UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X( Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended: June 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 001-14145
NEFF CORP.
----------
(Exact Name of registrant as specified in its charter)
DELAWARE 65-0626400
------------------------------ ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) I.D. No.)
3750 N.W. 87th Avenue, Miami, Florida 33178
-------------------------------------------
(Address or principal executive offices) (Zip Code)
(305) 513-3350
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. There were 16,065,350 shares of
Class A Common Stock, $.01 par value and 5,100,000 shares of Class B Common
Stock, $.01 par value, outstanding at August 9, 1999.
<PAGE>
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<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
NEFF CORP
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
1999 1998
----------- -----------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents ......................................................$ 5,649 $ 4,340
Accounts receivable, net of allowance for doubtful accounts of
$4,015 in 1999 and $3,229 in 1998 ............................................ 60,366 59,022
Inventories .................................................................... 32,168 29,164
Rental equipment, net .......................................................... 377,167 321,220
Property and equipment, net .................................................... 50,023 45,114
Goodwill, net .................................................................. 108,838 96,722
Prepaid expenses and other assets .............................................. 14,691 16,787
----------- -----------
Total assets .....................................................$ 648,902 $ 572,369
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable .......................................................$ 26,044 $ 24,405
Accrued expenses and other ............................................. 36,545 28,577
Credit facility ........................................................ 250,197 191,189
Senior subordinated notes .............................................. 198,596 198,522
Notes payable .......................................................... 19,196 17,282
----------- -----------
Total liabilities ................................................ 530,578 459,975
----------- -----------
Commitments and contingencies .................................................. -- --
----------- -----------
Minority interest .............................................................. 14,073 13,034
----------- -----------
Stockholders' equity
Preferred stock; $.01 par value; 18,350 shares authorized; none
issued and outstanding ................................................ -- --
Series B Junior Participating Preferred Stock; $.01 par value; 1,000
shares authorized, none issued and outstanding ........................ -- --
Class A Common Stock, $.01 par value; 100,000 shares authorized;
16,065 shares issued and outstanding .................................. 161 161
Class B Special Common Stock, $.01 par value, liquidation preference
$11.67; 20,000 shares authorized; 5,100 shares issued and outstanding.. 51 51
Additional paid-in capital ..................................................... 127,763 127,765
Accumulated deficit ............................................................ (23,724) (28,617)
----------- -----------
Total stockholders' equity ....................................... 104,251 99,360
----------- -----------
Total liabilities and stockholders' equity .......................$ 648,902 $ 572,369
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
2
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<TABLE>
<CAPTION>
NEFF CORP
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
For the Three Months Ended
--------------------------
June 30, June 30,
1999 1998
--------- ----------
<S> <C> <C>
Revenues
Rental revenue ..............................................................$ 56,138 $ 41,735
Equipment sales ............................................................. 34,539 24,224
Parts and service ........................................................... 12,424 7,841
--------- ----------
Total revenues ........................................................ 103,101 73,800
--------- ----------
Cost of revenues
Cost of equipment sold ...................................................... 27,620 18,800
Depreciation of rental equipment ............................................ 13,485 13,522
Maintenance of rental equipment ............................................. 15,620 11,039
Cost of parts and service ................................................... 8,085 5,357
--------- ----------
Total cost of revenues ................................................ 64,810 48,718
--------- ----------
Gross profit ................................................................... 38,291 25,082
--------- ----------
Other operating expenses
Selling, general and administrative expenses ............................... 17,731 13,086
Other depreciation and amortization ......................................... 2,691 2,087
Officer stock option compensation ........................................... -- 3,198
--------- ----------
Total other operating expenses ........................................ 20,422 18,371
--------- ----------
Income from operations ......................................................... 17,869 6,711
--------- ----------
Other expenses
Interest expense ............................................................ 9,710 7,692
Amortization of debt issue costs ............................................ 309 922
--------- ----------
Total other expenses .................................................. 10,019 8,614
--------- ----------
Income (loss) before income taxes, minority interest and extraordinary item .... 7,850 (1,903)
(Provision for) benefit from income taxes ...................................... (3,029) 714
--------- ----------
Income (loss) before minority interest and extraordinary item .................. 4,821 (1,189)
Minority interest .............................................................. (602) --
--------- ----------
Income (loss) before extraordinary item ........................................ 4,219 (1,189)
Extraordinary loss, net of income taxes ........................................ -- (2,675)
--------- ----------
Net income (loss) ..............................................................$ 4,219 $ (3,864)
========= ==========
Basic earnings (loss) per common share
Income (loss) before extraordinary item ........................................$ 0.20 $ (0.24)
Extraordinary loss, net ........................................................ -- (0.15)
--------- ----------
Net income (loss) ..............................................................$ 0.20 $ (0.39)
========= ==========
Diluted earnings (loss) per common share
Income (loss) before extraordinary item ........................................$ 0.19 $ (0.24)
Extraordinary loss, net ........................................................ -- (0.15)
--------- ----------
Net income (loss) ..............................................................$ 0.19 $ (0.39)
========= ==========
Weighted average common shares outstanding
Basic ....................................................................... 21,165 17,410
========= ==========
Diluted ..................................................................... 21,943 17,410
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
For the Six Months Ended
--------------------------
June 30, June 30,
1999 1998
--------- ----------
<S> <C> <C>
Revenues
Rental revenue ..............................................................$ 105,146 $ 72,397
Equipment sales ............................................................. 66,237 47,672
Parts and service ........................................................... 23,338 15,577
--------- ----------
Total revenues ........................................................ 194,721 135,646
--------- ----------
Cost of revenues
Cost of equipment sold ...................................................... 53,419 35,518
Depreciation of rental equipment ............................................ 26,627 24,843
Maintenance of rental equipment ............................................. 30,793 20,080
Cost of parts and service ................................................... 14,920 10,153
--------- ----------
Total cost of revenues ................................................ 125,759 90,594
--------- ----------
Gross profit ................................................................... 68,962 45,052
--------- ----------
Other operating expenses
Selling, general and administrative expenses ................................ 34,874 25,023
Other depreciation and amortization ......................................... 5,090 3,813
Officer stock option compensation ........................................... -- 3,198
--------- ----------
Total other operating expenses ........................................ 39,964 32,034
--------- ----------
Income from operations ......................................................... 28,998 13,018
--------- ----------
Other expense
Interest expense ............................................................ 18,862 15,248
Amortization of debt issue costs ............................................ 566 2,787
--------- ----------
Total other expense ................................................... 19,428 18,035
--------- ----------
Income (loss) before income taxes, minority interest and extraordinary item .... 9,570 (5,017)
(Provision for) benefit from income taxes ...................................... (3,637) 1,882
--------- ----------
Income (loss) before minority interest and extraordinary item .................. 5,933 (3,135)
Minority interest .............................................................. (1,040) --
--------- ----------
Income (loss) before extraordinary item ........................................ 4,893 (3,135)
Extraordinary loss, net of income taxes ........................................ -- (2,675)
--------- ----------
Net income (loss) ..............................................................$ 4,893 $ (5,810)
========= =========
Basic earnings (loss) per common share
Income (loss) before extraordinary item ........................................$ 0.23 $ (0.68)
Extraordinary loss, net ........................................................ -- (0.15)
--------- ----------
Net income (loss) ..............................................................$ 0.23 $ (0.83)
========= =========
Diluted earnings (loss) per common share
Income (loss) before extraordinary item ........................................$ 0.22 $ (0.68)
Extraordinary loss, net ........................................................ -- (0.15)
--------- ----------
Net income (loss) ..............................................................$ 0.22 $ (0.83)
========= =========
Weighted average common shares outstanding
Basic ....................................................................... 21,165 13,161
========= =========
Diluted ..................................................................... 21,816 13,161
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
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<TABLE>
<CAPTION>
NEFF CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
For the Six Months Ended
--------------------------
June 30, June 30,
1999 1998
--------- ----------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) .................................................. $ 4,893 $ (5,810)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities, net of acquisitions ......................... 29,809 30,382
--------- ----------
Net cash provided by operating activities ....................... 34,702 24,572
--------- ----------
Cash Flows from Investing Activities
Purchases of equipment ............................................. (135,512) (117,417)
Proceeds from sale of rental equipment ............................. 66,237 47,672
Purchases of property and equipment ................................ (8,378) (8,231)
Cash paid for acquisitions ......................................... (16,268) (144,890)
--------- ----------
Net cash used in investing activities ........................... (93,921) (222,866)
--------- ----------
Cash Flows from Financing Activities
Debt issue costs ................................................... (32) (8,072)
Net borrowings under Credit Facility ............................... 59,008 97,944
Repayments under capitalized lease obligations ..................... (362) (436)
Proceeds from issuance of Senior Subordinated Notes ............... -- 100,000
Proceeds from common stock offering ................................ -- 86,857
Repayments under term loan ......................................... -- (49,916)
Net borrowings (repayments) under notes and mortgages payable ..... 1,914 (13,573)
Redemption of Series A Preferred Stock ............................. -- (13,915)
--------- ----------
Net cash provided by financing activities ....................... 60,528 198,889
--------- ----------
Net increase in cash and cash equivalents ......................... 1,309 595
Cash and cash equivalents, beginning of period ..................... 4,340 2,885
--------- ----------
Cash and cash equivalents, end of period ........................... $ 5,649 $ 3,480
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(unaudited, in thousands)
Additional
Common Stock A Common Stock B Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 ........... 16,065 $ 161 5,100 $ 51 $ 127,765 $ (28,617) $ 99,360
Net income ........................... -- -- -- -- -- 4,893 4,893
Other ................................ -- -- -- -- (2) -- (2)
------ ------ ------ ------ ---------- ----------- --------
Balance, June 30, 1999 ............... 16,065 $ 161 5,100 $ 51 $ 127,763 $ (23,724) $104,251
====== ====== ===== ====== ========== ========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(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 as of the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting periods. Actual results could differ from those estimates.
The results of operations for the six months ended June 30, 1999 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1999.
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, 1998 appearing in the Company's Form 10-K filed with the
Securities and Exchange Commission.
NOTE 2 - RECLASSIFICATIONS
Certain amounts for the prior year have been reclassified to conform with
the current year presentation.
NOTE 3 - CHANGE IN ACCOUNTING POLICIES
During the first quarter of 1999, 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 by approximately $7.7 million and increased net income by
approximately $4.6 million or $0.21 per diluted share for the six months ended
June 30, 1999.
7
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<TABLE>
<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(unaudited)
NOTE 4 -EARNINGS PER SHARE
The treasury stock method was used to determine the dilutive effect of
options and warrants on earnings per share data. Net income (loss) and weighted
average number of shares outstanding used in the computations are summarized as
follows (in thousands, except per share data):
Three Months ended Six Months Ended
------------------ ------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) ............................. $ 4,219 $(3,864) $ 4,893 $ (5,810)
Deduct:
Preferred stock dividend .................... -- 104 -- 1,010
Accretion of preferred stock ................ -- 2,857 -- 4,093
-------- ------- -------- --------
Net income (loss)-(basic and diluted) ......... $ 4,219 $(6,825) $ 4,893 $(10,913)
======== ======= ======== ========
Number of Shares:
Weighed average common shares outstanding-basic 21,165 17,410 21,165 13,161
Add:
Employee stock options (1) .................... 778 -- 651 --
-------- ------- -------- --------
Weighted average common shares-diluted ........ 21,943 17,410 21,816 13,161
======== ======= ======== ========
Net income (loss) per common share-basic ...... $ 0.20 $ (0.39) $ 0.23 $ (0.83)
======== ======= ======== ========
Net income (loss) per common share-diluted .... $ 0.19 $ (0.39) $ 0.22 $ (0.83)
======== ======= ======== ========
</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 5 -SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
Six Months Ended
----------------------
June 30, June 30,
1999 1998
-------- ----------
(in thousands)
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash paid for interest .......................... $19,665 $ 14,652
======= ==========
Cash paid for taxes ............................. $ 146 $ 138
======= ==========
</TABLE>
8
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(unaudited)
NOTE 6 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Neff Corp. ("Parent") issued $100 million of senior subordinated unsecured
notes on May 22, 1998 and an additional $100 million of senior subordinated
unsecured notes in December 1998. On June 30, 1998, Neff Corp. acquired 65% of
Sullair Argentina Sociedad Anonima (S.A. Argentina). S.A. Argentina is not a
guarantor of the unsecured notes of the Parent and financial information for
this subsidiary is presented separately. All of the Parent's subsidiaries other
than S.A. Argentina are wholly owned. Parent and its subsidiaries other than
S.A. Argentina have fully and unconditionally guaranteed the unsecured notes on
a joint and several basis. The subsidiaries' financial information is presented
on a combined basis and Parent is shown separately. Separate financial
statements and other disclosures for the individual guarantor subsidiaries are
not presented because, in the opinion of management, such information is not
material to investors. Prior to June 30, 1998, there were no non-guarantor
subsidiaries and therefore, separate comparative statements of income and cash
flows are not presented for periods prior to July 1, 1998.
9
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(unaudited)
NOTE 6 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (con't)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1999
(in thousands)
Guarantor Non-Guarantor
Subsidiaries Subsidiary Parent Eliminations Consolidated
------------ ------------ --------- ------------ ------------
Assets
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents .................................... $ 4,969 $ 665 $ 15 $ -- $ 5,649
Accounts receivable, net ..................................... 47,009 13,357 -- -- 60,366
Inventories .................................................. 18,392 13,776 -- -- 32,168
Rental equipment, net ........................................ 337,869 39,298 -- -- 377,167
Property and equipment, net .................................. 28,671 12,149 9,203 -- 50,023
Goodwill, net ................................................ 89,535 -- -- 19,303 108,838
Prepaid expenses and other assets ............................ 1,628 2,857 98,117 (87,911) 14,691
(Due to) from affiliates ..................................... (250,982) -- 250,982 -- --
------------ ------------ --------- ------------ ------------
Total assets ........................................... $ 277,091 $ 82,102 $ 358,317 $ (68,608) $ 648,902
=========== =========== ========= ============ ===========
Liabilities and Stockholders Equity (Deficit)
Liabilities
Accounts payable ........................................... $ 7,442 $ 18,571 $ 31 $ -- $ 26,044
Accrued expenses and other ................................. 21,552 4,698 10,295 -- 36,545
Credit facility ............................................ 205,053 -- 45,144 -- 250,197
Senior subordinated notes .................................. -- -- 198,596 -- 198,596
Notes payable .............................................. 573 18,623 -- -- 19,196
------------ ------------ --------- ------------ ------------
234,620 41,892 254,066 -- 530,578
------------ ------------ --------- ------------ ------------
Commitments and contingencies ................................ -- -- -- -- --
------------ ------------ --------- ------------ ------------
Minority interest ............................................ -- -- -- 14,073 14,073
------------ ------------ --------- ------------ ------------
Stockholders' equity
Class A Common stock; $.01 par value; 100,000 shares
authorized; 16,065 shares issued and outstanding ............ -- -- 161 -- 161
Class B special common stock; $.01 par value; 20,000 shares
authorized; 5,100 shares issued and outstanding -- -- 51 -- 51
Capital stock ................................................ -- 90 -- (90) --
Additional paid-in capital ................................... 37,077 3,009 127,763 (40,086) 127,763
Retained earnings (accumulated deficit) ...................... 5,394 37,111 (23,724) (42,505) (23,724)
------------ ------------ --------- ------------ ------------
Total stockholders' equity ............................. 42,471 40,210 104,251 (82,681) 104,251
------------ ------------ --------- ------------ ------------
Total liabilities and stockholders' equity ............. $ 277,091 $ 82,102 $ 358,317 $ (68,608) $ 648,902
=========== =========== ========= ============ ===========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(unaudited)
NOTE 6 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (con't)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999
(in thousands)
Guarantor Non-Guarantor
Subsidiaries Subsidiary Parent Eliminations Consolidated
------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues
Rental revenue ..................................... $ 48,800 $ 7,338 $ -- $ -- $ 56,138
Equipment sales .................................... 29,479 5,060 -- -- 34,539
Parts and service .................................. 11,055 1,369 -- -- 12,424
------------ ------------ --------- ------------ ------------
Total revenues .................................. 89,334 13,767 -- -- 103,101
------------ ------------ --------- ------------ ------------
Cost of revenues
Cost of equipment sold ............................. 23,577 4,043 -- -- 27,620
Depreciation of rental equipment ................... 11,861 1,624 -- -- 13,485
Maintenance of rental equipment .................... 13,288 2,332 -- -- 15,620
Cost of parts and service .......................... 7,227 858 -- -- 8,085
------------ ------------ --------- ------------ ------------
Total cost of revenues .......................... 55,953 8,857 -- -- 64,810
------------ ------------ --------- ------------ ------------
Gross profit ........................................... 33,381 4,910 -- -- 38,291
------------ ------------ --------- ------------ ------------
Other operating expenses
Selling, general and administrative expenses ....... 15,469 1,431 831 -- 17,731
Other depreciation and amortization ................ 2,350 172 169 -- 2,691
------------ ------------ --------- ------------ ------------
Total other operating expenses .................. 17,819 1,603 1,000 -- 20,422
------------ ------------ --------- ------------ ------------
Income from operations ................................. 15,562 3,307 (1,000) -- 17,869
------------ ------------ --------- ------------ ------------
Other expense
Interest expense ................................... 8,204 702 804 -- 9,710
Amortization of debt issue costs ................... 101 -- 208 -- 309
------------ ------------ --------- ------------ ------------
Total other expense ............................. 8,305 702 1,012 -- 10,019
------------ ------------ --------- ------------ ------------
Income (loss) before income taxes and minority interest 7,257 2,605 (2,012) -- 7,850
(Provision for) benefit from income taxes ............. (2,969) (883) 823 -- (3,029)
------------ ------------ --------- ------------ ------------
Income (loss) before minority interest ................ 4,288 1,722 (1,189) -- 4,821
Minority interest ..................................... -- -- -- (602) (602)
------------ ------------ --------- ------------ ------------
Net income (loss) ..................................... $ 4,288 $ 1,722 $ (1,189) $ (602) $ 4,219
=========== =========== ========= ============ ============
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(unaudited)
NOTE 6 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (con't)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 19990
(in thousands)
Guarantor Non-Guarantor
Subsidiaries Subsidiary Parent Eliminations Consolidated
------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues
Rental revenue ..................................... $ 91,091 $ 14,055 $ -- $ -- $ 105,146
Equipment sales .................................... 57,090 9,147 -- -- 66,237
Parts and service .................................. 20,691 2,647 -- -- 23,338
------------ ------------ --------- ------------ ------------
Total revenues .................................. 168,872 25,849 -- -- 194,721
------------ ------------ --------- ------------ ------------
Cost of revenues
Cost of equipment sold ............................. 46,019 7,400 -- -- 53,419
Depreciation of rental equipment ................... 23,423 3,204 -- -- 26,627
Maintenance of rental equipment .................... 26,418 4,375 -- -- 30,793
Cost of parts and service .......................... 13,284 1,636 -- -- 14,920
------------ ------------ --------- ------------ ------------
Total cost of revenues .......................... 109,144 16,615 -- -- 125,759
------------ ------------ --------- ------------ ------------
Gross profit ........................................... 59,728 9,234 -- -- 68,962
------------ ------------ --------- ------------ ------------
Other operating expenses
Selling, general and administrative expenses ....... 30,361 2,948 1,565 -- 34,874
Other depreciation and amortization ................ 4,450 326 314 -- 5,090
------------ ------------ --------- ------------ ------------
Total other operating expenses .................. 34,811 3,274 1,879 -- 39,964
------------ ------------ --------- ------------ ------------
Income from operations ................................. 24,917 5,960 (1,879) -- 28,998
------------ ------------ --------- ------------ ------------
Other expense
Interest expense ................................... 15,942 1,402 1,518 -- 18,862
Amortization of debt issue costs ................... 166 -- 400 -- 566
------------ ------------ --------- ------------ ------------
Total other expense ............................. 16,108 1,402 1,918 -- 19,428
------------ ------------ --------- ------------ ------------
Income (loss) before income taxes and minority interest. 8,809 4,558 (3,797) -- 9,570
(Provision for) benefit from income taxes .............. (3,603) (1,587) 1,553 -- (3,637)
------------ ------------ --------- ------------ ------------
Income (loss) before minority interest ................. 5,206 2,971 (2,244) -- 5,933
Minority interest ...................................... -- -- -- (1,040) (1,040)
------------ ------------ --------- ------------ ------------
Net income (loss) ...................................... $ 5,206 $ 2,971 $ (2,244) $ (1,040) $ 4,893
=========== ============ ========== ========== ============
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(unaudited)
NOTE 6 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (con't)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(in thousands)
Guarantor Non-Guarantor
Subsidiaries Subsidiary Parent Eliminations Consolidated
------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) ................................................ $ 5,206 $ 2,971 $ (2,244) $ (1,040) $ 4,893
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities, net of acquisitions ............. 37,215 8,833 (17,279) 1,040 29,809
------------ ------------ --------- ------------ ------------
Net cash provided by (used in) operating activities ......... 42,421 11,804 (19,523) -- 34,702
------------ ------------ --------- ------------ ------------
Cash Flows from Investing Activities
Purchases of equipment ........................................... (113,739) (21,773) -- -- (135,512)
Proceeds from sale of rental equipment ........................... 57,090 9,147 -- -- 66,237
Purchases of property and equipment .............................. (7,088) (1,286) (4) -- (8,378)
Cash paid for acquisitions ....................................... (16,268) -- -- -- (16,268)
------------ ------------ --------- ------------ ------------
Net cash used in investing activities ....................... (80,005) (13,912) (4) -- (93,921)
------------ ------------ --------- ------------ ------------
Cash Flows from Financing Activities
Debt issue costs ................................................. -- -- (32) -- (32)
Net repayments under Credit Facility ............................. 51,464 -- 7,544 -- 59,008
Net repayments under capitalized lease obligations ............... (362) -- -- -- (362)
Net borrowings (repayments) under notes payable .................. (168) 2,082 -- -- 1,914
Due to (from) affiliates ......................................... (12,030) -- 12,030 -- --
------------ ------------ --------- ------------ ------------
Net cash provided by (used in) financing activities ......... 38,904 2,082 19,542 -- 60,528
------------ ------------ --------- ------------ ------------
Net (decrease) increase in cash and cash equivalents ............ 1,320 (26) 15 -- 1,309
Cash and cash equivalents, beginning of period ................... 3,649 691 -- -- 4,340
------------ ------------ --------- ------------ ------------
Cash and cash equivalents, end of period ......................... $ 4,969 $ 665 $ 15 $ -- $ 5,649
=========== =========== ======= ========= ===========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(unaudited)
NOTE 6 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (con't)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1998
(in thousands)
Guarantor Non-Guarantor
Subsidiaries Subsidiary Parent Eliminations Consolidated
------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents ........................... $ 3,649 $ 691 $ -- $ -- $ 4,340
Accounts receivable, net ............................ 44,460 14,562 -- -- 59,022
Inventories ......................................... 16,256 12,908 -- -- 29,164
Rental equipment, net ............................... 292,223 28,997 -- -- 321,220
Property and equipment, net ......................... 23,035 11,189 10,890 -- 45,114
Goodwill, net ....................................... 82,737 -- -- 13,985 96,722
Prepaid expenses and other assets ................... 1,605 3,614 83,757 (72,189) 16,787
(Due to) from affiliates ............................ (251,185) -- 251,185 -- --
------------ ------------ --------- ------------ ------------
Total assets ............................. $ 212,780 $ 71,961 $ 345,832 $ (58,204) $ 572,369
=========== =========== ========= =========== ===========
Liabilities and Common Stockholders Equity (Deficit)
Liabilities
Accounts payable .............................. $ 7,421 $ 16,834 $ 150 $ -- $ 24,405
Accrued expenses and other .................... 17,031 1,346 10,200 -- 28,577
Credit facility ............................... 153,589 -- 37,600 -- 191,189
Senior subordinated notes ..................... -- -- 198,522 -- 198,522
Notes payable ................................. 741 16,541 -- -- 17,282
------------ ------------ --------- ------------ ------------
Total liabilities ........................ 178,782 34,721 246,472 -- 459,975
------------ ------------ --------- ------------ ------------
Commitments and contingencies ....................... -- -- -- -- --
------------ ------------ --------- ------------ ------------
Minority interest ................................... -- -- -- 13,034 13,034
------------ ------------ --------- ------------ ------------
Stockholders' equity
Class A Common stock; $.01 par value; 100,000
shares authorized; 16,065 shares issued and
outstanding .................................. -- -- 161 -- 161
Class B special common stock; $.01 par value;
20,000 shares authorized; 5,100 shares issued
and outstanding .............................. -- -- 51 -- 51
Capital stock ....................................... -- 90 -- (90) --
Additional paid-in capital .......................... 37,077 3,009 127,765 (40,086) 127,765
Retained earnings (accumulated deficit) ............. (3,079) 34,141 (28,617) (31,062) (28,617)
------------ ------------ --------- ------------ ------------
Total stockholders' equity ............... 33,998 37,240 99,360 (71,238) 99,360
------------ ------------ --------- ------------ ------------
Total liabilities and stockholders' equity $ 212,780 $ 71,961 $ 345,832 $ (58,204) $ 572,369
=========== =========== ========= =========== ===========
</TABLE>
14
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(unaudited)
NOTE 7 - SEGMENT INFORMATION
The Company has three segments: Neff Rental, Inc. ("Rental"), Neff
Machinery, Inc. ("Machinery") and S.A. Argentina. These segments are a result of
the historical organization of the Company and the management of its
subsidiaries. All of these segments rent and sell industrial and construction
equipment, sell spare parts and merchandise and provide ongoing repair and
maintenance services and have therefore been aggregated for disclosure purposes.
Rental and Machinery's operations are conducted in the United States and S.A.
Argentina's operations are conducted in South America. The information contained
in Note 6 under the heading Non-Guarantor Subsidiary represents S.A. Argentina's
operations. All other information in Note 6 represents operations conducted in
the United States.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis compares the quarter and six months
ended June 30, 1999 to the quarter and six months ended June 30, 1998 and should
be read in conjunction with the Company's Consolidated Financial Statements and
the Notes thereto, appearing elsewhere in this Form 10-Q and in conjunction with
the Company's Form 10-K for the year ended December 31, 1998.
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 that implied in the forward-looking statements.
Risks that could cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to, risks inherent in
the Company's growth strategy, such as the uncertainty that the Company will be
able to identify, acquire and integrate attractive acquisition candidates; the
Company's dependence on additional capital for future growth; and the high
degree to which the Company is leveraged. Additional information concerning
these and other risks and uncertainties is contained from time-to-time in the
Company's filings with the Securities and Exchange Commission.
Overview
Since 1995, the Company has pursued an aggressive growth strategy,
increasing its number of equipment rental and sales locations to 94, as of June
30, 1999. The Company has achieved this growth through the addition of 60
equipment rental locations as a result of acquisitions, and the opening of 26
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.
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. 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 Company's rental fleet also affect revenues from the sale of used
equipment. Revenues derived from the sale of parts and service are 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.
16
<PAGE>
Depreciation of rental equipment is calculated on a straight-line basis
over the estimated service life of the asset (generally two to eight years with
a residual value up to 20%, depending on the nature of the asset). 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.
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.
Second Quarter Ended June 30, 1999 Compared to Second Quarter Ended June 30,
1998
Revenues. Total revenues for the quarter ended June 30, 1999 increased
39.7% to $103.1 million from $73.8 million for the quarter ended June 30, 1998.
This growth in revenues primarily resulted from an increase in revenues from the
maturation of the 26 rental locations opened since March 1995 of approximately
$7.2 million and approximately $21.6 million attributable to revenues generated
by acquisitions.
Gross Profit. Gross profit for the quarter ended June 30, 1999 increased
52.7% to $38.3 million or 37.1% of total revenues from $25.1 million or 34.0% of
total revenues for the quarter ended June 30, 1998. This increase is primarily
attributable to an increase in gross profit of approximately $4.6 million
associated with the maturation of the 26 rental locations opened since March
1995 and an increase of approximately $7.6 million associated with acquisitions.
The increase in gross profit includes approximately $4.4 million related to the
change in the Company's depreciation policy to recognize extended service levels
and increased salvage value of its assets. The increase in gross profit as a
percentage of revenue is primarily attributable to improved rental revenue
margins coupled with a larger mix of rental revenues. The Company had 94 rental
locations at June 30, 1999 compared to 78 at June 30, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the quarter ended June 30, 1999 increased 35.5% to
$17.7 million or 17.2% of total revenues from $13.1 million or 17.7% of total
revenues for the quarter ended June 30, 1998. The increase in selling, general
and administrative expenses is primarily attributable to the increase in the
number of locations operated by the Company and increased regional and corporate
personnel to support the continued growth of the Company.
17
<PAGE>
Other Depreciation and Amortization. Other depreciation and amortization
expense for the quarter ended June 30, 1999 increased 28.9% to $2.7 million or
2.6% of total revenues from $2.1 million or 2.8% of total revenues. The increase
is primarily attributable to amortization of goodwill resulting from additional
acquisitions.
Interest Expense. Interest expense for the quarter ended June 30, 1999
increased 26.2% to $9.7 million from $7.7 million in 1998. The increase is
primarily attributable to the Company's borrowings related to acquisitions and
to additional borrowings related to the Company's continued investment in rental
equipment.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenues. Total revenues for the six months ended June 30, 1999 increased
43.6% to $194.7 million from $135.6 million for the six months ended June 30,
1998. This growth in revenues primarily resulted from an increase in revenues
from the maturation of the 26 rental locations opened since March 1995 of
approximately $16.7 million and approximately $39.5 million attributable to
revenues generated by acquisitions.
Gross Profit. Gross profit for the six months ended June 30, 1999 increased
53.1% to $69.0 million or 35.4% of total revenues from $45.1 million or 33.2% of
total revenues for the six months ended June 30, 1998. This increase is
primarily attributable to an increase in gross profit of approximately $9.5
million associated with the maturation of the 26 rental locations opened since
March 1995 and approximately $12 million associated with the growth in revenues
arising from acquisitions. These increases in gross profit include approximately
$7.7 million related to the change in the Company's depreciation policy to
recognize extended service levels and increased salvage value of its assets. The
increase in gross profit as a percentage of revenue is primarily attributable to
improved rental revenue margins coupled with a larger mix of rental revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended June 30, 1999 increased 39.4%
to $34.9 million or 17.9% of total revenues from $25.0 million or 18.4% of total
revenues for the six months ended June 30, 1998. The increase in selling,
general and administrative expenses is primarily attributable to the increase in
the number of locations operated by the Company and increased regional and
corporate personnel to support the continued growth of the Company.
Other Depreciation and Amortization. Other depreciation and amortization
expense for the six months ended June 30, 1999 increased 33.5% to $5.1 million
or 2.6% of total revenues from $3.8 million or 2.8% of total revenues. The
increase is primarily attributable to amortization of goodwill resulting from
additional acquisitions.
Interest Expense. Interest expense for the six months ended June 30, 1999
increased 23.7% to $18.9 million from $15.2 million. The increase is primarily
attributable to the Company's borrowings related to acquisitions and to
additional borrowings related to the Company's continued investment in rental
equipment.
Liquidity and Capital Resources
During the second quarter of 1999, the Company financed its growth
primarily through cash flow from operations and borrowings under credit
facilities.
18
<PAGE>
For the six months ended June 30, 1999, net cash flows provided by
operating activities was $34.7 million, compared to $24.6 million for the six
months ended June 30, 1998. This increase is primarily attributable to the
growth in the Company's operations resulting from an increase in the number of
rental locations operated by the Company.
Net cash used in investing activities for the six months ended June 30,
1999 was $93.9 million as compared to $222.9 million for the same period of the
prior year. This decrease is primarily attributable to a decrease in the amount
expended for acquisitions.
Net cash provided by financing activities was $60.5 million for the six
months ended June 30, 1999, as compared to $198.9 million for the same period in
the prior year. The net cash provided by financing activities was primarily
attributable to borrowings under the Company's Credit Facility. As of June 30,
1999, the Company had approximately $66.1 million available under its Credit
Facility.
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 completed an assessment of the
effect of Year 2000 issues on its computer systems. Based upon this assessment,
management believes the Company is Year 2000 compliant. The total cost to the
Company to become Year 2000 compliant was not material. The Company has received
confirmation from all of its current systems' vendors that each of their systems
will properly handle the rollove to the Year 2000. Although there can be no
assurance, management believes that Year 2000 problem will not have a material
effect on the financial position, results of operations or cash flows of the
Company. In addition, there can be no assurance that the systems of other
companies with which the Company does business will properly handle the rollover
to the Year 2000 and will not have an adverse effect on the Company's
operations.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Description
- ------- -----------
10.1 Severance Agreement by and between Neff Corp. and Mark H. Irion,
Chief Financial Officer, Neff Corp.
10.2 Severance Agreement by and between Neff Copr. and Manual Alvarez,
Chief Financial Officer, Neff Machinery, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K:
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEFF CORP.
Registrant
Date: August 13, 1999 /s/Mark H. Irion
------------------------------------
MARK H. IRION
Chief Financial Officer
On behalf of the registrant and as
Principal Financial and Accounting Officer
21
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into as of
the 14 day of May, 1999, by and between Neff Corp., a Delaware company
(the "Company"), and Mark Irion, an individual (the "Executive")
(hereinafter collectively referred to as the "Parties").
WHEREAS, the Company recognizes the valuable services the Executive
has rendered to the Company as Chief Financial Officer of Neff Rental,
Inc., a wholly-owned subsidiary of the Company, and desires assurance that
Executive will continue to provide his services to the Company as Chief
Financial Officer of the Company;
WHEREAS, the Executive is willing to continue to serve the Company,
but desires assurance that in the event of any Change in Control of the
Company he will continue to have the responsibilities and privileges he now
has;
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that the best interests of the Company would be served by
providing Executive with certain protections and benefits following any
Change in Control of the Company.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties, intending to be
legally bound, agree as follows:
1. Change in Control. No benefits shall be payable under this Agreement
unless there shall have occurred a Change in Control of the Company, as defined
below, and Executive's employment by the Company shall have been terminated
thereafter in accordance with Section 2. For purposes of this Agreement, a
"Change in Control" shall mean any of the following events:
(a) An acquisition (other than directly from Neff Corp. (the
(Company")) of any voting securities of the Company (the "Voting
Securities") by any "Person" (as the term person is used for purposes of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of thirty percent (30%) or more of the then outstanding Shares or the
combined voting power of the Company's then outstanding Voting Securities;
provided, however, that Beneficial Ownership by any of Jorge Mas, Juan
Carlos Mas, Jose Ramon Mas, or aggregate Beneficial Ownership by General
Electric Capital Corporation and any of its 100% Affiliates (as defined),
of thirty percent (30%) or more of the then outstanding Shares or the
combined voting power of the Company's then outstanding Voting Securities
shall not constitute a Change in Control; provided further, however, in
determining whether a Change in Control has occurred, Shares or Voting
Securities which are acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an acquisition which would cause
a Change in Control. A "Non-Control Acquisition" shall mean an acquisition
by (i) an employee benefit plan (or a trust forming a part thereof)
<PAGE>
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 of this Agreement are members
of the Board (the "Incumbent Board"), cease for any reason to constitute at
least two-thirds of the members of the Board of Directors of the Company;
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 Agreement, be considered as a member of the Incumbent
Board; provided further, however, that no individual shall be considered a
member of the Incumbent Board if such individual initially assumed office
as a result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board (a "Proxy Contest") including by reason of
any agreement intended to avoid or settle any Election Contest or Proxy
Contest; or
(c) The consummation of:
(i) A merger, consolidation or reorganization involving the
Company, unless such merger, consolidation or reorganization is a
"Non-Control Transaction." A "Non-Control Transaction" shall mean a
merger, consolidation or reorganization of the Company where:
(A) the stockholders of the Company, immediately before such
merger, consolidation or reorganization, own directly or
indirectly immediately following such merger, consolidation or
reorganization, at least fifty percent (50%) of the combined
voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially the
same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or reorganization,
(B) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for
such merger, consolidation or reorganization constitute at least
two-thirds of the members of the board of directors of the
Surviving Corporation, or a corporation beneficially directly or
indirectly owning a majority of the Voting Securities of the
Surviving Corporation, and
(C) no Person other than (i) the Company, (ii) any
Subsidiary, (iii) any employee benefit plan (or any trust forming
2
<PAGE>
a part thereof) that, immediately prior to such merger,
consolidation or reorganization, was maintained by the Company,
or any Subsidiary, or (iv) any Person who, immediately prior to
such merger, consolidation or reorganization had Beneficial
Ownership of fifty percent (50%) or more of the then outstanding
Voting Securities or Shares, has Beneficial Ownership of fifty
percent (50%) or more of the combined voting power of the
Surviving Corporation's then outstanding voting securities or its
common stock.
(ii) A complete liquidation or dissolution of the Company; or
(iii) The sale or other disposition of all or substantially all of the
assets of the Company to any Person (other than a transfer to a
Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding Shares or
Voting Securities as a result of the acquisition of Shares or Voting Securities
by the Company which, by reducing the number of Shares or Voting Securities then
outstanding, increases the proportional number of shares Beneficially Owned by
the Subject Persons, provided that if a Change in Control would occur (but for
the operation of this sentence) as a result of the acquisition of Shares or
Voting Securities by the Company, and after such share acquisition by the
Company, the Subject Person becomes the Beneficial Owner of any additional
Shares or Voting Securities which increases the percentage of the then
outstanding Shares or Voting Securities Beneficially Owned by the Subject
Person, then a Change in Control shall occur.
For the purposes of this Agreement, "100% Affiliate" means with respect to
any Person, (i) each other Person that, directly or indirectly, owns or controls
one hundred percent (100%) of the stock having ordinary voting power in the
election of directors of such Person, (ii) each other Person of which the stock
having ordinary voting power in the election of its directors is owned or
controlled one hundred percent (100%) by such Person, or (iii) each other Person
of which the stock having ordinary voting power in the election of its directors
is owned or controlled one hundred percent (100%) by any Person defined in
clause (i) above or any of its 100% Affiliates.
2. Termination of Employment Following Change in Control.
(a) If a Change in Control of the Company occurs, the Executive shall
be entitled to the benefits provided in Section 3 upon (i) the subsequent
termination by the Company of Executive's employment with the Company for
any reason other than for Cause (as defined), Disability (as defined) or
due to the Executive's death, during the two year period following the
Change in Control or (ii) the subsequent termination by the Executive of
his employment with the Company for Good Reason (as defined) during the two
year period following the Change in Control.
3
<PAGE>
If the Executive's employment is terminated by the Company without
Cause prior to the date of a Change in Control but the Executive reasonably
demonstrates that the termination (i) was at the request of a third party
who has indicated an intention or taken steps reasonably calculated to
effect a change in control or (ii) otherwise arose in connection with, or
in anticipation of, a Change in Control which has been threatened or
proposed, such termination shall be deemed to have occurred after a Change
in Control for purposes of this Agreement provided a Change in Control
shall actually have occurred.
(b) For purposes of this Agreement, "Disability" means a physical or
mental infirmity which impairs the Executive's ability to perform
substantially his duties for a period of one hundred eighty (180)
consecutive days. A determination of Disability shall be made by a
physician satisfactory to both the Executive and the Company, which
physician's determination as to Disability shall be made within 10 days of
the request therefor and shall be binding on all parties; provided,
however, that if the Executive and the Company do not agree on a physician,
the Executive and the Company shall each select a physician and these two
together shall select a third physician, which third physician's
determination as to Disability shall be binding on all parties.
(c) The Company shall be deemed to have terminated the Executive's
employment for "Cause" in the event that the Executive's employment is
terminated for any of the following reasons: (i) 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;
(ii) dishonesty or willful misconduct in the performance of duties; or
(iii) willful violation of any law, rule or regulation in connection with
the performance of duties (other than traffic violations or similar
offenses); provided, that no act or failure to act shall be considered
willful unless done or omitted to be done in bad faith and without
reasonable belief that the action or omission was in the best interests of
the Company. Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by the Executive after Notice of
Termination (as defined) is given by the Company shall constitute Cause for
purposes of this Agreement.
(d) For purposes of this Agreement, Good Reason shall mean the
occurrence of any of the events or conditions described in Subsections (i)
through (viii) hereof:
(i) a change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, does not represent a promotion from
his status, title, position or responsibilities as in effect
immediately prior thereto; the assignment to the Executive of any
duties or responsibilities which, in the Executive's reasonable
judgment, are inconsistent with such status, title, position or
responsibilities; or any removal of the Executive from or failure to
reappoint or reelect his to any of such positions, except in
connection with the termination of his employment for Disability,
Cause, as a result of his death or by the Executive other than for
Good Reason;
4
<PAGE>
(ii) a reduction in the Executive's base salary or any failure to
pay the Executive any compensation or benefits to which he is entitled
within five (5) days of the date due;
(iii) a failure by the Company to increase the Executive's base
salary at least annually at a percentage of base salary no less than
the average percentage increases granted to the Executive during the
three most recent full years ended prior to a Change in Control;
(iv) the failure by the Company to (A) continue in effect
(without reduction in benefit level and/or reward opportunities) any
material compensation or benefit plan in which the Executive was
participating at the time of the Change in Control, including, but not
limited to, the Company's 401(k) Plan, the Company's 1998 Stock
Incentive Plan, the Company's 1999 Stock Incentive Plan, or (B)
provide the Executive with compensation and benefits at least equal
(in terms of benefit levels and/or reward opportunities) to those
provided for under each employee benefit plan, program and practice as
in effect immediately prior to the Change in Control (or as in effect
following the Change in Control, if greater).
(v) the insolvency or the filing (by any party, including the
Company) of a petition for bankruptcy, of the Company;
(vi) any material breach by the Company of any provision of this
Agreement;
(vii) the failure of the Company to obtain an agreement,
satisfactory to the Executive, from any successor or assign of the
Company to assume and agree to perform this Agreement, as contemplated
in Section 4 hereof; or
(viii) the Company requires the Executive to be based at any
office located more than fifty (50) miles from the office where the
Executive is currently based without the Executive's consent;
(e) The Executive's right to terminate his employment for Good Reason
shall not be affected by his incapacity due to physical or mental illness
if such incapacity occurs after the event or condition giving rise to
Executive's right to terminate his employment for Good Reason.
(f) Any purported termination by the Company or by the Executive shall
be communicated by written Notice of Termination to the other. For purposes
of this Agreement, a "Notice of Termination" shall mean a notice which
indicates the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
5
<PAGE>
under the provision so indicated. For purposes of this Agreement, no such
purported termination of employment shall be effective without such Notice
of Termination.
(g) For purposes of this Agreement, "Termination Date" shall mean the
date specified in the Notice of Termination; provided, that: if the
Executive's employment is terminated for Good Reason, the date specified in
the Notice of Termination shall not be more than sixty (60) days from the
date the Notice of Termination is given to the Company.
3. Compensation Upon Termination. If, after a Change in Control has
occurred and Executive's employment with the Company is terminated during the
two years following such Change in Control by the Company other than for Cause
or Disability or due to the Executive's death, or by the Executive for Good
Reason, then the Company shall pay to Executive the following benefits:
(a) The Company shall pay the Executive all amounts earned or accrued
hereunder through the Termination Date but not paid as of the Termination
Date, including (i) base salary, (ii) reimbursement for any and all monies
advanced or expenses incurred in connection with the Executive's employment
for reasonable and necessary expenses incurred by the Executive on behalf
of the Company for the period ending on the Termination Date, (iii)
vacation pay, (iv) any bonuses or incentive compensation and(v) any
previous compensation which the Executive has previously deferred
(including any interest earned or credited thereon) (collectively, "Accrued
Compensation");
(b) the Company shall pay the Executive as severance pay and in lieu
of any further salary for periods subsequent to the Termination Date, in a
single payment an amount in cash equal to one-half (.5) times the
Executive's base salary at the highest rate in effect at any time within
the ninety (90) day period ending on the date the Notice of Termination is
given (or the Executive's base salary immediately prior to the Change in
Control, if greater);
(c) for a period of six (6) months following such termination, the
Company shall at its expense continue on behalf of the Executive and his
dependents and beneficiaries the life insurance, disability, medical,
dental and hospitalization benefits which were being provided to the
Executive at the time Notice of Termination is given (or the benefits
provided to the Executive at the time of the Change in Control, if
greater). The benefits provided in this Section 3(c) shall be no less
favorable to the Executive, in terms of amounts and deductibles and costs
to him, than the coverage provided the Executive under the plans providing
such benefits at the time Notice of Termination is given (or at the time of
the Change in Control if more favorable to the Executive). The Company's
obligation hereunder with respect to the foregoing benefits shall be
limited to the extent that the Executive obtains any such benefits pursuant
to a subsequent employer's benefit plans, in which case the Company may
reduce the coverage of any benefits it is required to provide the Executive
hereunder as long as the aggregate coverage of the combined benefit plans
is no less favorable to the Executive, in terms of amounts and deductibles
and costs to him, than the coverage required to be provided hereunder. This
Subsection (c) shall not be interpreted so as to limit any benefits to
which the Executive or his dependents may be entitled under any of the
Company's employee benefit plans, programs or practices following the
Executive's termination of employment, including, without limitation,
retiree medical and life insurance benefits; and
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(d) all restrictions on any outstanding award (including restricted
stock and performance stock awards) granted to the Executive shall lapse
and such awards shall become fully (100%) vested immediately, assuming all
performance targets and goals (if applicable) had been fully met by the
Company and by the Executive, as applicable, for such year, and all stock
options and stock appreciation rights granted to the Executive shall become
fully (100%) vested and shall become immediately exercisable.
(e) The amounts provided for in Sections 3(a) and 3(b) shall be paid
within ten (10) days after the Executive's Termination Date.
(f) The Executive shall not be required to mitigate the amount of any
payment, benefit or other Company obligation provided for in this Agreement
by seeking other employment or otherwise and no such payment, benefit or
other Company obligation shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent
employment.
4. Successors and Assigns.
(a) This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns and the Company shall
require any successor or assign to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company
would be required to perform it if no such succession or assignment had
taken place. The term "the Company" as used herein shall include such
successors and assigns. The term "successors and assigns" as used herein
shall mean a corporation or other entity acquiring all or substantially all
the assets and business of the Company (including this Agreement) whether
by operation of law or otherwise.
(b) Neither this Agreement nor any right or interest hereunder shall
be assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal personal representative.
5. Covenant Not to Compete
(a) The Executive agrees that during his employment with the
Company and for six(6) months subsequent to termination of Executive's
employment with the Company following a Change in Control (the
"Non-Compete Term") the Executive shall not:
(i) Either directly or indirectly, for himself or on behalf
of or in conjunction with any other person, persons, company,
firm, partnership, corporation, business, group or other entity
(each, a "Person"), engage in any business or activity, whether
as an employee, consultant, partner, principal, agent,
representative, stockholder or other individual, corporate, or
representative capacity, or render any services or provide any
advice or substantial assistance to any business, person or
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entity, if such business, person or entity, directly or
indirectly will in any way compete with the Company (a "Competing
Business"). Without limiting the generality of the foregoing, for
purposes of this Section 5, it is understood that Competing
Businesses shall include any business which rents or sells
construction or industrial equipment or engages in the sale of
maintenance, repair or operating supplies for such equipment;
provided, however, that notwithstanding the foregoing, the
Executive may make passive investments in up to 2% of the
outstanding publicly traded common stock of an entity which
operates a Competing Business.
(ii) Either directly or indirectly, for himself or on behalf
of or in conjunction with any other Person, solicit, hire or
divert any Person who is, or who is, at the time of termination
of the Executive's employment, or has been within six (6) months
prior to the time of termination of Executive's employment, an
employee of the Company or any of its subsidiaries for the
purpose or with the intent of enticing such employee away from
the employ of the Company or any of its subsidiaries.
(iii) Either directly or indirectly, for himself or on
behalf of or in conjunction with any other Person, solicit, hire
or divert any Person who is, or who is, at the time of
termination of the Executive's employment, or has been within six
(6) months prior to the time of termination of Executive's
employment, a customer or supplier of the Company or any of its
subsidiaries for the purpose or with the intent of (A) inducing
or attempting to induce such Person to cease doin business with
the Company or (B) in any way interfering with the relationship
between such Person and the Company.
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenants, and because of
the immediate and irreparable damage that could be caused to the Company
for which it would have no other adequate remedy, the Executive agrees (i)
that the foregoing covenants, in addition to and not in limitation of any
other rights, remedies or damages available to the Company at law, in
equity or under this Agreement, may be enforced by the Company in the event
of the breach or threatened breach by the Executive, by injunctions and/or
restraining orders and (ii) to pay the sum of one thousand dollars ($1,000)
per day for each day during which the Executive is in breach of such
covenants as liquidated damages or, if greater, the amount of damages the
Company can reasonably demonstrate it incurred as a result of such breach.
The Company and Executive agree that the dollar amount in clause (ii) of
the preceding sentence represents the product of their good faith
negotiations. If the Company is involved in court or other legal
proceedings to enforce the covenants contained in this Section 5, then in
the event the Company prevails in such proceedings, the Executive shall be
liable for the payment of reasonable attorneys' fees, costs and ancillary
expenses incurred by the Company in enforcing its rights hereunder.
(c) The covenants in this Section 5 are severable and separate, and
the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of
competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth herein are unreasonable, then it is the intention of
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the parties that such restrictions be enforced to the fullest extent that
such court deems reasonable, and the Agreement shall thereby be reformed to
reflect the same.
(d) All of the covenants in this Section 5 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of the Executive against the
Company whether predicated on this Agreement or otherwise shall not
constitute a defense to the enforcement by the Company of such covenants.
It is specifically agreed that the period following the termination of the
Executive's employment with the Company during which the agreements and
covenants of the Executive made in this Section 5 shall be effective, shall
be computed by excluding from such computation any time during which the
Executive is in violation of any provision of this Section 5.
(e) Notwithstanding any of the foregoing, if any applicable law,
judicial ruling or order shall reduce the time period during which the
Executive shall be prohibited from engaging in any competitive activity
described in Section 5 hereof, the period of time for which the Executive
shall be prohibited pursuant to Section 5 hereof shall be the maximum time
permitted by law.
6. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the President. All notices and communications shall be deemed to
have been received on the date of delivery thereof or on the third business day
after the mailing thereof, except that notice of change of address shall be
effective only upon receipt.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company or any of its
subsidiaries and for which the Executive may qualify, nor shall anything herein
limit or reduce such rights as the Executive may have under any other agreements
with the Company or any of its subsidiaries. Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan or
program of the Company or any of its subsidiaries shall be payable in accordance
with such plan or program, except as explicitly modified by this Agreement.
8. Settlement of Claims. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.
9. Federal Income Tax Withholding. The Company may withhold from any
benefits payable under this Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
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10. Pooling Transactions. Notwithstanding anything to the contrary, in the
event of a Change in Control which is also intended to constitute a pooling
transaction, the Company shall take such actions, if any, as specifically
recommended by an independent accounting firm retained by the Company to the
extent reasonably necessary in order to assure that the pooling transaction will
qualify as such, including, without limitation, (i) deferring the vesting,
exercise, payment, settlement or lapsing restrictions with respect to any
payments of base salary, other payments or benefits, allowances, awards,
reimbursements or perquisites that are provided for hereunder, (ii) providing
that the payment or settlement be made in the form of cash, Voting Securities or
securities of a successor or acquirer of the Company, or a combination of the
foregoing, and (iii) providing for the extension of the term of any option to
the extent necessary to accommodate the foregoing, but not beyond the maximum
term of such option.
11. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
12. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Florida, without giving
effect to the conflict of law principles thereof.
13. Jurisdiction and Venue. Each of the parties to this Agreement hereby
(a) consents to personal jurisdiction in any suit, claim, action or proceeding
relating to or arising under this Agreement which is brought in any local or
federal court in the State of Florida, (b) consents to service of process upon
such party in the manner set forth in Section 6 hereof, and (c) waives any
objection such party may have to venue in any such Florida court or to any claim
that any such Florida court is an inconvenient forum.
14. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
15. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Executive has executed this
Agreement as of the day and year first above written.
NEFF CORP.
By: /s/ Kevin P. Fitzgerald
------------------------------------
Name: Kevin P. Fitzgerald
Title: Chief Executive Officer and President
MARK IRION
/s/ Mark Irion
------------------------------------
11
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into as of
the 21 day of May, 1999, by and between Neff Corp., a Delaware Company
(the "Company"), and Manuel Alvarez, an individual (the "Executive")
(hereinafter collectively referred to as the "Parties").
WHEREAS, the Company recognizes the valuable services the Executive
has rendered to the Company as Chief Financial Officer of Neff Machinery,
Inc., a wholly-owned subsidiary of the Company and desires assurance that
Executive will continue to provide his services to the Company;
WHEREAS, the Executive is willing to continue to serve the Company,
but desires assurance that in the event of any Change in Control of the
Company he will continue to have the responsibilities and privileges he now
has;
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that the best interests of the Company would be served by
providing Executive with certain protections and benefits following any
Change in Control of the Company.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties, intending to be
legally bound, agree as follows:
1. Change in Control. No benefits shall be payable under this Agreement
unless there shall have occurred a Change in Control of the Company, as defined
below, and Executive's employment by the Company shall have been terminated
thereafter in accordance with Section 2. For purposes of this Agreement, a
"Change in Control" shall mean any of the following events:
(a) An acquisition (other than directly from Neff Corp. (the
(Company")) of any voting securities of the Company (the "Voting
Securities") by any "Person" (as the term person is used for purposes of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of thirty percent (30%) or more of the then outstanding Shares or the
combined voting power of the Company's then outstanding Voting Securities;
provided, however, that Beneficial Ownership by any of Jorge Mas, Juan
Carlos Mas, Jose Ramon Mas, or aggregate Beneficial Ownership by General
Electric Capital Corporation and any of its 100% Affiliates (as defined),
of thirty percent (30%) or more of the then outstanding Shares or the
combined voting power of the Company's then outstanding Voting Securities
shall not constitute a Change in Control; provided further, however, in
determining whether a Change in Control has occurred, Shares or Voting
Securities which are acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an acquisition which would cause
a Change in Control. A "Non-Control Acquisition" shall mean an acquisition
<PAGE>
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 of this Agreement are members
of the Board (the "Incumbent Board"), cease for any reason to constitute at
least two-thirds of the members of the Board of Directors of the Company;
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 Agreement, be considered as a member of the Incumbent
Board; provided further, however, that no individual shall be considered a
member of the Incumbent Board if such individual initially assumed office
as a result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board (a "Proxy Contest") including by reason of
any agreement intended to avoid or settle any Election Contest or Proxy
Contest; or
(c) The consummation of:
(i) A merger, consolidation or reorganization involving the
Company, unless such merger, consolidation or reorganization is a
"Non-Control Transaction." A "Non-Control Transaction" shall mean a
merger, consolidation or reorganization of the Company where:
(A) the stockholders of the Company, immediately before such
merger, consolidation or reorganization, own directly or
indirectly immediately following such merger, consolidation or
reorganization, at least fifty percent (50%) of the combined
voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially the
same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or reorganization,
(B) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for
such merger, consolidation or reorganization constitute at least
two-thirds of the members of the board of directors of the
Surviving Corporation, or a corporation beneficially directly or
indirectly owning a majority of the Voting Securities of the
Surviving Corporation, and
(C) no Person other than (i) the Company, (ii) any
Subsidiary, (iii) any employee benefit plan (or any trust forming
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a part thereof) that, immediately prior to such merger,
consolidation or reorganization, was maintained by the Company,
or any Subsidiary, or (iv) any Person who, immediately prior to
such merger, consolidation or reorganization had Beneficial
Ownership of fifty percent (50%) or more of the then outstanding
Voting Securities or Shares, has Beneficial Ownership of fifty
percent (50%) or more of the combined voting power of the
Surviving Corporation's then outstanding voting securities or its
common stock.
(ii) A complete liquidation or dissolution of the Company; or
(iii) The sale or other disposition of all or substantially all of the
assets of the Company to any Person (other than a transfer to a
Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding Shares or
Voting Securities as a result of the acquisition of Shares or Voting Securities
by the Company which, by reducing the number of Shares or Voting Securities then
outstanding, increases the proportional number of shares Beneficially Owned by
the Subject Persons, provided that if a Change in Control would occur (but for
the operation of this sentence) as a result of the acquisition of Shares or
Voting Securities by the Company, and after such share acquisition by the
Company, the Subject Person becomes the Beneficial Owner of any additional
Shares or Voting Securities which increases the percentage of the then
outstanding Shares or Voting Securities Beneficially Owned by the Subject
Person, then a Change in Control shall occur.
For the purposes of this Agreement, "100% Affiliate" means with respect to
any Person, (i) each other Person that, directly or indirectly, owns or controls
one hundred percent (100%) of the stock having ordinary voting power in the
election of directors of such Person, (ii) each other Person of which the stock
having ordinary voting power in the election of its directors is owned or
controlled one hundred percent (100%) by such Person, or (iii) each other Person
of which the stock having ordinary voting power in the election of its directors
is owned or controlled one hundred percent (100%) by any Person defined in
clause (i) above or any of its 100% Affiliates.
2. Termination of Employment Following Change in Control.
(a) If a Change in Control of the Company occurs, the Executive shall
be entitled to the benefits provided in Section 3 upon (i) the subsequent
termination by the Company of Executive's employment with the Company for
any reason other than for Cause (as defined), Disability (as defined) or
due to the Executive's death, during the two year period following the
Change in Control or (ii) the subsequent termination by the Executive of
his employment with the Company for Good Reason (as defined) during the two
year period following the Change in Control.
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If the Executive's employment is terminated by the Company without Cause
prior to the date of a Change in Control but the Executive reasonably
demonstrates that the termination (i) was at the request of a third party who
has indicated an intention or taken steps reasonably calculated to effect a
change in control or (ii) otherwise arose in connection with, or in anticipation
of, a Change in Control which has been threatened or proposed, such termination
shall be deemed to have occurred after a Change in Control for purposes of this
Agreement provided a Change in Control shall actually have occurred.
(b) For purposes of this Agreement, "Disability" means a physical or
mental infirmity which impairs the Executive's ability to perform
substantially his duties for a period of one hundred eighty (180)
consecutive days. A determination of Disability shall be made by a
physician satisfactory to both the Executive and the Company, which
physician's determination as to Disability shall be made within 10 days of
the request therefor and shall be binding on all parties; provided,
however, that if the Executive and the Company do not agree on a physician,
the Executive and the Company shall each select a physician and these two
together shall select a third physician, which third physician's
determination as to Disability shall be binding on all parties.
(c) The Company shall be deemed to have terminated the Executive's
employment for "Cause" in the event that the Executive's employment is
terminated for any of the following reasons: (i) 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;
(ii) dishonesty or willful misconduct in the performance of duties; or
(iii) willful violation of any law, rule or regulation in connection with
the performance of duties (other than traffic violations or similar
offenses); provided, that no act or failure to act shall be considered
willful unless done or omitted to be done in bad faith and without
reasonable belief that the action or omission was in the best interests of
the Company. Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by the Executive after Notice of
Termination (as defined) is given by the Company shall constitute Cause for
purposes of this Agreement.
(d) For purposes of this Agreement, Good Reason shall mean the
occurrence of any of the events or conditions described in Subsections (i)
through (viii) hereof:
(i) a change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, does not represent a promotion from
his status, title, position or responsibilities as in effect
immediately prior thereto; the assignment to the Executive of any
duties or responsibilities which, in the Executive's reasonable
judgment, are inconsistent with such status, title, position or
responsibilities; or any removal of the Executive from or failure to
reappoint or reelect his to any of such positions, except in
connection with the termination of his employment for Disability,
Cause, as a result of his death or by the Executive other than for
Good Reason;
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(ii) a reduction in the Executive's base salary or any failure to
pay the Executive any compensation or benefits to which he is entitled
within five (5) days of the date due;
(iii) a failure by the Company to increase the Executive's base
salary at least annually at a percentage of base salary no less than
the average percentage increases granted to the Executive during the
three most recent full years ended prior to a Change in Control;
(iv) the failure by the Company to (A) continue in effect
(without reduction in benefit level and/or reward opportunities) any
material compensation or benefit plan in which the Executive was
participating at the time of the Change in Control, including, but not
limited to, the Company's 401(k) Plan, the Company's 1998 Stock
Incentive Plan, the Company's 1999 Stock Incentive Plan, or (B)
provide the Executive with compensation and benefits at least equal
(in terms of benefit levels and/or reward opportunities) to those
provided for under each employee benefit plan, program and practice as
in effect immediately prior to the Change in Control (or as in effect
following the Change in Control, if greater).
(v) the insolvency or the filing (by any party, including the
Company) of a petition for bankruptcy, of the Company;
(vi) any material breach by the Company of any provision of this
Agreement;
(vii) the failure of the Company to obtain an agreement,
satisfactory to the Executive, from any successor or assign of the
Company to assume and agree to perform this Agreement, as contemplated
in Section 4 hereof; or
(viii) the Company requires the Executive to be based at any
office located more than fifty (50) miles from the office where the
Executive is currently based without the Executive's consent;
(e) The Executive's right to terminate his employment for Good Reason
shall not be affected by his incapacity due to physical or mental illness
if such incapacity occurs after the event or condition giving rise to
Executive's right to terminate his employment for Good Reason.
(f) Any purported termination by the Company or by the Executive shall
be communicated by written Notice of Termination to the other. For purposes
of this Agreement, a "Notice of Termination" shall mean a notice which
indicates the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated. For purposes of this Agreement, no such
purported termination of employment shall be effective without such Notice
of Termination.
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(g) For purposes of this Agreement, "Termination Date" shall mean the
date specified in the Notice of Termination; provided, that: if the
Executive's employment is terminated for Good Reason, the date specified in
the Notice of Termination shall not be more than sixty (60) days from the
date the Notice of Termination is given to the Company.
3. Compensation Upon Termination. If, after a Change in Control has
occurred and Executive's employment with the Company is terminated during the
two years following such Change in Control by the Company other than for Cause
or Disability or due to the Executive's death, or by the Executive for Good
Reason, then the Company shall pay to Executive the following benefits:
(a) The Company shall pay the Executive all amounts earned or accrued
hereunder through the Termination Date but not paid as of the Termination
Date, including (i) base salary, (ii) reimbursement for any and all monies
advanced or expenses incurred in connection with the Executive's employment
for reasonable and necessary expenses incurred by the Executive on behalf
of the Company for the period ending on the Termination Date, (iii)
vacation pay, (iv) any bonuses or incentive compensation and (v) any
previous compensation which the Executive has previously deferred
(including any interest earned or credited thereon) (collectively, "Accrued
Compensation");
(b) the Company shall pay the Executive as severance pay and in lieu
of any further salary for periods subsequent to the Termination Date, in a
single payment an amount in cash equal to one (1) times the Executive's
base salary at the highest rate in effect at any time within the ninety
(90) day period ending on the date the Notice of Termination is given (or
the Executive's base salary immediately prior to the Change in Control, if
greater) plus the amount of the cash bonus Executive received, if any, in
the most recently completed fiscal year;
(c) for a period of one (1) year following such termination, the
Company shall at its expense continue on behalf of the Executive and his
dependents and beneficiaries the life insurance, disability, medical,
dental and hospitalization benefits which were being provided to the
Executive at the time Notice of Termination is given (or the benefits
provided to the Executive at the time of the Change in Control, if
greater). The benefits provided in this Section 3(c) shall be no less
favorable to the Executive, in terms of amounts and deductibles and costs
to him, than the coverage provided the Executive under the plans providing
such benefits at the time Notice of Termination is given (or at the time of
the Change in Control if more favorable to the Executive). The Company's
obligation hereunder with respect to the foregoing benefits shall be
limited to the extent that the Executive obtains any such benefits pursuant
to a subsequent employer's benefit plans, in which case the Company may
reduce the coverage of any benefits it is required to provide the Executive
hereunder as long as the aggregate coverage of the combined benefit plans
is no less favorable to the Executive, in terms of amounts and deductibles
and costs to him, than the coverage required to be provided hereunder. This
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Subsection (c) shall not be interpreted so as to limit any benefits to
which the Executive or his dependents may be entitled under any of the
Company's employee benefit plans, programs or practices following the
Executive's termination of employment, including, without limitation,
retiree medical and life insurance benefits; and
(d) all restrictions on any outstanding award (including restricted
stock and performance stock awards) granted to the Executive shall lapse
and such awards shall become fully (100%) vested immediately, assuming all
performance targets and goals (if applicable) had been fully met by the
Company and by the Executive, as applicable, for such year, and all stock
options and stock appreciation rights granted to the Executive shall become
fully (100%) vested and shall become immediately exercisable.
(e) The amounts provided for in Sections 3(a) and 3(b) shall be paid
within ten (10) days after the Executive's Termination Date.
(f) The Executive shall not be required to mitigate the amount of any
payment, benefit or other Company obligation provided for in this Agreement
by seeking other employment or otherwise and no such payment, benefit or
other Company obligation shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent
employment.
4. Successors and Assigns.
(a) This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns and the Company shall
require any successor or assign to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company
would be required to perform it if no such succession or assignment had
taken place. The term "the Company" as used herein shall include such
successors and assigns. The term "successors and assigns" as used herein
shall mean a corporation or other entity acquiring all or substantially all
the assets and business of the Company (including this Agreement) whether
by operation of law or otherwise.
(b) Neither this Agreement nor any right or interest hereunder shall
be assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal personal representative.
5. Covenant Not to Compete
(a) The Executive agrees that during his employment with the Company
and for six (6) months subsequent to termination of Executive's employment
with the Company following a Change in Control (the "Non-Compete Term") the
Executive shall not:
(i) Either directly or indirectly, for himself or on behalf
of or in conjunction with any other person, persons, company,
firm, partnership, corporation, business, group or other entity
(each, a "Person"), engage in any business or activity, whether
as an employee, consultant, partner, principal, agent,
representative, stockholder or other individual, corporate, or
7
<PAGE>
representative capacity, or render any services or provide any
advice or substantial assistance to any business, person or
entity, if such business, person or entity, directly or
indirectly will in any way compete with the Company (a "Competing
Business"). Without limiting the generality of the foregoing, for
purposes of this Section 5, it is understood that Competing
Businesses shall include any business which rents or sells
construction or industrial equipment or engages in the sale of
maintenance, repair or operating supplies for such equipment;
provided, however, that notwithstanding the foregoing, the
Executive may make passive investments in up to 2% of the
outstanding publicly traded common stock of an entity which
operates a Competing Business.
(ii) Either directly or indirectly, for himself or on behalf
of or in conjunction with any other Person, solicit, hire or
divert any Person who is, or who is, at the time of termination
of the Executive's employment, or has been within six (6) months
prior to the time of termination of Executive's employment, an
employee of the Company or any of its subsidiaries for the
purpose or with the intent of enticing such employee away from
the employ of the Company or any of its subsidiaries.
(iii) Either directly or indirectly, for himself or on
behalf of or in conjunction with any other Person, solicit, hire
or divert any Person who is, or who is, at the time of
termination of the Executive's employment, or has been within six
(6) months prior to the time of termination of Executive's
employment, a customer or supplier of the Company or any of its
subsidiaries for the purpose or with the intent of (A) inducing
or attempting to induce such Person to cease doin business with
the Company or (B) in any way interfering with the relationship
between such Person and the Company.
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenants, and
because of the immediate and irreparable damage that could be caused
to the Company for which it would have no other adequate remedy, the
Executive agrees (i) that the foregoing covenants, in addition to and
not in limitation of any other rights, remedies or damages available
to the Company at law, in equity or under this Agreement, may be
enforced by the Company in the event of the breach or threatened
breach by the Executive, by injunctions and/or restraining orders and
(ii) to pay the sum of one thousand dollars ($1,000) per day for each
day during which the Executive is in breach of such covenants as
liquidated damages or, if greater, the amount of damages the Company
can reasonably demonstrate it incurred as a result of such breach. The
Company and Executive agree that the dollar amount in clause (ii) of
the preceding sentence represents the product of their good faith
negotiations. If the Company is involved in court or other legal
proceedings to enforce the covenants contained in this Section 5, then
in the event the Company prevails in such proceedings, the Executive
shall be liable for the payment of reasonable attorneys' fees, costs
and ancillary expenses incurred by the Company in enforcing its rights
hereunder.
(c) The covenants in this Section 5 are severable and separate, and
the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of
competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth herein are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent that
such court deems reasonable, and the Agreement shall thereby be reformed to
reflect the same.
8
<PAGE>
(d) All of the covenants in this Section 5 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of the Executive against the
Company whether predicated on this Agreement or otherwise shall not
constitute a defense to the enforcement by the Company of such covenants.
It is specifically agreed that the period following the termination of the
Executive's employment with the Company during which the agreements and
covenants of the Executive made in this Section 5 shall be effective, shall
be computed by excluding from such computation any time during which the
Executive is in violation of any provision of this Section 5.
(e) Notwithstanding any of the foregoing, if any applicable law,
judicial ruling or order shall reduce the time period during which the
Executive shall be prohibited from engaging in any competitive activity
described in Section 5 hereof, the period of time for which the Executive
shall be prohibited pursuant to Section 5 hereof shall be the maximum time
permitted by law.
6. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the President. All notices and communications shall be deemed to
have been received on the date of delivery thereof or on the third business day
after the mailing thereof, except that notice of change of address shall be
effective only upon receipt.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company or any of its
subsidiaries and for which the Executive may qualify, nor shall anything herein
limit or reduce such rights as the Executive may have under any other agreements
with the Company or any of its subsidiaries. Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan or
program of the Company or any of its subsidiaries shall be payable in accordance
with such plan or program, except as explicitly modified by this Agreement.
8. Settlement of Claims. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.
9. Federal Income Tax Withholding. The Company may withhold from any
benefits payable under this Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
9
<PAGE>
10. Pooling Transactions. Notwithstanding anything to the contrary, in the
event of a Change in Control which is also intended to constitute a pooling
transaction, the Company shall take such actions, if any, as specifically
recommended by an independent accounting firm retained by the Company to the
extent reasonably necessary in order to assure that the pooling transaction will
qualify as such, including, without limitation, (i) deferring the vesting,
exercise, payment, settlement or lapsing restrictions with respect to any
payments of base salary, other payments or benefits, allowances, awards,
reimbursements or perquisites that are provided for hereunder, (ii) providing
that the payment or settlement be made in the form of cash, Voting Securities or
securities of a successor or acquirer of the Company, or a combination of the
foregoing, and (iii) providing for the extension of the term of any option to
the extent necessary to accommodate the foregoing, but not beyond the maximum
term of such option.
11. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
12. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Florida, without giving
effect to the conflict of law principles thereof.
13. Jurisdiction and Venue. Each of the parties to this Agreement hereby
(a) consents to personal jurisdiction in any suit, claim, action or proceeding
relating to or arising under this Agreement which is brought in any local or
federal court in the State of Florida, (b) consents to service of process upon
such party in the manner set forth in Section 6 hereof, and (c) waives any
objection such party may have to venue in any such Florida court or to any claim
that any such Florida court is an inconvenient forum.
14. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
15. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
10
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Executive has executed this
Agreement as of the day and year first above written.
NEFF CORP.
By: /s/ Kevin P. Fitzgerald
---------------------------------------------
Name: Kevin P. Fitzgerald
Title: Chief Executive Officer and President
MANUEL ALVAREZ
/s/ Manuel Alvarez
---------------------------------------------
11
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