significant respects from US GAAP.
The significant differences as at and for the years ended December 31, 1997,
1996 and 1995 are reflected in the reconciliations provided in Note 11 and
principally relate to the items discussed in the following paragraphs:
a) Restatement of financial statements for general price-level changes
The Argentine GAAP consolidated financial statements of the Company were
restated through August 31, 1995 and updated through August 31, 1995
price-levels to reflect the effects of inflation in accordance with specified
rules as more fully explained in Note 1.2.
In most circumstances, US GAAP do not allow for the restatement of
financial statements. Under US GAAP, account balances and transactions are
generally stated in the units of currency of the year when the transactions
originated. This accounting model is commonly known as the historical cost
basis of accounting. However, as the economy of Argentina experienced periods
of significant inflation prior to September 1995, the presentation of the
consolidated financial statements restated for general price-level changes is
substantially similar to the methodology prescribed by Accounting Principles
Board Statement ("APB") No. 3, "Financial Statements Restated for General Price
Level Changes". This statement requires that companies operating in
hyper-inflationary environments in which inflation has exceeded 100% over the
last three years and which report in local currency restate their financial
statements on the basis of a general price-level index. August 1993 was the
first month in which the rate of inflation in Argentina, as measured by the
WPI, was below 100% for the first time in 36 consecutive months since the
release of Statement of Financial Accounting Standards ("SFAS") No. 52 "Foreign
Currency--Translation". The US GAAP reconciliation does not reverse the effects
of the general price-level restatement included in the Argentine GAAP financial
statements through August 31, 1995.
b) Presentation of the parent company financial statements
Argentine GAAP require companies with controlling financial interest in
other companies to present both parent company, where investments in
subsidiaries are accounted for by the equity method, and consolidated financial
statements, as primary and supplementary information, respectively. Because of
the special purpose of these financial statements, parent financial statements
are not included.
F-70
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 10--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA--(CONTINUED)
c) Capitalized interest
Argentine GAAP do not require capitalization of interest on work in
progress. Under US GAAP interest incurred on working progress should be
capitalized as part of the cost of acquiring the assets until placed into
service. Accordingly, the reconciling difference for this item is presented in
the quantitative reconciliation in Note 11.
d) Advances to suppliers
Under Argentine GAAP, funds advanced to suppliers are capitalized and
included under Property and equipment prior to purchase and specific
identification. Under US GAAP these funds are treated as a deposit until the
related assets procured by such funds have been purchased and specifically
identified. Accordingly, such funds are generally classified as "Other assets".
However, due to the nature of such funds and their relative immateriality
to the consolidated financial statements taken as a whole (Note 3), the
quantitative difference between Argentine and US GAAP would be a
reclassification from Property and equipment to Other assets and, accordingly,
it does not affect the reconciliation of net income and shareholders' equity in
Note 11.
e) Recoverability of long-lived assets to be held and used in the business
Management reviews long-lived assets, primarily Property and equipment, to
be held and used in the business, and Long-term investments for the purposes of
determining and measuring impairment. Under US GAAP, SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of", requires a company to review assets for impairment whenever
events or changes in circumstances indicate the carrying amount of an asset may
not be recoverable.
Management estimates that there is no significant impairment of assets.
f) Vacation accrual
Under Argentine GAAP, there are no specific requirements governing the
recognition of accruals for vacations. The accepted practice in Argentina is to
expense vacation when taken and to accrue only the amount of vacation in excess
of normal remuneration.
Under US GAAP, vacation expense is fully accrued in the year the employee
renders service to earn such vacation. Accordingly, the reconciling difference
for this item is presented in the quantitative reconciliation in Note 11.
F-71
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 10--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA--(CONTINUED)
g) Income taxes
Under Argentine GAAP, income tax expense is generally recognized based
upon the estimate of the current income tax liability. When income and expense
recognition for financial statement purposes does not occur in the same period
as income and expense recognition for tax purposes, the resulting temporary
differences are not considered in the computation of income tax expense for the
year.
Under US GAAP, the liability method is used to calculate the income tax
provision. Under the liability method, deferred tax assets or liabilities are
recognized with a corresponding charge or credit to income for differences
between the financial and tax basis of assets and liabilities at each year-end.
Accordingly, the reconciling difference for this item is presented in the
quantitative reconciliation in Note 11.
h) Severance indemnities
US GAAP require the accrual of liability for certain post-employment
benefits if they are related to services already rendered, are related to
rights that accumulate or vest, or are likely to be paid and can be reasonable
estimated.
As described in Note 1.5.g), the Company expenses severance indemnities
when paid. Under Argentine law, the Company is required to pay a minimum
severance indemnity based on years of service and age when an employee is
dismissed without adequate justification. While the Company expects to make
severance payments in the future, it is unable to reasonably estimate the
amount of liability, if any, at the present time. As a result, no adjustment
has been made in the US GAAP reconciliation.
i) Inventories
As described in Note 1.5.c) the Company values its inventories at
replacement cost. Under US GAAP inventories are to be valued at the lower of
cost or realizable value. There are no material differences between the
replacement cost and the US GAAP cost. As a result, no adjustment has been made
in the US GAAP reconciliation.
j) Extraordinary items
Unplanned expenditures during the construction of the project described in
Note 9 are included as an extraordinary loss under Argentine GAAP.
This concept does not qualify as an extraordinary item under US GAAP.
F-72
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 11--RECONCILIATION OF NET INCOME (LOSS) AND SHAREHOLDERS' EQUITY TO US
GAAP
The following is a summary of the significant adjustments to net income
and shareholders' equity for the years ended December 31, 1997, 1996 and 1995,
which would be required if US GAAP were applied instead of Argentine GAAP in
the financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1997
----------------------------- -----------------------------
US$(1) P$
----------------------------- -----------------------------
NET SHAREHOLDERS' NET SHAREHOLDERS'
INCOME EQUITY INCOME EQUITY
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
AMOUNTS PER
ACCOMPANYING
FINANCIAL STATEMENTS ......... 5,019,918 31,566,796 5,019,918 31,566,796
US GAAP ADJUSTMENTS
Deferred income tax ............ 74,911 (79,187) 74,911 (79,187)
Vacation accrual ............... (29,738) (399,033) (29,738) (399,033)
Capitalized interest ........... 7,486 16,104 7,486 16,104
--------- ---------- --------- ----------
AMOUNTS UNDER
US GAAP ...................... 5,072,577 31,104,680 5,072,577 31,104,680
========= ========== ========= ==========
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995
----------------------------- ------------
P$
------------------------------------------
NET SHAREHOLDERS' NET
INCOME EQUITY INCOME
------------- --------------- ------------
<S> <C> <C> <C>
AMOUNTS PER
ACCOMPANYING
FINANCIAL STATEMENTS ......... 2,614,066 26,546,878 1,894,371
US GAAP ADJUSTMENTS
Deferred income tax ............ 134,320 (154,098) 90,063
Vacation accrual ............... 54,092 (369,295) (23,387)
Capitalized interest ........... (11,428) 8,618 20,046
--------- ---------- ---------
AMOUNTS UNDER
US GAAP ...................... 2,791,050 26,032,103 1,981,093
========= ========== =========
</TABLE>
- ----------------
(1) See Note 1.2.c).
NOTE 12--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS
a) Income taxes
The Company's deferred income taxes under US GAAP are comprised as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1997 1996 1995
------------ ------------ ------------- -------------
US$(1) P$
------------ --------------------------------------------
<S> <C> <C> <C> <C>
Deferred tax assets
Allowance for doubtful accounts ......... -- -- 8,416 --
Fixed assets ............................ 11,686 11,686 11,686 46,870
------ ------ ------ ------
11,686 11,686 20,102 46,870
Deferred tax liabilities
Other receivables ....................... (90,873) (90,873) (174,200) (335,288)
------- ------- -------- --------
(90,873) (90,873) (174,200) (335,288)
------- ------- -------- --------
Net deferred tax assets ................... (79,187) (79,187) (154,098) (288,418)
======= ======= ======== ========
</TABLE>
- ----------------
(1) See Note 1.2.c).
F-73
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 12--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS--(CONTINUED)
The provision for income taxes computed in accordance with US GAAP differs
from that computed at the statutory tax rate (December 31, 1997 and 1996: 33%;
December 31, 1995: 30%) as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1997 1996 1995
------------- ------------- ------------- -------------
US$(1) P$
------------- ---------------------------------------------
<S> <C> <C> <C> <C>
Income tax expense (benefit) at statutory
tax rate on pretax income in accordance
with US GAAP ............................... 2,313,367 2,313,367 1,133,778 657,482
Change of statutory income tax rate ......... -- -- 28,842 --
Fixed assets(2) ............................. (168,171) (168,171) (293,076) (259,341)
Permanent differences(3) .................... (207,570) (207,570) (224,902) (187,626)
--------- --------- --------- --------
Income tax expense (benefit) in accordance
with US GAAP ............................... 1,937,626 1,937,626 644,642 210,515
========= ========= ========= ========
</TABLE>
- ----------------
(1) See Note 1.2.c).
(2) Effects of differing price-level adjustments for tax and financial
statement purposes.
(3) Fiscal benefits obtained by Sullair San Luis Sociedad Anonima (see Note
7.a)).
b) Supplementary cash flow information
Cash and cash equivalents at the end of each year comprises:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1997 1996 1995
--------- --------- --------- --------
US$(1) P$
--------- --------------------------------
<S> <C> <C> <C> <C>
Cash and banks .......................... 305,876 305,876 542,989 382,280
------- ------- ------- -------
Total cash and cash equivalents ......... 305,876 305,876 542,989 382,280
======= ======= ======= =======
</TABLE>
- ----------------
(1) See Note 1.2.c).
The Company has included all highly liquid investments, having an original
maturity which does not exceed 3 months as from the year, in cash and cash
equivalents.
The Company has applied the indirect method in order to reconcile net
income of each year with the cash flow provided by operating activities.
F-74
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 12--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS--(CONTINUED)
Breakdown of amounts paid during the years is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1997 1996
-------- -------- -------
US$(1) P$
-------- ------------------
<S> <C> <C> <C>
Income tax ......... 14,646 14,646 43,820
====== ====== ======
</TABLE>
Main non-cash transactions
Main non-cash transactions, consequently eliminated in the Statement of
cash flows, are the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1997 1996 1995
----------- ----------- ----------- ----------
US$(1) P$
----------- --------------------------------------
<S> <C> <C> <C> <C>
Fixed assets acquisitions financed by loans and
accounts payable ............................. -- -- 5,763,979 6,081,494
--------- --------- --------- ---------
-- -- 5,763,979 6,081,494
========= ========= ========= =========
</TABLE>
- ----------------
(1) See Note 1.2.c).
Main investing activities
Proceeds from investments other than cash equivalents are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1997 1996 1995
-------- --------- --------- --------
US$(1) P$
-------- --------------------------------
<S> <C> <C> <C> <C>
Current investments .......... -- -- 504,387 --
1998 Argentina Bond ......... 33,000 33,000 33,000 --
------ ------ ------- -------
Total ........................ 33,000 33,000 537,387 --
====== ====== ======= =======
</TABLE>
- ----------------
(1) See Note 1.2.c).
The Company has no cash balances in currency other than U.S. dollars.
Since the exchange rates remained unchanged for the years ended December 31,
1997, 1996 and 1995, no foreign exchange gains/losses shall be adjusted for US
GAAP purposes.
F-75
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 12--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS--(CONTINUED)
c) Fair value of financial instruments
In accordance with SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments", information is provided about the fair value of certain
financial instruments for which it is practicable to estimate that value.
For the purposes of SFAS No. 107, the estimated fair value of a financial
instrument is the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a forced or
liquidation sale. The carrying values of the Companies' financial instruments
as of December 31, 1997, 1996 and 1995 approximate management's best estimate
of their fair values. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments for which it is
practicable to estimate that value:
--The fair value of certain financial assets carried at cost, including
cash, short-term investments, trade receivables and other current assets
is considered to approximate their respective carrying value due to their
short-term nature.
--The fair value of accounts payable and accrued liabilities, short-term
bank borrowings, tax payable and other current liabilities is considered
to approximate their respective carrying value due to their short-term
nature.
d) Financial instruments with off-balance sheet risk and concentrations of
credit risk
The Company has not used financial instruments to hedge its exposure to
fluctuations in foreign currency exchange or interest rates and, accordingly,
has not entered into transactions that create off-balance sheet risks
associated with such financial instruments.
Accounts receivable substantially comprise balances with a large number of
clients. Management does not believe significant concentrations of credit risk
exist.
NOTE 13--IMPACT OF NEW ACCOUNTING STANDARD NOT YET ADOPTED
In June 1997, the Financial Accounting Board issued its Statement No. 130,
"Reporting Comprehensive Income". Among other provisions, SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. It does not
address issues of recognition or measurement for comprehensive income and its
components. Management does not expect the adoption of SFAS No. 130 to have
material impact on its financial statements.
In June 1997, Statement No. 131 ("SFAS 131"), DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION, was issued. SFAS 131 establishes
standards for the way that public companies disclose selected information about
operating segments in annual financial statements and requires that those
companies disclose selected information about segments in interim financial
reports issued to
F-76
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 13--IMPACT OF NEW ACCOUNTING STANDARD NOT YET ADOPTED--(CONTINUED)
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. SFAS 131 is
effective for financial statements for periods beginning after December 15,
1997. Accordingly, the Company is not required to adopt SFAS 131 until the
fiscal year ending December 31, 1998. SFAS 131 relates solely to disclosure
provisions, and therefore will not have any effect on the results of
operations, financial position and cash flows of the Company.
* * * * * *
F-77
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA AND ITS
SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED BALANCE SHEETS
(Expressed in constant pesos -P$- of August 31, 1995 and in nominal pesos
thereafter--Note 1.2.)
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------
US$ (1) P$
------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and banks .......................................... 344,123 344,123
Accounts receivable (Note 2.a) .......................... 14,498,228 14,498,228
Other receivables (Note 2.b) ............................ 2,442,660 2,442,660
Inventories (Note 2.c) .................................. 13,831,892 13,831,892
---------- ----------
Total current assets .................................... 31,116,903 31,116,903
---------- ----------
NON-CURRENT ASSETS
Other receivables (Note 2.d) ............................ 657,658 657,658
Long-term investments (Note 2.e) ........................ 233,756 233,756
Property and equipment, net (Note 3) .................... 26,959,096 26,959,096
Other ................................................... 67,374 67,374
Total non-current assets ................................ 27,917,884 27,917,884
---------- ----------
Total assets ............................................ 59,034,787 59,034,787
========== ==========
LIABILITIES
CURRENT LIABILITIES
Accounts payable (Note 2.f) ............................. 9,157,739 9,157,739
Short-term bank borrowings (Note 2.g) ................... 12,899,000 12,899,000
Taxes payables .......................................... 1,716,578 1,716,578
Payroll and social security ............................. 159,339 159,339
Dividends payable ....................................... 787,500 787,500
Other ................................................... 28,659 28,659
---------- ----------
Total current liabilities ............................... 24,748,815 24,748,815
---------- ----------
NON-CURRENT LIABILITIES
Long-term bank borrowings (Note 2.h) .................... 4,453,067 4,453,067
---------- ----------
Total non-current liabilities ........................... 4,453,067 4,453,067
---------- ----------
Total liabilities ....................................... 29,201,882 29,201,882
---------- ----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY ............ 758 758
---------- ----------
SHAREHOLDERS' EQUITY (as per related statement) ......... 29,832,147 29,832,147
---------- ----------
Total liabilities and shareholders' equity .............. 59,034,787 59,034,787
========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c)
The accompanying notes are an integral part of these consolidated financial
statements.
F-78
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA AND ITS
SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENTS OF INCOME
for the three-month periods ended March 31, 1998 and 1997
(Expressed in constant pesos -P$- of August 31, 1995 and in nominal pesos
thereafter--Note 1.2.)
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1998 1998 1997
--------------- --------------- ---------------
US$ (1) P$
--------------- ---------------------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net sales, rentals and services (Note 2.j) ........................ 13,199,362 13,199,362 11,855,620
Operating costs
Cost of sales, rentals and services (Note 2.k) ................... (9,171,586) (9,171,586) (8,720,234)
Administrative expenses .......................................... (397,671) (397,671) (316,800)
Selling expenses ................................................. (728,005) (728,005) (634,734)
Other ............................................................ (75,000) (75,000) (67,271)
---------- ---------- ----------
Operating income .................................................. 2,827,100 2,827,100 2,116,581
Non-operating income (expenses) ...................................
Financial expenses (Note 2.l) ..................................... (315,942) (315,942) (350,567)
Other non-operating income, net (Note 7) .......................... 72,126 72,126 52,154
---------- ---------- ----------
Income before taxes and minority interest ......................... 2,583,284 2,583,284 1,818,168
Income tax ........................................................ (817,902) (817,902) (578,800)
---------- ---------- ----------
Income before minority interest ................................... 1,765,382 1,765,382 1,239,368
Minority interest in results of consolidated subsidiaries ......... (31) (31) (38)
---------- ---------- ----------
Net income for the period ......................................... 1,765,351 1,765,351 1,239,330
========== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c)
The accompanying notes are an integral part of these consolidated financial
statements.
F-79
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA AND ITS
SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the three-month period ended March 31, 1998
(Expressed in constant pesos -P$- of August 31, 1995 and in nominal pesos
thereafter--Note 1.2.)
<TABLE>
<CAPTION>
EARNINGS
ADJUSTMENTS ---------------------------------
TO CAPITAL UNAPPROPRIATED TOTAL
CAPITAL STOCK RETAINED SHAREHOLDERS'
STOCK (NOTE 1.5 I) LEGAL RESERVE EARNINGS EQUITY
--------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
At January 1, 1998 ................... 86,000 12,723 26,708 31,441,365 31,566,796
Dividends ............................ -- -- -- (3,500,000) (3,500,000)
Net income for the period ............ -- -- -- 1,765,351 1,765,351
------ ------ ------ ---------- ----------
At March 31, 1998 .................... 86,000 12,723 26,708 29,706,716 29,832,147
====== ====== ====== ========== ==========
At March 31, 1998 in US$ (1) ......... 86,000 12,723 26,708 29,706,716 29,832,147
====== ====== ====== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c)
The accompanying notes are an integral part of these consolidated
financial statements.
F-80
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA AND ITS
SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENT OF CASH FLOWS
for the three-month periods ended March 31, 1998 and 1997
(Expressed in constant pesos -P$- of August 31, 1995 and in nominal pesos
thereafter--Note 1.2.)
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the period ........................................... 1,765,351 1,239,330
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation ...................................................... 1,278,168 1,374,746
Allowance for doubtful accounts ................................... 75,000 75,000
Minority interest ................................................. 31 38
Fixed assets disposals ............................................ 181,685 385,231
Taxes on income ................................................... 817,902 578,800
Financial and holding results on assets other than cash or cash
equivalents and on liabilities .................................. 181,394 349,414
Decrease (increase) in assets:
Accounts receivable .............................................. (611,857) (2,477,502)
Other receivables ................................................ (121,443) 1,794,357
Inventories ...................................................... (1,144,253) 946,477
Increase (decrease) in liabilities:
Accounts payable ................................................. (2,580,030) (1,244,816)
Payroll and social security ...................................... (115,656) (94,485)
Other liabilities ................................................ 28,659 5,515
Taxes payable .................................................... (160,527) (268,844)
Advances from customers .......................................... (116,978) (593,339)
---------- ----------
Cash provided by operations ......................................... (522,554) 2,069,922
---------- ----------
CASH FLOWS FROM INVESTMENT ACTIVITIES
Purchases of property and equipment ................................. (1,941,266) (3,766,639)
---------- ----------
Cash used in investment activities .................................. (1,941,266) (3,766,639)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans ............................................ 11,007,769 5,160,668
Repayments of bank loans ............................................ (5,689,308) (3,621,068)
Interest and related cost payments .................................. (103,894) --
Cash dividends ...................................................... (2,712,500) --
---------- ----------
Cash provided by financing activities ............................... 2,502,067 1,539,600
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................... 38,247 (157,117)
Cash and cash equivalents at the beginning of the period ............ 305,876 542,989
---------- ----------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD .................. 344,123 385,872
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-81
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
1.1. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of Sullair
Argentina Sociedad Anonima and its subsidiary, Sullair San Luis Sociedad
Anonima. All material intercompany balances, transactions and profits have been
eliminated.
Sullair Argentina Sociedad Anonima holds 99.99% of the shares of Sullair
San Luis Sociedad Anonima. In addition to its participation in Sullair San Luis
Sociedad Anonima, Sullair Argentina Sociedad Anonima holds 100% of the shares
of Bahian S.A., a company located in Uruguay. Bahian S.A. holds 49% of the
shares of Sullair Do Brasil Ltd., a Brazilian company.
The participation in Bahian S.A. has not been consolidated in view of its
low materiality and is shown in the consolidated financial statements under
non-current investments, at its cost value. This situation does not give rise
to any significant distortion that could affect the valuation and disclosure of
the consolidated financial statements.
The preparation of the financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
balance sheet dates, and the reported amounts of revenues and expenses during
the reporting years. Actual results may differ from these estimates.
1.2. RECOGNITION OF THE EFFECTS OF INFLATION
a) Pursuant to the restatement methodology established under technical
pronouncements issued by the Federacion Argentina de Consejos Profesionales de
Ciencias Economicas (Argentine Federation of Professional Councils in Economic
Sciences, or "FACPCE"), the consolidated financial statements of the Company
were stated in constant Argentine pesos through August 31, 1995. To account for
the effects of inflation in Argentina and in accordance with Argentine GAAP,
prior to September 1, 1995, the Company's financial statements were
periodically restated based on the changes in the Precios Mayoristas Nivel
General (General Wholesale Price Index, or "WPI"). However, pursuant to
resolutions of the IGJ, Argentine companies are not permitted to reflect the
effects of inflation on their financial statements as of any date or for any
period after September 1, 1995.
Accordingly, for fiscal year 1995, the Company is required to reflect the
effects of inflation on its financial statements through August 31, 1995, but
is not permitted to do so for the four-month period ended December 31, 1995 or
for subsequent periods. For the three-month period ended March 31, 1998 and
1997, as the change in the WPI since August 31, 1995 has been less than eight
percent, financial statements prepared in accordance with Argentine GAAP need
not be adjusted for inflation after that date. Financial statements that are
not restated to reflect the effects of inflation will not include the
restatement of non-monetary assets and the net gain or loss (holding gains or
losses) on exposure of monetary assets and liabilities to price level changes.
In March 1992, the monetary correction system was discontinued for tax purposes
in Argentina.
(b) On January 1, 1992 the peso replaced the austral as Argentina's
official currency at a conversion rate of 10,000 australes per peso. One peso
currently is, and current Argentine law requires that one peso will continue to
be, exchangeable for not less than one dollar.
F-82
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The following table shows, for the periods indicated, certain information
regarding the exchange rates for U.S. dollars, expressed in nominal pesos per
dollar. The Federal Reserve Bank of New York does not report a non buying rate
for Argentine pesos.
<TABLE>
<CAPTION>
MARCH 31 HIGH LOW AVERAGE(1) END OF PERIOD
- ---------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
1997 1.0000 1.0000 1.0000 1.0000
1998 1.0000 1.0000 1.0000 1.0000
</TABLE>
- ----------------
(1) Average of month-end rates.
SOURCES: CENTRAL BANK: BANCO DE LA NACION ARGENTINA.
c) The consolidated financial statements of Sullair Argentina Sociedad
Anonima at March 31, 1998, as well as the related notes and exhibits, have been
prepared in Argentine pesos on the basis of accounting records carried in
Argentina in that currency. These financial statements include a column that
gives effect to the translation into U.S. dollars of the balances at March 31,
1998. Balances have been translated at the exchange rate at March 31, 1998,
indicated in Note 1.2.b).
1.3. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance
with Argentine GAAP and with the requirements of the IGJ and are presented in
Argentine pesos ("Ps").
1.4. CASH AND CASH EQUIVALENTS
In the consolidated statements of cash flows, the Company considers cash
and cash equivalents all its highly liquid investments purchased with an
original maturity at three months or less.
1.5. VALUATION CRITERIA
The principal valuation criteria used in the preparation of the
consolidated financial statements are as follows:
a) Foreign currency
Assets and liabilities denominated in foreign currency are presented at
the nominal value of the foreign currency converted to local currency at
period-end exchange rates. Exchange differences have been included in the
determination of the net income.
b) Accounts and other receivables
Receivables are stated at estimated realizable values and an allowance for
doubtful accounts is provided in an amount considered by management to be
sufficient to meet probable future losses related to uncollectible accounts.
Accounts and other receivables deemed uncollectible by management are charged
against the allowance for doubtful accounts at the time of such determination.
F-83
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
c) Inventories
Inventories are valued at replacement cost, which in the aggregate is less
than recoverable value, on the following basis:
Imported raw materials and supplies: at replacement cost in the currency
of origin converted at the period-end exchange rate plus the percentage of
import duties incurred;
Domestic raw materials and supplies: at replacement cost;
Imports in progress: at their import cost in the currency of origin
converted at the period-end exchange rate plus expenses incurred since the date
of origin through each period-end.
d) Property and equipment
Property and equipment are presented at cost restated through August 31,
1995 (Note 1.2.), less accumulated depreciation.
Depreciation commences in the month following acquisition or placement of
the assets in service and is computed on a straight-line basis over the
estimated useful lives of the assets. Aggregate net value does not exceed
recoverable value.
Management considers that there has been no impairment in the carrying
value of property and equipment.
e) Long-term investments
The government bond or the "Argentina Bond" has been valued at its cost,
increased on an exponential basis according to the internal rate of return at
the time of its incorporation to assets and time elapsed thereafter.
Equity investment in Bahian S.A.: see Note 1.1.
f) Administrative and selling expenses
Administrative and selling expenses are charged to income when incurred.
g) Employee severance indemnities
Employee severance indemnities are expensed as paid.
F-84
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
h) Income tax
Income taxes are those estimated to be paid for each period. The income
tax has been estimated by applying the 33% statutory tax rate to taxable income
of the periods ended March 31, 1998 and 1997. The resulting amount was charged
to income tax in the consolidated statement of income.
i) Shareholders' equity
Shareholders' equity accounts have been restated in constant pesos as of
the end of the period (see Note 1.2.), except for the capital stock account
which is stated at nominal value. The adjustment required to restate such value
into constant pesos is included in the "Adjustment to capital" account.
j) Sales, rentals and services recognition
Revenues are recognized on an accrual basis. The Company's revenues are
presented net of sales discounts.
k) Statement of income
These accounts have been restated on a constant Argentine pesos basis
through August 31, 1995 (Note 1.2.), as follows:
Accounts accumulating monetary transactions throughout the period
(revenues, direct operating costs and non-operating expenses) have been
restated as from the month when the transaction took place.
Charges to income related to non-monetary assets reflect their adjustment
to restated cost (depreciation of property and equipment); and charges related
to materials reflect their adjustment to replacement cost.
NOTE 2--ANALYSIS OF CERTAIN BALANCE SHEETS AND STATEMENTS OF INCOME ACCOUNTS
<TABLE>
<CAPTION>
MARCH 31,
1998
-------------
<S> <C>
BALANCE SHEETS
CURRENT ASSETS
a) Accounts receivable
Trade receivable ...................................... 12,305,126
Notes receivable ...................................... 1,580,562
Export letters receivable ............................. 959,264
Less: Allowance for doubtful account (Note 4) ......... (346,724)
----------
14,498,228
==========
</TABLE>
F-85
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 2--ANALYSIS OF CERTAIN BALANCE SHEETS AND STATEMENTS OF INCOME
ACCOUNTS--(CONTINUED)
<TABLE>
<CAPTION>
MARCH 31,
1998
-------------
<S> <C>
CURRENT ASSETS (Contd.)
b) Other receivables
Recoverable taxes ................................................... 1,466,154
Advances to employees ............................................... 130,378
Prepaid expenses .................................................... 290,269
Commissions receivable .............................................. 247,677
Prepaid insurance ................................................... 130,186
Loans to Directors .................................................. --
Others .............................................................. 177,996
Export credit bonds ................................................. --
----------
2,442,660
==========
c) Inventories
Finished goods ...................................................... 7,067,156
Manufactured materials .............................................. 3,544,087
Supplies in transit ................................................. 3,147,505
Advances to suppliers ............................................... 73,144
----------
13,831,892
==========
NON-CURRENT ASSETS
d) Other receivables
Receivables due to the partial suspension of the tax credit ......... 41,396
Credits Decree No. 2054/92--VAT Purchases ........................... 608,604
----------
Subtotal (Note 7) ................................................... 650,000
Other tax credits ................................................... 7,658
----------
657,658
==========
e) Long-term investments
Bahian S.A. ......................................................... 199,756
Argentina Bond ...................................................... 34,000
----------
233,756
==========
CURRENT LIABILITIES
f) Accounts payable
Trade
Suppliers .......................................................... 8,066,565
Related companies .................................................. 1,091,174
----------
9,157,739
==========
</TABLE>
F-86
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 2--ANALYSIS OF CERTAIN BALANCE SHEETS AND STATEMENTS OF INCOME
ACCOUNTS--(CONTINUED)
<TABLE>
<CAPTION>
MARCH 31,
1998
-------------
<S> <C>
CURRENT LIABILITIES (Contd.)
g) Short-term bank borrowings (Note 5)
Banks
Overdrafts ......................... 877,620
Unsecured notes .................... 12,021,380
----------
12,899,000
==========
NON-CURRENT LIABILITIES
h) Long-term bank borrowings
Banks
Unsecured notes ................... 4,453,067
==========
</TABLE>
i) Aging breakdown of balance sheet accounts
<TABLE>
<CAPTION>
NOT DUE
----------------------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER 2 YEAR TOTAL
ITEMS ------------- ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Accounts receivable ............ 8,843,919 5,219,362 781,671 -- -- 14,844,952
Other receivables .............. 1,016,697 1,192,208 233,755 -- 657,658 3,100,318
--------- --------- ------- -- ------- ----------
Total assets ................... 9,860,616 6,411,570 1,015,426 -- 657,658 17,945,270
========= ========= ========= == ======= ==========
LIABILITIES
Accounts payable ............... 4,304,137 4,853,602 -- -- -- 9,157,739
Notes payable to banks (1) ..... 5,178,608 4,475,467 1,673,373 1,571,552 4,453,067 17,352,067
Social security charges ........ 159,339 -- -- -- -- 159,339
Accrued taxes .................. 307,245 685,333 -- -- 724,000 1,716,578
Other .......................... 816,159 -- -- -- -- 816,159
--------- --------- --------- --------- --------- ----------
Total liabilities .............. 10,765,488 10,014,402 1,673,373 1,571,552 5,177,067 29,201,882
---------- ---------- --------- --------- --------- ----------
</TABLE>
- ----------------
(1) Corresponding to an annual rate of 7.70%
F-87
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 2--ANALYSIS OF CERTAIN BALANCE SHEETS AND STATEMENTS OF INCOME
ACCOUNTS--(CONTINUED)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
MARCH 31,
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
STATEMENTS OF INCOME
j) Net revenues
Sales, rentals and services
Sales ............................. 7,723,831 6,700,158
Rentals and services .............. 5,751,513 5,317,859
Discounts ......................... (275,982) (162,397)
--------- ---------
13,199,362 11,855,620
========== ==========
k) Cost of sales, rentals and services
Sales .............................. (5,761,536) (5,773,951)
Rentals and services ............... (3,410,050) (2,946,283)
---------- ----------
(9,171,586) (8,720,234)
========== ==========
l) Financial expenses
On assets .......................... 99,745 70,141
On liabilities ..................... (415,687) (420,708)
---------- ----------
(315,942) (350,567)
========== ==========
</TABLE>
NOTE 3--PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31, 1998
USEFUL AVERAGE ------------------------------------------------
LIVES ANNUAL RATE ACCUMULATED NET BOOK
YEARS % ORIGINAL VALUE DEPRECIATION VALUE
-------- ------------ ---------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Fixed assets
Land ..................................... -- -- 2,638,964 -- 2,638,964
Buildings ................................ 50 2 4,015,114 772,010 3,243,104
Fixtures ................................. 50 2 864,944 760,177 104,767
Vehicles ................................. 5 20 1,917,017 1,389,556 527,461
Machines and equipment ................... 10 10 1,472,735 1,092,846 379,889
Office and equipment ..................... 10 10 1,034,458 576,491 457,967
Work in progress ......................... 4 25 887,805 -- 887,805
--------- --------- ---------
Subtotal .................................. 12,831,037 4,591,080 8,239,957
Rental, machines and equipment ............ 5 20 18,605,103 8,728,903 9,876,200
Fixed assets investment San Jorge ......... 12.5 8 11,911,362 3,068,423 8,842,939
---------- --------- ---------
Total ..................................... 43,347,502 16,388,406 26,959,096
========== ========== ==========
</TABLE>
F-88
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 4--ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
MARCH 31,
1998
----------
<S> <C>
Balance at the beginning of the period ......... 271,724
Increase ....................................... 75,000
Write off ...................................... --
-------
Balance at the end of the period ............... 346,724
=======
</TABLE>
NOTE 5--SHORT-TERM BANK BORROWINGS
<TABLE>
<CAPTION>
MARCH 31,
1998
---------------
<S> <C>
Credit balance with banks .............. 877,620
Loans .................................. 12,021,380
----------
12,899,000
==========
Weighted average interest rate ......... 12.00%
</TABLE>
NOTE 6--TRANSACTIONS WITH RELATED PARTIES
<TABLE>
<CAPTION>
MARCH 31,
1998
----------
<S> <C>
Sullair Corporation
Accounts payable ......... 2,309,326
=========
</TABLE>
NOTE 7--SUBSTITUTION OF THE INDUSTRIAL PROMOTION REGIME IN SULLAIR SAN LUIS
SOCIEDAD ANONIMA
a) The fiscal benefits obtained by Sullair San Luis Sociedad Anonima under
the industrial promotion regime were substituted as established by Decree No.
2054/92 of the National Government
These benefits are currently ruled by a DGI (tax authorities) computerized
current account which can be applied, up to a maximum per year, to the payment
of tax obligations corresponding to the remaining years of the project
Accordingly, these benefits are accounted for under the accrual basis once
the Company complies with the obligations that produce the benefit. During the
three-month period ended March 31, 1998 Sullair San Luis Sociedad Anonima has
used US$ 72,126 from the computerized current account, accounted in the
consolidated statement of income under the "'Other non-operating income net"
line, and "current--other receivables--recoverable taxes" (Note 2.b.)
b) In accordance with Decree No. 2054/92, the companies which were exempt
from payment of VAT on purchases until Decree No. 435/90 was annulled were
granted a tax credit for an amount equivalent to the tax paid to suppliers of
raw material and semi-manufactured products from April 1,
F-89
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 7--SUBSTITUTION OF THE INDUSTRIAL PROMOTION REGIME IN SULLAIR SAN LUIS
SOCIEDAD ANONIMA--(CONTINUED)
1990 up to November 30, 1992. Decree No. 2054/92 also established the maximum
amount of the tax credit to be recognized which cannot be exceeded. Despite the
fact that the total amount of the VAT credit paid during the abovementioned
period by Sullair San Luis Sociedad Anonima amounted to US$ 1,599,128, the
Company management believes that, although the Company is entitled to file
claims, the amount to be credited by the DGI in accordance with the provisions
of the abovementioned decree will not exceed US$ 650,000. This amount is shown
as a receivable (see Note 2d) and was charged to income in previous years, as
the benefits were accrued.
During June 1995, in compliance with the terms of DGI Resolutions Nos.
3838 and 3905, Sullair San Luis Sociedad Anonima applied to this authority for
the fiscal credit certificates. The DGI has resolved to grant $232,144.68 as an
anticipated refund without recognizing the origin of the credit requested under
the terms of General Resolution No. 3838, pursuant to the provisions of General
Resolution No. 4182 by virtue of the period of suspension of the promotion
benefits implemented by sections IV and V of Law No. 23697 and complementary
regulations. The DGI has not as yet issued any opinion as regards General
Resolution No. 3905.
NOTE 8--CONTRACT WITH PETROLERA ARGENTINA SAN JORGE S.A.
During March 1995, the Company signed a contract with Petrolera Argentina
San Jorge S.A. for a term of 10 years for the execution of work for the
expansion of the power station located at the "El Trapial" field in the
province of Neuquen, and for the providing of an electricity supply service
that includes the making available of certain turbo-generators and power
plants, as well as their maintenance and commissioning.
NOTE 9--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA
The consolidated financial statements have been prepared in accordance
with Argentine GAAP, which differ in certain significant respects from US GAAP.
The significant differences as at and for the three-month periods ended March
31, 1998 and 1997 are reflected in the reconciliations provided in Note 10 and
principally relate to the items discussed in the following paragraphs:
a) Restatement of financial statements for general price-level changes
The Argentine GAAP consolidated financial statements of the Company were
restated through August 31, 1995 and updated through August 31, 1995
price-levels to reflect the effects of inflation in accordance with specified
rules as more fully explained in Note 1.2.
In most circumstances, US GAAP do not allow for the restatement of
financial statements. Under US GAAP, account balances and transactions are
generally stated in the units of currency of the period
F-90
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 9--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA--(CONTINUED)
when the transactions originated. This accounting model is commonly known as
the historical cost basis of accounting. However, as the economy of Argentina
experienced periods of significant inflation prior to September 1995, the
presentation of the consolidated financial statements restated for general
price-level changes is substantially similar to the methodology prescribed by
Accounting Principles Board Statement ("APB") No. 3, "Financial Statements
Restated for General Price-Level--Changes". This Statement requires that
companies operating in hyper-inflationary environments in which inflation has
exceeded 100% over the last three years and which report in local currency,
restate their financial statements on the basis of a general price-level index.
August 1993 was the first month in which the rate of inflation in Argentina, as
measured by the WPI, was below 100% for 36 consecutive months since the release
of Statement of Financial Accounting Standards ("SFAS") No. 52 "Foreign
Currency--Translation". The US GAAP reconciliation does not reverse the effects
of the general price-level restatement included in the Argentine GAAP financial
statements through August 31, 1995.
b) Presentation of the parent company financial statements
Argentine GAAP requires companies with controlling financial interests in
other companies to present both the parent companies, where investments in
subsidiaries are accounted for by the equity method, and consolidated financial
statements, as primary and supplementary information, respectively. Because of
the special purpose of these financial statements, parent financial statements
are not included.
c) Capitalized interest
Argentine GAAP do not require capitalization of interest on work in
progress. Under US GAAP interest incurred on work in progress should be
capitalized as part of the cost of acquiring the assets until placed into
service. Accordingly, the reconciling difference for this item is presented in
the quantitative reconciliation in Note 10.
d) Advances to suppliers
Under Argentine GAAP, funds advanced to suppliers are capitalized and
included under Property and equipment prior to purchase and specific
identification. Under US GAAP these funds are treated as a deposit until the
related assets procured by such funds have been purchased and specifically
identified. Accordingly, such funds are generally classified as "Other assets".
However, due to the nature of such funds and their relative immateriality
to the financial statements taken as a whole (Note 3), the quantitative
difference between Argentine and US GAAP would be a reclassification from
Property and equipment to Other assets and accordingly, it does not affect the
reconciliation of net income and shareholders' equity in Note 10.
F-91
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 9--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA--(CONTINUED)
e) Recoverability of long-lived assets to be held and used in the business
Management reviews long-lived assets, primarily property and equipment, to
be held and used in the business and long-term investments for the purposes of
determining and measuring impairment. Under US GAAP, SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of", requires a company to review assets for impairment whenever
events or changes in circumstances indicate the carrying amount of an asset may
not be recoverable.
Management estimates that there is no significant impairment of assets.
f) Vacation accrual
Under Argentine GAAP, there are no specific requirements governing the
recognition of accruals for vacations. The accepted practice in Argentina is to
expense vacation when taken and to accrue only the amount of vacation in excess
of normal remuneration.
Under US GAAP, vacation expense is fully accrued in the year the employee
renders service to earn such vacation. Accordingly, the reconciling difference
for this item is presented in the quantitative reconciliation in Note 10.
g) Income taxes
Under Argentine GAAP, income tax expense is generally recognized based
upon the estimate of the current income tax liability. When income and expense
recognition for financial statement purposes does not occur in the same period
as income and expense recognition for tax purposes, the resulting temporary
differences are not considered in the computation of income tax expense for the
year.
Under US GAAP, the liability method is used to calculate the income tax
provision. Under the liability method, deferred tax assets or liabilities are
recognized with a corresponding charge or credit to income for differences
between the financial and tax basis of assets and liabilities at each
period-end. Accordingly, the reconciling difference for the item is presented
in the quantitative reconciliation in Note 10.
h) Severance indemnities
US GAAP require the accrual of liability for certain post-employment
benefits if they are related to services already rendered, are related to
rights that accumulate or vest, or are likely to be paid and can be reasonable
estimated.
As described in Note 1.5.g), the Company expenses severance indemnities
when paid. Under Argentine law, the Company is required to pay a minimum
severance indemnity based on years of
F-92
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 9--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA--(CONTINUED)
service and age when an employee is dismissed without adequate justification.
While the Company expects to make severance payments in the future, it is
unable to reasonably estimate the amount of liability, if any, at the present
time. As a result, no adjustment has been made in the US GAAP reconciliation.
i) Inventories
As described in Note 1.5. c) the Company values its inventories at
replacement cost. Under US GAAP inventories are to be valued at the lower of
cost or realizable value. There are no differences between the replacement cost
and the US GAAP cost. As a result, no adjustment has been made in the US GAAP
reconciliation.
NOTE 10--RECONCILIATION OF NET INCOME (LOSS) AND SHAREHOLDERS' EQUITY TO US
GAAP
The following is a summary of the significant adjustments to net income
and shareholders' equity for the three-month periods ended March 31, 1998 and
1997, which would be required if US GAAP had been applied instead of Argentine
GAAP in the financial statements.
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED MARCH 31,
------------------------------------------------------------
1998 1997
----------------------------- ----------------------------
NET SHAREHOLDERS' NET SHAREHOLDERS'
INCOME EQUITY INCOME EQUITY
----------- --------------- ----------- --------------
<S> <C> <C> <C> <C>
AMOUNTS PER ACCOMPANYING FINANCIAL
STATEMENTS ...................... 1,765,351 29,832,147 1,239,330 27,786,208
US GAAP ADJUSTMENTS
Deferred income tax .............. 81,464 2,277 102,538 (51,560)
Vacation accrual ................. 305,823 (93,210) 286,626 (82,669)
Capitalized interest ............. 12,798 28,902 131 8,749
--------- ---------- --------- ----------
AMOUNTS UNDER US GAAP ............ 2,165,436 29,770,116 1,628,625 27,660,728
========= ========== ========= ==========
</TABLE>
F-93
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 11--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS
a) Income taxes
The Company's deferred income taxes under US GAAP are comprised as
follows:
<TABLE>
<CAPTION>
MARCH 31,
1998
------------
<S> <C>
Deferred tax assets
Other receivables ............................ 27,406
Fixed assets ................................. 2,921
------
30,327
------
Deferred tax liabilities
Inventories .................................. (28,050)
Accrued payable .............................. --
-------
(28,050)
-------
Net deferred tax assets (liabilities) ......... 2,277
=======
</TABLE>
The provision for income taxes computed in accordance with US GAAP differs
from that computed at the statutory tax rate as follows:
<TABLE>
<CAPTION>
MARCH 31,
1998
-------------
<S> <C>
Income tax expense (benefit) at statutory tax rate on pretax income
in accordance with US GAAP ....................................... 957,618
Fixed assets (1) .................................................. (197,420)
Permanent differences (2) ......................................... (23,760)
--------
Income tax expense (benefit) in accordance with US GAAP ........... 736,438
========
</TABLE>
- ----------------
(1) Effects of differing price-level adjustments for tax and financial
statement purposes.
(2) Fiscal benefits obtained by Sullair San Luis Sociedad Anonima (see Note 7).
b) Supplementary cash flow information
Cash and cash equivalents at the end of each period comprises:
<TABLE>
<CAPTION>
MARCH 31,
1998
----------
<S> <C>
Cash and banks .......................... 344,123
-------
Total cash and cash equivalents ......... 344,123
=======
</TABLE>
The Company has included all highly liquid investments, having an original
maturity which does not exceed 3 months as from the year, in cash and cash
equivalents.
The Company has applied the indirect method in order to reconcile net
income of each period with the cash flow provided by operating activities.
F-94
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 11--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS--(CONTINUED)
Breakdown of amounts paid during the periods:
<TABLE>
<CAPTION>
MARCH 31,
1998
----------
<S> <C>
Income tax ......... 92,034
======
</TABLE>
The Company has no cash balances in currency other than U.S. dollars.
Since the exchange rates remained unchanged for the three-month periods ended
March 31, 1998 and 1997, no foreign exchange gains/losses shall be adjusted for
US GAAP purposes.
c) Fair value of financial instruments
In accordance with SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments" information is provided about the fair value of certain
financial instruments for which it is practicable to estimate that value.
For the purposes of SFAS No. 107, the estimated fair value of a financial
instrument is the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a forced or
liquidation sale. The carrying values of the Companies' financial instruments
as of March 31, 1998 and 1997 approximate management's best estimate of their
fair values. The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is practicable
to estimate that value:
The fair value of certain financial assets carried at cost, including
cash, short-term investments, trade receivables and other current assets is
considered to approximate their respective carrying value due to their
short-term nature.
The fair value of accounts payable and accrued liabilities, short-term
bank borrowings, tax payable and other current liabilities are considered to
approximate their respective carrying values due to their short-term nature.
d) Financial instruments with off-balance sheet risk and concentrations of
credit risk
The Company has not used financial instruments to hedge its exposure to
fluctuations in foreign currency exchange or interest rates and, accordingly,
has not entered into transactions that create off-balance sheet risks
associated with such financial instruments.
Accounts receivable substantially comprise balances with a large number of
clients. Management does not believe significant concentrations of credit risk
exist.
F-95
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 12--IMPACT OF NEW ACCOUNTING STANDARD NOT YET ADOPTED
In June 1997, the Financial Accounting Board issued its Statement No. 130,
"Reporting Comprehensive Income". Among other provisions, SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. It does not
address issues of recognition or measurement for comprehensive income and its
components. Management does not expect the adoption of SFAS No. 130 to have
material impact on its financial statements.
In June 1997, Statement No. 131 ("SFAS 131"), "Disclosures about segment
of an Enterprise and Related Information" was issued. SFAS 131 establishes
standards for the way that public companies disclose select information about
operating segments in annual financial statements and requires that those
companies disclose selected information about segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and series, geographic areas, and major customers.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997. Accordingly, the Company is not required to adopt SFAS 131
until the fiscal year ending December 31, 1998. SFAS 131 relates solely to
disclosure provisions, and therefore will not have any effect on the results of
operations, financial position and cash flows of the Company.
F-96
<PAGE>
[NEFF LOGO]
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED MAY , 1998
6,700,000 SHARES
[NEFF LOGO]
CLASS A COMMON STOCK
---------------
OF THE 6,700,000 SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY, 1,340,000
SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA
BY THE INTERNATIONAL UNDERWRITERS AND 5,360,000 SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
CLASS A COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE
INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $14 AND $16 PER SHARE. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
---------------
THE CLASS A COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "NFF."
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
PRICE $ A SHARE
---------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------- ---------------- ------------
PER SHARE ......... $ $ $
TOTAL (3) ......... $ $ $
- -------
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $700,000.
(3) THE COMPANY HAS GRANTED TO THE U.S. UNDERWRITERS AN OPTION, EXERCISABLE
WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF
1,005,000 ADDITIONAL SHARES AT THE PRICE TO PUBLIC LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, IF
ANY. IF THE U.S. UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL
PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO
COMPANY WILL BE $ , $ AND $ , RESPECTIVELY. SEE
"UNDERWRITERS."
---------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY CAHILL GORDON & REINDEL, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1998 AT THE OFFICE OF
MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREFOR IN
IMMEDIATELY AVAILABLE FUNDS.
---------------
MORGAN STANLEY DEAN WITTER
BT ALEX. BROWN INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following sets forth expenses and costs payable by the Company (other
than underwriting discounts and commissions) expected to be incurred in
connection with the issuance and distribution of the securities described in
this Registration Statement. All amounts are estimated except for the SEC
registration fee and the NASD filing fee.
AMOUNT
--------------
Registration fee under Securities Act .......... $ 36,875
NASD filing fee ................................ 13,000
New York Stock Exchange fees ................... 125,000
Legal fees and expenses ........................ 350,000
Accounting fees and expenses ................... 250,000
Blue Sky fees and expenses ..................... 5,000
Printing and engraving expenses ................ 250,000
Registrar and transfer agent fees .............. 10,000
Miscellaneous expenses ......................... 50,000
----------
Total ........................................ $1,089,875
==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation provides that the Company shall
indemnify to the fullest extent authorized by the DGCL, each person who is
involved in any litigation or other proceeding because such person is or was a
director or officer of the Company, against all expense, loss or liability
reasonably incurred or suffered in connection therewith. The Company's
Certificate of Incorporation provides that a director or officer may be paid
expenses incurred in defending any proceeding in advance of its final
disposition upon receipt by the Company of an undertaking, by or on behalf of
the director or officer, to repay all amounts so advanced if it is ultimately
determined that such director or officer is not entitled to indemnification.
Section 145 of the DGCL permits a corporation to indemnify any director or
officer of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding brought by reason of
the fact that such person is or was a director or officer of the corporation,
if such person acted in good faith and in a manner that he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, if he had no reason to believe
his conduct was unlawful. In a derivative action, (I.E., one brought by or on
behalf of the corporation), indemnification may be made only for expenses,
actually and reasonably incurred by any director or officer in connection with
the defense or settlement of such an action or suit, if such person acted in
good faith and in a manner that he reasonably believed to be in or not opposed
to the best interests of the corporation, except that no indemnification shall
be made if such person shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which the action
or suit was brought shall determine that the defendant is fairly and reasonably
entitled to indemnity for such expenses despite such adjudication of liability.
Pursuant to Section 102(b)(7) of the DGCL, the Company's Certificate of
Incorporation eliminates the liability of a director to the corporation or its
stockholders for monetary damages for such breach of fiduciary duty as a
director, except for liabilities arising (i) from any breach of the director's
duty of loyalty to the corporation or its stockholders; (ii) from acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the DGCL; or (iv) from any
transaction from which the director derived an improper personal benefit.
II-1
<PAGE>
The Company intends to obtain primary and excess insurance policies
insuring the directors and officers of the Company and its subsidiaries against
certain liabilities they may incur in their capacity as directors and officers.
Under such policies, the insurer, on behalf of the Company, may also pay
amounts for which the Company has granted indemnification to the directors or
officers.
Additionally, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 hereto, which provide for indemnification by the Underwriters of
the Company, its directors and officers who sign the Registration Statement and
persons who control the Company, under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement,
the Company has issued securities in the following transactions, each of which
was intended to be exempt from the registration requirements of the Securities
Act by virtue of Section 4(2) thereunder.
On December 29, 1995, the Company issued warrants to GE Capital to acquire
2,257,362 shares of Common Stock pursuant to the terms of the Stock Purchase
Warrant dated as of December 29, 1995 between GE Capital and the Company.
On December 22, 1995, the Company issued 300,000 shares of Series A
Preferred Stock to GE Capital in consideration for the receipt of $12,000,000
pursuant to the terms of the Securities Purchase Agreement dated as of December
22, 1995 between GE Capital and the Company.
On December 30, 1996, GE Capital exercised the Stock Purchase Warrant
dated as of December 29, 1995 and acquired 2,257,362 shares of Common Stock,
which it exchanged, pursuant to the terms of the Securities Exchange Agreement
dated as of December 23, 1996 between GE Capital and the Company, for 800,000
shares of Series B Convertible Preferred Stock of the Company. Also, on
December 30, 1996, GE Capital purchased 800,000 shares of Series C Convertible
Preferred Stock of the Company in exchange for consideration of $32,000,000
pursuant to the terms of the Securities Purchase Agreement dated as of December
30, 1996 between GE Capital and the Company.
On March 25, 1998, GE Capital exchanged 800,000 shares of Series B
Preferred Stock and 800,000 shares of Series C Preferred Stock for 6 million
shares of Class B Common Stock, pursuant to the terms of the Securities
Exchange Agreement dated as of March 25, 1998 between GE Capital and the
Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as exhibits to this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company, as amended and restated.
3.2 By-Laws of the Company, as amended and restated.**
4.1 Form of Certificate of Class A Common Stock.
4.2 Registration Rights Agreement, by and between Neff Corp. and GECFS, Inc., dated as of
March 25, 1998.**
4.3 Registration Rights Agreement, by and between Neff Corp. and Santos Fund I, L.P., dated as
of March 25, 1998.**
4.4 Registration Rights Agreement, by and between Neff Corp. and Santos Capitol Advisors, Inc.,
dated as of March 25, 1998.**
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -----------------------------------------------------------------------------------------
<S> <C>
4.5 Amended and Restated Stockholders' Agreement by and among Jorge Mas, Juan Carlos Mas,
Jose Ramon Mas, General Electric Capital Corporation, GECFS, Inc., Kevin P. Fitzgerald,
Santos Fund I, L.P., Santos Capital Advisors, Inc. and Neff Corp., dated as of March 25,
1998.**
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson.
10.1 Amended and Restated Credit Agreement, by and among Neff Corp., Neff Machinery, Inc.
and Neff Rental, Inc., and Bankers Trust Company, as Agent, dated as of May 1, 1998.**
10.2 John Deere Light Industrial Equipment Dealer Agreement by and between John Deere
Construction Equipment Company and Neff Machinery, Inc., dated May 6, 1998.**
10.3 John Deere Light Industrial Equipment Dealer Security Agreement by and between John
Deere Construction Equipment Company and Neff Machinery, Inc., dated May 6, 1998.**
10.4 Stock Purchase and Redemption Agreement by and among Neff Corp., Industrial Equipment
Rentals, Inc. and all of the Shareholders and Holders of Subordinated Debentures, dated
July 14, 1997.**
10.5 The Asset Purchase Agreement by and among Richbourg's Sales & Rentals, Inc., Bruce E.
Richbourg and Neff Corp., dated December 23, 1997.**
10.6 Stock Option Agreement by and between Neff Corp. and Kevin P. Fitzgerald.
10.7 Stock Option Agreement by and between Neff Corp. and Robert G. Warren.**
10.8 Form of Lock-up Agreement.
10.9 Standstill Agreement by and among Neff Corp., General Electric Capital Corporation,
GECFS, Inc. and Santos Capital Advisors, Inc.**
10.10 Neff Corp. 1998 Incentive Stock Plan.**
10.11 Letter Agreement by and among John Deere Construction Equipment Company, Neff Corp.,
Neff Machinery, Inc. and Santos Capital Advisors, Inc., dated April 29, 1998.**
10.12 Neff Corp. Phantom Stock Plan.
10.13 Form of Rights Agreement.
21.1 Subsidiaries of the Company.**
23.1 Consents of Deloitte & Touche LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Price Waterhouse & Co.
23.4 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 5.1 above).
24.1 Power of Attorney (included on Signature Page of this Registration Statement).
27.1 Financial data schedule.**
</TABLE>
- ----------------
* To be filed by amendment.
** Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual reports pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for
II-3
<PAGE>
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 opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(3) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 4 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Miami, State of Florida, on May 20, 1998.
NEFF CORP.
By: /s/ BONNIE S. BIUMI
--------------------------------
Bonnie S. Biumi
Chief Financial Officer
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- --------------------------------------- -------------
<S> <C> <C>
/s/ JORGE MAS* Chairman of the Board May 20, 1998
- -------------------------------
Jorge Mas
/s/ KEVIN P. FITZGERALD* President and Chief Executive Officer May 20, 1998
- ------------------------------- (Principal Executive Officer)
Kevin P. Fitzgerald
/s/ JOSE RAMON MAS* Director May 20, 1998
- -------------------------------
Jose Ramon Mas
/s/ BONNIE S. BIUMI Chief Financial Officer May 20, 1998
- ------------------------------- (Principal Financial Officer and
Bonnie S. Biumi Accounting Officer)
</TABLE>
/s/ BONNIE S. BIUMI
- -------------------------------
Attorney in Fact
II-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Neff Corp.:
We have audited the financial statements of Neff Corp. and subsidiaries
(the "Company") as of December 31, 1996 and 1997, and for each of the three
years in the period ended December 31, 1997, and have issued our report thereon
dated March 11, 1998, except for the third paragraph of Note 5 and the fourth
paragraph of Note 1 as to which the dates are April 23, 1998 and May 20, 1998,
respectively, (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedule listed in Item 16 of this
Registration Statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Miami, Florida
March 11, 1998
S-1
<PAGE>
SCHEDULE II
NEFF CORP.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
AT BEGINNING COSTS AND AT END
OF PERIOD EXPENSES OTHER DEDUCTIONS(1) OF PERIOD
-------------- ------------ ------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Classification
YEAR ENDED 12/31/95:
Allowance for doubtful accounts ......... $246 $270 $ -- $ (219) $ 297
==== ==== ==== ====== ======
YEAR ENDED 12/31/96:
Allowance for doubtful accounts ......... $297 $520 $ -- $ (442) $ 375
==== ==== ==== ====== ======
YEAR ENDED 12/31/97:
Allowance for doubtful accounts ......... $375 $957 $ -- $ (240) $1,092
==== ==== ==== ====== ======
</TABLE>
- ----------------
(1) Deductions represent bad debt write-offs and adjustments to accumulated
amortization for assets sold.
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- --------- -------------------------------------------------------------------------- -------------
<S> <C> <C>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company, as amended and restated.
4.1 Form of Certificate of Class A Common Stock.
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson.
10.6 Stock Option Agreement by and between Neff Corp. and Kevin P. Fitzgerald.
10.8 Form of Lock-up Agreement.
10.12 Neff Corp. Phantom Stock Plan.
10.13 Form of Rights Agreement.
23.1 Consents of Deloitte & Touche LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Price Waterhouse & Co.
</TABLE>
EXHIBIT 1.1
6,700,000 SHARES
NEFF CORP.
CLASS A COMMON STOCK (PAR VALUE $.01 PER SHARE)
UNDERWRITING AGREEMENT
____________________, 1998
<PAGE>
________________________, 1998
Morgan Stanley & Co. Incorporated
BT Alex. Brown Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
NEFF CORP., a Delaware corporation (the "COMPANY"), proposes
to issue and sell to the several Underwriters (as defined below) 6,700,000
shares of its Class A Common Stock, par value $.01 per share (the "FIRM
SHARES").
It is understood that, subject to the conditions hereinafter
stated, 5,360,000 Firm Shares (the "U.S. FIRM SHARES") will be sold to the
several U.S. Underwriters named in Schedule II hereto (the "U.S. UNDERWRITERS")
in connection with the offering and sale of such U.S. Firm Shares in the United
States and Canada to United States and Canadian Persons (as such terms are
defined in the Agreement Between U.S. and International Underwriters of even
date herewith), and 1,340,000 Firm Shares (the "INTERNATIONAL SHARES") will be
sold to the several International Underwriters named in Schedule III hereto (the
"INTERNATIONAL UNDERWRITERS") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated, BT Alex.
Brown Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation shall
act as representatives (the "U.S. REPRESENTATIVES") of the several U.S.
Underwriters, and Morgan Stanley & Co. International Limited shall act as
representative (the "INTERNATIONAL REPRESENTATIVE") of the several International
Underwriters. The U.S. Underwriters and the International Underwriters are
hereinafter collectively referred to as the Underwriters.
<PAGE>
-2-
The Company also proposes to issue and sell to the several
U.S. Underwriters not more than an additional 1,005,000 shares of its Class A
Common Stock, par value $.01 per share (the "ADDITIONAL Shares") if and to the
extent that the U.S. Representatives shall have determined to exercise, on
behalf of the U.S. Underwriters, the right to purchase such shares of common
stock granted to the U.S. Underwriters in Section 2 hereof. The Firm Shares and
the Additional Shares are hereinafter collectively referred to as the "SHARES."
The shares of Class A Common Stock, par value $.01 per share, of the Company to
be outstanding after giving effect to the sales contemplated hereby are
hereinafter referred to as the "COMMON STOCK."
The Company has filed with the Securities and Exchange
Commission (the "COMMISSION") a registration statement relating to the Shares.
The registration statement contains two prospectuses to be used in connection
with the offering and sale of the Shares: the U.S. prospectus, to be used in
connection with the offering and sale of Shares in the United States and Canada
to United States and Canadian Persons, and the international prospectus, to be
used in connection with the offering and sale of Shares outside the United
States and Canada to persons other than United States and Canadian Persons. The
international prospectus is identical to the U.S. prospectus except for the
outside front cover page. The registration statement as amended at the time it
becomes effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT"; the U.S. prospectus and the
international prospectus in the respective forms first used to confirm sales of
Shares are hereinafter collectively referred to as the "PROSPECTUS." If the
Company has filed an abbreviated registration statement to register additional
shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the
"RULE 462 REGISTRATION STATEMENT"), then any reference herein to the term
"REGISTRATION STATEMENT" shall be deemed to include such Rule 462 Registration
Statement.
As part of the offering contemplated by this Agreement,
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") has agreed to
reserve out of the Shares set forth opposite its name on Schedule II to this
Agreement up to shares, for sale to the Company's employees, officers and
directors and other parties associated with the Company (collectively,
"PARTICIPANTS"), as set forth in the Prospectus under the heading "Underwriting"
(the "DIRECTED SHARE
<PAGE>
-3-
PROGRAM"). The Shares to be sold by DLJ pursuant to the Directed Share Program
(the "DIRECTED SHARES") will be sold by DLJ pursuant to this Agreement at the
public offering price. Any Directed Shares not orally confirmed for purchase by
any Participants by the end of the business day on which this Agreement is
executed will be offered to the public by DLJ as set forth in the Prospectus.
1. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to and
agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or
threatened by the Commission.
(b) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such
Shares will not be subject to any preemptive or similar rights.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder.
(d) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder and (iii)
the Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in
this paragraph do not apply to statements or
<PAGE>
-4-
omissions in the Registration Statement or the Prospectus made in
reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by such Underwriter
expressly for use therein.
(e) As of the Closing Date, the Company will have the authorized,
issued and outstanding capitalization set forth in the Prospectus; all
of the subsidiaries of the Company are listed in Schedule I attached
hereto (each, a "SUBSIDIARY" and collectively, the "SUBSIDIARIES"); all
of the shares of capital stock of the Company and the Subsidiaries
outstanding prior to the issuance of the Shares have been, and as of
the Closing Date will be, duly authorized and validly issued, are fully
paid and nonassessable and were not issued in violation of any
preemptive or similar rights; except for (i) liens under the New Credit
Facility and (ii) restrictions on transferability under the Amended and
Restated Stockholders' Agreement, all of the outstanding shares of
capital stock of the Subsidiaries are owned, directly or indirectly, by
the Company, free and clear of all liens, encumbrances, equities and
claims or restrictions on transferability (other than those imposed by
the Act and the securities or "Blue Sky" laws of certain jurisdictions)
or voting; except as set forth in the Prospectus and other than options
to purchase shares pursuant to the Stock Incentive Plan, there
are no (i) options, warrants or other rights to purchase, (ii)
agreements or other obligations to issue or (iii) other rights to
convert any obligation into, or exchange any securities for, shares of
capital stock of or ownership interests in the Company or any of the
Subsidiaries outstanding. Except for the Subsidiaries or as disclosed
in the Prospectus, the Company does not own, directly or indirectly,
any shares of capital stock or any other equity or long-term debt
securities or have any equity interest in any firm, partnership, joint
venture or other entity.
(f) Each of the Company and the Subsidiaries is duly incorporated,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation and has all requisite corporate power and
authority to own its properties and conduct its business as now
conducted and as described in the Prospectus; each of the Company and
the Subsidiaries is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions where the
ownership or leasing of its properties or the conduct of its business
requires such qualifica-
<PAGE>
-5-
tion, except where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
general affairs, management, business, condition (financial or
otherwise) or results of operations of the Company and the
Subsidiaries, taken as a whole (any such event, a "MATERIAL ADVERSE
EFFECT").
(g) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and
to consummate the transactions contemplated hereby. This Agreement and
the consummation by the Company of the transactions contemplated hereby
have been duly and validly authorized by the Company. This Agreement
has been duly executed and delivered by the Company.
(h) No consent, approval, authorization or order of any court or
governmental agency or body, or third party is required for the
issuance and sale by the Company of the Shares to the Underwriters or
the consummation by the Company of the other transactions contemplated
hereby, except such as have been obtained and such as may be required
under state securities or "Blue Sky" laws in connection with the
purchase and resale of the Shares by the Underwriters. None of the
Company or the Subsidiaries is (i) in violation of its certificate of
incorporation or bylaws (or similar organizational document), (ii) in
breach or violation of any statute, judgment, decree, order, rule or
regulation applicable to any of them or any of their respective
properties or assets, except for any such breach or violation that
would not, individually or in the aggregate, have a Material Adverse
Effect, or (iii) in breach of or default under (nor has any event
occurred that, with notice or passage of time or both, would constitute
a default under) or in violation of any of the terms or provisions of
any contract listed on Schedule 1(h) hereto (collectively, the
"CONTRACTS"), except for any such breach, default, violation
or event that would not, individually or in the aggregate, have a
Material Adverse Effect.
(i) The execution, delivery and performance by the Company of this
Agreement and the consummation by the Company of the transactions
contemplated hereby (including, without limitation, the issuance and
sale of the Shares to the Underwriters) will not conflict with or
constitute or result in a breach of or a default under (or an event
that with notice or passage of time or both would constitute a
<PAGE>
-6-
default under) or violation of any of (i) the terms or provisions of
any Contract, except for any such conflict, breach, violation, default
or event that would not, individually or in the aggregate, have a
Material Adverse Effect, (ii) the certificate of incorporation or
bylaws (or similar organizational document) of the Company or any of
the Subsidiaries or (iii) (assuming compliance with all applicable
state securities or "Blue Sky" laws) any statute, judgment, decree,
order, rule or regulation applicable to the Company or any of the
Subsidiaries or any of their respective properties or assets, except
for any such conflict, breach or violation that would not, individually
or in the aggregate, have a Material Adverse Effect.
(j) The audited consolidated financial statements and the Notes
thereto of the Company and the Subsidiaries included in the Prospectus
present fairly in all material respects the financial position, results
of operations and cash flows of the Company and the Subsidiaries at the
dates and for the periods to which they relate and have been prepared
in accordance with generally accepted accounting principles applied on
a consistent basis, except as otherwise stated therein. The summary and
selected financial and statistical data in the Prospectus present
fairly in all material respects the information shown therein and have
been prepared and compiled on a basis consistent with the audited
financial statements included therein, except as otherwise stated
therein. Deloitte & Touche LLP (the "INDEPENDENT ACCOUNTANTS") is an
independent public accounting firm within the meaning of the Securities
Act and the rules and regulations promulgated thereunder.
(k) The pro forma financial statements (including the notes thereto)
and the other pro forma financial information included in the
Prospectus (i) comply as to form in all material respects with the
applicable requirements of Regulation S-X promulgated under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), (ii)
have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements and (iii)
have been properly computed on the bases described therein; the
assumptions used in the preparation of the pro forma financial data and
other pro forma financial information included in Prospectus are
reasonable and the adjustments used therein are appropri-
<PAGE>
-7-
ate to give effect to the transactions or circumstances referred to
therein.
(l) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and the Subsidiaries, taken as a whole.
(m) There is not pending or, to the knowledge of the Company,
threatened any action, suit, proceeding, inquiry or investigation to
which the Company or any of the Subsidiaries is a party, or to which
the property or assets of the Company or any of the Subsidiaries are
subject, before or brought by any court, arbitrator or governmental
agency or body that, (i) would be required to be described in a
prospectus pursuant to the Securities Act that are not described in the
Registration Statement or the Prospectus, or (ii) if determined
adversely to the Company or any of the Subsidiaries, would,
individually or in the aggregate, have a Material Adverse Effect or
that seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge the issuance or sale of the Shares to be sold
hereunder or the consummation of the other transactions described in
the Prospectus. Furthermore, there are no material contracts or other
documents that would be required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to a
Registration Statement pursuant to the Securities Act that are not
described or filed as required.
(n) Each of the Company and the Subsidiaries possesses all licenses,
permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with,
all federal, state, local and other governmental authorities, all
self-regulatory organizations and all courts and other tribunals,
presently required or necessary to own or lease, as the case may be,
and to operate its respective properties and to carry on its respective
businesses as now or proposed to be conducted as set forth in the
Prospectus ("PERMITS"), except where the failure to obtain such -------
Permits would not, individually or in the aggregate, have a Material
Adverse Effect; each of the Company and the Subsidiaries has fulfilled
and performed all of its obligations with respect to such Permits and,
to the knowledge of the Company or any of the Subsidiaries, no event
has occurred that would reasonably be expected to allow, or
<PAGE>
-8-
after notice or lapse of time would reasonably be expected to allow,
revocation or termination thereof or result in any other material
impairment of the rights of the holder of any such Permit, except where
such revocation or termination would not, individually or in the
aggregate, have a Material Adverse Effect; and none of the Company or
the Subsidiaries has received any notice of any proceeding relating to
revocation or modification of any such Permit, except where such
revocation or modification would not, individually or in the aggregate,
have a Material Adverse Effect.
(o) Since the date of the most recent financial statements
appearing in the Prospectus, except as described therein, (i) none of
the Company or the Subsidiaries has incurred any material liabilities
or obligations, direct or contingent, or entered into or agreed to
enter into any material transactions or contracts (written or oral) not
in the ordinary course of business, which liabilities, obligations,
transactions or contracts would, individually or in the aggregate, be
material to the general affairs, management, business, condition
(financial or otherwise), prospects or results of operations of the
Company and the Subsidiaries, taken as a whole, (ii) none of the
Company or the Subsidiaries has purchased any of its outstanding
capital stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock (other than with respect
to any of such Subsidiaries, the purchase of, or dividend or
distribution on, capital stock owned by the Company) and (iii) there
shall not have been any material change in the capital stock or
long-term indebtedness of the Company or the Subsidiaries.
(p) Each of the Company and the Subsidiaries has filed all necessary
federal, state and foreign income and franchise tax returns, except
where the failure to so file such returns would not, individually or in
the aggregate, have a Material Adverse Effect, and has paid all taxes
shown as due thereon; and other than tax deficiencies which the Company
or any Subsidiary is contesting in good faith and for which the Company
or such Subsidiary has provided adequate reserves, there is no tax
deficiency that has been asserted against the Company or any of the
Subsidiaries that would have, individually or in the aggregate, a
Material Adverse Effect.
<PAGE>
-9-
(q) The Shares will conform in all material respects to the
description as to legal matters thereof in the Prospectus.
(r) Each of the Company and the Subsidiaries has good and marketable
title to all real property and owns all personal property described in
the Prospectus as being owned by it and good and marketable title to a
leasehold estate in the real and personal property described in the
Prospectus as being leased by it free and clear of all liens, charges,
encumbrances or restrictions, except as described in the Prospectus or
as contemplated by the New Credit Facility or to the extent the failure
to have such title or ownership or the existence of such liens,
charges, encumbrances or restrictions would not, individually or in the
aggregate, have a Material Adverse Effect. All leases, contracts and
agreements to which the Company or any of the Subsidiaries is a party
or by which any of them is bound are valid and enforceable against the
Company or such Subsidiary, and are valid and enforceable against the
other party or parties thereto and are in full force and effect with
only such exceptions as would not, individually or in the aggregate,
have a Material Adverse Effect. The Company and the Subsidiaries own or
possess or can acquire adequate licenses or other rights to use all
patents, trademarks, service marks, trade names, copyrights and
know-how necessary (in any material respect) to conduct the businesses
now or proposed to be operated by them as described in the Prospectus,
and none of the Company or the Subsidiaries has received any notice of
infringement of or conflict with (or knows of any such infringement of
or conflict with) asserted rights of others with respect to any
patents, trademarks, service marks, trade names, copyrights or know-how
that, if such assertion of infringement or conflict were sustained,
would have a Material Adverse Effect.
(s) Except as would not, individually or in the aggregate, have a
Material Adverse Effect, and except as set forth on Schedule 1(l)
hereto (A) each of the Company and the Subsidiaries is in compliance
with and not subject to liability under applicable Environmental Laws
(as defined below), (B) each of the Company and the Subsidiaries has
made all filings and provided all notices required under applicable
Environmental Laws, and has and is in compliance with all Permits
required under any applicable Environmental Laws and each of them is in
full force and effect, (C) there is no civil, criminal or
administrative
<PAGE>
-10-
action, suit, demand, claim, hearing, notice of violation,
investigation, proceeding, notice or demand letter or request for
information pending or, to the knowledge of the Company or any of the
Subsidiaries, threatened, against the Company or any of the
Subsidiaries or, to the knowledge of the Company or any of the
Subsidiaries, any pending or threatened investigation involving the
Company or any of the Subsidiaries, under any Environmental Law, (D) no
lien, charge, encumbrance or restriction has been recorded under any
Environmental Law with respect to any assets, facility or property
owned, operated, leased or controlled by the Company or any of the
Subsidiaries, (E) none of the Company or the Subsidiaries has received
notice that it has been identified as a potentially responsible party
under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA") or any comparable state
law, (F) no property or facility of the Company or any of the
Subsidiaries is (i) listed or proposed for listing on the National
Priorities List under CERCLA or is (ii) listed on the Comprehensive
Environmental Response, Compensation, Liability Information System List
promulgated pursuant to CERCLA, or on any comparable list maintained by
any state or local governmental authority, in each of (i) and (ii),
including, without limitation, those relating to petroleum products,
derivatives, constituents and wastes.
For purposes of this Agreement, "ENVIRONMENTAL LAWS" means the
common law and all applicable federal, state and local laws or regulations,
codes, orders, decrees, judgments or injunctions issued, promulgated, approved
or entered thereunder, relating to pollution or protection of public or employee
health and safety or the environment, including, without limitation, laws
relating to (i) emissions, discharges, releases or threatened releases of
hazardous materials or substances, solid or hazardous wastes into the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), (ii) the manufacture, processing,
distribution, use, generation, treatment, storage, disposal, transport or
handling of hazardous materials or substances, solid or hazardous wastes, (iii)
underground and above ground storage tanks and related piping, and emissions,
discharges, releases or threatened releases therefrom and (iv) damages to
natural resources.
(t) There is no material strike, labor dispute, slowdown or work
stoppage with the employees of the Company or any of the Subsidiaries
which is pending or, to
<PAGE>
-11-
the knowledge of the Company or any of the Subsidiaries, threatened.
(u) Each of the Company and the Subsidiaries carries insurance in
such amounts and covering such risks as is prudent and customary in the
business in which it is engaged.
(v) Each of the Company and the Subsidiaries (i) makes and keeps
accurate books and records and (ii) maintains internal accounting
controls which provide reasonable assurance that (A) transactions are
executed in accordance with management's authorization, (B)
transactions are recorded as necessary to permit preparation of its
financial statements and to maintain accountability for its assets, (C)
access to its assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
(w) None of the Company or the Subsidiaries will be an "investment
company" or "promoter" or "principal underwriter" for an "investment
company," as such terms are defined in the Investment Company Act of
1940, as amended, and the rules and regulations thereunder.
(x) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person
granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company or to require the Company to include such
securities with the Shares registered pursuant to the Registration
Statement.
(y) None of the Company or the Subsidiaries has taken, nor will any
of them take, directly or indirectly, any action designed to, or that
might be reasonably expected to, cause or result in stabilization or
manipulation of the price of the Shares.
Any certificate signed by any officer of the Company or any
Subsidiary and delivered to any Underwriter or to counsel for the Underwriters
shall be deemed a joint and several representation and warranty by the Company
and each of the Subsidiaries to each Underwriter as to the matters covered
thereby.
<PAGE>
-12-
2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees
to sell to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedules II and III
hereto opposite its name at U.S.$ a share ("PURCHASE PRICE").
On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, the Company agrees
to sell to the U.S. Underwriters the Additional Shares, and the U.S.
Underwriters shall have a one-time right to purchase, severally and not jointly,
up to 1,005,000 Additional Shares at the Purchase Price. If the U.S.
Representatives, on behalf of the U.S. Underwriters, elect to exercise such
option, the U.S. Representatives shall so notify the Company in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the number of Additional Shares to be purchased by the U.S. Underwriters and the
date on which such shares are to be purchased. Such date may be the same as the
Closing Date but not earlier than the Closing Date nor later than ten business
days after the date of such notice. Additional Shares may be purchased as
provided in Section 4 hereof solely for the purpose of covering over-allotments
made in connection with the offering of the Firm Shares. If any Additional
Shares are to be purchased, each U.S. Underwriter agrees, severally and not
jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the U.S. Representatives may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule
II hereto opposite the name of such U.S. Underwriter bears to the total number
of U.S. Firm Shares.
The Company hereby agrees that, without the prior written
consent of Morgan Stanley on behalf of the Underwriters, it will not, during the
period ending 180 days after the date of the 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
Common Stock or any securities convertible into or exercisable or exchangeable
for 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 Common Stock, whether any such
<PAGE>
-13-
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Shares to be sold hereunder, (B) the
issuance by the Company of shares of Common Stock upon the exercise of an option
or warrant or the conversion of a security outstanding on the date hereof or (C)
any other issuances of Common Stock or options or rights to acquire Common Stock
under the plans described in the Prospectus of which the Underwriters have been
advised in writing.
3. TERMS OF PUBLIC OFFERING. The Company is advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable. The Company is
further advised by you that the Shares are to be offered to the public initially
at U.S.$ a share (the "PUBLIC OFFERING PRICE") and to certain dealers selected
by you at a price that represents a concession not in excess of U.S.$ a share
under the Public Offering Price, and that any Underwriter may allow, and such
dealers may reallow, a concession, not in excess of U.S.$ a share, to any
Underwriter or to certain other dealers.
4. PAYMENT AND DELIVERY. Payment for the Firm Shares shall be
made to the Company in Federal or other funds immediately available in New York
City against delivery of such Firm Shares for the respective accounts of the
several Underwriters at 9:00 a.m., New York City time, on , 1998, or at such
other time on the same or such other date, not later than , 1998, as shall be
designated in writing by you. The time and date of such payment are hereinafter
referred to as the "CLOSING DATE."
Payment for any Additional Shares shall be made to the Company
in Federal or other funds immediately available in New York City against
delivery of such Additional Shares for the respective accounts of the several
Underwriters at 9:00 a.m., New York City time, on the date specified in the
notice described in Section 2 or at such other time on the same or on such other
date, in any event not later than , 1998, as shall be designated in writing
by the U.S. Representatives. The time and date of such payment are hereinafter
referred to as the "OPTION CLOSING DATE."
Certificates for the Firm Shares and Additional Shares shall
be in definitive form and registered in such names
<PAGE>
-14-
and in such denominations as you shall request in writing not later than two
full business days prior to the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and Additional Shares
shall be delivered to you on the Closing Date or the Option Closing Date, as the
case may be, for the respective accounts of the several Underwriters, with any
transfer taxes payable in connection with the transfer of the Shares to the
Underwriters duly paid, against payment of the Purchase Price therefor.
5. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The
obligations of the Company to sell the Shares to the Underwriters and the
several obligations of the Underwriters to purchase and pay for the Shares on
the Closing Date are subject to the condition that the Registration Statement
shall have become effective not later than 5:00 p.m. New York City time) on the
date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor
shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does
not indicate the direction of the possible change, in the
rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as
such term is defined for purposes of Rule 436(g)(2) under the
Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a
whole, from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of
this Agreement) that, in your judgment, is material and
adverse and that makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated
in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and
<PAGE>
-15-
signed by an executive officer of the Company, to the effect
set forth in Section 5(a)(i) above and to the effect that the
representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and
that the Company has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or
satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely
upon the best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date
an opinion of Fried Frank, Harris, Shriver & Jacobson, counsel for the
Company, dated the Closing Date, to the effect that:
(i) Each of the Company and the Subsidiaries is duly
incorporated, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation and has
all requisite corporate power and authority to own its
properties and to conduct its business as described in the
Prospectus. Each of the Company and the Subsidiaries is duly
qualified to do business as a foreign corporation in good
standing in each of Florida, Georgia, Alabama, Mississippi,
North Carolina, South Carolina, Tennessee, Louisiana, Texas,
Oklahoma, Arizona, Nevada, Utah, California and Colarado.
(ii) The Company has the authorized, issued and
outstanding capitalization set forth in the Prospectus; all of
the outstanding shares of capital stock of the Company and the
Subsidiaries outstanding prior to the issuance of the Shares
have been duly authorized and validly issued, are fully paid
and nonassessable and were not issued in violation of any
preemptive or similar rights; except for (i) liens under the
New Credit Facility and (ii) restrictions on transferability
under the Amended and Restated Stockholders' Agreement, all of
the outstanding shares of capital stock of the Subsidiaries
are owned, directly or indirectly, by the Company, free and
clear of all perfected security interests and, to the
knowledge of such counsel, free and clear of all other liens,
encumbrances, equities and claims or restrictions on
transferability (other than those imposed by the Se-
<PAGE>
-16-
curities Act and the securities or "Blue Sky" laws of certain
jurisdictions) or voting.
(iii) Except as set forth in the Prospectus and other than
options to purchase shares pursuant to the Stock Incentive
Plan (A) no options, warrants or other rights to purchase from
the Company or any Subsidiary shares of capital stock or
ownership interests in the Company or any Subsidiary are
outstanding, (B) no agreements or other obligations to issue,
or other rights to convert, any obligation into, or exchange
any securities for, shares of capital stock or ownership
interests in the Company or any Subsidiary are outstanding and
(C) no holder of securities of the Company or any Subsidiary
is entitled to have such securities registered with the Shares
under the Registration Statement.
(iv) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations
under this Agreement and to consummate the transactions
contemplated hereby; this Agreement and the consummation by
the Company of the transactions contemplated hereby have been
duly and validly authorized by the Company. This Agreement has
been duly executed and delivered by the Company.
(v) To the knowledge of such counsel no legal or
governmental proceedings are pending or, to the knowledge of
such counsel, threatened to which any of the Company or the
Subsidiaries is a party or to which the property or assets of
the Company or any Subsidiary is subject which, if determined
adversely to the Company or the Subsidiaries, would result,
individually or in the aggregate, in a Material Adverse
Effect, or which seeks to restrain, enjoin, prevent the
consummation of or otherwise challenge the issuance or sale of
the Shares to be sold hereunder or the consummation of the
other transactions described in the Prospectus under the
caption "Use of Proceeds."
(vi) None of the Company or the Subsidiaries is in
violation of its certificate of incorporation or bylaws (or
similar organizational document).
(vii) The execution, delivery and performance of this
Agreement, and the consummation of the transac-
<PAGE>
-17-
tions contemplated hereby (including, without limitation, the
issuance and sale of the Shares to the Underwriters) will not
conflict with or constitute or result in a breach or a default
under (or an event that with notice or passage of time or both
would constitute a default under) or violation of any of (i)
the terms or provisions of any Contract known to such counsel
(including in any event any of the foregoing that have been
filed by the Company with the Commission), except for any such
conflict, breach, violation, default or event that would not,
individually or in the aggregate, have a Material Adverse
Effect, (ii) the certificate of incorporation or bylaws (or
similar organizational document) of the Company or any of the
Subsidiaries or (iii) (assuming compliance with all applicable
state securities or "Blue Sky" laws) any statute, judgment,
decree, order, rule or regulation known to such counsel to be
applicable to the Company or any of the Subsidiaries or any of
their respective properties or assets, except for any such
conflict, breach or violation which would not, individually or
in the aggregate, have a Material Adverse Effect.
(viii) No consent, approval, authorization or order of any
governmental authority is required for the issuance and sale
by the Company of the Shares to the Underwriters or the
consummation by the Company of the other transactions
contemplated hereby, except such as may be required under Blue
Sky laws, as to which such counsel need express no opinion,
and those which have previously been obtained.
(ix) None of the Company or the Subsidiaries is, or
immediately after the sale of the Securities to be sold
hereunder and the application of the proceeds from such sale
(as described in the Prospectus under the caption "Use of
Proceeds") will be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(x) The Shares have been duly authorized and, when issued
and delivered in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable, and the
issuance of such Shares will not be subject to any preemptive
or similar rights.
<PAGE>
-18-
(xi) The statements (A) in the Prospectus under the
captions "________," "_______," "Description of Capital Stock"
and "Underwriters" (to the extent of the description of this
Agreement) and (B) in the Registrat ion Statement in Items 14
and 15, in each case insofar as such statements constitute
summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information called for
with respect to such legal matters, documents and proceedings
and fairly summarize the matters referred to therein.
(xii) In addition, in the course of the preparation by the
Company of the Registration Statement and the Prospectus, we
participated in conferences with certain of the officers and
representatives of, and the independent public accountants
for, the Company, at which the Registration Statement and the
Prospectus were discussed. Between the date of effectiveness
of the Registration Statement and the time of delivery of this
letter, we attended additional conferences with certain of the
officers and representatives of, and the independent public
accountants for, the Company, at which the contents of the
Prospectus were discussed to a limited extent. Given the
limitations inherent in the independent verification of
factual matters and the character of determinations involved
in the registration process, we are not passing upon or
assuming any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration
Statement or the Prospectus, except insofar as such statements
relate to us and except to the extent set forth in the opinion
in paragraph (xi) above. Subject to the foregoing and on the
basis of the information gained in the performance of the
services referred to above, including information obtained
from officers and other representatives of, and the
independent public accountants for, the Company, no facts have
come to our attention that cause us to believe that the
Registration Statement, as of its effective date, contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in
order to make the statements therein not misleading or that
the Prospectus as of its date contained any untrue statement
of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make
the
<PAGE>
-19-
statements therein, in light of the circumstances under which
they were made, not misleading. We express no view or belief,
however, with respect to financial statements, schedules or
notes thereto or other financial data included in or omitted
from the Registration Statement or Prospectus. Also, subject
to the foregoing, no facts have come to our attention in the
course of proceedings described in the second sentence of this
paragraph that cause us to believe that the Prospectus, as of
the date and time of delivery of this letter contains an
untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances in which they were made, not misleading. We
express no view or belief, however, with respect to financial
statements, schedules or notes thereto or other financial and
statistical data included in or omitted from the Registration
Statement or Prospectus.
The opinion of Fried, Frank, Harris, Shriver & Jacobson
described in this Section shall be rendered to the Underwriters at the request
of the Company and shall so state therein.
References to the Prospectus in this subsection (c) shall
include any amendment or supplement thereto prepared in accordance with the
provisions of this Agreement at the Closing Date.
(d) On the Closing Date, the Underwriters shall have received
the opinion of Cahill Gordon & Reindel, counsel for the Underwriters,
dated the Closing Date in form and substance satisfactory to the
Underwriters.
With respect to Section 5(c)(xii) above, Fried, Frank, Harris,
Shriver & Jacobson may state that its opinion and belief are based upon its
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification, except as
specified.
(e) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Underwriters, from
<PAGE>
-20-
Deloitte & Touche LLP, Arthur Andersen LLP and Price Waterhouse & Co.,
independent public accountants, containing statements and information
of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain
financial information contained in the Registration Statement and the
Prospectus; PROVIDED that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.
(f) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain stockholders, officers and
directors of the Company relating to sales and certain other
dispositions of shares of Common Stock or certain other securities,
delivered to you on or before the date hereof, shall be in full force
and effect on the Closing Date.
(g) The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they
may reasonably request with respect to the good standing of the
Company, the due authorization and issuance of the Additional Shares
and other matters related to the issuance of the Additional Shares.
6. COVENANTS OF THE COMPANY. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, seven signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City,
without charge, prior to 10:00 a.m. New York City time on the business
day next succeeding the date of this Agreement and during the period
mentioned in Section 6(c) below, as many copies of the Prospectus and
any supplements and amendments thereto or to the Registration Statement
as you may reasonably request.
(b) Before amending or supplementing the Registration Statement
or the Prospectus, to furnish to you a copy of each such proposed
amendment or supplement and not to file any such proposed amendment or
supplement to which you reasonably object, and to file with the
Commission
<PAGE>
-21-
within the applicable period specified in Rule 424(b) under the
Securities Act any prospectus required to be filed pursuant to such
Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall
occur or condition exist as a result of which it is necessary to amend
or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the reasonable opinion of counsel
for the Underwriters, it is necessary to amend or supplement the
Prospectus to comply with applicable law, forthwith to prepare, file
with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will
furnish to the Company) to which Shares may have been sold by you on
behalf of the Underwriters and to any other dealers upon request,
either amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall
reasonably request.
(e) To make generally available to the Company's security holders
and to you as soon as practicable an earning statement covering the
twelve-month period ending , 1999 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of
the Commission thereunder.
(f) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses incident to the performance of its obligations under
this Agreement, including: (i) the fees, disbursements and expenses of
the Company's counsel and the Company's accountants in connection with
the registration and delivery of the Shares under the Securities Act
and all other fees or expenses in connection with the preparation and
filing of
<PAGE>
-22-
the Registration Statement, any preliminary prospectus, the Prospectus
and amendments and supplements to any of the foregoing, including all
printing costs associated therewith, and the mailing and delivering of
copies thereof to the Underwriters and dealers, in the quantities
hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any
transfer or other taxes payable thereon, (iii) the cost of printing or
producing any Blue Sky or Legal Investment memorandum in connection
with the offer and sale of the Shares under state securities laws and
all expenses in connection with the qualification of the Shares for
offer and sale under state securities laws as provided in Section 6(d)
hereof, including filing fees and the reasonable fees and disbursements
of counsel for the Underwriters in connection with such qualification
and in connection with the Blue Sky or Legal Investment memorandum,
(iv) all filing fees and the reasonable fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association
of Securities Dealers, Inc. (the "NASD"), (v) all fees and expenses in
---- connection with the preparation and filing of the registration
statement on Form 8-A relating to the Common Stock and all costs and
expenses incident to listing the Shares on the [New York Stock
Exchange], (vi) the cost of printing certificates representing the
Shares, (vii) the costs and charges of any transfer agent, registrar or
depositary, (viii) the costs and expenses of the Company relating to
investor presentations on any "road show" undertaken in connection with
the marketing of the offering of the Shares, including, without
limitation, expenses associated with the production of road show slides
and graphics, fees and expenses of any consultants engaged in
connection with the road show presentations with the prior approval of
the Company, travel and lodging expenses of the representatives and
officers of the Company and any such consultants, and the cost of any
aircraft chartered in connection with the road show, with prior
approval of the Company (ix) all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share
Program and stamp duties, similar taxes or duties or other taxes, if
any, incurred by the Underwriters in connection with the Directed Share
Program. and (x) all other costs and expenses incident to the
performance of the obligations of the Company hereunder for which
provision is not otherwise made in this Section. It is understood,
however, that except as provided in this Section, Section
<PAGE>
-23-
7 entitled "Indemnity and Contribution," and the last paragraph of
Section 9 below, the Underwriters will pay all of their costs and
expenses, including fees and disbursements of their counsel, stock
transfer taxes payable on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make.
(g) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent
required by the NASD or the NASD rules from sale, transfer, assignment,
pledge or hypothecation for a period of three months following the date
of the effectiveness of the Registration Statement. DLJ will notify the
Company as to which Participants will need to be so restricted. The
Company will direct the transfer agent to place stop transfer
restrictions upon such securities for such period of time.
7. INDEMNITY AND CONTRIBUTION. (a) The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use therein; PROVIDED, HOWEVER, that
the foregoing indemnity agreement with respect to any preliminary prospectus
shall not inure to the benefit of any Underwriter from whom the person asserting
any such losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or
<PAGE>
-24-
prior to the written confirmation of the sale of the Shares to such person, and
if the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such losses, claims, damages or liabilities, unless such failure
is the result of noncompliance by the Company with Section 6(a) hereof.
(b) In connection with the offer and sale of the Directed Shares,
the Company agrees, promptly upon a request in writing, to indemnify
and hold harmless DLJ from and against any and all losses, liabilities,
claims, damages and expenses incurred by DLJ as a result of (i) the
failure of eligible employees and other persons having a business
relationship with the Company to pay for and accept delivery of
Directed Shares which, by the end of the first business day following
the date of this Agreement, were subject to a properly confirmed
agreement to purchase, and (ii) any untrue statement or alleged untrue
statement of a material fact including in the supplement or prospectus
wrapper material distributed in ____________ in connection with the
reservation and sale of the Directed Shares to eligible employees and
other persons having a business relationship with the Company or the
omission or alleged omission therefrom of a material fact necessary to
make the statements therein, when considered in conjunction with the
Prospectus or any preliminary prospectus, not misleading.
(c) The Company also agrees to indemnify and hold harmless Morgan
Stanley and each person, if any, who controls Morgan Stanley within the meaning
of either Section 15 of the Act, or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and judgments incurred
as a result of Morgan Stanley's participation as a "qualified independent
underwriter" within the meaning of Rule 2720 of the National Association of
Securities Dealers' Conduct Rules in connection with the offering of the Common
Stock, except for any losses, claims, damages, liabilities, and judgments
resulting from Morgan Stanley's, or such controlling person's, willful
misconduct, bad faith or gross negligence.
(d) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
such Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company
<PAGE>
-25-
in writing by such Underwriter through you expressly for use in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendments or
supplements thereto.
(e) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to Section 7(a), 7(b), 7(c) or 7(d), such
person (the "INDEMNIFIED PARTY") shall promptly notify the person against whom
such indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley, in the case of parties indemnified
pursuant to Section 7(a), and by the Company, in the case of parties indemnified
pursuant to Section 7(d). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second and third sentences of this paragraph,
the indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 60 days after receipt by such indemnifying party of the
<PAGE>
-26-
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding. Notwithstanding anything contained herein to the contrary, if
indemnity may be sought pursuant to Section 7(b) hereof in respect of such
action or proceeding, then in addition to such separate firm for the indemnified
parties, the indemnifying party shall be liable for the reasonable fees and
expenses of not more than one separate firm (in addition to any local counsel)
for DLJ for the defense of any losses, claims, damages and liabilities arising
out of the Directed Share Program, and all persons, if any, who control DLJ
within the meaning of either Section 15 of the Act or Section 20 of the Exchange
Act. Furthermore, notwithstanding anything contained herein to the contrary, if
indemnity may be sought pursuant to Section 7(c) hereof in respect of such
action or proceeding, then in addition to such separate firm for the indemnified
parties, the indemnifying party shall be liable for the reasonable fees and
expenses of not more than one separate firm (in addition to any local counsel)
for Morgan Stanley in its capacity as a "qualified independent underwriter" and
all persons, if any, who control Morgan Stanley within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act.
(f) To the extent the indemnification provided for in Section 7(a),
7(b), 7(c) or 7(d) is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause 7(f)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
7(f)(i) above but also the relative fault of the Company on the one hand and of
the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims,
<PAGE>
-27-
damages or liabilities, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Shares
shall be deemed to be in the same respective proportions as the net proceeds
from the offering of the Shares (before deducting expenses) received by the
Company and the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover of the
Prospectus, bear to the aggregate Public Offering Price of the Shares. The
relative fault of the Company on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Underwriters' respective obligations to contribute pursuant to this Section
7 are several in proportion to the respective number of Shares they have
purchased hereunder, and not joint.
(g) The Company and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Section 7 were determined by PRO RATA
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 7(f). The amount paid or payable
by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 7 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
<PAGE>
-28-
(h) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its officers or directors or
any person controlling the Company and (iii) acceptance of and payment for any
of the Shares.
8. TERMINATION. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the NASD, the Chicago
Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board
of Trade, (ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market, (iii) a general
moratorium on commercial banking activities in New York shall have been declared
by either Federal or New York State authorities or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change in financial
markets or any calamity or crisis that, in your judgment, is material and
adverse and (b) in the case of any of the events specified in clauses 8(a)(i)
through 8(a)(iv), such event, singly or together with any other such event,
makes it, in your judgment, impracticable to market the Shares on the terms and
in the manner contemplated in the Prospectus.
9. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase Shares that it has or they have agreed to purchase hereunder on such
date, and the aggregate number of Shares that such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I or Schedule
II bears to the aggregate number of Firm Shares set forth opposite the names of
all such non-defaulting Underwriters, or in such other proportions as you may
specify, to purchase the
<PAGE>
-29-
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; PROVIDED that in no event shall the number of
Shares that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 9 by an amount in excess of one-ninth of such
number of Shares without the written consent of such Underwriter. If, on the
Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase
Firm Shares and the aggregate number of Firm Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Firm Shares to
be purchased, and arrangements satisfactory to you and the Company for the
purchase of such Firm Shares are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason the Company shall be unable to perform its obligations under
this Agreement, the Company will reimburse the Underwriters or such Underwriters
as have so terminated this Agreement with respect to themselves, severally, for
all out-of-pocket expenses (including the fees and disbursements of their
counsel) reasonably incurred by such Underwriters in connection with this
Agreement or the offering contemplated hereunder.
10. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original,
<PAGE>
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with the same effect as if the signatures thereto and hereto were upon the same
instrument.
11. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
12. HEADINGS. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
<PAGE>
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Very truly yours,
NEFF CORP.
By: ______________________
Name:
Title:
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
BT ALEX. BROWN INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
Acting severally on behalf of themselves and the several U.S. Underwriters named
in Schedule II hereto.
By: Morgan Stanley & Co. Incorporated
By:___________________________
Name:
Title:
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
Acting severally on behalf of themselves
and the several International Underwriters
named in Schedule III hereto.
By: Morgan Stanley & Co. International Limited
By:____________________________
Name:
Title:
<PAGE>
SCHEDULE I
SUBSIDIARIES
1. Neff Rental, Inc.
2. Neff Machinery, Inc.
<PAGE>
SCHEDULE II
U.S. UNDERWRITERS
NUMBER OF
FIRM SHARES
UNDERWRITER TO BE PURCHASED
Morgan Stanley & Co. Incorporated
BT Alex. Brown Incorporated
Donaldson, Lufkin & Jenrette Securities
Corporation
-----------
Total U.S. Firm Shares.....................................
===========
<PAGE>
SCHEDULE III
INTERNATIONAL UNDERWRITERS
NUMBER OF
FIRM SHARES
UNDERWRITER TO BE PURCHASED
Morgan Stanley & Co. International Limited
BT Alex. Brown International, a division of
Bankers Trust International PLC
Donaldson, Lufkin & Jenrette International
-----------
Total International Firm Shares.....................................
===========
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
NEFF CORP.
(Pursuant to Sections 242 and 245 of the General
Corporation Law of the State of Delaware)
Neff Corp., a corporation existing under the laws of the State
of Delaware (the "Corporation"), hereby certifies as follows:
1. The Corporation's present name is Neff Corp.
2. The date of the filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware was July 6,
1995 under the name of Neff Corp. The original Certificate of Incorporation was
amended and restated on March 25, 1998.
3. The existing Amended and Restated Certificate of
Incorporation of the Corporation is hereby amended and restated so as to read in
its entirety as follows:
FIRST: The name of the Corporation is Neff Corp.
SECOND: The address of the Corporation's registered office in
the State of Delaware is Corporation Trust Center, 1209 Orange Street in the
City of Wilmington, County of New Castle, Delaware 19801-1297. The name of its
registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The aggregate number of shares of all classes of
capital stock which the Corporation shall have the authority to issue is
140,000,000, of which (i) 100,000,000 shall be designated Class A Common Stock,
par value $.01 per share (the "Class A Common Stock"), (ii) 20,000,000 shall be
designated Class B Special Common Stock, par value $.01 per share (the "Class B
Special Common Stock," and together with the Class A Common Stock, the "Common
Stock") and (iii) 20,000,000 shall be designated Preferred Stock, par value $.01
per share.
<PAGE>
Effective upon the filing of this Amended and Restated
Certificate of Incorporation, each issued and outstanding share of Class A
Common Stock will be converted into eighty-four and sixty-five one-hundredths
(84.65) shares of Class A Common Stock, par value $.01 per share and each issued
and outstanding share of Class B Special Common Stock will be converted into
eighty-four and sixty-five one-hundredths (84.65) shares of Class B Special
Common Stock. Each holder of one (1) share of Class A Common Stock at such time
will, without further action on the part of any person, immediately thereafter
hold eighty-four and sixty-five one-hundredths (84.65) shares of Class A Common
Stock of the Corporation and each holder of one (1) share of Class B Special
Common Stock at such time will, without further action on the part of any
person, immediately thereafter hold eighty-four and sixty-five one-hundredths
(84.65) shares of Class B Special Common Stock of the Corporation.
Promptly after the filing of this Amended and Restated
Certificate of Incorporation, the Corporation shall deliver to the holders of
issued and outstanding shares of Common Stock a certificate or certificates
representing the number of shares of Class A Common Stock or Class B Special
Common Stock issuable by reason of such conversion in the names of such holders.
This issuance of certificates for shares of Class A Common Stock or Class B
Special Common Stock upon the conversion of Common Stock shall be made without
charge for any issuance tax in respect thereof or other cost incurred by the
Corporation in connection with such conversion and the related issuance of
shares of Class A Common Stock and Class B Special Common Stock.
No fractional shares of Class A Common Stock or Class B
Special Common Stock shall be created or outstanding upon the conversion of
Common Stock. Any holder of Class A Common Stock or Class B Special Common Stock
who by reason of the conversion of Common Stock would have been entitled to
receive a fraction of a share of Class A Common Stock or Class B Special Common
Stock, will receive only the nearest whole share, with .5 share or more
fractional shares being rounded up to the next whole share.
A. Class A Common Stock
1. DIVIDENDS. Subject to the preferential rights, if
any, of the Preferred Stock and the preferential rights of the Class B Special
Common Stock prior to the first underwritten public offering of Class A Common
Stock with gross proceeds of not less than $50 million that is effected pursuant
to a registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(an "Initial Public Offering"), the holders of shares of Class A Common Stock
shall be entitled to receive, when and if declared by the Board of Directors of
the Corporation (the "Board of Directors"), out of the assets of the
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<PAGE>
Corporation which are by law available therefor, dividends payable either in
cash, in property, or in shares of capital stock of the Corporation.
2. VOTING RIGHTS. At every annual or special meeting of
stockholders of the Corporation, every holder of Class A Common Stock shall be
entitled to one vote, in person or by proxy, for each share of Class A Common
Stock standing in his name on the books of the Corporation and the Class A
Common Stock and Class B Special Common Stock shall be considered as one class
for voting purposes and the holders thereof shall be entitled to vote ratably
without preference of either class over the other.
3. LIQUIDATION, DISSOLUTION, OR WINDING UP. In the
event of any voluntary or involuntary liquidation, dissolution, or winding up of
the affairs of the Corporation, after payment or provision for payment of the
debts and other liabilities of the Corporation and of the preferential amounts,
if any, to which the holders of Preferred Stock and/or the holders of Class B
Special Common Stock shall be entitled, the holders of all outstanding shares of
Class A Common Stock shall be entitled to share ratably in the remaining net
assets of the Corporation. Neither the consolidation or merger of the
Corporation into or with any other corporation or corporations, nor the
reduction of the capital stock of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section A3.
4. PREEMPTIVE RIGHTS. No holder of Class A Common
Stock shall have any preemptive right to subscribe for or purchase any
additional shares of stock or securities convertible into or carrying warrants
or options to acquire shares of stock of the Corporation.
B. Class B Special Common Stock
1. DIVIDENDS. Subject to the preferential rights, if
any, of the Preferred Stock, the holders of shares of Class B Special Common
Stock shall be entitled to receive, when and if declared by the Board of
Directors, out of the assets of the Corporation which are by law available
therefor, dividends payable either in cash, in property, or in shares of capital
stock of the Corporation, as follows:
a. PRE-INITIAL PUBLIC OFFERING. Prior to the
completion by the Corporation of an Initial Public Offering, in connection with
the declaration and payment of any dividend on the Common Stock, the holders of
Class B Special Common Stock shall be entitled to the following preferential
rights: with respect to the declaration and payment of any cash dividend to the
holders of Common Stock, the holders of Class B Special Common Stock shall be
entitled to receive, in the aggregate, seventy-five percent (75%) of the total
dollar amount of the cash dividend declared and paid to the
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<PAGE>
holders of Common Stock; and the holders of Class A Common Stock shall be
entitled to receive, in the aggregate, twenty-five percent (25%) of the total
dollar amount of the cash dividend declared and paid to the holders of Common
Stock. With respect to dividends declared and paid by the Corporation to holders
of Common Stock other than cash dividends, Class A Common Stock and Class B
Special Common Stock shall be considered as one class, and the holders of Class
A Common Stock and Class B Special Common Stock shall be entitled to participate
ratably, share for share, and without preference of either class over the other
in all dividends so declared.
b. POST-INITIAL PUBLIC OFFERING. After the
completion by the Company of an Initial Public Offering, the holders of Class B
Special Common Stock shall no longer be entitled to any preferential rights with
respect to dividends declared or paid by the Corporation. Whenever the Board of
Directors declares a dividend upon Class A Common Stock, Class A Common Stock
and Class B Special Common Stock shall be considered as one class, and the
holders of Class B Special Common Stock shall be entitled to participate
ratably, share for share with the holders of Class A Common Stock, and without
preference of either class over the other in all sums so declared.
2. VOTING RIGHTS. Every holder of Class B Special Common Stock
shall be entitled to one vote, in person or by proxy, for each share of Class B
Special Common Stock standing in his name on the books of the Corporation and
the Class A Common Stock and Class B Special Common Stock shall be considered as
one class for voting purposes and the holders thereof shall be entitled to vote
ratably without preference of either class over the other.
3. LIQUIDATION, DISSOLUTION, OR WINDING UP. In the event of
any voluntary or involuntary liquidation, dissolution, or winding up of the
affairs of the Corporation, after payment or provision for payment of the debts
and other liabilities of the Corporation and of the preferential amounts, if
any, to which the holders of Preferred Stock shall be entitled, the holders of
all outstanding shares of Class B Special Common Stock shall be entitled to be
paid, before any distribution or payment is made upon any of the Junior
Securities (as defined), an amount in cash equal to the aggregate Liquidation
Value (as defined) of all such Class B Special Common Stock outstanding, and the
holders of Class B Special Common Stock shall not be entitled to any further
payment. If upon any such liquidation, dissolution or winding up of the
Corporation, the Corporation's assets to be distributed among the holders of the
Class B Special Common Stock are insufficient to permit payment to such holders
of the aggregate amounts to which they are entitled to be paid, then the entire
assets to be distributed shall be distributed ratably among such holders based
upon the aggregate Liquidation Value of the shares held by each such holder. The
Corporation shall mail written notice of such liquidation, dissolution or
winding up not less than 10 days prior to the payment date stated therein, to
each record holder of Class B Special Common Stock. Neither the
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<PAGE>
consolidation or merger of the Corporation into or with any other corporation or
corporations, nor the reduction of the capital stock of the Corporation, shall
be deemed to be a liquidation, dissolution or winding up of the Corporation
within the meaning of this Section B3.
4. PREEMPTIVE RIGHTS. No holder of Class B Special Common
Stock shall have any preemptive right to subscribe for or purchase any
additional shares of stock or securities convertible into or carrying warrants
or options to acquire shares of stock of the Corporation.
5. CONVERSION. At any time and from time to time, any holder
of Class B Special Common Stock may convert all or any portion of the Class B
Special Common Stock held by such holder into an equal number of shares of Class
A Common Stock. Each conversion of Class B Special Common Stock shall be deemed
to have been effected as of the close of business on the date on which the
certificate or certificates representing the Class B Special Common Stock to be
converted has been surrendered for conversion at the principal office of the
Corporation. At the time any conversion has been effected, the rights of the
holder of the shares converted as a holder of Class B Special Common Stock shall
cease and the Person or Persons in whose name or names any certificate or
certificates for shares of Class A Common Stock are to be issued upon such
conversion shall be deemed to have become the holder or holders of record of the
shares of Class A Common Stock represented thereby. As soon as possible after a
conversion has been effected (but in any event within 5 business days in the
case of subparagraph (i) below), the Corporation shall deliver to the converting
holder:
(i) a certificate or certificates representing the number of
shares of Class A Common Stock issuable by reason of such conversion in such
name or names and such denomination or denominations as the converting holder
has specified; and
(ii) a certificate or certificates representing any shares of
Class B Special Common Stock which were represented by the certificate or
certificates delivered to the Corporation in connection with such conversion but
which were not converted.
The issuance of certificates for shares of Class A Common
Stock upon conversion of Class B Special Common Stock shall be made without
charge to the holders of such Class B Special Common Stock for any issuance tax
in respect thereof or other cost incurred by the Corporation in connection with
such conversion and the related issuance of shares of Class A Common Stock. The
Corporation shall take all such actions as are necessary in order to insure that
the Class A Common Stock issuable with respect to such conversion shall be
validly issued, fully paid and nonassessable, and free and clear of all taxes,
liens, charges and encumbrances with respect to the issuance thereof.
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<PAGE>
If the Corporation at any time subdivides (by stock split, stock
dividend, recapitalization or otherwise) the Class A Common Stock into a greater
number of shares of Class A Common Stock, the number of shares of Class B
Special Common Stock shall be proportionately increased and the Liquidation
Preference of each share of Class B Special Common Stock shall be
proportionately decreased. If the Corporation at any time combines (by reverse
stock split or otherwise) the Class A Common Stock into a smaller number of
shares of Class A Common Stock, the number of shares of Class B Special Common
Stock shall be proportionately reduced and the Liquidation Preference of each
share of Class B Special Common Stock shall be proportionately increased.
Notwithstanding the foregoing, if the Corporation subdivides or combines by
means of a stock dividend of Common Stock in which the holders of Class A Common
Stock and Class B Special Common Stock participate ratably, share for share, and
without preference of either class over the other, the number of shares of Class
B Special Common Stock and the Liquidation Preference of each share of Class B
Special Common Stock shall not be affected pursuant to this paragraph.
In the event of any recapitalization, reclassification,
consolidation or merger of the Corporation (a "Transaction") which is effected
in such a manner that the holders of Class A Common Stock are entitled to
receive (either directly or upon subsequent liquidation) stock, securities or
assets with respect to or in exchange for Class A Common Stock, the holders of
Class B Special Common Stock shall be entitled to receive (either directly or
upon subsequent liquidation) such shares of stock, securities or assets as such
holders would have received in connection with the Transaction if such holders
had converted their shares of Class B Special Common Stock into shares of Class
A Common Stock immediately prior to the Transaction.
The Corporation shall not close its books against the transfer
of Class B Special Common Stock or of Class A Common Stock issued or issuable
upon conversion of Class B Special Common Stock in any manner which interferes
with the timely conversion of Class B Special Common Stock. The Corporation
shall assist and cooperate with any holder of Class B Special Common Stock
required to make any governmental filings or obtain any governmental approval
prior to or in connection with any conversion of Class B Special Common Stock
hereunder (including, without limitation, making any filings required to be made
by the Corporation).
The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Class A Common Stock, solely for
the purpose of issuance upon the conversion of the Class B Special Common Stock,
such number of shares of Class A Common Stock as are issuable upon the
conversion of all outstanding Class B Special Common Stock. The Corporation
shall take all such actions as may be necessary to assure that all shares of
Class A Common Stock which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all
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<PAGE>
taxes, liens and charges. The Corporation shall take all such actions as may be
necessary to assure that all such shares of Class A Common Stock may be so
issued without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange or the NASDAQ Stock Market upon
which shares of Class A Common Stock may be listed (except for official notice
of issuance which shall be immediately delivered by the Corporation upon each
such issuance).
If any fractional interest in a share of Class A Common Stock
would, except for the provisions of this subparagraph, be delivered upon any
conversion of the Class B Special Common Stock, the Corporation, in lieu of
delivering the fractional share therefor, shall pay an amount to the holder
thereof equal to the Liquidation Value of such fractional interest
6. DEFINITIONS. Unless defined elsewhere herein, each
capitalized term used in this Section B of Article FOURTH shall have the meaning
assigned to such term below, solely for the purposes of this Section B of
Article FOURTH:
"JUNIOR SECURITIES" means any of the Corporation's Stock,
except for the Series A Cumulative Redeemable Preferred Stock and any other
series of preferred stock issued by the Board of Directors of the Corporation in
accordance with this Article FOURTH.
"LIQUIDATION VALUE" of any share of Class B Special Common
Stock is $11.67.
"PERSON" means any individual, sole proprietorship,
partnership (including a limited partnership), joint venture, trust,
unincorporated organization, association, corporation, institution, public
benefit corporation, limited liability company, joint stock company, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof) or any other business entity.
C. Preferred Stock
1. ISSUANCE. Shares of the Preferred Stock of the
Corporation may be issued from time to time in one or more classes or series,
each of which class or series shall have such distinctive designation or title
as shall be fixed by the Board of Directors of the Corporation prior to the
issuance of any shares thereof. Each such class or series of Preferred Stock
shall have such voting powers, full or limited, or no voting powers, and such
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated in
such resolution or resolutions providing for the issue of such class or series
of Preferred Stock as may be
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<PAGE>
adopted from time to time by the Board of Directors prior to the issuance of any
shares thereof pursuant to the authority hereby expressly vested in it, all in
accordance with the laws of the State of Delaware.
2. SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK.
a. DIVIDENDS.
i. GENERAL OBLIGATION. To the
extent permitted under the Delaware General Corporation Law, the Corporation
will pay preferential dividends to the holders of the Series A Cumulative
Redeemable Preferred Stock (the "Series A Preferred Stock") as provided in this
Section C2(a). Except as otherwise provided herein, dividends on each share of
Series A Preferred Stock (a "Share") will accrue on a semi-annual basis at a
rate of 5% per annum of the Liquidation Value (as defined) thereof, plus all
accumulated and unpaid dividends thereon (the "Dividend Rate") from and
including the Date of Issuance (as defined) of such Share to and including the
date on which the Liquidation Value (plus all accrued and unpaid dividends
thereon) of such Share is paid in full. Such dividends will accrue whether or
not they have been declared and whether or not there are profits, surplus or
other funds of the Corporation legally available for the payment of dividends.
The date on which the Corporation initially issues any Share shall be deemed to
be its "Date of Issuance" regardless of the number of times a transfer of such
Share is made on the stock records maintained by or for the Corporation and
regardless of the number of certificates which may be issued to evidence such
Share.
Dividends shall be paid as follows:
(A) During the PIK Period:
(1) If, on a Dividend Reference Date (as defined), the Company
has Excess Cash (as defined), the Company shall pay all accrued and unpaid
dividends on each Share in cash on such Dividend Reference Date and, except to
the extent paid in cash, such dividends will accumulate on each such Dividend
Reference Date.
(2) If, on a Dividend Reference Date, the Company does not have
Excess Cash, the Company shall Pay In Kind (as defined) all accrued and unpaid
dividends on each Share on such Dividend Reference Date, and except to the
extent so paid, such dividends will accumulate on each such Dividend Reference
Date. The Company shall give written notice to the record holders of Series A
Preferred Stock of its intention to Pay In Kind at least 5 business days prior
to Dividend Reference Date.
(B) After the expiration of a PIK Period (as defined), all accrued and
unpaid dividends on each Share shall be paid in cash on each Dividend Reference
Date, and
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<PAGE>
except to the extent paid in cash, such dividends will accumulate on each such
Dividend Reference Date.
ii. DIVIDEND REFERENCE DATE. The
accrued dividends will be payable on June 30 and December 31 of each year
commencing on June 30, 1996 (the "Dividend Reference Dates") to the holders of
record of Series A Preferred Stock at the close of business on the immediately
preceding June 15 and December 15. To the extent all accrued dividends are not
paid on the Dividend Reference Dates, all dividends which have accrued on each
Share outstanding during the six-month period (or other period in the case of
the initial Dividend Reference Date) ending upon each such Dividend Reference
Date will be accumulated and shall remain accumulated dividends with respect to
such Share until paid.
iii. DISTRIBUTION OF PARTIAL
DIVIDEND PAYMENTS. Except as otherwise provided herein, if at any time the
Corporation elects to pay less than the total amount of dividends then accrued
with respect to the Series A Preferred Stock, such Payment will be distributed
among the holders of the Series A Preferred Stock based upon the aggregate
accrued but unpaid dividends on the Share of Series A Preferred Stock held by
each such holder, and any amounts of such dividends remaining thereafter shall
be accumulated and shall remain accumulated dividends with respect to such Share
until paid.
b. LIQUIDATION. Upon any liquidation,
dissolution or winding up of the Corporation, holders of the Series A Preferred
Stock will be entitled to be paid, before any distribution or payment is made
upon any of the Junior Securities (as defined), an amount in cash equal to the
aggregate Liquidation Value (plus all accrued and unpaid dividends thereon) of
all such Series A Preferred Stock outstanding, and the holders of Series A
Preferred Stock will not be entitled to any further payment. If upon any such
liquidation, dissolution or winding up of the Corporation, the Corporation's
assets to be distributed among the holders of the Series A Preferred Stock are
insufficient to permit payment to such holders of the aggregate amount which
they are entitled to be paid, then the entire assets to be distributed shall be
distributed ratably among such holders based upon the aggregate Liquidation
Value (plus all accrued and unpaid dividends) of the Series A Preferred Stock
held by each such holder. Prior to the time of any liquidation, dissolution or
winding up of the Corporation, to the extent permitted by applicable law, the
Corporation shall declare for payment all accrued and unpaid dividends with
respect to the Series A Preferred Stock. The Corporation will mail written
notice of such liquidation, dissolution or winding up, not less than 10 days
prior to the payment date statement therein, to each record holder of Series A
Preferred Stock. Neither the consolidation or merger of the Corporation into or
with any other corporation or corporations, nor the reduction of the capital
stock of the Corporation, will be deemed
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to be a liquidation, dissolution or winding up of the Corporation within the
meaning of this Section C2(b).
c. REDEMPTION.
i. SCHEDULED REDEMPTION. On
December 31, 2002 (the "Scheduled Redemption Date") the Corporation will 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).
ii. REDEMPTION PRICE. For each
Share which is to be redeemed, the Corporation will be obligated on the
Redemption Date (as defined) to pay to the holder thereof (upon surrender by
such holder at the Corporation's principal office of the certificate
representing such Share) an amount in immediately available funds equal to the
Liquidation Value thereof (plus all accrued and unpaid dividends thereon). If
the Corporation's funds which are legally available for redemption of Shares on
any Redemption Date are insufficient to redeem the total number of Shares to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of Shares ratably among the holders of the
Shares to be redeemed based upon the aggregate Liquidation Value of such Shares
(plus all accrued and unpaid dividends thereon) held by each such holder. At any
time thereafter when additional funds of the Corporation are legally available
for the redemption of Shares, such funds will immediately be used to redeem the
balance of the Shares which the Corporation has become obligated to redeem on
any Redemption Date but which it has not redeemed. Without limiting any rights
of the holders of Series A Preferred Stock which are set forth in this Amended
and Restated Certificate of Incorporation or are otherwise available under law,
the balance of the Shares which the Corporation has become obligated to redeem
on any Redemption Date but which it has not redeemed shall continue to have all
of the powers, designations, preferences and relative participating, optional,
and other special rights (including without limitation, rights to accrue
dividends) which such Shares had prior to such Redemption Date, until the
aggregate Liquidation Value of such Shares (plus all accrued and unpaid
dividends thereon) have been paid in full.
iii. NOTICE OF REDEMPTION. Except
as otherwise provided herein, the Corporation will mail written notice of each
redemption of Series A Preferred Stock to each record holder not more than 60
nor less than 30 days prior to the date on which such redemption is to be made.
In case fewer than the total number of Shares represented by any certificate are
redeemed, a new certificate representing the number of unredeemed Shares will be
issued to the holder thereof without cost to such holder within 3 business days
after surrender of the certificate representing the redeemed Shares.
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iv. DIVIDENDS AFTER REDEMPTION
DATE; RIGHTS OF STOCKHOLDER. No Share is entitled to any dividends accruing
after the Redemption Date on which Value (plus all accrued and unpaid dividends
thereon) of such Share is paid in full. On such Redemption Date all rights of
the holder of such Share as a holder will cease, and such Share will not be
deemed to be outstanding.
v.REDEEMED OR OTHERWISE ACQUIRED
SHARES. Any Shares which are redeemed or otherwise acquired by the Corporation
will be canceled and will not be reissued, sold or transferred.
d. PRIORITY OF SERIES A PREFERRED STOCK ON
DIVIDENDS AND REDEMPTIONS. So long as any Series A Preferred Stock remains
outstanding, without the prior written consent of the holders of a majority of
the outstanding shares of Series A Preferred Stock, the Corporation shall not,
nor shall it permit any Subsidiary (as defined) to, redeem, retire, purchase or
otherwise acquire directly or indirectly any Junior Securities (other than upon
conversion of convertible preferred stock into common stock), nor shall any
moneys or property be paid into or set apart, or made available for the purchase
or redemption of any Junior Securities, nor shall the Corporation directly or
indirectly pay or declare any dividend or make any distribution (either 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 conversion of convertible preferred stock into common stock.
e. ELECTION OF DIRECTOR.
i. The holders of a majority of the
Series A Preferred Stock, voting separately as a single class in the election of
directors of the Corporation, to the exclusion of all other classes of the
Corporation's capital stock and with each Share of Series A Preferred Stock
entitled to one vote, shall be entitled to elect one (1) director to serve on
the Corporation's Board of Directors until his successor is duly elected by
holders of a majority of the Series A Preferred Stock or he is removed from
office by holders of a majority of the Series A Preferred Stock. If the holders
of a majority of the Series A Preferred Stock for any reason fail to elect
anyone to fill such directorship, such position shall remain vacant until such
time as the holders of a majority of the Series A Preferred Stock elect a
director to fill such position and shall not be filled by resolution or vote of
the Corporation's Board of Directors or Corporation's Board of Directors or the
Corporation's other stockholders.
ii. The holder or holders of record
of more than 5% of the issued and outstanding shares of Series A Preferred Stock
may designate in
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writing a nominee or nominees for election as such director and, if duly
designated, such nominee or nominees shall be included in the proxy statement
and proxy solicited by the Board of Directors with respect to the election of
directors at the annual meeting of the stockholders of the Corporation.
iii. Subject to the provisions of
Section C2(e)(iv) hereof, the Corporation's Board of Directors will not be
increased beyond seven (7) directors without the prior written consent of the
holders of a majority of the outstanding shares of Series A Preferred Stock.
Each director elected by the holders of the Series A Preferred Stock will be
paid fees not less than the fees paid to any other member of the Board of
Directors (excluding fees payable for services rendered in their capacity other
than as a director) and will be reimbursed for all reasonable expenses relating
to attending each meeting of the Board of Directors.
iv. If and whenever, at any time or
times during the PIK Period, dividends on the outstanding shares of Series A
Preferred Stock shall not have been paid in an amount equal to one (1) full
semiannual dividend thereon in accordance with the provisions of Section C2(a)
hereof, and if and whenever, at any time or times after the PIK Period,
dividends on the outstanding shares of Series A Preferred Stock shall not have
been paid in an aggregate amount equal to two (2) full consecutive semiannual
dividends thereon in accordance with the provisions of Section C2(a) hereof,
then until, but not after, such time as the Board of Directors declares and pays
to all holders of Series A Preferred Stock then outstanding (1) accrued but
unpaid dividends, plus, in addition thereto, (ii) two consecutive semiannual
dividends at the rate indicated in Section C2 hereof, the number of directors
shall IPSO FACTO be increased by four (4) so that, after giving effect to such
increase, the Corporation's Board of Directors will be comprised of a total of
eleven (11) directors, and the holders of record of all shares of Series A
Preferred Stock then outstanding, voting separately as one class, shall be
entitled to elect four (4) members of the Board of Directors to fill such newly
created directorships, which shall be in addition to the directorship filled by
the Series A Preferred Stock pursuant to Section C2(e)(i) hereof. Such directors
elected by the holders of Series A Preferred Stock shall serve in addition to
any other directors then in office or proposed to be elected, regardless of the
number of members otherwise fixed by the Amended and Restated Bylaws or this
Amended and Restated Certificate of Incorporation to constitute the Board of
Directors. When the aforesaid amounts have been paid to the holders of Series A
Preferred Stock, the holders of Series A Preferred Stock shall be divested of
such voting rights provided in this Section C2(e)(iv), but subject always to the
same provisions for the vesting of such voting rights in the holders of Series A
Preferred Stock in the case of any future such default or defaults.
Notwithstanding any other provision of this Amended and Restated
Certificate of Incorporation or the Amended and Restated Bylaws to the contrary,
any directors elected
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by the holders of Series A Preferred Stock shall serve terms of one year periods
and shall not be divided into classes pursuant to Article FIFTH hereof.
The aforementioned right of the holders of Series A Preferred Stock to
elect additional directors may be exercised at any annual meeting of
stockholders, or, within the limitations hereinafter provided, at a special
meeting of stockholders held for such purpose. At any time after such voting
power shall have so vested in the holders of Series A Preferred Stock, the Board
of Directors may, and upon the written request of the holders of record of at
least 5% of the shares of Series A Preferred Stock then outstanding shall, call
a special meeting of the holders of Series A Preferred Stock for election of the
directors to be elected by them as herein provided, to be held within 60 days
after such call and at the place and upon the notice provided by law and in the
Amended and Restated Bylaws for holding of meetings of stockholders; provided,
however, that the Board of Directors shall not be required to call such special
meeting in the case of any such request received less than 90 days before the
date fixed for any annual meeting of stockholders. If any such special meeting
required to be called as above provided shall not be called by the Board of
Directors within 30 days after receipt of any such request, then the holders of
record of at least 5% of the shares of Series A Preferred Stock then outstanding
may designate in writing one of their number to call such meeting, and the
person so designated may call such meeting to be held at the place and upon the
notice above provided, and for that purpose shall have access to the stock
ledger of the Corporation. No such special meeting and no adjournment thereof
shall be held on a date later than 30 days before the annual meeting of the
stockholders or a special meeting held in place thereof next succeeding the time
when the holders of Series A Preferred Stock become entitled to elect additional
directors as above provided.
Notwithstanding any other provision of this Amended and Restated
Certificate of Incorporation or the Amended and Restated Bylaws to the contrary,
if any meeting of stockholders for the election of directors shall be held while
holders of the outstanding shares of Series A Preferred Stock voting as a class
are entitled to elect additional directors as herein provided, the holders of
Series A Preferred Stock shall be entitled to elect the directors so provided
for, but no such additional directors so elected shall hold office beyond the
next annual meeting of stockholders at which their successors shall be elected
and qualified, or beyond the sooner termination of such directors' terms of
office as provided in this Section C2(e). No delay or failure by the holders of
Series A Preferred Stock to elect additional members of the Board of Directors
which such holders are entitled to elect shall invalidate the election of the
remaining members of the Board of Directors by the holders of the other shares
then entitled to vote, and a majority of the directors so elected shall, in such
case, constitute a quorum for the transaction of business by the Board of
Directors. Whenever the holders of Series A Preferred Stock shall be divested of
the power to elect additional directors as above provided, the terms of office
of the persons, if any, elected as the additional directors by the holders of
Series A
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Preferred Stock shall thereupon terminate and the authorized number of directors
of the Corporation shall be reduced accordingly.
vi. No director elected by the
holders of the Series A Preferred Stock may be removed except by the vote of the
holders of a majority of the outstanding shares of Series A Preferred Stock,
voting together as a single class, at a meeting called for such purpose. If,
during any interval between annual meetings of stockholders for the election of
directors and while the holders of Series A Preferred Stock shall be entitled to
elect more than one director, the number of directors in office who have been
elected by the holders of Series A Preferred Stock shall by reason of
resignation, death or removal be reduced on the Board of Directors, the
vacancies shall be filled by the remaining directors then in office who was
elected by such class or who succeeded to any director so elected. If any
vacancy is not so filled within 45 days after the occurrence thereof, the Board
of Directors shall call a special meeting of the holders of Series A Preferred
Stock and such vacancy shall be filled at such special meeting.
vi. There shall be no cumulative
voting in elections for directors.
f. OTHER VOTING RIGHTS.
i. GENERAL; NOTICE OF STOCKHOLDERS'
MEETINGS. In addition to the voting rights set forth in Section C2(e), the
holders of Series A Preferred Stock shall have the voting rights prescribed by
law and the additional voting rights set forth in Section C2(f) of this Amended
and Restated Certificate of Incorporation. The holders of the Series A Preferred
Stock shall be entitled to notice of all stockholders' meetings in accordance
with the Amended and Restated Bylaws, and shall have the right to participate
(but not vote, except as described herein or permitted by law) in all such
meetings.
ii. CORPORATE ACTION REQUIRING
AFFIRMATIVE VOTE OF HOLDERS OF SHARES OF SERIES A PREFERRED STOCK. So long as
any Shares of Series A Preferred Stock are outstanding, the Corporation shall
not:
(A) Without first obtaining the consent, given in person or by
proxy, either in writing or at any meeting called for the purpose, of the
holders of at least a majority of the outstanding shares of Series A Preferred
Stock,
(1) authorize, create or issue any shares of stock of
any other class or series, or authorize an increase in the authorized amount of
any class or series of shares, 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
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other securities by their terms convertible into shares of stock of any other
class or series which rank in any respect on a parity with shares of Series A
Preferred Stock, or
(2) increase the authorized number of shares of Series
A Preferred Stock.
(B) Without first obtaining the consent, given in person or by
proxy, either in writing or at any meeting called for the purpose, of the
holders of at least 80% of the outstanding shares of Series A Preferred Stock,
(1) authorize, create or issue any shares of stock of
any other class or series, or authorize an increase in the authorized amount of
any class of shares, 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 rank in any respect prior to shares of
Series A Preferred Stock; or
(2) 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 (except as may be expressly permitted under Subsection (A)(1) of
this Section C2(f) with majority consent).
(C) Without first obtaining the consent, given in person or by
proxy, either in writing or at any meeting called for the purpose, of the
holders of at least a majority of the outstanding shares of Series A Preferred
Stock, authorize, recommend, or enter into an agreement with any person to
effect a Change of Control (as defined), or effect or consummate a Change of
Control.
(D) For the purpose of this Section C2(f), except as otherwise
specifically provided, the holders of shares of Series A Preferred Stock shall
vote as one class, and each holder of Series A Preferred Stock shall be entitled
to one vote for each share held.
g. REGISTRATION OF TRANSFER. The Corporation
will keep at its principal office a register for the registration of Series A
Preferred Stock. Upon the surrender of any certificate representing Series A
Preferred Stock at such place, the Corporation will, at the request of the
record holder of such certificate, execute and deliver (at the Corporation's
expense) a new certificate or certificates in exchange therefor representing in
the aggregate the number of Shares represented by the surrendered certificate.
Each such new certificate will be registered in such name and will represent
such number of Shares as is requested by the holder of the surrendered
certificate and will be substantially identical in form to the surrendered
certificate, and
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dividends will accrue on the Series A Preferred Stock represented by such new
certificate from the date to which dividends have been fully paid on such Series
A Preferred Stock represented by the surrendered certificate.
h. REPLACEMENT. Upon receipt of evidence
reasonably satisfactory to the Corporation (an affidavit of the registered
holder will be satisfactory) of the ownership and the loss, theft, extraction or
mutilation of any certificate evidencing Shares of any class of Series A
Preferred Stock, and in the case of any such loss, theft or destruction , upon
receipt of indemnity reasonably satisfactory to the Corporation (provided that
if the holder is an investor with a net worth exceeding $100 million, its own
agreement will be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Corporation will (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the number of Shares of such class represented by such lost, stolen, destroyed
or mutilated certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate, and dividends will accrue on the Series A Preferred Stock
represented by such new certificate from the date to which dividends have been
fully paid on such lost, stolen, destroyed or mutilated certificate.
i. DEFINITIONS, Unless defined below or
elsewhere herein, each capitalized term used in this Section C2 of Article
FOURTH shall have the meaning assigned to such term below, solely for the
purposes of this Section C2 of Article FOURTH.
"CHANGE OF CONTROL" shall mean the occurrence of any of the following:
(i) a merger, consolidation or similar transaction involving the
Corporation or any of its Significant Subsidiaries;
(ii) the disposition, by sale, assignment, conveyance, transfer,
lease, exchange or otherwise of assets of the Corporation or any of its
Significant Subsidiaries representing in either case all or substantially all of
the assets of the Corporation or any of its Significant Subsidiaries;
(iii) capital stock of the Corporation (after giving effect to
the exercise of all outstanding Stock) representing 50% or more of the voting
power of the Corporation, shall cease to be owned in the aggregate by (a) the
Mas Shareholders, or any one or more of them, or members of any such person's
immediate family (including, parents, spouse, children and siblings) or (b) a
trust for the benefit of the Mas Shareholders, or any one or more of them, or
members of their immediate family, which trust is under the control of the Mas
Shareholders, or any one or more of them, or members of their immediate family;
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(iv) except as a result of the provisions of Section C2(e)
hereof, a majority of the members of the board of directors of the Corporation
then in office are no longer individuals elected or designated by any of the
Persons referenced in clause (iii)(a) or (b) above; or
(v) in the event Kevin P. Fitzgerald ceases to be the President
of the Corporation or either of its wholly owned subsidiaries, Neff Rental, Inc.
and Neff Machinery, Inc., in each case, with at least the same level of
responsibility and authority as on December 22, 1995, whether as a result of any
such person's resignation, removal, replacement, non-election, death, or
disability, or otherwise.
"COMMON STOCK" means, all shares of the Corporation's Common
Stock, par value $.01 per share, as adjusted for any stock split, stock
dividend, share combination, share exchange, recapitalization, merger,
consolidation or other recognition.
"EXCESS CASH" means, as of the date of any determination thereof,
the greater of (i) the average unused portion of the Maximum Inventory Loan
Commitment over the thirty (30) consecutive days immediately preceding the date
on which the determination of Excess Cash is being made and (ii) fifty percent
(50%) of the Net Income of the Corporation and its Subsidiaries for the period
commencing on the first day of the Fiscal Year in which such determination is
being made and ending on the date of determination, LESS the aggregate amount of
dividends paid in cash on the Series A Preferred Stock during such Fiscal Year
prior to any such date of determination.
"FISCAL YEAR" means the fiscal year of the Corporation.
"GE CAPITAL" means General Electric Capital Corporation, a New
York corporation.
"JUNIOR SECURITIES" means any of the Corporation's Stock, except
for the Series A Preferred Stock.
"LIQUIDATION VALUE" of any Share as of any particular date will
be equal to $40.00.
"MAS SHAREHOLDER" means Jorge Mas, Juan Carlos Mas and Jose Ramon
Mas.
"MAXIMUM INVENTORY LOAN COMMITMENT" means an amount equal to
$18,700,000.
"NET INCOME" means, for any period, the aggregate net income
(or loss) from continuing operations (excluding any income (or loss) included
therein resulting from
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extraordinary items) of the Corporation, Neff Machinery, Inc. and Neff Rental,
Inc. for such period, determined in accordance with generally accepted
accounting principles on a consolidated basis.
"PAY-IN-KIND" or "PAYMENT IN KIND" with respect to any Dividend
Reference Date during the PIK Period, means the issuance by the Corporation to
each holder of record of a Share of Series A Preferred Stock a number of
additional shares (or fractional portion thereof) of Series A Preferred Stock
that have an aggregate Liquidation Value equal to the amount of accrued and
unpaid dividends on such Share if such amount were paid in cash.
"PIK PERIOD" means the period beginning on December 31, 1995 and
ending on the December 31, 1999.
"PERSON" means any individual, sole proprietorship, partnership
(including a limited partnership), joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
limited liability company, joint stock company, entity or government (whether
federal, state, county, city, municipal or otherwise, including, without
limitation, any instrumentality, division, agency, body or department thereof)
or any other business entity.
"REDEMPTION DATE" as to any Share means the Scheduled Redemption
Date or the applicable date specified herein in the case of any other
redemption; provided, that no such date will be a Redemption Date unless the
applicable Liquidation Value (plus all accrued and unpaid dividends thereon) is
actually paid in cash, and if not so paid, the Redemption Date will be the date
on which such Liquidation Value (plus all accrued and unpaid dividends thereon)
is fully paid in cash.
"SIGNIFICANT SUBSIDIARY" means Neff Machinery, Inc., a Florida
corporation which is the wholly-owned subsidiary of the Corporation, Neff
Rental, Inc., a Florida corporation which is the wholly-owned subsidiary of the
Corporation, or any other Subsidiary that constitutes as of, or during the
twelve (12) months period ending on, the last day of the most recently completed
fiscal quarter, (25%) or more of the consolidated assets or consolidated net
income of the Corporation.
"STOCK" means all shares, options, warrants, general or limited
partnership interests, participation or other equivalents (regardless of how
designated) of or in a Person, whether voting or nonvoting, including, without
limitation, common stock, preferred stock, or any other "equity security" (as
such term is defined in Rule 3a11-1 of the General Rules and Regulations
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended), including without limitation, any securities
with profit participation features, and any rights, warrants,
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options or other securities convertible into or exercisable or exchangeable for
any such shares, equity or profits interests, participations or other
equivalents, or such other securities, directly or indirectly (or any equivalent
ownership interests, in the case of a Person which is not a corporation).
"SUBSIDIARY" shall mean, with respect to any Person, (i) any
corporation of which an aggregate of 50% or more of the outstanding Stock having
ordinary voting power to elect a majority of the board of directors, managers or
trustees of such corporation (irrespective of whether, at the time, Stock of any
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time, directly or
indirectly, owned legally or beneficially or controlled, directly or indirectly,
by such Person and/or one or more Subsidiaries of such Person, or any
combination thereof, or with respect to which any such Person has the right to
vote or designate the vote of 50% or more of such Stock whether by proxy,
agreement, operation of law or otherwise, (ii) any partnership, limited
liability company, association or other business entity, in which such Person
and/or one or more Subsidiaries of such Person shall have 50% or more of the
partnership or other similar ownership interests thereof (whether in the form of
voting or participation in profits or capital contribution), and (iii) all other
Persons from time to time included in the consolidated financial statements of
such Person. For purposes hereof, a Person or Persons shall be deemed to have
50% or more ownership interest in a limited liability company, partnership,
association or other business entity if such Person or Persons shall be
allocated 50% or more of limited liability company, partnership, association or
other business entity gains or losses or shall be or control any managing
director or general partner of such limited liability company, partnership,
association or other business entity.
j. AMENDMENT AND WAIVER. No amendment,
modification or waiver will be binding or effective with respect to any of the
provisions of this Section C2 stating the number, designation, relative rights,
preferences and limitations of the Series A Preferred Stock, without the prior
written consent of the holders of at least 80% of the Shares of Series A
Preferred Stock then outstanding.
l. NOTICES. Except as otherwise expressly
provided herein, all notices referred to herein will be in writing and will be
delivered by registered or certified mail, return receipt requested, postage
prepaid and will be deemed to have been given four business days after being
deposited in the mail (i) to the Corporation, at its principal executive offices
and (ii) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
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3. SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
a. DESIGNATION, PAR VALUE AND AMOUNT. The
shares of such series shall be designated as "Series B Junior Participating
Preferred Stock" (hereinafter referred to as "Series B Preferred Stock"), the
shares of such series shall be with par value of $0.01 per share, and the number
of shares constituting such series shall be 1,000,000; PROVIDED, HOWEVER, that,
if more than a total of 1,000,000 shares of Series B Preferred Stock shall be
issuable upon the exercise of Rights (the "Rights") issued pursuant to the
Rights Agreement, dated as of May 15, 1998 between the Company and First Union
National Bank, as Rights Agent (as amended from time to time) (the "Rights
Agreement"), the Board of Directors of the Company, pursuant to Section 151 of
the DGCL, shall direct by resolution or resolutions that a certificate be
properly executed, acknowledged and filed providing for the total number of
shares of Series B Preferred Stock authorized to be issued to be increased (to
the extent that the Amended and Restated Certificate of Incorporation then
permits) to the largest number of whole shares (rounded up to the nearest whole
number) issuable upon exercise of the Rights.
b. DIVIDENDS AND DISTRIBUTIONS.
i. Subject to the prior and
superior rights of the holders of any shares of any series of Preferred Stock
ranking prior and superior to the shares of Series B Preferred Stock with
respect to dividends, the holders of shares of Series B Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
assets legally available for the purpose, quarterly dividends payable in cash on
the first business day of November, February, May and August in each year (each
such date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Series B Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b)
subject to the provision for adjustment hereinafter set forth, 1,000 times the
aggregate per share amount of all cash dividends, and 1,000 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Class A Common Stock or
a subdivision of the outstanding shares of Class A Common Stock (by
reclassification or otherwise), declared on the Class A Common Stock since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series B Preferred Stock. In the event the Company shall
at any time declare or pay any dividend on the Class A Common Stock payable in
shares of Class A Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Class A Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Class A
Common Stock) into a greater or lesser number of shares of Class A Common Stock,
then in each such case the amount to which holders of shares of Series B
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Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Class A Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Class A Common Stock that were outstanding immediately prior
to such event.
ii. The Company shall declare a
dividend or distribution on the Series B Preferred Stock as provided in
paragraph i. of this Section C.3.b. immediately after it declares a dividend or
distribution on the Class A Common Stock (other than a dividend payable in
shares of Common Stock); PROVIDED that, in the event no dividend or distribution
shall have been declared on the Class A Common Stock during the period between
any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1.00 per share on the Series B Preferred Stock
shall nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
iii. Dividends shall begin to
accrue and be cumulative on outstanding shares of Series B Preferred Stock from
the Quarterly Dividend Payment Date next preceding the date of issue of such
shares of Series B Preferred Stock, unless the date of issue of such shares is
prior to the record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the date of issue of
such shares, or unless the date of issue is a Quarterly Dividend Payment Date or
is a date after the record date for the determination of holders of shares of
Series B Preferred Stock entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series B Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series B Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
c. VOTING RIGHTS. The holders of shares of
Series B Preferred Stock shall have the following voting rights:
i. Except as provided in paragraph
iii. of this Section C.3.c. and subject to the provision for adjustment
hereinafter set forth, each share of Series B Preferred Stock shall entitle the
holder thereof to 1,000 votes on all matters submitted to a vote of the
stockholders of the Company. In the event the Company shall at any time declare
or pay any dividend on the Class A Common Stock
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payable in shares of Class A Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Class A Common Stock
(by reclassification or otherwise than by payment of a dividend in shares of
Class A Common Stock) into a greater or lesser number of shares of Class A
Common Stock, then in each such case the number of votes per share to which
holders of shares of Series B Preferred Stock were entitled immediately prior to
such event shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Class A Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Class A Common Stock that were outstanding immediately prior to such
event.
ii. Except as otherwise provided herein or by law,
the holders of shares of Series B Preferred Stock and the
holders of shares of Class A Common Stock shall vote together
as one class on all matters submitted to a vote of
stockholders of the Company.
iii. (A) If, on the date used to determine
stockholders of record for any meeting of stockholders for the election of
directors, a default in preference dividends (as defined in subparagraph (E)
below) on the Series B Preferred Stock shall exist, the holders of the Series B
Preferred Stock shall have the right, voting as a class as described in
subparagraph (B) below, to elect two directors (in addition to the directors
elected by holders of Class A Common Stock of the Company). Such right may be
exercised (a) at any meeting of stockholders for the election of directors or
(b) at a meeting of the holders of shares of Voting Preferred Stock (as
hereinafter defined), called for the purpose in accordance with the By-laws of
the Company, until all such cumulative dividends (referred to above) shall have
been paid in full or until non-cumulative dividends have been paid regularly for
at least one year.
(B) The right of the holders of
Series B Preferred Stock to elect two directors, as described above, shall be
exercised as a class concurrently with the rights of holders of any other series
of Preferred Stock upon which voting rights to elect such directors have been
conferred and are then exercisable. The Series B Preferred Stock and any
additional series of Preferred Stock which the Company may issue and which may
provide for the right to vote with the foregoing series of Preferred Stock are
collectively referred to herein as "Voting Preferred Stock."
(C) Each director elected by the
holders of shares of Voting Preferred Stock shall be referred to herein as a
"Preferred Director." A Preferred Director so elected shall continue to serve as
such director for one year, except that upon any termination of the right of all
of such holders to vote as a class for Preferred Directors, the term of office
of such directors shall terminate. Any Preferred Director may be removed by, and
shall not be removed except by, the vote of the holders of record
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of a majority of the outstanding shares of Voting Preferred Stock then entitled
to vote for the election of directors, present (in person or by proxy) and
voting together as a single class (a) at a meeting of the stockholders, or (b)
at a meeting of the holders of shares of such Voting Preferred Stock, called for
the purpose in accordance with the By-laws of the Company, or (c) by written
consent signed by the holders of a majority of the then outstanding shares of
Voting Preferred Stock then entitled to vote for the election of directors,
taken together as a single class.
(D) So long as a default in any
preference dividends on the Series B Preferred Stock shall exist or the holders
of any other series of Voting Preferred Stock shall be entitled to elect
Preferred Directors, (a) any vacancy in the office of a Preferred Director may
be filled (except as provided in the following clause (b)) by an instrument in
writing signed by the remaining Preferred Director and filed with the Company
and (b) in the case of the removal of any Preferred Director, the vacancy may be
filled by the vote or written consent of the holders of a majority of the
outstanding shares of Voting Preferred Stock then entitled to vote for the
election of directors, present (in person or by proxy) and voting together as a
single class, at such time as the removal shall be effected. Each director
appointed as aforesaid by the remaining Preferred Director shall be deemed, for
all purposes hereof, to be a Preferred Director. Whenever (x) no default in
preference dividends on the Series B Preferred Stock shall exist and (y) the
holders of other series of Voting Preferred Stock shall no longer be entitled to
elect such Preferred Directors, then the number of directors constituting the
Board of Directors of the Company shall be reduced by two.
(E) For purposes hereof, a "default
in preference dividends" on the Series B Preferred Stock shall be deemed to have
occurred whenever the amount of cumulative and unpaid dividends on the Series B
Preferred Stock shall be equivalent to six full quarterly dividends or more
(whether or not consecutive), and, having so occurred, such default shall be
deemed to exist thereafter until, but only until, all cumulative dividends on
all shares of the Series B Preferred Stock then outstanding shall have been paid
through the last Quarterly Dividend Payment Date or until, but only until,
non-cumulative dividends have been paid regularly for at least one year.
iv. Except as set forth herein (or as
otherwise required by applicable law), holders of Series B Preferred Stock shall
have no general or special voting rights and their consent shall not be required
for taking any corporate action.
d. CERTAIN RESTRICTIONS.
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i. Whenever quarterly dividends or other
dividends or distributions payable on the Series B Preferred Stock as provided
in Section C.3.b. are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series B
Preferred Stock outstanding shall have been paid in full, the Company shall not
(A) declare or pay dividends, or
make any other distributions, on any shares of stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up) to the Series B
Preferred Stock;
(B) declare or pay dividends, or
make any other distributions, on any shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up) with the Series
B Preferred Stock, except dividends paid ratably on the Series B Preferred Stock
and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are then
entitled;
(C) redeem or purchase or otherwise
acquire for consideration (except as provided in (D) below) shares of any stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series B Preferred Stock, PROVIDED that the Company may at
any time redeem, purchase or otherwise acquire shares of any such junior stock
in exchange for shares of any stock of the Company ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series B
Preferred Stock;
(D) redeem or purchase or otherwise
acquire for consideration any shares of Series B Preferred Stock, or any shares
of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series B Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the respective
Series and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
ii. The Company shall not permit any
subsidiary of the Company to purchase or otherwise acquire for consideration any
shares of stock of the Company unless the Company could, under Section C.3.d.i.,
purchase or otherwise acquire such shares at such time and in such manner.
e. REACQUIRED SHARES. Any shares of Series B
Preferred Stock purchased or otherwise acquired by the Company in any manner
whatsoever shall
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be retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein, in the Amended and
Restated Certificate of Incorporation, in any other amendment or restatement of
the Certificate of Incorporation creating a series of Preferred Stock, or as
otherwise required by law.
f. LIQUIDATION, DISSOLUTION OR WINDING UP.
i. Subject to the prior and
superior rights of holders of any shares of any series of Preferred Stock
ranking prior and superior to the shares of Series B Preferred Stock with
respect to rights upon liquidation, dissolution or winding up (voluntary or
otherwise), no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series B Preferred Stock unless, prior thereto, the holders
of shares of Series B Preferred Stock shall have received $1,000 per share, plus
an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment (the "Series B Liquidation
Preference"). Following the payment of the full amount of the Series B
Liquidation Preference, no additional distributions shall be made to the holders
of shares of Series B Preferred Stock unless, prior thereto, the holders of
shares of Class A Common Stock shall have received an amount per share (the
"Capital Adjustment") equal to the quotient obtained by dividing (i) the Series
B Liquidation Preference by (ii) 1,000 (such number in clause (ii), the
"Adjustment Number"). Following the payment of the full amount of the Series B
Liquidation Preference and the Capital Adjustment in respect of all outstanding
shares of Series B Preferred Stock and Class A Common Stock, respectively,
holders of Series B Preferred Stock and holders of Class A Common Stock shall
receive their ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with respect to such
Preferred Stock and Class A Common Stock, on a per share basis, respectively.
ii. In the event, however, that
there are not sufficient assets available to permit payment in full of the
Series B Liquidation Preference and the liquidation preferences of all other
series of preferred stock, if any, which rank on a parity with the Series B
Preferred Stock, then such remaining assets shall be distributed ratably to the
holders of Series B Preferred Stock and the holders of such parity shares in
proportion to their respective liquidation preferences. In the event, however,
that there are not sufficient assets available to permit payment in full of the
Capital Adjustment then such remaining assets shall be distributed ratably to
the holders of Class A Common Stock.
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<PAGE>
g. CONSOLIDATION, MERGER, ETC. In case the
Company shall enter into any consolidation, merger, combination or other
transaction in which the shares of Class A Common Stock are exchanged for or
changed into other stock or securities, cash and/or any other property, then in
any such case the shares of Series B Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Class A Common Stock is
changed or exchanged. In the event the Company shall at any time declare or pay
any dividend on the Class A Common Stock payable in shares of Class A Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Class A Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Class A Common Stock) into a greater
or lesser number of shares of Class A Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series B Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Class A Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Class A Common Stock that were
outstanding immediately prior to such event.
h. NO REDEMPTION. The shares of Series B
Preferred Stock shall not be redeemable.
i. RANKING. The Series B Preferred Stock
shall rank junior to all other series of the Corporation's Preferred Stock as to
the payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
j. AMENDMENT. The Amended and Restated
Certificate of Incorporation of the Company shall not be further amended in any
manner which would materially alter or change the powers, preferences or special
rights of the Series B Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of a majority or more of the outstanding
shares of Series B Preferred Stock, voting separately as a class.
FIFTH: The business and affairs of the Corporation shall be
managed by and under the direction of the Board of Directors. The Board of
Directors may exercise all such authority and powers of the Corporation and do
all such lawful acts and things as are not by statute or this Amended and
Restated Certificate of Incorporation directed or required to be exercised or
done by the stockholders.
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<PAGE>
A. NUMBER OF DIRECTORS. The number of directors of the
Corporation shall be fixed from time to time exclusively by a resolution of a
majority of the Board of Directors of the Corporation, but in no event shall the
number of directors be fewer than three (3). Any change to the number of
directors set forth herein may only be made by amendment to this Article FIFTH.
No director need be a stockholder.
B. CLASSES AND TERM OF OFFICE. Subject to the provisions of
Section B2 of Article FOURTH above and Section G of this Article FIFTH below,
the directors shall be divided into three classes (I, II and III), as nearly
equal in number as possible, and no class shall include less than one director.
There shall not be more than three classes of directors. The initial term of
office for members of Class I shall expire at the annual meeting of stockholders
in 1998; the initial term of office for members of Class II shall expire at the
annual meeting of stockholders in 1999; and the initial term of office for
members of Class III shall expire at the annual meeting of stockholders in 2000.
At each annual meeting of stockholders following such initial classification and
election, directors elected to succeed those directors whose terms expire shall
be elected for a term of office to expire at the third succeeding annual meeting
of stockholders after their election, and shall continue to hold office until
their respective successors are elected and qualified or until their death, or
until they shall have resigned, or have been removed, as hereinafter provided.
In the event of any increase in the number of directors, the additional
directors shall be so classified that all classes of directors have as nearly
equal numbers of directors as may be possible. In the event of any decrease in
the number of directors, all classes of directors shall be decreased equally as
nearly as may be possible.
C. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Subject to the
rights of the holders of any class of Common Stock or series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
number of directors or any vacancies in the Board of Directors resulting from
death, resignation, retirement, disqualification, removal from office or any
other cause may be filled by the Board of Directors, provided that a quorum is
then in office and present, or by a majority of the directors then in office, if
less than a quorum is then in office, or by the sole remaining director.
Directors elected to fill a newly created directorship or other vacancies shall
hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until such
director's successor has been elected and has qualified.
D. REMOVAL OF DIRECTORS. Subject to the rights of the holders
of any series of Preferred Stock then outstanding, the directors or any director
may be removed from office at any time, but only for cause, at a meeting called
for that purpose, and only by the affirmative vote of the holders of at least
66-2/3% of the voting power of all shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.
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<PAGE>
E. WRITTEN BALLOT NOT REQUIRED. Elections of directors need
not be by written ballot unless the Amended and Restated By-Laws of the
Corporation shall otherwise provide.
F. RIGHTS IN STOCKHOLDERS' AGREEMENT. The rights of any
holders of any Common Stock or Preferred Stock, including, without limitation,
the rights with respect to any directors, may be evidenced in a Stockholders'
Agreement to the extent not contained in any Certificate of Incorporation of the
Corporation or any Certificate of Designation of the Corporation.
G. RIGHTS OF HOLDERS OF PREFERRED STOCK. Notwithstanding the
foregoing provisions of this Article FIFTH, whenever the holders of any one or
more classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
rights and preferences of such Preferred Stock as set forth in this Amended and
Restated Certificate of Incorporation or in the resolution or resolutions of the
Board of Directors relating to the issuance of such Preferred Stock, and such
directors so elected shall not be divided into classes pursuant to this Article
FIFTH unless expressly provided by such rights and preferences.
SIXTH: Pursuant to Section 228 of the Delaware General
Corporation Law, any action required to be taken at any annual or special
meeting of stockholders of the Corporation, or any action which may be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
66-2/3% of the outstanding stock entitled to vote thereon.
SEVENTH: The Board of Directors is expressly authorized to
adopt, amend or repeal the Amended and Restated By-Laws of the Corporation. Any
by-laws made by the directors under the powers conferred hereby may be amended
or repealed by the directors or by the stockholders. Notwithstanding the
foregoing and anything contained in this Amended and Restated Certificate of
Incorporation to the contrary, the Amended and Restated By-Laws shall not be
amended or repealed by the stockholders, and no provision inconsistent therewith
shall be adopted by the stockholders, without the affirmative vote of the
holders of 66-2/3% of the voting power of all shares of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class.
EIGHTH: A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director; PROVIDED, HOWEVER, that the foregoing shall not
eliminate or limit the liability of
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a director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of Delaware or (iv) for any
transaction from which the director derived an improper personal benefit. If the
General Corporation Law of Delaware is hereafter amended to permit further
elimination or limitation of the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the General Corporation Law of Delaware as so
amended. Any repeal or modification of this Article EIGHTH by the stockholders
of the Corporation or otherwise shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification with respect to acts or omissions occurring prior to such repeal
or modification.
NINTH: Each person who was or is made a party or is threatened
to be made a party to or is involved (including, without limitation, as a
witness) in any actual or threatened action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he is or was a director or officer of the corporation or
is or was serving at the request of the Corporation as a director or officer of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "Indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director or officer or in any other capacity
while so serving, shall be indemnified and held harmless by the Corporation to
the full extent authorized by the General Corporation Law of Delaware, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment), or by other applicable law as then in effect,
against all expense, liability and loss (including attorneys' fees and related
disbursements, judgments, fines, excise taxes or penalties under the Employee
Retirement Income Security Act of 1974, as amended from time to time ("ERISA"),
penalties and amounts paid or to be paid in settlement) actually and reasonably
incurred or suffered by such Indemnitee in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director,
officer, partner, member or trustee and shall inure to the benefit of his or her
heirs, executors and administrators. Each person who is or was serving as a
director or officer of a subsidiary of the Corporation shall be deemed to be
serving, or have served, at the request of the Corporation.
A. DETERMINATION BY BOARD OF DIRECTORS. Any indemnification
under this Article NINTH (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he/she has met the applicable standard of conduct set forth in the
General Corporation Law of Delaware, as the same exists or hereafter may be
amended (but, in the case of any such amendment, only to the extent
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that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment). Such determination shall be made (a) by the Board of Directors by a
majority vote of the directors who were not parties to such action, suit or
proceeding (the "Disinterested Directors"), even though less than a quorum, (b)
if there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (c) by the stockholders.
B. ADVANCES FOR EXPENSES. Costs, charges and expenses
(including attorneys' fees) incurred by a director or officer of the Corporation
in defending a civil or criminal action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay all amounts so advanced in the event that it shall ultimately
be determined that such director or officer is not entitled to be indemnified by
the Corporation as authorized in this Article NINTH. The majority of the
Disinterested Directors may, in the manner set forth above, and upon approval of
such director or officer of the Corporation, authorize the Corporation's counsel
to represent such person, in any action, suit or proceeding, whether or not the
Corporation is a party to such action, suit or proceeding.
C. PROCEDURE FOR INDEMNIFICATION. Any indemnification or
advance of costs, charges and expenses under this Article NINTH, shall be made
promptly, and in any event within sixty (60) days upon the written request of
the director or officer, and shall be accompanied by a written undertaking by or
on behalf of Indemnitee to repay such amount if it shall ultimately be
determined that Indemnitee is not entitled to be indemnified therefor pursuant
to the terms of this Article NINTH. The right to indemnification of advances as
granted by this Article NINTH shall be enforceable by the director or officer in
any court of competent jurisdiction, if the Corporation denies such request, in
whole or in part, or if no disposition thereof is made within sixty (60) days.
Such person's costs and expenses incurred in connection with successfully
establishing his/her right to indemnification, in whole or in part, in any such
action shall also be indemnified by the Corporation. It shall be a defense to
any such action (other than an action brought to enforce a claim for the advance
of costs, charges and expenses under this Article NINTH where the required
undertaking, if any, has been received by the Corporation) that the claimant has
not met the standard of conduct set forth in the General Corporation Law of
Delaware, as the same exists or hereafter may be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), but the burden of proving
such defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, its independent legal counsel and its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he/she has met the applicable standard of
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<PAGE>
conduct set forth in the General Corporation Law of Delaware, as the same exists
or hereafter may be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), nor the fact that there has been an actual determination by
the Corporation (including its Board of Directors, its independent legal counsel
and its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
D. OTHER RIGHTS; CONTINUATION OF RIGHT TO INDEMNIFICATION. The
indemnification and advancement of expenses provided by this Article NINTH shall
not be deemed exclusive of any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any law (common
or statutory), by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his/her official capacity and as to
action in another capacity while holding office or while employed by or acting
as agent for the Corporation, and shall continue as to a person who has ceased
to be a director or officer, and shall inure to the benefit of the estate,
heirs, executors and administrators of such person. All rights to
indemnification under this Article NINTH shall be deemed to be a contract
between the Corporation and each director or officer of the Corporation who
serves or served in such capacity at any time while this Article NINTH is in
effect. Any repeal or modification of this Article NINTH or any repeal or
modification of relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall not in any way diminish any rights to
indemnification of such director or officer or the obligations of the
Corporation arising hereunder with respect to any action, suit or proceeding
arising out of, or relating to, any actions, transactions or facts occurring
prior to the final adoption of such modification or repeal. For the purposes of
this Article NINTH, references to "the Corporation" include all constituent
corporations absorbed in a consolidation or merger as well as the resulting or
surviving corporation, so that any person who is or was a director or officer of
such a constituent corporation or is or was serving at the request of such
constituent corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article NINTH, with respect to the
resulting or surviving corporation, as he would if he/she had served the
resulting or surviving corporation in the same capacity.
E. INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was or has agreed to become
a director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him/her and incurred by him/her or on his/her behalf in any such capacity, or
arising out of his/her status as such, whether or not the Corporation would have
the power to indemnify him/her against such liability under the provisions of
this Article NINTH, PROVIDED, HOWEVER, that such insurance is
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available on acceptable terms, which determination shall be made by a vote of a
majority of the Board of Directors.
F. SAVINGS CLAUSE. If this Article NINTH or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each person entitled to
indemnification under the first paragraph of this Article NINTH as to all
expense, liability and loss (including attorneys' fees and related
disbursements, judgments, fines, ERISA excise taxes and penalties, penalties and
amounts paid or to be paid in settlement) actually and reasonably incurred or
suffered by such person and for which indemnification is available to such
person pursuant to this Article NINTH to the full extent permitted by any
applicable portion of this Article NINTH that shall not have been invalidated
and to the full extent permitted by applicable law.
TENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Amended and Restated
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation. Notwithstanding any other provision of this Amended and
Restated Certificate of Incorporation or the Amended and Restated By-Laws of the
Corporation, and notwithstanding the fact that a lesser percentage or separate
class vote may be specified by law, this Amended and Restated Certificate of
Incorporation, the Amended and Restated By-Laws of the Corporation or otherwise,
but in addition to any affirmative vote of the holders of any particular class
or series of the capital stock required by law, this Amended and Restated
Certificate of Incorporation, the Amended and Restated By-Laws of the
Corporation or otherwise, the affirmative vote of the holders of at least
66-2/3% of the voting power of all shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to adopt any provision inconsistent with, to amend or repeal any
provision of, or to adopt a by-law inconsistent with, any of Articles FIFTH,
SIXTH, SEVENTH, EIGHTH, NINTH and/or TENTH of this Amended and Restated
Certificate of Incorporation.
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This Amended and Restated Certificate of Incorporation has
been duly adopted by the written consent of the stockholders of the Corporation
in accordance with the provisions of Sections 228, 242 and 245 of the Delaware
General Corporation Law, as amended, and written notice has been given as
provided in Section 228 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed under the seal of the Corporation this _____ day
of May, 1998.
---------------------------------
Kevin P. Fitzgerald
Vice Chairman of the Board,
President and Director of Neff Corp.
Attest:
- ----------------------------------
Kevin P. Fitzgerald
Secretary of Neff Corp.
EXHIBIT 4.1
TEMPORARY CERTIFICATE-EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE
WHEN READY FOR DELIVERY
INCORPORATED UNDER THE LAWS THIS CERTIFICATE IS TRANSFERABLE IN
OF THE STATE OF DELAWARE CHARLOTTE, N.C. OR IN NEW YORK, N.Y.
NUMBER SHARES
NC [NEFF LOGO]
CLASS A COMMON STOCK NEFF CORP. SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 640094 10 8
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01 EACH OF THE
CLASS A COMMON STOCK OF
NEFF CORP.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed.
The Certificate is not valid unless countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
Neff Corp.
/s/ KEVIN FITZGERALD Corporate /s/ JORGE MAS
President and Secretary SEAL Chairman
1998
DELAWARE
COUNTERSIGNED AND REGISTERED:
FIRST UNION NATIONAL BANK
(CHARLOTTE, NORTH CAROLINA) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
This certificate also evidences and entitles the holder hereof to certain rights
as set forth in a Rights Agreement between Neff Corp. and First Union National
Bank dated as of May 15, 1998 (the "Rights Agreement"), the terms of which are
hereby incorporated herein by reference and a copy of which is on file at the
principal executive offices of Neff Corp. Under certain circumstances, as set
forth in the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. Neff Corp.
will mail to the holder of this certificate a copy of the Rights Agreement
without charge after receipt of a written request therefor. Under certain
circumstances set forth in the Rights Agreement, Rights issued to, or held by,
any Person who is, was or becomes an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and certain related
persons, whether currently held by or on behalf of such Person or by any
subsequent holder, may become null and void.
NEFF CORP.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -_____________Custodian_________
(Minor) (Cust)
under Uniform Gifts to Minors
Act________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received________________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________Shares
of the Class A Common Stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint
_______________________________________________________________________Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated________________________________
__________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:_______________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM)
PURSUANT TO S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION
TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
EXHIBIT 5.1
[FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LETTERHEAD]
May 19, 1998
Board of Directors
Neff Corp.
3750 N.W. 87th Avenue
Miami, Florida 33166
Gentlemen:
We are acting as special counsel for Neff Corp., a Delaware corporation
(the "Company"), in connection with the initial public offering (the "Offering")
pursuant to the Registration Statement on Form S-1 filed on March 17, 1998, as
amended (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Act") covering 6,700,000 shares of the Company's Class A Common
Stock, par value $.01 per share (the "Shares"), and an over-allotment option of
up to 1,005,000 shares of the Company's Class A Common Stock, par value $.01 per
share (the "Additional Shares").
In connection with this opinion, we have (i) investigated such
questions of law, (ii) examined originals or certified, conformed or
reproduction copies of such agreements, instruments, documents and records of
the Company, (iii) examined such certificates of public officials, officers or
other representatives of the Company, and other persons, and such other
documents, and (iv) reviewed such information from officers and representatives
of the Company and others as we have deemed necessary or appropriate for the
purposes of this opinion.
In all such examinations, we have assumed the legal capacity of all
natural persons executing documents (other than the capacity of officers of the
Company executing documents in such capacity), the genuineness of all signatures
on original or certified copies, and the conformity to original or certified
documents of all copies submitted to us as conformed or reproduction copies. As
to various questions of fact relevant to the opinions expressed herein, we have
relied upon, and assumed the accuracy of, certificates and oral or written
statements and other information of or from public officials, officers or other
representatives of the Company, and other persons.
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BOARD OF DIRECTORS
NEFF CORP.
MAY 19, 1998
PAGE 2
Based upon the foregoing, and subject to the limitations,
qualifications and assumptions set forth herein, we are of the opinion that (i)
the Shares to be offered by the Company, when issued, delivered and paid for as
contemplated by the Registration Statement, will be legally issued, fully paid
and non-assessable and (ii) the Additional Shares that may be offered by the
Company, when issued, delivered and paid for as contemplated by the Registration
Statement, will be legally issued, fully paid and non-assessable.
The opinions expressed herein are limited to the General Corporation
Law of the State of Delaware. We assume no obligations to supplement this letter
if any applicable laws change after the date hereof or if we become aware of any
facts that might change the opinions expressed herein after the date hereof.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus forming a part of the Registration Statement.
In giving this consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/ STEPHEN I. GLOVER
------------------------------------
Stephen I. Glover
EXHIBIT 10.6
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Agreement"), is made as of the 1st day of
December, 1995 (the "Initial Grant Date") between Kevin P. Fitzgerald (the
"Optionee") and NEFF Corporation (the "Company"), a Delaware corporation.
RECITALS
WHEREAS, as of July 17, 1995, the Company has employed the Optionee as
President of the Company.
WHEREAS, to induce the Optionee to accept employment as the President
of the Company, the Company agreed to grant Optionee certain options to purchase
the Company's common stock, par value $.01 per share (the "Common Stock") on the
terms set forth herein.
NOW THEREFORE, in consideration of the foregoing and the premises,
obligations and agreements contained herein, and for other valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. DEFINITIONS.
As used herein, the following terms have the following
respective meanings. Capitalized terms not defined in this Section 1 shall have
the meanings assigned to them in the body of this Agreement.
1.1 "Adjusted Fair Market Value" means, in the event of a
Change in Control, the greater of (i) the highest price per Share paid to
holders of the Shares in any transaction (or series of transactions)
constituting or resulting in a Change in Control or (ii) the highest Fair Market
Value of a Share during the ninety (90) day period ending on the date of a
Change in Control.
1.2 "Affiliate" shall mean, with respect to a Person, any
other Person that directly or indirectly controls, is controlled by, or is under
common control with such Person.
1.3 "Board" means the Board of Directors of the Company.
1.4 "Cause" means:
(a) the commission of an act of fraud or intentional
misrepresentation or an act of embezzlement, misappropriation or conversion of
assets or opportunities of the Company;
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(b) dishonesty or willful misconduct in the
performance of duties;
(c) involvement in a transaction in connection with
the performance of duties to the Company which transaction is adverse to the
interests of the Company and which is engaged in for personal profit; or
(d) willful violation of any law, rule or regulation
in connection with the performance of duties (other than traffic violations or
similar offenses).
1.5 A "Change in Control" shall mean the occurrence during the
term of the Option of:
(a) An acquisition of any voting securities of the
Company, (the "Voting Securities") by any "Person" (as the term person is used
for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), immediately after which such Person has
"Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of fifty percent (50%) or more of the combined voting power of the
Company's then outstanding Voting Securities; PROVIDED, HOWEVER, in determining
whether a Change in Control has occurred, Voting Securities which are acquired
in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A "Non-Control Acquisition"
shall mean an acquisition by (i) an employee benefit plan (or a trust forming a
part thereof) maintained by (A) the Company or (B) any corporation or other
Person of which a majority of its voting power or its voting equity securities
or equity interest is owned, directly or indirectly, by the Company (for
purposes of this definition, a "Subsidiary") (ii) the Company or its
Subsidiaries, or (iii) any Person in connection with a "Non-Control Transaction"
(as hereinafter defined);
(b) The individuals who, as of the date hereof are
members of the Board (the "Incumbent Board"), cease for any reason to constitute
at least two-thirds of the members of the Board; PROVIDED, HOWEVER, that if the
election, or nomination for election by the Company's common stockholders, of
any new director was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Plan, be considered as a
member of the Incumbent Board; provided FURTHER, HOWEVER, that no individual
shall be considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election Contest"
(as described in Rule 14a-11 promulgated under the Exchange Act) or other actual
or threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board (a "Proxy Contest") including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy Contest; or
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(c) The consummation of:
(i) A merger, consolidation or
reorganization involving the Company, unless such merger, consolidation or
reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall
mean a merger, consolidation or reorganization of the Company where:
(A) the stockholders of the
Company, immediately before such merger, consolidation or reorganization, own
directly or indirectly immediately following such merger, consolidation or
reorganization, more than fifty percent (50%) of the combined voting power of
the outstanding voting securities of the corporation resulting from such merger
or consolidation or reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or reorganization,
(B) the individuals who were members
of the Incumbent Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization constitute at least
two-thirds of the members of the board of directors of the Surviving
Corporation, or a corporation beneficially directly or indirectly owning a
majority of the Voting Securities of the Surviving Corporation, and
(C) no Person other than (i) the
Company, (ii) any Subsidiary, (iii) any employee benefit plan (or any trust
forming a part thereof) maintained by the Company, the Surviving Corporation, or
any Subsidiary or (iv) any Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial Ownership of fifty percent (50%)
or more of the then outstanding Voting Securities), has Beneficial Ownership of
fifty percent (50%) or more of the combined voting power of the Surviving
Corporation's then outstanding voting securities.
(ii) A complete liquidation or dissolution
of the Company; or
(iii) An agreement for the sale or other
disposition of all or substantially all of the assets of the Company to any
Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding Voting
Securities as a result of the acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities then outstanding, increases
the proportional number of shares Beneficially Owned by the Subject Persons,
provided that if a Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting Securities by the Company,
and after such share acquisition by the Company, the Subject
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Person becomes the Beneficial Owner of any additional Voting Securities which
increases the percentage of the then outstanding Voting Securities Beneficially
Owned by the Subject Person, then a Change in Control shall occur.
(d) The delivery by the Company of a Piggyback
Registration Notice, as defined in Section 15.1, to the Optionee stating that
the Company intends to file a registration statement on Form S-1 under the
Securities Act to register the Common Stock in an initial public offering of the
Common Stock.
(e) For the purpose of this definition, the "Company"
shall mean any of Neff Corporation, Neff Machinery or Neff Rental; and the
"Common Stock" shall mean the Common Stock of any of Neff Corporation, Neff
Machinery or Neff Rental.
1.6 "Claim" shall mean any action, assessment, cause of
action, charge, claim, counterclaim, defense, demand, expense, fine, interest,
inquiry, investigation, judgment, legal action, litigation, liability (joint or
several), obligation, payment, penalty, proceeding or suit (including any
punitive damages, any reasonable fees and expenses of attorneys, accountants,
other professional advisors and expert witnesses, and any costs of investigation
and preparation) of any kind or nature whatsoever.
1.7 "Code" means the Internal Revenue Code of 1986, as
amended.
1.8 "EBITDA" for a fiscal year shall mean earnings before
interest, taxes, depreciation and amortization for such year, determined in
accordance with generally accepted accounting principles and the accounting
policies of the Company applied in accordance with past practice, on the basis
of information set forth in the Company's audited income statement and cash flow
statement for such fiscal year.
1.9 "Fair Market Value" on any date means the average of the
high and low sales prices of the Shares on such date on the principal national
securities exchange on which such Shares are listed or admitted to trading, or,
if such Shares are not so listed or admitted to trading, the arithmetic mean of
the per Share closing bid price and per Share closing asked price on such date
as quoted on the National Association of Securities Dealers Automated Quotation
System or such other market in which such prices are regularly quoted, or, if
there have been no published bid or asked quotations with respect to Shares on
such date, the Fair Market Value shall be the value established by the Board in
good faith.
1.10 "Neff Machinery" shall mean Neff Machinery, Inc., a
wholly-owned subsidiary of the Company.
1.11 "Neff Rental" shall mean Neff Rental, Inc., a
wholly-owned subsidiary of the Company.
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1.12 "Person" shall mean an association, business trust,
corporation, estate, general partnership, governmental entity (or any agency,
department or political subdivision of a governmental entity), individual, joint
stock company, joint venture, limited liability company, limited partnership,
professional association professional corporation, trust or any other
organization or entity.
1.13 "Securities Act" means the Securities Act of 1933, as
amended.
2. GRANT OF OPTIONS.
2.1 The Company hereby grants to the Optionee the right and
option to purchase all or any part of 1% of the Common Stock outstanding on the
date hereof, on a fully diluted basis after giving effect to the proposed
issuance of warrants to General Electric Capital Corporation and the proposed
grant of options to certain employees of the Company, subject to, and in
accordance with, the terms and conditions set forth herein (the "Initial
Option").
2.2 If the Optionee is still employed by the Company on
December 31, 1995 (the "1995 Grant Date"), the Company hereby agrees to grant to
the Optionee, on the 1995 Grant Date, the additional right and option to
purchase all or any part of 1% of the Common Stock then outstanding, on a fully
diluted basis after giving effect to the proposed issuance of warrants to
General Electric Capital Corporation and the proposed grant of options to
certain employees of the Company, subject to, and in accordance with, the terms
and conditions set forth herein (the "1995 Option"). Such grant shall be
automatically effective on the 1995 Grant Date without any further action by
either the Optionee or the Company.
2.3 If the Optionee is still employed by the Company on
December 31, 1996 (the "1996 Grant Date"), the Company hereby agrees to grant to
the Optionee, on the 1996 Grant Date, the additional right and option to
purchase all or any part of 1% of the Common Stock then outstanding, on a fully
diluted basis after giving effect to the proposed issuance of warrants to
General Electric Capital Corporation and the proposed grant of options to
certain employees of the Company, subject to, and in accordance with, the terms
and conditions set forth herein (the "1996 Option"). Such grant shall be
automatically effective on the 1996 Grant Date without any further action by
either the Optionee or the Company. (Each of the Initial Option, the 1995 Option
and the 1996 Option may be referred to hereinafter as an "Option," or
collectively as the "Options.")
2.4 The number and class of shares and the applicable purchase
price subject to an Option may be adjusted as provided in Section 11.
2.5 The Options are not intended to qualify as Incentive Stock
Options within the meaning of Section 422 of the Code.
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3. PURCHASE PRICE.
3.1 The purchase price per share at which the Optionee shall
be entitled to purchase shares of Common Stock upon exercise of the Initial
Option shall be expressed as a fraction, the numerator of which is: 5 x EBITDA
for the Company's fiscal year ended December 31, 1994, [5 x $14,843,126.80]
minus long term debt [$22,853,140] and current debt (which shall not include
accounts payable and accrued expenses) [$15,129,689] plus cash and cash
equivalents [$1,718,067]. Thus, the numerator is $37,950,872. The denominator of
the fraction is the number of shares of Common Stock outstanding, subject to
adjustments as provided in Section 11.
3.2 The purchase price per share at which the Optionee shall
be entitled to purchase shares of Common Stock upon exercise of the 1995 Option
shall be expressed as a fraction, the numerator of which is 5 x EBITDA for the
Company's fiscal year ended December 31, 1995, minus long term debt and current
debt (which shall not include accounts payable and accrued expenses), plus cash
and cash equivalents. The denominator of the fraction is the number of shares of
Common Stock outstanding, subject to adjustments as provided in Section 11.
3.3 The purchase price per share at which the Optionee shall
be entitled to purchase shares of Common Stock upon exercise of the 1996 Option
shall be expressed as a fraction, the numerator of which is 5 x EBITDA for the
Company's fiscal year ended December 31, 1996, minus long term debt and current
debt (which shall not include accounts payable and accrued expenses), plus cash
and cash equivalents. The denominator of the fraction is the number of shares of
Common Stock outstanding, subject to adjustments as provided in Section 11.
3.4 (a) If the 1996 Option shall be granted to the Optionee
prior to December 31, 1996, pursuant to Section 7 or 8 of this Agreement, the
purchase price per share at which the Optionee shall be entitled to purchase
shares of Common Stock upon exercise of the 1996 Option shall be the purchase
price at which the Optionee was entitled to purchase shares of Common Stock upon
exercise of the 1995 Option.
4. DURATION OF OPTIONS.
The Initial, 1995 and 1996 Options shall be exercisable to the
extent and in the manner provided herein for a period of ten years from the
Initial Grant Date, December 31, 1995 and the December 31, 1996, respectively;
provided however, that an Option may be terminated earlier as provided in
Section 7.
5. EXERCISABILITY OF OPTIONS.
The Initial, 1995 and 1996 Options shall be fully vested
(100%) and exercisable as of the Initial Grant Date, December 31, 1995 and the
December 31, 1996, respectively.
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6. MANNER OF EXERCISABILITY AND PAYMENT.
6.1 Subject to the terms and conditions of this Agreement,
each Option may be exercised in whole at any time, or in part, from time to
time, by delivery of written notice to the Company, at its principal executive
office. Such notice shall state which Option(s) the Optionee is electing to
exercise and the number of shares in respect of which such Option(s) is being
exercised and shall be signed by the Optionee. If requested by the Company, the
Optionee shall (i) deliver this Agreement to the Secretary of the Company who
shall endorse thereon a notation of such exercise and (ii) provide satisfactory
proof as to the right of the Optionee to exercise such Option(s).
6.2 The notice of exercise described in Section 6.1 hereof
shall be accompanied by the full purchase price for the shares in respect of
which the Option(s) is being exercised, in cash, by check, or by transferring
shares of Common Stock to the Company having a Fair Market Value on the day
preceding the date of exercise equal to the cash amount for which such shares of
Common Stock are substituted or (ii) subject to the consent of the Company,
instructions from the Optionee to the Company directing the Company to deliver a
specified number of shares of Common Stock directly to a designated broker or
dealer pursuant to a cashless exercise election which is made in accordance with
such requirements and procedures as are acceptable to the Company in its sole
discretion and full payment of all applicable Withholding Taxes (as defined in
Section 13) pursuant to Section 13 hereof.
6.3 Upon receipt of notice of exercise and full payment for
the shares in respect of which an Option is being exercised, the Company shall
take such action as may be necessary to effect the transfer to the Optionee of
the number of shares as to which such exercise was effective.
6.4 The Optionee shall not be deemed to be the holder of, or
to have any of the rights of a holder with respect to any shares subject to an
Option until (i) the Option shall have been exercised pursuant to the terms of
this Agreement and the Optionee shall have paid the full purchase price for the
number of shares in respect of which the Option was exercised, (ii) the Company
shall have issued and delivered the shares to the Optionee, and (iii) the
Optionee's name shall have been entered as a stockholder of record on the books
of the Company, whereupon the Optionee shall have full voting and other
ownership rights with respect to such shares.
6.5 Each certificate representing Common Stock initially
issued upon exercise of an Option, unless at the time of exercise, such shares
of Common Stock are registered under the Securities Act, shall bear the
following legend on the face thereof:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY
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BE OFFERED AND SOLD ONLY IF SO REGISTERED OR IN A MANNER
EXEMPT FROM REGISTRATION UNDER SUCH ACT.
7. TERMINATION OF EMPLOYMENT.
7.1 In the event the Optionee's employment is terminated for
any reason, including for Cause, (i) any Options not yet granted shall be
granted immediately, without any further action by the Company or the Optionee
and (ii) the Optionee may exercise each Option or portion thereof, at any time
before the earlier of the expiration of the fifth anniversary of the termination
of his employment or the expiration of the tenth anniversary of the respective
date of grant of each Option, after which time the Options shall terminate in
full.
7.2 In the event of the Optionee's death, the Options shall be
exercisable, to the extent provided in this Agreement, by the legatee or
legatees under the Optionee's will, or by the Optionee's personal
representatives or distributees and such person or persons shall be substituted
for the Optionee each time the Optionee is referred to herein.
8. EFFECT OF CHANGE IN CONTROL.
8.1 Notwithstanding anything contained in this Agreement to
the contrary, in the event of a Change in Control, (i) any Options not yet
granted shall be granted immediately, without any further action by the Company
or the Optionee, and (ii) the Optionee will be permitted to surrender for
cancellation within sixty (60) days after such Change in Control, the Initial,
1995 and 1996 Options or any portion of each Option to the extent not yet
exercised and the Optionee shall be entitled to receive immediately a cash
payment in an amount equal to the excess, if any, of (A) the greater of (x) the
Fair Market Value, on the date preceding the date of the surrender, of the
shares subject to the Option(s) or portion of the Option(s) surrendered or (y)
the Adjusted Fair Market Value of the shares subject to the Option(s) or the
portion of the Option(s) surrendered, over (B) the aggregate purchase price for
such shares under their respective Option(s); PROVIDED, HOWEVER, that if any
Option was granted within six (6) months prior to the Change in Control and the
Optionee may be subject to liability under Section 16(b) of the Exchange Act,
the Optionee shall be entitled to surrender for cancellation such Option(s) or
any portion of such Option(s) during the sixty (60) day period following the
expiration of six (6) months from the date of grant of the Option(s) and to
receive the amount described above with respect to such surrender for
cancellation.
9. NONTRANSFERABILITY.
The Options shall not be transferable other than by will or by
the laws of descent and distribution. During the lifetime of the Optionee, the
Options shall be exercisable only by the Optionee.
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10. NO RIGHT TO CONTINUED EMPLOYMENT.
Nothing in this Agreement or the Plan shall be interpreted or
construed to confer upon the Optionee any right with respect to continuance of
employment by the Company, nor shall this Agreement or the Plan interfere in any
way with the right of the Company to terminate the Optionee's employment at any
time.
11. ADJUSTMENTS.
In the event of any increase or reduction in the number of
shares of Common Stock, or any change (including, but not limited to, a change
in value) in the Common Stock or exchange of Common Stock for a different number
or kind of securities of the Company, by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, spin-off, split-up,
issuance of warrants or rights or debentures, stock dividend, stock split or
reverse stock split, cash dividend, property dividend, combination or exchange
of shares, repurchase of shares, change in corporate structure or otherwise, the
Company shall make appropriate adjustments to the number and class of shares
subject to the Options and the purchase price for such shares. The purpose of
this Section 11 is to ensure that following the grant of the 1996 Option, the
Options represent the right to acquire 3% of the equity of the Company, on a
fully diluted basis.
12. EFFECT OF A MERGER, CONSOLIDATION OR LIQUIDATION.
Subject to Section 8 hereof, upon the effective date of (i)
the liquidation or dissolution of the Company or (ii) a merger or consolidation
of the Company (a "Transaction"), the Options shall continue in effect in
accordance with their terms and the Optionee shall be entitled to receive in
respect of all shares subject to the Options, upon exercise of the Options, the
same number and kind of stock, securities, cash, property or other consideration
that each holder of shares was entitled to receive in the Transaction.
13. WITHHOLDING OF TAXES.
The Company shall have the right to deduct from any
distribution of cash to the Optionee an amount equal to the federal, state and
local income taxes and other amounts as may be required by law to be withheld
(the "Withholding Taxes") with respect to each Option. If the Optionee is
entitled to receive shares upon exercise of an Option, the Optionee shall pay
the Withholding Taxes to the Company in cash prior to the issuance of such
shares. In satisfaction of the Withholding Taxes, the Optionee may, with respect
to any or all of the Options, make a written election (the "Tax Election"),
which may be accepted or rejected in the discretion of the Company, to have
withheld a portion of the shares issuable to him or her upon exercise of an
Option, having an aggregate Fair Market Value, on the date preceding the date of
such issuance, equal to the
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Withholding Taxes, provided that, with respect or an Option for which the
Optionee is subject to liability under Section 16(b) of the Exchange Act either:
(i) (A) the Tax Election is made at least six (6) months prior to the date the
Option is exercised and (B) the Tax Election is irrevocable with respect to the
exercise of all Options which are exercised prior to the expiration of six (6)
months following a revocation of the Tax Election or (ii) (A) the Optionee makes
the Tax Election at least six (6) months after the date the Option is granted,
(B) the Option is exercised during the ten-day period beginning on the third
business day and ending on the twelfth business day following the release for
publication of the Company's quarterly or annual statement of sales and earnings
(a "Window Period") and (C) the Tax Election is made during the Window Period in
which the Option is exercised or prior to such Window Period and subsequent to
the immediately preceding Window Period.
14. Loans to the Optionee
14.1 If the Optionee is required to pay federal income tax on
any income realized by the Optionee as a result of the exercise, in whole or in
part, of any Option, the Company shall loan the Optionee an amount of money
equal to the amount of federal income tax owed by the Optionee as a result of
such exercise (an "Exercise Loan").
14.2 Interest shall accrue on the outstanding principal
balance of each Exercise Loan and shall be payable with respect to each Exercise
Loan annually on December 31 of each year. The interest on an Exercise Loan
shall equal the applicable federal interest rate as set forth in Section 1274(d)
of the Code at the time such Exercise Loan is made to the Optionee.
14.3 In the event of the sale by the Optionee of any
percentage of the total number of shares of Common Stock held by the Optionee,
within ten business days of such sale, the Optionee shall repay the same
percentage of all outstanding Exercise Loans; thus, if the Optionee were to sell
50% of the Common Stock held by the Optionee, he would be required to repay 50%
of all outstanding Exercise Loans.
15. REGISTRATION RIGHTS.
15.1 PIGGYBACK REGISTRATION RIGHTS.
(a) If during the period from the Initial Grant Date
until the expiration of the fifteenth anniversary of the Initial Grant Date (the
"Registration Period"), the Company files a registration statement under the
Securities Act to register any of the Common Stock, including a registration
statement filed on Form S-1 in an initial public offering of the Common Stock,
the Optionee may elect to have any shares of Common Stock issued to him pursuant
to this Agreement (the "Registerable Securities") included in such registration
statement, PROVIDED HOWEVER, that this election
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shall be inapplicable with respect to any registration statement filed in
connection with any merger or acquisition, exchange offer, or employee benefit
plan.
(b) If the Company plans to file a registration
statement described in this Section 15.1 during the Registration Period (a
"Piggyback Registration Statement"), the Company shall give the Optionee prompt
written notice of its intention to file such a registration statement. Within
fifteen business days following the receipt of such notice from the Company, the
Optionee may deliver a written notice to the Company (the "Piggyback
Registration Election") demanding that the Company include the Registerable
Securities in such Piggyback Registration Statement.
(c) If the Piggyback Registration Statement involves
an underwritten offering and the underwriters reasonably believe that the
Optionee's requested inclusion of Common Stock issued to him pursuant to this
Agreement in the Piggyback Registration Statement could materially adversely
affect the success of the offering, then the number of Registerable Securities
shall be decreased to the extent that the underwriters deem necessary or
advisable given the then current market conditions.
15.2 DEMAND REGISTRATION RIGHTS.
(a) At any time during the Registration Period, the
Optionee may deliver one notice to the Company demanding that the Company
register the Registerable Securities described in such notice (the "Demand
Registration Election"). The Demand Registration Election must request the
registration of at least fifty percent of the shares of Common Stock then held
by the Optionee.
(b) Promptly after receiving a Demand Registration
Election, the Company shall prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement registering the
Registerable Securities described in the Demand Registration Election (the
"Demand Registration Statement") and shall use reasonable efforts to cause the
Commission to declare the Demand Registration Statement effective. The
distribution of the Registerable Securities so registered shall be effected
through investment bankers or broker-dealers selected by the Company and
reasonably acceptable to the Optionee, and the Company shall maintain the
effectiveness of the Demand Registration Statement for such period (which shall
not be required to exceed 120 days) as the Optionee shall request.
(c) Notwithstanding anything to the contrary in this
Section 15.2, however, the Company may delay filing the Demand Registration
Statement or request the Commission not to declare it effective if (i) the
Company has completed an underwritten offering of the Common Stock within the
preceding four months, or (ii) the Company's board of directors determines in
the exercise of its reasonable and good faith judgment that filing the Demand
Registration Statement would materially adversely interfere with the Company's
offering of securities or acquisition of another company. If the Company delays
filing a Demand Registration Statement because the Company's
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board of directors makes the foregoing determination, the Company shall promptly
give the Optionee written notice of such determination along with a written
statement of the general reasons for the postponement and the approximate period
of delay. The Company shall file or request the Commission to declare effective
the delayed Demand Registration Statement as soon as the reason for the delay no
longer exists.
(d) If the Company fails to declare a Demand
Registration Statement effective other than because of the Optionee's request to
withdraw such registration statement, then the Demand Registration Election
shall not count as the one demand registration right of the Optionee under this
Agreement.
15.3 PREPARATION OF A STOCKHOLDER REGISTRATION STATEMENT.
If the Optionee elects to register Registerable
Securities pursuant to a Piggyback Registration Statement or a Demand
Registration Statement (either one hereinafter referred to as a "Stockholder
Registration Statement"), the Optionee shall provide such information to the
Company in connection with the Company's preparation of the Stockholder
Registration Statement and enter into such customary agreements in connection
with the Stockholder Registration Statement as the Company may request. The
Company shall deliver a copy of the Stockholder Registration Statement and any
amendments or supplements thereto to the Optionee before filing them with the
Commission and provide the Optionee a reasonable opportunity to comment on such
documents.
15.4 UNDERWRITTEN OFFERINGS.
If a Stockholder Registration Statement involves an
underwritten offering, the Optionee must accept the terms of the underwriting as
agreed upon between the Company and the underwriters that the Company has
selected and enter into the underwriting agreement. The Optionee shall also be
subject to any transfer restrictions or conditions with respect to the
Registerable Securities that he possesses that the underwriters consider
necessary or advisable in such underwriters' business judgment. If requested by
the underwriters, the Company shall also enter into the underwriting agreement
upon customary terms and conditions.
15.5 BLUE SKY REGISTRATIONS.
In connection with a Stockholder Registration
Statement, the Company shall use reasonable efforts to register and qualify the
transfer of the respective Registerable Securities under the securities laws of
any states or other jurisdictions within the continental United States of
America that the Optionee designates in the Piggyback Registration Election or
the Demand Registration Election, respectively, PROVIDED HOWEVER, that the
Company shall not be required to register or qualify to transact business in any
such state or jurisdiction in connection with any such registration or
qualification or subject itself to taxation by any such state or jurisdiction.
-12-
<PAGE>
15.6 EXPENSES.
The Company shall pay all costs, fees, and expenses
incurred in connection with the preparation and filing of a Stockholder
Registration Statement, PROVIDED HOWEVER, that the Optionee shall pay his own
accounting and legal fees and expenses and shall bear any underwriter's or
broker's discount or commission payable with respect to any Registerable
Securities which are the subject of such Stockholder Registration Statement and
any transfer taxes attributable to the transfer of such Registerable Securities.
15.7 INDEMNIFICATION.
With respect to a Stockholder Registration Statement:
(a) The Optionee shall indemnify and hold harmless
the Company, each of the Company's Affiliates, agents, directors, employees and
officers, each Person who controls the Company within the meaning of the
Securities Act, and each underwriter and investment banker that the Company has
engaged in connection with a Stockholder Registration Statement against any
Claims made against the Company or any such Person with respect to any untrue
statement or alleged untrue statement concerning the Optionee contained in a
Stockholder Registration Statement or any omission or alleged omission from a
Stockholder Registration Statement concerning the Optionee of a material fact
required to be stated in such registration statement or necessary to make the
statements in such registration statement not misleading PROVIDED HOWEVER, that
the Optionee shall not have any indemnity obligation for Claims directly or
indirectly related or arising with respect to any such untrue statement, alleged
untrue statement, omission or alleged omission unless either made or omitted in
reliance upon written information furnished to the Company by the Optionee or
contained in the description of the plan of distribution for the Registerable
Securities in such Stockholder Registration Statement. For the purposes of this
Section 15.7(a), a Stockholder Registration Statement shall include any
preliminary or final prospectus contained in a Stockholder Registration
Statement and any amendments or supplements to a Stockholder Registration
Statement. If the Optionee becomes aware of any material misstatement or
omission in a Stockholder Registration Statement, the Optionee shall immediately
notify the Company of such misstatement or omission. The Indemnity obligation of
the Optionee under this Section 15.7(a) shall be limited to an amount equal to
the proceeds that the Optionee received from the sale of his Registerable
Securities pursuant to the Stockholder Registration Statement.
(b) The Company shall indemnify and hold harmless the
Optionee against any Claims made against the Optionee with respect to any untrue
statement or alleged untrue statement contained in a Stockholder Registration
Statement, or any omission or alleged omission from a Stockholder Registration
Statement of a material fact required to be stated in such registration
statement or necessary to make the
-13-
<PAGE>
statements in such registration statement not misleading PROVIDED HOWEVER, that
the Optionee shall not have any indemnity obligation for Claims directly or
indirectly related or arising with respect to any such untrue statement, alleged
untrue statement, omission or alleged omission made or omitted in reliance upon
written information furnished to the Company by the Optionee or contained in the
description of the plan of distribution for the Registerable Securities in such
Stockholder Registration Statement. If the Company becomes aware of any material
misstatement or omission in a Stockholder Registration Statement, the Company
shall immediately notify the Optionee of such misstatement or omission.
(c) This indemnification obligation shall be in
addition to any customary agreements required under Section 15.3
15.8 COPIES OF THE PROSPECTUS.
The Company shall provide the Optionee with a
reasonable number of copies of (a) the preliminary prospectus with respect to
any Stockholder Registration Statement, if the Company and the Optionee agree to
distribute such preliminary prospectus, (b) the final prospectus with respect to
any Stockholder Registration Statement, and (c) the amendments and supplements
to any such final prospectus, if any.
15.9 LEGAL OPINIONS AND COMFORT LETTERS.
If in connection with any Stockholder Registration
Statement the Company obtains a legal opinion or comfort letter for the benefit
of any underwriters participating in the distribution of the Registerable
Securities, the Company shall use reasonable efforts to cause the law firm or
certified public accounting firm rendering such opinion or comfort letter,
respectively, to deliver copies of such opinion or comfort letter to the
Optionee and permit the Optionee to rely upon them.
15.10 REGISTRATION RIGHTS NONTRANSFERABLE.
The registration rights set forth in this Section 15
are personal to the Optionee and nontransferable, except in the event of the
Optionee's death, in which case they may be transferred to the legatee or
legatees under the Optionee's will, or to the Optionee's personal
representatives or distributees.
16. RIGHT OF OPTIONEE TO PARTICIPATE IN STOCKHOLDER SALES
16.1 If any stockholders of the Company acting individually,
together or pursuant to a common plan, propose to sell, directly or indirectly,
more than twenty-five percent (25%) of the Common Stock (the "Selling
Stockholders"), the Optionee shall have the right to participate in such sale to
the extent provided in this Section 16.
-14-
<PAGE>
16.2 Not less than thirty (30) days prior to any proposed sale
of twenty-five percent or more of the Common Stock, the Selling Stockholder(s)
shall give the Optionee written notice of the proposed sale, which notice shall
include the name of the proposed transferee, the number of shares of stock which
the Selling Shareholder(s) intend to sell (the "Tag Along Amount") and the terms
and conditions of the proposed transfer (the "Tag Along Notice"). If the
Optionee wishes to participate in a sale pursuant to a valid Tag Along Notice,
he shall give the Selling Stockholder(s) and the Company written notice of his
election to participate not later than fifteen (15) days prior to the proposed
sale, specifying the number of shares of stock which he desires to sell.
16.3 If the Optionee elects to participate in a sale pursuant
to a valid Tag Along Notice, the Selling Stockholder(s) shall not sell any stock
in such transaction unless the purchaser thereof at the same time purchases from
the Optionee (on the same terms and conditions as stock is to be purchased from
the Selling Stockholder(s)), that number of shares of stock at least equal to
the lesser of:
(a) the total number of shares which the Optionee
desires to sell (the "Desired Amount"); or
(b) a percentage of the Desired Amount equal to a
fraction of which the numerator is the Tag Along Amount and the denominator is
the total number of outstanding shares of Common Stock.
17. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Optionee
that:
17.1 The Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of Delaware.
17.2 The Company has the requisite power and
authority to enter into and perform the terms of this Agreement. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated thereby have been duly authorized by the board of directors of the
Company and no other corporate approval or authorization or other action on the
part of the Company is necessary in order to permit the Company to consummate
the transactions contemplated by this Agreement. This Agreement has been duly
and validly executed and delivered by the Company, and constitutes the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms.
17.3 Shares of the Common Stock, when issued,
delivered and paid for pursuant to this Agreement will be validly issued, fully
paid and non-assessable.
-15-
<PAGE>
18. REPRESENTATIONS AND WARRANTIES OF THE OPTIONEE.
The Optionee hereby represents and warrants to the Company
that:
18.1 The Optionee is acquiring the Common Stock to be acquired
by him pursuant to the Options for his own account, for investment and not with
a view to the sale or distribution thereof, nor with any present intention to
distribute or sell the Common Stock.
18.2 The Optionee will not sell, assign, transfer, pledge or
otherwise dispose of any of the Common Stock acquired pursuant to the Options
unless and until the same are registered under the Securities Act, and any
applicable state securities law, or an exemption from such registration is
available, and until the Company shall have received a written opinion from
counsel acceptable to the Company that the disposition is in compliance with the
requirements of the Securities Act and any applicable state securities law.
19. RIGHT OF FIRST REFUSAL.
In the event of the death of the Optionee and the transfer of
any Options and/or Common Stock to the Optionee's legatee or legatees under the
Optionee's will, or to the Optionee's personal representatives or distributees
(the "Transferee," for purposes of this Section 19 only), and/or the exercise by
the Transferee of any unexercised Options, the Transferee shall be bound by the
following:
19.1 OFFER TO SELL SHARES.
If the Transferee shall at any time receive a bona
fide written offer from a third person (the "Third Person") for the purchase of
any amount of Common Stock (the "Offered Stock") owned by the Transferee, then
the Transferee shall (a) notify the Company of the Third Person's offer, setting
forth in reasonable detail its terms and conditions and identifying the Third
Person, its principals and affiliates, if applicable, (the "Transferee's
Notice") and (b) give a right of first refusal to the Company to purchase the
Offered Stock on the same terms and conditions as are set forth in the Third
Person's offer.
19.2 EXERCISING RIGHT OF FIRST REFUSAL.
(a) The Company shall respond to the Transferee's
Notice within thirty (30) days of receipt stating whether or not it wishes to
exercise its right of first refusal. If the Company does not respond within such
thirty (30) day period, it shall be conclusively presumed that the Company has
chosen not to exercise its right of first refusal.
-16-
<PAGE>
(b) If the Company chooses to exercise its right of
first refusal, then the Company shall purchase and the Transferee shall sell the
Offered Stock on the terms and conditions set forth in the Third Person's offer.
The closing of such sale shall be held at the Company's principal office, on any
business day specified by the Transferee, with not less than five (5) business
days prior notice, PROVIDED HOWEVER, that the closing must occur by the later of
the date of closing specified in the Third Person's offer or ninety (90) days
after the Company gives notice of its election to purchase the Offered Stock.
(c) If the Company fails to purchase the Offered
Stock after having elected to do so (unless such failure results from the
Transferee's default), the Transferee shall be entitled, in addition to any
other remedies it may have under this Agreement, at law or in equity, to sell
the Offered Stock to any purchaser and on such terms and conditions as it may
determine, without regard to the Company's right of first refusal.
19.3 SALE TO THE THIRD PERSON.
If the Company fails to exercise the right of first
refusal, then the Transferee shall be free for a period of ninety (90) days
after the end of the aforesaid option period to sell the Offered Stock to the
Third Person on the terms and conditions contained in the Third Person's offer;
provided however, that any such transfer shall be null and void and the Company
shall refuse to recognize such transfer, if such transfer would be made in a
transaction to which registration requirements of the Securities Act are
applicable unless such interest is registered under the Securities Act or is
transferred pursuant to an exemption from the Securities Act or would violate
any applicable state or other securities laws, rules or regulations.
20. NOTICES.
All notices or other communications which may be or are
required to be given, served or sent by a party pursuant to this Agreement shall
be in writing and shall be hand delivered (including delivery by courier),
mailed by first-class, registered or certified mail, return receipt requested,
postage prepaid, or transmitted by telegram, telex or facsimile transmission,
addressed as follows:
If to the Company: 4343 NW 76th Ave.
Miami, Florida 33166
If to the Optionee: 624 Cambridge Terrace
Ft. Lauderdale, Florida, 33326
21. MODIFICATION OF AGREEMENT.
-17-
<PAGE>
This Agreement may be modified, amended, suspended or
terminated, and any terms or conditions may be waived, but only by a written
instrument executed by the parties hereto.
22. SEVERABILITY.
Should any provision of this Agreement be held by a court of
competent jurisdiction to be unenforceable or invalid for any reason, the
remaining provisions of this Agreement shall not be affected by such holding and
shall continue in full force in accordance with their terms.
23. GOVERNING LAW.
The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of Florida without
giving effect to the conflicts of laws principles thereof.
24. SUCCESSORS IN INTEREST.
This Agreement shall inure to the benefit of and be binding
upon any successor to the Company. This Agreement shall inure to the benefit of
the Optionee's legal representatives. All obligations imposed upon the Optionee
and all rights granted to the Company under this Agreement shall be final,
binding and conclusive upon the Optionee's heirs, executors, administrators and
successors.
25. HEADINGS.
Headings contained in this Agreement are inserted for
convenience of reference only, shall not be deemed to be a part of this
Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
26. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
NEFF CORPORATION
/s/ KEVIN P. FITZGERALD
-----------------------------
KEVIN P. FITZGERALD
By:
Title:
For the purpose of SECTION 16 only:
/s/ JORGE MAS, JR.
-----------------------------
JORGE MAS, JR.
/s/ JUAN CARLOS MAS
-----------------------------
JUAN CARLOS MAS
/s/ JOSE RAMON MAS
-----------------------------
JOSE RAMON MAS
-19-
<PAGE>
AMENDMENT TO STOCK OPTION AGREEMENT
THIS AMENDMENT TO STOCK OPTION AGREEMENT ("Amendment"), is made as of
May 19, 1998 between Kevin P. Fitzgerald (the "Optionee") and NEFF Corp. (the
"Company"), a Delaware corporation.
RECITALS
WHEREAS, the Optionee and the Company have entered into a Stock Option
Agreement, dated as of December 1, 1995 (the "Agreement") pursuant to which the
Optionee was granted certain options (the "Options") to purchase the Company's
common stock, par value $.01 per share;
WHEREAS, the Company has converted its common stock into Class A Common
Stock, par value $.01 per share of the Company (the "Class A Common Stock");
WHEREAS, the Optionee has agreed to fix the number of shares of Class A
Common Stock subject to the Options in exchange for an additional option to be
granted by the Company under the Company's 1998 Stock Incentive Plan to the
Optionee to purchase 100,000 shares of Class A Common Stock; and
WHEREAS, the Optionee and the Company have agreed to amend the terms of
the Agreement as set forth in this Amendment.
NOW THEREFORE, in consideration of the foregoing and the premises,
obligations and agreements contained herein, and for other valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. Section 1 of the Agreement is amended by adding the following
definitions:
"Common Stock" means the Class A Common Stock, par value $.01
per share, of the Company and the Class B Special Common Stock, par value $.01
per share, of the Company.
"Change in Capitalization" means any increase or reduction in
the number of shares of Class A Common Stock, or any change (including, but not
limited to, a change in value) in the Class A Common Stock or exchange of Class
A Common Stock for a different number or kind of shares or other securities of
the Company or another corporation, by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, spin-off, split-up,
issuance of warrants or rights or debentures, stock dividend, stock split or
reverse stock split, cash dividend, property dividend, combination or exchange
of shares, repurchase of shares, change in corporate structure or otherwise.
2. Notwithstanding anything to the contrary in the Agreement, effective
upon consummation by the Company of an initial public offering of the Class A
Common Stock effected pursuant to Registration Statement No. 333-48077, as
amended from time to time, filed
<PAGE>
with and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933 (the "Common Stock Offering"), the aggregate number of
shares of Common Stock which the Optionee may purchase pursuant to the Options
is 657,220 shares of Class A Common Stock (688,299 if the U.S. Underwriters'
over-allotment option is exercised) and the aggregate purchase price for such
shares of Class A Common Stock upon exercise of the Options is $1,603,010.
3. Section 11 of the Agreement is amended by deleting it in its
entirety and replacing it with the following text:
In the event of a Change in Capitalization, the Company may make
appropriate adjustments to the number and class of securities subject to the
Options and the purchase price for such securities. Subject to Section 8 hereof,
upon the effective date of (i) the liquidation or dissolution of the Company or
(ii) a merger or consolidation of the Company (a "Transaction"), the Options
shall continue in effect in accordance with their terms and the Optionee shall
be entitled to receive in respect of all shares of Class A Common Stock subject
to the Options, upon exercise of the Options, the same number and kind of stock,
securities, cash, property or other consideration that each holder of Class A
Common Stock was entitled to receive in the Transaction in respect of a share of
Class A Common Stock.
4. Upon consummation of the Common Stock Offering, the Company shall
grant to the Optionee an option to purchase 100,000 shares of Class A Common
Stock under the Company's 1998 Stock Incentive Plan (the "1998 Option"). The
1998 Option shall be immediately exercisable, have a ten year term and is
intended to qualify as an Incentive Stock Option within the meaning of Section
422 of the Code. The per share purchase price of shares of Class A Common Stock
subject to the 1998 Option shall be equal to the per share price of Class A
Common Stock offered to the public in the Common Stock Offering.
5. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
NEFF CORP.
/S/ KEVIN P. FITZGERALD
----------------------------------
By: Kevin P. Fitzgerald
Title: President and Chief Executive Officer
KEVIN P. FITZGERALD
/S/ KEVIN P. FITZGERALD
----------------------------------
3
EXHIBIT 10.8
[FORM OF LOCK-UP LETTER]
, 1998
Morgan Stanley & Co. Incorporated
BT Alex. Brown Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Morgan Stanley & Co. International Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co.
Incorporated ("MORGAN STANLEY") and Morgan Stanley & Co. International Limited
("MSIL") propose to enter into an Underwriting Agreement (the "UNDERWRITING
AGREEMENT") with Neff Corp., a Delaware corporation (the "COMPANY"), providing
for the public offering (the "PUBLIC OFFERING") by the several Underwriters,
including Morgan Stanley and MSIL (the "UNDERWRITERS"), of shares (the "SHARES")
of Class A Common Stock, par value $.01 per share, of the Company (the "COMMON
STOCK").
To induce the Underwriters that may participate in the Public
Offering to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 180 days after the date of the final prospectus
relating to the Public Offering (the "PROSPECTUS"), (1) 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 Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences
<PAGE>
of ownership of the Common Stock, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (a) the sale of any Shares to the Underwriters pursuant to the Underwriting
Agreement, (b) transactions relating to shares of Common Stock or other
securities acquired in open market transactions after the completion of the
Public Offering or (c) Santos Capital Advisors, Inc.'s option to acquire 1.5
million shares of Common Stock from GECFS,Inc. pursuant to ___________, and
GECFS, Inc.'s right to sell such shares of Common Stock to Santos Capital
Advisors, Inc. pursuant to such option; PROVIDED, HOWEVER, that any shares of
Common Stock acquired by Santos Capital Advisors, Inc. pursuant to such option
will remain subject to the foregoing sentence for the remainder of the period
provided in such foregoing sentence. In addition, the undersigned agrees that,
without the prior written consent of Morgan Stanley on behalf of the
Underwriters, it will not, during the period commencing on the date hereof and
ending 180 days after the date of the Prospectus, make any demand for or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
Whether or not the Public Offering actually occurs depends on
a number of factors, including market conditions. Any Public Offering will only
be made pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
---------------------------
(Name)
---------------------------
(Address)
EXHIBIT 10.12
NEFF CORP.
PHANTOM STOCK PLAN
<PAGE>
NEFF CORP.
PHANTOM STOCK PLAN
ARTICLE I - PURPOSE OF PLAN
1.1 PURPOSE OF PLAN. The purpose of the Neff Corp. Phantom Stock Plan is to
further the long-term growth of the Company's earnings, thereby enhancing the
value of the Company's stock by offering long-term incentives in addition to
current compensation to key executives of the Company.
ARTICLE II - DEFINITIONS
2.1 AGREEMENT means an agreement with respect to Awards as described in
Article V.
2.2 AWARD means Units granted hereunder.
2.3 BOARD means the Board of Directors of the Company.
2.4 CALCULATED SHARE VALUE means the value of a Unit, as determined by the
Plan Administrator. The Plan Administrator shall use the following
valuation methodology in determining the Calculated Share Value:
STEP I
Multiply 6 times the Company's earnings before interest,
taxes, depreciation and amortization ("EBITDA") as reported in
the Company's audited financial statements as of the Valuation
Date. The calculation of EBITDA shall exclude any
extraordinary items.
STEP 2
Subtract the Company's debt outstanding as of the Valuation
Date, as reported in the Company's audited financial
statements, from the amount determined in Step 1. For purposes
of this Step, debt means all interest bearing debt plus all
amounts attributable to floor financing plans or capitalized
lease obligations, less the total amount of cash and cash
equivalents reported in the Company's audited financial
statements.
STEP 3
Divide the result of Step 2 by the Equity Divisor as of the
Valuation Date.
The Calculated Share Value of a Unit as of the original date of the
grant of Units hereunder [January 1, 1997], shall be deemed to be $9.00
per share. The Plan Administrator has determined this to be an
appropriate valuation for purposes of valuing the initial grant of
Units. The Calculated Share Value of a Unit for Awards granted
<PAGE>
subsequent to 1997 shall be determined as of the December 31
immediately preceding the grant of the Units.
2.5 CHANGE IN CONTROL means any merger, consolidation, business
combination, stock sale or other transaction or series of related
transactions, the result of which is that General Electric Capital
Corp., Jorge Mas, Juan Carlos Mas and Jose Ramon Mas do not directly or
indirectly own, in the aggregate, voting securities representing 50
percent or more of the voting power of all issued and outstanding
voting securities.
2.6 COMPANY means Neff Corp. and its subsidiaries, or any successors as
described in Article IX.
2.7 DISABILITY means the classification of a Participant as "disabled" as
defined in Section 22(e)(3) of the Code.
2.8 EQUITY DIVISOR means one-hundred (100) times the total number of shares
of Stock of the Company which have been issued as of the Valuation Date
or which have been reserved for issuance either in connection with
options granted to employees or in connection with the conversion of
Series B or Series C preferred stock. As of January 1, 1997, the Equity
Divisor has been determined to be 17,777,700.
2.9 PARTICIPANT means an individual who has been selected by the Plan
Administrator to receive an Award under this Plan, who has executed an
Agreement with respect to such Award, and who has not forfeited such
Award under Article VII. Any individual is eligible to become a
Participant in this Plan.
2.10 PLAN means the Neff Corp. Phantom Stock Plan.
2.11 PLAN ADMINISTRATOR means the President of the Company.
2.12 REDEMPTION SHARE VALUE means the difference between (a) the value of a
Participant's Award as of the Valuation Date (the Calculated Share
Value), and (b) the value of the Participant's Award on the date on
which such Award was granted to the Participant (the Calculated Share
Value as of the date the Award was made ($9.00 per Unit for Awards
granted as of January 1, 1997)). The following example illustrates the
calculation of the Redemption Share Value:
Calculated Share Value as of the payment date (per Unit) $14.00
Calculated Share Value at date of issuance (per Unit) 9.00
--------
Redemption Share Value (per Unit) $5.00
x Number of Units Granted to Executive 5,000.00
--------
= Total Redemption Share Value $25,000.00
2.13 RETIREMENT means normal retirement by an employee from the Company on
or after
<PAGE>
age 65.
2.14 STOCK means the Common Stock, par value $..01 - per share, of the
Company.
2.15 TERMINATION means resignation or discharge from employment with the
Company, except in the event of involuntary termination of employment
by the Company without cause, voluntary or involuntary termination by
the Company following a Change in Control, Death, Disability, or
Retirement.
2.16 UNIT means a hypothetical share of stock corresponding in value at any
particular time to the approximate value of one one-hundredth of a
share of Stock at such time.
2.17 VALUATION DATE means the December 31 immediately- preceding the date on
which the cash value of an Award is actually paid under this Plan.
ARTICLE III - EFFECTIVE DATE AND DURATION
3.1 EFFECTIVE DATE. Except as provided to the contrary herein, this Plan shall
be effective as of January 1, 1997.
3.2 TERMINATION. This Plan shall terminate as of January 1, 2003 or otherwise as
provided in Article X, but shall continue in effect until all matters relating
to the payment of Awards and the administration of the Plan have been settled.
ARTICLE IV - ADMINISTRATION
4.1 ADMINISTRATION. This Plan shall be administered by the Plan Administrator
with the approval of the Board. All questions of interpretation and application
of this Plan, or of the terms and conditions pursuant to which Awards are
granted or forfeited or pursuant to which amounts are paid under the provisions
hereof, shall be subject to the determination of the Plan Administrator. Such
determination shall be final and binding upon all parties affected thereby.
ARTICLE V - GRANT OF AWARDS
5.1 GRANTS OF AWARDS: NUMBER OF UNITS. The individuals identified in Exhibit I
shall be the initial Participants of the Plan and shall receive from the Company
as of January 1, 1997, the grant of Awards in the form of Units, as set forth in
the attached Exhibit I.
5.2 SUBSEQUENT GRANTS. If specifically authorized by the Board, the Plan
Administrator shall grant additional Awards hereunder to individuals on terms
established by the Plan Administrator. All Awards granted hereunder are granted
in the sole and absolute discretion of the Plan Administrator as provided
herein, subject to the review and approval of the Board.
<PAGE>
ARTICLE VI - BENEFITS
6.1 DIVIDEND EQUIVALENT RIGHTS. if the Company declares one or more cash
dividends with an aggregated value in excess of five percent of the value of the
Stock to holders of record as of the date or dates during the term of the Plan,
the Company shall pay in cash to each Participant who is employed by the Company
on the last day of the year containing such record date(s) an amount per Unit
held hereunder as of such date(s) by the Participant, whether vested or
unvested, equal to one one-hundredth of the amount per share of stock paid to
such holders of record of Stock. The amount payable to Participants under this
Section 6.1 shall be paid as soon as possible after the last day of the year
containing such record date(s).
6.2 PAYMENT TO THE PARTICIPANT. Each Unit will vest with respect to the
beginning of the fiscal year in which it was granted, in accordance with the
following schedule (which may be shortened for any Participant at the discretion
of the Administrator):
End of Year I 0%
End of Year 2 25%
End of Year 3 50%
End of Year 4 75%
End of Year 5 100%
Units which vest according to this schedule shall be redeemed by the Company,
and upon redemption a cash award shall be paid to a Participant in the amount of
the Redemption Share Value. Payment of such amounts shall be made in one lump
sum as soon as administratively possible following the first anniversary of the
Participant's becoming vested in such amount. The Administrator, in his sole
discretion, shall have the right to accelerate or delay the payment of any and
all vested amounts payable under this Plan.
ARTICLE VII - TERMS AND CONDITIONS OF PHANTOM STOCK AWARDS
7.1 PHANTOM STOCK AGREEMENTS. Awards shall be evidenced by Phantom Stock
Agreements in such form as the Plan Administrator shall, from time to time,
approve. Phantom Stock Agreements, which need not be identical, shall state the
number of Units originally awarded to the Participant, shall be signed by the
Company, and shall incorporate by reference the terms of this Plan, which shall
be attached thereto.
7.2 FORFEITURE OF PAYMENT OF AWARDS. Except as otherwise provided in any
employment agreement or other written agreement with the Participant, if a
Participant ceases employment with the Company, prior to payment of the
Participant's Awards, such Awards shall be forfeited or shall be payable as
follows:
<PAGE>
(a) Termination. In the event of a termination, the Participant's
Awards, vested and unvested, shall be forfeited immediately.
(b) Involuntary Termination Without Cause. In the event of a
Participant's involuntary termination without cause by the
Company, the Participant shall receive payment of his or her
vested Awards, as determined as of the date of such
termination, as soon as practicable after such termination but
within one year. Nonvested Awards will be canceled.
(c) Retirement or Disability. In the event of a Participant's
retirement or disability, the Participant shall receive
payment of his or her vested Awards, as determined as of the
date of such retirement or disability, as soon as practicable
after such retirement or disability but within one year.
Nonvested Awards will be canceled.
(d) Death. If the Participant dies while in the employment of the
Company, the Participant's estate, personal representative, or
beneficiary (as applicable) shall receive payment of the
Participant's vested Awards, determined as of the date of the
Participant's death, as soon as practicable after the
Participant's death but within one year. Nonvested Awards will
be canceled.
(e) Termination Following Change in Control. In the event of a
Participant's involuntary termination by the Company following
a change in control, the Participant shall receive payment of
his or her vested Awards, as determined as of the date of such
termination, as soon as possible but within one year.
Nonvested Awards will be canceled.
(f) Required Amendments. Each Award shall be subject to any
provision necessary to assure compliance with law.
ARTICLE VIII - CHANGE IN CAPITAL STRUCTURE
8.1 CAPITAL STRUCTURE CHANGES. Upon dissolution or liquidation of the Company,
or upon a reorganization, merger, or consolidation in which the Company is not
the surviving corporation, or upon the sale of substantially all of the assets
of the Company to another corporation, all outstanding Awards shall continue to
operate and be paid as provided under Article VI of this Plan. However, the
Administrator shall have the discretion and power in any such event to determine
and to make effective provisions for the acceleration of time during which the
Awards may be payable, notwithstanding any other provision of this Plan.
ARTICLE IX - COMPANY SUCCESSORS
9.1 IN GENERAL. If the Company shall be the surviving or resulting corporation
in any merger, sale of assets or sale of stock, consolidation, or corporate
reorganization (including a
<PAGE>
reorganization in which the holders of Stock receive securities of another
corporation), any Award granted hereunder shall pertain to and apply to the
securities to which a holder of Stock would have been entitled. The
Administrator shall make such appropriate determination and adjustments as it
deems necessary so as substantially to preserve the rights and benefits, both as
to number of Units and otherwise, of Participants under this Plan.
ARTICLE X - AMENDMENT OR TERMINATION OF PLAN
10.1 AMENDMENTS AND TERMINATION. The Plan shall terminate on the sixth (6th)
anniversary of the initial effective date of the Plan (i.e., on January 1, 2003)
unless extended for an additional six (6) year period by action of the
Administrator. In addition, the Administrator may at any time and from time to
time after, amend, suspend, or terminate this Plan in whole or in part, except
that no such action shall adversely affect the amount of benefits payable to a
Participant during the initial six (6) year term of this Plan under Article VI,
except as such termination or amendment of this Plan is required by statute or
rules and regulations promulgated thereunder.
ARTICLE XI - MISCELLANEOUS PROVISIONS
11.1 NONTRANSFERABILITY. Except by the laws of descent and distribution, no
benefit provided hereunder shall be subject to alienation, assignment, or
transfer by a Participant (or by any person entitled to such benefit pursuant to
the terms of this Plan), nor shall it be subject to attachment or other legal
process of whatever nature, any attempted alienation, assignment, attachment, or
transfer shall be void and of no effect whatsoever, and upon any such attempt,
the benefit shall terminate and be of no force or effect. During a Participant's
lifetime, Awards granted to the Participant shall be payable only to the
Participant. Deposit of any sum in any financial institution to the credit of
any Participant (or to a person entitled to such sum pursuant to the terms of
this Plan) shall constitute payment into the hands of that Participant (or such
person).
11.2 NO EMPLOYMENT RIGHT. Neither this Plan nor any action taken hereunder shall
be construed as giving any right to any individual to be retained as a director,
officer, or employee of the Company.
11.3 TAX WITHHOLDING. The Company shall have the right to deduct from all Awards
paid any federal, state, local, or employment taxes which it deems are required
by law to be withheld with respect to such payments. At the request of a
Participant, or as required by law, such sums as may be required for the payment
of any estimated or accrued income tax liability may be withheld and paid over
to the governmental entity entitled to receive the same.
11.4 ACCELERATION. Except as otherwise provided hereunder, the Plan
Administrator in his discretion may accelerate the time at which an Award
granted hereunder is payable.
<PAGE>
11.5 GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company to make
payment of Awards shall be subject to all applicable laws, rules, and
regulations and to such approvals by any government agencies as may be deemed
necessary or appropriate by the Administrator.
11.6 INDEMNIFICATION. The Plan Administrator shall be indemnified and held
harmless by the Company against and from (i) any loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by such person in
connection with or resulting from any claim, action, suit, or proceeding to
which such person may be a party or in which such person may be involved by
reason of any action or failure to act under this Plan; and (ii) any and all
amounts paid by such person in satisfaction of judgment in any such action,
suit, or proceeding relating to the Plan. The Plan Administrator shall give the
Company an opportunity, at its own expense, to handle and defend the same before
such person undertakes to handle and defend the same on such person's own
behalf. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under the
charter or bylaws of the Company, as a matter of law, or otherwise, or any power
that the Company may have to indemnify such person or hold such person harmless.
11.7 RELIANCE ON REPORTS. Each member of the Board and the Plan Administrator
shall be fully justified in relying or acting in good faith upon any report made
by the independent public accountants of the Company and upon any other
information furnished in connection with this Plan. In no event shall the Plan
Administrator or any person who is or shall have been a member of the Board be
liable for any determination made or other action taken or any omission to act
in reliance upon any such report or information, or for any action taken,
including the furnishing of information, or failure to act, if in good faith.
11.8 GOVERNING LAW. All matters relating to this Plan or to Awards granted
hereunder shall be governed by the laws of the State of Florida, without regard
to the principles of conflict of laws thereof, except to the extent preempted by
the laws of the United States.
11.9 RELATIONSHIP TO OTHER BENEFITS. No payment under this Plan shall be taken
into account in determining any benefits under any pension, retirement, profit
sharing, or group insurance plan of the Company.
11.10 EXPENSES. The expenses of implementing and administering the Plan shall be
borne by the Company.
11.11 TITLES AND HEADING. The titles and headings of the Articles and Sections
in this Plan are for convenience of reference only, and in the event of any
conflict, the text of this Plan, rather than such titles or headings shall
control.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly
authorized officer and its seal to be affixed hereto, effective as of January 1,
1997.
<PAGE>
NEFF CORP.
By: /s/ Kevin P. Fitzgerald
----------------------------------------
Name: Kevin P. Fitzgerald
--------------------------------------
Title: Chief Executive Officer and President
-------------------------------------
[SEAL]
ATTEST/WITNESS
- ------------------------
<PAGE>
FIRST AMENDMENT TO THE NEFF CORP.
PHANTOM STOCK PLAN
This First Amendment to the Neff Corp. Phantom Stock Plan dated January
1, 1997 (the "Plan") is made as of May 19, 1998. Capitalized terms used herein
and not otherwise defined shall have the meanings assigned to such terms in the
Plan.
WHEREAS the Company has (i) converted the Common Stock, par value $.01
per share of the Company into Class A Common Stock, par value $.01 per share of
the Company (the "Class A Common Stock"), (ii) exchanged all of the issued and
outstanding shares of Series B and Series C Cumulative Convertible Redeemable
Preferred Stock for shares of Class B Special Common Stock, par value $.01 per
share (the "Class B Common Stock") and (iii) effected an 84.65 for 1.00 stock
split of the Class A Common Stock and the Class B Common Stock; and
WHEREAS the Plan Administrator wishes to amend the Plan and the Phantom
Stock Agreements issued under the Plan to reflect the foregoing changes in the
Company's capital structure;
Now therefore, pursuant to Article X of the Plan, the Plan
Administrator hereby amends the Plan as follows:
1. Section 2.8 is modified by deleting it in its entirety and replacing it with
the following text:
EQUITY DIVISOR means one-hundred (100) times the total number
of shares of Stock of the Company which have been issued as of the Valuation
Date or which have been reserved for issuance either in connection with options
granted to employees or in connection with the conversion of the Class B Common
Stock.
2. Section 2.12 is modified by deleting it in its entirety and replacing it with
the following text:
REDEMPTION SHARE VALUE means the difference between (a) (the
greater of (i) the value of a Participant's Award as of the
Valuation Date (the Calculated Share Value) and (ii) the
average closing price of the Stock as quoted on the New York
Stock Exchange, or if the Stock is not listed thereon, then
the average of the closing "bid" and "ask" prices per share in
the over-the-counter securities market, for the thirty (30)
trading days prior to the Valuation Date) and (b) the value of
the Participant's Award on the date on which such Award was
granted to the participant (the Calculated Share Value as of
the date the Award was made ($9.00 per Unit for Awards granted
as of January 1, 1997)). The following example illustrates the
calculation of the Redemption Share Value:
<PAGE>
Calculated Share Value as of the payment date (per Unit) $14.00
- Calculated Share Value at date of issuance (per Unit) 9.00
----------
= Redemption Share Value (per Unit) $5.00
x Number of Units Granted to Participant 5,000.00
----------
= Total Redemption Share Value $25,000.00
3. Section 2.14 is modified by deleting it in its entirety and replacing it with
the following text:
STOCK means the Class A Common Stock, par value $.01 per share, of the
Company.
2
<PAGE>
IN WITNESS WHEREOF, the Plan Administrator has executed this First
Amendment to the Plan as of the day and year indicated above.
/S/ KEVIN P. FITZGERALD
----------------------------------
Kevin P. Fitzgerald
3
EXHIBIT 10.13
----------------------------------------------------------------
NEFF CORP.
and
FIRST UNION NATIONAL BANK
as Rights Agent
Rights Agreement
Dated as of May 15, 1998
----------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 1. CERTAIN DEFINITIONS....................................................1
Section 2. APPOINTMENT OF RIGHTS AGENT............................................6
Section 3. ISSUE OF RIGHT CERTIFICATES............................................6
Section 4. FORM OF RIGHT CERTIFICATE..............................................8
Section 5. COUNTERSIGNATURE AND REGISTRATION......................................9
Section 6. TRANSFER, SPLIT-UP. COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES;
MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATE............9
Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS..........10
Section 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES.....................13
Section 9. RESERVATION AND AVAILABILITY OF PREFERRED SHARES.......................13
Section 10. PREFERRED SHARES RECORD DATE..........................................14
Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OR NUMBER
OF RIGHTS.......................14
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES............22
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING POWER..23
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES...............................25
Section 15. RIGHTS OF ACTION......................................................27
Section 16. AGREEMENT OF RIGHT HOLDERS............................................27
Section 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER.....................28
Section 18. CONCERNING THE RIGHTS AGENT...........................................28
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.............29
Section 20. DUTIES OF RIGHTS AGENT................................................30
Section 21. CHANGE OF RIGHTS AGENT................................................32
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES....................................33
Section 23. REDEMPTION AND TERMINATION............................................34
Section 24. EXCHANGE..............................................................35
Section 25. NOTICE OF CERTAIN EVENTS..............................................37
Section 26. NOTICES...............................................................37
Section 27. SUPPLEMENTS AND AMENDMENTS............................................38
Section 28. DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS, ETC..............39
Section 29. SUCCESSORS............................................................39
Section 30. BENEFITS OF THIS AGREEMENT............................................39
Section 31. SEVERABILITY..........................................................40
Section 32. GOVERNING LAW.........................................................40
Section 33. COUNTERPARTS..........................................................40
Section 34. DESCRIPTIVE HEADINGS..................................................40
</TABLE>
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<PAGE>
DEFINED TERM CROSS REFERENCE SHEET
Acquiring Person....................................... Section 1(a)
Act.................................................... Section 1(b)
Adjustment Shares...................................... Section 11(a)(ii)
Adjusted Number of Shares.............................. Section 11(a)(iii)
Adjusted Purchase Price................................ Section 11(a)(iii)
Affiliate.............................................. Section 1(c)
Agreement.............................................. Preface
Associate.............................................. Section 1 (c)
Beneficial Owner....................................... Section 1(d)
Beneficially Own....................................... Section 1(d)
Business Day........................................... Section 1(e)
Capital Stock Equivalent............................... Section 11(a)(iii)
Close of Business...................................... Section 1(f)
Common Shares.......................................... Section 1(g)
Company................................................ Preface
Current Per Share Market Price......................... Section 11(d)(i)
Distribution Date...................................... Section 3(a)
Equivalent Preferred Shares............................ Section 11(b)
Exchange Act........................................... Section 1(c)
Exchange Ratio......................................... Section 24(a)
Final Expiration Date.................................. Section 7(a)
GECC Stockholders...................................... Section 1(j)
Grandfathered Stockholder.............................. Section 1(j)
Interested Stockholder................................. Section 1(j)
Ordinary Course Broker Dealer Shares................... Section 1(k)
Permitted Offer........................................ Section 1(l)
Person................................................. Section 1(m)
Preferred Shares....................................... Section 1(n)
Principal Party........................................ Section 13(b)
Proration Factor....................................... Section 11(a)(iii)
Purchase Price......................................... Section 4(a)
Record Date............................................ Preface
Redemption Date........................................ Section 7(a)
Redemption Price....................................... Section 23
Right.................................................. Preface
Right Certificate...................................... Section 3
Rights Agent........................................... Preface
Rights Agreement....................................... Section 3
Section 11(a)(ii) Event................................ Section 1(p)
-iii-
<PAGE>
Section 13 Event....................................... Section 1(q)
Security............................................... Section 11(d)
Shares Acquisition Date................................ Section 1(r)
Subsidiary............................................. Section 1(t)
Summary of Rights...................................... Section 3(b)
Then Outstanding....................................... Section 1(d)(iii)
Trading Day............................................ Section 11(d)(i)
Transaction............................................ Section 1(u)
Transaction Person..................................... Section 1(v)
Triggering Event....................................... Section 1(w)
Voting Securities...................................... Section 13(a)
-iv-
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of May 15, 1998 (the "Agreement"), between
Neff Corp., a Delaware corporation (the "Company"), and First Union National
Bank (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one right (a "RIGHT") for each Common Share (as hereinafter defined)
of the Company outstanding at the close of business on the day that the
Securities and Exchange Commission declares effective the Registration Statement
No. 333-48077 as amended, relating to the Company's initial public offering of
its common shares (the "Record Date"), each Right representing the right to
purchase one one-thousandth of a Preferred Share (as hereinafter defined), upon
the terms and subject to the conditions herein set forth, and has further
authorized and directed the issuance of one Right with respect to each Common
Share that shall become outstanding between the Record Date and the earliest of
the Distribution Date, the Redemption Date or the Final Expiration Date (as such
terms are hereinafter defined); PROVIDED, HOWEVER, that Rights may be issued
with respect to Common Shares that shall become outstanding after the
Distribution Date and prior to the earlier of the Redemption Date and the Final
Expiration Date in accordance with the provisions of Section 22 of this
Agreement.
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
SECTION 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "ACQUIRING PERSON" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 15 % or more of the then outstanding Common Shares (other
than as a result of a Permitted Offer (as hereinafter defined)) or was such a
Beneficial Owner at any time after the date hereof, whether or not such person
continues to be the Beneficial Owner of 15 % or more of the then outstanding
Common Shares; provided that Ordinary Course Broker Dealer Shares or shares
acquired from the Company by any Person, or any Affiliate or Associate thereof,
or as compensation for acting as a director of the Company shall not be included
in determining whether any Person is an Acquiring Person. Notwithstanding the
foregoing, (A) the term "Acquiring Person" shall not include (i) the Company,
(ii) any Subsidiary of the Company, (iii) any employee benefit plan of the
Company or of any Subsidiary of the Company, (iv) any Person or entity
organized, appointed or established by the Company for or pursuant to the terms
of any such plan, (v) any Person, who or which together with all Affiliates and
Associates of such Person becomes the Beneficial
<PAGE>
Owner of 15% or more of the then outstanding Common Shares as a result of the
acquisition of Common Shares directly from the Company, and (vi) any
Grandfathered Stockholder, and (B) no Person (including, without limitation, any
Grandfathered Stockholder) shall become an "Acquiring Person" (and no
Grandfathered Stockholder shall cease to be a Grandfathered Stockholder) either
(X) as a result of the acquisition of Common Shares by the Company which, by
reducing the number of Common Shares outstanding, increases the proportional
number of shares beneficially owned by such Person together with all Affiliates
and Associates of such Person, provided, that if (a) a Person would become an
Acquiring Person (but for the operation of this subclause (i)) as a result of
the acquisition of Common Shares by the Company, and (b) after such share
acquisition by the Company, such Person, or an Affiliate or Associate of such
Person, becomes the Beneficial Owner of any additional Common Shares, then such
Person shall be deemed an Acquiring Person or; (Y) if (1) within ten Business
Days after such Person would otherwise have become an Acquiring Person (but for
the operation of this subclause (ii)), such Person notifies the Board of
Directors that such Person did so inadvertently, and (2) within five Business
Days after such notification (or such greater period of time as may be
determined by action of the Board of Directors, but in no event greater than
twenty Business Days), such Person divests itself of a sufficient number of
Common Shares so that such Person is the Beneficial Owner of such number of
Common Shares that such Person no longer would be an Acquiring Person. In the
case of the GECC Stockholders, the ten Business Day period described in the
foregoing clause (Y)(1) shall commence on the date that GECC learns that the
GECC Stockholders would otherwise have become an Acquiring Person.
(b) "ACT" shall mean the Securities Act of 1933, as amended
and as in effect on the date of this Agreement.
(c) "AFFILIATE" AND "ASSOCIATE" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended and in effect
on the date of this Agreement (the "EXCHANGE ACT").
(d) A Person shall be deemed the "BENEFICIAL OWNER" of and
shall be deemed to "BENEFICIALLY OWN" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding, or upon the exercise of conversion
rights, exchange rights, rights (other than the Rights),
-2-
<PAGE>
warrants or options, or otherwise; PROVIDED, HOWEVER, that a Person shall not be
deemed the Beneficial Owner of, or to beneficially own, securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person or
any of such Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however, that a Person shall
not be deemed the Beneficial Owner of, or to beneficially own, any security if
the agreement, arrangement or understanding to vote such security (1) arises
solely from a revocable proxy or consent given to such Person in response to a
public proxy or consent solicitation made pursuant to, and in accordance with,
the applicable rules and regulations promulgated under the Exchange Act and (2)
is not also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate thereof) with
which such Person (or any of such Person's Affiliates or Associates) has any
agreement, arrangement or understanding (other than customary agreements with
and between underwriters and selling group members with respect to a bona fide
public offering of securities) relating to the acquisition, holding, voting
(except to the extent contemplated by the proviso to Section l(d)(ii)(B)) or
disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, (a) no broker or dealer or any Affiliate or Associate
thereof shall be deemed to beneficially own Ordinary Course Broker Dealer Shares
for purposes of this Agreement, and (b) the phrase "then outstanding," when used
with reference to a Person's Beneficial Ownership of securities of the Company,
shall mean the number of such securities then issued and outstanding together
with the number of such securities not then actually issued and outstanding
which such Person would be deemed to own beneficially hereunder.
(e) "BUSINESS DAY" shall mean any day other than a Saturday,
Sunday, or federal holiday.
(f) "CLOSE OF BUSINESS" on any given date shall mean 5:00
P.M., New York time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., New York time, on the next succeeding
Business Day.
(g) "COMMON SHARES" when used with reference to the Company
shall mean the shares of Class A Common Stock, par value of $0.01 per share, of
the Company or, in the event of a subdivision, combination or consolidation with
respect to such shares of Class A Common Stock, the shares of Class A Common
Stock resulting from such subdivision, combination or consolidation. "Common
Shares" when used with reference
-3-
<PAGE>
to any Person other than the Company shall mean the capital stock (or equity
interest) with the greatest voting power of such other Person or, if such other
Person is a Subsidiary of another Person, the Person or Persons which ultimately
control such first-mentioned Person.
(h) "DISTRIBUTION DATE" shall have the meaning set forth in
Section 3 hereof.
(i) "FINAL EXPIRATION DATE" shall have the meaning set forth
in Section 7 hereof.
(j) "GRANDFATHERED STOCKHOLDER" shall mean each of (i) Jorge
Mas, his Affiliates and Associates, (ii) Juan Carlos Mas, his Affiliates and
Associates, (iii) Jose Ramon Mas, his Affiliates and Associates, (iv) Santos
Fund I, L.P., (v) Santos Capital Advisors, Inc., and (vi) General Electric
Capital Corporation, GECFS, Inc., and their Affiliates and Associates (together,
the "GECC Stockholders"), but only so long as the GECC Stockholders beneficially
own in the aggregate less than 25 percent (after the Record Date and before
September 25, 1999) or 20 percent (on and after September 25, 1999) of the
issued and outstanding Class A Common Stock.
(k) "INTERESTED STOCKHOLDER" shall mean any Acquiring Person
or any Affiliate or Associate of an Acquiring Person or any other Person in
which any such Acquiring Person, Affiliate or Associate has an interest which
represents in excess of 5% of the total combined economic or voting power of
such Person, or any other Person acting directly or indirectly on behalf of or
in concert with any such Acquiring Person, Affiliate or Associate.
(l) "ORDINARY COURSE BROKER DEALER SHARES" shall mean shares,
the beneficial ownership of which is acquired in the ordinary course of the
activities of a broker or dealer registered under Section 15 of the Exchange
Act, as amended, and not with the purpose nor with the effect of changing or
influencing the control of the Company, nor in connection with nor as a
participant in any transaction having such purpose or effect, including, but not
limited to, the acquisition of beneficial ownership of such securities as a
result of any market-making or underwriting activities (including any shares
acquired for the investment account of a broker or dealer in connection with
such underwriting activities), or the purchase or exercise of investment or
voting discretion authority over any of its customer accounts, or the
acquisition in good faith of such securities in connection with a debt
previously contracted.
(m) "PERMITTED OFFER" shall mean a tender or exchange offer
for all outstanding Common Shares which is at a price and on terms determined,
prior to the purchase of shares under such tender or exchange offer, by at least
a majority of the
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<PAGE>
members of the Board of Directors, to be adequate (taking into account all
factors that such members deem relevant including, without limitation, prices
that could reasonably be achieved if the Company or its assets were sold on an
orderly basis designed to realize maximum value) and otherwise in the best
interests of the Company and its stockholders (other than the Person or any
Affiliate or Associate thereof on whose basis the offer is being made) taking
into account all factors that such directors may deem relevant.
(n) "PERSON" shall mean any individual, firm, partnership,
corporation, trust, association, joint venture or other entity, and shall
include any successor (by merger or otherwise) of such entity.
(o) "PREFERRED SHARES" shall mean shares of Series B Junior
Participating Preferred Stock, par value of $0.01 per share, of the Company
having the relative rights, preferences and limitations set forth in the Form of
Amended and Restated Certificate of Incorporation attached to this Agreement as
Exhibit A.
(p) "REDEMPTION DATE" shall have the meaning set forth in
Section 7 hereof.
(q) "SECTION 11(a)(ii) EVENT" shall mean any event described
in Section 11(a)(ii) hereof.
(r) "SECTION 13 EVENT" shall mean any event described in
clause (x), (y) or (z) of Section 13(a) hereof.
(s) "SHARES ACQUISITION DATE" shall mean the first date of
public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to the Exchange Act) by the Company
or an Acquiring Person that an Acquiring Person has become such; provided that
if such Person is determined not to have become an Acquiring Person pursuant to
Section 1(a)(Y) hereof, then no Shares Acquisition Date shall be deemed to have
occurred.
(t) "SUBSIDIARY" of any Person shall mean any corporation or
other Person of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such Person,
or which is otherwise controlled by such Person.
(u) "TRANSACTION" shall mean any merger, consolidation or sale
of assets described in Section 13(a) hereof or any acquisition of shares of
Class A Common Stock of the Company, Class B Special Common Stock of the
Company, or combination thereof, which would result in a Person becoming a
Transaction Person.
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(v) "TRANSACTION PERSON" with respect to a Transaction shall
mean (x) any Person who (i) is or will become an Acquiring Person if the
Transaction were to be consummated and (ii) directly or indirectly proposed or
nominated a director of the Company which director is in office at the time of
consideration of the Transaction, or (y) an Affiliate or Associate of such a
Person.
(w) "TRIGGERING EVENT" shall mean any Section 11(a)(ii) Event
or any Section 13 Event.
SECTION 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable.
SECTION 3. ISSUE OF RIGHT CERTIFICATES. (a) Until the earlier of (i)
the Shares Acquisition Date or (ii) the close of business on the tenth day (or
such later date as may be determined by action of the Company's Board of
Directors) after the date of the commencement by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or of any Subsidiary of the Company or any Person or entity organized, appointed
or established by the Company for or pursuant to the terms of any such plan) of,
or of the first public announcement of the intention of any Person (other than
the Company, any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company or any Person or entity organized,
appointed or established by the Company for or pursuant to the terms of any such
plan) to commence (which intention to commence remains in effect for five
Business Days after such announcement), a tender or exchange offer the
consummation of which would result in any Person becoming an Acquiring Person
(including, in the case of both (i) and (ii), any such date which is after the
date of this Agreement and prior to the issuance of the Rights), the earlier of
such dates being herein referred to as the "Distribution Date", (x) the Rights
will be evidenced by the certificates for Common Shares registered in the names
of the holders thereof (which certificates shall also be deemed to be Right
Certificates) and not by separate Right Certificates, and (y) the right to
receive Right Certificates will be transferable only in connection with the
transfer of the underlying Common Shares (including a transfer to the Company);
PROVIDED, HOWEVER, that if a tender offer prior to the occurrence of a
Distribution Date is terminated, then no Distribution Date shall occur as a
result of such tender offer. As soon as practicable after the Distribution Date,
the Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent by first-class, postage-prepaid mail, to
each record holder of Common Shares as of the close of business on the
Distribution Date, at the address of such holder shown on the records of the
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Company, a Right Certificate, in substantially the form of Exhibit B hereto (a
"Right Certificate"), evidencing one Right for each Common Share so held. As of
and after the Distribution Date, the Rights will be evidenced solely by such
Right Certificates.
(b) As promptly as practicable following the Record Date, the
Company shall issue each record holder of Common Shares, as of the close of
business on the Record Date, at the address of such holder shown on the records
of the Company, a certificate representing such record holder's Common Shares
bearing the legend set forth in paragraph (c) below, in replacement of the
certificate then held by such record holder. Until the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date, the Rights
will be evidenced by such replacement certificates registered in the names of
the holders thereof. Until the earliest of the Distribution Date, the Redemption
Date or the Final Expiration Date, the surrender for transfer of any such
replacement certificate for Common Shares shall also constitute the transfer of
the Rights associated with such Common Shares.
(c) Certificates for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred to in the last
sentence of this paragraph (c)) after the Record Date but prior to the earliest
of the Distribution Date, the Redemption Date or the Final Expiration Date shall
be deemed also to be certificates for Rights and shall bear the following
legend:
This certificate also evidences and entitles the holder hereof
to certain rights as set forth in a Rights Agreement between
Neff Corp. and First Union National Bank dated as of May 15,
1998 (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on
file at the principal executive offices of Neff Corp. Under
certain circumstances, as set forth in the Rights Agreement,
such Rights will be evidenced by separate certificates and
will no longer be evidenced by this certificate. Neff Corp.
will mail to the holder of this certificate a copy of the
Rights Agreement without charge after receipt of a written
request therefor. Under certain circumstances set forth in the
Rights Agreement, Rights issued to, or held by, any Person who
is, was or becomes an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and
certain related persons, whether currently held by or on
behalf of such Person or by any subsequent holder, may become
null and void.
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With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed canceled and retired so that the Company shall not
be entitled to exercise any Rights associated with the Common Shares which are
no longer outstanding.
SECTION 4. FORM OF RIGHT CERTIFICATE. (a) The Right Certificates (and
the forms of election to purchase and of assignment to be printed on the reverse
thereof) shall be substantially in the form set forth in EXHIBIT B hereto and
may have such marks of identification or designation and such legends, summaries
or endorsements printed thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 11 and Section 22 hereof, the Right Certificates shall
entitle the holders thereof to purchase such number of one one-thousandths of a
Preferred Share as shall be set forth therein at the price per one
one-thousandth of a Preferred Share set forth therein (the "Purchase Price"),
but the amount and type of securities purchasable upon the exercise of each
Right and the Purchase Price thereof shall be subject to adjustment as provided
herein.
(b) Any Right Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights which are null and void pursuant to
Section 7(e) of this Agreement and any Right Certificate issued pursuant to
Section 6 or Section 11 hereof upon transfer, exchange, replacement or
adjustment of any other Right Certificate referred to in this sentence, shall
contain (to the extent feasible) the following legend:
The Rights represented by this Right Certificate are or were
beneficially owned by a Person who was or became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as
such terms are defined in the Rights Agreement). Accordingly,
this Right Certificate and the Rights represented hereby are
null and void.
Provisions of Section 7(e) of this Rights Agreement shall be operative whether
or not the foregoing legend is contained on any such Right Certificate.
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SECTION 5. COUNTERSIGNATURE AND REGISTRATION. The Right Certificates
shall be executed on behalf of the Company by its Chief Executive Officer, its
President, any of its Vice Presidents, or its Treasurer, either manually or by
facsimile signature, shall have affixed thereto the Company's seal or a
facsimile thereof, and shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. The Right
Certificates shall be countersigned by the Rights Agent and shall not be valid
for any purpose unless so countersigned. In case any officer of the Company who
shall have signed any of the Right Certificates shall cease to be such officer
of the Company before countersignature by the Rights Agent and issuance and
delivery by the Company, such Right Certificates may nevertheless be
countersigned by the Rights Agent and issued and delivered by the Company with
the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its principal office or offices designated as the appropriate place
for surrender of such Right Certificate or transfer, books for registration and
transfer of the Right Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Right Certificates, the
number of Rights evidenced on its face by each of the Right Certificates and the
certificate number and the date of each of the Right Certificates.
SECTION 6. TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATE. Subject to
the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any time
after the close of business on the Distribution Date, and at or prior to the
close of business on the earlier of the Redemption Date or the Final Expiration
Date, any Right Certificate or Right Certificates may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one one-thousandths
of a Preferred Share (or, following a Triggering Event, other securities, as the
case may be) as the Right Certificate or Right Certificates surrendered then
entitled such holder (or former holder in the case of a transfer) to purchase.
Any registered holder desiring to transfer, split up, combine or exchange any
Right Certificate or Right Certificates shall make such request in writing
delivered to the Rights Agent, and shall surrender the Right Certificate or
Right Certificates to be transferred, split up, combined or exchanged at the
principal office or offices of the Rights Agent designated for such purpose.
Neither the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any such surrendered Right
Certificate until the registered holder shall have completed and signed the
certificate
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<PAGE>
contained in the form of assignment on the reverse side of such Right
Certificate and shall have provided such additional evidence of the identity of
the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request. Thereupon the Rights Agent
shall, subject to Section 4(b), Section 7(e) and Section 14 hereof, countersign
and deliver to the Person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split-up, combination or exchange of
Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for countersignature and
delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
SECTION 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF
RIGHTS. (a) Subject to Section 7(e) hereof, the registered holder of any Right
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to purchase
and the certificate on the reverse side thereof duly executed, to the Rights
Agent at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price for the total
number of one one-thousandths of a Preferred Share (or other securities, as the
case may be) as to which such surrendered Rights are exercised, at or prior to
the earliest of (i) the close of business on May 15, 2008 (the "FINAL EXPIRATION
DATE"), (ii) the time at which the Rights are redeemed as provided in Section 23
hereof (the "REDEMPTION DATE") or (iii) the consummation of a transaction
contemplated by Section 13(d) hereof.
(b) The Purchase Price for each one one-thousandth of a
Preferred Share pursuant to the exercise of a Right shall initially be $90,
shall be subject to adjustment from time to time as provided in the next
sentence and in Sections 11 and 13(a) hereof and shall be payable in accordance
with paragraph (c) below. Anything in this Agreement to the contrary
notwithstanding, in the event that at any time after the date of this Agreement
and prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser
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<PAGE>
number of Common Shares, then in any such case, each Common Share outstanding
following such subdivision, combination or consolidation shall continue to have
a Right associated therewith and the Purchase Price following any such event
shall be proportionately adjusted to equal the result obtained by multiplying
the Purchase Price immediately prior to such event by a fraction the numerator
of which shall be the total number of Common Shares outstanding immediately
prior to the occurrence of the event and the denominator of which shall be the
total number of Common Shares outstanding immediately following the occurrence
of such event. The adjustment provided for in the preceding sentence shall be
made successively whenever such a dividend is declared or paid or such a
subdivision, combination or consolidation is effected.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase and the certificate
duly executed, accompanied by payment of the Purchase Price for the Preferred
Shares (or other securities, as the case may be) to be purchased and an amount
equal to any applicable transfer tax required to be paid by the holder of such
Right Certificate in accordance with Section 6 hereof by certified check,
cashier's check or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Shares certificates for the number of Preferred Shares to be
purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) if the Company, in its sole discretion,
shall have elected to deposit the Preferred Shares issuable upon exercise of the
Rights hereunder into a depository, requisition from the depository agent
depository receipts representing such number of one one-thousandths of a
Preferred Share as are to be purchased (in which case certificates for the
Preferred Shares represented by such receipts shall be deposited by the transfer
agent with the depository agent) and the Company will direct the depository
agent to comply with such requests, (ii) when appropriate, requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional shares
in accordance with Section 14 hereof, (iii) after receipt of such certificates
or depository receipts, cause the same to be delivered to or upon the order of
the registered holder of such Right Certificate, registered in such name or
names as may be designated by such holder, and (iv) when appropriate, after
receipt thereof, deliver such cash to or upon the order of the registered holder
of such Right Certificate. In the event that the Company is obligated to issue
other securities of the Company pursuant to Section 11(a) hereof, the Company
will make all arrangements necessary so that such other securities are available
for distribution by the Rights Agent, if and when appropriate.
In addition, in the case of an exercise of the Rights
by a holder pursuant to Section 11(a)(ii), the Rights Agent shall return such
Right Certificate to the registered holder thereof after imprinting, stamping or
otherwise indicating thereon that the rights represented by such Right
Certificate no longer include the rights provided by
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Section 11(a)(ii) of the Rights Agreement and if less than all the Rights
represented by such Right Certificate were so exercised, the Rights Agent shall
indicate on the Right Certificate the number of Rights represented thereby which
continue to include the rights provided by Section 11(a)(ii).
(d) In case the registered holder of any Right Certificate
shall exercise (except pursuant to Section 11(a)(ii)) less than all the Rights
evidenced thereby, a new Right Certificate evidencing Rights equivalent to the
Rights remaining unexercised shall be issued by the Rights Agent to the
registered holder of such Right Certificate or to his duly authorized assigns,
subject to the provisions of Section 14 hereof, or the Rights Agent shall place
an appropriate notation on the Right Certificate with respect to those rights
exercised.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any
Rights beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or
of any Affiliate or Associate thereof) who becomes a transferee after the
Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or
of any Affiliate or Associate thereof) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has a continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which the Board of Directors of the Company has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect the
avoidance of this Section 7(e), shall become null and void without any further
action and no holder of such Rights shall have any rights whatsoever with
respect to such Rights, whether under any provision of this Agreement or
otherwise. The Company shall use all reasonable efforts to insure that the
provisions of this Section 7(e) and Section 4(b) hereof are complied with, but
shall have no liability to any holder of Right Certificates or other Person as a
result of its failure to make any determinations with respect to an Acquiring
Person or its Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the form
of election to purchase set forth on the reverse side of the Right Certificate
surrendered for such exercise, and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.
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<PAGE>
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All
Right Certificates surrendered for the purpose of exercise (other than a partial
exercise), transfer, split up, combination or exchange shall, if surrendered to
the Company or to any of its agents, be delivered to the Rights Agent for
cancellation or in canceled form, or, if surrendered to the Rights Agent, shall
be canceled by it, and no Right Certificates shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Rights Agreement.
The Company shall deliver to the Rights Agent for cancellation and retirement,
and the Rights Agent shall so cancel and retire, any other Right Certificate
purchased or acquired by the Company otherwise than upon the exercise thereof.
The Rights Agent shall deliver all canceled Right Certificates to the Company,
or shall, at the written request of the Company, destroy such canceled Right
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.
SECTION 9. RESERVATION AND AVAILABILITY OF PREFERRED SHARES. The
Company covenants and agrees that at all times prior to the occurrence of a
Section 11(a)(ii) Event it will cause to be reserved and kept available out of
its authorized and unissued Preferred Shares, or any authorized and issued
Preferred Shares held in its treasury, the number of Preferred Shares that will
be sufficient to permit the exercise in full of all outstanding Rights and,
after the occurrence of a Section 11(a)(ii) Event, shall, to the extent
reasonably practicable, so reserve and keep available a sufficient number of
Preferred Shares (and/or other securities) which may be required to permit the
exercise in full of the Rights pursuant to this Agreement.
So long as the Preferred Shares (and after the occurrence of a Section
11(a)(ii) Event, Common Shares or any other securities) issuable upon the
exercise of the Rights may be listed on any national securities exchange, the
Company shall use its best efforts to cause, from and after such time as the
Rights become exercisable, all shares (or other securities) reserved for such
issuance to be listed on such exchange upon official notice of issuance upon
such exercise.
The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all Preferred Shares (or Common Shares and/or
other securities, as the case may be) delivered upon exercise of Rights shall,
at the time of delivery of the certificates for such shares or other securities
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and non-assessable shares or securities.
The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Preferred Shares (or Common Shares and/or other securities, as the case may
be) upon the exercise of Rights. The Company shall not, however, be required to
pay any transfer tax which may be
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payable in respect of any transfer or delivery of Right Certificates to a person
other than, or the issuance or delivery of certificates or depository receipts
for the Preferred Shares (or Common Shares and/or other securities, as the case
may be) in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise, or to issue or to
deliver any certificates or depository receipts for Preferred Shares (or Common
Shares and/or other securities, as the case may be) upon the exercise of any
Rights, until any such tax shall have been paid (any such tax being payable by
the holder of such Right Certificate at the time of surrender) or until it has
been established to the Company's reasonable satisfaction that no such tax is
due.
The Company shall use its best efforts to (i) file, as soon as
practicable following the Shares Acquisition Date (or, if required by law, at
such earlier time following the Distribution Date as so required), a
registration statement under the Act, with respect to the securities purchasable
upon exercise of the Rights on an appropriate form, (ii) cause such registration
statement to become effective as soon as practicable after such filing, and
(iii) cause such registration statement to remain effective (with a prospectus
at all times meeting the requirements of the Act and the rules and regulations
thereunder) until the date of the expiration of the rights provided by Section
11(a)(ii). The Company will also take such action as may be appropriate under
the blue sky laws of the various states.
SECTION 10. PREFERRED SHARES RECORD DATE. Each person in whose name any
certificate for Preferred Shares (or Common Shares and/or other securities, as
the case may be) is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of the Preferred Shares (or Common
Shares and/or other securities, as the case may be) represented thereby on, and
such certificate shall be dated, the date upon which the Right Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and any applicable transfer taxes) was made; PROVIDED, HOWEVER, that, if the
date of such surrender and payment is a date upon which the Preferred Shares (or
Common Shares and/or other securities, as the case may be) transfer books of the
Company are closed, such person shall be deemed to have become the record holder
of such shares on, and such certificate shall be dated, the next succeeding
Business Day on which the Preferred Shares (or Common Shares and/or other
securities, as the case may be) transfer books of the Company are open.
SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OR
NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares or (C) combine
the outstanding
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Preferred Shares into a smaller number of Preferred Shares or (D) issue any
shares of its capital stock in a reclassification of the Preferred Shares
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a) and Section 7(e) hereof, the
Purchase Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Shares transfer books of the Company were
open, such holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification; PROVIDED, HOWEVER, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company issuable upon exercise of one Right.
If an event occurs which would require an adjustment under both Section 11(a)(i)
and Section 11(a)(ii), the adjustment provided for in this Section 11(a)(i)
shall be in addition to, and shall be made prior to, any adjustment required
pursuant to Section 11(a)(ii).
(ii) In the event any Person, alone or together with
its Affiliates and Associates, shall become an Acquiring Person, then proper
provision shall be made so that each holder of a Right (except as provided below
and in Section 7(e) hereof) shall, for a period of 60 days after the later of
the occurrence of any such event or the effective date of an appropriate
registration statement under the Act pursuant to Section 9 hereof, have a right
to receive, upon exercise thereof at a price equal to the then current Purchase
Price, in accordance with the terms of this Agreement, such number of Common
Shares (or, in the discretion of the Board of Directors, such number of one
one-thousandths of a Preferred Share) as shall equal the result obtained by (x)
multiplying the then current Purchase Price by the then number of one
one-thousandths of a Preferred Share for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event, and
dividing that product by (y) 50% of the then current per share market price of
the Company's Common Shares (determined pursuant to Section 11(d) hereof) on the
date of such first occurrence (such number of shares being referred to as the
"Adjustment Shares"); PROVIDED, HOWEVER, that if the transaction that would
otherwise give rise to the foregoing adjustment is also subject to the
provisions of Section 13 hereof, then only the provisions of Section 13 hereof
shall apply and no adjustment shall be made pursuant to this Section 11(a)(ii);
(iii) In the event that there shall not be sufficient
treasury shares or authorized but unissued (and unreserved) Common Shares to
permit the exercise in full of the Rights in accordance with the foregoing
subparagraph (ii) and the Rights become so exercisable (and the Board has
determined to make the Rights exercisable into fractions
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of a Preferred Share), notwithstanding any other provision of this Agreement, to
the extent necessary and permitted by applicable law, each Right shall
thereafter represent the right to receive, upon exercise thereof at the then
current Purchase Price in accordance with the terms of this Agreement, (x) a
number of (or fractions of) Common Shares (up to the maximum number of Common
Shares which may permissibly be issued) and (y) a one one-thousandth of a
Preferred Share or a number of (or fractions of) other equity securities of the
Company (or, in the discretion of the Board of Directors, debt) which the Board
of Directors of the Company has determined to have the same aggregate current
market value (determined pursuant to Sections 11(d)(i) and (ii) hereof, to the
extent applicable) as one Common Share (such number of, or fractions of,
Preferred Shares, or other equity securities or debt of the Company) being
referred to as a "capital stock equivalent"), equal in the aggregate to the
number of Adjustment Shares; PROVIDED, HOWEVER, if sufficient Common Shares
and/or capital stock equivalents are unavailable, then the Company shall, to the
extent permitted by applicable law, take all such action as may be necessary to
authorize additional Common Shares or capital stock equivalents for issuance
upon exercise of the Rights, including the calling of a meeting of stockholders;
and PROVIDED, FURTHER, that if the Company is unable to cause sufficient Common
Shares and/or capital stock equivalents to be available for issuance upon
exercise in full of the Rights, then each Right shall thereafter represent the
right to receive the Adjusted Number of Shares upon exercise at the Adjusted
Purchase Price (as such terms are hereinafter defined). As used herein, the term
"Adjusted Number of Shares" shall be equal to that number of (or fractions of)
Common Shares (and/or capital stock equivalents) equal to the product of (x) the
number of Adjustment Shares and (y) a fraction, the numerator of which is the
number of Common Shares (and/or capital stock equivalents) available for
issuance upon exercise of the Rights and the denominator of which is the
aggregate number of Adjustment Shares otherwise issuable upon exercise in full
of all Rights (assuming there were a sufficient number of Common Shares
available) (such fraction being referred to as the "Proration Factor"). The
"Adjusted Purchase Price" shall mean the product of the Purchase Price and the
Proration Factor. The Board of Directors may, but shall not be required to,
establish procedures to allocate the right to receive Common Shares and capital
stock equivalents upon exercise of the Rights among holders of Rights.
(b) In case the Company shall fix a record date for the
issuance of rights (other than the Rights), options or warrants to all holders
of Common Shares entitling them (for a period expiring within 45 calendar days
after such record date) to subscribe for or purchase Preferred Shares (or shares
having the same rights and privileges as the Preferred Shares ("equivalent
preferred shares")) or securities convertible into Preferred Shares or
equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if
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a security convertible into Preferred Shares or equivalent preferred shares (or
having a conversion price per share, if a security convertible into Preferred
Shares or equivalent preferred shares) less than the then current per share
market price of the Preferred Shares (as determined pursuant to Section 11(d)
hereof) on such record date, the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of Preferred Shares outstanding on such record date plus the
number of Preferred Shares which the aggregate offering price of the total
number of Preferred Shares and/or equivalent preferred shares so to be offered
(and/or the aggregate initial conversion price of the convertible securities so
to be offered) would purchase at such current per share market price, and the
denominator of which shall be the number of Preferred Shares outstanding on such
record date plus the number of additional Preferred Shares and/or equivalent
common shares to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible); PROVIDED,
HOWEVER, that in no event shall the consideration to be paid upon the exercise
of one Right be less than the aggregate par value of the shares of capital stock
of the Company issuable upon exercise of one Right. In case such subscription
price may be paid in a consideration part or all of which shall be in a form
other than cash, the value of such consideration shall be determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on the
Rights Agent. Preferred Shares owned by or held for the account of the Company
shall not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed; and
in the event that such rights, options or warrants are not so issued, the
Purchase Price shall be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making
of a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then current per share market price (as determined pursuant to
Section 11(d) hereof) of the Preferred Shares on such record date, less the fair
market value (as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed with the
Rights Agent and shall be binding on the Rights Agent) of the portion of the
assets or evidences of indebtedness so to be distributed or of such subscription
rights or warrants applicable to one Preferred Share and the denominator of
which shall be such current per share market price of the Preferred
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Shares; PROVIDED, HOWEVER, that in no event shall the consideration to be paid
upon the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company to be issued upon exercise of one Right.
Such adjustments shall be made successively whenever such a record date is
fixed; and in the event that such distribution is not so made, the Purchase
Price shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the
"current per share market price" of any security (a "Security" for the purpose
of this Section 11(d)(i)) on any date shall be deemed to be the average of the
daily closing prices per share of such Security for the thirty (30) consecutive
Trading Days (as such term is hereinafter defined) immediately prior to such
date; PROVIDED, HOWEVER, that in the event that the current per share market
price of the Security is determined during a period following the announcement
by the issuer of such Security of (A) a dividend or distribution on such
Security payable in shares of such Security or securities convertible into such
shares, or (B) any subdivision, combination or reclassification of such Security
and prior to the expiration of thirty (30) Trading Days after the ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current per
share market price shall be appropriately adjusted to reflect the current market
price per share equivalent of such Security. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to the securities listed or admitted to trading on the New
York Stock Exchange or, if the Security is not listed or admitted to trading on
the New York Stock Exchange, listed or admitted as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Security is listed or
admitted to trading or, if the Security is not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ") or such other system then in use, or, if on any
such date the Security is not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Security selected by the Board of Directors of the
Company. If on any such date no such market maker is making a market in the
Security, the fair value of the Security on such date as determined in good
faith by the Board of Directors of the Company shall be used. The term "Trading
Day" shall mean a day on which the principal national securities exchange on
which the Security is listed or admitted to trading is open for the transaction
of business or, if the Security is not listed or admitted to trading on any
national securities exchange, a Business Day. Subject to Section 11(d)(ii)
hereof, if any Security is not
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publicly held or so listed or traded, the "current per share market price" of
such Security shall mean the fair market value per share as determined in good
faith by the Board, whose determination shall be described in a statement filed
with the Rights Agent and shall be binding on the Rights Agent.
(ii) For the purpose of any computation hereunder,
the "current per share market price" of the Preferred Shares (or one
one-thousandth of a Preferred Share) shall be determined in accordance with the
method set forth in Section 11(d)(i). If the Preferred Shares are not publicly
traded, the "current per share market price" of the Preferred Shares shall be
conclusively deemed to be the "current per share market price" of the Common
Shares as determined pursuant to Section 11(d)(i) (appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof), multiplied by one thousand. If neither the Common Shares nor
the Preferred Shares are publicly held or so listed or traded, "current per
share market price" shall mean the fair value per share as determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on the
Rights Agent.
(e) Notwithstanding anything herein to the contrary, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in the Purchase Price; PROVIDED,
HOWEVER, that any adjustments which by reason of this Section 11(e) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest cent or to the nearest one one-thousandths of a Preferred Share or
one ten-thousandths of any other share or security, as the case may be.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
(3) years from the date of the transaction which mandates such adjustment or
(ii) the Final Expiration Date.
(f) If, as a result of an adjustment made pursuant to Section
11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock of the Company
other than Preferred Shares, thereafter the number of other shares so receivable
upon exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Preferred Shares contained in Sections 11(a) through (c),
inclusive, and the provisions of Sections 7, 9, 10, 13 and 14 with respect to
the Preferred Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
Preferred Share
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purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i) hereof, upon each adjustment of the Purchase Price as
a result of the calculations made in Sections 11(b) and 11(c) hereof, each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-thousandths of a Preferred Share (calculated to the nearest one
ten-thousandth of a Preferred Share) obtained by (i) multiplying (x) the number
of Preferred Shares covered by a Right immediately prior to this adjustment of
the Purchase Price by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price. The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in lieu of any adjustment in the
number of one one-thousandths of a Preferred Share purchasable upon the exercise
of a Right. Each of the Rights outstanding after such adjustment of the number
of Rights shall be exercisable for the number of one one-thousandths of a
Preferred Share for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest one
thousandth) obtained by dividing the Purchase Price in effect immediately prior
to adjustment of the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least ten (10) days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein and shall be registered in
the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
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(i) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-thousandths of a Preferred Share issuable upon
the exercise of the Rights, the Right Certificates theretofore and thereafter
issued may continue to express the Purchase Price and the number of one
one-thousandths of a Preferred Share which were expressed in the initial Right
Certificates issued hereunder.
(j) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then par value, if any, of the number of
one one-thousandths of a Preferred Share, Common Shares or other securities
issuable upon exercise of the Rights, the Company shall take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue such number of fully paid and
nonassessable one one-thousandths of a Preferred Share, Common Shares or other
securities at such adjusted Purchase Price.
(k) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the Preferred Shares, Common Shares or other securities of the Company, if any,
issuable upon such exercise over and above the Preferred Shares, Common Shares
or other securities of the Company, if any, issuable upon exercise on the basis
of the Purchase Price in effect prior to such adjustment; PROVIDED, HOWEVER,
that the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares upon
the occurrence of the event requiring such adjustment.
(l) Notwithstanding anything in this Section 11 to the
contrary, the Company shall be entitled to make such reductions in the Purchase
Price, in addition to those adjustments expressly required by this Section 11,
as and to the extent that it in its sole discretion shall determine to be
advisable in order that (i) any consolidation or subdivision of the Preferred
Shares, (ii) issuance wholly for cash of Preferred Shares at less than the
current market price, (iii) issuance wholly for cash of Preferred Shares or
securities which by their terms are convertible into or exchangeable for
Preferred Shares, (iv) stock dividends or (v) issuance of rights, options or
warrants referred to in this Section 11, hereafter made by the Company to
holders of its Preferred Shares shall not be taxable to such stockholders.
(m) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, (i) consolidate with any other Person (other
than a Subsidiary of the Company in a transaction which does not violate Section
11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary
of the Company in a transaction which does not violate Section 11(n) hereof), or
(iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets or earning
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power aggregating more than 50% of the assets or earning power of the Company
and its Subsidiaries (taken as a whole) to any other Person or Persons (other
than the Company and/or any of its Subsidiaries in one or more transactions each
of which does not violate Section 11(n) hereof), if (x) at the time of or
immediately after such consolidation, merger, sale or transfer there are any
charter or by-law provisions or any rights, warrants or other instruments or
securities outstanding or agreements in effect or other actions taken, which
would materially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately after
such consolidation, merger or sale, the stockholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates. The Company shall not
consummate any such consolidation, merger, sale or transfer unless prior thereto
the Company and such other Person shall have executed and delivered to the
Rights Agent a supplemental agreement evidencing compliance with this Section
11(m).
(n) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or Section 26
hereof, take (or permit any Subsidiary to take) any action the purpose of which
is to, or if at the time such action is taken it is reasonably foreseeable that
the effect of such action is to, materially diminish or otherwise eliminate the
benefits intended to be afforded by the Rights.
(o) The exercise of Rights under Section 11(a)(ii) shall only
result in the loss of rights under Section 11(a)(ii) to the extent so exercised
and shall not otherwise affect the rights represented by the Rights under this
Rights Agreement, including the rights represented by Section 13.
SECTION 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Sections 11 or 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Common Shares and
Preferred Shares a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Right Certificate in accordance with Section 26 hereof. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment therein contained and shall not be deemed to have knowledge of
such adjustment unless and until it shall have received such certificate.
SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER. (a) In the event that, on or following the Shares Acquisition
Date, directly or indirectly, (x) the Company shall consolidate with, or merge
with and into, any Interested Stockholder or if in such merger or consolidation
all holders of Common Shares are not treated alike, any other Person, (y) the
Company shall consolidate with, or merge with,
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any Interested Stockholder or, if in such merger or consolidation all holders of
Common Shares are not treated alike, any other Person, and the Company shall be
the continuing or surviving corporation of such consolidation or merger (other
than, in a case of any transaction described in (x) or (y), a merger or
consolidation which would result in all of the securities generally entitled to
vote in the election of directors ("voting securities") of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into securities of the surviving
entity) all of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation and the holders of
such securities not having changed as a result of such merger or consolidation),
or (z) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one transaction or a series
of related transactions, assets or earning power aggregating more than 50% of
the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to any Interested Stockholder or Persons or, if in such transaction all
holders of Common Shares are not treated alike, any other Person (other than the
corporation or any Subsidiary of the Company in one or more transactions each of
which does not violate Section 11 (m) or 11(n) hereof), then, and in each such
case (except as provided in Section 13(d) hereof), proper provision shall be
made so that (i) each holder of a Right, except as provided in Section 7(e)
hereof, shall thereafter have the right to receive, upon the exercise thereof at
a price equal to the then current Purchase Price, in accordance with the terms
of this Agreement and in lieu of Preferred Shares, such number of freely
tradable common shares of the Principal Party (as hereinafter defined), not
subject to any liens, encumbrances, rights of first refusal or other adverse
claims, as shall equal the result obtained by (A) multiplying the then current
Purchase Price by the number of one one-thousandths of a Preferred Share for
which a Right is then exercisable (without taking into account any adjustment
previously made pursuant to Section 11(a)(ii)) and dividing that product by (B)
50% of the then current per share market price of the Common Shares of such
Principal Party (determined pursuant to Section 11(d) hereof) on the date of
consummation of such Section 13 Event; (ii) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such Section 13 Event,
all the obligations and duties of the Company pursuant to this Agreement; (iii)
the term "Company" shall thereafter be deemed to refer to such Principal Party,
it being specifically intended that the provisions of Section 11 hereof shall
apply only to such Principal Party following the first occurrence of a Section
13 Event; and (iv) such Principal Party shall take such steps (including, but
not limited to, the reservation of a sufficient number of its Common Shares) in
connection with the consummation of any such transaction as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to the Common Shares thereafter deliverable upon
the exercise of the Rights.
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(b) "PRINCIPAL PARTY" shall mean
(i) in the case of any transaction described in
clause (x) or (y) of the first sentence of Section 13(a), the Person that is the
issuer of any securities into which Common Shares of the Company are converted
in such merger or consolidation, and if no securities are so issued, the Person
that is the other party to such merger or consolidation (including, if
applicable, the Company if it is the surviving corporation); and
(ii) in the case of any transaction described in
clause (z) of the first sentence of Section 13(a), the Person that is the party
receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions; PROVIDED, HOWEVER, that in any of
the foregoing cases, (1) if the Common Shares of such Person are not at such
time and have not been continuously over the preceding twelve (12) month period
registered under Section 12 of the Exchange Act, and such Person is a direct or
indirect Subsidiary of another Person the Common Shares of which are and have
been so registered, "Principal Party" shall refer to such other Person; (2) in
case such Person is a Subsidiary, directly or indirectly, of more than one
Person, the Common Shares of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Shares having the greatest aggregate market value; and (3)
in case such Person is owned, directly or indirectly, by a joint venture formed
by two or more Persons that are not owned, directly or indirectly, by the same
Person, the rules set forth in (1) and (2) above shall apply to each of the
chains of ownership having an interest in such joint venture as if such party
were a "Subsidiary" of both or all of such joint venturers and the Principal
Parties in each such chain shall bear the obligations set forth in this Section
13 in the same ratio as their direct or indirect interests in such Person bear
to the total of such interests.
(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a sufficient
number of its authorized Common Shares which have not been issued or reserved
for issuance to permit the exercise in full of the Rights in accordance with
this Section 13 and unless prior thereto the Company and such Principal Party
shall have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that, as soon as practicable after the date of any
consolidation, merger, sale or transfer mentioned in paragraph (a) of this
Section 13, the Principal Party at its own expense shall:
(i) prepare and file a registration statement under
the Act with respect to the Rights and the securities purchasable upon exercise
of the Rights on an appropriate form, and use its best efforts to cause such
registration statement to (A) become effective as soon as practicable after such
filing and (B) remain effective (with a
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prospectus at all times meeting the requirements of the Act) until the Final
Expiration Date;
(ii) use its best efforts to qualify or register the
Rights and the securities purchasable upon exercise of the Rights under the blue
sky laws of such jurisdictions as may be necessary or appropriate; and
(iii) deliver to holders of the Rights historical
financial statements for the Principal Party which comply in all respects with
the requirements for registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers. The rights
under this Section 13 shall be in addition to the rights to exercise Rights and
adjustments under Section 11(a)(ii) and shall survive any exercise thereof.
(d) Notwithstanding anything in this Agreement to the
contrary, Section 13 shall not be applicable to a transaction described in
subparagraphs (x) and (y) of Section 13(a) if: (i) such transaction is
consummated with a Person or Persons who acquired Common Shares pursuant to a
Permitted Offer (or a wholly owned Subsidiary of any such Person or Persons);
(ii) the price per Common Share offered in such transaction is not less than the
price per Common Share paid to all holders of Common Shares whose shares were
purchased pursuant to such Permitted Offer; and (iii) the form of consideration
offered in such transaction is the same as the form of consideration paid
pursuant to such Permitted Offer. Upon consummation of any such transaction
contemplated by this Section 13(d), all Rights hereunder shall expire.
SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES. (a) The Company
shall not be required to issue fractions of Rights or to distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
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Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board of Directors of
the Company. If on any such date no such market maker is making a market in the
Rights, the fair value of the Rights on such date as determined in good faith by
the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions which are one one-thousandth or integral
multiples of one one-thousandth of a Preferred Share) upon exercise of the
Rights or to distribute certificates which evidence fractional Preferred Shares
(other than fractions which are one one-thousandth or integral multiples of one
one-thousandth of a Preferred Share). Fractions of Preferred Shares in integral
multiples of one one-thousandth of a Preferred Share may, at the election of the
Company, be evidenced by depository receipts, pursuant to an appropriate
agreement between the Company and a depository selected by it; PROVIDED that
such agreement shall provide that the holders of such depository receipts shall
have the rights, privileges and preferences to which they are entitled as
beneficial owners of the Preferred Shares represented by such depository
receipts. In lieu of fractional Preferred Shares, the Company shall pay to the
registered holders of Right Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of one Preferred Share. For the purposes of this Section 14(b), the
current market value of a Preferred Share shall be the closing price of a
Preferred Share (as determined pursuant to Section 11(d)(ii) hereof) for the
Trading Day immediately prior to the date of such exercise.
(c) Following the occurrence of one of the transactions or
events specified in Section 11 giving rise to the right to receive Preferred
Shares, capital stock equivalents (other than Preferred Shares) or other
securities upon the exercise of a Right, the Company shall not be required to
issue fractions of shares or units of such Preferred Shares, capital stock
equivalents or other securities upon exercise of the Rights or to distribute
certificates which evidence fractions of such Preferred Shares, capital stock
equivalents or other securities. In lieu of Fractional shares or units of such
Preferred Shares, capital stock equivalents or other securities, the Company may
pay to the registered holders of Right Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of a share or unit of such Preferred Shares, capital stock
equivalents or other securities. For purposes of this Section 14(c), the current
market value shall be determined in the manner set forth in Section 11(d) hereof
for the Trading Day immediately prior to the date of such
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exercise and, if such capital stock equivalent is not traded, each such capital
stock equivalent shall have the value of one one-thousandth of a Preferred
Share.
(d) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any fractional
share upon exercise of a Right (except as provided above).
SECTION 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.
SECTION 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such purpose,
duly endorsed or accompanied by a proper instrument of transfer and with the
appropriate form fully executed;
(c) subject to Section 6 and Section 7(f) hereof, the Company
and the Rights Agent may deem and treat the person in whose name the Right
Certificate (or, prior to the Distribution Date, the associated Common Shares
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Right Certificate or the associated Common Shares certificate made by anyone
other than the Company or the Rights Agent) for all
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purposes whatsoever, and neither the Company nor the Rights Agent, subject to
the last sentence of Section 7(e) hereof, shall be required to be affected by
any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or a beneficial interest in a Right or other Person as a
result of its inability to perform any of its obligations under this Agreement
by reason of any preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission, or any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining performance of such obligation;
provided, however, the Company must use its best efforts to have any such order,
decree or ruling lifted or otherwise overturned as soon as possible.
SECTION 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or other distributions or to exercise any preemptive or subscription rights, or
otherwise, until the Right or Rights evidenced by such Right Certificate shall
have been exercised in accordance with the provisions hereof.
SECTION 18. CONCERNING THE RIGHTS AGENT. The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent, its directors,
officers, employees and agents for, and to hold each of them harmless against,
any loss, liability, or expense, incurred without gross negligence, bad faith or
willful misconduct on the part of the Rights Agent or such other indemnified
party, for anything done or omitted by the Rights Agent or such other
indemnified party in connection with the acceptance and administration of this
Agreement or the exercise or performance of its duties hereunder, including the
costs and expenses of defending against any claim of liability in the premises.
The indemnity
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provided for herein shall survive the expiration of the Rights and the
termination of this Agreement.
The Rights Agent shall be protected and shall incur no liability for,
or in respect of any action taken, suffered or omitted by it in connection with,
its administration of this Agreement or the exercise or performance of its
duties hereunder in reliance upon any Right Certificate or certificate for
Common Shares or for other securities of the Company, instrument of assignment
or transfer, power of attorney, endorsement, affidavit, letter, notice,
direction, consent, certificate, statement, or other paper or document believed
by it to be genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons.
SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
all or substantially all of the corporate trust business of the Rights Agent or
any successor Rights Agent, shall be the successor to the Rights Agent under
this Agreement without the execution or filing of any paper or any further act
on the part of any of the parties hereto, provided that such corporation would
be eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall succeed
to the agency created by this Agreement, any of the Right Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of a predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
SECTION 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes only
those duties and obligations imposed by this Agreement upon the following terms
and
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conditions, by all of which the Company and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the written advice or opinion of such
counsel shall be full and complete authorization and protection to the Rights
Agent as to any action taken or omitted by it in good faith and in accordance
with such written advice or opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of an Acquiring Person and
the determination of the current market price of any Security) be proved or
established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and established
by a certificate signed by any person reasonably believed by the Rights Agent to
be any one of the Chief Executive Officer, the President, any Vice President,
the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary
of the Company and delivered to the Rights Agent; and such certificate shall be
full authorization to the Rights Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder only for its
own gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature on such Right Certificates) or
be required to verify the same, but all such statements and recitals are and
shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of any provision of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Rights Certificate; nor shall it be responsible for any change in the
exercisability of the Rights (including the Rights becoming void pursuant to
Section 7(e) hereof) or any adjustment required hereunder or responsible for the
manner, method or amount of any such adjustment or the ascertaining of the
existence of facts that would require any such adjustment (except with respect
to the exercise of Rights evidenced by Right Certificates after receipt of the
certificate described in Section 12 hereof); nor shall it by any act hereunder
be deemed to make any representation or warranty as to the
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authorization or reservation of any Preferred Shares or Common Shares to be
issued pursuant to this Agreement or any Right Certificate or as to whether any
Preferred Shares or Common Shares will, when issued, be validly authorized and
issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any person reasonably believed by the Rights Agent to be any one of the Chief
Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and shall not be liable for any
action taken or suffered by it in good faith or lack of action in accordance
with instructions of any such officer or for any delay in acting while waiting
for those instructions. Any application by the Rights Agent for written
instructions from the Company may, at the option of the Rights Agent, set forth
in writing any action proposed to be taken or omitted by the Rights Agent under
this Rights Agreement and the date on or after which such action shall be taken
or such omission shall be effective. The Rights Agent shall not be liable for
any action taken by, or omission of, the Rights Agent in accordance with a
proposal included in any such application on or after the date specified in such
application (which date shall not be less than five Business Days after the date
any officer of the Company actually receives such application, unless any such
officer shall have consented in writing to an earlier date) unless, prior to
taking any such action (or the effective date in the case of an omission), the
Rights Agent shall have received written instruction in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any
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act, default, neglect or misconduct of any such attorneys or agents or for any
loss to the Company resulting from any such act, default, neglect or misconduct,
provided reasonable care was exercised in the selection and continued employment
thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has not been
completed, the Rights Agent shall not take any further action with respect to
such requested exercise of transfer without first consulting with the Company.
(l) The Rights Agent undertakes only the express duties and
obligations imposed on it by this Agreement and no implied duties or obligations
shall be read into this Agreement against the Rights Agent.
(m) Anything in this Agreement to the contrary
notwithstanding, in no event shall the Rights Agent be liable for special,
indirect or consequential loss or damage of any kind whatsoever (including but
not limited to lost profits).
SECTION 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company and to the
transfer agent of the Common Shares or Preferred Shares by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
sixty (60) days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to the transfer agent of the Common Shares
or Preferred Shares by registered or certified mail, and to holders of the Right
Certificates by first-class mail. If the Rights Agent shall resign or be removed
or shall otherwise become incapable of acting, the Company shall appoint a
successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of sixty (60) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Company), then the registered holder of any Right Certificate
may apply to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be a corporation organized and doing business under the laws
of the United States or of
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the State of New York (or of any other state of the United States so long as
such corporation is authorized to do business as a banking institution in the
State of New York), in good standing, having an office in the State of New York,
which is authorized under such laws to exercise corporate trust or stock
transfer powers and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $100,000,000. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the
Company shall file notice thereof in writing with the predecessor Rights Agent
and the transfer agent of the Common Shares and Preferred Shares and mail a
notice thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
SECTION 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right certificates made in
accordance with the provisions of this Agreement.
In addition, in connection with the issuance or sale of Common Shares
following the Distribution Date and prior to the earliest of the Redemption
Date, the Final Expiration Date and the consummation of a transaction
contemplated by Section 13(d) hereof, the Company (a) shall with respect to
Common Shares so issued or sold pursuant to the exercise of stock options or
under any employee plan or arrangement, or upon the exercise, conversion or
exchange of securities, notes or debentures issued by the Company, and (b) may,
in any other case, if deemed necessary or appropriate by the Board of Directors
of the Company, issue Right Certificates representing the appropriate number of
Rights in connection with such issuance or sale; PROVIDED, HOWEVER, that (i) the
Company shall not be obligated to issue any such Right Certificates if, and to
the extent that, the Company shall be advised by counsel that such issuance
would create a significant risk of material adverse tax consequences to the
Company or the Person to whom such Right Certificate would be issued, and (ii)
no Right Certificate shall be issued if, and to the extent that, appropriate
adjustment shall otherwise have been made in lieu of the issuance thereof.
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SECTION 23. REDEMPTION AND TERMINATION. (a) (i) Subject to Section
23(a)(iii), the Board of Directors of the Company may, at its option, redeem all
but not less than all the then outstanding Rights at a redemption price of $.001
per Right, as such amount may be appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(such redemption price being hereinafter referred to as the "Redemption Price"),
at any time prior to the earlier of (x) the time that any Person becomes an
Acquiring Person, or (y) the Final Expiration Date. The Company may, at its
option, pay the Redemption Price either in Common Shares or Preferred Shares
(based on the "current per share market price," as defined in Section 11(d)
hereof, of the Common Shares or Preferred Shares at the time of redemption)
and/or cash; PROVIDED that if the Company elects to pay the Redemption Price in
Common Shares, the Company shall not be required to issue any fractional Common
Shares and the number of Common Shares issuable to each holder of Rights shall
be rounded down to the next whole share.
(ii) In addition, the Board of Directors of the
Company may, at its option, at any time following the occurrence of a Section
11(a)(ii) Event and the expiration of any period during which the holder of
Rights may exercise the rights under Section 11(a)(ii) but prior to any Section
13 Event redeem all but not less than all of the then outstanding Rights at the
Redemption Price (x) in connection with any merger, consolidation or sale or
other transfer (in one transaction or in a series of related transactions) of
assets or earning power aggregating 50% or more of the assets or earning power
of the Company and its subsidiaries (taken as a whole) in which all holders of
Common Shares are treated alike and not involving (other than as a holder of
Common Shares being treated like all other such holders) an Interested
Stockholder or a Transaction Person or (y)(aa) if and for so long as the
Acquiring Person is not thereafter the Beneficial Owner of 15% of the Common
Shares, and (bb) at the time of redemption no other Persons are Acquiring
Persons.
(iii) The Board of Directors of the Company may only
redeem Rights pursuant to Section 23(a)(i) or (ii) hereof if a majority of the
members of the Board of Directors authorizes such redemption.
(b) In the case of a redemption permitted under Section
23(a)(i), immediately upon the date for redemption set forth (or determined in
the manner specified in) in a resolution of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which shall have been
filed with the Rights Agent, and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. In the case of a redemption permitted only under Section
23(a)(ii), evidence of which shall have been filed with the Rights Agent, the
right to exercise the Rights will terminate and represent only the right to
receive the Redemption Price upon the later of ten Business Days following the
giving of notice or
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the expiration of any period during which the rights under Section 11(a)(ii) may
be exercised. The Company shall promptly give public notice of any such
redemption; PROVIDED, HOWEVER, that the failure to give, or any defect in, any
such notice shall not affect the validity of such redemption. Within ten (10)
days after such date for redemption set forth in a resolution of the Board of
Directors ordering the redemption of the Rights, the Company shall mail a notice
of redemption to all the holders of the then outstanding Rights at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made. Neither the Company nor any of its Affiliates or Associates may
redeem, acquire or purchase for value any Rights at any time in any manner other
than that specifically set forth in this Section 23 and other than in connection
with the purchase of Common Shares prior to the Distribution Date.
(c) The Company may, at its option, discharge all of its
obligations with respect to the Rights by (i) issuing a press release announcing
the manner of redemption of the Rights in accordance with this Agreement and
(ii) mailing payment of the Redemption Price to the registered holders of the
Rights at their last addresses as they appear on the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
Transfer Agent of the Common Shares, and upon such action, all outstanding
Rights and Right Certificates shall be null and void without any further action
by the Company.
SECTION 24. EXCHANGE. (a) Subject to Section 24(d), the Board of
Directors of the Company may, at its option, at any time after the time that any
Person becomes an Acquiring Person, exchange all or part of the then outstanding
and exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 7(e) and Section 11(a)(ii) hereof) for
Common Shares of the Company at an exchange ratio of one Common Share per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors shall not be empowered to effect such exchange at any
time after any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or any such Subsidiary, any entity
holding Common Shares for or pursuant to the terms of any such plan or any
trustee, administrator or fiduciary of such a plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or
more of the Common Shares then outstanding.
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(b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to subsection (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of Common Shares equal to
the number of such rights held by such holder multiplied by the Exchange Ratio.
The Company shall promptly give public notice of any such exchange; PROVIDED,
HOWEVER, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the Common Shares for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void pursuant to the provisions
of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company,
at its option, may substitute Preferred Shares (or equivalent preferred shares,
as such term is defined in Section 11(b) hereof) for some or all of the Common
Shares exchangeable for Rights, at the initial rate of one-thousandth of a
Preferred Share (or equivalent preferred share) for each Common Share, as
appropriately adjusted to reflect adjustments in the voting rights of the
Preferred Shares pursuant to the terms thereof, so that the fraction of a
Preferred Share delivered in lieu of each Common Share shall have the same
voting rights as one Common Share.
(d) In the event that there shall not be sufficient Common
Shares or Preferred Shares issued but not outstanding or authorized but unissued
to permit any exchange of Rights as contemplated in accordance with this Section
24, the Company shall take such action as may be necessary to authorize
additional Common Shares or Preferred Shares for issuance upon exchange of the
Rights.
SECTION 25. NOTICE OF CERTAIN EVENTS. (a) In case the Company shall
propose (i) to pay any dividend payable in stock of any class to the holders of
its Common Shares or to make any other distribution to the holders of its Common
Shares (other than a regularly quarterly cash dividend), (ii) to offer to the
holders of its Common Shares rights or warrants to subscribe for or to purchase
any additional Common Shares or shares of stock of any class or any other
securities, rights or options, (iii) to effect any reclassification of its
Common Shares (other than a reclassification involving only the subdivision of
outstanding Common Shares), (iv) to effect any consolidation or merger into or
with any other Person (other than a Subsidiary of the Company in a transaction
which does not violate Section 11(n) hereof), or to effect any sale or other
transfer (or to permit one or
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more of its Subsidiaries to effect any sale or other transfer) in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to any other Person or Persons (other than
the Company and/or any of its Subsidiaries in one or more transactions each of
which does not violate Section 11(n) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Right Certificate, in accordance with Section 26
hereof, a notice of such proposed action to the extent feasible and file a
certificate with the Rights Agent to that effect, which shall specify the record
date for the purposes of such stock dividend, or distribution of rights or
warrants, or the date on which such reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution, or winding up is to take place and the
date of participation therein by the holders of the Common Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least twenty (20) days prior to the
record date for determining holders of the Common Shares for purposes of such
action, and in the case of any such other action, at least twenty (20) days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares, whichever shall be
the earlier.
(b) In case of a Section 11(a)(ii) Event, then (i) the Company
shall as soon as practicable thereafter give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of the occurrence of
such event, which notice shall describe such event and the consequences of such
event to holders of Rights under Section 11(a)(ii) hereof and (ii) all
references in the preceding paragraph (a) to Preferred Shares shall be deemed
thereafter to refer also, if appropriate, to Common Shares and/or, if
appropriate, other securities of the Company.
SECTION 26. NOTICES. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Neff Corp.
3750 N.W. 87th Avenue
Miami, Florida 33166
Attention: Kevin P. Fitzgerald, President
and Chief Executive Officer
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
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First Union National Bank
1525 West W.T. Harris Boulevard
Charlotte, North Carolina 28288-1153
Attention: Shareholder Services Group
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate or, if prior
to the Distribution Date, to the holder of certificates representing Common
Shares shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed to such holder at the address of such holder as shown on the
registry books of the Company.
SECTION 27. SUPPLEMENTS AND AMENDMENTS. (a) Prior to the Distribution
Date, subject to Section 27(b) hereof, the Company and the Rights Agent shall,
if the Company so directs, supplement or amend any provision of this Agreement
without the approval of any holders of certificates representing Common Shares.
From and after the Distribution Date, the Company and the Rights Agent shall, if
the Company so directs, supplement or amend this Agreement without the approval
of any holders of Right Certificates in order (i) to cure any ambiguity, (ii) to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) to shorten or lengthen any
time period hereunder or (iv) to change or supplement the provisions hereunder
in any manner which the Company may deem necessary or desirable and which shall
not adversely affect the interests of the holders of Right Certificates (other
than an Acquiring Person or an Affiliate or Associate of an Acquiring Person);
PROVIDED, HOWEVER, that this Agreement may not be supplemented or amended to
lengthen, pursuant to clause (iii) of this sentence, (A) a time period relating
to when the Rights may be redeemed at such time as the Rights are not then
redeemable, or (B) any other time period unless such lengthening is for the
purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights. Upon the delivery of a certificate from an
appropriate officer of the Company which states that the proposed supplement or
amendment is in compliance with the terms of this Section 27, the Rights Agent
shall execute such supplement or amendment, provided that such supplement or
amendment does not adversely affect the rights or obligations of the Rights
Agent under Section 18 or Section 20 of this Agreement. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Shares.
(b) The Company shall not supplement or amend any provision of
this Agreement unless a majority of all of the directors of the Company
authorizes such supplement or amendment.
SECTION 28. DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS, ETC.
The Board of Directors of the Company shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the
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Board, or the Company, or as may be necessary or advisable in the administration
of this Agreement, including, without limitation, the right and power to (i)
interpret the provisions of this Agreement, and (ii) make all determinations
deemed necessary or advisable for the administration of this Agreement
(including, without limitation, a determination to redeem or not redeem the
Rights or to amend the Agreement and whether any proposed amendment adversely
affects the interests of the holders of Right Certificates). For all purposes of
this Agreement, any calculation of the number of Common Shares or other
securities outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding Common Shares or any
other securities of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act as in effect on the date of this
Agreement. All such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with respect to the
foregoing) which are done or made by the Board in good faith, shall (x) be
final, conclusive and binding on the Company, the Rights Agent, the holders of
the Right Certificates and all other parties, and (y) not subject the Board to
any liability to the holders of the Right Certificates.
SECTION 29. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Shares) any legal or equitable right, remedy
or claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares).
SECTION 31. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
PROVIDED, HOWEVER, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the close of business on the
tenth day following the date of such determination by the Board of Directors.
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SECTION 32. GOVERNING LAW. This Agreement, each Right and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
SECTION 33. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
SECTION 34. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the date and year first above written.
NEFF CORP.
By
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Name: Kevin P. Fitzgerald
Title: Chief Executive Officer and President
FIRST UNION NATIONAL BANK
By
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Name:
Title:
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement No. 333-48077 of Neff
Corp. on this Amendment No. 4 to Form S-1 of our report dated March 11, 1998,
except for the third paragraph of Note 5 and the fourth paragraph of Note 1 as
to which the dates are April 23, 1998 and May 20, 1998, respectively, on the
financial statements of Neff Corp. and subsidiaries as of December 31, 1996 and
1997 and for each of the three years in the period ended December 31, 1997,
appearing in the Prospectus, which is part of this Registration Statement, and
of our report also dated March 11, 1998 relating to the financial statement
schedule appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Miami, Florida
May 20, 1998
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 4 to Registration Statement
No. 333-48077 of Neff Corp. on Form S-1 of our report dated February 27, 1998
on the financial statements of Richbourg's Sales & Rentals, Inc. as of December
31, 1996 and 1997 and for each of the three years in the period ended December
31, 1997, appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the heading "Selected
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
May 20, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated September 18, 1997 on the financial statements of Industrial
Equipment Rentals, Inc. and subsidiary (and to all references to our Firm)
included in or made a part of this Registration Statement No. 333-48077 filed
by Neff Corp.
Arthur Andersen LLP
Houston, Texas
May 20, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated April 22, 1998, relating
to the consolidated financial statements of Sullair Argentina Sociedad Anonima
and its subsidiary, which appears in such Prospectus. We also consent to the
reference to us under the headings "Experts" in such Prospectus.
PRICE WATERHOUSE & CO.
Buenos Aires, Argentina
May 15, 1998
