AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 1999
REGISTRATION STATEMENT NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------
NEFF CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 65-0626400
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
<TABLE>
<S> <C>
NEFF MACHINERY,
NEFF RENTAL, INC. INC.
(EXACT NAME OF CO-REGISTRANT (EXACT NAME OF CO-REGISTRANT
GUARANTOR AS SPECIFIED IN ITS CHARTER) GUARANTOR AS SPECIFIED IN ITS CHARTER)
FLORIDA FLORIDA
(STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) INCORPORATION OR ORGANIZATION)
65-0160403 65-0083839
(I.R.S. EMPLOYER (I.R.S. EMPLOYER
IDENTIFICATION NO.) IDENTIFICATION NO.)
<S> <C>
NEFF ASSET AIR RENTAL &
MANAGEMENT, INC. SUPPLY, INC.
(EXACT NAME OF CO-REGISTRANT (EXACT NAME OF CO-REGISTRANT
GUARANTOR AS SPECIFIED IN ITS CHARTER) GUARANTOR AS SPECIFIED IN ITS CHARTER)
DELAWARE TEXAS
(STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) INCORPORATION OR ORGANIZATION)
65-0626400 65-0160403
(I.R.S. EMPLOYER (I.R.S. EMPLOYER
IDENTIFICATION NO.) IDENTIFICATION NO.)
</TABLE>
7353
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION NUMBER)
<TABLE>
<S> <C>
KEVIN P. FITZGERALD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEFF CORP.
3750 N.W. 87TH AVENUE 3750 N.W. 87TH AVENUE
MIAMI, FLORIDA 33178 MIAMI, FLORIDA 33178
(305) 513-3350 (305) 513-3350
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
COPIES TO:
STEPHEN I. GLOVER, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
1001 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004
(202) 639-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
---------------
If any of the securities being registered on this Form are being offered
in connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
<TABLE>
<CAPTION>
============================================================================================================
PROPOSED
AMOUNT MAXIMUM PROPOSED AMOUNT OF
TITLE OF EACH CLASS TO BE OFFERING PRICE MAXIMUM REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE(1) FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 1/4% Senior Subordinated
Notes due 2008 ................... $100,000,000 98.516% $98,516,000 $ 29,062.22
- ------------------------------------------------------------------------------------------------------------
Guarantees(2) ..................... (3) (3) (3) (3)
============================================================================================================
<FN>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended.
(2) The Company's wholly-owned domestic subsidiaries, Neff Rental, Inc., Neff
Machinery, Inc., Neff Asset Management, Inc. and Air Rental & Supply, Inc.
(the "Guarantors") have guaranteed on a senior unsecured basis, jointly
and severally, the payment of the principal of, premium, if any, and
interest on the 10 1/4% Senior Subordinated Notes due 2008 being
registered hereby (the "Guarantees"). The Guarantors are registering the
Guarantees. Pursuant to Rule 457(n) under the Securities Act of 1933, as
amended, no registration fee is required with respect to the Guarantees.
(3) Not applicable.
</FN>
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED JANUARY 22, 1999
[NEFF LOGO]
NEFF CORP.
EXCHANGE OFFER FOR
$100,000,000
10 1/4% SENIOR SUBORDINATED NOTES DUE 2008
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THE COMPANY
We are one of the largest and fastest growing equipment rental companies in the
United States, with 86 rental locations in 15 states and South America.
THE EXCHANGE OFFER
We offer to exchange up to $100,000,000 aggregate principal balance of our
10 1/4% Senior Subordinated Notes due 2008 (the "New Notes") which are
registered under the Securities Act of 1933, for an equal principal balance of
our outstanding 10 1/4% Senior Subordinated Notes due 2008 which were issued on
December 9, 1998 in a private sale (the "Old Notes").
THE NEW NOTES
The terms of the New Notes are substantially identical to the Old Notes, except
that the New Notes will be freely tradable.
PROPOSED TRADING FORMAT
The over-the-counter market, negotiated transactions or a combination of these
methods.
TERMS OF THE EXCHANGE OFFER
/bullet/ The Exchange Offer expires at 5:00 p.m., New York City time, on ,
1999, unless extended.
/bullet/ The exchange offer is not conditioned upon any minimum principal
balance of the Old Notes being tendered for exchange.
/bullet/ The exchange offer is subject to certain customary conditions which we
may waive.
/bullet/ We will exchange all Old Notes that you validly tender and do not
withdraw.
/bullet/ You may withdraw Old Notes that you tender at any time before the
offer expires.
/bullet/ The exchange of Old Notes for New Notes will not be taxable under the
United States Internal Revenue Code.
/bullet/ We will not receive any proceeds from the Exchange Offer.
INVESTMENT IN THE NEW NOTES INVOLVE RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE
15.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE OLD NOTES OR THE NEW NOTES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH YOU SHOULD READ BEFORE DECIDING WHETHER TO TENDER YOUR OLD
NOTES PURSUANT TO THE EXCHANGE OFFER.
, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
-----
Additional Information ............................................ 3
Documents Incorporated by Reference ............................... 4
Prospectus Summary ................................................ 5
Risk Factors ...................................................... 15
Cautionary Notice Regarding Forward-Looking Statements ............ 23
Use of Proceeds ................................................... 23
Capitalization .................................................... 24
Unaudited Pro Forma Consolidated Financial Data ................... 25
Selected Consolidated Financial Data .............................. 29
Management's Discussion and Analysis of
Financial Condition and Results of Operations ................... 31
The Exchange Offer ................................................ 37
Business .......................................................... 45
Management ........................................................ 54
Principal Stockholders ............................................ 58
Certain Relationships and Transactions ............................ 59
Description of Capital Stock ...................................... 61
Description of Credit Facilities .................................. 67
Description of the Notes .......................................... 68
Exchange Offer; Registration Rights................................ 106
Book Entry; Delivery and Form ..................................... 108
Material United States Federal Income Tax Considerations .......... 109
Plan of Distribution .............................................. 113
Legal Matters ..................................................... 113
Experts............................................................ 114
Index to Financial Statements ..................................... F-1
2
<PAGE>
ADDITIONAL INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission in compliance with the
information reporting requirements of the Exchange Act. You may read and copy
any of the information on file with the Commission at the Commission's
following locations:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, N.Y. 10048 Chicago, IL 60661-2511
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 or by telephone at 1-800-SEC-0330. The Company's
Commission filings are also available to the public from commercial document
retrieval services and at the Commission's World Wide Web site located at
"http://www.sec.gov".
We have filed a registration statement on Form S-4 under the Securities
Act with the Commission with respect to the New Notes offered by this
prospectus. The Commission's rules and regulations permit us to omit from this
prospectus certain information contained in the registration statement. For
additional information with respect to us and the New Notes, we refer you to
the registration statement, including its exhibits and the financial
statements, notes and schedules filed as a part of it. You may read and copy
the registration statement at the public reference facilities mentioned above.
Statements in this prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance we refer you to the
full text of such contract or document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
We have agreed that for so long as any of the Old Notes or New Notes
(collectively, the "Notes") remain outstanding, we will furnish to the Holders
and file with the Commission (1) all quarterly and annual financial information
required to be included in quarterly and annual reports on Forms 10-Q and 10-K
and (2) all reports that would be required to be filed with the Commission on
Form 8-K, in each case within the time periods set forth in the Commission's
rules and regulations. In addition, for so long as any of the Notes remain
outstanding, we have agreed to make available to any beneficial owner of the
Notes in connection with any sale of the Notes, the information required by
Rule 144A(d)(4) under the Securities Act.
3
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The Commission allows us to "incorporate by reference" information into
this prospectus, which means we can disclose important information to you by
referring you to another document we filed separately with the Commission. This
prospectus incorporates by reference the documents listed below that we have
previously filed with the Commission. These documents contain important
information about us and our financial condition:
1. Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998.
2. Our Current Report on Form 8-K dated June 30, 1998 and filed on July
15, 1998.
3. Our Registration Statement on Form S-1 dated March 17, 1998, as amended
(registration no. 333-48077).
4. Our Registration Statement on Form S-4 dated July 17, 1998
(registration no. 333-59313).
All reports and other documents that we file with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
prospectus and before the consummation of the Exchange Offer shall also be
incorporated by reference in and considered to be a part of this prospectus
from the date of filing such reports and documents.
Any statement contained in this prospectus or in a document incorporated
by reference in this prospectus shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement in any document
that we file after the date of this prospectus that is incorporated by
reference in this prospectus modifies or supersedes such prior statement. Any
statement so modified or superseded shall not, except as so modified or
superseded, constitute a part of this prospectus.
We will send to you, without charge, upon your written or oral request, a
copy of any and all documents incorporated by reference in this prospectus.
This does not include any of the exhibits to such information. Direct your
requests to:
Neff Corp.
3750 N.W. 87th Avenue
Miami, Florida 33178
Attn: Pat Martinez
Telephone: (305) 513-3350
IN ORDER TO TIMELY DELIVER THE REQUESTED MATERIALS BEFORE THE EXPIRATION
OF THE EXCHANGE OFFER, ANY REQUEST SHOULD BE MADE PRIOR TO , 1999.
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING THE
FINANCIAL STATEMENTS AND THE NOTES THERETO AND THE UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL DATA BEFORE TENDERING YOUR NOTES FOR EXCHANGE. UNLESS
THE CONTEXT OTHERWISE REQUIRES, "NEFF," THE "COMPANY," "WE," "OUR" AND "US"
REFER TO NEFF CORP. AND ITS SUBSIDIARIES, INCLUDING NEFF RENTAL, INC. ("NEFF
RENTAL"), NEFF MACHINERY, INC. ("NEFF MACHINERY"), AIR RENTAL & SUPPLY, INC.
("AIR RENTAL"), NEFF ASSET MANAGEMENT, INC. ("NEFF ASSET MANAGEMENT") AND
SULLAIR ARGENTINA SOCIEDAD ANONIMA ("S.A. ARGENTINA"). UNLESS THE CONTEXT
OTHERWISE REQUIRES, ALL REFERENCES TO GENERAL ELECTRIC CAPITAL CORPORATION ("GE
CAPITAL") INCLUDE ITS AFFILIATE GECFS, INC.
THE COMPANY
Neff is one of the largest and fastest growing equipment rental companies
in the United States, with 84 rental locations in 15 states and South America.
We rent a wide variety of equipment, including backhoes, air compressors,
loaders, lifts and compaction equipment to construction and industrial
customers. We also act as a dealer of new equipment on behalf of several
nationally recognized equipment manufacturers. In addition, we sell used
equipment, spare parts and merchandise and provide ongoing repair and
maintenance services. We have increased our total revenues from $67.3 million
in 1995 to $142.0 million in 1997; pro forma for the Acquisitions (as defined
below in this section), our total revenues for 1997 were $274.5 million.
According to industry sources, the U.S. equipment rental industry grew
from approximately $600 million in revenues in 1982 to an estimated $18 billion
in 1997. This growth is primarily attributable to construction and industrial
companies increasingly outsourcing their equipment needs to reduce investment
in non-core assets and convert costs from fixed to variable. The equipment
rental industry is highly fragmented, with an estimated 17,000 equipment rental
companies in the United States. As a result, we believe that well-capitalized
operators like us have substantial consolidation opportunities. According to
Rental Equipment Register and studies prepared by Manfredi & Associates, Inc.
on the size of the equipment rental market, no single company's rental revenues
represented more than 3% of total market revenues in 1997. Relative to smaller
competitors, we have several advantages, including increased purchasing power,
larger inventories to service larger accounts and the ability to transfer
equipment among rental locations in response to changing patterns of customer
demand.
COMPETITIVE STRENGTHS
We believe we have several competitive strengths which provide us with the
opportunity for continued growth and increased profitability.
STRONG MARKET POSITION. Neff is one of the largest and fastest growing
construction and industrial equipment rental companies in the United States,
and is a leading competitor with a significant presence in the Southeast and
Gulf Coast regions. We operate 84 rental locations in 15 states, including
Florida, Georgia, Alabama, Mississippi, South Carolina, North Carolina,
Tennessee, Louisiana, Texas, Oklahoma, Arizona, Nevada, Utah, California and
Colorado, and South America. From December 31, 1995 to September 30,1998, we
increased our equipment rental locations from eight to 83 and expanded our
rental fleet from $62.0 million to $433.5 million based on original cost. We
believe our size and geographic diversity help insulate us from regional
economic downturns.
HIGH QUALITY RENTAL FLEET. We believe our rental fleet is one of the
newest, most comprehensive and well-maintained in the equipment rental
industry. As of September 30, 1998, the average age of a piece of equipment in
our rental fleet was approximately 20 months. We make ongoing capital
investments in new equipment, engage in regular sales of new equipment and
conduct an advanced preventative maintenance program. Management believes this
maintenance program increases fleet utilization, extends the useful life of
equipment and produces higher resale values.
EXCELLENT CUSTOMER SERVICE. We differentiate ourselves from our
competitors by providing high quality, responsive service to our customers.
Service initiatives include (1) reliable on-time equipment
5
<PAGE>
delivery directly to customers' job sites; (2) on-site repairs and maintenance
of rental equipment by factory trained mechanics, generally available 24 hours
a day, seven days a week; and (3) ongoing training of an experienced sales
force to consult with customers regarding their equipment needs.
STATE-OF-THE-ART MANAGEMENT INFORMATION SYSTEM. We have developed a
customized, state-of-the-art management information system capable of
monitoring operations at up to 300 sites. We use this system to maximize fleet
utilization and determine the optimal fleet composition by market. The system
links all of our rental locations and allows management to track customer and
sales information, as well as the location, rental status and maintenance
history of every piece of equipment in the rental fleet. Rental location
managers can search our entire rental fleet for needed equipment, quickly
determine the closest location of such equipment, and arrange for delivery to
the customer's work site, thus maximizing equipment utilization.
EXPERIENCED MANAGEMENT TEAM. Since 1995, we have significantly increased
the quality and depth of our management team to help oversee our growth
strategy. Our senior management team has extensive experience in the equipment
rental industry and our seven regional managers have, on average, 21 years of
experience and substantial knowledge of the local markets served within their
regions. We believe that our management team has the ability to continue the
Company's strong growth as well as manage the Company on a much larger scale.
We are not dependent on recruiting additional operating, acquisition, finance
or other personnel to implement our growth strategy. The Mas family, the
majority owner of the Company, is also the majority owner of MasTec, Inc., a
public company engaged in the telecommunications construction business.
Management believes the Mas family and GE Capital, another of our major
stockholders, are valuable in identifying and evaluating acquisitions in both
North and South America.
BUSINESS STRATEGY
Our objective is to increase revenue, cash flow and profitability by
building and maintaining a leading market position in the equipment rental
industry. Key elements of our business strategy include:
INCREASE PROFITABILITY OF RECENTLY OPENED RENTAL LOCATIONS. Since March 1,
1995, we have opened 26 start-up rental equipment locations including 11
locations in 1997 and five locations in the first nine months of 1998. Because
we incur significant expenses in connection with the opening of new locations,
management believes our financial performance does not yet fully recognize the
benefit of these rental locations. Based on our historical experience, a new
equipment rental location tends to realize significant increases in revenues,
cash flow and profitability during the first three years of operation as more
prospective customers become aware of its operation and as the rental equipment
fleet is customized to local market demand. Because there is relatively little
incremental operating expense associated with these revenues, cash flow and
profitability increase significantly as a rental location matures.
INCREASE FLEET AT EXISTING LOCATIONS. We believe we can capitalize on the
demand for rental equipment in the markets we serve and increase revenues by
increasing the size of our rental fleet and adding new product lines at
existing locations. We believe that this strategy allows us to attract new
customers and serve as a single source supplier for our customers. Because the
start-up expenditures associated with increasing the fleet and expanding
product lines at existing locations are relatively modest, these investments
typically generate higher and faster returns than investments in new locations.
ACQUIRE EQUIPMENT RENTAL COMPANIES. We intend to continue to expand
primarily through acquisitions of equipment rental companies and believe there
are a significant number of acquisition opportunities in North and South
America which would complement our existing operations. After completing an
acquisition, we generally integrate the operations of the acquired company into
our management information system, consolidate equipment purchasing and resale
functions and
6
<PAGE>
centralize fleet management as quickly as possible while assuring consistent,
high quality service to the acquired company's customers. Since July 1997, we
have made several strategic acquisitions which have more than doubled our
number of rental locations, significantly enhanced our geographic presence and
further diversified our customer base. We also acquired 65% of S.A. Argentina,
a leading equipment rental company and dealer of new equipment in South
America.
SELECTIVE OPENINGS OF START-UP EQUIPMENT RENTAL LOCATIONS. Although we
intend to expand our operations primarily through acquisitions, we may open
additional start-up locations in markets where we are not able to identify
attractive acquisition candidates. We have been successful in opening start-up
equipment rental locations in existing markets and new markets. We have opened
26 start-up equipment rental locations since March 1995. Our decision to open a
start-up equipment rental location is based upon a review of demographic
information, business growth projections and the level of existing competition.
Because our management team has extensive experience opening start-up
locations, our growth strategy is not dependent on the availability of
acquisition candidates on satisfactory terms. See "--Recent Acquisitions."
COMPANY HISTORY
Neff was founded in 1988 and is majority owned by the Mas family, GE
Capital and Santos Fund 1, L.P., a Texas limited partnership ("Santos"), which
is owned by the Mas family and Kevin P. Fitzgerald, the Chief Executive Officer
and President of the Company. The Mas family is also the principal stockholder
of MasTec, Inc., a public company traded on the New York Stock Exchange and one
of the largest providers of telecommunications-related engineering and
construction services in the United States, South America and Europe. In 1995,
we entered into a strategic partnership with GE Capital to take advantage of
growth and consolidation opportunities in the equipment rental industry. See
"Certain Relationships and Transactions."
On August 1, 1997, we acquired, for a purchase price of $63.6 million,
Industrial Equipment Rentals, Inc., the parent company of Buckner Rental
Service, Inc. ("Buckner" such acquisition, the "Buckner Acquisition"). Buckner
was a leading provider of rental equipment in the Gulf Coast region with 26
locations in Texas, Louisiana, Mississippi and Alabama. Effective January 1,
1998, we acquired, for a purchase price of $100.0 million, substantially all of
the assets of Richbourg's Sales & Rentals, Inc. ("Richbourg," such acquisition,
the "Richbourg Acquisition"). Richbourg was a leading provider of rental
equipment in the Southeast region with 15 locations in Florida, North Carolina,
South Carolina and Georgia.
In May 1998, we completed an initial public offering of our Class A Common
Stock, par value $0.01 per share, (the "Common Stock Offering") and the sale of
$100.0 million of 10 1/4% Senior Subordinated Notes due 2008 (such notes, the
"May 1998 Notes," such sale, the "May 1998 Debt Offering," and, together with
the Common Stock Offering, the "May 1998 Offerings").
RECENT ACQUISITIONS
In June 1998, we acquired 65% of the outstanding stock of S.A. Argentina
(such acquisition, the "Argentina Acquisition") for $36.1 million and earn-out
payments equal to 82.8% of S.A. Argentina's net income for 1998 and 1999. Such
earn-out payments are not to exceed $12.6 million in the aggregate. S.A.
Argentina rents and sells industrial and construction equipment throughout
South America, including Argentina, Brazil, Uruguay, Paraguay, Chile and
Bolivia. S.A. Argentina's revenues for 1997 were approximately $57.3 million;
its revenues for the first nine months of 1998 were approximately $38.7
million. S.A. Argentina's principal operations are located in Buenos Aires,
Argentina; it also has locations in Cordoba and Rosario, Argentina and an
assembly plant in San Luis, Argentina. We have retained the former management
of S.A. Argentina to oversee the day-to-day management of S.A. Argentina after
the acquisition. The Argentina Acquisition will enable us to expand
internationally and take advantage of the opportunities for equipment rental
businesses in the emerging South American market. See "Risk Factors--Risks
Associated with the Argentina Acquisition," and "Business--Acquisition
Strategy."
7
<PAGE>
Between May and July 1998, we acquired the assets of four domestic
equipment rental companies for an aggregate purchase price of $14.7 million.
These businesses had aggregate revenues of approximately $18.9 million for 1997
and have a total of five locations in California, Florida and Texas (such
acquisitions, the "1998 Other Acquisitions," and collectively with the Buckner,
Richbourg and Argentina Acquisitions, the "Acquisitions").
In addition, since September 1998, we have acquired three equipment rental
companies in the United States for an aggregate purchase price of approximately
$10.6 million. These businesses had approximate annual aggregate revenues of
$9.7 million in their last fiscal year and have a total of six locations in
Texas and Florida.
Our principal executive offices are located at 3750 N.W. 87th Avenue,
Miami, Florida, 33178 and our telephone number is (305) 513-3350. Our Class A
Common Stock is listed on the New York Stock Exchange under the symbol "NFF."
THE EXCHANGE OFFER
On December 9, 1998, the Company issued $100 million principal amount of
Old Notes in a private placement (the "Private Debt Offering"). The Old Notes
were sold pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. As a condition to their purchase of the Old Notes, the Initial Purchasers
requested that we agree to commence the Exchange Offer following the Private
Debt Offering.
EXCHANGE OFFER............. We are offering to exchange $1,000 principal
amount of New Notes for each $1,000 principal
amount of Old Notes that are properly tendered and
accepted for exchange. We will issue the New Notes
promptly after the Expiration Date. As of ,
1999, there were $100 million aggregate principal
amount of Old Notes outstanding. See "The Exchange
Offer."
NEW NOTES.................. Up $100,000,000 aggregate principal amount of
10 1/4% Senior Subordinated Notes due 2008, which
have been registered under the Securities Act. The
terms of the New Notes and the Old Notes are
identical in all material respects, except (1) the
New Notes have been registered under the
Securities Act, (2) for certain transfer
restrictions and registration rights relating to
the Old Notes and (3) the New Notes will not
contain certain provisions relating to additional
interest to be paid to the Holders of Old Notes
under certain circumstances relating to the timing
of the Exchange Offer. See "Exchange Offer;
Registration Rights."
RESALE OF THE NEW NOTES.... We are relying on certain no-action letters of
the staff of the Division of Corporation Finance
of the Commission (the "Staff") in making this
Exchange Offer. Based on these no-action letters,
unless you are a broker-dealer who acquired the
Old Notes directly from us or an "affiliate" of
the Company or the Guarantors within the meaning
of Rule 405 under the Securities Act, we believe
that, except as described below, you may offer
New Notes for resale, resell and otherwise
transfer
8
<PAGE>
such Notes without complying with the
registration and prospectus delivery provisions
of the Securities Act, provided that:
(1) you acquire such New Notes in the ordinary
course of your business,
(2) you have no arrangement or understanding with
any person to participate in the distribution
of such New Notes and
(3) you are not engaged in, and do not intend to
be engaged in, a distribution of the New
Notes.
We do not intend to ask the Commission for a
no-action letter addressing these issues and
there can be no assurance that the Staff would
make a similar determination with respect to the
Exchange Offer as it has in other no-action
letters issued to third parties.
Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes which
it acquired as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes and
that it has not entered into any arrangement or
understanding with the Company or an affiliate of
the Company to distribute the New Notes in
connection with any resale of the New Notes. See
"Plan of Distribution."
A Holder of Old Notes who (1) is an affiliate of
the Company, (2) does not acquire New Notes in
the ordinary course of its business, (3) intends
to participate in a distribution of the New Notes
or (4) is a broker-dealer which acquired the Old
Notes directly from the Company, cannot rely on
the Staff's interpretation as set forth in the
no-action letters referred to above. Instead,
these Holders must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with the resale of
the New Notes.
We will not accept surrenders of Old Notes for
exchange from Holders of Old Notes (1) in any
jurisdiction in which this Exchange Offer or the
acceptance of the Exchange Offer would not be in
compliance with the securities or "blue sky" laws
of such jurisdiction or (2) who are engaged or
intend to engage in a distribution of the New
Notes.
EXPIRATION DATE;
WITHDRAWAL.................. The Exchange Offer will expire at 5:00 p.m. New
York City time, on , 1999, which date is 20
business days following the commencement of the
Exchange Offer. If we extend the Exchange Offer,
the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is
extended. You may withdraw any Old Notes tendered
in the Exchange Offer at any time before the
Expiration Date. We
9
<PAGE>
will return, without charge, any Old Note we do
not accept for exchange to you as promptly as
practicable after the expiration or termination
of the Exchange Offer.
INTEREST ON THE NOTES...... Holders of New Notes will receive interest on
June 1, 1999 from the date of initial issuance of
the New Notes, plus an amount equal to the accrued
interest on the Old Notes exchanged for New Notes
from the most recent date to which interest has
been paid to the date of exchange. Interest on Old
Notes accepted for exchange will cease to accrue
upon issuance of the New Notes.
CONDITIONS TO THE
EXCHANGE OFFER............. The Exchange Offer is subject to certain customary
conditions, which we may waive. See "The Exchange
Offer--Conditions."
PROCEDURES FOR TENDERING
OLD NOTES.................. If you wish to accept the Exchange Offer, you
must complete, sign and date the letter of
transmittal, or a copy of the letter of
transmittal, in accordance with the instructions
in the letter of transmittal and this prospectus,
and mail or otherwise deliver the letter of
transmittal, or the copy, together with the
certificates for the Old Notes and any other
required documentation, to State Street Bank &
Trust Company, as Exchange Agent, at the address
set forth herein and in the letter of transmittal.
If you hold your Old Notes through the Depositary,
initially The Depositary Trust Company or "DTC",
instead of delivering certificate for your Old
Notes to the Exchange Agent, you may comply with
the procedures for a book-entry transfer. See "The
Exchange Offer--Procedures for Tendering Old
Notes," "The Exchange Offer--Book-Entry Transfer"
and "Plan of Distribution."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... If you are a beneficial owner of Old Notes whose
Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee and you wish to tender your Old Notes for
exchange, you should contact the person in whose
name your Old Notes are registered promptly and
instruct such person to tender the Old Notes on
your behalf. If you wish to tender your Old Notes
on your own behalf, you must, before completing
and executing the letter of transmittal and
delivering your Old Notes, either make appropriate
arrangements to register ownership of the Old
Notes in your name or obtain a properly completed
bond power from the person in whose name your Old
Notes are registered. The transfer of registered
ownership may take considerable time and may not
be able to be completed prior to the Expiration
Date. See "The Exchange Offer--Procedures for
Tendering Old Notes."
GUARANTEED DELIVERY
PROCEDURES.................. If you wish to tender your Old Notes for exchange
and your Old Notes are not immediately available
or you cannot deliver your Old Notes or any other
documents required by the letter of transmittal to
the Exchange Agent, you must tender your
10
<PAGE>
Old Notes according to the delivery procedures
set forth in "The Exchange Offer--Guaranteed
Delivery Procedures."
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS............. The exchange of your Old Notes for New Notes in
the Exchange Offer will not result in the
recognition of income, gain or loss to you or the
Company for federal income tax purposes. See
"Material United States Federal Income Tax
Considerations."
USE OF PROCEEDS............ We will not receive any proceeds from the
Exchange Offer.
EXCHANGE AGENT............. State Street Bank & Trust Company, the trustee
(the "Trustee") under the indenture governing the
Notes (the "Indenture"), is serving as Exchange
Agent in connection with the Exchange Offer. See
"The Exchange Offer--Exchange Agent."
CONSEQUENCES OF NOT EXCHANGING
OLD NOTES.................. If you do not exchange your Old Notes for New
Notes in the Exchange Offer, you will continue to
be subject to the restrictions on transfer of your
Old Notes as set forth in the legend on your Old
Notes because the Old Notes were issued pursuant
to exemptions from, or in transactions not subject
to, the registration requirements of the
Securities Act and applicable state securities
laws. In general, your Old Notes may not be
offered or sold, unless registered under the
Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws. We do not currently anticipate that we will
register the Old Notes under the Securities Act.
See "Exchange Offer; Registration Rights."
DESCRIPTION OF THE NEW NOTES
The forms and terms of the New Notes and the Old Notes are identical in
all material respects, except that the New Notes are not subject to (1) certain
transfer restrictions and registration rights to which the Old Notes are
subject and (2) certain provisions providing for additional interest to be paid
to the Holders of Old Notes under certain circumstances relating to the timing
of the Exchange Offer. The New Notes will evidence the same debt as the Old
Notes and will be entitled to the benefits of the Indenture. From time to time
in this prospectus, the Old Notes and the New Notes are referred to as the
"Notes." See "Description of the Notes."
ISSUER..................... Neff Corp.
MATURITY DATE.............. June 1, 2008.
INTEREST PAYMENT DATES..... The New Notes will bear interest at the rate of
10 1/4% per annum from the date of issuance (the
"Issue Date"). Interest on the New Notes will be
payable semi-annually in arrears on each June 1
and December 1, commencing on June 1, 1999, to
Holders of record on the immediately preceding May
15 and November 15, commencing May 15, 1999.
11
<PAGE>
RANKING.................... The New Notes will be general unsecured
obligations of the Company and will be
subordinated in right of payment to all existing
and future Senior Debt of the Company. The New
Notes will rank pari passu with the May 1998 Notes
and any future senior subordinated indebtedness of
the Company. They will rank senior in right of
payment to all other subordinated obligations of
the Company. As of September 30, 1998, on a pro
forma basis after giving effect to the Private
Debt Offering and the application of the proceeds
therefrom, we would have had approximately $189.3
million of Senior Debt, excluding undrawn capacity
of $112.8 million under the Company's $310 million
revolving credit facility (the "Credit Facility"),
which, if drawn, would constitute Senior Debt of
the Company. See "Unaudited Consolidated Pro Forma
Financial Data."
OPTIONAL REDEMPTION........ The New Notes will be redeemable, in whole or in
part, at our option on or after June 1, 2003, at
the redemption prices set forth in this
prospectus, plus accrued and unpaid interest to
the date of redemption. In addition, at any time
on or prior to June 1, 2001, at our option, we may
redeem up to 30% of the initial aggregate
principal amount of the Notes issued under the
Indenture on one or more occasions with the net
cash proceeds of one or more Public Equity
Offerings, at a redemption price equal to 110.250%
of the principal amount thereof, plus accrued
interest to the date of redemption; provided that
at least 70% of the initial aggregate principal
amount of the Notes issued under the Indenture
remains outstanding immediately after any such
redemption. See "Description of the
Notes--Redemption."
GUARANTEES................. The New Notes will be unconditionally guaranteed
on a senior subordinated basis by the Guarantors.
The Guarantees will be general unsecured
obligations of the Guarantors and will be
subordinated in right of payment to all existing
and future Guarantor Senior Debt, which will
include any guarantee by the Guarantors of the
Company's indebtedness under the Credit Facility.
The Guarantors have also unconditionally
guaranteed the May 1998 Notes on a senior
subordinated basis (the "May 1998 Guarantees").
The Guarantees will rank pari passu with the May
1998 Guarantees and any future senior subordinated
indebtedness of the Guarantors and will rank
senior in right of payment to all other
subordinated obligations of the Guarantors. As of
September 30, 1998, on a pro forma basis after
giving effect to the Private Debt Offering and the
application of the proceeds therefrom, the
Guarantors would not have had any Guarantor Senior
Debt outstanding except for the Guarantor's
Guarantees of borrowings under the Credit
Facility. Our foreign subsidiaries, such as S.A.
Argentina, will generally not be required to
guarantee the Notes. See "Risk
Factors--Subordination of the Notes and the
Guarantees; Asset Encumbrances."
CHANGE OF CONTROL.......... Upon a Change of Control, each Holder of the New
Notes will have the right to require us to
repurchase such Holder's New
12
<PAGE>
Notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest
to the repurchase date.
CERTAIN COVENANTS.......... The Indenture governing the New Notes will
contain certain covenants that limit our ability
and the ability of certain of our subsidiaries,
to, among other things, incur additional
indebtedness, pay dividends or make certain other
restricted payments, consummate certain asset
sales, enter into certain transactions with
affiliates, incur liens, impose restrictions on
the ability of a subsidiary to pay dividends or
make certain payments, merge or consolidate with
any other person or sell, assign, transfer, lease,
convey or otherwise dispose of all or
substantially all of our assets. In addition, we
will be obligated to offer to repurchase the New
Notes at 100% of the principal amount thereof plus
accrued and unpaid interest to the date of
repurchase in the event of certain sales of our
assets. These restrictions and qualifications are
subject to a number of important qualifications
and exceptions. See "Description of the
Notes--Certain Covenants."
EXCHANGE OFFER; REGISTRATION
RIGHTS..................... Holders of New Notes are not entitled to any
registration rights with respect to the New Notes.
Pursuant to the Registration Rights Agreement
among the Company, the Guarantors and the Initial
Purchasers, we agreed to file a registration
statement with respect to an offer to exchange the
Old Notes for the New Notes. This prospectus is a
part of such registration statement. Under certain
circumstances, particular Holders of Old Notes,
including Holders of Old Notes who may not
participate in the Exchange Offer, may require us
to file, and cause to become effective, a shelf
registration statement under the Securities Act
which would cover resales of Old Notes by these
Holders. See "Exchange Offer; Registration
Rights."
For additional information regarding the Notes, see "Description of the
Notes."
RISK FACTORS
You should carefully consider the specific matters set forth under "Risk
Factors" as well as the other information included in this prospectus before
making a decision to tender your Old Notes in the Exchange Offer.
13
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993(1) 1994 1995
------------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ........................................................... $36,659 $49,526 $67,254
Gross profit(4) .......................................................... 10,549 14,711 17,972
Selling, general and administrative expenses ............................. 6,078 8,493 10,956
Officer stock option compensation(5) ..................................... -- -- --
Income from operations ................................................... 3,857 5,993 6,100
Income (loss) before extraordinary items(6) .............................. 1,663 2,712 1,834
BALANCE SHEET DATA (END OF PERIOD):
Net book value of rental equipment ....................................... $17,846 $29,602 $45,596
Total assets ............................................................. 29,263 46,851 68,816
Total debt ............................................................... 25,378 37,983 48,345
Redeemable preferred stock ............................................... -- -- 11,430
Total common stockholders' equity (deficit) .............................. 571 4,205 (1,931)
OTHER DATA:
Adjusted EBITDA(7) ....................................................... $10,255 $15,129 $18,763
Adjusted EBITDA margin(8) ................................................ 28.0% 30.5% 27.9%
Ratio of Adjusted EBITDA to
interest expense ........................................................ -- -- --
Rental equipment purchases ............................................... $21,353 $31,185 $52,795
Number of rental locations
(end of period) ......................................................... 5 6 8
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ -------------
PRO FORMA
AS ADJUSTED
-----------------
1996 1997 1997(2) 1997
----------- ------------ ----------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ........................................................... $95,013 $142,019 $274,500 $ 96,781
Gross profit(4) .......................................................... 25,320 43,274 86,192 29,659
Selling, general and administrative expenses ............................. 18,478 30,129 50,522 21,264
Officer stock option compensation(5) ..................................... -- 4,400 4,400 --
Income from operations ................................................... 5,410 6,197 24,559 6,808
Income (loss) before extraordinary items(6) .............................. (1,388) (6,393) (5,391) (1,116)
BALANCE SHEET DATA (END OF PERIOD):
Net book value of rental equipment ....................................... $76,794 $179,547 -- --
Total assets ............................................................. 109,118 280,790 -- --
Total debt ............................................................... 58,250 226,203 -- --
Redeemable preferred stock ............................................... 46,299 53,747 -- --
Total common stockholders' equity (deficit) .............................. (7,508) (24,735) -- --
OTHER DATA:
Adjusted EBITDA(7) ....................................................... $26,695 $ 37,635 $ 82,638 $ 24,130
Adjusted EBITDA margin(8) ................................................ 28.1% 26.5% 30.1% 24.9%
Ratio of Adjusted EBITDA to
interest expense ........................................................ -- -- 3.2x --
Rental equipment purchases ............................................... $86,886 $143,515 N/A $107,451
Number of rental locations
(end of period) ......................................................... 16 53 78 50
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
PRO FORMA
AS ADJUSTED
---------------
1998 1998(3)
------------ ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ........................................................... $227,009 $261,650
Gross profit(4) .......................................................... 76,274 87,257
Selling, general and administrative expenses ............................. 41,939 45,975
Officer stock option compensation(5) ..................................... 3,198 3,198
Income from operations ................................................... 24,934 31,487
Income (loss) before extraordinary items(6) .............................. (1,464) 693
BALANCE SHEET DATA (END OF PERIOD):
Net book value of rental equipment ....................................... $328,630 $328,630
Total assets ............................................................. 570,474 573,790
Total debt ............................................................... 399,220 402,536
Redeemable preferred stock ............................................... -- --
Total common stockholders' equity (deficit) .............................. 96,772 96,772
OTHER DATA:
Adjusted EBITDA(7) ....................................................... $ 74,661 $84,840
Adjusted EBITDA margin(8) ................................................ 32.9% 32.4%
Ratio of Adjusted EBITDA to
interest expense ........................................................ -- 3.2x
Rental equipment purchases ............................................... $164,495 N/A
Number of rental locations
(end of period) ......................................................... 83 83
</TABLE>
- ---------------
(1) The consolidated balance sheet data and statement of operations data for
the year ended December 31, 1993 is derived from financial statements of
the Company's wholly-owned subsidiaries, Neff Rental and Neff Machinery,
each of which was individually audited by independent certified public
accountants.
(2) The pro forma as adjusted financial data for the year ended December 31,
1997 are derived from the Company's Unaudited Pro Forma Consolidated
Financial Data for the year ended December 31, 1997 appearing elsewhere in
this prospectus. The Unaudited Pro Forma Consolidated Financial Data for
the year ended December 31, 1997 were prepared by the Company to
illustrate the estimated effects of the Private Debt Offering, the May
1998 Offerings, and the Acquisitions described in the Notes to the
Unaudited Pro Forma Consolidated Financial Data as if they had occurred as
of January 1, 1997 for purposes of the unaudited pro forma consolidated
statements of operations.
(3) The pro forma as adjusted financial data for the nine months ended
September 30, 1998 are derived from the Company's Unaudited Pro Forma
Consolidated Financial Data for the nine months ended September 30, 1998
appearing elsewhere in this prospectus. The Unaudited Pro Forma
Consolidated Financial Data for the nine months ended September 30, 1998
were prepared by the Company to illustrate the estimated effects of the
Private Debt Offering, the May 1998 Offerings, the Argentina Acquisition
and the 1998 Other Acquisitions as if they had occurred as of January 1,
1997 for purposes of the unaudited pro forma consolidated statement of
operations and as of September 30, 1998 for purposes of the unaudited pro
forma consolidated balance sheet.
(4) Gross profit for 1996 and 1997 reflect the Company's change in depreciation
policy to recognize extended estimated service lives and increased
residual values of its rental equipment. See the Consolidated Financial
Statements and the Notes thereto appearing elsewhere in this prospectus.
(5) Officer stock option compensation expense represents a noncash charge with
respect to the change in estimated market value of the shares to be issued
to Kevin P. Fitzgerald under the Option Agreement (as defined).
(6) Prior to December 26, 1995, the Company operated as a Subchapter S
corporation under the provisions of the Internal Revenue Code. Income
(loss) before extraordinary items for 1993, 1994 and 1995 is restated to
reflect what the data would have been if the Company had Subchapter C
status in these years.
(7) Adjusted EBITDA represents income from operations plus depreciation and
amortization and officer stock option compensation expenses. Adjusted
EBITDA is not intended to represent cash flow from operations and should
not be considered as an alternative to operating or net income computed in
accordance with generally accepted accounting principles ("GAAP"), as an
indicator of the Company's operating performance, as an alternative to
cash flows from operating activities (as determined in accordance with
GAAP) or as a measure of liquidity. The Company believes that Adjusted
EBITDA is a standard measure commonly reported and widely used by analysts
and investors as a measure of profitability for companies with significant
depreciation and amortization expense. However, not all companies
calculate Adjusted EBITDA using the same methods; therefore, the Adjusted
EBITDA figures set forth above may not be comparable to Adjusted EBITDA
reported by other companies.
(8) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total
revenues.
14
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE SPECIFIC RISK FACTORS SET FORTH BELOW AS
WELL AS THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE MAKING A
DECISION TO TENDER YOUR OLD NOTES IN THE EXCHANGE OFFER.
YOU ARE RESPONSIBLE FOR COMPLIANCE WITH EXCHANGE OFFER PROCEDURES
The Company will only issue New Notes to you in exchange for your Old
Notes after it receives your Old Notes, a properly completed and signed letter
of transmittal and all other required documents. If you wish to tender your Old
Notes in exchange for New Notes, you should allow enough time to ensure the
Company receives your Old Notes, letter of transmittal and other documents in
time. Neither the Exchange Agent nor the Company is obligated to tell you if
you have not properly tendered your Old Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Old Notes that are not tendered for exchange, or which are not accepted
for exchange, will continue to be subject to transfer restrictions. In general,
you may not offer for sale or sell Old Notes unless the Old Notes have been
registered under the Securities Act or the offer or sale is exempt from, or not
subject to, the Securities Act. In addition, subject to limited exceptions,
once the Exchange Offer is complete, you will not have any rights to require
the Company to register your outstanding Old Notes under the Securities Act.
The Company does not currently intend to register the Old Notes under the
Securities Act.
The New Notes and any Old Notes outstanding after the Exchange Offer is
completed will vote together as a single class in order to determine if the
required number of Holders have taken certain actions or exercised certain
rights under the Indenture.
REQUIREMENTS FOR TRANSFER OF NEW NOTES
We are relying on certain no-action letters of the Staff in making this
Exchange Offer. Based on these no-action letters, unless you are a
broker-dealer who acquired the Old Notes directly from us or an "affiliate" of
the Company or the Guarantors within the meaning of Rule 405 under the
Securities Act, we believe that, except as described below, you may offer New
Notes for resale, resell and otherwise transfer New Notes without complying
with the registration and prospectus delivery provisions of the Securities Act,
PROVIDED that (1) you acquire such New Notes in the ordinary course of your
business, (2) you have no arrangement or understanding with any person to
participate in the distribution of such New Notes and (3) you are not engaged
in, and do not intend to be engaged in, a distribution of the New Notes. We do
not intend to ask the Commission for a no-action letter addressing these
issues. We cannot assure you that the Staff would determine that holders of the
New Notes, subject to the exceptions described above, may offer, sell and
otherwise transfer the New Notes without complying with the registration and
prospectus delivery provisions of the Securities Act. If you are a
broker-dealer and you receive New Notes for your own account in exchange for
Old Notes which you acquired as a result of market-making activities or other
trading activities, you must acknowledge that you will deliver a prospectus in
connection with any resale of the New Notes and that you have not entered into
any arrangement or understanding with us or any of our affiliates to distribute
the New Notes in connection with their resale. If you make such an
acknowledgment and deliver a prospectus, you will not be deemed to admit that
you are an "underwriter" within the meaning of the Securities Act. We have
agreed to make this prospectus available to you for 190 days after the
Expiration Date or until you have resold all the New Notes you hold. See "Plan
of Distribution." Unless an exemption from registration or qualification is
available, it may be necessary to register the New Notes or qualify the sale of
the New Notes under certain state securities or "blue sky" laws, before the
Notes may be offered or sold in such jurisdictions.
15
<PAGE>
SUBSTANTIAL LEVERAGE
The Company has a substantial amount of indebtedness. As of September 30,
1998, on a pro forma basis after giving effect to the Private Debt Offering and
the application of the estimated net proceeds therefrom, our total combined
indebtedness would have been approximately $402.5 million and we would have had
approximately $112.8 million of availability under the Credit Facility.
The amount of debt we owe could have several important effects on the
future operation of our business, which, in turn, could have important
consequences for holders of our securities, including the Notes, including, but
not limited to, the following:
/bullet/ our ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general corporate or other
purposes may be limited;
/bullet/ a substantial portion of our cash flow from operations will be
dedicated to the payment of the principal of, and interest on, our
indebtedness, and will not be available to fund working capital, capital
expenditures and acquisitions;
/bullet/ the agreements governing our long-term indebtedness will contain
certain restrictive financial and operating covenants that could limit our
ability to compete and expand; and
/bullet/ our substantial leverage may make us more vulnerable to economic
downturns, limit our ability to withstand competitive pressures and reduce our
flexibility in responding to changing business and economic conditions.
The Company's ability to pay interest and principal on the Notes, to
satisfy its other debt obligations and to make planned expenditures depends on
our future operating performance, which could be affected by changes in
economic conditions and other factors beyond our control. If we fail to comply
with the terms of our debt instruments, we could be in default under such
instruments. If we default under our debt instruments, our lenders could
accelerate the debt due under such instruments and, in some cases, accelerate
the debt due under other instruments that have cross-default or
cross-acceleration provisions. Although we believe that cash flow from
operations will be sufficient to cover our debt service and other requirements,
if we are unable to pay our debts, we would have to pursue alternative
strategies such as renegotiating the terms of our indebtedness, refinancing
some or all of our indebtedness or obtaining additional financing. We might not
be able to implement any of these strategies on favorable terms or on a timely
basis or at all. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Description of Credit Facility."
DEPENDENCE ON ADDITIONAL CAPITAL FOR FUTURE GROWTH
The Company's ability to remain competitive, sustain its growth and expand
rental operations through start-up locations and acquisitions largely depends
on our access to capital. We must make ongoing capital expenditures to maintain
the age and condition of our rental equipment fleet in order to provide
customers with high-quality equipment. Historically, we have financed capital
expenditures, start-up locations and acquisitions primarily by incurring debt,
relying on cash flow from operations and, to a lesser extent, issuing equity
securities. To implement our growth strategy and meet our capital needs, we may
incur additional debt in the future. Such additional indebtedness may make us
more vulnerable to economic downturns and may limit our ability to withstand
competitive pressures. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources," and
"Business--Business Strategy."
SUBORDINATION OF THE NOTES AND THE GUARANTEES; ASSET ENCUMBRANCES
Your right to be paid principal, premium, if any, interest on and any
other amounts with respect to, the Notes will be secondary to the right of our
lenders to be repaid in full for all existing and
16
<PAGE>
future Senior Debt of the Company. The Company's Senior Debt includes our
obligations under the Credit Facility and our purchase money indebtedness to
equipment manufacturers. In the event of the bankruptcy, liquidation,
dissolution, reorganization or other winding up of the Company, or the
acceleration of indebtedness under the Credit Facility, we may not use our
assets to pay obligations on the Notes until all of our Senior Debt has been
paid in full. We may not have sufficient assets remaining to pay any or all
amounts due on the Notes after our Senior Debt has been paid in full. In
addition, under certain circumstances, we may not pay amounts due on the Notes,
or purchase, redeem or otherwise retire the Notes, if we are in default under
certain Senior Debt. In addition, your right to be paid principal, premium, if
any, and interest on, the Notes will be secondary to the right of our lenders
to be repaid in full for all existing and future debt of any non-Guarantor
subsidiaries of the Company. See "Description of the Notes--Subordination."
Your right to be paid amounts owing under the Guarantees will also be
secondary to the right of our lenders to be repaid in full for all existing and
future Guarantor Senior Debt of such Guarantors. Guarantor Senior Debt includes
guarantees or borrowings by a Guarantor under the Credit Facility. At September
30, 1998, on a pro forma basis after giving effect to the Private Debt Offering
and the application of the net proceeds therefrom, we would have had
approximately $189.3 million of Senior Debt outstanding, we would have been
able to borrow an additional $112.8 million, approximately, under the Credit
Facility, and excluding the Guarantors' guarantees of borrowings under the
Credit Facility, the Guarantors would not have had any Guarantor Senior Debt.
The Indenture limits, but does not prohibit, our ability and the Guarantors'
ability to incur additional debt, including Senior Debt or Guarantor Senior
Debt, as the case may be.
The Notes and the Guarantees will not be secured by the Company's or the
Guarantors' assets, respectively. This means that you will not have recourse to
any specific assets of the Company or the Guarantors upon an event of default
under the Indenture. Substantially all of the Company's and the Guarantors'
assets, however, serve as collateral to secure the Company's and the
Guarantors' obligations under the Credit Facility. If the Company becomes
insolvent or is liquidated, or if payment under the Credit Facility is
accelerated, the lenders under the Credit Facility will be entitled to proceed
against the Company's and the Guarantors' assets. We may not have sufficient
assets to pay the Notes in full, or at all, after we pay the lenders under the
Credit Facility. See "Capitalization," "Management's Discussions and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources," "Description of Credit Facility," "Description of the Notes" and
the Consolidated Financial Statements and the Notes thereto included elsewhere
in this prospectus.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture restricts, among other things, the Company's ability to:
/bullet/ incur indebtedness, including indebtedness subordinate in right
of payment to any Senior Debt and senior in right of payment to the Notes;
/bullet/ incur liens;
/bullet/ pay dividends or make certain other payments;
/bullet/ enter into certain transactions with affiliates;
/bullet/ merge or consolidate with any other person;
/bullet/ impose restrictions on a subsidiary's ability to pay dividends or
make certain payments to the Company; or
/bullet/ sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of the assets of the Company.
17
<PAGE>
See "Description of the Notes--Certain Covenants." The May 1998 Indenture
contains similar provisions to the Indenture. If we fail to comply with these
covenants, we will be in default under the Indenture and the principal and
accrued interest on the Notes would become due and payable.
The Credit Facility contains restrictive covenants which are generally
more restrictive than those contained in the Indenture and prohibits the
Company from prepaying its subordinated indebtedness. The Credit Facility also
requires the Company to maintain specified consolidated financial ratios and
satisfy certain consolidated financial tests. Our ability to meet those
financial ratios and financial tests may be affected by events beyond our
control, and there can be no assurance that we will meet those tests. If we do
not meet these tests or we breach the covenants in the Credit Facility, we
could be in default under the Credit Facility and our lenders could declare all
amounts we owe under them under the Credit Facility to be immediately due and
payable. If we are unable to repay those amounts, the lenders could proceed
against our assets, which serve as collateral securing our indebtedness under
the Credit Facility. Our assets may not be sufficient to repay the Notes in
full, or at all, after we pay the lenders under the Credit Facility.
In addition, a default under the Credit Facility could trigger a default
under the Indenture or the May 1998 Indenture (together, the "Indentures") and
vice-versa. See "Description of the Notes--Certain Covenants" and "Description
of Credit Facility."
RISKS INHERENT IN GROWTH STRATEGY
Risks inherent in our growth strategy include:
/bullet/ risks that we will not be able to identify acquisition candidates
and attractive new locations;
/bullet/ risks that we will not be able to obtain financing for
acquisitions and internal expansion on satisfactory terms, or at all;
/bullet/ risks that we will not assess the value, costs, strengths and
weaknesses of growth opportunities correctly, and
/bullet/ risks associated with integrating acquisitions with existing
operations.
We recently accelerated our growth, expanding the rental equipment fleet
at existing locations and adding eight locations in 1996, 37 locations in 1997
and 30 locations in the first nine months of 1998. We intend to keep up our
rapid growth by continuing to make acquisitions, expanding the rental equipment
fleet at existing locations and opening selected new locations. We expect that
our growth strategy will decrease short-term cash flow and net income as we
increase our indebtedness to pay for new locations, acquisitions and more
equipment for the rental fleet. We cannot assure you that our growth strategy
will be successful overall or that acquired businesses will be successfully
integrated into our operations or that any newly opened location will become
profitable. Generally, start-up locations become profitable in their third year
of operation.
Our growth will place significant demands on our management and
operational, financial and marketing resources. As we acquire and open new
branches, we expect we will hire more employees and expand the scope of our
operating and financial systems and the geographic area of our operations. We
believe this growth will increase the Company's operating complexity and the
level of responsibility exercised by existing and new management personnel. We
may not be able to attract and retain qualified management and employees. In
addition, we cannot assure you that our current operating and financial systems
and controls will be adequate as we grow or that any steps we take to improve
such systems and controls will be sufficient. See "Business--Business
Strategy."
REGIONAL CONDITIONS AND CYCLICALITY
Our business is affected by general economic and competitive conditions,
including national, regional and local slowdowns in construction activity. We
currently operate in 15 states located
18
<PAGE>
throughout the southern and western United States and in six countries in South
America. As a result, our operating results may be adversely affected by events
or conditions, such as regional economic slowdowns, adverse weather conditions
and other factors, in the areas in which we operate.
DEPENDENCE ON EQUIPMENT MANUFACTURERS
We sell John Deere, Bomag and Terex Americas construction and industrial
equipment through dealership agreements. Either party may terminate the
dealership agreements upon 120 days written notice, and the equipment
manufacturer may terminate the dealership agreements immediately for "cause."
"Cause" generally includes, among other things,
/bullet/ default by Neff Machinery under any security agreement between
Neff Machinery and the equipment manufacturer,
/bullet/ dissolution or liquidation of Neff Machinery, or
/bullet/ a significant change in the control, ownership or capital
structure of Neff Machinery without the equipment manufacturer's prior written
consent.
John Deere and the Company have agreed that John Deere may terminate the
dealership agreements for cause if GE Capital's beneficial ownership of equity
in the Company exceeds 25% before September 25, 1999 or exceeds 20% on or after
September 25, 1999. We cannot assure you that we will be able to continue our
current, or obtain additional, dealership agreements with any of the
manufacturers. Our operating results could be materially adversely impacted if
the John Deere dealership agreements were terminated for any reason. See
"Business--Dealership Agreements" and "Certain Relationships and Transactions."
RECENT NET LOSSES
We incurred net losses of $2.2 million, $6.8 million and $4.1 million in
1996, 1997 and the first nine months of 1998, respectively. We cannot assure
you that we will operate profitably in the future or that our earnings or cash
flow will be sufficient to comply with the financial covenants to which we are
subject or to cover its fixed charges. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
COMPETITION
The equipment rental and sales industries are highly competitive. Our
competitors include large national rental companies, regional corporations,
smaller independent businesses and equipment vendors and dealers who both sell
and rent equipment to customers. Some of our competitors have greater financial
resources, are more geographically diverse and have greater name recognition
than we have. If existing or future competitors reduce prices to gain or retain
market share and we must also reduce prices to remain competitive, our
operating results will be adversely affected. Additionally, existing or future
competitors may compete with us for start-up locations or acquisition
candidates, which may increase acquisition prices and reduce the number of
suitable acquisition candidates or expansion locations. See "Business
Competition."
SEASONALITY AND QUARTERLY FLUCTUATIONS
Historically, the Company's revenues and operating results have varied
throughout the year, and we expect they will continue to fluctuate in the
future. These fluctuations have been due to a number of factors, including
/bullet/ general economic conditions in the Company's markets;
/bullet/ the timing of start-up locations and acquisitions and related
costs;
19
<PAGE>
/bullet/ the effectiveness of integrating start-up locations and acquired
businesses;
/bullet/ rental patterns of the Company's customers;
/bullet/ price changes in response to competitive factors; and
/bullet/ changes in manufacturers' incentive programs.
We incur various costs in establishing or integrating start-ups or newly
acquired locations, and the profitability of a new location is generally
expected to be lower in the initial months of its operation.
Construction equipment sales and rental businesses often experience a
slowdown in demand during the winter months when adverse weather conditions
affect construction activity. To date, seasonal demand fluctuations have not
materially affected the Company's operating results. However, as we expand
geographically, seasonal demand fluctuations may lower operating results in the
first and fourth quarters.
LIABILITY AND INSURANCE
Our business exposes us to possible claims for personal injury or death
resulting from the use of equipment we rent or sell and from injuries caused in
motor vehicle accidents involving our delivery and service personnel. We carry
comprehensive insurance subject to a deductible at a level we believes is
sufficient to cover existing and future claims. We cannot assure you that
existing or future claims will not exceed the level of our insurance or that
insurance will remain available on economically reasonable terms, or at all.
ENVIRONMENTAL AND SAFETY REGULATION
Our facilities and operations are subject to certain federal, state and
local laws and regulations relating to environmental protection and
occupational health and safety. These laws and regulations govern, among other
things, wastewater discharges, the treatment, storage and disposal of solid and
hazardous wastes and materials and the remediation of contamination associated
with the release of hazardous substances. We believe that we are in material
compliance with these requirements and do not currently anticipate any material
capital expenditures for environmental compliance or remediation for the
current or succeeding fiscal years. Certain of our present and former
facilities have used substances and generated or disposed of wastes which are
or may be considered hazardous. As a result, we may incur liability in
connection with these activities. Moreover, environmental and safety
requirements could become more stringent or be interpreted and applied more
stringently in the future. Future changes or interpretations, or the
identification of adverse environmental conditions which we are not currently
aware of, could result in additional environmental compliance or remediation
costs. Such compliance and remediation costs could be material to our financial
condition or results of operations. See "Business--Environmental and Safety
Regulation."
DEPENDENCE ON SENIOR MANAGEMENT
The Company is managed by a small number of key executive officers. The
loss of the services of certain of these key executives could have a material
adverse effect on the Company. The Company presently does not maintain any key
man life insurance policies on any of its officers. The Company's success also
depends on its ability to hire and retain additional qualified management
personnel. We cannot assure you that the Company will be able to hire and
retain such personnel. See "Management."
CONTROLLING STOCKHOLDERS
The Company is controlled by the Mas family and GE Capital. Jorge Mas, the
Company's Chairman, his brothers, Juan Carlos Mas and Jose Ramon Mas, and
Santos, a limited partnership
20
<PAGE>
controlled by the Mas family and Mr. Fitzgerald, beneficially own Class A
Common Stock of the Company representing 46% of the fully diluted equity of the
Company. GE Capital owns Class B Special Common Stock, par value $0.01 per
share, of the Company (the "Class B Common Stock" and together with the Class A
Common Stock, the "Common Stock") which is convertible into Class A Common
Stock representing 23% of the fully diluted equity of the Company. Santos
Capital Advisors, Inc. ("Santos Capital"), a Florida corporation owned by the
Mas family and Mr. Fitzgerald, has an option to acquire 1.5 million shares of
Common Stock from GE Capital; these shares represent 7% of the fully diluted
equity of the Company. As a result, the Mas family and Mr. Fitzgerald can
exercise a controlling influence over the outcome of matters submitted to a
stockholder vote and have the power to delay, defer or prevent a change in
control of the Company.
The Company, GE Capital, Jorge Mas, Jose Ramon Mas, Juan Carlos Mas, Mr.
Fitzgerald, Santos Capital and Santos have entered into an Amended and Restated
Stockholders' Agreement (the "Stockholders' Agreement"). The parties to the
Stockholders' Agreement have agreed that if GE Capital transfers Common Stock
representing 15% or more of the equity of the Company to a third party (the
"Transferee"), (1) they will increase the Company's Board of Directors from six
to seven members and (2) they will elect the designee chosen by the Transferee
as a director.
GE Capital and the Company have entered into a Standstill Agreement which
provides that, subject to certain exceptions, GE Capital will maintain its
equity interest in the Company below 25% during the period ending October 29,
1999 and below 20% after October 29, 1999 as long as the Company is a John
Deere dealer. The Standstill Agreement prohibits GE Capital and its affiliates
from attempting to control the Company. See "Principal Stockholders" and
"Certain Relationships and Transactions."
FRAUDULENT CONVEYANCE CONSIDERATIONS; AVOIDANCE OF GUARANTEES
Federal and state laws which protect creditors allow courts, under certain
circumstances, to take certain actions in favor of other creditors of the
Company or a Guarantor which could delay or prohibit payment of claims under
the Notes or the Guarantees. Under fraudulent conveyance laws, a court could
void the Notes or any Guarantee or subordinate payment of the Notes or any
Guarantee to other debts of the Company, if the court found that when the Notes
or the Guarantees, respectively, were issued, either
/bullet/ the Company or the Guarantor incurred the indebtedness with the
intent of hindering, delaying or defrauding creditors or
/bullet/ the Company or the Guarantor received less than a reasonably
equivalent value or fair consideration for incurring the indebtedness,
and the Company or the Guarantor
/bullet/ was insolvent or rendered insolvent because it incurred the
indebtedness,
/bullet/ was engaged in a business or transaction for which its remaining
assets constituted an unreasonably small amount of capital or
/bullet/ intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they matured.
In addition, a court could order that amounts previously paid to holders of the
Notes be voided and returned to the Company or a Guarantor, or to a fund for
the benefit of the Company's or a Guarantor's creditors, or take other action
detrimental to the holders of the Notes.
The Guarantees limit each Guarantor's liability to the maximum amount of
indebtedness which it can incur and still be in compliance with fraudulent
conveyance or similar laws. To the extent any
21
<PAGE>
Guarantee was avoided as a fraudulent conveyance, subordinated as described
above, or held unenforceable for any other reason, holders of the Notes would,
to such extent, no longer have a claim in respect of such Guarantee. The claims
of the holders of the Notes under an avoided, limited or unenforceable
Guarantee would only be paid after all other liabilities of such Guarantor had
been paid. We cannot assure you that after all other liabilities of such
Guarantor had been paid, the Guarantor would have enough assets to pay the
claims of the holders of Notes.
CHANGE OF CONTROL
If certain Change of Control events occur, we will be required to offer to
repurchase all outstanding Notes. We may not have sufficient funds available,
or be permitted by the terms of our other indebtedness agreements, to purchase
the Notes upon the occurrence of a Change of Control. The occurrence of a
Change of Control may cause the lenders under the Credit Facility to accelerate
our indebtedness to them, which we would have to repay in full before we could
repurchase the Notes. See "Description of the Notes--Change of Control" and
"Description of the Notes--Subordination." If we are required to make an offer
to repurchase the Notes and we do not have sufficient funds to pay for the
Notes, we could be in default under the Indenture.
RISKS ASSOCIATED WITH THE ARGENTINA ACQUISITION
The holders of the remaining 35% of the stock of S.A. Argentina (the
"Argentina Stockholders") have the option to require the Company to purchase
all of the remaining shares of S.A. Argentina (the "Put Option"). We cannot
assure you that the Put Option will be exercised at a time when such exercise
will not have a material adverse effect on the Company. The Put Option is
exercisable until December 31, 2000 (the "Put Period"). The Argentina
Stockholders may also exercise the Put Option after the Put Period expires if
the Company makes a decision affecting S.A. Argentina with respect to certain
matters, including, for example, mergers and acquisitions, strategic alliances
or dividends, with which the Argentina Stockholders disagree. The
exercisability of the Put Option is subject to certain additional restrictions
imposed by the terms of the Company's indebtedness on the Company's ability to
make acquisitions and incur additional indebtedness. The purchase price for the
shares subject to the Put Option is the fair market value of such shares
determined by an independent appraiser.
The Company is subject to the risks and uncertainties associated with
doing business in countries which may be exposed to, or may have recently
experienced, economic or governmental instability. Developments with respect to
inflation, interest rates, currency fluctuations, government policies, price
and wage controls, exchange control regulations, taxation, expropriation,
social instability and other political or economic developments in or affecting
the countries in which the Company may operate may materially adversely affect
the Company's South American operations, earnings, asset values and prospects.
22
<PAGE>
CAUTIONARY NOTICE
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" for purposes of the
Securities Act and the Securities Exchange Act of 1934. All statements other
than statements of historical fact in this prospectus, including, without
limitation, statements regarding our competitive strengths, business strategy,
expected benefits of any acquisition, future financial position, budgets,
projected costs and plans and objectives of management are forward-looking
statements. In addition, forward-looking statements generally can be identified
by the use of forward-looking terminology such as "may", "will", "expect",
"should", "intend", "estimate", "anticipate", "believe", "continue" or similar
terminology. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from our expectations ("cautionary
statements") are disclosed under "Risk Factors" and elsewhere in this
prospectus. All written and oral forward-looking statements attributable to us
are expressly qualified in their entirety by the cautionary statements. We take
no obligation to update publicly or revise any forward-looking statements.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
New Notes. In consideration for issuing the New Notes, the Company will receive
Old Notes in like principal amount in exchange. The Old Notes surrendered in
exchange for the New Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the New Notes will not result in any change in the
indebtedness of the Company.
The net proceeds to the Company from the Private Debt Offering were
approximately $95.2 million after deducting the Initial Purchasers' discount
and estimated offering expenses. The net proceeds of the Private Debt Offering
were used to repay outstanding borrowings under the Credit Facility.
23
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1998, on an actual basis and pro forma as adjusted to give effect
to the Private Debt Offering and the application of the estimated net proceeds
therefrom. This table should be read in conjunction with "Use of Proceeds,"
"Unaudited Pro Forma Consolidated Financial Data," "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and the Notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
--------------------------
ACTUAL AS ADJUSTED
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt:
Credit facility ........................... $281,913 $186,713
Notes payable ............................. 17,307 17,307
10 1/4% senior subordinated notes ......... 100,000 100,000
10 1/4% senior subordinated notes ......... -- 98,516
-------- --------
Total debt ............................... 399,220 402,536
-------- --------
Minority interest ......................... 12,335 12,335
-------- --------
Common stockholders' equity ............... 96,772 96,772
-------- --------
Total capitalization ..................... $508,327 $511,643
======== ========
</TABLE>
24
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth the unaudited pro forma consolidated
balance sheet of the Company as of September 30, 1998, adjusted to give effect
to the Private Debt Offering and the application of the estimated net proceeds
therefrom. The second and third tables set forth the unaudited pro forma
consolidated statement of operations of the Company for the year ended December
31, 1997 and the nine months ended September 30, 1998, respectively, adjusted
to give effect to the Acquisitions, the May 1998 Offerings, the Private Debt
Offering and the application of the estimated net proceeds therefrom, as if
these transactions had occurred on the beginning of the periods presented. All
acquisitions are accounted for using the purchase method of accounting. The
unaudited pro forma consolidated financial data are based upon certain
assumptions and estimates which are subject to change. These statements are not
necessarily indicative of the actual results of operations that might have
occurred, nor are they necessarily indicative of expected future results. The
unaudited pro forma consolidated financial data should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRIVATE DEBT
HISTORICAL OFFERING
COMPANY ADJUSTMENTS AS ADJUSTED
------------ ------------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ................................... $ 2,769 $ 2,769
Accounts receivable, net .................................... 61,156 61,156
Inventories ................................................. 29,294 29,294
Rental equipment, net ....................................... 328,630 328,630
Property and equipment, net ................................. 44,499 44,499
Goodwill, net ............................................... 92,894 92,894
Deferred tax asset, net ..................................... 3,227 3,227
Prepaid expenses and other assets ........................... 8,005 $ 3,316(a) 11,321
-------- --------
Total assets .............................................. $570,474 $573,790
======== ========
LIABILITIES AND COMMON STOCKHOLDERS'
EQUITY
Liabilities
Accounts payable ........................................... $ 28,101 $ 28,101
Accrued expenses ........................................... 32,301 32,301
Credit Facility ............................................ 281,913 (95,200)(b) 186,713
10 1/4% senior subordinated notes .......................... 100,000 100,000
10 1/4% senior subordinated notes .......................... -- 98,516 (b) 98,516
Notes payable .............................................. 17,307 17,307
Capitalized lease obligations .............................. 1,745 1,745
Deferred income taxes ...................................... -- --
-------- --------
Total liabilities ......................................... 461,367 464,683
-------- --------
Minority interest ........................................... 12,335 12,335
-------- --------
Common stockholders' equity ................................. 96,772 96,772
-------- --------
Total liabilities and common stockholders' equity ......... $570,474 $573,790
======== ========
<FN>
- ----------------
(a) Records debt issue costs related to the Private Debt Offering.
(b) Records the Private Debt Offering and the application of the estimated net
proceeds therefrom to reduce borrowings outstanding under the Credit
Facility.
</FN>
</TABLE>
25
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------
HISTORICAL 1998 OTHER
COMPANY INDUSTRIAL(A) RICHBOURG ARGENTINA ACQUISITIONS
Revenues: ------------ --------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Rental revenue ................ $ 68,056 $15,710 $28,894 $ 19,919 $ 6,712
Equipment sales ............... 50,578 2,468 6,510 37,404 9,179
Parts and service ............. 23,385 2,709 -- -- 3,055
-------- ------- ------- -------- -------
Total revenues ............... 142,019 20,887 35,404 57,323 18,946
-------- ------- ------- -------- -------
Cost of revenues:
Cost of
equipment sold ............... 40,766 1,750 1,956 31,075 6,342
Depreciation of rental
equipment .................... 24,490 4,161 10,928 6,108 2,992
Maintenance of rental
equipment .................... 19,748 2,799 10,714 6,904 2,984
Cost of parts and
service ...................... 13,741 1,047 -- -- 1,584
-------- ------- ------- -------- -------
Total cost
of revenues ................. 98,745 9,757 23,598 44,087 13,902
-------- ------- ------- -------- -------
Gross profit ................... 43,274 11,130 11,806 13,236 5,044
-------- ------- ------- -------- -------
Other operating expenses:
Selling, general and
administrative
expenses ..................... 30,129 8,616 4,160 4,606 2,634
Other depreciation
and amortization ............. 2,548 855 880 431 178
Officer stock option
compensation(f) .............. 4,400 -- -- -- --
-------- ------- ------- -------- -------
Total other operating
expenses .................... 37,077 9,471 5,040 5,037 2,812
-------- ------- ------- -------- -------
Income from operations ......... 6,197 1,659 6,766 8,199 2,232
-------- ------- ------- -------- -------
Other (income) expense:
Interest expense .............. 11,976 1,862 2,406 1,118 350
Amortization of debt
issue costs .................. 2,362 21 -- -- --
Other (income)
expense ...................... -- 260 (140) 48 --
-------- ------- ------- -------- -------
Total other
expense, net ................ 14,338 2,143 2,266 1,166 350
-------- ------- ------- -------- -------
Income (loss) before
income taxes and
extraordinary item ............ (8,141) (484) 4,500 7,033 1,882
(Provision for) benefit
from income taxes ............. 1,748 80 -- (2,013) (401)
-------- ------- ------- -------- -------
Income (loss) before
extraordinary item and
minority interest ............. (6,393) (404) 4,500 5,020 1,481
Minority interest .............. -- -- -- -- --
-------- ------- ------- -------- -------
Income (loss) before
extraordinary item ............ $ (6,393) $ (404) $ 4,500 $ 5,020 $ 1,481
======== ======= ======= ======== =======
<CAPTION>
MAY 1998 PRIVATE DEBT
ACQUISITION OFFERINGS OFFERING
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
Revenues: ----------------- ------------------ --------------- ------------
<S> <C> <C> <C> <C>
Rental revenue ................ $139,291
Equipment sales ............... $ (79)(b) 106,060
Parts and service ............. 29,149
--------
Total revenues ............... 274,500
--------
Cost of revenues:
Cost of
equipment sold ............... (70)(b) 81,819
Depreciation of rental
equipment .................... (1,711)(c) 46,968
Maintenance of rental
equipment .................... 43,149
Cost of parts and
service ...................... 16,372
--------
Total cost
of revenues ................. 188,308
--------
Gross profit ................... 86,192
--------
Other operating expenses:
Selling, general and
administrative
expenses ..................... 377 (d) 50,522
Other depreciation
and amortization ............. 1,819 (e) 6,711
Officer stock option
compensation(f) .............. 4,400
--------
Total other operating
expenses .................... 61,633
--------
Income from operations ......... 24,559
--------
Other (income) expense:
Interest expense .............. 11,565 (g) $ (5,038)(k) $ 1,682(m) 25,921
Amortization of debt
issue costs .................. 1,125 (h) (825)(l) 332(n) 3,015
Other (income)
expense ...................... 168
--------
Total other
expense, net ................ 29,104
--------
Income (loss) before
income taxes and
extraordinary item ............ (4,545)
(Provision for) benefit
from income taxes ............. 2,940 (i) (2,198)(i) 755(i) 911
--------
Income (loss) before
extraordinary item and
minority interest ............. (3,634)
Minority interest .............. (1,757)(j) (1,757)
--------
Income (loss) before
extraordinary item ............ $ (5,391)
========
</TABLE>
(FOOTNOTES ON NEXT PAGE)
26
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
HISTORICAL 1998 OTHER
COMPANY ARGENTINA(O) ACQUISITIONS(O)
------------ -------------- -----------------
<S> <C> <C> <C>
Revenues:
Rental revenues ........................... $122,962 $ 10,777 $3,009
Equipment sales ........................... 75,208 15,765 3,710
Parts and service ......................... 28,839 -- 1,385
-------- -------- ------
Total revenues ........................... 227,009 26,542 8,104
-------- -------- ------
Cost of revenues:
Cost of equipment sold .................... 57,499 11,744 2,803
Depreciation of rental equipment .......... 40,326 2,551 840
Maintenance of rental equipment ........... 34,145 4,374 569
Cost of parts and service ................. 18,765 -- 941
-------- -------- ------
Total cost of revenues ................... 150,735 18,669 5,153
-------- -------- ------
Gross profit ............................... 76,274 7,873 2,951
-------- -------- ------
Other operating expenses:
Selling, general and
administrative expenses .................. 41,939 2,681 986
Other depreciation and amortization ....... 6,203 106 37
Officer stock option compensation ......... 3,198 -- --
-------- -------- ------
Total other operating expenses ........... 51,340 2,787 1,023
-------- -------- ------
Income from operations ..................... 24,934 5,086 1,928
-------- -------- ------
Other (income) expense:
Interest expense .......................... 24,065 699 117
Amortization of debt issue costs .......... 2,963 -- --
Other income .............................. -- (194) --
-------- -------- ------
Total other expense, net ................. 27,028 505 117
-------- -------- ------
Income (loss) before income taxes,
minority interest and extraordinary
item ...................................... (2,094) 4,581 1,811
(Provision for) benefit from
income taxes .............................. 1,043 (1,419) (139)
-------- -------- ------
Income (loss) before minority interest
and extraordinary item .................... (1,051) 3,162 1,672
Minority interest .......................... (413) -- --
-------- -------- ------
Net income (loss) before
extraordinary item ........................ $ (1,464) $ 3,162 $1,672
======== ======== ======
<CAPTION>
MAY 1998 PRIVATE DEBT
ACQUISITION OFFERINGS OFFERING PRO FORMA
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
------------------- ------------------ --------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Rental revenues ........................... $136,748
Equipment sales ........................... $ (5)(b) 94,678
Parts and service ......................... 30,224
--------
Total revenues ........................... 261,650
--------
Cost of revenues:
Cost of equipment sold .................... (5)(b) 72,041
Depreciation of rental equipment .......... (159)(c) 43,558
Maintenance of rental equipment ........... 39,088
Cost of parts and service ................. 19,706
--------
Total cost of revenues ................... 174,393
--------
Gross profit ............................... 87,257
--------
Other operating expenses:
Selling, general and
administrative expenses .................. 369 (d) 45,975
Other depreciation and amortization ....... 251 (p) 6,597
Officer stock option compensation ......... 3,198
--------
Total other operating expenses ........... 55,770
--------
Income from operations ..................... 31,487
--------
Other (income) expense:
Interest expense .......................... 1,878 (q) $ (2,098)(k) $ 1,553(m) 26,214
Amortization of debt issue costs .......... 26 (r) (343)(l) 249 (n) 2,895
Other income .............................. (194)
--------
Total other expense, net ................. 28,915
--------
Income (loss) before income taxes,
minority interest and extraordinary
item ...................................... 2,572
(Provision for) benefit from
income taxes .............................. 356 (i) (915)(i) 676 (i) (398)
--------
Income (loss) before minority interest
and extraordinary item .................... 2,174
Minority interest .......................... (1,068) (j) (1,481)
--------
Net income (loss) before
extraordinary item ........................ $ 693
========
<FN>
- ---------------
(a) Reflects seven months of operations prior to the Buckner Acquisition in
August 1997.
(b) Eliminates revenues and expenses for the portion of business not acquired
as part of the 1998 Other Acquisitions.
(c) Reflects the adjustment of the acquired companies' historical depreciation
expense to conform to the Company's depreciation policy adopted on January
1, 1997.
(d) Adjustment for vacation accrual not recorded under Argentine GAAP and
records additional lease costs to be incurred for operating facilities.
(e) Records the increase in amortization of goodwill, using an estimated life
of 40 years, of $0.4 million, $1.0 million and $0.4 million attributable to
the Buckner, Richbourg and Argentina Acquisitions, respectively.
(f) No effect has been given to the officer stock option compensation expense
to be recognized in connection with the increase in market value of the
Company as a result of the Common Stock Offering.
(g) Records interest expense related to the portion of the Acquisitions funded
through borrowings under a term loan and the Credit Facility, using the
Company's historical rate of 9.0% per annum, eliminates interest expense
related to indebtedness of the acquired companies which was not assumed by
the Company and records an adjustment for capitalized interest not recorded
under Argentine GAAP.
(h) Records the amortization of debt issue costs related to a term loan
incurred in connection with the Richbourg Acquisition.
(i) Adjusts historical income taxes expense to reflect an estimated rate of 38%
and for deferred income taxes not recorded under Argentine GAAP.
(j) Records minority interest related to the Argentina Acquisition.
(k) Eliminates interest expense resulting from a reduction of debt outstanding
from the use of proceeds of the Common Stock Offering and records interest
expense related to the May 1998 Notes at a rate of 10.25%.
(l) Eliminates debt issue costs that would not have been incurred and records
the amortization of debt issue costs related to the May 1998 Notes.
27
<PAGE>
(m) Eliminates interest expense resulting from a reduction of debt outstanding
under the Credit Facility from the use of proceeds of the Private Debt
Offering and records interest expense related to the Notes at a rate of
10.25%.
(n) Records the amortization of debt issue costs related to the Notes.
(o) Reflects operations for period prior to acquisition.
(p) Records the increase in amortization of goodwill, using an estimated life
of 40 years, of $0.2 million and $0.1 million attributable to the Argentina
Acquisition and 1998 Other Acquisitions.
(q) Records interest expense related to the portion of the Acquisitions funded
through borrowings under the Credit Facility, using the Company's current
rate of 7.8% per annum, eliminates interest expense related to indebtedness
of the acquired companies which was not assumed by the Company and records
an adjustment for capitalized interest not recorded under Argentine GAAP.
(r) Records amortization of debt issue costs related to borrowings under the
Credit Facility.
</FN>
</TABLE>
28
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for each of the five years ended December 31, 1997 and the nine months
ended September 30, 1997 and 1998. The consolidated statements of operations
data for the years ended December 31, 1995, 1996 and 1997, and the consolidated
balance sheet data as of December 31, 1996 and 1997 are derived from financial
statements audited by Deloitte & Touche LLP, independent auditors. The
consolidated statement of operations data for the year ended December 31, 1994
and the consolidated balance sheet data as of December 31, 1994 and 1995 are
derived from audited financial statements of the Company not included in this
prospectus. The consolidated statement of operations and balance sheet data for
and as of the year ended December 31, 1993 is derived from financial statements
of the Company's wholly-owned subsidiaries, Neff Rental and Neff Machinery,
audited by other independent certified public accountants, and, in the opinion
of management, reflect all adjustments (consisting only of normal recurring
adjustments) that the Company considers necessary for a fair presentation of
such information in accordance with generally accepted accounting principles.
The selected consolidated financial data for the nine months ended September
30, 1997 and 1998 is derived from the unaudited consolidated financial
statements of the Company, which, in the opinion of management, reflect all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of such information in accordance
with generally accepted accounting principles. The historical results are not
necessarily indicative of results to be expected for any future period. The
data set forth below should be read in conjunction with, and are qualified by
reference to, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Company's Consolidated Financial Statements and
the Notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Rental revenue .............................. $ 10,305 $ 16,226 $ 20,019 $ 35,808 $ 68,056
Equipment sales ............................. 17,207 22,996 33,943 44,160 50,578
Parts and service ........................... 9,147 10,304 13,292 15,045 23,385
-------- -------- -------- ---------- ----------
Total revenues ............................. 36,659 49,526 67,254 95,013 142,019
-------- -------- -------- ---------- ----------
Cost of revenues:
Cost of equipment sold ...................... 14,075 17,111 26,562 33,605 40,766
Depreciation of rental equipment ............ 5,784 8,911 11,747 19,853(1) 24,490(1)
Maintenance of rental equipment ............. 260 2,806 3,469 8,092 19,748
Cost of parts and service ................... 5,991 5,987 7,504 8,143 13,741
-------- -------- -------- ------------ ------------
Total cost of revenues ..................... 26,110 34,815 49,282 69,693 98,745
-------- -------- -------- ------------ ------------
Gross profit ................................. 10,549 14,711 17,972 25,320 43,274
-------- -------- -------- ------------ ------------
Selling, general and
administrative expenses ..................... 6,078 8,493 10,956 18,478 30,129
Other depreciation and amortization .......... 614 225 916 1,432 2,548
Officer stock option compensation(2) ......... -- -- -- -- 4,400
-------- -------- -------- ------------ ------------
Income from operations ....................... 3,857 5,993 6,100 5,410 6,197
-------- -------- -------- ------------ ------------
Other expense ................................ 1,175 1,669 3,090 6,337 14,338
-------- -------- -------- ------------ ------------
Income (loss) before income taxes,
minority interest and
extraordinary items ......................... 2,682 4,324 3,010 (927) (8,141)
(Provision for) benefit from
income taxes(3) ............................. (1,019) (1,612) (1,176) (461) 1,748
-------- -------- -------- ------------ ------------
Income (loss) before minority interest
and extraordinary items ..................... 1,663 2,712 1,834 (1,388) (6,393)
Net income (loss) ............................ $ 1,663 $ 2,712 $ 1,834 $ (2,197) $ (6,844)
======== ======== ======== ============ ============
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1998
------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Rental revenue .............................. $ 42,743 $122,962
Equipment sales ............................. 36,019 75,208
Parts and service ........................... 18,019 28,839
-------- --------
Total revenues ............................. 96,781 227,009
-------- --------
Cost of revenues:
Cost of equipment sold ...................... 28,965 57,499
Depreciation of rental equipment ............ 15,735 40,326
Maintenance of rental equipment ............. 11,557 34,145
Cost of parts and service ................... 10,865 18,765
-------- --------
Total cost of revenues ..................... 67,122 150,735
-------- --------
Gross profit ................................. 29,659 76,274
-------- --------
Selling, general and
administrative expenses ..................... 21,264 41,939
Other depreciation and amortization .......... 1,587 6,203
Officer stock option compensation(2) ......... -- 3,198
-------- --------
Income from operations ....................... 6,808 24,934
-------- --------
Other expense ................................ 8,148 27,028
-------- --------
Income (loss) before income taxes,
minority interest and
extraordinary items ......................... (1,340) (2,094)
(Provision for) benefit from
income taxes(3) ............................. 224 1,043
-------- --------
Income (loss) before minority interest
and extraordinary items ..................... (1,116) (1,051)
Net income (loss) ............................ $ (1,116) $ (4,139)
======== ========
</TABLE>
(FOOTNOTES ON NEXT PAGE)
29
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------- --------------------------
1993 1994 1995 1996 1997 1997 1998
------------ ------------ ----------- ----------- ----------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Net book value of rental equipment ...... $ 17,846 $ 29,602 $ 45,596 $ 76,794 $ 179,547 -- $328,630
Total assets ............................ 29,263 46,851 68,816 109,118 280,790 -- 570,474
Total debt .............................. 25,378 37,983 48,345 58,250 226,203 -- 399,220
Redeemable preferred stock .............. -- -- 11,430 46,299 53,747 -- --
Total common stockholders' equity
(deficit) .............................. 571 4,205 (1,931) (7,508) (24,735) -- 96,772
OTHER DATA:
Adjusted EBITDA(4) ...................... $ 10,255 $ 15,129 $ 18,763 $ 26,695 $ 37,635 $ 24,130 $ 74,661
Adjusted EBITDA margin(5) ............... 28.0% 30.5% 27.9% 28.1% 26.5% 24.9% 32.9%
Ratio of earnings to
fixed charges(6) ....................... 2.7x 3.0x 1.8x 0.9x 0.7x 0.9x 0.9x
Rental equipment purchases .............. $ 21,353 $ 31,185 $ 52,795 $ 86,886 $ 143,515 $107,451 $164,495
Number of locations (end of period) ..... 5 6 8 16 53 50 83
</TABLE>
- ---------------
(1) Depreciation of rental equipment for 1996 and 1997 reflect the Company's
change in depreciation policy to recognize extended estimated service
lives and increased residual values of its rental equipment. See the
Consolidated Financial Statements and the Notes thereto included elsewhere
in this prospectus.
(2) Officer stock option compensation expense represents a noncash charge with
respect to the change in estimated market value of the shares to be issued
to Kevin P. Fitzgerald under an option agreement.
(3) Prior to December 26, 1995, the Company operated as a Subchapter S
corporation under the provisions of the Internal Revenue Code. Income
(loss) before extraordinary items for 1993, 1994 and 1995 is restated to
reflect what the data would have been if the Company had Subchapter C
status in these years.
(4) Adjusted EBITDA represents income from operations plus depreciation and
amortization and officer stock option compensation expenses. Adjusted
EBITDA is not intended to represent cash flow from operations and should
not be considered as an alternative to operating or net income computed in
accordance with GAAP, as an indicator of the Company's operating
performance, as an alternative to cash flows from operating activities (as
determined in accordance with GAAP) or as a measure of liquidity. The
Company believes that Adjusted EBITDA is a standard measure commonly
reported and widely used by analysts and investors as a measure of
profitability for companies with significant depreciation and amortization
expense. However, not all companies calculate Adjusted EBITDA using the
same methods; therefore, the Adjusted EBITDA figures set forth above may
not be comparable to Adjusted EBITDA reported by other companies.
(5) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total
revenues.
(6) For purposes of computing a ratio of earnings to fixed charges, "earnings"
consist of the consolidated income (loss) before (provision for) benefit
from income taxes and extraordinary items and fixed charges. "Fixed
charges" consist of interest expense, which includes the amortization of
debt issue costs and the interest portion of the Company's rent expense,
and preferred stock dividend and accretion requirements. Fixed charges
exceeded earnings by $0.9 million for the year ended December 31, 1996,
$8.1 million for the year ended December 31, 1997, $1.3 million for the
nine months ended September 30, 1997, and by $2.1 million for the nine
months ended September 30, 1998.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The matters discussed herein may include forward-looking statements that
involve risks and uncertainties which could result in operating performance
that is materially different from management's projections. The section of this
prospectus entitled "Risk Factors" should be read in conjunction with this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
The following discussion and analysis of the Company's consolidated
financial condition and consolidated results of operations should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto and the Company's Unaudited Pro Forma Consolidated Financial Data and
the Notes thereto, appearing elsewhere in this prospectus.
OVERVIEW
The Company is one of the largest and fastest growing equipment rental
companies in the United States. In addition to its rental business, the Company
acts as a dealer of new equipment on behalf of several nationally recognized
equipment manufacturers. The Company also sells used equipment, spare parts and
merchandise and provides ongoing repair and maintenance services. Prior to
1995, the Company primarily acted as a dealer of new equipment on behalf of
several nationally recognized equipment manufacturers. During this time, many
of the Company's dealer locations (six locations) also operated as rental
locations. In 1995, the Company, responding to changes in the industry, began
to modify its operating structure to focus resources of the Company on the
rental equipment business. As part of this strategy, in December 1995, the
Company entered into a strategic partnership with GE Capital to take advantage
of the growth and consolidation opportunities in the equipment rental industry.
Since 1995, the Company has pursued a disciplined growth strategy,
increasing its number of equipment rental and sales locations to 83, as of
September 30, 1998. The Company has achieved this growth through the addition
of 51 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 growth strategy by (1) making additional acquisitions of equipment
rental companies; (2) increasing fleet at its existing equipment rental
locations in both existing and new product lines; (3) selectively opening new
equipment rental locations; and (4) expanding its dealership operations.
Since March 1, 1995, the Company has opened 26 start-up rental equipment
locations. Management believes the Company's recent financial performance does
not fully reflect the benefit of these rental locations. Based on the Company's
historical experience, a new equipment rental location tends to incur costs
during the early period of operations without the benefit of the revenue stream
of a mature location. New rental locations realize significant increases in
revenues and cash flow during the first three years of operation, and generally
become profitable in the third year of operation as more equipment is added to
the rental fleet and as the location matures. Because there is relatively
little incremental operating expense associated with such revenues, there is a
greater proportionate increase in cash flow and profitability as a rental
location matures. The Company believes the revenues, cash flow and
profitability of the 26 start-up locations opened since March 1, 1995 will
continue to increase as these locations mature.
The Company primarily derives revenue from (1) the rental of equipment;
(2) sales of new and used equipment; and (3) sales of parts and service. On a
pro forma basis for the Acquisitions, the Company's primary source of revenue
is the rental of equipment to construction and industrial customers. Growth in
rental revenue is dependent upon several factors, including the demand for
rental equipment, the amount of equipment available for rent, rental rates and
the general economic environment. The level of new and used equipment sales is
primarily a function of the supply and
31
<PAGE>
demand for such equipment, price and general economic conditions. The age,
quality and mix of the Company's rental fleet also affect revenues from the
sale of used equipment. Revenues derived from the sale of parts and service is
generally correlated with sales of new equipment.
Costs of revenues include cost of equipment sold, depreciation and
maintenance costs of rental equipment and cost of parts and service. Cost of
equipment sold consists of the net book value of rental equipment at the time
of sale and cost for new equipment sales. Depreciation of rental equipment
represents the depreciation costs attributable to rental equipment. Maintenance
of rental equipment represents the costs of servicing and maintaining rental
equipment on an ongoing basis. Cost of parts and service represents costs
attributable to the sale of parts directly to customers and service provided
for the repair of customer owned equipment.
Depreciation of rental equipment is calculated on a straight-line basis
over the estimated service life of the asset (generally four to seven years
with a 10% residual value). Since January 1, 1996, the Company has made certain
changes to its depreciation assumptions to recognize extended estimated service
lives and increased residual values of its rental equipment. The Company
believes that these changes in estimates will more appropriately reflect its
financial results by better allocating the cost of its rental equipment over
the service lives of these assets. In addition, the new lives and residual
values more closely conform to those prevalent in the industry.
Selling, general and administrative expenses include sales and marketing
expenses, payroll and related costs, professional fees, property and other
taxes and other administrative overhead. Other depreciation and amortization
represents the depreciation associated with property and equipment (other than
rental equipment) and the amortization of goodwill and intangible assets.
Prior to December 26, 1995, the Company had Subchapter S Corporation
status under the provisions of the Internal Revenue Code. As a result, the
stockholders of the Company were responsible for income taxes for the period
prior to December 26, 1995. In 1995, the Company recorded a deferred tax
liability for timing differences which existed at the time the Company changed
its tax status (see the Consolidated Financial Statements and the Notes thereto
included elsewhere in this prospectus).
RESULTS OF OPERATIONS
In view of the Company's growth, management believes that the
period-to-period comparisons of its financial results should not be relied upon
as an indication of future performance. In addition, the Company's results of
operations may fluctuate from period to period in the future as a result of the
cyclical nature of the industry in which the Company operates. See "Risk
Factors--Seasonality and Quarterly Fluctuations."
32
<PAGE>
The following table sets forth, for the periods indicated, information
derived from the consolidated statements of operations of the Company expressed
as a percentage of total revenues. There can be no assurance that the trends in
the table below will continue in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental revenue ....................................... 29.8% 37.7% 47.9% 44.2% 54.2%
Equipment sales ...................................... 50.5 46.5 35.6 37.2 33.1
Parts and service .................................... 19.7 15.8 16.5 18.6 12.7
----- ----- ----- ----- -----
Total revenues ...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Cost of revenues:
Cost of equipment sold ............................... 39.5 35.4 28.7 29.9 25.3
Depreciation of rental equipment ..................... 17.5 20.9 17.2 16.3 17.8
Maintenance of rental equipment ...................... 5.2 8.5 13.9 11.9 15.0
Cost of parts and service ............................ 11.1 8.6 9.7 11.2 8.3
----- ----- ----- ----- -----
Total cost of revenues .............................. 73.3 73.4 69.5 69.3 66.4
----- ----- ----- ----- -----
Gross profit .......................................... 26.7 26.6 30.5 30.7 33.6
Selling, general and administrative expenses ......... 16.3 19.4 21.2 22.0 18.5
Other depreciation and amortization .................. 1.4 1.5 1.8 1.6 2.7
Officer stock option compensation .................... -- -- 3.1 -- 1.4
----- ----- ----- ----- -----
Income from operations ................................ 9.0% 5.7% 4.4% 7.1% 11.0%
===== ===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
REVENUES. Total revenues for the nine months ended September 30, 1998
increased 135.0% to $227.0 million from $96.8 million for the nine months ended
September 30, 1997. This growth in revenues is primarily attributable to an
increase in revenues from the maturation of the 26 new rental locations opened
since March 1995 of approximately $34.7 million and approximately $71.2 million
attributable to revenues generated by acquisitions.
GROSS PROFIT. Gross profit for the nine months ended September 30, 1998
increased 157.2% to $76.3 million or 33.6% of total revenues from $29.7 million
or 30.6% of total revenues for the nine months ended September 30, 1997. This
increase is primarily attributable to an increase in gross profit of
approximately $12.6 million associated with the maturation of the 26 new rental
locations opened since March 1995 and approximately $29.4 million associated
with the growth in revenues arising from acquisitions. The increase in gross
profit as a percentage of revenues is primarily attributable to improved rental
revenue margins coupled with a larger mix of rental revenues. The Company had
83 rental locations at September 30, 1998 compared to 50 at September 30, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the nine months ended September 30, 1998 increased
97.2% to $41.9 million or 18.5% of total revenues from $21.3 million or 22.0%
of total revenues for the nine months ended September 30, 1997. The increase in
selling, general and administrative expenses is primarily attributable to the
opening of 7 new rental locations since September 30, 1997 and the increase in
regional and corporate personnel in anticipation of continued growth through
acquisitions and new location openings.
OTHER DEPRECIATION AND AMORTIZATION. Other depreciation and amortization
expense for the nine months ended September 30, 1998 increased 290.9% to $6.2
million or 2.7% of total revenues from $1.6 million or 1.6% of total revenues.
The increase is primarily attributable to amortization of goodwill resulting
from acquisitions and to increased expenditures on computer equipment,
management information systems and property and equipment needed to support the
Company's expansion.
33
<PAGE>
INTEREST EXPENSE. Interest expense for the nine months ended September 30,
1998 increased 249.8% to $24.1 million from $6.9 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.
EXTRAORDINARY LOSS. During 1998, as a result of modifications to the
Company's credit facility, the Company recorded extraordinary losses from the
write-off of debt issue costs associated with the early extinguishment of debt
of $2.7 million, net of related income taxes.
1997 COMPARED TO 1996
REVENUES. Total revenues for 1997 increased 49.5% to $142.0 million from
$95.0 million in 1996. This growth in revenues primarily resulted from an
increase in revenues of (i) approximately $12.3 million attributable to the
continued maturation of existing rental locations; (ii) approximately $16.1
million associated with the Company's acquisition of 26 rental locations in
August 1997; and (iii) approximately $9.2 million from the opening of 11 new
rental locations during the period.
GROSS PROFIT. Gross profit for 1997 increased 70.9% to $43.3 million or
30.5% of total revenues from $25.3 million or 26.6% of total revenues in 1996.
These increases can primarily be attributed to an increase in gross profit of
(i) approximately $9.3 million from the continued growth of revenues from the
10 locations opened during 1995 and 1996; (ii) approximately $4.8 million from
the growth in revenues arising from the acquisition of 26 rental locations in
August 1997; and (iii) approximately $3.2 million from the growth in revenues
associated with the opening of 11 new rental locations during 1997. These
increases in gross profit include approximately $3.3 million related to the
change in the Company's depreciation policy to recognize extended service lives
and increased salvage values of its rental equipment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1997 increased 63.1% to $30.1 million or 21.2% of
total revenues from $18.5 million or 19.4% of total revenues in 1996. The
increase in selling, general and administrative expenses as a percent of
revenues is primarily attributable to the opening of 11 new rental locations
and the increase in regional and corporate personnel in anticipation of
continued growth through acquisitions and new location openings. In 1996,
selling, general and administrative expenses included approximately $0.9
million of expenses related to the investigation of alternative financing
arrangements.
OTHER DEPRECIATION AND AMORTIZATION. Other depreciation and amortization
expense for 1997 increased 77.9% to $2.5 million from $1.4 million in 1996. The
increase in other depreciation and amortization is primarily attributable to
increased expenditures on computer equipment, management information systems
and property and equipment needed to support the Company's expansion.
OFFICER STOCK OPTION COMPENSATION EXPENSE. Officer stock option
compensation expense of $4.4 million represents changes in estimated market
value of the shares to be issued to a key employee under an option agreement.
INTEREST EXPENSE. Interest expense for 1997 increased to $12.0 million
from $6.0 million in 1996. This increase is attributable to additional
borrowings related to the Company's continued investment in rental equipment
and the Company's acquisition of 26 locations in August 1997.
EXTRAORDINARY LOSS. During 1997, as a result of modifications to the
Company's credit facility, the Company recorded extraordinary losses from the
write-off of debt issue costs associated with the early extinguishment of debt
of $0.5 million, net of related income taxes.
1996 COMPARED TO 1995
REVENUES. Total revenues for 1996 increased 41.3% to $95.0 million from
$67.3 million in 1995. This increase was primarily attributable to the increase
in the number of rental locations operated by
34
<PAGE>
the Company. The increase in rental locations resulted from the opening of
eight new rental locations during 1996. In addition, several changes were made
to the Company's operating structure to focus resources of the Company on the
rental equipment business which also increased revenues at existing locations.
GROSS PROFIT. Gross profit for 1996 increased 40.9% to $25.3 million, or
26.6% of total revenues from $18.0 million or 26.7% of total revenues in 1995.
The increase in gross profit is primarily attributable to (i) the continued
growth of revenues from the two locations opened during 1995; (ii) the growth
in revenues associated with the opening of eight new rental locations during
1996; and (iii) the change in the Company's depreciation policy to recognize
extended service lives of its rental equipment. The increases were offset by
lower margins at new rental locations. As a result, gross profit as a
percentage of total revenues was relatively consistent year to year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1996 increased 68.7% to $18.5 million, or 19.4% of
total revenues from $11.0 million or 16.3% of total revenues in 1995. The
increase in selling, general and administrative expenses is primarily
attributable to the opening of eight new rental locations. In addition, the
Company incurred approximately $0.9 million of expenses related to the
investigation of alternative financing arrangements during 1996. No such costs
were incurred in 1995.
OTHER DEPRECIATION AND AMORTIZATION. Other depreciation and amortization
expense for 1996 increased 56.3% to $1.4 million from $0.9 million in 1995. The
increase in other depreciation and amortization is primarily attributable to
increased expenditures on computer equipment as a result of the Company's new
location expansion.
INTEREST EXPENSE. Interest expense for 1996 increased to $6.0 million from
$3.1 million in 1995. This increase is attributable to additional borrowings
related to the Company's investment in rental equipment for its new locations.
EXTRAORDINARY LOSS. During 1996, as a result of modifications to the
Company's credit facility, the Company recorded extraordinary losses from the
write-off of deferred financing costs associated with the early extinguishment
of debt of $0.8 million, net of related income taxes. There were no such
transactions in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed the May 1998 Offerings to reduce the Company's
indebtedness, extend its debt maturities to reflect the long-term nature of its
assets and provide increased operational and financial flexibility to allow the
Company to pursue its growth strategy. In addition, the Company amended and
restated its Credit Facility, which was increased from $300.0 million to $310.0
million on September 9, 1998. The Credit Facility terminates on April 30, 2003.
Proceeds from the May 1998 Offerings were used to repay a $100.0 million
term loan, redeem the Company's Series A Cumulative Redeemable Preferred Stock,
repay a mortgage related to properties the Company owns in Florida and reduce
outstanding borrowings under the Credit Facility.
During 1997, the Company's operating activities provided net cash flow of
$8.9 million as compared to $7.2 million for 1996. For the nine months ended
September 30, 1998, net cash flows provided by operating activities amounted to
$36.0 million as compared to net cash used in operating activities of $9.7
million for the nine months ended September 30, 1997. These increases are
primarily attributable to the growth in the Company's operations resulting from
an increase in the number of rental locations operated by the Company.
Net cash used in investing activities was $173.3 million for 1997 as
compared to $44.7 million in the same period for the prior year. This increase
is primarily attributable to the Buckner Acquisition, increased expenditures
for fleet, computer equipment and other property and equipment necessary to
support the Company's expansion. Net cash used in investing activities for the
nine months ended
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September 30, 1998 was $258.1 million as compared to $150.6 million for the
nine months ended September 30, 1997. This increase is primarily attributable
to acquisitions and increased expenditures for fleet in connection with the
Company's expansion.
Net cash provided by financing activities was $162.3 million for 1997 as
compared to $37.2 million for 1996. The net cash provided by financing
activities was primarily attributable to borrowings under the Company's Credit
Facility and a term loan used to finance the Buckner Acquisition and capital
expenditures supporting the Company's expansion. Net cash provided by financing
activities for the nine months ended September 30, 1998 was $222.0 million as
compared to $137.3 million for the nine months ended September 30, 1997. The
net cash provided by financing activities was attributable to net proceeds
received from the May 1998 Offerings and to borrowings under the Company's
Credit Facility, net of various debt repayments previously described. These
amounts were used to finance acquisitions and capital expenditures supporting
the Company's expansion.
The Company used the proceeds of the Private Debt Offering to reduce
outstanding borrowings under the Credit Facility. As of September 30, 1998, on
a pro forma basis after giving effect to the Private Debt Offering and the
application of proceeds therefrom, the Company would have had approximately
$112.8 million available under its Credit Facility. Based upon current
expectations, the Company believes that cash flow from operations, together
with amounts which may be borrowed under the Credit Facility will be adequate
for it to meet its capital requirements and pursue its business strategy for
the next 12 months.
YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer and software systems as the millennium ("Year 2000")
approaches. The Year 2000 problem is pervasive and complex, as virtually every
computer operation could be affected in some way by the rollover of the
two-digit year value to "00". The issue is whether systems will properly
recognize date sensitive information when the year changes to 2000. Systems
that do not properly recognize such information could generate erroneous data
or cause complete system failures. The Company has 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 rollover to the Year 2000. Although
there can be no assurance, management believes the Year 2000 problem will not
have a material effect on the financial position, results of operations or cash
flows of the Company. 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.
INFLATION AND GENERAL ECONOMIC CONDITIONS
Although the Company cannot accurately anticipate the effect of inflation
on its operations, it does not believe that inflation has had, or is likely in
the foreseeable future to have, a material impact on its results of operations.
The Company's operating results may be adversely affected by events or
conditions in a particular country or region, such as economic, weather and
other factors. In addition, the Company's operating results may be adversely
affected by increases in interest rates that may lead to a decline in economic
activity, while simultaneously resulting in higher interest payments by the
Company under its variable rate credit facilities. See "Risk Factors--Regional
Conditions and Cyclicality" and "Risks Associated with the Argentina
Acquisition."
Although much of the Company's business is with customers in industries
that are cyclical in nature, management believes that certain characteristics
of the equipment rental industry and the Company's operating strategies should
help to mitigate the effects of an economic downturn. These characteristics
include (1) the flexibility and low cost offered to customers by renting, which
may be a more attractive alternative to capital purchases; (2) the Company's
ability to redeploy equipment during regional recessions; and (3) the diversity
of the Company's industry and customer base.
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THE EXCHANGE OFFER
THE FOLLOWING DISCUSSION SUMMARIZES THE MATERIAL TERMS OF THE EXCHANGE
OFFER, INCLUDING THOSE SET FORTH IN THE LETTER OF TRANSMITTAL DISTRIBUTED WITH
THIS PROSPECTUS. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF THE DOCUMENTS UNDERLYING THE EXCHANGE OFFER, INCLUDING THE
INDENTURE AND THE REGISTRATION RIGHTS AGREEMENT, WHICH ARE EXHIBITS TO THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Subject to the conditions set forth in this prospectus and in the
accompanying letter of transmittal, which together constitute the Exchange
Offer, we will accept for exchange Old Notes which are properly tendered on or
prior to the Expiration Date and not withdrawn as permitted below. The term
"Expiration Date" means 5:00 p.m., New York City time, on , 1999;
provided, however, that if we, in our sole discretion, extend the period of
time for which the Exchange Offer is open, the term "Expiration Date" means the
latest time and date to which we extend the Exchange Offer.
As of the date of this prospectus, $100 million aggregate principal amount
at maturity of the Old Notes is outstanding. We are sending this prospectus,
together with the letter of transmittal, on or about , 1999, to all
Holders of Old Notes known to us. Our obligation to accept Old Notes for
exchange pursuant to the Exchange Offer is subject to certain conditions set
forth under "--Conditions of the Exchange Offer" below.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount at maturity of $1,000 and any integral multiple thereof. We
will return any Old Notes not accepted for exchange for any reason without
expense to the tendering Holder as promptly as practicable after the expiration
or termination of the Exchange Offer.
We expressly reserve the right to (1) delay accepting any Old Notes
tendered for exchange, (2) extend the period of time during which the Exchange
Offer is open, (3) amend the terms of the Exchange Offer in any manner or (4)
terminate the Exchange Offer, and not to accept for exchange any Old Notes not
yet accepted for exchange, if any of the conditions of the Exchange Offer
specified below under "--Conditions of the Exchange Offer" are not satisfied.
We will give written or oral notice of any delay, extension, amendment,
non-acceptance or termination to the Holders of the Old Notes as promptly as
practicable, such notice in the case of any extension to be issued by means of
a press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
RESALE OF NEW NOTES
We are making the Exchange Offer in reliance on an interpretation by the
Staff set forth in no-action letters issued to third parties, including
"Shearman & Sterling" (available July 2, 1993), "K-III Communications
Corporation" (available May 14, 1993), "Morgan Stanley & Co. Incorporated"
(available June 5, 1991), "Mary Kay Cosmetics, Inc." (available June 5, 1991),
"Warnaco, Inc." (available October 11, 1991) and "Exxon Capital Holdings
Corporation" (available May 13, 1988). The Company has not sought its own
no-action letter from the Staff and there can be no assurance that the Staff
would make a similar determination with respect to the Exchange Offer as it has
in the no-action letters mentioned above. Based on this interpretation, the
Company believes that, except as described below, Holders of New Notes issued
pursuant to the Exchange Offer may offer for resale, resell and otherwise
transfer such New Notes, other than any Holder which is a broker-dealer or an
"affiliate" of the Company or the Guarantors within the meaning of Rule 405
under the Securities Act, without compliance with the registration and
prospectus delivery provisions of the Securities Act, if:
/bullet/ such New Notes are acquired in the ordinary course of the Holder's
business,
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/bullet/ the Holder has no arrangement or understanding with any person to
participate in the distribution of such New Notes, and
/bullet/ the Holder is not engaged in, and does not intend to engage in, a
distribution of such New Notes.
By tendering Old Notes for New Notes, each Holder will represent to us
that:
/bullet/ the New Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person
receiving such New Notes, whether or not such person is the
Holder,
/bullet/ neither the Holder nor any such other person is engaging in or
intends to engage in a distribution of such New Notes and if such
Holder is not a broker-dealer, neither the Holder nor any such
other person has an arrangement or understanding with any person
to participate in the distribution of such New Notes within the
meaning of the Securities Act; and
/bullet/ neither the Holder nor any such person is an affiliate of the
Company or the Guarantors as defined in Rule 405 under the
Securities Act.
If any Holder of Old Notes cannot make the requisite representations to
the Company, that Holder: (1) cannot participate in the Exchange Offer, (2)
cannot rely on the Staff's interpretation set forth in the no-action letters
mentioned above and (3) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
transfer of Old Notes, unless an exemption from such requirements is otherwise
available. This prospectus may be used in connection with an offer to resell,
resale or other transfer of Notes only as specifically set forth in this
prospectus.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes it acquired as a result of market-making activities or other
trading activities, must acknowledge that (1) it will deliver a prospectus in
connection with any resale of such New Notes, and (2) it has not entered into
any arrangements or understanding with the Company or any affiliate of the
Company to distribute New Notes in connection with any resale of such New
Notes. See "Plan of Distribution." The letter of transmittal states that by so
acknowledging and delivering such a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
INTEREST ON THE NEW NOTES
The New Notes will bear interest at 10 1/4% per annum. Interest on the New
Notes will be payable semi-annually, in arrears, on June 1 and December 1 of
each year, commencing on June 1, 1999. Holders of New Notes will receive
interest on June 1, 1999 from the date of initial issuance of the New Notes,
plus an amount equal to interest accrued on the Old Notes from the most recent
date on which interest was paid to the date of exchange for New Notes. Interest
on Old Notes accepted for exchange will cease to accrue upon issuance of the
New Notes.
PROCEDURES FOR TENDERING OLD NOTES
The tender of Old Notes and the acceptance of Old Notes by the Company
will constitute an agreement between the tendering Holder and the Company upon
the terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal. Except as set forth below, a Holder who wishes to tender
Old Notes pursuant to the Exchange Offer must send a properly completed and
duly executed letter of transmittal, including all other documents required by
the letter of transmittal, to the Exchange Agent at the address set forth below
under "Exchange Agent" on or before the Expiration Date. In addition,
certificates for the Old Notes must be received by the
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Exchange Agent along with the letter of transmittal or the Holder must comply
with the guaranteed delivery procedures described below.
Old Notes may also be tendered by book-entry transfer into the Exchange
Agent's account at DTC ("Book-Entry Transfer") in accordance with the
procedures described in this section and under "--Book Entry Transfer." Holders
who chose to tender their Old Notes by Book-Entry Transfer should make sure an
"Agent's Message" is sent to the Exchange Agent on or before the Expiration
Date instead of a properly completed and duly executed letter of transmittal.
An "Agent's Message" is a message, transmitted by DTC to and received by the
Exchange Agent, which states that DTC has received an express acknowledgment
from the Holder tendering Old Notes stating that the Holder has received and
agrees to be bound by the letter of transmittal and that the Company may
enforce such letter of transmittal against the Holder. If Old Notes are
tendered by Book-Entry Transfer, the Exchange Agent must receive confirmation
of the book-entry transfer (a "Book-Entry Confirmation") on or before the
Expiration Date, instead of certificates for the Old Notes or compliance with
the guaranteed delivery procedures.
THE METHOD OF DELIVERY OF OLD NOTES, LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF
DELIVERY BY MAIL, HOLDERS SHOULD USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IF
DELIVERY IS BY MAIL, WE RECOMMEND THAT HOLDERS USE REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL CASES, HOLDERS SHOULD ALLOW
SUFFICIENT TIME TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. HOLDERS SHOULD NOT SEND LETTERS OF TRANSMITTAL OR OLD NOTES TO THE
COMPANY.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution unless the Old Notes
surrendered for exchange (1) are signed by a registered Holder of the Old Notes
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the letter of transmittal or (2) are
tendered for the account of an Eligible Institution. An "Eligible Institution"
is any of the following: a firm which is a member of the National Association
of Securities Dealers, Inc., a commercial bank or trust company having an
office or correspondent in the United States or an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(collectively, "Eligible Institutions").
If the letter of transmittal is signed by a person other than the
registered Holder of Old Notes being tendered, the Old Notes must be endorsed
or accompanied by powers of attorney, in either case signed by the registered
Holder exactly as the name of the registered Holder appears on the Old Notes
and such signature must be guaranteed by an Eligible Institution.
If the letter of transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, these persons should so indicate when signing, and proper evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal, unless we waive this requirement.
We will determine all questions as to the validity, form, eligibility,
including time of receipt, and acceptance of Old Notes tendered for exchange,
in our sole discretion. Our determination shall be final and binding. We
reserve the absolute right to reject any and all Old Notes which are not
properly tendered or Old Notes which it might, in our judgment or our counsel's
judgment, be unlawful to accept. We also reserve the absolute right to waive
any defects or irregularities or conditions of tender as to any particular Old
Note either before or after the Expiration Date, including the right to waive
the ineligibility of any Holder who seeks to tender Old Notes in the Exchange
Offer. Our interpretation of the terms and conditions of the Exchange Offer,
including terms and conditions set forth in the letter of transmittal and its
instructions, as to any particular Old Note either before or after the
Expiration Date shall be final and binding on all parties. Unless
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waived, any defects or irregularities in connection with the tender of Old
Notes for exchange must be cured within the period of time determined by us.
Neither we nor the Exchange Agent nor any other person shall be under any duty
to notify any Holder of any defect or irregularity with respect to any tender
of Old Notes, nor shall we nor the Exchange Agent nor any other person incur
any liability for failure to give such notice.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account with respect to the Old Notes
at DTC for purposes of the Exchange Offer promptly after the date of this
prospectus. Any financial institution that is a participant in DTC's systems
may make book-entry delivery of Old Notes by causing DTC to transfer such Old
Notes into the Exchange Agent's account at DTC in accordance with DTC's
transfer procedures. DTC will (1) verify that the participant has accepted the
Exchange Offer, (2) execute a book-entry transfer of the tendered Old Notes
into the Exchange Agent's account at DTC and (3) send the Exchange Agent
Book-Entry Confirmation of such transfer and the Agent's Message. Although
delivery of Old Notes may be effected through book-entry transfer at DTC,
Book-Entry Confirmation, an Agent's Message and any other required documents,
with any required signature guarantees, must, in any case, be transmitted to
and received by the Exchange Agent at the address set forth below under
"--Exchange Agent" on or before the Expiration Date or there must be compliance
with the guaranteed delivery procedures described below. Old Notes will not be
deemed tendered until the Exchange Agent receives the foregoing documents.
Delivery of documents to DTC does not constitute delivery to the Exchange
Agent.
GUARANTEED DELIVERY PROCEDURES
If a Holder of Old Notes desires to tender such Old Notes and (1) the Old
Notes are not immediately available, (2) there is not enough time for the
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or (3) the procedure for book-entry transfer cannot
be completed before the Expiration Date, a tender may be effected if:
(a) the tender is made through an Eligible Institution,
(b) prior to the Expiration Date, the Exchange Agent receives from the
Eligible Institution a Notice of Guaranteed Delivery, substantially in the form
we provide by telegram, telex, facsimile transmission, mail or hand delivery,
setting forth the name and address of the Holder of the Old Notes and the
amount of Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange ("NYSE") trading days
after the date of the execution of the Notice of Guaranteed Delivery,
certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, together with a
properly completed and duly executed letter of transmittal or a copy of the
letter of transmittal or an Agent's Message instead of the letter of
transmittal with any required signature guarantees and any other documents
required by the letter of transmittal, will be deposited by the Eligible
Institution with the Exchange Agent, and
(c) the certificates for all physically tendered Old Notes, in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, together with a
properly completed and duly executed letter of transmittal or a copy of the
letter of transmittal or an Agent's Message instead of the letter of
transmittal with any required signature guarantees and all other documents
required by the letter of transmittal, are received by the Exchange Agent
within three NYSE trading days after the date of execution of the Notice of
Guaranteed Delivery.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, promptly after the Expiration Date we will accept all Old Notes properly
tendered and not withdrawn. See
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"--Conditions of the Exchange Offer" below. We shall be deemed to have accepted
properly tendered Old Notes when, as and if we have given oral or written
notice of acceptance of the Old Notes to the Exchange Agent, with written
confirmation of any oral notice to be given promptly thereafter.
For each Old Note accepted for exchange, the holder of the Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. The form and terms of the New Notes are substantially the
same as the form and terms of the Old Notes except that the New Notes are not
subject to (1) certain transfer restrictions and registration rights which the
Old Notes are subject to and (2) certain provisions providing for additional
interest to be paid to the Holders of Old Notes under certain circumstances
relating to the timing of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes accepted for exchange
will be made only after the Exchange Agent receives, on or before the
Expiration Date, (1) certificates for the Old Notes or a timely Book-Entry
Confirmation of the Old Notes into the Exchange Agent's account at DTC, (2) a
properly completed and duly executed letter of transmittal or an Agent's
Message instead of the letter of transmittal and (3) all other required
documents. If any tendered Old Notes are not accepted for any reason set forth
in the terms and conditions of the Exchange Offer or if Old Notes are submitted
for a greater principal amount than the Holder wishes to exchange, we will
return, without expense to the Holder, the unaccepted or non-exchanged Old
Notes to the tendering Holder as promptly as practicable after the expiration
or termination of the Exchange Offer. If the Old Notes are tendered by
book-entry transfer into the Exchange Agent's account at DTC, the non-exchanged
Old Notes will be credited to an account maintained with DTC.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees, or, subject to the instructions in the
letter of transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. We will pay all charges and expenses, other
than transfer taxes in certain circumstances, in connection with the Exchange
Offer. See "--Fees and Expenses."
WITHDRAWAL RIGHTS
Holders may withdraw tenders of Old Notes at any time before 5:00 p.m.,
New York City time, on the Expiration Date.
To withdraw Old Notes tendered in the Exchange Offer, a Holder must
deliver a written notice of withdrawal to the Exchange Agent at the address set
forth below under "--Exchange Agent" before 5:00 p.m., New York City time, on
the Expiration Date. The notice of withdrawal must (1) specify the name of the
person having tendered the Old Notes to be withdrawn (the "Depositor"), (2)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount at maturity of such Old Notes), (3) contain a
statement that the Holder of the Old Notes is withdrawing its election to
tender the Old Notes, (4) be signed by the Holder in the same manner as the
original signature on the letter of transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer instructing the Trustee to register the transfer of the
Old Notes in the name of the person withdrawing the tender and (5) specify the
name in which the Old Notes are registered, if different from that of the
Depositor. If Old Notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn Old
Notes and otherwise comply with DTC's procedures.
We will determine all questions as to the validity, including time of
receipt, form and eligibility of withdrawal notices, in our sole discretion.
Our determination shall be final and binding on all parties. Any Old Notes
withdrawn from the Exchange Offer will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer and no New Notes will
be issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. We will return, without expense to the Holder, any Old Notes that
have been tendered for exchange but which are not exchanged for any
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reason to the Holder as soon as practicable after the expiration or termination
of the Exchange Offer. If the Old Notes are tendered by book-entry transfer
into the Exchange Agent's account at DTC, the Old Notes will be credited to an
account maintained with DTC for the Old Notes. Properly withdrawn Old Notes may
retendered by following the procedures described under "--Procedures for
Tendering Old Notes" above at any time on or before 5:00 p.m., New York City
time, on the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is not conditioned upon any minimum principal amount at
maturity of Old Notes being tendered for exchange. However, notwithstanding any
other provisions of the Exchange Offer, we will not accept any Old Notes for
exchange and may terminate or amend the Exchange Offer as provided in this
prospectus before the acceptance of any Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer which,
in our sole judgment, might materially impair our ability to proceed with the
Exchange Offer,
(b) any law, statute, rule or regulation is proposed, adopted or enacted,
or any existing law, statue, rule or regulation is interpreted by the Staff in
a manner, which, in our sole judgment, might materially impair our ability to
proceed with the Exchange Offer,
(c) any governmental approval which we, in our sole discretion, deem
necessary for the consummation of the Exchange Offer as contemplated hereby, is
not obtained, or
(d) the Commission or any state securities agency shall have issued a stop
order suspending the effectiveness of the registration statement of which this
prospectus is a part or proceedings shall have been initiated or, to the our
knowledge, threatened, for that purpose.
If we determine in our sole discretion that any of these conditions are
not satisfied, we may (1) refuse to accept any Old Notes and return all
tendered Old Notes to the tendering Holders, (2) extend the Exchange Offer and
retain all Old Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of Holders who tendered such Old Notes to
withdraw their tendered Old Notes, or (3) waive such unsatisfied conditions
with respect to the Exchange Offer and accept all properly tendered Old Notes
which have not been withdrawn.
The foregoing conditions are for our sole benefit and may be asserted by
us regardless of the circumstances giving rise to any such condition or we may
waive these conditions in whole or in part at any time and from time to time in
our sole discretion. Our failure at any time to exercise any of the foregoing
rights shall not be deemed a waiver of that right, and each right shall be
deemed an ongoing right which may be asserted at any time and from time to
time.
EXCHANGE AGENT
State Street Bank & Trust Company will act as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be sent to the
Exchange Agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this prospectus or of the letter
of transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
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State Street Bank & Trust Company
BY MAIL: OVERNIGHT COURIER:
State Street Bank & Trust Company STATE STREET BANK & TRUST COMPANY
Corporate Trust Department CORPORATE TRUST DEPARTMENT
P.O. Box 778 TWO INTERNATIONAL PLACE
Boston, Massachusetts 02102 BOSTON, MASSACHUSETTS 02110
Attention: Kellie Mullen ATTENTION: KELLIE MULLEN
BY HAND IN NEW YORK (AS DROP AGENT): BY HAND IN BOSTON:
State Street Bank & Trust Company, N.A. State Street Bank & Trust Company
61 Broadway Two International Place
15th Floor, Corporate Trust Window Fourth Floor, Corporate Trust Department
New York, New York 10006 Boston, Massachusetts 02110
FACSIMILE TRANSMISSION: CONFIRM BY TELEPHONE:
(For Eligible Institutions Only) (617) 664-5314
(617) 664-5290
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY
OF THE LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will not make any payment to brokers, dealers or others soliciting
acceptances of the Exchange Offer. We will pay the expenses to be incurred in
connection with the Exchange Offer. These expenses are estimated in the
aggregate to be approximately $ . These expenses include fees and expenses
of the Exchange Agent and Trustee, accounting and legal fees and printing
costs, among others.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection with the Exchange Offer. If, however, (1)
certificates representing New Notes or Old Notes for principal amounts not
tendered or accepted for exchange, are to be delivered to, registered or issued
in the name of any person other than the registered Holder of the tendered Old
Notes, (2) tendered Old Notes are registered in the name of any person other
than the person signing the letter of transmittal, or (3) a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes, whether imposed on
the registered Holder or on any other persons, will be payable by the tendering
Holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
in the Indenture and in the legends on the Old Notes regarding transfer and
exchange of the Old Notes. Accordingly, such Old Notes may be resold only (1)
to us (upon redemption of the Old Notes or otherwise), (2) pursuant to an
effective registration statement under the Securities Act, (3) as long as the
Old Notes are eligible for resale pursuant to Rule 144A, to a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, or (4) pursuant to another
available exemption from the registration requirements of the Securities Act,
in each case in accordance with any applicable state securities laws. We do not
currently anticipate that we will register the resale of any Old Notes that
remain outstanding after consummation of the Exchange Offer under the
Securities Act. This is subject to any applicable limited exceptions.
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Holders of the Old and New Notes which remain outstanding after
consummation of the Exchange Offer will vote together as a single class for
purposes of determining whether Holders of the requisite percentage of the
Notes have taken certain actions or exercised certain rights under the
Indenture.
Upon consummation of the Exchange Offer, Holders of Old Notes will not be
entitled to any further registration rights under the Registration Rights
Agreement, except under limited circumstances. See "Exchange Offer;
Registration Rights."
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes in
connection with the Exchange Offer.
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BUSINESS
GENERAL
Neff is one of the largest and fastest growing equipment rental companies
in the United States, with 84 rental locations in 15 states and South America.
We rent a wide variety of equipment, including backhoes, air compressors,
loaders, lifts and compaction equipment to construction and industrial
customers. We also act as a dealer of new equipment on behalf of several
nationally recognized equipment manufacturers. In addition, we sell used
equipment, spare parts and merchandise and provides ongoing repair and
maintenance services. We have increased our total revenues from $67.3 million
in 1995 to $142.0 million in 1997; pro forma for the Acquisitions, our total
revenues for 1997 were $274.5 million.
According to industry sources, the U.S. equipment rental industry grew
from approximately $600 million in revenues in 1982 to an estimated $18 billion
in 1997. This growth is primarily attributable to construction and industrial
companies increasingly outsourcing their equipment needs to reduce investment
in non-core assets and convert costs from fixed to variable. The equipment
rental industry is highly fragmented, with an estimated 17,000 equipment rental
companies in the United States. As a result, we believe that well-capitalized
operators like us have substantial consolidation opportunities. According to
RENTAL EQUIPMENT REGISTER and studies prepared by Manfredi & Associates, Inc.
on the size of the equipment rental market, no single company's rental revenues
represented more than 3% of total market revenues in 1997. Relative to smaller
competitors, we have several advantages, including increased purchasing power,
larger inventories to service larger accounts and the ability to transfer
equipment among rental locations in response to changing patterns of customer
demand.
COMPETITIVE STRENGTHS
We believe we have several competitive strengths which provide us with the
opportunity for continued growth and increased profitability.
STRONG MARKET POSITION. Neff is one of the largest and fastest growing
construction and industrial equipment rental companies in the United States,
and is a leading competitor with a significant presence in the Southeast and
Gulf Coast regions. We operate 84 rental locations in 15 states, including
Florida, Georgia, Alabama, Mississippi, South Carolina, North Carolina,
Tennessee, Louisiana, Texas, Oklahoma, Arizona, Nevada, Utah, California and
Colorado, and South America. From December 31, 1995 to September 30, 1998, we
increased our equipment rental locations from eight to 83 and expanded our
rental fleet from $62.0 million to $433.5 million based on original cost. We
believe our size and geographic diversity help insulate us from regional
economic downturns.
HIGH QUALITY RENTAL FLEET. Management believes our rental fleet is one of
the newest, most comprehensive and well-maintained in the equipment rental
industry. As of September 30, 1998, the average age of a piece of equipment in
our rental fleet was approximately 20 months. We make ongoing capital
investments in new equipment, engage in regular sales of new equipment and
conduct an advanced preventative maintenance program. Management believes this
maintenance program increases fleet utilization, extends the useful life of
equipment and produces higher resale values.
EXCELLENT CUSTOMER SERVICE. We differentiate ourselves from our
competitors by providing high quality, responsive service to its customers.
Service initiatives include (1) reliable on-time equipment delivery directly to
customers' job sites; (2) on-site repairs and maintenance of rental equipment
by factory trained mechanics, generally available 24 hours a day, seven days a
week; and (3) ongoing training of an experienced sales force to consult with
customers regarding their equipment needs.
STATE-OF-THE-ART MANAGEMENT INFORMATION SYSTEM. We have developed a
customized, state-of-the-art management information system capable of
monitoring operations at up to 300 sites. We use this system to maximize fleet
utilization and determine the optimal fleet composition by market. The
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system links all of our rental locations and allows management to track
customer and sales information, as well as the location, rental status and
maintenance history of every piece of equipment in the rental fleet. Rental
location managers can search our entire rental fleet for needed equipment,
quickly determine the closest location of such equipment, and arrange for
delivery to the customer's work site, thus maximizing equipment utilization.
EXPERIENCED MANAGEMENT TEAM. Since 1995, we have significantly increased
the quality and depth of our management team to help oversee our growth
strategy. Our senior management team has extensive experience in the equipment
rental industry and our seven regional managers have, on average, 21 years of
experience and substantial knowledge of the local markets served within their
regions. We believe that our management team has the ability to continue the
Company's strong growth as well as manage the Company on a much larger scale.
We are not dependent on recruiting additional operating, acquisition, finance
or other personnel to implement our growth strategy. The Mas family, the
majority owner of the Company, is also the majority owner of MasTec, Inc., a
public company engaged in the telecommunications construction business.
Management believes the Mas family and GE Capital, another of our major
stockholders, will be valuable in identifying and evaluating acquisitions in
both North and South America.
BUSINESS STRATEGY
Our objective is to increase revenue, cash flow and profitability by
building and maintaining a leading market position in the equipment rental
industry. Key elements of our business strategy include:
INCREASE PROFITABILITY OF RECENTLY OPENED RENTAL LOCATIONS. Since March 1,
1995, we have opened 26 start-up rental equipment locations including 11
locations in 1997 and five locations in the first nine months of 1998. Because
we incur significant expenses in connection with the opening of new locations,
management believes our financial performance does not yet fully recognize the
benefit of these rental locations. Based on our historical experience, a new
equipment rental location tends to realize significant increases in revenues,
cash flow and profitability during the first three years of operation as more
prospective customers become aware of its operation and as the rental equipment
fleet is customized to local market demand. Because there is relatively little
incremental operating expense associated with these revenues, cash flow and
profitability increase significantly as a rental location matures.
INCREASE FLEET AT EXISTING LOCATIONS. We believe we can capitalize on the
demand for rental equipment in the markets we serve and increase revenues by
increasing the size of our rental fleet and adding new product lines at
existing locations. We believe that this strategy allows us to attract new
customers and serve as a single source supplier for our customers. Because the
start-up expenditures associated with increasing the fleet and expanding
product lines at existing locations are relatively modest, these investments
typically generate higher and faster returns than investments in new locations.
ACQUIRE EQUIPMENT RENTAL COMPANIES. We intend to continue to expand
primarily through acquisitions of equipment rental companies and believes there
are a significant number of acquisition opportunities in North and South
America which would complement our existing operations. After completing an
acquisition, we generally integrate the operations of the acquired company into
our management information system, consolidate equipment purchasing and resale
functions and centralize fleet management as quickly as possible while assuring
consistent, high quality service to the acquired company's customers. Since
July 1997, we have made several strategic acquisitions which have more than
doubled our number of rental locations, significantly enhanced our geographic
presence and further diversified our customer base. We also acquired 65% of
S.A. Argentina, a leading equipment rental company and dealer of new equipment
in South America.
SELECTIVE OPENINGS OF START-UP EQUIPMENT RENTAL LOCATIONS. Although we
intend to expand our operations primarily through acquisitions, we may open
additional start-up locations in markets where
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we are not able to identify attractive acquisition candidates. We have been
successful in opening start-up equipment rental locations in existing markets
and new markets. We have opened 26 start-up equipment rental locations since
March 1995. Our decision to open a start-up equipment rental location is based
upon a review of demographic information, business growth projections and the
level of existing competition. Because our management team has extensive
experience opening start-up locations, our growth strategy is not dependent on
the availability of acquisition candidates on satisfactory terms. See "--Recent
Acquisitions."
ACQUISITION STRATEGY
We believe we can successfully implement our acquisition strategy because
of (1) our access to financial resources; (2) the potential for increased
profitability due to the centralizing of certain administrative functions,
enhanced systems capabilities, greater purchasing power and economies of scale;
and (3) the potential for owners of the businesses we acquire to participate in
our planned growth while realizing liquidity. We have developed a set of
financial, geographic and management criteria designed to assist management in
its evaluation of acquisition candidates. These criteria are used to evaluate a
variety of factors, including, but not limited to, (1) historical and projected
financial performance; (2) composition and size of the candidate's customer
base; (3) relationship of the candidate's geographic location to our market
areas; (4) potential synergies gained through acquisition of the candidate; and
(5) liabilities, contingent or otherwise, of the candidate.
We intend to evaluate acquisition candidates in South America as well as
the United States. Management believes we can capitalize on the business
relationships of our major stockholders, GE Capital and the Mas family, and our
affiliate, MasTec, Inc., in South America in locating potential South American
acquisition candidates and consummating such acquisitions. Based on the RENTAL
EQUIPMENT REGISTER and our experience evaluating potential acquisitions in
South America, we estimate that the equipment rental market in South America is
20 to 30 years behind the North American market and will experience significant
growth in the next five to ten years.
In June 1998, we expanded our operations into South America by acquiring
65% of the outstanding stock of S.A. Argentina. S.A. Argentina rents and sells
industrial and construction equipment throughout South America, including
Argentina, Brazil, Uruguay, Paraguay, Chile and Bolivia. S.A. Argentina's
revenues for 1997 were approximately $57.3 million and its revenues for the
first nine months of 1998 were approximately $38.7 million. S.A. Argentina's
principal operations are located in Buenos Aires, Argentina; it also has
locations in Cordoba and Rosario, Argentina and an assembly plant in San Luis,
Argentina. We have retained the former management of S.A. Argentina to oversee
the day-to-day management of S.A. Argentina after the acquisition. We have the
option to purchase the remaining 35% of the outstanding stock of S.A. Argentina
from the Argentina Stockholders. This option will be exercisable until December
31, 2000. In addition, the Argentina Stockholders have the option during the
same period to require us to purchase the remaining 35% of the outstanding
stock of S.A. Argentina. The exercisability of these options is subject to
certain additional terms and conditions, including restrictions imposed by the
terms of our indebtedness on our ability to make acquisitions and incur
additional indebtedness. Pursuant to the terms of the Argentina Acquisition,
our lenders have issued a $10.0 million letter of credit to the Argentina
Stockholders, which the Argentina Stockholders may draw upon if we default on
payment of the earn-out payments described above. See "Risk Factors--Risks
Associated with the Argentina Acquisition."
OPERATIONS
Our operations primarily consist of renting equipment, and, to a lesser
extent, selling used equipment, complementary parts and merchandise to a wide
variety of construction and industrial customers. In addition, to service our
customer base more fully, we also act as a dealer of new equipment on behalf of
several nationally known equipment manufacturers and provide ongoing maintenance
and repair services for the equipment we sell and rent. Our locations are
grouped together by geographic area and a regional manager oversees operations
within each region.
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EQUIPMENT RENTALS. We are one of the largest and fastest growing equipment
rental companies in the United States, with 84 rental locations in 15 states
and South America. Our rental fleet is comprised of a complete line of light
and heavy construction and industrial equipment from a wide variety of
manufacturers, including John Deere, Case, Bomag, Terex Americas, JCB, Sullivan
Industries, Ingersoll-Rand, Gradall, Lull, JLG, Bobcat, MultiQuip and Wacker.
Major categories of equipment represented the following percentages (based on
original cost) of our total rental fleet as of December 31, 1997 on a pro forma
basis for the Richbourg Acquisition:
PERCENTAGE OF TOTAL RENTAL FLEET
MAJOR EQUIPMENT CATEGORY (BASED ON ORIGINAL COST)
- ------------------------------ ---------------------------------
Earthmoving ............... 41.0%
Material Handling ......... 16.1
Aerial .................... 12.7
Compressors ............... 6.2
Compaction ................ 6.1
Trucks .................... 4.2
Cranes .................... 3.8
Welders ................... 2.7
Pumps ..................... 1.3
Generators ................ 1.3
Lighting .................. 1.3
Other ..................... 3.3
We attempt to differentiate ourselves from our competitors by providing a
broad selection of new and well-maintained rental equipment, and through
high-quality, responsive service to our customers. As of September 30, 1998,
our equipment rental fleet had an original cost of approximately $433.5 million
and an average age of 20 months, which management believes compares favorably
with other leading equipment rental companies. We make ongoing capital
investments in new equipment, engage in regular sales of used equipment and
conduct an advanced preventative maintenance program. This program increases
fleet utilization, extends the useful life of equipment and produces higher
resale values.
In addition to providing a new and reliable equipment rental fleet,
management believes providing high quality customer service is essential to our
future success. The equipment rental business is a service industry requiring
quick response times to satisfy customers' needs. Though some activity is
arranged with lead-time, much of the rental initiation process takes place
within a 48-hour period. Consequently, equipment availability, branch location
and transportation capabilities play a major role in earning repeat business.
Rental customers prefer a quick selection process and seek quick, concise
communication when ordering equipment. Punctuality and reliability are key
components of the servicing process, as well as maintenance performance, timely
equipment removal at the rental termination, and simplified billing. Our
service initiatives include (1) reliable on-time equipment delivery directly to
customers' job sites; (2) on-site repairs and maintenance of rental equipment
by factory trained mechanics, which are generally available 24 hours a day,
seven days a week; and (3) ongoing training of an experienced sales force to
consult with customers regarding their equipment needs.
NEW EQUIPMENT SALES. We are a distributor of new equipment on behalf of
several nationally known equipment manufacturers. We are the sole authorized
distributor of John Deere industrial and construction equipment in central and
southern Florida; we are one of the largest John Deere construction equipment
dealerships in the United States. We also have distributor arrangements with
Bomag to sell heavy compaction equipment, and with Terex Americas to sell
off-road trucks, in central and southern Florida. Our sales line consists of
nine categories of John Deere, Bomag and Terex Americas equipment and a total
of 58 different machines, including: John Deere backhoe loaders, forklifts,
crawler dozers, four-wheel-drive loaders, scrapers, skid steers, motor graders
and excavators; Bomag vibratory rollers, static rollers, recyclers and trash
compacters; and a complete line of articulated off-road trucks manufactured by
Terex Americas.
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Our ability to sell new equipment offers flexibility to our customers and
enhances our customer relations. In addition, our dealership operations provide
us with several competitive advantages, including the opportunity to achieve
favorable pricing by combining equipment purchases for our dealership and
rental fleets, the reduction of costs in certain locations by sharing service,
maintenance and administrative personnel and better knowledge of our local
markets by pooling management information. We currently operate new equipment
dealerships at six of our locations.
In addition to standard equipment sales, we also offer customers the
option to rent-to-purchase equipment for a period of time. Under this program,
the customer applies a portion of the rental payment to the purchase price,
thus accruing equity over the term of the rental period. Our rent-to-purchase
customers generally rent new equipment for a period of six to 18 months with
the option to purchase at the end of the rental period. Sales under our
rent-to-purchase program represented approximately 65% of our new equipment
sales in 1997.
We effectively compete against other dealers by offering John Deere and
other quality equipment lines for sale, and by providing high quality service.
All personnel, from management to mechanics, are factory trained. The training
of mechanics is continually upgraded as new product lines are introduced. We
can transfer equipment from one store to another based upon a particular
customer's needs. Customers also have the opportunity to rent equipment from
our rental fleet if their own equipment is under repair. The parts department
features ample stock to limit customer down time. Maintenance vehicles are
equipped to handle minor repairs in the field to prevent costly down time.
USED EQUIPMENT SALES. We maintain a regular program of selling used
equipment in order to adjust the size and composition of our rental fleet to
changing market conditions and to maintain the quality and low average age of
our rental fleet. Management attempts to balance the objective of obtaining
acceptable prices from equipment sales against the revenues obtainable from
used equipment rentals. We are generally able to achieve favorable resale
prices for our used equipment due to our strong preventative maintenance
program and our practice of selling used equipment before it becomes obsolete
or irreparable. We believe the proactive management of our rental fleet allows
us to adjust the rates of new equipment purchases and used equipment sales to
maximize equipment utilization rates and respond to changing economic
conditions. Such proactive management, together with our broad geographic
diversity, minimizes the impact of regional economic downturns.
PARTS AND SERVICE. We sell a full complement of parts, supplies and
merchandise to our customers in conjunction with our equipment rental and sales
business. We also offer maintenance service to customers that own equipment and
generate revenues from damage waiver charges, delivery charges and warranty
income. Management believes that these revenues are more stable than equipment
sales revenues because of the recurring nature of the parts and service
business. Management also believes that during economic downturns, the parts
and service business may actually increase as customers postpone new equipment
purchases and instead attempt to maintain their existing equipment.
MANAGEMENT INFORMATION SYSTEM
We have developed a state-of-the-art, customized management information
system, capable of monitoring operations on a real-time basis at up to 300
sites that can be upgraded to support additional locations or terminals. We
currently employ seven management information system employees who continually
update and refine the system. We use this system to maximize fleet utilization
and determine the optimal fleet composition by market. This system links all of
our rental locations and allows management to track customer and sales
information, as well as the location, rental status and maintenance history of
every piece of equipment in our rental fleet. Using this system, rental
equipment branch managers can search our entire rental fleet for needed
equipment, quickly determine the closest location of such equipment and arrange
for delivery to the customer's work site. This practice helps diminish "lost
rents," improve utilization and make equipment available
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in markets where it can earn increased revenues. Our communications system can
handle multiple protocols and allows the integration of systems running on
different platforms. This feature allows us to include systems used by
locations acquired in an acquisition of an existing equipment rental company in
its central databases while the acquired locations are integrated into our
system. We are in the process of integrating the locations acquired in the
Acquisitions into our management information system.
CUSTOMERS
Our customers include commercial, industrial and civil construction
contractors, manufacturers, public utilities, municipalities, golf courses,
shippers, commercial farmers, military bases, offshore platform operators and
maintenance contractors, refineries and petrochemical facilities and a variety
of other industrial accounts. Pro forma for the Acquisitions, during 1997 we
served over 75,000 customers. Pro forma for the Acquisitions, our top 10
customers in 1997 represented 5.4% of our total revenues.
Our rental equipment customers vary in size from large Fortune 500
companies who have elected to outsource much of their equipment needs to small
construction contractors, subcontractors, and machine operators whose equipment
needs are job-based and not easily measured in advance. Our new and used
equipment sales customers are generally large construction contractors who
regularly purchase wholesale goods and annually budget for fleet maintenance
purchases.
We do not currently provide our own purchase financing to customers. We
rent equipment, sell parts, and provide repair services on account to customers
who are screened through a credit application process. Customers can finance
purchases of large equipment with a variety of creditors, including
manufacturers, banks, finance companies and other financial institutions.
SALES AND MARKETING
We maintain a strong sales and marketing orientation throughout our
organization in order to increase our customer base and better understand and
serve our customers. Managers at each of our branches are responsible for
supervising and training all sales employees at that location and directing the
salesforce by conducting regular sales meetings and participating in selling
activities. Managers develop relationships with local customers and assist them
in planning their equipment requirements. Managers are also responsible for
managing the mix of equipment at their locations, keeping abreast of local
construction activity and monitoring competitors in their respective markets.
To stay informed about their local markets, salespeople track new
equipment sales and construction projects in the area through EQUIPMENT DATA
REPORTS, FW DODGE REPORTS and PEC REPORTS (PLANNING, ENGINEERING AND
CONSTRUCTION), follow up on referrals and visit construction sites and
potential equipment users who are new to the local area. Our salespeople also
use targeted marketing strategies to address the specific needs of local
customers.
PURCHASING
We purchase equipment from vendors with reputations for product quality and
reliability. Our Vice President--Asset Management and Procurement directs fleet
purchasing, asset utilization and fleet maintenance for the rental equipment
fleet. We believe our size and the quantity of equipment we purchase enables us
to purchase equipment directly from vendors pursuant to national purchasing
agreements at lower prices and on more favorable terms than many smaller
competitors. We seek to maintain close relationships with our vendors to ensure
the timely delivery of new equipment.
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We believe that we have sufficient alternative sources of supply for the
equipment we purchase in each of our principal product categories. The
following table summarizes our principal categories of equipment and specifies
our major suppliers of such equipment:
<TABLE>
<CAPTION>
PRODUCT CATEGORY PRIMARY VENDORS
- ----------------------------------------- ---------------------------------------------------
<S> <C>
Air Compressors and Equipment ........... Sullivan, Ingersoll-Rand and Atlas Copco
Earthmoving Equipment (such as Backhoes,
Loaders, Dozers, Excavators and Material
Handling Equipment) .................... John Deere, Case, JCB, Daewoo and Bobcat
Compaction Equipment, Rollers
and Recyclers .......................... Bomag, Wacker, MultiQuip and Stone
Pumps ................................... MultiQuip, Wacker and Thompson
Generators .............................. MultiQuip, Wacker and Atlas Copco
Welders ................................. MultiQuip and Miller
Electric Tools .......................... Bosch, Kango and Hitachi
Light Towers ............................ Specialty Lighting, Coleman and Amida
Forklifts ............................... JCB, Gradall, Lull and Ingersoll-Rand
Trucking ................................ Terex Americas, Ford and International
Aerial .................................. Skyjack, JLG, Mark Industries and Genie Industries
Concrete ................................ Partner, Edco, Whiteman, Miller, MultiQuip, Wacker
and Stone
Hydraulic Hammers ....................... Kent
</TABLE>
LOCATIONS
Our locations typically include (1) offices for sales, administration and
management; (2) a customer showroom displaying equipment and parts; (3) an
equipment service area; and (4) outdoor and indoor storage facilities for
equipment. Each location offers a full range of rental equipment for rental,
with the mix designed to meet the anticipated needs of the customers in each
location. Our equipment dealerships typically operate at the same sites as
rental equipment locations.
Each stand-alone rental equipment location is staffed by, on average,
approximately 15 full-time employees, including a branch manager, a rental
coordinator, service manager, sales representatives, an office administrator,
mechanics and drivers. Each dealership has approximately 25 full-time employees
including a branch manager, parts manager, service manager, sales
representatives, departmental personnel, including mechanics, and
administrative staff. These employees are in addition to the full-time
employees used to staff the rental equipment operations located at the same
sites.
DEALERSHIP AGREEMENTS
Neff Machinery has entered into several dealership agreements with each of
John Deere, Bomag and Terex Americas in central and southern Florida. These
dealership agreements appoint Neff Machinery as the equipment manufacturer's
authorized dealer in certain "Areas of Responsibility," which generally includes
100% of certain counties in southern and central Florida. Under the dealership
agreements, the equipment manufacturers agree to sell equipment to Neff
Machinery for resale in these areas. The dealership agreements typically do not
have a specific term, but may be terminated by either party upon 120 days
written notice, or immediately by the equipment manufacturer for cause, which
generally includes, among other things, (1) default by Neff Machinery under any
security agreement between Neff Machinery and the equipment manufacturer, (2)
dissolution or liquidation of Neff Machinery, or (3) a significant change in the
control, ownership or capital structure of Neff Machinery without the equipment
manufacturer's prior written consent. The John Deere dealership agreements
further provide that John Deere may terminate the agreements for cause if GE
Capital's beneficial ownership of equity in the Company exceeds 25% before
September 25, 1999 or exceeds 20% on or after September 25, 1999. See "Certain
Relationships and Transactions."
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We receive cash incentives and volume-related discounts from the equipment
manufacturers which we represent. We use most of these cash rebates and
marketing fund contributions to give customers price discounts. In addition,
John Deere, Bomag and Terex Americas offer us standard dealer cash discounts or
limited interest-free financing.
COMPETITION
EQUIPMENT RENTALS. The equipment rental industry is highly fragmented and
very competitive. We compete with independent third parties in all of the
markets in which we operate. Most of our competitors in the rental business
tend to operate in specific, limited geographic areas, although some larger
competitors do compete on a national basis. We also compete with equipment
manufacturers which sell and rent equipment directly to customers. Some of our
competitors have greater financial resources and name recognition than we have.
EQUIPMENT SALES. The equipment distribution market consists of many firms
which operate dealerships representing equipment manufacturers, such as
Caterpillar, John Deere, Case and Komatsu. As the authorized dealer of John
Deere equipment in central and southern Florida, we compete with dealers who
sell other manufacturers' equipment in the same area. Key competitive factors
include fleet quality, pricing and the ability of a particular dealer to
provide satisfactory service and parts. John Deere provides promotional
programs which help the dealerships increase market share against competitors.
ENVIRONMENTAL AND SAFETY REGULATION
Our facilities and operations are subject to certain federal, state and
local laws and regulations relating to environmental protection and
occupational health and safety, including those governing wastewater
discharges, the treatment, storage and disposal of solid and hazardous wastes
and materials, and the remediation of contamination associated with the release
of hazardous substances. We believe that we are in material compliance with
such requirements and do not currently anticipate any material capital
expenditures for environmental compliance or remediation for the current or
succeeding fiscal years. Certain of our present and former facilities have used
substances and generated or disposed of wastes which are or may be considered
hazardous, and we may incur liability in connection therewith. Moreover, there
can be no assurance that environmental and safety requirements will not become
more stringent or be interpreted and applied more stringently in the future.
Such future changes or interpretations, or the identification of adverse
environmental conditions currently unknown to us, could result in additional
environmental compliance or remediation costs to us. Such compliance and
remediation costs could be material to our financial condition or results of
operations.
In particular, at our owned and leased facilities we store and dispense
petroleum products from aboveground storage tanks and have in the past stored
and dispensed petroleum products from underground storage tanks. We also use
hazardous materials, including solvents, to clean and maintain equipment, and
generate and dispose of solid and hazardous wastes, including used motor oil,
radiator fluid and solvents. In connection with such activities, we have
incurred capital expenditures and other compliance costs which are expensed on
a current basis and which, to date, have not been material to our financial
condition. Based on currently available information, we believe that we will
not be required to incur material capital expenditures or other compliance or
remediation costs on environmental and safety matters in the foreseeable
future. See "Risk Factors--Environmental and Safety Regulation."
EMPLOYEES
As of November 30, 1998, we had approximately 1,500 employees. None of our
employees is represented by a union or covered by a collective bargaining
agreement. We believe our relations with our employees are good.
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RETENTION OF MANAGEMENT OF ACQUIRED COMPANIES
Our policy is to retain any available members of an acquired company's
management who have strengths that are beneficial to us. In connection with the
Buckner Acquisition, we retained all members of Buckner's senior management.
Those management personnel are now responsible for the day-to-day operation of
Neff Rental's Gulf Region. In connection with the Richbourg Acquisition, we
retained substantially all management personnel with the exception of
Richbourg's founder, Bruce Richbourg. Those personnel continue to hold
management positions at the Neff Rental branch locations acquired in the
Richbourg Acquisition. The management of S.A. Argentina has been retained to
continue to oversee the day-to-day operations of S.A. Argentina.
PROPERTIES
We lease 16,000 square feet for our corporate headquarters in an office
building in Miami, Florida. We own the buildings and/or the land at 10 of our
locations. All other sites are leased, generally for terms of five years. Owned
and leased sites range from approximately 10,000 to 25,000 square feet on lots
ranging up to 22 acres, and include showrooms, equipment service areas and
storage facilities. We do not consider any specific leased location to be
material to our operations. We believe that equally suitable alternative
locations are available in all areas where we currently do business.
LEGAL PROCEEDINGS
We are a party to pending legal proceedings arising in the ordinary course
of business. While the results of such proceedings cannot be predicted with
certainty, we do not believe any of these matters are material to our financial
condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The table below sets forth the names and ages of the directors, executive
officers and significant employees of the Company and its subsidiaries as well
as the positions and offices held by such persons, as of November 30, 1998.
Jorge Mas, Juan Carlos Mas and Jose Ramon Mas, all of whom are members of the
Board of Directors, are brothers. There are no other family relationships among
the directors or officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ ----- ----------------------------------------------------
<S> <C> <C>
Jorge Mas .................... 35 Chairman of the Board of Directors
Kevin P. Fitzgerald .......... 42 Chief Executive Officer, President and Director
Peter A. Gladis .............. 49 Senior Vice President--Neff Rental
Robert G. Warren ............. 41 Senior Vice President--Neff Machinery
Bonnie S. Biumi .............. 36 Chief Financial Officer
John Anderson ................ 43 Vice President--Neff Rental--National Sales Manager
William Derenbecker .......... 43 Regional Vice President--Neff Rental--Gulf Coast
Steve Halliwell .............. 40 Regional Vice President--Neff Rental--Florida
Graham Hood .................. 43 Regional Vice President--Neff Rental--Southeast
Steven Michaels .............. 40 Vice President--Neff Rental--Asset Management
and Procurement
Wes Parks .................... 36 Regional Vice President--Neff Rental--Atlantic
Bruce Pope ................... 53 Regional Vice President--Neff Rental--Southwest
Thomas Vandever .............. 53 Regional Vice President--Neff Rental--Central
Jon Zier ..................... 43 Regional Vice President--Neff Rental--West
Arthur B. Laffer ............. 58 Director
Joel-Tomas Citron ............ 36 Director
Juan Carlos Mas .............. 33 Director
Jose Ramon Mas ............... 27 Director
</TABLE>
JORGE MAS. Mr. Mas has been Chairman of Neff Corp. and its predecessor, MP
Equipment ("MP") since he founded MP in 1988. Since 1994, Mr. Mas has been the
President and CEO, and a director of MasTec, Inc., a provider of
telecommunications related engineering and construction services. Mr. Mas has
been Chairman of MasTec, Inc. since November 1997. Mr. Mas is a member of the
boards of directors of Supercanal Holdings, S.A., Primera Fila, S.A. and Santos
Capital. Mr. Mas has an M.B.A. and a B.A. in business administration.
KEVIN P. FITZGERALD. Mr. Fitzgerald joined the Company in 1995 as
President and CEO. From 1991 through July, 1995, he was a Senior Vice President
for the investment banking firm of Houlihan Lokey Howard and Zukin. He is also
a member of the boards of directors of Supercanal Holdings, S.A., Primera Fila,
S.A. and Santos Capital. Mr. Fitzgerald holds an M.B.A. in finance and a B.S.
in electrical engineering.
PETER A. GLADIS. Mr. Gladis joined the Company in 1995 after 20 years of
employment with Hertz Corporation, most recently, as Regional Vice President of
western region operations. Mr. Gladis is the Senior Vice President of Neff
Rental. Mr. Gladis has a B.S. in business administration and marketing and a
total of 25 years of experience in the equipment rental industry.
ROBERT G. WARREN. Mr. Warren joined the Company in 1988 after being
employed by Hertz Corporation as Regional Vice President. Mr. Warren is Senior
Vice President of Neff Machinery. Mr. Warren has a total of 20 years of
experience in the equipment sales and rental industry.
BONNIE S. BIUMI. Ms. Biumi is Chief Financial Officer of the Company. She
joined the Company in 1997 after being employed as Executive Vice President and
Chief Financial Officer of Peoples Telephone Company, Inc., a publicly traded
telecommunication services company, from 1994 to 1997.
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From 1983 to 1994, Ms. Biumi was employed by Price Waterhouse LLP in Miami,
Florida, most recently as a Senior Manager. Ms. Biumi is a certified public
accountant and holds a B.S. in business administration.
JOHN ANDERSON. Mr. Anderson joined the Company in 1997 as Neff Rental's
National Sales Manager after 15 years of employment with Hertz Corporation,
where he most recently served as Regional Vice President--Midwest. He has 17
years of experience in the equipment rental industry.
WILLIAM G. DERENBECKER. Mr. Derenbecker joined the Company in August 1997
as Neff Rental's Vice President for the Gulf Coast Region. He previously served
for 11 years in a variety of senior management positions at Buckner.
STEVE HALLIWELL. Mr. Halliwell joined the Company in 1990 after one year
with Wacker as Territory Manager and two years with Hood Equipment as a Sales
Representative. Mr. Halliwell serves as Neff Rental's Vice President for the
Florida Region. Mr. Halliwell has a total of 12 years of experience in the
equipment rental industry.
GRAHAM HOOD. Mr. Hood joined the Company in 1995 after 17 years of
employment with Hertz Corporation, where he most recently served as Regional
Vice President. Mr. Hood serves as Neff Rental's Vice President for the
Southwest Region. Mr. Hood has a total of 20 years of experience in the
equipment rental industry.
STEVEN MICHAELS. Mr. Michaels joined the Company in May 1998 after
spending 13 years with Hertz Equipment Rental, the last 5 years as Vice
President--Fleet Operations. Mr. Michaels has a business degree in marketing
and a total of 15 years in the equipment rental industry.
WES PARKS. Mr. Parks joined the Company in 1995 after eight years of
employment with Hertz Corporation, where he served as Branch Manager. Mr. Parks
serves as Neff Rental's Vice President for the Atlantic Region. Mr. Parks has a
total of 13 years in the equipment rental industry.
BRUCE POPE. Mr. Pope joined the Company in 1995 after being employed by
Hertz Corporation as Branch Manager. Mr. Pope serves as Neff Rental's Vice
President for the Southwest Region. Mr. Pope has a total of 33 years of
experience in the equipment rental industry.
THOMAS VANDEVER. Mr. Vandever joined the Company in 1997 after being
employed by Hertz Corporation as Regional Manager. Mr. Vandever serves as Neff
Rental's Vice President for the Central Region. Mr. Vandever has a total of 16
years of experience in the equipment rental industry.
JON ZIER. Mr. Zier joined the Company in 1996 after being employed by
Hertz Corporation as Regional Manager. Mr. Zier serves as Neff Rental's Vice
President for the West Region. Mr. Zier has a total of 20 years of experience
in the equipment rental industry.
ARTHUR B. LAFFER. Mr. Laffer became a Director of the Company in October
1998. He has been a member of the Board of Directors of MasTec, Inc. since
March 1994. Mr. Laffer has been Chief Executive Officer and Chairman of the
Board of Directors of Laffer Associates, an economic research and financial
consulting firm, since 1979; Chief Executive Officer and Chairman of the Board
of Directors, Laffer Advisors Inc., an investment advisor and broker-dealer,
since 1981; and Chief Executive Officer and Chairman of the Board of Directors,
Calport Asset Management, a money management firm, since 1992. Mr. Laffer is
also a director of U.S. Filter Corporation, Oxigene Inc., Nicholas Applegate
Mutual Funds, and Coinmach Laundry Corporation.
JOEL-TOMAS CITRON. Mr. Citron became a Director of the Company in October
1998. He has been a member of the Board of Directors of MasTec, Inc. since 1998.
He has also been an Executive Vice President of MasTec, Inc. since 1998. Mr.
Citron is the managing partner of Triscope Capital LLC, a private investment
partnership. In addition, Mr. Citron was Chairman of Proventes Inc., the U.S.
subsidiary of a privately held investment company based in Stockholm between
1992-1997.
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JUAN CARLOS MAS. Mr. Mas has been a Director of the Company and MP since
1989. He is currently Director and President of the Construction Division of
Church and Tower, a subsidiary of MasTec, Inc., where he has been employed for
the past five years. Mr. Mas holds a B.A. in business administration and a J.D.
JOSE RAMON MAS. Jose Ramon Mas has been a Director of the Company and MP
since 1989. Mr. Mas is Director and President of the Telecommunications
Division of Church and Tower, a subsidiary of MasTec, Inc., where he has been
employed for the past five years. He has a B.A. in business administration and
an M.B.A.
BOARD OF DIRECTORS
The Company's Board of Directors is currently composed of six directors,
Jorge Mas, Mr. Fitzgerald, Juan Carlos Mas, Jose Ramon Mas, Arthur B. Laffer
and Joel-Tomas Citron. The Company's Certificate of Incorporation provides that
the Board of Directors shall be divided into three classes. The members of each
class of directors serve for staggered three-year terms. Jorge Mas and Mr.
Fitzgerald serve as Class I directors, Juan Carlos Mas and Jose Ramon Mas serve
as Class II directors and Messrs. Laffer and Citron serve as Class III
directors.
Pursuant to the Stockholders' Agreement, if GE Capital transfers Common
Stock representing at least 15% of the equity of the Company to a third party
(the "GE Transferee"), the Company will increase the Board of Directors from
six to seven members, and the parties to the Stockholders' Agreement have
agreed to vote their shares of Common Stock to elect the GE Transferee's
nominee as a director to fill the vacancy.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee and a
Compensation Committee, each composed of two directors, Messrs. Laffer and
Citron. The Audit Committee recommends the annual appointment of the Company's
auditors, with whom the Audit Committee reviews the scope of audit and non-audit
assignments and related fees, accounting principles used by the Company in
financial reporting, internal auditing procedures and the adequacy of the
Company's internal control procedures. The Compensation Committee administers
the Company's Incentive Stock Plan and makes recommendations to the Board of
Directors regarding compensation for the Company's executive officers.
COMPENSATION OF DIRECTORS
Each of the Company's nonemployee directors will receive an annual
retainer in an amount to be determined. Directors may also receive additional
fees for attending special board meetings or committee meetings not held in
conjunction with a regular board meeting. All directors are reimbursed for
expenses incurred in connection with attending board and committee meetings.
Pursuant to the Company's Stock Incentive Plan, the Company's nonemployee
directors receive automatic grants of options to purchase 10,000 shares of
Class A Common Stock upon their initial appointment. These options have an
exercise price equal to 100% of the fair market value on the date of the grant,
and vest over a five year period (20% each year). The options expire in ten
years, unless (1) the director leaves the Board of Directors for any reason
other than disability, death or cause, in which case the director will have
three months after termination to exercise his vested options; (2) the director
is dismissed from the Board of Directors for cause, in which case all options
will terminate immediately; (3) the director's service terminates by reason of
disability or resignation, in which case the director will have one year after
the termination date to exercise vested options; or (4) the director dies, in
which case the director's estate will have one year to exercise vested options.
On October 1, 1998, upon their initial appointment to the Board of
Directors, Arthur B. Laffer and Joel-Tomas Citron received automatic grants
under the Company's Stock Incentive Plan of
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options to purchase 10,000 shares of Class A Common Stock at an exercise price
of $6.00 per share (the fair market value of the Class A Common Stock at the
date of grant). Also, on October 1, 1998, Messrs. Laffer and Citron each
received options to purchase 5,000 shares of Class A Common Stock under the
Stock Incentive Plan at an exercise price of $14.00 per share.
Jorge Mas, Jose Ramon Mas and Juan Carlos Mas are not treated as
nonemployee directors and thus do not receive the annual retainer or stock
option grants described above. Jorge Mas, the Chairman of the Board of
Directors, has options to purchase 100,000 shares of Class A Common Stock at
$14.00 per share, the initial offering price per share to the public in the
Common Stock Offering. These options are currently exercisable and expire on
May 21, 2008.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that a director of the
Company will not be personally liable to the Company or its stockholders for
monetary damages for any breach of fiduciary duty as a director, except in
certain cases where liability is mandated by the DGCL. The provision has no
effect on any non-monetary remedies that may be available to the Company or its
stockholders, nor does it relieve the Company or its directors from compliance
with federal or state securities laws. The Certificate of Incorporation of the
Company generally provides that the Company shall indemnify, to the fullest
extent permitted by law, any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit,
investigation, administrative hearing or any other proceeding (each, a
"Proceeding") by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another entity, against expenses (including
attorneys' fees) and losses, claims, liabilities, judgments, fines and amounts
paid in settlement actually incurred by such person in connection with such
Proceeding. The Company has entered into, or intends to enter into, agreements
to provide indemnification for its directors and executive officers in addition
to the indemnification provided for in the Certificate of Incorporation. These
agreements, among other things, will indemnify the Company's directors and
executive officers for certain expenses (including attorneys' fees), and all
losses, claims, liabilities, judgments, fines and settlement amounts incurred
by such persons arising out of or in connection with their service as a
director or officer of the Company to the fullest extent permitted by
applicable law. In addition, the Company has obtained director and officer
liability insurance that insures the Company's directors and officers against
certain liabilities.
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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of November 30, 1998, information with
respect to the beneficial ownership of the Company's Common Stock by (1) each
person known to the Company to beneficially own more than 5% of the outstanding
shares of the Company's Class A Common Stock; (2) each person known to the
Company to beneficially own more than 5% of the outstanding shares of the
Company's Class B Common Stock; (3) each director and each executive officer of
the Company; and (4) all directors and executive officers of the Company as a
group. Unless otherwise indicated, (1) each such stockholder has sole voting
and investment power with respect to the shares beneficially owned by such
stockholder and (2) has the same address as the Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OF CLASS A PERCENT OF OF CLASS B PERCENT OF
COMMON STOCK CLASS OWNED COMMON STOCK CLASS OWNED
------------------ ------------- ----------------- ------------
<S> <C> <C> <C> <C>
Jorge Mas .......................... 3,802,744(1) 17.9% -- --
Juan Carlos Mas .................... 2,381,303(1) 11.3 -- --
Jose Ramon Mas ..................... 2,381,303(1) 11.3 -- --
GE Capital ......................... 5,100,000(2) 24.1 5,100,000 100%
Santos ............................. 900,000(3) 4.3 -- --
Santos Capital ..................... 1,500,000(4) 7.1 -- --
Kevin P. Fitzgerald ................ 757,220(1) 3.5 -- --
Robert G. Warren ................... 97,816 * -- --
Peter A. Gladis .................... 7,333 * -- --
Bonnie S. Biumi .................... 6,333 * -- --
Arthur B. Laffer ................... 2,000 * -- --
Joel-Tomas Citron .................. 4,000 * -- --
All executive officers and directors
as a group (9 persons) ............ 9,440,052 42.6% -- --
</TABLE>
- ----------------
* Less than 1%.
(1) Does not include shares beneficially owned through Santos or Santos
Capital.
(2) The amount shown includes shares owned by GECFS, Inc., an affiliate of GE
Capital. All of these shares are convertible into Class A Common Stock.
The amount shown also includes 1,500,000 shares of Class B Common Stock
subject to an option held by Santos Capital. Santos Capital has agreed to
convert these shares to Class A Common Stock upon exercise. GE Capital's
and GECFS, Inc.'s address is: 777 Long Ridge Road, Building B, First
Floor, Stamford, CT 06927.
(3) Santos is beneficially owned by Jorge Mas, Juan Carlos Mas, Jose Ramon Mas
and Kevin P. Fitzgerald.
(4) The amount shown includes an option currently exercisable by Santos
Capital, an affiliate of Santos, to purchase 1,500,000 shares of Common
Stock from GE Capital. Santos Capital is beneficially owned by Jorge Mas,
Juan Carlos Mas, Jose Ramon Mas and Kevin P. Fitzgerald.
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CERTAIN RELATIONSHIPS AND TRANSACTIONS
MASTEC, INC.
MasTec, Inc., an affiliate of the Company controlled by the Mas family,
purchases and leases construction equipment from the Company. During the years
ended December 31, 1996 and 1997, revenues from MasTec, Inc. amounted to
approximately $1.5 million and $0.7 million, respectively. The Company believes
that these payments were substantially equivalent to the payments that would
have been made between unrelated parties acting at arm's length.
ATLANTIC REAL ESTATE HOLDINGS CORPORATION
In May 1997, the Company acquired six properties that it previously leased
from Atlantic Real Estate Holdings Corp., an affiliate of the Company owned by
Jorge Mas, Juan Carlos Mas and Jose Ramon Mas, for approximately $13.9 million.
The Company operated its Miami, West Palm Beach, Fort Myers, Orlando, Pompano
Beach and Tampa equipment rental and dealership locations at these properties.
The Company does not intend to acquire any other assets owned by the Mas
family.
GE CAPITAL, SANTOS AND SANTOS CAPITAL
The Company and GE Capital have entered into a registration rights
agreement with respect to the Class B Common Stock held by GE Capital (the "GE
Capital Shares"). The registration rights agreement provides that GE Capital
may, after the earlier of (1) December 29, 1998 or (2) an initial public
offering of the Company's Common Stock and subject to certain limitations, make
two demand registrations with respect to all or part of the GE Capital Shares.
The GE Capital Shares being registered must be converted to shares of Class A
Common Stock prior to registration. The registration rights agreement also
provides GE Capital with piggyback registration rights with respect to certain
registration statements filed by the Company. In any registration, the Company
must pay the registration expenses of GE Capital, excluding GE Capital's legal
fees, underwriting commissions and discounts. The Company has agreed to
indemnify GE Capital against certain liabilities under the Securities Act in
connection with the registration of the GE Capital Shares.
In 1998, GE Capital and the Company consummated a series of transactions
pursuant to which GE Capital (1) exchanged its 800,000 shares of the Company's
Series B Preferred Stock and 800,000 shares of Series C Preferred Stock for
6,000,000 shares of the Company's Class B Common Stock and (2) sold 900,000
shares of Class B Common Stock to Santos, which Santos then converted into
Class A Common Stock. Santos Capital purchased an option from GE Capital to
acquire an additional 1,500,000 shares of Common Stock, exercisable for a
period of 18 months. The $16.5 million purchase price for the shares of Class A
Common Stock was paid in part by the delivery by Santos of a promissory note to
GE Capital for $11.5 million. This promissory note is secured by the shares of
Class A Common Stock Santos purchased from GE Capital. In addition, in May
1998, the Company redeemed all of the then issued and outstanding shares of its
Series A Cumulative Redeemable Preferred Stock, $0.01 par value, which were
beneficially owned by GE Capital, for $13,914,679.
In response to concerns raised by John Deere regarding the size of GE
Capital's equity interest in the Company, GE Capital and the Company have
entered into the Standstill Agreement which provides that, subject to certain
exceptions, GE Capital and its affiliates will maintain their equity interest
in the Company below 25% during the period ending October 29, 1999, and will
maintain their equity interest below 20% during the period from October 29,
1999 until Neff Machinery is no longer a dealer for John Deere or certain other
conditions are satisfied. Santos has agreed to exercise its option to acquire
Company stock from GE Capital if necessary to reduce GE Capital's equity
ownership to 20% on or before September 25, 1999. GE Capital has also agreed
that it will not seek to obtain control of or exercise influence over the
Company.
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Santos, Santos Capital and the Company have entered into a registration
rights agreement with respect to the shares of Class A Common Stock held by
Santos and Santos Capital. The terms of this agreement are substantially
equivalent to the terms of the registration rights agreement for GE Capital and
the Company.
PEP CONSULTING
PEP Consulting receives a consultant fee of $5,663 per month for services
rendered to Neff Rental. The owner of PEP Consulting, Jose Perez, was a
director of Neff Rental from December 1995 until October 1997.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Class A Common Stock, $0.01 par value, 20,000,000 shares of Class B Common
Stock, $0.01 par value and 19,350,000 shares of preferred stock, $0.01 par
value (the "Preferred Stock"), which includes 1,000,000 shares of Series B
Junior Participating Preferred Stock, $0.01 par value (the "Series B Junior
Preferred Stock"). As of September 30, 1998, there were issued and outstanding
16,065,350 shares of Class A Common Stock, 5,100,000 shares of Class B Common
Stock, and no shares of Series B Junior Participating Preferred Stock. The
Company had authorized 650,000 shares of a series of Preferred Stock, Series A
Cumulative Redeemable Preferred Stock, $0.01 par value ("Series A Preferred
Stock"). In May 1998 the Company redeemed all 309,093 issued and outstanding
shares of Series A Preferred Stock and retired the remaining 340,907 authorized
shares of Series A Preferred Stock. In addition, 1,741,870 shares of Class A
Common Stock have been reserved for issuance in connection with the grant of
options to purchase Class A Common Stock, and 5,100,000 shares have been
reserved in connection with the conversion of Class B Common Stock.
COMMON STOCK
The Company's Class A Common Stock and Class B Common Stock are equal in
all respects except for dividend and liquidation rights and conversion rights
of the Class B Common Stock, as discussed more fully below. All of the
outstanding shares of Common Stock are validly issued, fully paid and
nonassessable.
VOTING RIGHTS; CONVERSION OF CLASS B COMMON STOCK INTO CLASS A COMMON
STOCK. The holders of Class A and Class B Common Stock are entitled to one vote
per share on all matters submitted to a vote of the stockholders. Holders of
Class A and Class B Common Stock do not have cumulative rights, so that holders
of more than 50% of the shares of Common Stock present at a meeting at which a
quorum is present are able to elect all of the Company's directors eligible for
election in a given year. Shares of Class B Common Stock are convertible into
shares of Class A Common Stock, in whole or part, at any time and from time to
time at the option of the holder, on the basis of one share of Class A Common
Stock for each share of Class B Common Stock converted. In the event of any
increase or reduction in the number of shares of Class A Common Stock, or the
exchange of Class A Common Stock for a different number or kind of securities
of the Company, by reason of a reclassification, recapitalization, merger,
consolidation, reorganization, spin-off, split-up, stock split or reverse stock
split, change in corporate structure or otherwise, the number of shares of
Class B Common Stock and the liquidation preference of each share thereof will
be proportionately increased or reduced, as appropriate. The Company is
obligated to at all times reserve and keep available out of its authorized but
unissued shares of Class A Common Stock, such number of shares of Class A
Common Stock issuable upon the conversion of all outstanding shares of Class B
Common Stock. Class A Common Stock has no conversion rights.
LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding up of the
Company, after satisfaction of all the Company's liabilities and the payment of
the liquidation preference of any Preferred Stock that may be outstanding, the
holder of each share of Class B Common Stock is entitled to receive before any
distribution or payment is made upon any other capital stock of the Company, an
amount in cash equal to $11.67. The holders of Class B Common Stock shall not
be entitled to any further payment. Upon the liquidation, dissolution or
winding up of the Company, the holders of shares of Class A Common Stock are
entitled to share pro rata in the distribution of all of the Company's assets
remaining available for distribution after satisfaction of all the Company's
liabilities and the payment of the liquidation preference of any Preferred
Stock that may be outstanding and the payment of the liquidation preference to
holders of Class B Common Stock described above.
DIVIDEND RIGHTS. Holders of the Class A Common Stock and the Class B
Common Stock are entitled to receive ratably such dividends, if any, as are
declared by the Company's Board of Directors
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out of funds legally available for that purpose, subject to the preferential
rights of any holder of Preferred Stock that may from time to time be
outstanding. The terms of the Credit Facility and the Indentures limit the
Company's ability to pay dividends on the Common Stock.
OTHER PROVISIONS. The holders of Class A Common Stock and Class B Common
Stock have no preemptive or other subscription rights to purchase shares of
stock of the Company, and there are no redemptive or sinking fund provisions
applicable to the Class A Common Stock and Class B Common Stock.
REGISTRATION RIGHTS. The Company is a party to agreements pursuant to
which GE Capital, the Mas family, Santos, Santos Capital and Mr. Fitzgerald
have the right, among other matters, to require the Company to register their
shares of Class A Common Stock under the Securities Act under certain
circumstances. These rights cover approximately 15,122,570 shares of Class A
Common Stock. See "Management--Company Compensation and Benefits" and "Certain
Relationships and Transactions."
PREFERRED STOCK
The Certificate of Incorporation authorizes the Company's Board of
Directors to issue shares of Preferred Stock in series and to establish the
number of shares to be included in each such series and to fix the
designations, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof. Because the Board
of Directors has the power to establish the preferences and rights of the
shares of any such series of Preferred Stock, it may afford the holders of any
Preferred Stock that may be outstanding, preferences, powers and rights
(including voting rights) senior to the rights of the holders of Class A Common
Stock. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company.
The Board of Directors has established a class of Preferred Stock
designated Series B Junior Preferred Stock, consisting of 1,000,000 shares. The
Series B Junior Preferred Stock is reserved for issuance in connection with the
Stockholders' Rights Plan. See "--Stockholders' Rights Plan."
DELAWARE LAW AND CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation, the Company's By-Laws and Section 203 of
the DGCL contain certain provisions that may make the acquisition of control of
the Company by means of a tender offer, open market purchase, proxy fight or
otherwise, more difficult.
BUSINESS COMBINATIONS. The Company is a Delaware corporation and is
subject to Section 203 of the DGCL. In general, subject to certain exceptions,
Section 203 of the DGCL prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (1) upon consummation of such
transaction, the interested stockholder owned 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding for
purposes of determining the number of shares outstanding those shares owned by
(x) persons who are directors and also officers and (y) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer); (2) the business combination is, or the transaction in which
such person became an interested stockholder was, approved by the board of
directors of the corporation before the stockholder became an interested
stockholder; or (3) the business combination is approved by the board of
directors of the corporation and authorized at an annual or special meeting of
the corporation's stockholders by the affirmative vote of at least 662/3% of
the outstanding voting stock which is not owned by the interested stockholder.
For purposes of Section 203, a "business combination" includes mergers, asset
sales and other transactions resulting in a financial benefit to the interested
stockholder; an "interested stockholder" is a person who, together with
affiliates and associates, owns (or, in the case of affiliates and associates
of the issuer, did own
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within the last three years) 15% or more of the corporation's voting stock
other than a person who owned such shares on December 23, 1987. An interested
stockholder who became an interested stockholder at a time when the
restrictions of Section 203 did not apply to the corporation shall not be
subject to such restrictions.
BOARD OF DIRECTORS AND RELATED PROVISIONS. The Certificate of
Incorporation provides that the number of directors of the Company shall be
fixed from time to time by a resolution of a majority of the Board of Directors
of the Company. The Certificate of Incorporation provides that the Board of
Directors shall have no less than three and no more than 11 members and shall
be divided into three classes. The members of each class of directors will
serve for staggered three-year terms. Thereafter, the number of directors may
be fixed, from time to time, by the affirmative vote of a majority of the
entire Board of Directors by action of the stockholders of the Company. In
accordance with the DGCL, directors serving on classified boards of directors
may only be removed from office for cause. Vacancies on the Board of Directors
may be filled by a majority of the remaining directors, or by the sole
remaining director or by the stockholders. The Certificate provides that
stockholders may take action by the written consent of 66 2/3% of the
stockholders, and that a special meeting of stockholders may be called only by
the Board of Directors. The By-Laws of the Company provide that stockholders
must follow an advance notification procedure for certain stockholder
nominations of candidates for the Board of Directors and for certain other
stockholder business to be conducted at an annual meeting. These provisions
could, under certain circumstances, operate to delay, defer or prevent a change
in control of the Company.
AUTHORIZED AND UNISSUED PREFERRED STOCK. The Company's Certificate of
Incorporation authorizes the Board of Directors to issue one or more series of
Preferred Stock and to establish the designations, powers, preferences and
rights of each series of Preferred Stock. The existence of authorized and
unissued Preferred Stock may enable the Board of Directors to render more
difficult or to discourage an attempt to obtain control of the Company by means
of a merger, tender offer, proxy contest or otherwise. For example, if in the
due exercise of its fiduciary obligations, the Board of Directors were to
determine that a takeover proposal is not in the Company's best interests, the
Board of Directors could cause shares of Preferred Stock to be issued without
stockholder approval in one or more private offerings or other transactions
that might dilute the voting or other rights of the proposed acquirer or
insurgent stockholder or stockholder group or create a substantial voting block
in institutional or other hands that might undertake to support the position of
the incumbent Board of Directors. See "--Preferred Stock."
SPECIAL MEETINGS OF STOCKHOLDERS. The By-Laws provide that special
meetings of the stockholders of the Company may be called only by the Board of
Directors of the Company, the Chairman of the Board of the Company or the
President of the Company. This provision will render it more difficult for
stockholders to take action opposed by the Board of Directors.
INDEMNIFICATION. The Certificate of Incorporation provides that the
Company shall indemnify each director, officer, employee or agent of the
Company to the fullest extent permitted by law. The Certificate of
Incorporation limits the liability of the Company's directors and stockholders
for monetary damages in certain circumstances. The Certificate of Incorporation
also provides that the Company may purchase insurance on behalf of the
directors, officers, employees and agents of the Company against certain
liabilities they may incur in such capacity, whether or not the Company would
have the power to indemnify against such liabilities.
STOCKHOLDERS' RIGHTS PLAN
On May 21, 1998, the Company declared a dividend distribution of one right
(a "Right") for each outstanding share of Class A Common Stock, without par
value (the "Common Shares"), of the Company. The dividend was payable to the
stockholders of record on May 21, 1998 (the "Record Date"), and with respect to
Common Shares issued thereafter until the Distribution Date (as defined below)
and, in certain circumstances, with respect to Common Shares issued after the
Distribution
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Date. Except as set forth below, each Right, when it becomes exercisable,
entitles the registered holder to purchase from the Company one one-thousandth
of a share of Series B Junior Preferred Stock, without par value (the
"Preferred Shares"), of the Company (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and a Rights Agent (the
"Rights Agent").
Initially, the Rights will be attached to all certificates representing
Common Shares then outstanding, and no separate Right Certificates will be
distributed. The Rights will separate from the Common Shares upon the earliest
to occur of (1) the date of a public announcement that, without the prior
consent of a majority of the members of the Board of Directors, a person or
group of affiliated or associated persons having acquired beneficial ownership
of 15% or more of the outstanding Common Shares (except pursuant to a Permitted
Offer (as defined) or except for certain transactions by Grandfathered
Stockholders (as defined in the Rights Agreement) including the Mas Family, Mr.
Fitzgerald, Santos, Santos Capital or GE Capital, and certain of their
affiliates) or (2) 10 days (or such later date as the Board may determine)
following the commencement or announcement of an intention to make a tender or
exchange offer, the consummation of which would result in a person or group
becoming an Acquiring Person (as defined) (the earliest of such dates being
called the "Distribution Date"). A person or group whose acquisition of Common
Shares causes a Distribution Date pursuant to clause (1) above is an "Acquiring
Person." The date that a person or group announces publicly that it has become
an Acquiring Person is the "Shares Acquisition Date."
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the Record Date upon transfer or new
issuance of Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Shares outstanding as of the Record Date, even without such notation or
a copy of the Summary of Rights being attached thereto, will also constitute
the transfer of the Rights associated with the Common Shares represented by
such certificate. As soon as practicable following the Distribution Date,
separate certificates evidencing the Rights ("Right Certificates") will be
mailed to holders of record of the Common Shares as of the close of business on
the Distribution Date (and to each initial record holder of certain Common
Shares issued after the Distribution Date), and such separate Right
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date and will expire
on the tenth anniversary of the Record Date unless earlier redeemed by the
Company as described below.
In the event that any person becomes an Acquiring Person (except pursuant
to a tender or exchange offer which is for all outstanding Common Shares at a
price and on terms which a majority of the members of the Board of Directors
determines to be adequate and in the best interests of the Company and its
stockholders, other than such Acquiring Person, its affiliates and associates
(a "Permitted Offer")), each holder of a Right will thereafter have the right
(the "Flip-In Right") to receive upon exercise the number of units of one
one-thousandth of a Preferred Share (or, in certain circumstances, other
securities of the Company) having a value (immediately prior to such triggering
event) equal to two times the exercise price of the Right. Notwithstanding the
foregoing, following the occurrence of the event described above, all Rights
that are, or (under certain circumstances specified in the Rights Agreement)
were, beneficially owned by any Acquiring Person or any affiliate or associate
thereof will be null and void.
In the event that, at any time following the Shares Acquisition Date, (1)
the Company is acquired in a merger or other business combination transaction
in which the holders of all of the outstanding Common Shares immediately prior
to the consummation of the transaction are not the holders of all of the
surviving corporation's voting power or (2) more than 50% of the Company's
assets or earning power is sold or transferred, in either case with or to an
Acquiring Person or any Affiliate or Associate thereof, or any other person in
which such Acquiring Person, Affiliate or Associate has an
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interest, or any person acting on behalf of or in concert with such Acquiring
Person, Affiliate or Associate, or, if in such transaction all holders of
Common Shares are not treated alike, any other person, then each holder of a
Right (except Rights which previously have been voided as set forth above)
shall thereafter have the right (the "Flip-Over Right") to receive, upon
exercise, common shares of the acquiring company having a value equal to two
times the Purchase Price. The holder of a Right will continue to have the
Flip-Over Right whether or not such holder exercises or surrenders the Flip-In
Right.
The Purchase Price payable, and the number of Preferred Shares, Common
Shares or other securities issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (1) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares; (2) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price,
less than the then current market price of the Preferred Shares; or (3) upon
the distribution to holders of the Preferred Shares of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
The number of outstanding Rights and the Purchase Price payable are also
subject to adjustment in the event of a stock split of the Common Shares or a
stock dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such
case, prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share but, if greater, will be entitled
to an aggregate dividend per share of 1,000 times the dividend declared per
Common Share. In the event of liquidation, the holders of the Preferred Shares
will be entitled to a minimum preferential liquidation payment of $1,000 per
share; thereafter, and after the holders of the Common Shares receive a
liquidation payment of $1.00 per share, the holders of the Preferred Shares and
the holders of the Common Shares will share the remaining assets in the ratio
of 1,000 to 1 (as adjusted) for each Preferred Share and Capital Share so held,
respectively. Finally, in the event of any merger, consolidation or other
transaction in which Common Shares are exchanged, each Preferred Share will be
entitled to receive 1,000 times the amount received per Common Share. These
rights are protected by customary antidilution provisions. In the event that
the amount of accrued and unpaid dividends on the Preferred Shares is
equivalent to six full quarterly dividends or more, the holders of the
Preferred Shares shall have the right, voting as a class, to elect two
directors in addition to the directors elected by the holders of the Common
Shares until all cumulative dividends on the Preferred Shares have been paid
through the last quarterly dividend payment date or until non-cumulative
dividends have been paid regularly for at least one year.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are one one-thousandth or integral multiples of one
one-thousandth of a Preferred Share, which may, at the election of the Company,
be evidenced by depository receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Preferred Shares on the last
trading day prior to the date of exercise.
At any time after a person becomes an Acquiring Person and prior to the
acquisition by such person or group of 50% or more of the Common Shares, the
Board of Directors of the Company may exchange the Rights (other than the
Rights owned by the Acquiring Person or its Associates and Affiliates, which
shall have become void) at an exchange ratio of one Common Share per Right
(subject to adjustment).
At any time prior to the earlier to occur of (1) a person becoming an
Acquiring Person or (2) the expiration of the Rights the Company may redeem the
Rights in whole, but not in part, at a price of
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$0.001 per Right (the "Redemption Price") which redemption shall be effective
upon the action of the Board of Directors. Additionally, following the Shares
Acquisition Date, the Company may redeem the then outstanding Rights in whole,
but not in part, at the Redemption Price, that such redemption is in connection
with a merger or other business combination transaction or series of
transactions involving the Company in which all holders of Common Shares are
treated alike but not involving an Acquiring Person or Transaction Person or
any Affiliates or Associates thereof. Upon the effective date of the redemption
of the Rights, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.
All of the provisions of the Rights Agreement may be amended by the Board
of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, defect or inconsistency, to make changes
which do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person), or, subject to certain limitations, to
shorten or lengthen any time period under the Rights Agreement.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to stockholders of the Company, stockholders may, depending
upon the circumstances, recognize taxable income should the Rights become
exercisable or upon the occurrence of certain events thereafter.
Each outstanding Common Share on the Record Date will receive one Right.
As long as the Rights are attached to the Common Shares, the Company will issue
one Right with each new Common Share so that all such shares will have attached
rights. 1,000,000 Preferred Shares will be reserved for issuance upon exercise
of the Rights.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on (1) the Rights being redeemed; (2) a
substantial number of Rights being acquired or (3) a determination by the Board
of Directors that the offer will be deemed a "Permitted Offer" under the Rights
Agreement. However, the Rights should not interfere with any merger or other
business combination in connection with a Permitted Offer or that is approved
by the Company because the Rights are redeemable under certain circumstances.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock is First
Union National Bank. The Company has not appointed a transfer agent for the
Class B Common Stock.
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DESCRIPTION OF CREDIT FACILITY
The Company's Credit Facility is a $310.0 million revolving credit
facility with a syndicate of Lenders and Bankers Trust Company, as agent. Each
of Neff, Neff Rental and Neff Machinery can borrow, repay and reborrow funds
under the Credit Facility for general corporate purposes. The Credit Facility
terminates on April 30, 2003.
The Credit Facility allows borrowings based upon eligible accounts
receivable, rental fleet and inventory amounts. The interest rates on balances
outstanding under the Credit Facility will vary based upon the leverage ratio
maintained by the Company and range from Prime rate to Prime plus 1.25% or
LIBOR plus 1.0% to LIBOR plus 2.25%. The interest rate as of November 30, 1998
was Prime plus 0.875% or LIBOR plus 1.875%. The Credit Facility is secured by
substantially all of the Company's assets and contains various restrictive
covenants which, among other things, place restrictions on indebtedness,
require the Company to maintain certain interest coverage and leverage ratios
and place certain restrictions on payment of dividends.
The terms and conditions of the indebtedness of the Company under the
Credit Facility impose restrictions that prohibit the Company from taking
certain actions without the prior written consent of the members of the
syndicate, including but not limited to merging with another company, incurring
certain kinds of indebtedness, changing the Company's capital structure,
selling assets other than in the ordinary course of business and declaring
dividends. See "Risk Factors--Dependence on Additional Capital for Future
Growth; Reliance on Credit Facility."
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DESCRIPTION OF THE NOTES
THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE DOES NOT
RESTATE THE INDENTURE IN ITS ENTIRETY AND IS SUBJECT TO, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO, THE INDENTURE AND THE TRUST INDENTURE ACT OF
1939, AS AMENDED (THE "TIA"). YOU SHOULD READ THE INDENTURE BECAUSE IT, AND NOT
THIS DESCRIPTION, WILL DEFINE YOUR RIGHTS AS A HOLDER OF NEW NOTES. A COPY OF
THE INDENTURE IS FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH
THIS PROSPECTUS CONSTITUTES A PART.
The Old Notes were issued, and the New Notes will be issued, under an
indenture (the "Indenture"), dated as of December 9, 1998 by and among the
Company, the Guarantors and State Street Bank and Trust Company, as Trustee
(the "Trustee"). The definitions of certain capitalized terms used in the
following summary are set forth below under "--Certain Definitions." For
purposes of this section, references to the "Company" include only the Company
and not its Subsidiaries. For purposes of this section, all references herein
to "Notes" shall be deemed to refer collectively to the Old Notes and the New
Notes, unless the context otherwise requires.
GENERAL
The New Notes:
/bullet/ will be unsecured obligations of the Company;
/bullet/ will rank subordinate in right of payment to all existing and
future Senior Debt of the Company; and
/bullet/ will rank equally in right of payment with the May 1998 Notes.
The May 1998 Indenture is similar to the Indenture.
The Guarantees of the New Notes:
/bullet/ will be unsecured obligations of each Guarantor;
/bullet/ will rank subordinate in right of payment to all existing and
future Guarantor Senior Debt; and
/bullet/ will rank equally in right of payment with the May 1998
Guarantees.
The New Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples of $1,000.
Initially, the Trustee will act as Paying Agent and Registrar for the Notes.
The Notes may be presented for registration or transfer and exchange at the
offices of the Registrar, which initially will be the Trustee's corporate trust
office. The Company may change any Paying Agent and Registrar without notice to
Holders of the Notes.
Any Old Notes that remain outstanding after the completion of the Exchange
Offer and the New Notes issued pursuant to the Exchange Offer will be treated
as a single class of securities for all purposes under the Indenture,
including, without limitation, waivers, amendments, redemption and offers to
repurchase the Notes under certain circumstances.
PRINCIPAL, MATURITY AND INTEREST
The Old Notes and the New Notes are limited in aggregate principal amount
to $200.0 million. The Notes will mature on June 1, 2008. Old Notes in an
aggregate principal amount of $100.0 million were issued in the Private Debt
Offering. The Company will issue New Notes with a maximum aggregate principal
amount of $100.0 million. Additional amounts of Notes may be issued in one or
more series from time to time, subject to limits in the Indenture and the
Credit Agreement on the Company's incurrence of additional Indebtedness.
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Interest on the Notes will accrue at the rate of 10 1/4% per annum.
Interest on the Notes will be payable semiannually in cash on each June 1 and
December 1 commencing on June 1, 1999. The Company will make each June 1
interest payment to the registered Holders on the immediately preceding May 15.
It will make each December 1 interest payment to the registered Holders
November 15 on the immediately preceding November 15. Interest on the Notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from and including the date of issuance. The Notes will
not have the benefit of any mandatory redemption or mandatory sinking fund.
The Company will pay principal and premium, if any, on the Notes at the
Trustee's corporate office in New York, New York. At the Company's option,
interest may be paid at the Trustee's corporate trust office or by check mailed
to the registered address of Holders.
REDEMPTION
OPTIONAL REDEMPTION. On and after June 1, 2003, the Notes will be
redeemable, at the Company's option, in whole at any time or in part from time
to time, upon not less than 30 nor more than 60 days' notice. The Company shall
redeem the Notes at the following redemption prices, which are expressed as
percentages of the principal amount, if the Notes are redeemed during the
twelve months commencing on June 1 of the years set forth below, plus, in each
case, accrued and unpaid interest on the Notes redeemed, if any:
YEAR PERCENTAGE
- --------------------------------------- -------------
2003 ................................ 105.125%
2004 ................................ 103.417%
2005 ................................ 101.708%
2006 and thereafter ................. 100.000%
OPTIONAL REDEMPTION UPON QUALIFIED EQUITY OFFERINGS. On or before June 1,
2001, at any time, or from time to time, the Company may, at its option, use
the net cash proceeds of one or more Public Equity Offerings (as defined below)
to redeem up to 30% of the aggregate principal amount of the Notes at a
redemption price equal to 110.250% of the principal amount of the Notes
redeemed, plus accrued and unpaid interest on the Notes redeemed, if any. At
least 70% of the aggregate principal amount of the Notes issued under the
Indenture must remain outstanding immediately after any such redemption. If the
Company wishes to redeem Notes with the proceeds of a Public Equity Offering,
it must do so within 120 days of the consummation of the Public Equity
Offering.
SELECTION AND NOTICE OF REDEMPTION
If less than all of the Notes are to be redeemed at any time, the Trustee
shall select Notes for redemption in compliance with the requirements of the
principal national securities exchange on which the Notes are listed or, if the
Notes are not listed on a national securities exchange, on a PRO RATA basis, by
lot or by any method the Trustee deems fair and appropriate. No Notes of a
principal amount of $1,000 or less shall be redeemed in part. Subject to DTC
procedures, if a partial redemption is made with the proceeds of a Public
Equity Offering, the Trustee shall select Notes or portions of Notes for
redemption only on a PRO RATA basis or on as nearly a PRO RATA basis as is
practicable, unless such method is otherwise prohibited.
Notice of redemption shall be mailed by first-class mail at least 30 but
not more than 60 days before the redemption date to each Holder of Notes to be
redeemed at its registered address. If any Note is to be redeemed in part only,
the notice of redemption shall state what portion of the principal amount of
the Note is to be redeemed. A new Note in a principal amount equal to the
unredeemed portion of the Note will be issued in the name of the Holder upon
cancellation of the original Note. Interest will cease to accrue on Notes or
portions of Notes called for redemption on the redemption date if the Company
has deposited funds sufficient to pay the applicable redemption price with the
Paying Agent.
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SUBORDINATION
The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Debt whether outstanding on the Issue Date or thereafter
incurred, including, without limitation, the Company's obligations under the
Credit Agreement. The Notes will rank PARI PASSU with the May 1998 Notes.
The Holders of Senior Debt will be entitled to receive payment in full of
all Obligations due or to become due upon all Senior Debt, or such payment must
be provided for to the satisfaction of the Holders of Senior Debt, before any
payment or distribution of any kind is made on account of any Obligations on
the Notes, or for the acquisition of any of the Notes,
in the event of any payment or distribution to the Company's creditors:
(1) upon any total or partial liquidation, dissolution, winding up or
reorganization of the Company;
(2) upon the assignment for the benefit of creditors or marshaling of
assets of the Company; or
(3) in a bankruptcy, reorganization, insolvency, receivership or other
similar proceeding relating to the Company or its property, whether
voluntary or involuntary.
In addition, the Company may not make any payment with respect to any
Obligations on the Notes or acquire any of the Notes if:
(1) any payment default occurs and is continuing with respect to any
Designated Senior Debt; or
(2) any other event of default occurs and is continuing with respect to any
Designated Senior Debt permitting the holders of the Designated Senior
Debt to accelerate its maturity and the Representative for the
respective issue of Designated Senior Debt gives written notice of the
event of default to the Trustee (a "Default Notice").
Payments on the Notes may and shall be resumed,
(1) in the case of a payment default, when all events of default have been
cured or waived or have ceased to exist; and
(2) in the case of a non-payment default, the earlier of (a) the date on
which the default is cured or waived, (b) 180 days after the delivery
of the Default Notice (the "Blockage Period") or (c) the date the
Trustee receives notice from the Representative for the respective
issue of Designated Senior Debt terminating the Blockage Period.
Notwithstanding anything herein to the contrary, in no event will a
Blockage Period extend beyond 180 days from the date the payment on the Notes
was due. Only one Blockage Period may be commenced within any 360 consecutive
days.
No event of default which existed or was continuing on the date of the
commencement of any Blockage Period with respect to the Designated Senior Debt
shall be, or be made, the basis for commencement of a second Blockage Period by
the Representative of the Designated Senior Debt whether or not within a period
of 360 consecutive days, unless the event of default is cured or waived for a
period of not less than 90 consecutive days. Any subsequent action, or any
breach of any financial covenants for a period commencing after the date a
Blockage Period begins, that, in either case, would give rise to an event of
default pursuant to any provisions under which an event of default previously
existed or was continuing shall constitute a new event of default for this
purpose.
By reason of the subordination of the Notes, in the event of the
insolvency of the Company, creditors of the Company who are not holders of
Senior Debt, including the Holders of the Notes, may recover less ratably than
holders of Senior Debt.
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As of September 30, 1998, on a pro forma basis after giving effect to the
Private Debt Offering and the application of the estimated net proceeds
therefrom, the Company would have had Senior Debt of approximately $189.3
million. See "Risk Factors--Subordination of the Notes and Guarantees; Asset
Encumbrances."
GUARANTEES
Each Guarantor unconditionally guarantees, on a senior subordinated basis,
jointly and severally, to each Holder and the Trustee, the full and prompt
performance of the Company's obligations under the Indenture and the Notes,
including the payment of principal of and interest on the Notes. The Guarantees
are subordinated to Guarantor Senior Debt on the same basis as the Notes are
subordinated to Senior Debt. The Guarantees rank PARI PASSU with the May 1998
Guarantees. The obligations of each Guarantor are limited as necessary so that
its Guarantee will not constitute a fraudulent conveyance or fraudulent
transfer under federal or state law. Each Guarantor that makes a payment or
distribution under a Guarantee shall be entitled to a contribution from each
other Guarantor in PRO RATA amount based on the net assets of each Guarantor,
determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to
the Company or another Guarantor that is a Wholly Owned Restricted Subsidiary
of the Company without limitation, or with other Persons upon the terms and
conditions set forth in the Indenture. See "Certain Covenants--
Merger, Consolidation and Sale of Assets." In the event all of the Capital
Stock or all or substantially all of the assets of a Guarantor is sold by the
Company and the sale complies with the provisions set forth in "Certain
Covenants--Limitation on Asset Sales," the Guarantor's Guarantee will be
released.
Separate financial statements of the Guarantors are not included herein
because the Guarantors are jointly and severally liable with respect to the
Company's obligations pursuant to the Notes, and the aggregate net assets,
earnings and equity of the Guarantors and the Company are substantially
equivalent to the net assets, earnings and equity of the Company on a
consolidated basis for each of the three years in the period ended December 31,
1997. As a result of the Argentina Acquisition, since S.A. Argentina is not a
Guarantor, the aggregate net assets, earnings and equity of the Company on a
consolidated basis are no longer substantially equivalent to the net assets,
earnings, and equity of the Guarantors and the Company. The Company has
therefore included in its notes to the unaudited consolidated financial
statements for the nine months ended September 30, 1998 included in this
prospectus, and undertakes to include footnotes to the Company's audited
financial statements in its annual reports on Form 10-K and quarterly reports on
Form 10-Q, until the Guarantees are all released or expire by their terms,
condensed consolidating financial statements of the Company, the Subsidiary
Guarantors and any future Guarantors and S.A. Argentina. These condensed
consolidating financial statements will be presented for the same periods for
which financial statements are presented for the Company; will be audited for
those periods for which the Company's financial statements are audited; and will
provide, in a columnar format:
(a) condensed financial statements of the Company, carrying its investments
in any non-guarantor subsidiaries under the equity method,
(b) condensed financial statements of the Subsidiary Guarantors and any
future Guarantors,
(c) condensed financial statements for S.A. Argentina, and
(d) elimination entries for purposes of consolidation.
CHANGE OF CONTROL
The Indenture provides that if a Change of Control occurs, each Holder
will have the right to require the Company to purchase all or a portion of the
Holder's Notes pursuant to the offer
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described below (the "Change of Control Offer"). The purchase price in a Change
of Control Offer will be equal to 101% of the principal amount of Notes
purchased plus accrued and unpaid interest to the date of purchase. The
Indenture provides that the Company is not required to make a Change of Control
Offer if a third party makes a Change of Control Offer that would comply with
the provisions described in this section if it were made by the Company and
such third party purchases (for the consideration referred to in the
immediately preceding sentence) the Notes validly tendered and not withdrawn.
The Indenture provides that, before the mailing of the notice referred to
below, but in any event within 30 days following any Change of Control, the
Company covenants to either:
(a) repay in full and terminate all commitments under Indebtedness under
the Credit Agreement and all other Senior Debt the terms of which
require repayment upon a Change of Control,
(b) offer to repay in full and terminate all commitments under Indebtedness
under the Credit Agreement and all other Senior Debt and repay the
Indebtedness owed to each lender which accepts the Company's offer, or
(c) obtain the requisite consents under the Credit Agreement and all such
other Senior Debt to permit the repurchase of the Notes as provided
below.
The Company shall first comply with the covenant in the immediately
preceding sentence before it shall be required to repurchase Notes pursuant to
the provisions described below. The Company's failure to comply with the
covenant described in the immediately preceding sentence shall constitute an
Event of Default described in clause (3) and not in clause (2) under "Events of
Default" below.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change
of Control Offer. Such notice shall state, among other things, the purchase
date, which must be no earlier than 30 days nor later than 45 days from the
date such notice is mailed, other than as may be required by law (the "Change
of Control Payment Date"). Holders electing to have a Note purchased pursuant
to a Change of Control Offer will be required to complete the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note and surrender
the Note to the Paying Agent at the address specified in the notice before the
close of business on the third business day before the Change of Control
Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive
the covenant relating to a Holder's right to redemption upon a Change of
Control. This right, as well as restrictions in the Indenture described in this
prospectus on the ability of the Company and its Restricted Subsidiaries to
incur additional Indebtedness, to grant liens on its property, to make
Restricted Payments and to make Asset Sales, may make more difficult or
discourage a takeover of the Company, whether favored or opposed by the
management of the Company. Consummation of any such transaction in certain
circumstances may require redemption or repurchase of the Notes, and there can
be no assurance that the Company or the acquiring party will have sufficient
financial resources to effect such redemption or repurchase. Such restrictions
and the restrictions on transactions with Affiliates may, in certain
circumstances, make more difficult or discourage any leveraged buyout of the
Company or any of its Subsidiaries by the management of the Company. While such
restrictions cover
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a wide variety of arrangements which have traditionally been used to effect
highly leveraged transactions, the Indenture may not afford the Holders of
Notes protection in all circumstances from the adverse aspects of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness other than Permitted
Indebtedness, except as described in the next sentence. The Company or any
Guarantor may incur indebtedness, including, without limitation, Acquired
Indebtedness, if (1) no Default or Event of Default shall have occurred and be
continuing at the time of or as a consequence of the incurrence of the
Indebtedness, and (2) on the date of the incurrence of the Indebtedness, after
giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage
Ratio of the Company is greater than 2.0 to 1.0 if the date of incurrence is on
or before June 1, 2000 and greater than 2.25 to 1.0 thereafter. For purposes of
determining any particular amount of Indebtedness under this "Limitation on
Indebtedness" covenant,
(1) guarantees, Liens or obligations with respect to letters of credit
supporting Indebtedness otherwise included in the determination of
such particular amount shall not be included and
(2) any Liens granted pursuant to the equal and ratable provisions
referred to in the "Limitations on Liens" covenant described below
shall not be treated as Indebtedness.
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not
cause or permit any of its Restricted Subsidiaries to, directly or indirectly,
(a) declare or pay any dividend or make any distribution other than
dividends or distributions payable in Qualified Capital Stock of the
Company on or in respect of shares of the Company's Capital Stock to
holders of such Capital Stock,
(b) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock,
(c) make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking
fund payment, any Indebtedness of the Company that is subordinate or
junior in right of payment to the Notes or
(d) make any Investment other than Permitted Investments (each of the
foregoing actions set forth in clauses (a), (b) (c) and (d) being
referred to as a "Restricted Payment"),
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if at the time of such Restricted Payment or immediately after giving
effect thereto,
(1) a Default or an Event of Default shall have occurred and be
continuing,
(2) the Company is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance
with the "Limitation on Incurrence of Additional Indebtedness"
covenant or
(3) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made after May 28, 1998 (the amount
expended for such purposes, if other than in cash, being the fair
market value of such property as determined reasonably and in
good faith by the Board of Directors of the Company) shall exceed
the sum of the following amounts (without duplication):
(a) 50% of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus
100% of such loss) of the Company accrued on a cumulative
basis during the period beginning on July 1, 1998 and ending
on the last day of the last fiscal quarter preceding the
date the Restricted Payment occurs (the "Reference Date")
(treating such period as a single accounting period); plus
(b) 100% of the aggregate net cash proceeds received by the
Company from any Person (other than a Subsidiary of the
Company) from the issuance and sale after May 28, 1998 and
on or before the Reference Date of Qualified Capital Stock
of the Company or any options, warrants or other rights to
acquire Qualified Capital Stock of the Company; plus
(c) 100% of the aggregate net cash proceeds received after May
28, 1998 by the Company from any Person (other than a
Subsidiary of the Company) from the issuance or sale of debt
securities or shares of Disqualified Capital Stock that have
been converted into or exchanged for Qualified Capital
Stock, together with the aggregate cash received by the
Company at the time of such conversion or exchange; plus
(d) 100% of the aggregate net cash proceeds of any equity
contribution received by the Company from a holder of the
Company's Capital Stock; plus
(e) an amount equal to the net reduction in Investment made
pursuant to this first paragraph of the "Limitation on
Restricted Payments" covenant in any Person resulting from
payments of interest on Indebtedness, dividends, repayments
of loans or advances, or other transfers of assets, in each
case to the Company or any Restricted Subsidiary (except to
the extent any such payment is included in the calculation
of Consolidated Net Income), or from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries valued
in each case as provided in the definition of "Investments,"
not to exceed the amount of Investments previously made by
the Company or any Restricted Subsidiary in such Person.
Notwithstanding the foregoing, the preceding provisions do not prohibit:
(1) the payment of any dividend or the consummation of any irrevocable
redemption within 60 days after the date of declaration of such
dividend or the giving of notice of such irrevocable redemption if the
dividend or redemption would have been permitted on the date of
declaration or the giving of such irrevocable redemption notice;
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(2) if no Default or Event of Default shall have occurred and be
continuing:
(a) the repurchase, redemption or other acquisition or retirement of
any shares of Capital Stock of the Company, either
(i) solely in exchange for shares of Qualified Capital Stock of
the Company or any options, warrants or other rights to acquire
Qualified Capital Stock of the Company or
(ii) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the Company
and other than the Common Stock Offering) of shares of Qualified
Capital Stock of the Company, or any options, warrants or other rights
to acquire Qualified Capital Stock of the Company;
(b) the acquisition of any Indebtedness of the Company that is
subordinate or junior in right of payment to the Notes either
(i) solely in exchange for shares of Qualified Capital Stock of
the Company or any options, warrants or other rights to acquire
Qualified Capital Stock of the Company,
(ii) through the application of net proceeds of a substantially
concurrent sale for cash, other than to a Subsidiary of the Company
and other than the Common Stock Offering of shares, of Qualified
Capital Stock of the Company or any options, warrants or other rights
to acquire Qualified Capital Stock of the Company, or
(iii) if the acquisition of such Indebtedness would constitute
Refinancing Indebtedness;
(c) the redemption at maturity of, or the payment of dividends in the
form of additional shares of Preferred Stock on the Series A Preferred
Stock to the extent required pursuant to the terms thereof or the payment
of cash dividends on the Series A Preferred Stock in an amount not to
exceed $1.0 million in any fiscal year; and
(d) repurchases by the Company of Common Stock of the Company from
employees of the Company or any of its Subsidiaries or their authorized
representatives upon the death, disability or termination of employment of
such employees, in an aggregate amount not to exceed $1.0 million in any
calendar year.
In determining the aggregate amount of Restricted Payments made after the
Issue Date for purposes of compliance with the Limitation on Incurrence of
Additional Indebtedness, amounts expended pursuant to clauses (1), (2)(a)(ii),
(2)(b)(ii), (2)(ii)(c), 2(c) and 2(d) shall be included in such calculation.
Not later than the date any Restricted Payment is made, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations
may be based upon the Company's latest available internal quarterly financial
statements.
LIMITATION ON ASSET SALES. The Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless
(1) the Company or the applicable Restricted Subsidiary, as the case may
be, receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets sold or otherwise
disposed of (as determined in good faith by the Company's Board of
Directors);
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(2) at least 70% of the consideration received by the Company or the
Restricted Subsidiary, as the case may be, from such Asset Sale shall
be in the form of cash or Cash Equivalents and is received at the time
of such disposition; and
(3) upon the consummation of an Asset Sale, the Company shall apply, or
cause such Restricted Subsidiary to apply, the Net Cash Proceeds of
the Asset Sale within 365 days of receipt either
(A) to prepay any Senior Debt or Guarantor Senior Debt and, in the
case of any Senior Debt or Guarantor Senior Debt under any
revolving credit facility, effect a permanent reduction in the
availability under such revolving credit facility,
(B) to invest in properties and assets that replace the properties
and assets that were the subject of such Asset Sale or in
properties and assets that will be used in the business of the
Company and its Restricted Subsidiaries as existing on the Issue
Date or in businesses reasonably related thereto ("Replacement
Assets"), or
(C) a combination of prepayment and investment permitted by the
foregoing clauses (3)(A) and (3)(B).
On the 366th day after an Asset Sale or such earlier date, if any, as the
Board of Directors of the Company or of such Restricted Subsidiary determines
not to apply the Net Cash Proceeds of the Asset Sale as set forth in clauses
(3)(A), (3)(B) and (3)(C) of the next preceding sentence (each, a "Net Proceeds
Offer Trigger Date"), the aggregate amount of Net Cash Proceeds which have not
been applied on or before such Net Proceeds Offer Trigger Date as permitted in
clauses (3)(A), (3)(B) and (3)(C) of the next preceding sentence (each a "Net
Proceeds Offer Amount") shall be applied by the Company or such Restricted
Subsidiary to make an offer to purchase (the "Net Proceeds Offer") from all
Holders on a PRO RATA basis an amount of Notes equal to the Net Proceeds Offer
Amount. Purchases of Notes pursuant to a Net Proceeds Offer shall be made on a
date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 45
days following the applicable Net Proceeds Offer Trigger Date. The purchase
price for Notes purchased pursuant to a Net Proceeds Offer shall equal 100% of
the principal amount of the Notes to be purchased, plus accrued and unpaid
interest thereon, if any, to the date of purchase.
The Company will mail each Net Proceeds Offer to the record Holders and
the Trustee within 30 days following the Net Proceeds Offer Trigger Date. The
Net Proceeds Offer must comply with the procedures set forth in the Indenture.
Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender
their Notes in whole or in part in integral multiples of $1,000 in exchange for
cash. If Holders properly tender Notes in an amount exceeding the Net Proceeds
Offer Amount, Notes of tendering Holders will be purchased on a PRO RATA basis
based on amounts tendered. A Net Proceeds Offer shall remain open for a period
of 20 business days or such longer period as may be required by law.
Notwithstanding anything to the contrary in the previous paragraphs, if at
any time any non-cash consideration received by the Company or any Restricted
Subsidiary of the Company, as the case may be, in connection with any Asset
Sale is converted into or sold or otherwise disposed of for cash, other than
interest received with respect to any such non-cash consideration, then such
conversion or disposition shall be deemed to constitute an Asset Sale hereunder
and the Net Cash Proceeds thereof shall be applied in accordance with this
covenant.
The Company may defer the Net Proceeds Offer until there is an aggregate
unutilized Net Proceeds Offer Amount equal to or in excess of $10.0 million
resulting from one or more Asset Sales at which time, the entire unutilized Net
Proceeds Offer Amount, and not just the amount in excess of $10.0 million,
shall be applied as required pursuant to the Indenture.
In the event of the transfer of substantially all, but not all, of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under
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"--Merger, Consolidation and Sale of Assets," the successor corporation shall
be deemed to have sold the properties and assets of the Company and its
Restricted Subsidiaries not so transferred for purposes of this covenant, and
shall comply with the provisions of this covenant with respect to such deemed
sale as if it were an Asset Sale. In addition, the fair market value of such
properties and assets of the Company or its Restricted Subsidiaries deemed to
be sold shall be deemed to be Net Cash Proceeds for purposes of this covenant.
Notwithstanding the restrictions described in the paragraphs above, the
Company and its Restricted Subsidiaries will be permitted to consummate an
Asset Sale without complying with such paragraphs if
(1) at least 80% of the consideration for such Asset Sale constitutes
Replacement Assets and
(2) such Asset Sale is for fair market value;
PROVIDED that any consideration not constituting Replacement Assets received by
the Company or any of its Restricted Subsidiaries in connection with any Asset
Sale permitted to be consummated under this paragraph shall constitute Net Cash
Proceeds subject to the provisions of the preceding paragraphs.
The Company will comply with the requirements of Rule l4e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable to a Net Proceeds Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the "Asset Sale" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Asset Sale" provisions of the Indenture by
virtue thereof.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to
(a) pay dividends or make any other distributions on or in respect of its
Capital Stock;
(b) make loans or advances or pay any Indebtedness or other obligation
owed to the Company or any other Restricted Subsidiary of the Company;
or
(c) transfer any of its property or assets to the Company or any other
Restricted Subsidiary of the Company, except for such encumbrances or
restrictions existing under or by reason of:
(1) applicable law;
(2) the Indenture;
(3) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Restricted Subsidiary of the
Company;
(4) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person or the properties or
assets of thePerson so acquired;
(5) the Credit Agreement;
(6) agreements existing on the Issue Date to the extent and in the manner
such agreements are in effect on the Issue Date;
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(7) restrictions on the transfer of assets subject to any Lien permitted
under the Indenture imposed by the holder of such Lien;
(8) restrictions imposed by any agreement to sell assets permitted under
the Indenture to any Person pending the closing of such sale;
(9) any agreement or instrument governing Capital Stock of any Person
that is acquired; or
(10) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement
referred to in clause (2), (4), (5) or (6) above; PROVIDED, HOWEVER,
that the provisions relating to such encumbrance or restriction
contained in any such Indebtedness are no less favorable to the
Company in any material respect as determined by the Board of
Directors of the Company in their reasonable and good faith judgment
than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clause (2), (4), (5) or
(6), respectively.
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Company will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock,
other than to the Company or to a Wholly Owned Restricted Subsidiary of the
Company, or permit any Person, other than the Company or a Wholly Owned
Restricted Subsidiary of the Company, to own any Preferred Stock of any
Restricted Subsidiary of the Company.
LIMITATION ON LIENS. The Company will not, and will not cause or permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or permit or suffer to exist any Liens of any kind against or upon any
property or assets of the Company or any of its Restricted Subsidiaries whether
owned on the Issue Date or acquired after the Issue Date, or any proceeds
therefrom, or assign or otherwise convey any right to receive income or profits
therefrom unless (1) in the case of Liens securing Indebtedness that is
expressly subordinate or junior in right of payment to the Notes, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and (2) in all other cases, the Notes are equally and
ratably secured, except for:
(A) Liens existing as of the Issue Date to the extent and in the manner
such Liens are in effect on the Issue Date;
(B) Liens securing Senior Debt and Liens securing Guarantor Senior Debt;
(C) Liens securing the Notes and the Guarantees;
(D) Liens of the Company or a Wholly Owned Restricted Subsidiary of the
Company on assets of any Subsidiary of the Company;
(E) Liens securing Refinancing Indebtedness which is incurred to Refinance
any Indebtedness which has been secured by a Lien permitted under the
Indenture and which has been incurred in accordance with the
provisions of the Indenture; PROVIDED, HOWEVER, that such Liens (1)
are no less favorable to the Holders and are not more favorable to the
lienholders with respect to such Liens than the Liens in respect of
the Indebtedness being Refinanced and (2) do not extend to or cover
any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so Refinanced; and
(F) Permitted Liens.
PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED DEBT. The Company will
not incur or suffer to exist Indebtedness that is senior in right of payment to
the Notes and subordinate in right of payment to any other Indebtedness of the
Company.
MERGER, CONSOLIDATION AND SALE OF ASSETS. The Company will not, in a
single transaction or series of related transactions, (1) consolidate or merge
with or into any Person, or (2) sell, assign, transfer,
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lease, convey or otherwise dispose of, or cause or permit any Restricted
Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise
dispose of, all or substantially all of the Company's assets, determined on a
consolidated basis for the Company and the Company's Restricted Subsidiaries,
whether as an entirety or substantially as an entirety to any Person unless:
(1) either (a) the Company shall be the surviving or continuing
corporation or (b) the Person, if other than the Company, formed by
such consolidation or into which the Company is merged or which
acquires the properties and assets of the Company and of the Company's
Restricted Subsidiaries (the "Surviving Entity")is a corporation
organized and validly existing under the laws of the United States or
any State thereof or the District of Columbia
(2) the Surviving Person expressly assumes, by supplemental indenture (in
form and substance satisfactory to the Trustee), executed and
delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Notes
and the performance of every covenant of the Notes, the Indenture and
the Registration Rights Agreement on the part of the Company to be
performed or observed;
(3) immediately after giving effect to the transaction and the assumption
contemplated by clause (2) above, including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred in connection with or in respect of the transaction, the
Company or such Surviving Entity, as the case may be:
(a) has a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately before such
transaction and is able to incur at least $1.00 of additional
Indebtedness, other than Permitted Indebtedness, pursuant to the
"--Limitation on Incurrence of Additional Indebtedness" covenant;
(b) no Default or Event of Default shall have occurred or be
continuing; and
(4) the Company or the Surviving Entity delivers to the Trustee an
officers' certificate and an opinion of counsel, each stating that
such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is
required in connection with such transaction, such supplemental
indenture comply with the applicable provisions of the Indenture and
that all conditions precedent in the Indenture relating to such
transaction have been satisfied.
For purposes of the foregoing, the transfer by lease, assignment, sale or
otherwise, in a single transaction or series of transactions of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
The Indenture provides that upon any consolidation, combination or merger
or any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which
the Company is merged or to which such conveyance, lease or transfer is made
shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under the Indenture and the Notes with the same effect as
if such surviving entity had been named as such.
Each Guarantor, other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the Indenture in connection
with any transaction complying with the
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provisions of "--Limitation on Asset Sales", will not, and the Company will not
cause or permit any Guarantor to, consolidate with or merge with or into any
Person other than the Company or any other Guarantor unless:
(1) the entity formed by or surviving any such consolidation or merger, if
other than the Guarantor, or to which such sale, lease, conveyance or
other disposition shall have been made is a corporation organized and
existing under the laws of the United States or any State thereof or
the District of Columbia;
(2) such entity assumes by supplemental indenture all of the obligations
of the Guarantor on the Guarantee;
(3) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and
(4) immediately after giving effect to such transaction and the use of any
net proceeds therefrom on a PRO FORMA basis, the Company (a) has a
Consolidated Net Worth equal to or greater than its Consolidated Net
Worth immediately before such transaction and (b) is able to incur at
least $1.00 of additional Indebtedness, other than Permitted
Indebtedness, pursuant to the "--Limitation on Incurrence of
Additional Indebtedness" covenant.
A Guarantor may merge or consolidate with and into the Company, if the
Company is the surviving entity, or another Guarantor that is a Wholly Owned
Restricted Subsidiary of the Company without complying with the provisions of
the covenant regarding Merger, Consolidation and Sale of Assets if the Company
delivers to the Trustee an officers' certificate and an opinion of counsel,
each stating that such consolidation or merger complies with the applicable
provisions of the Indenture and that all conditions precedent in the Indenture
relating to such transaction have been satisfied.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related
transactions, including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service, with, or for the
benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than
transactions on terms that are no less favorable than those that might
reasonably be obtained in a comparable transaction at that time on an
arm's-length basis.
The Board of Directors of the Company or its Restricted Subsidiary, as the
case may be, must approve all Affiliate Transactions and each series of related
Affiliate Transactions which are similar or part of a common plan involving
aggregate payments or other property with a fair market value in excess of
$5,000,000. This approval will be evidenced by a Board Resolution stating that
the Board of Directors has determined that the transaction complies with the
restrictions set forth in the Indenture. If the Company or any of its
Restricted Subsidiaries enters into an Affiliate Transaction or a series of
related Affiliate Transactions related to a common plan that involves an
aggregate fair market value of more than $10,500,000, the Company or the
Restricted Subsidiary, as the case may be, before the transaction is
consummated, must obtain a favorable opinion as to the fairness of the
transaction to the Company or the Restricted Subsidiary, as the case may be,
from a financial point of view, from an Independent Financial Advisor and file
the same with the Trustee.
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In addition, the Company and its Restricted Subsidiaries may enter into
the following Affiliate Transactions without obtaining the approval of the
Board of Directors of the Company or Restricted Subsidiary or the fairness
opinion described in the preceding paragraph:
(1) payment of reasonable fees and compensation to, loans or advances to,
and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Restricted Subsidiary of the Company
as determined in good faith by the Company's Board of Directors or
senior management;
(2) transactions exclusively between or among the Company and any of its
Wholly Owned Restricted Subsidiaries or exclusively between or among
such Wholly Owned Restricted Subsidiaries, provided such transactions
are not otherwise prohibited by the Indenture;
(3) any payments or transactions pursuant to agreements in effect as of
the Issue Date or any amendment thereto or any transaction
contemplated thereby, including pursuant to any amendment thereto, in
any replacement agreement thereto so long as any such amendment or
replacement agreement is not more disadvantageous to the Holders in
any material respect than the original agreement as in effect on the
Issue Date;
(4) Restricted Payments permitted by the Indenture; and
(5) any Investments by an Affiliate of the Company in the Capital Stock,
other than Disqualified Stock, of the Company or any Restricted
Subsidiary of the Company.
ADDITIONAL SUBSIDIARY GUARANTEES. If (1) the Company or any Guarantor
transfers or causes to be transferred, in one transaction or a series of
related transactions, any property with a fair market value of $500,000 or more
to any domestic Restricted Subsidiary that is not a Guarantor, or (2) the
Company or any of its Restricted Subsidiaries organizes, acquires or otherwise
invests in another domestic Restricted Subsidiary having total assets with a
book value in excess of $500,000, then such transferee or acquired or other
domestic Restricted Subsidiary must become a Guarantor. To become a Guarantor,
the Restricted Subsidiary must execute a supplemental indenture reasonably
satisfactory to the Trustee and deliver an opinion of counsel to the Trustee
that the supplemental indenture has been duly authorized, executed and
delivered by, and constitutes a legal, valid, binding and enforceable
obligation of, the Restricted Subsidiary. Thereafter, the Restricted Subsidiary
shall be a Guarantor for all purposes of the Indenture.
CONDUCT OF BUSINESS. The Company and its Restricted Subsidiaries will not
engage in any businesses which are not the same, similar or related to the
businesses in which the Company and its Restricted Subsidiaries are engaged on
the Issue Date.
REPORTS TO HOLDERS. The Indenture provides that the Company will deliver
to the Trustee, copies of the quarterly and annual reports and the information,
documents and other reports, if any, which the Company is required to file with
the Commission, within 15 days after filing. The Indenture further provides
that, at all times from and after the earlier of (1) the date of the
commencement of an Exchange Offer or the effectiveness of the Shelf
Registration Statement and (2) May 11, 1999, in either case notwithstanding
that the Company may not be subject to the reporting requirements of the
Exchange Act, the Company will file with the Commission, to the extent
permitted, the annual reports and such information, documents and other reports
specified in Sections 13 and 15(d) of the Exchange Act for so long as any Notes
are outstanding. The Company will also comply with the other provisions of TIA
/section/ 314(a).
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EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(1) the failure to pay interest when due and payable on any Notes and the
default continues for 30 days, whether or not payment is prohibited by
the subordination provisions of the Indenture;
(2) the failure to pay the principal when due and payable on any Notes, at
maturity, upon redemption or otherwise, including the failure to make
a payment to purchase Notes tendered pursuant to a Change of Control
Offer or a Net Proceeds Offer, whether or not the payment is
prohibited by the subordination provisions of the Indenture;
(3) default in the observance or performance of any other covenant or
agreement in the Indenture which default continues for 30 days after
the Company receives written notice of the default and demanding that
the default be remedied from the Trustee or the Holders of at least
25% of the outstanding principal amount of the Notes, except in the
case of a default with respect to the "Merger, Consolidation and Sale
of Assets" covenant, which will constitute an Event of Default once
the Company receives written notice of the default;
(4) the failure to pay at final maturity (giving effect to any applicable
grace periods and any extensions thereof) the principal amount of any
Indebtedness of the Company or any of its Restricted Subsidiaries and
the failure continues for 20 days or more, or the acceleration of the
final stated maturity of any such Indebtedness, which acceleration is
not rescinded, annulled or otherwise cured within 20 days of receipt
by the Company or the Restricted Subsidiary of notice of any such
acceleration, if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final maturity or which has
been accelerated, in each case with respect to which the 20-day period
described above has passed, aggregates $5,000,000 or more at any time;
(5) one or more judgments in an aggregate amount in excess of $5,000,000
is rendered against the Company or any of its Significant Subsidiaries
and the judgments remain undischarged, unpaid or unstayed for 60 days
after the judgment or judgments become final and non-appealable;
(6) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries, or
(7) any of the Guarantees of a Guarantor that is a Significant Subsidiary
ceases to be in full force and effect or any of the Guarantees is
declared to be null and void and unenforceable or any of the
Guarantees is found to be invalid or any of the Guarantors denies its
liability under its Guarantee other than by reason of release of the
Guarantor in accordance with the terms of the Indenture.
If an Event of Default, other than an Event of Default which occurs as a
result of certain bankruptcy events affecting the Company, occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
outstanding Notes may declare the principal of and accrued interest on all the
Notes to be due and payable by notice in writing to the Company and the Trustee
specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same (1) shall become
immediately due and payable or (2) if there are any amounts outstanding under
the Credit Agreement, shall become immediately due and payable upon the first
to occur of an acceleration under the Credit Agreement or 5 business days after
receipt by the Company and the Representative under the Credit Agreement of
such Acceleration Notice, but only if such Event of Default is then continuing.
If an Event of Default occurs as a result of certain bankruptcy events
affecting the Company and is continuing, then all unpaid principal of, and
premium, if any, and
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accrued and unpaid interest on all of the outstanding Notes shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences:
(1) if the rescission would not conflict with any judgment or decree,
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because
of the acceleration,
(3) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal. which has
become due otherwise than by such declaration of acceleration, has
been paid,
(4) if the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances,
and
(5) in the event of the cure or waiver of an Event of Default which occurs
as a result of certain bankruptcy events affecting the Company or any
of its Significant Subsidiaries, the Trustee shall have received an
officers' certificate and an opinion of counsel that the Event of
Default has been cured or waived. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
The Holders of a majority in principal amount of the then outstanding
Notes may waive any existing Default or Event of Default under the Indenture,
and its consequences, except a default in the payment of the principal of or
interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless the Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any officer obtaining knowledge of any
Default or Event of Default (provided that the officers shall provide such
certification at least annually whether or not they know of any Default or
Event of Default) that has occurred and, if applicable, describe such Default
or Event of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to
the outstanding Notes ("Legal Defeasance"). Legal Defeasance means that the
Company is deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, except for:
(1) the rights of Holders to receive payments in respect of the principal
of, premium, if any, and interest on the Notes when such payments are
due;
(2) the Company's obligations with respect to the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payments;
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(3) the rights, powers, trust, duties and immunities of the Trustee and
the Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or
Event of Default with respect to the Notes. In the event Covenant Defeasance
occurs, certain events described under "Events of Default", other than the
non-payment, bankruptcy, receivership, reorganization and insolvency events,
will no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(1) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders, cash in U.S. dollars, non-callable U.S.
government obligations, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if
any, and interest on the Notes on the stated date for payment thereof
or on the applicable redemption date, as the case may be;
(2) in the case of Legal Defeasance, the Company shall deliver to the
Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received
from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change
in the applicable United States federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for
United States federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall deliver to the
Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders will not
recognize income, gain or loss for United States federal income tax
purposes as a result of such Covenant Defeasance and will be subject
to United States federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred;
(4) immediately after giving effect to such deposit on a pro forma basis,
no Default or Event of Default shall have occurred and be continuing
on the date of such deposit, other than a Default or Event of Default
resulting from the incurrence of Indebtedness, all or a portion of the
proceeds of which will be used to defease the Notes, or, insofar as
Events of Default from bankruptcy or insolvency events are concerned,
at any time in the period ending on the 91st day after the date of
deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the Indenture,
other than a Default or Event of Default resulting from the incurrence
of Indebtedness, all or a portion of the proceeds of which will be
used to defease the Notes, or any other material agreement or
instrument to which the Company or any of its Subsidiaries is a party
or by which the Company or any of its Subsidiaries is bound;
(6) the Company shall deliver to the Trustee an officers' certificate
stating that the deposit was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any
other creditors of the Company or others;
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(7) the Company shall deliver to the Trustee an officers' certificate and
an opinion of counsel, each stating that all conditions precedent
provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with;
(8) the Company shall deliver to the Trustee an opinion of counsel to the
effect that (A) the trust funds will not be subject to any rights of
holders of Senior Debt, including, without limitation, those arising
under the Indenture and (B) after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and
(9) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required by clause
(2) above need not be delivered if all Notes not previously delivered to the
Trustee for cancellation (x) have become due and payable, (y) will become due
and payable on the maturity date within one year or (z) are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name, and at the
expense, of the Company.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect,
except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture, as to all outstanding Notes
when:
(1) either
(a) all the Notes previously authenticated and delivered have been
delivered to the Trustee for cancellation, except lost, stolen or
destroyed Notes which have been replaced or paid and Notes for
whose payment money has previously been deposited in trust or
segregated and held in trust by the Company and thereafter repaid
to the Company or discharged from such trust, or
(b) all Notes not previously delivered to the Trustee for
cancellation have become due and payable and the funds have been
irrevocably deposited with the Trustee in an amount sufficient to
pay and discharge the entire Indebtedness on the Notes not
previously delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the Notes to the
date of deposit together with irrevocable instructions from the
Company directing the Trustee to apply such funds to the payment
thereof at maturity or redemption, as the case may be;
(2) the Company has paid all other sums payable under the Indenture by the
Company; and
(3) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture
have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Guarantors and the Trustee, without
the consent of the Holders, may amend the Indenture for certain specified
purposes, including curing ambiguities, defects or inconsistencies, so long as
such change does not, in the opinion of the Trustee, adversely affect the
rights of any of the Holders in any material respect. In formulating its
opinion on such matters, the Trustee is entitled to rely on such evidence as it
deems appropriate, including, without limitation, solely on an opinion of
counsel.
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Other modifications and amendments of the Indenture may be made with the
consent of the Holders of a majority in principal amount of the then
outstanding Notes issued under the Indenture, except that, without the consent
of each Holder affected thereby, no amendment may:
(1) reduce the amount of Notes whose Holders must consent to an amendment;
(2) reduce the rate of or change or have the effect of changing the time
for payment of interest, including defaulted interest, on any Notes;
(3) reduce the principal of or change or have the effect of changing the
fixed maturity of any Notes, or change the date on which any Notes may
be subject to redemption or repurchase, or reduce the redemption or
repurchase price therefor;
(4) make any Notes payable in money other than that stated in the Notes;
(5) make any change in provisions of the Indenture protecting the right of
each Holder to receive payment of principal of and interest on such
Note on or after the due date thereof or to bring suit to enforce such
payment, or permitting Holders of a majority in principal amount of
Notes to waive Defaults or Events of Default;
(6) amend, change or modify in any material respect the obligation of the
Company to make and consummate a Change of Control Offer in the event
of a Change of Control or make and consummate a Net Proceeds Offer
with respect to any Asset Sale that has been consummated or modify any
of the provisions or definitions with respect thereto; or
(7) modify or change any provision of the Indenture or the related
definitions affecting the subordination or ranking of the Notes or any
Guarantee in a manner which adversely affects the Holders; or
(8) release any Guarantor from any of its obligations under its Guarantee
or the Indenture other than in accordance with the terms of the
Indenture.
GOVERNING LAW
The Indenture provides that it, the Notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the law of another jurisdiction would be
required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it by the Indenture, and
use the same degree of care and skill in its exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to
obtain payments of claims in certain cases or to realize on certain property
received in respect of any such claim as security or otherwise. Subject to the
TIA, the Trustee will be permitted to engage in other transactions; PROVIDED
that if the Trustee acquires any conflicting interest as described in the TIA,
it must eliminate such conflict or resign.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Subsidiaries existing (1) at the time such Person becomes a Restricted
Subsidiary of the Company or (2) at the time it merges or consolidates with the
Company or any of its Subsidiaries or (3) assumed in connection with the
acquisition of assets from such Person, and in each case not incurred by such
Person in connection with, or in anticipation or contemplation of, such Person
becoming a Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"AFFILIATE" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"ASSET ACQUISITION" means
(a) an Investment by the Company or any Restricted Subsidiary of the
Company in any other Person pursuant to which such Person shall become
a Restricted Subsidiary of the Company or any Restricted Subsidiary of
the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or
(b) the acquisition by the Company or any Restricted Subsidiary of the
Company of the assets of any Person, other than a Restricted
Subsidiary of the Company, which constitute all or substantially all
of the assets of such Person or comprises any division or line of
business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease, other than operating leases entered into in the ordinary
course of business, assignment or other transfer for value by the Company or
any of its Restricted Subsidiaries, including any Sale and Leaseback
Transaction, to any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company of
(a) any Capital Stock of any Restricted Subsidiary of the Company; or
(b) any other property or assets of the Company or any Restricted
Subsidiary of the Company other than in the ordinary course of
business; provided, however, that Asset Sales shall not include:
(1) a transaction or series of related transactions for which the
Company or its Restricted Subsidiaries receive aggregate
consideration of less than $1.0 million,
(2) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of the Company as permitted
under "Merger, Consolidation and Sale of Assets,"
(3) disposals or replacements of obsolete or outdated equipment in
the ordinary course of business and
(4) the sale or discount, in each case without recourse (other than
recourse for a breach of a representation or warranty), of
accounts receivable arising in the ordinary course of business,
but only in connection with the compromise or collection thereof
in the ordinary course of business and not as part of a financing
transaction.
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"BOARD OF DIRECTORS" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"CAPITAL STOCK" means:
(1) with respect to any Person that is a corporation, any and all shares,
interests, participations or other equivalents (however designated and
whether or not voting) of corporate stock, including each class of
Common Stock and Preferred Stock of such Person and
(2) with respect to any Person that is not a corporation, any and all
partnership or other equity interests of such Person.
"CASH EQUIVALENTS" means:
(1) marketable direct obligations issued by, or unconditionally guaranteed
by, the United States Government or issued by any agency thereof and
backed by the full faith and credit of the United States. in each case
maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United States
of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date
of acquisition thereof and, at the time of acquisition. having one of
the two highest ratings obtainable from either Standard & Poor's
Corporation ("S&P") or Moody's Investors Service. Inc. ("Moody's");
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition. having a rating of
at least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or
the District of Columbia or any U.S. branch of a foreign bank having
at the date of acquisition thereof combined capital and surplus of not
less than $250,000,000;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above
entered into with any bank meeting the qualifications specified in
clause (4) above; and
(6) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (1) through (5)
above.
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"CHANGE OF CONTROL" means the occurrence of one or more of the following
events:
(1) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the
assets of the Company to any Person or group of related Persons for
purposes of Section 13(d) of the Exchange Act (a "Group"), together
with any Affiliates thereof, whether or not otherwise in compliance
with the provisions of the Indenture, other than to the Permitted
Holders;
(2) the approval by the holders of Capital Stock of the Company of any
plan or proposal for the liquidation or dissolution of the Company,
whether or not otherwise in compliance with the provisions of the
Indenture;
(3) any Person or Group, other than the Permitted Holders(s), shall become
the owner, directly or indirectly, beneficially or of record, of
shares representing more than 50% of the aggregate ordinary voting
power represented by the issued and outstanding Capital Stock of the
Company; or
(4) the replacement of a majority of the Board of Directors of the Company
over a two-year period from the directors who constituted the Board of
Directors of the Company at the beginning of such period. and such
replacement shall not have been approved by a vote of at least a
majority of the Board of Directors of the Company then still in office
who either were members of such Board of Directors at the beginning of
such period or whose election as a member of such Board of Directors
was previously so approved.
"COMMON STOCK" of any Person means any and all shares, interests or other
participations in, and other equivalents, however designated and whether voting
or non-voting, of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"COMMON STOCK OFFERING" means the initial public offering of the Company's
Class A Common Stock, including the exercise of the over-allotment option, if
any, pursuant to the Registration Statement on Form S-1 (333-48077), originally
filed on March 17, 1998, as amended, modified or supplemented.
"CONSOLIDATED EBITDA" means, with respect to any Person, for any period,
the sum without duplication of:
(1) Consolidated Net Income and
(2) to the extent Consolidated Net Income has been reduced thereby,
(A) all income taxes of such Person and its Restricted Subsidiaries
paid or accrued in accordance with GAAP for such period, other
than income taxes attributable to extraordinary, unusual or
nonrecurring gains or losses or taxes attributable to sales or
dispositions outside the ordinary course of business,
(B) Consolidated Interest Expense and
(C) Consolidated Non-cash Charges less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a
consolidated basis for such Person and its Restricted
Subsidiaries in accordance with GAAP.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated
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Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed
Charges of such Person for the Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition, "Consolidated
EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving
effect on a PRO FORMA (including any pro forma expense and cost reductions
calculated on a basis consistent with Regulation S-X under the Securities Act)
basis for the period of such calculation to:
(1) the incurrence or repayment of any Indebtedness of such Person or any
of its Restricted Subsidiaries and the application of the proceeds
thereof giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness and the application of
the proceeds thereof, other than the incurrence or repayment of
Indebtedness in the ordinary course of business for working capital
purposes pursuant to working capital facilities, occurring during the
Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if
such incurrence or repayment, as the case may be and the application
of the proceeds thereof, occurred on the first day of the Four Quarter
Period and
(2) any Asset Sales or Asset Acquisitions (including, without limitation,
any Asset Acquisition giving rise to the need to make such calculation
as a result of such Person or one of its Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result
of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness and also including any Consolidated
EBITDA (PROVIDED that such Consolidated EBITDA shall be included only
to the extent includable pursuant to the definition of "Consolidated
Net Income") attributable to the assets which are the subject of the
Asset Acquisition or Asset Sale during the Four Quarter Period)
occurring during the Four Quarter Period or at any time subsequent to
the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or Asset Acquisition
(including the incurrence, assumption or liability for any such
Acquired Indebtedness) occurred on the first day of the Four Quarter
Period. If such Person or any of its Restricted Subsidiaries directly
or indirectly guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the incurrence of such guaranteed
Indebtedness as if such Person or any Restricted Subsidiary of such
Person had directly incurred or otherwise assumed such guaranteed
Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator but not the numerator of this "Consolidated Fixed
Charge Coverage Ratio,"
(1) interest on outstanding Indebtedness determined on a fluctuating basis
as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the
Transaction Date;
(2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a
factor of a prime or similar rate. a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Four
Quarter Period; and
(3) notwithstanding clause (1) above, interest on Indebtedness determined
on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
"CONSOLIDATED FIXED CHARGES" means, with respect to any Person for any
period, the sum, without duplication, of:
(1) Consolidated Interest Expense, plus
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(2) the product of (x) the amount of all dividend payments on any series
of Preferred Stock of such Person, other than dividends paid in
Qualified Capital Stock, paid, accrued or scheduled to be paid or
accrued during such period times (y) a fraction, the numerator of
which is one and the denominator of which is one minus the then
current effective consolidated federal, state and local income tax
rate of such Person, expressed as a decimal.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the sum of, without duplication:
(1) the aggregate of the interest expense of such Person and its
Restricted Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP, including without limitation,
(a) any amortization of debt discount and amortization or write-off
of deferred financing costs,
(b) the net costs under Interest Swap Obligations,
(c) all capitalized interest and
(d) the interest portion of any deferred payment obligation; and
(2) the interest component of Capitalized Lease Obligations paid, accrued
and/or scheduled to be paid or accrued by such Person and its
Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means. with respect to any Person. for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom:
(a) for purposes of calculating the Consolidated Fixed Charge Coverage
Ratio only, after-tax gains or losses (net of any related fees and
expenses) from Asset Sales or abandonments or reserves relating
thereto,
(b) after-tax items classified as extraordinary or nonrecurring gains or
losses,
(c) the net income or loss of any Person acquired in a "pooling of
interests" transaction accrued prior to the date it becomes a
Restricted Subsidiary of the referent Person or is merged or
consolidated with the referent Person or any Restricted Subsidiary of
the referent Person,
(d) the net income but not loss of any Restricted Subsidiary of the
referent Person to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is
restricted by a contract, operation of law or otherwise,
(e) the net income of any Person, other than a Restricted Subsidiary of
the referent Person, except to the extent of cash dividends or
distributions paid to the referent Person or to a Restricted
Subsidiary of the referent Person by such Person (in the case that any
such Restricted Subsidiary is not a Wholly Owned Restricted
Subsidiary, the portion of net income included therein will be equal
to the Company's interest in such Restricted Subsidiary),
(f) for purposes of calculating the Consolidated Fixed Charge Coverage
Ratio only, any restoration to income of any contingency reserve,
except to the extent that provision for such reserve was made out of
Consolidated Net Income accrued at any time following the Issue Date,
(g) income or loss attributable to discontinued operations, including,
without limitation, operations disposed of during such period whether
or not such operations were classified as discontinued, and
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(h) in the case of a successor to the referent Person by consolidation or
merger or as a transferee of the referent Person's assets, any
earnings of the successor corporation prior to such consolidation,
merger or transfer of assets.
"CONSOLIDATED NET WORTH" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP less, without duplication, amounts attributable to
Disqualified Capital Stock of such Person, provided that the Consolidated Net
Worth of any Person shall exclude the effect of any non-cash charges relating
to the acceleration of stock options or similar securities of such Person or
another Person with which such Person is merged or consolidated.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP, excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period.
"CREDIT AGREEMENT" means the Amended and Restated Credit Agreement dated
as of May 1, 1998, among the Company, Neff Rental, Inc., Neff Machinery, Inc.,
the lenders party thereto in their capacities as lenders thereunder and Bankers
Trust Company, as agent, together with the related documents thereto,
including, without limitation, any guarantee agreements and security documents,
in each case as such agreements may be amended, including any amendment and
restatement thereof, supplemented or otherwise modified from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring, including increasing the amount of available
borrowings thereunder or adding Restricted Subsidiaries of the Company as
additional borrowers or guarantors thereunder, all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"DEFAULT" means an event or condition the occurrence of which is. or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"DESIGNATED SENIOR DEBT" means:
(1) Indebtedness under or in respect of the Credit Agreement and
(2) any other Indebtedness constituting Senior Debt which, at the time of
determination, has an aggregate principal amount of at least
$25,000,000 and is specifically designated in the instrument
evidencing such Senior Debt as "Designated Senior Debt" by the
Company.
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock
which, by its terms or by the terms of any security into which it is
convertible or for which it is exchangeable, or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof on or prior to the final maturity date of the Notes.
"ELIGIBLE ACCOUNTS" has the meaning specified in the Credit Agreement.
"ELIGIBLE FINANCED EQUIPMENT" has the meaning specified in the Credit
Agreement.
"ELIGIBLE PARTS INVENTORY" has the meaning specified in the Credit
Agreement.
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"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"FAIR MARKET VALUE" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length, free market transaction,
for cash, between a willing seller and a willing and able buyer, neither of
whom is under undue pressure or compulsion to complete the transaction. Fair
market value shall be determined by the Board of Directors of the Company
acting reasonably and in good faith, which determination shall be conclusive,
and shall be evidenced by a Board Resolution of the Board of Directors of the
Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date. All
ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP applied on a consistent basis, except that
calculations made for purposes of determining compliance with the terms of the
covenants and with other provisions of the Indenture shall be made without
giving effect to (1) the deduction or amortization of any premiums, fees and
expenses incurred in connection with any financings or any other permitted
incurrence of Indebtedness and (2) depreciation, amortization or other expenses
recorded as a result of the application of purchase accounting in accordance
with Accounting Principles Board Opinion Nos. 16 and 17.
"GUARANTOR" means:
(1) each of Air Rental & Supply, Inc., Neff Asset Management, Inc., Neff
Rental, Inc. and Neff Machinery, Inc. and
(2) each of the Company's Restricted Subsidiaries that in the future
executes a supplemental indenture in which such Restricted Subsidiary
agrees to be bound by the terms of the Indenture as a Guarantor;
PROVIDED that any Person constituting a Guarantor as described above
shall cease to constitute a Guarantor when its respective Guarantee is
released in accordance with the terms of the Indenture.
"GUARANTOR SENIOR DEBT" means with respect to any Guarantor, the principal
of, premium, if any, and interest, including any interest accruing subsequent
to the filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law, on any Indebtedness of a Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Debt" shall also include the principal of, premium, if any,
interest, including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law, on and all other amounts owing in respect of, (x) all monetary
obligations, including guarantees thereof, of every nature of such Guarantor
under the Credit Agreement, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit,
fees, expenses and indemnities, (y) all Interest Swap Obligations, including
guarantees thereof, and (z) all obligations, including guarantees thereof,
under Currency Agreements, in each case whether outstanding on the Issue Date
or thereafter incurred.
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Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include:
(1) any Indebtedness of such Guarantor to a Restricted Subsidiary of such
Guarantor or any Affiliate of such Guarantor or any of such
Affiliate's Subsidiaries,
(2) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of such Guarantor or any Restricted
Subsidiary of such Guarantor, including, without limitation, amounts
owed for compensation,
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services, excluding
purchase money indebtedness to equipment manufacturers,
(4) Indebtedness represented by Disqualified Capital Stock,
(5) any liability for federal, state, local or other taxes owed or owing
by such Guarantor,
(6) that portion of any Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Incurrence of
Additional Indebtedness" (but, as to any such obligation, no such
violation shall be deemed to exist for purposes of this clause (6) if
the holder(s) of such obligation or their representative and the
Trustee shall have received an officers' certificate of the Company to
the effect that the incurrence of such Indebtedness does not, or, in
the case of revolving credit Indebtedness, that the incurrence of the
entire committed amount thereof at the date on which the initial
borrowing thereunder is made would not, violate such provisions of the
Indenture,
(7) Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company and
(8) any Indebtedness which is, by its express terms, subordinated in right
of payment to any other Indebtedness of such Guarantor.
"INDEBTEDNESS" means with respect to any Person, without duplication,
(1) all Obligations of such Person for borrowed money,
(2) all Obligations of such Person evidenced by bonds, debentures. notes
or other similar instruments,
(3) all Capitalized Lease Obligations of such Person,
(4) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary
course of business),
(5) all Obligations for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction,
(6) guarantees and other contingent obligations in respect of Indebtedness
referred to in clauses (i) through (v) above and clause (viii) below,
(7) all Obligations of any other Person of the type referred to in clauses
(1) through (6) which are secured by any lien on any property or asset
of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the
amount of the Obligation so secured,
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(8) all Obligations under currency agreements and interest swap agreements
of such Person and
(9) all Disqualified Capital Stock issued by such Person with the amount
of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price, but excluding
accrued dividends, if any. For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not
have a fixed repurchase price shall be calculated in accordance with
the terms of such Disqualified Capital Stock as if such Disqualified
Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to the Indenture, and if such
price is based upon, or measured by, the fair market value of such
Disqualified Capital Stock, such fair market value shall be determined
reasonably and in good faith by the Board of Directors of the issuer
of such Disqualified Capital Stock. Indebtedness shall not include any
liability for
(a) federal, state, local or other taxes,
(b) endorsements or negotiable instruments for deposit or collection
or similar transactions in the ordinary course of business or
(c) any indebtedness that has been defeased or satisfied in
accordance with the terms of the documents governing such
indebtedness.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance on such date of all unconditional Obligations as described
above, and the maximum liability upon the occurrence of the contingency giving
rise to the Obligation, on any contingent Obligations at such date; PROVIDED,
HOWEVER, that the amount outstanding at any time of any Indebtedness incurred
with original issue discount is the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP.
"INDEPENDENT FINANCIAL ADVISOR" means a firm
(1) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in the
Company and
(2) which, in the judgment of the Board of Directors of the Company, is
otherwise independent and qualified to perform the task for which it
is to be engaged.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant
to any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated
by applying a fixed or a floating rate of interest on the same notional amount
and shall include, without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
"INVESTMENT" means, with respect to any Person, any direct or indirect
loan or other extension of credit, including, without limitation, a guarantee,
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit by
the Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be.
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For the purposes of the "Limitation on Restricted Payments" covenant,
(1) "Investment" shall include and be valued at the fair market value of
the net assets of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary and
shall exclude the fair market value of the net assets of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary
is designated a Restricted Subsidiary and
(2) the amount of any Investment shall be the original cost of such
Investment plus the cost of all additional Investments by the Company
or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment, reduced by the payment of
dividends or distributions in connection with such Investment or any
other amounts received in respect of such Investment, PROVIDED that no
such payment of dividends or distributions or receipt of any such
other amounts shall reduce the amount of any Investment if such
payment of dividends or distributions or receipt of any such amounts
would be included in Consolidated Net Income. If the Company or any
Restricted Subsidiary of the Company sells or otherwise disposes of
any Common Stock of any direct or indirect Restricted Subsidiary of
the Company, other than all of the Common Stock of such Restricted
Subsidiary, such that, after giving effect to any such sale or
disposition, the Company no longer owns, directly or indirectly, 100%
of the outstanding Common Stock of such Restricted Subsidiary, the
Company shall be deemed to have made an Investment on the date of any
such sale or disposition equal to the fair market value of the Common
Stock of such Restricted Subsidiary not sold or disposed of.
"ISSUE DATE" means the date of original issuance of the Notes.
"LIEN" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind, including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement to
give any security interest.
"MAY 1998 INDENTURE" means the indenture dated as of May 28, 1998 by and
among the Company, the Guarantors and State Street Bank and Trust Company.
"MAY 1998 NOTES" means the 10 1/4% Senior Subordinated Notes due 2008 of
the Company issued in May 1998.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents,
other than the portion of any such deferred payment constituting interest,
received by the Company or any of its Restricted Subsidiaries from such Asset
Sale net of
(a) reasonable out-of-pocket expenses and fees relating to such Asset
Sale, including, without limitation, legal, accounting and investment
banking fees and sales commissions,
(b) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions
and any tax sharing arrangements,
(c) payment of Indebtedness that either
(A) is secured by a Lien on the property or assets sold or
(B) is required to be repaid in connection with such Asset Sale or in
order to obtain a consent required in connection therewith,
(d) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP,
against any liabilities associated with
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such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such
Asset Sale,
(e) any consideration for an Asset Sale, which would otherwise constitute
Net Cash Proceeds, that is required to be held in escrow pending
determination of whether a purchase price adjustment will be made, but
amounts under this clause (e) shall become Net Cash Proceeds at such
time and to the extent such amounts are released to such Person and
(f) a pro rata portion of the amount of cash or Cash Equivalents received
by any non-Guarantor Restricted Subsidiary that are held by Persons
other than the Company or its Restricted Subsidiaries.
"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"PARTS INVENTORY" has the meaning specified in the Credit Agreement.
"PERMITTED HOLDER(S)" means:
(1) Jorge Mas, Jr., Juan Carlos Mas and Jose Ramon Mas and any of their
respective Affiliates, spouses, siblings, lineal descendants or lineal
ascendants, or any trust for the benefit of such persons,
(2) General Electric Capital Corporation and GECFS, Inc. and their
Affiliates,
(3) Kevin P. Fitzgerald,
(4) Santos Fund L.L.P, Santos Capital Advisors, Inc. and their Affiliates
and
(5) an entity (a "Holding Company") that owns, directly or indirectly,
beneficially or of record, 100% of the ordinary voting power
represented by the outstanding Capital Stock of the Company, PROVIDED
that no Person or Group, other than a Permitted Holder, becomes the
owner, directly or indirectly, beneficially or of record, of more than
50% of the ordinary voting power represented by the outstanding
Capital Stock of such Holding Company.
"PERMITTED INDEBTEDNESS" means, without duplication, each of the
following:
(1) Indebtedness under the Notes, the Indenture and the Guarantees in an
aggregate principal amount not to exceed $100.0 million;
(2) Indebtedness under the May 1998 Notes, and the indenture and the
guarantees related thereto, in an aggregate principal amount not to
exceed $100.0 million;
(3) Indebtedness incurred pursuant to the Credit Agreement in an aggregate
principal amount at any time outstanding not to exceed the greater of
(A) $350.0 million or (B) the sum of
(a) 100% of the net book value of Eligible Financed Equipment of the
Company and its Restricted Subsidiaries,
(b) 85% of the book value of the Eligible Accounts of the Company and
its Restricted Subsidiaries and
(c) 60% of Parts Inventory of the Company and its Restricted
Subsidiaries, reduced in the case of the preceding clause (A) by
any required permanent repayments from the
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application of the use of proceeds from Asset Sales (which in the
case of a revolving credit facility are accompanied by a
corresponding permanent commitment reduction) thereunder;
(4) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereof,
(5) Interest Swap Obligations of the Company or any of its Restricted
Subsidiaries covering Indebtedness of the Company or such Restricted
Subsidiary; PROVIDED, HOWEVER, that such Interest Swap Obligations are
entered into to protect the Company and its Restricted Subsidiaries
from fluctuations in interest rates on Indebtedness incurred in
accordance with the Indenture to the extent the notional principal
amount of such Interest Swap Obligation does not exceed the principal
amount of the Indebtedness to which such Interest Swap Obligation
relates;
(6) Indebtedness under Currency Agreements; PROVIDED that in the case of
Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(7) Indebtedness of a Wholly Owned Restricted Subsidiary of the Company to
the Company or to a Restricted Subsidiary of the Company for so long
as such Indebtedness is held by the Company, a Wholly Owned Restricted
Subsidiary of the Company or the lenders or collateral agent under the
Credit Agreement, in each case subject to no Lien held by a Person
other than the Company, a Wholly Owned Restricted Subsidiary of the
Company or the lenders or collateral agent under the Credit Agreement,
PROVIDED that if as of any date any Person other than the Company, a
Wholly Owned Restricted Subsidiary of the Company or the lenders or
collateral agent under the Credit Agreement owns or holds any such
Indebtedness or holds a Lien in respect of such Indebtedness, such
date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the issuer of such Indebtedness pursuant to
this clause (7);
(8) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary of
the Company for so long as such Indebtedness is held by a Restricted
Subsidiary of the Company or the lenders or collateral agent under the
Credit Agreement, in each case subject to no Lien, other than a lien
in favor of the lenders or collateral agent under the Credit
Agreement; PROVIDED that
(a) any Indebtedness of the Company to any Wholly Owned
Restricted Subsidiary of the Company that is not a Guarantor is
unsecured and subordinated, pursuant to a written agreement, to the
Company's obligations under the Indenture and the Notes and
(b) if as of any date any Person other than a Wholly Owned
Restricted Subsidiary of the Company or the lenders or collateral
agent under the Credit Agreement owns or holds any such Indebtedness
or any Person holds a Lien in respect of such Indebtedness, such date
shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the Company pursuant to this clause (8);
(9) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently,
except in the case of daylight overdrafts, drawn against insufficient
funds in the ordinary course of business; PROVIDED, HOWEVER, that such
Indebtedness is extinguished within two business days of incurrence;
(10) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or
such Restricted Subsidiary, as the case may be, in
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order to provide security for workers' compensation claims, payment
obligations in connection with self-insurance or similar requirements
in the ordinary course of business;
(11) Refinancing Indebtedness;
(12) Capitalized Lease Obligations and Purchase Money Indebtedness of the
Company or any of its Restricted Subsidiaries not to exceed $20.0
million at any one time outstanding;
(13) Indebtedness permitted by clauses (3) and (13) of the definition of
"Permitted Investments;"
(14) guarantees of Indebtedness otherwise permitted under the Indenture;
and
(15) additional Indebtedness of the Company and its Restricted Subsidiaries
in an aggregate principal amount (or, in the case of Indebtedness
issued at a discount, an accreted amount (determined in accordance
with GAAP)) not to exceed $10.0 million at any one time outstanding,
which may, but need not, be incurred in whole or in part under the
Credit Agreement.
For purposes of determining compliance with the "Limitation on Incurrence
of Additional Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the types of Permitted Indebtedness
described in the above clauses, the Company, in its sole discretion shall
classify such item of Indebtedness and only be required to include the amount
and type of such Indebtedness in one of such clauses. Any Permitted
Indebtedness initially incurred pursuant to any of the clauses in the preceding
paragraph may at any time at the sole discretion of the Company be treated as
having been incurred pursuant to any other clause as long as the outstanding
amount of such Permitted Indebtedness at the time of any reclassification could
be made pursuant to such other clause.
"PERMITTED INVESTMENTS" means:
(1) Investments by the Company or any Restricted Subsidiary of the Company
in any Person that is or will become immediately after such Investment
a Wholly Owned Restricted Subsidiary of the Company or that will merge
or consolidate into the Company or a Wholly Owned Restricted
Subsidiary of the Company;
(2) Investments in the Company by any Restricted Subsidiary of the
Company; PROVIDED that any Indebtedness evidencing such Investment is
unsecured and, to the extent made by a Restricted Subsidiary that is
not a Guarantor, subordinated, pursuant to a written agreement, to the
Company's obligations under the Notes and the Indenture;
(3) Investments in an aggregate amount not to exceed $10.0 million by the
Company or any Restricted Subsidiary of the Company in any Person that
is or will become immediately after such Investment a non-Guarantor
Restricted Subsidiary of the Company or that will merge or consolidate
into the Company or a non-Guarantor Restricted Subsidiary of the
Company;
(4) an Investment in the amount of up to $38.0 million to purchase 51% of
the Capital Stock of Sullair Argentina;
(5) investments in cash and Cash Equivalents;
(6) loans and advances to employees and officers of the Company and its
Restricted Subsidiaries in the ordinary course of business for bona
fide business purposes not in excess of $1.0 million at any one time
outstanding;
(7) Currency Agreements and Interest Swap Obligations entered into in the
ordinary course of the Company's or its Restricted Subsidiaries'
businesses and otherwise in compliance with the Indenture;
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(8) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers or in
good faith settlement of delinquent obligations of such trade
creditors or customers or in good faith settlement of delinquent
obligations of such trade creditors or customers;
(9) Investments made by the Company or its Restricted Subsidiaries as a
result of consideration received in connection with an Asset Sale made
in compliance with the "Limitation on Asset Sales" covenant;
(10) Investments existing on the Issue Date;
(11) guarantees of Indebtedness otherwise permitted under the Indenture,
(12) obligations of one or more officers or other employees of the Company
or any of its Restricted Subsidiaries in connection with such
officers' or employee's acquisition of shares of Common Stock of the
Company so long as no cash is paid by the Company or any of its
Restricted Subsidiaries to such officers or employees in connection
with the acquisition of any such obligations; and
(13) additional Investments in an aggregate amount that, together with all
other Investments made pursuant to this clause (13), does not exceed
$25.0 million.
For purposes of determining compliance with the "Limitation on Restricted
Payments" covenant, in the event that an Investment meets the criteria of more
than one of the types of Permitted Investments described in the clauses in the
preceding paragraph, the Company, in its sole discretion, shall classify such
Permitted Investment and only be required to include the amount and type of
such Permitted Investment in one of such clauses. Any Permitted Investment
initially made pursuant to any of the clauses in the preceding paragraph may at
any time at the sole discretion of the Company be treated as having been made
pursuant to any other clause as long as the outstanding amount of such
Permitted Investment at the time of any reclassification could be made pursuant
to such other clause.
"PERMITTED LIENS" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or claims that
are either (a) not yet due or are delinquent for less than ninety days
or (b) being contested in good faith by appropriate proceedings and as
to which the Company or its Restricted Subsidiaries shall have set
aside on its books such reserves, if any, as may be required pursuant
to GAAP;
(2) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed
by law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have
been made in respect thereof;
(3) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security;
(4) Liens securing
(a) letters of credit issued in the ordinary course of business
consistent with past practice in connection therewith, or to
secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, leases, government contracts, performance
and return-of- money bonds and other similar obligations,
exclusive of obligations for the payment of borrowed money, and
any bank's unexercised right of set off with respect to deposits
made in the ordinary course and
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(b) indemnity obligations in respect of the disposition of any
business or assets of the Company or any Restricted Subsidiary,
PROVIDED that the property subject to such Lien does not have a
fair market value in excess of the cash or cash equivalent
proceeds received by the Company and its Restricted Subsidiaries
in connection with such disposition;
(5) Liens securing indebtedness incurred in accordance with the covenant
"Limitation on Incurrence of Additional Indebtedness" owing to John
Deere Construction Equipment Company and its Affiliates;
(6) judgment Liens not giving rise to an Event of Default;
(7) Liens on parts inventory, as incurred in accordance with the Credit
Agreement;
(8) easements, rights-of-way, municipal ordinances, zoning restrictions
and other similar charges, encumbrances, title defects or
irregularities not interfering in any material respect with the
ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries;
(9) any interest or title of a lessor under any Capitalized Lease
Obligation; PROVIDED that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(10) purchase money Liens to finance property or assets of the Company or
any Restricted Subsidiary of the Company acquired in the ordinary
course of business; PROVIDED, HOWEVER, that
(A) the related purchase money Indebtedness shall not exceed the cost
of such property or assets, including the cost of design,
development, improvement, production, acquisition, construction,
installation and integration, and shall not be secured by any
property or assets of the Company or any Restricted Subsidiary of
the Company other than the property and assets so acquired or
constructed and any improvements and
(B) the Lien securing such Indebtedness shall be created within six
months of such acquisition, construction or improvement;
(11) Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or
other goods;
(12) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating
to such letters of credit and products and proceeds thereof;
(13) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of
offset and set-off;
(14) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under
the Indenture;
(15) Liens securing Indebtedness under Currency Agreements;
(16) any lease or sublease to a third party not interfering in any material
respect with the business of the Company and its Restricted
Subsidiaries;
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(17) Liens placed upon assets of a foreign Restricted Subsidiary of the
Company to service Indebtedness of such foreign Restricted Subsidiary
that is otherwise permitted under the Indenture and;
(18) Liens securing Acquired Indebtedness incurred in accordance with the
"Limitation on Incurrence of Additional Indebtedness" covenant;
PROVIDED that
(A) such Liens secured such Acquired Indebtedness at the time of and
prior to the incurrence of such Acquired Indebtedness by the
Company or a Restricted Subsidiary of the Company and were not
granted in connection with, or in anticipation of, the incurrence
of such Acquired Indebtedness by the Company or a Restricted
Subsidiary of the Company and
(B) such Liens do not extend to or cover any property or assets of
the Company or of any of its Restricted Subsidiaries other than
the property or assets that secured the Acquired Indebtedness
prior to the time such Indebtedness became Acquired Indebtedness
of the Company or a Restricted Subsidiary of the Company and are
no more favorable to the lienholders than those securing the
Acquired Indebtedness prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the
Company.
"PERSON" means an individual, partnership, corporation, unincorporated
organization, association, limited liability company, joint stock company,
trust or joint venture, or a governmental agency or political subdivision
thereof or any other entity.
"PREFERRED STOCK" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"PUBLIC EQUITY OFFERING" means an underwritten public offering of
Qualified Capital Stock, other than the Common Stock Offering, of the Company
for cash after the Issue Date pursuant to a registration statement filed with
the Commission in accordance with the Securities Act.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"REFINANCE" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance
with the "Limitation on Incurrence of Additional Indebtedness" covenant, other
than pursuant to clause (3), (5), (6), (7), (8), (9), (10) or (15) of the
definition of Permitted Indebtedness), in each case that does not
(1) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed
Refinancing, plus the amount of any interest or premium required to be
paid under the terms of the instrument governing such Indebtedness and
plus the amount of reasonable fees and expenses incurred by the
Company in connection with such Refinancing, or
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(2) create Indebtedness with
(A) a Weighted Average Life to Maturity that is less than the
Weighted Average Life to Maturity of the Indebtedness being
Refinanced or
(B) a final maturity earlier than the final maturity of the
Indebtedness being Refinanced; PROVIDED that (x) if such
Indebtedness being Refinanced is Indebtedness of the Company,
then such Refinancing Indebtedness shall be Indebtedness solely
of the Company and (y) if such Indebtedness being Refinanced is
subordinate or junior to the Notes, then such Refinancing
Indebtedness shall be subordinate to the Notes at least to the
same extent and in the same manner as the Indebtedness being
Refinanced.
"REPRESENTATIVE" means the indenture trustee or other trustee, agent or
representa6ve in respect of any Designated Senior Debt; PROVIDED that if, and
for so long as, any Designated Senior Debt lacks such a representative, then
the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether
owned by the Company or any Restricted Subsidiary at the Issue Date or later
acquired, which has been or is to be sold or transferred by the Company or such
Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such
Property.
"SENIOR DEBT" means the principal of, premium, if any, and interest,
including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law, on any
Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Debt" shall also include the principal of, premium,
if any, interest, including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law, on, and all other amounts owing in respect of, (x) all monetary
obligations, including guarantees thereof, of every nature of the Company under
the Credit Agreement, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit,
fees, expenses and indemnities, (y) all Interest Swap Obligations, including
guarantees thereof, and (z) all obligations, including guarantees thereof,
under Currency Agreements, in each case whether outstanding on the Issue Date
or thereafter incurred.
Notwithstanding the foregoing, "Senior Debt" shall not include:
(1) any Indebtedness of the Company to a Subsidiary of the Company or any
Affiliate of the Company or any of such Affiliate's Subsidiaries,
(2) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of the Company or any Subsidiary of the
Company, including, without limitation, amounts owed for compensation,
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services, excluding
purchase money indebtedness to equipment manufacturers,
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(4) Indebtedness represented by Disqualified Capital Stock,
(5) any liability for federal, state, local or other taxes owed or owing
by the Company,
(6) that portion of any Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Incurrence of
Additional Indebtedness" (but, as to any such obligation, no such
violation shall be deemed to exist for purposes of this clause (6) if
the holder(s) of such obligation or their representative and the
Trustee shall have received an officers' certificate of the Company to
the effect that the incurrence of such Indebtedness does not (or, in
the case of revolving credit Indebtedness, that the incurrence of the
entire committed amount thereof at the date on which the initial
borrowing thereunder is made would not) violate such provisions of the
Indenture),
(7) Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company, and
(8) any Indebtedness which is, by its express terms, subordinated in right
of payment to any other Indebtedness of the Company.
"SERIES A PREFERRED STOCK" means the 340,907 shares of the Company's
Series A Cumulative Redeemable Preferred Stock with detachable stock purchase
warrant, S.01 par value per share.
"SIGNIFICANT SUBSIDIARY" shall have the meaning set forth in Rule 1.02(w)
of Regulation S-X under the Securities Act.
"SUBSIDIARY" with respect to any Person, means:
(1) any corporation of which the outstanding Capital Stock having at least
a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned,
directly or indirectly, by such Person or
(2) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly,
owned by such Person.
"UNRESTRICTED SUBSIDIARY" of any Person means:
(1) any Subsidiary of such Person that at the time of determination shall
be or continue to be designated an Unrestricted Subsidiary by the
Board of Directors of such Person in the manner provided below and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary, including any newly
acquired or newly formed Subsidiary, to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; PROVIDED that (x) the Company
certifies to the Trustee that such designation complies with the "Limitation on
Restricted Payments" covenant and (y) each Subsidiary to be so designated and
each of its Subsidiaries has not at the time of designation, and does not
thereafter, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to any Indebtedness pursuant to
which the lender has recourse to any of the assets of the Company or any of its
Restricted Subsidiaries.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if (x) immediately after giving effect to such
designation, the Company is able to incur at least $1.00 of additional
Indebtedness, other than Permitted Indebtedness, in compliance with the
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"Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an officers' certificate certifying that such
designation complied with the foregoing provisions.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing
(a) the then outstanding aggregate principal amount of such Indebtedness
into
(b) the sum of the total of the products obtained by multiplying
(1) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including
payment at final maturity, in respect thereof, by
(2) the number of years (calculated to the nearest one-twelfth) which
will elapse between such date and the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities, other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law, are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
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EXCHANGE OFFER; REGISTRATION RIGHTS
THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF THE REGISTRATION RIGHTS
AGREEMENT IS NOT COMPLETE AND IS SUBJECT TO, AND IS QUALIFIED IN ITS ENTIRETY
BY, ALL THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT. A COPY OF THE
REGISTRATION RIGHTS AGREEMENT IS FILED AS AN EXHIBIT TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS CONSTITUTES A PART.
Holders of New Notes are not generally entitled to any registration rights
with respect to such New Notes. In connection with the initial issuance and
sale of the Old Notes, the Company, the Guarantors and the Initial Purchasers
entered into the Registration Rights Agreement pursuant to which the Company
and the Guarantors agreed that they would, at their cost, for the benefit of
the Holders, (1) within 75 days after the Issue Date (the "Filing Date"), file
a registration statement on an appropriate registration form (the "Exchange
Offer Registration Statement") with respect to a registered offer, I.E., the
Exchange Offer, to exchange the Old Notes for the New Notes, which will have
terms substantially identical in all material respects to the Old Notes, except
that the New Notes will not contain terms with respect to transfer restrictions
and the requirement, under certain circumstances, to pay liquidated damages,
and (2) to use their best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act within 150 days
after the Issue Date. The Company and the Guarantors agreed to offer the New
Notes in exchange for surrender of the Old Notes when the Exchange Offer
Registration Statement is declared effective. The Company and the Guarantors
will keep the Exchange Offer open for at least 20 business days or longer if
required by applicable law after the date notice of the Exchange Offer is
mailed to the Holders. For each Old Note surrendered to the Company pursuant to
the Exchange Offer, the Holder who surrendered such Old Note will receive a New
Note having a principal amount equal to that of the surrendered Old Note.
Interest on each New Note will accrue (A) from the later of (1) the last
interest payment date on which interest was paid on the Old Note surrendered in
exchange therefor, and (2) if the Old Note is surrendered for exchange on a
date after the record date for an interest payment date to occur on or after
the date the Old Note is exchanged, the date of such interest payment date or
(B) if no interest has been paid on the Old Notes, from the Issue Date.
The New Notes will be issued without legend restricting their transfer and
may generally be offered and resold without restrictions or limitations under
the Securities Act if the Holder of such New Notes is not an affiliate of the
Company or the Guarantors, subject to the terms and conditions set forth by the
Staff in several no-action letters to third parties. Each Holder that wishes to
exchange its Old Notes for New Notes will be required to represent (1) that any
New Notes received by it will be acquired in the ordinary course of its
business, (2) that at the time the Exchange Offer begins it has no arrangement
or understanding with any person to participate in the distribution, within the
meaning of the Securities Act, of the New Notes in violation of the Securities
Act, (3) that it is not an "affiliate" (as defined in Rule 405 promulgated
under the Securities Act) of the Company or the Guarantors, (4) if such Holder
is not a broker-dealer, that it is not engaged in, and does not intend to
engage in, the distribution of New Notes and (5) if such Holder is a
broker-dealer that will receive New Notes for its own account in exchange for
Old Notes that were acquired as a result of market-making or other trading
activities, that it will deliver a prospectus in connection with any resale of
such New Notes. The Company and the Guarantors will agree to make available,
during the period required by the Securities Act, a prospectus meeting the
requirement of the Securities Act for use by participating broker-dealers and
other persons, if any, with similar prospectus delivery requirements for use in
connection with any resale of New Notes.
If, (1) because of any change in law or in currently prevailing
interpretations of the Staff, the Company and the Guarantors are not permitted
to effect the Exchange Offer, (2) the Exchange Offer is not consummated within
190 days of the Issue Date, (3) in certain circumstances, certain Holders of
unregistered Notes so request, or (4) in the case of any Holder that
participates in the Exchange Offer, such Holder does not receive New Notes on
the date of the exchange that may be sold without restriction under state and
federal securities laws (other than because such Holder as an "affiliate" of
the Company or any Guarantor within the meaning of the Securities Act), then in
each case, the
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Company and the Guarantors will (a) promptly deliver to the Holders and the
Trustee written notice thereof and (b) at their sole expense, (1) as promptly
as practicable, file a shelf registration statement covering resales of the
Notes (the "Shelf Registration Statement"), (2) use their best efforts to cause
the Shelf Registration Statement to be declared effective under the Securities
Act and (3) use their best efforts to keep the Shelf Registration Statement
effective until two years after the Issue Date or such earlier time when all of
the applicable Notes have been sold thereunder. The Company will, in the event
that a Shelf Registration Statement is filed, provide to each Holder copies of
the prospectus that is a part of the Shelf Registration Statement, notify each
such Holder when the Shelf Registration Statement for the Notes has become
effective and take certain other actions as are required to permit unrestricted
resales of the Notes. A Holder that sells Notes pursuant to the Shelf
Registration Statement will be (1) required to be named as a selling security
holder in the related prospectus, (2) to deliver a prospectus to purchasers,
(3) subject to certain of the civil liability provisions under the Securities
Act in connection with such sales and (4) bound by certain provisions of the
Registration Rights Agreement, including certain indemnification rights and
obligations.
If the Company or the Guarantors fail to comply with the above provisions
or if (1) the Exchange Offer Registration Statement or the Shelf Registration
Statement is not filed with the Commission on or before the date specified in
the Registration Rights Agreement, (2) either of these registration statements
has not been declared effective by the Commission on or before the date
specified for effectiveness in the Registration Rights Agreement, (3) the
Exchange Offer has not been consummated seventy-five days after the effective
date or (4) the Shelf Registration Statement ceases to be effective at any time
before the second anniversary of the Issue Date, other than after such time as
all Old Notes have been disposed of thereunder, then the Company has agreed to
pay as liquidated damages, additional interest (the "Additional Interest") to
each Holder of Old Notes. If one of the events listed in clauses (1) through
(4) above (a "Registration Default") occurs, Additional Interest shall accrue
on the principal amount of the Old Notes at a rate of 0.50% per annum, for the
first 90 days immediately following the Registration Default, and such
Additional Interest rate will increase by an additional 0.50% per annum at the
beginning of each subsequent 90-day period. The Additional Interest rate on the
Old Notes may not exceed in the aggregate 2.0% per annum and shall cease to
accrue when the Registration Default is cured.
Any amounts of Additional Interest due will be payable in cash, on the
same original interest payment dates as the Old Notes. The amount of Additional
Interest will be determined by multiplying the applicable Additional Interest
rate by the principal amount of the Old Notes multiplied by a fraction, the
numerator of which is the number of days such Additional Interest rate was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months), and the denominator of which is 360.
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BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the New Notes will be issued in fully
registered form. Except as described in the next paragraph, the New Notes
initially will be represented by one or more permanent global certificates in
definitive, fully registered form (the "Global Notes"). The Global Notes will
be deposited with, or on behalf of, The Depository Trust Company, New York, New
York ("DTC") and registered in the name of a nominee of DTC.
New Notes exchanged for Old Notes which were (1) originally purchased by
or transferred to purchasers other than U.S. persons, ("foreign purchasers,"
which term shall include dealers or other professional fiduciaries in the
United States acting on a discretionary basis for foreign beneficial owners
(other than an estate or trust)) or (2) held by "qualified institutional
buyers" (as defined in Rule 144A promulgated under the Securities Act)
"("QIBs") or institutional "accredited investors" (as defined in Rule 501
promulgated under the Securities Act) who are not QIBs, who elected to take
physical delivery of their certificates instead of holding their interests
through a Global Note (and who are thus ineligible to trade through DTC)
(collectively referred to herein as the "Non-Global Purchasers") will be issued
in registered form (the "Certificated Security"). Upon the transfer to a QIB of
any Certificated Security initially issued to a Non-Global Purchaser, such
Certificated Security will, unless the transferee requests otherwise or the
Global Notes have previously been exchanged in whole for Certificated
Securities, be exchanged for an interest in a Global Note.
THE GLOBAL NOTES
Ownership of beneficial interests in the Global Notes will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. The Company expects that, pursuant to
procedures established by DTC, (1) upon the issuance of the Global Notes, DTC
or its custodian will credit, on its internal system, the principal amount of
New Notes of the individual beneficial interests represented by such Global
Notes to the respective accounts of persons who have accounts with DTC and (2)
ownership of beneficial interests in the Global Notes will be shown on, and the
transfer of such ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (with respect to interests of persons other than participants).
As long as DTC, or its nominee, is the registered owner or Holder of the
New Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or Holder of the New Notes represented by such Global Notes for all
purposes under the Indenture. No beneficial owner of an interest in the Global
Notes will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture with respect
to the New Notes.
Payments of the principal of, premium, if any, or interest, including
Additional Interest, on the Global Notes will be made to DTC or its nominee, as
the case may be, as the registered owner of the Global Notes. None of the
Company, the Trustee or any Paying Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
The Company expects that DTC or its nominee, upon receipt of any payment
of principal, premium, if any, or interest, including Additional Interest, on
the Global Notes, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Notes as shown on the records of DTC or its nominee. The Company
also expects that payments by participants to owners of beneficial interests in
the Global Notes held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's sameday funds system in accordance with DTC's rules and will be
settled in same day funds. If a
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Holder requires physical delivery of a certificated security ("Certificated
Securities") for any reason, including to sell New Notes to persons in states
which require physical delivery of the New Notes or to pledge such securities,
such holder must transfer its interest in a Global Note, in accordance with
DTC's normal procedures and with the procedures set forth in the Indenture.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and certain other organizations. Indirect
access to the DTC system is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a participant, either directly or indirectly ("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC, or its participants or indirect
participants, of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED SECURITIES
If DTC is at any time unwilling or unable to continue as a depository for
the Global Notes and a successor depository is not appointed by the Company
within 90 days, Certificated Securities will be issued in exchange for the
Global Notes.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the material United States
federal income tax consequences to Holders of owning and disposing of the New
Notes. This discussion does not deal with all aspects of the United States
federal income taxation that may be relevant to holders of the New Notes in
light of their personal circumstances or to certain types of holders which may
be subject to special treatment under U.S. federal income tax laws (for
example, insurance companies, tax-exempt organizations, financial institutions,
dealers in securities, and holders who have hedged the risk of owning a Note
and does not deal with tax consequences arising under the laws of any foreign,
state or local jurisdiction. This discussion is based upon the provisions of
existing law on the date hereof, including, in particular, the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury regulations promulgated
thereunder and other administrative and judicial interpretations thereof, all
of which are subject to change at any time, with or without retroactive effect.
This discussion also generally assumes that each holder holds the Note as a
capital asset within the meaning of Section 1221 of the Code and that any
amounts received by a Non-U.S. Holder with respect to the New Notes are not
effectively connected with the conduct by such Non-U.S. Holder of a trade or
business in the United States. The following summary provides general
information only. Accordingly, each prospective holder is advised to consult
its own tax advisers with respect to current and possible future tax
consequences of acquiring, holding and disposing of the Notes.
As used herein, the term "U.S. Holder" means a beneficial owner of a New
Note that is, for U.S. federal income tax purposes, a citizen or individual
resident of the United States, a corporation or partnership created or
organized in or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to United States
federal income taxation regardless
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of its source or a trust if, in general, the trust is subject to the
supervision of a court within the United States and the control of one or more
United States persons as described in section 7701(a)(30) of the Code. The term
"Non-U.S. Holder" means a beneficial owner of a Note other than a U.S. Holder.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a nonresident alien) by virtue of being present
in the United States for at least 31 days in the calendar year (counting for
such purposes all of the days present in the current year, one-third of the
days present in the immediately preceding year and one-sixth of the days
present in the second preceding year). Resident aliens are subject to United
States federal income tax as if they were U.S. citizens.
EXCHANGE OFFER
The exchange of Old Notes for New Notes in the Exchange Offer will not be
a taxable exchange for federal income tax purposes and, accordingly, for such
purposes a holder will not recognize any taxable gain or loss as a result of
such exchange and will have the same tax basis and holding period in the New
Notes as it had in the Old Notes immediately before the exchange. Holders of
Old Notes should consult their own tax advisors regarding the particular U.S.
federal, state and local and foreign income and other tax consequences of
exchanging the Old Notes for New Notes in the Exchange Offer.
U.S. HOLDERS
PAYMENTS OF INTEREST. In general, stated interest paid on a New Note will
be taxable to a U.S. Holder as ordinary income at the time it is received or
accrued in accordance with the U.S. Holder's regular method of accounting for
federal income tax purposes.
MARKET DISCOUNT AND BOND PREMIUM. If a U.S. Holder purchases a New Note
(or purchased the Old Note for which the New Note was exchanged, as the case
may be) at a price that is less than its principal amount, the excess of the
principal amount over the U.S. Holder's purchase price will be treated as
"market discount." However, such market discount will be considered to be zero
if it is less than 1/4 of 1% of the principal amount multiplied by the number
of complete years to maturity from the date the U.S. Holder purchased such New
Note (or Old Note). Under the market discount rules of the Code, a U.S. Holder
generally will be required to treat any principal payment on, or any gain
realized on the sale, exchange, retirement or other disposition of, a New Note
as ordinary income (generally treated as interest income) to the extent of the
market discount which accrued but was not previously included in income. In
addition, the U.S. Holder may be required to defer, until the maturity of the
New Note or its earlier disposition in a taxable transaction, the deduction of
all or a portion of the interest expense on any indebtedness incurred or
continued to purchase or carry such New Note (or the Old Note for which the New
Note was exchanged, as the case may be). In general, market discount will be
considered to accrue ratably during the period from the date of acquisition of
the New Note (or Old Note for which the New Note was exchanged, as the case may
be) to the maturity date of the New Note, unless the U.S. Holder makes an
irrevocable election (on an instrument-by-instrument basis) to accrue market
discount under a constant yield method. A U.S. Holder may elect to include
market discount currently as it accrues (under either a ratable or constant
yield method), in which case the rules described above regarding the treatment
as ordinary income of gain upon the disposition of the New Note and upon the
receipt of certain payments and the deferral of interest deductions will not
apply. The election to include market discount in income currently, once made,
applies to all market discount obligations acquired on or after the first day
of the first taxable year to which the election applies, and may not be revoked
without the consent of the Internal Revenue Service.
If a U.S. Holder purchases a New Note (or purchased the Old Note for which
the New Note was exchanged, as the case may be) for an amount in excess of the
amount payable at maturity of the New Note, such holder will be considered to
have purchased the New Note (or Old Note) with "bond premium" equal to the
excess of the U.S. Holder's purchase price over the amount payable at
110
<PAGE>
maturity) or on an earlier call date if it results in a smaller amortizable
bond premium). A U.S. Holder may elect to amortize such premium using a
constant yield method over the remaining term of the New Note (or until an
earlier call date if it results in a smaller amortizable bond premium). The
amortized amount of such premium for a taxable year generally will be treated
first as a reduction of interest on such New Note included in such taxable year
to the extent thereof, then as a deduction allowed in that taxable year to the
extent of the U.S. Holder's prior interest inclusions on such New Note, and
finally as a carryforward allowable against the U.S. Holder's future interest
inclusions on such New Note. Such election, once made, is irrevocable without
the consent of the Internal Revenue Service and applies to all taxable bonds
held during the taxable year for which the election is made or subsequently
acquired.
GAIN ON DISPOSITION OF THE NEW NOTES. Upon the sale, exchange or
retirement of a New Note, a U.S. Holder generally will recognize taxable gain
or loss in an amount equal to the difference, if any, between the amount
realized on such sale, exchange or retirement and such holder's adjusted tax
basis in the New Note. A U.S. Holder's adjusted tax basis in a New Note will
generally equal the cost of such New Note (or, in the case of a New Note
acquired in exchange for an Old Note in the Exchange Offer, the tax basis of
such Old Note, as discussed above under "Certain Federal Income Tax
Consequences of the Exchange Offer"), increased by the amount of any market
discount previously included in the U.S. Holder's gross income, and reduced by
the amount of any amortizable bond premium applied to reduce, or allowed as a
deduction against, interest with respect to such New Note. Gain or loss
recognized by a U.S. Holder on the sale, exchange or retirement of a New Note
generally will be capital gain or loss (except with respect to amounts received
upon a disposition attributable to accrued but unpaid interest or accrued
market discount not previously included income, which in either case will be
taxable or ordinary income). Such capital gain or loss will be long-term
capital gain or loss if the New Note has been held for more than one year at
the time of the disposition.
BACKUP WITHHOLDING. In general, "backup withholding" at a rate of 31% may
apply to payments of principal and interest made on a New Note, and to the
proceeds of a sale or exchange of a New Note before maturity, that are made to
a U.S. Holder if such holder fails to provide a correct taxpayer identification
number or otherwise comply with applicable requirements of the backup
withholding rules. The backup withholding tax is not an additional tax and may
be credited against a U.S. Holder's U.S. federal income tax liability, provided
that correct information is provided to the Internal Revenue Service.
NON-U.S. HOLDERS
PAYMENTS OF INTEREST. A Non-U.S. Holder will not be subject to United
States federal income tax at a 30% rate (or lower treaty rate) by withholding
or otherwise on payments of interest on a New Note (provided that the
beneficial owner of the New Note fulfills the statement requirements set forth
in applicable Treasury regulations and described below) unless (A) such
Non-U.S. Holder (1) actually or constructively owns 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote,
(2) is a controlled foreign corporation related, directly or indirectly, to the
Company through stock ownership, or (3) is a bank receiving interest described
in Section 881(c)(3)(A) of the Code or (B) such interest is effectively
connected with the conduct of a trade or business by the Non-U.S. Holder in the
United States (or, if a tax treaty applies, is attributable to a permanent
establishment in the United States maintained by such Non-U.S. Holder).
The statement requirement referred to above will be fulfilled if the
beneficial owner of a New Note certifies, under penalties of perjury, that it
is not a U.S. person and provides its name and address, and (1) such beneficial
owner files such certification with the withholding agent or (2) in the case of
a New Note held on behalf of the beneficial owner by a securities clearing
organization, bank or other financial institution holding customers' securities
in the ordinary course of its trade or business, such financial institution
files with the withholding agent a statement that it has received the
certification from the holder and furnishes the withholding agent with a copy
thereof. Prospective investors, including foreign partnerships and their
partners, should consult their tax advisors regarding possible additional
reporting requirements.
111
<PAGE>
Recently finalized Treasury Regulations generally effective for payments
made after December 31, 1999 (the "Final Regulations") will provide alternative
methods for satisfying the certification requirement described in the second
paragraph of "Payments of Interest" above and will require a Non-U.S. Holder
which provides an IRS Form 4224 or successor form, and may also require a
Non-U.S. Holder claiming the benefit of an income tax treaty, to provide its
U.S. taxpayer identification number. The Final Regulations generally also will
require, in the case of a New Note held by a foreign partnership, that (x) the
certification described in the second paragraph of "Payments of Interest" above
be provided by the partners and (y) the partnership provide certain
information, including a U.S. taxpayer identification number. A look-through
rule will apply in the case of tiered partnerships.
GAIN ON DISPOSITION OF THE NOTES. A Non-U.S. Holder will not be subject to
United States federal income tax withholding or otherwise on any gain realized
upon the sale, exchange, redemption, retirement at maturity or other
disposition of a New Note unless (1) the gain is effectively connected with the
conduct of a trade or business by the Non-U.S. Holder in the United States or,
if a tax treaty applies, is attributable to a permanent establishment in the
United States maintained by such Non-U.S. Holder, (2) in the case of a Non-U.S.
Holder who is an individual, such Non-U.S. Holder is present in the United
States for a period or periods aggregating 183 days or more during the taxable
year of the disposition and certain other conditions are met or (3) the
Non-U.S. Holder is subject to provisions of U.S. tax law applicable to certain
U.S. expatriates.
EFFECTIVELY CONNECTED INCOME. To the extent that interest income or gain
on the disposition of the New Note is effectively connected with the conduct of
a trade or business of the Non-U.S. Holder in the United States, or, if a tax
treaty applies, is attributable to a permanent establishment in the United
States maintained by such Non-U.S. Holder, such income will be subject to
United States federal income tax on a net income basis at the same rates
generally applicable to U.S. persons. Additionally, in the case of a Non-U.S.
Holder that is a corporation, such effectively connected income may be subject
to the United States branch profits tax at the rate of 30% (or lower treaty
rate).
TREATIES. A tax treaty between the United States and a country in which a
Non-U.S. Holder is a resident may alter the tax consequences described above.
INFORMATION REPORTING AND BACKUP WITHHOLDING. Backup withholding of
United States federal income tax at a rate of 31% and information reporting
generally will apply to payments of principal, interest and premium (if any) to
a Non-U.S. Holder that is not an "Exempt Recipient" and that fails to provide
certain information as may be required by United States law and applicable
regulations. Backup withholding will not apply to payments by the Company on a
New Note if the statement requirement described above in "Payments of Interest"
is satisfied, provided that the payor does not have actual knowledge that the
payee is a U.S. person. The payment of the proceeds of the disposition of New
Notes to or through the United States office of any broker, U.S. or foreign,
will be subject to information reporting and backup withholding at a rate of
31% unless the owner certifies its status as a Non-U.S. Holder under penalties
of perjury or otherwise establishes an exemption, provided the broker does not
have actual knowledge that the holder is a U.S. person or that the conditions
of any other exemption are not, in fact, satisfied. The payment of the proceeds
of the disposition of New Notes to or through a non-U.S. office of a non-U.S.
broker that is not a U.S. related person will not be subject to information
reporting or backup withholding. For this purpose, a "U.S. related person" is
(1) a "controlled foreign corporation" for U.S. federal income tax purposes;
(2) a foreign person 50% or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of a
U.S. trade or business or (3) for payments made after December 31, 1999, a
partnership with certain connections to the United States. In the case of the
payment of proceeds from the disposition of New Notes to or through a non-U.S.
office of a broker that is either a U.S. person or a
112
<PAGE>
U.S. related person, information reporting is required on the payment unless
the broker has documentary evidence in its files that the owner is a Non-U.S.
Holder and the broker has no knowledge to the contrary.
Holders should consult their tax advisors regarding the application of
information reporting and backup withholding in their particular situation, the
availability of an exemption therefrom and the procedures for obtaining such
exemption, and regarding the effect of the Final Regulations. Any amounts
withheld from a payment to a Non-U.S. Holder under the back-up withholding
rules will be allowed as a credit against such Holder's United States federal
income tax liability and may entitle such Holder to a refund, provided that the
required information is furnished to the IRS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company and the Subsidiary Guarantors have agreed that,
for a period of 190 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act, and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 190 days after the Expiration Date, the Company will send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal.
The Company and the Guarantors have agreed to pay all expenses incident to
this Exchange Offer other than commissions or concessions of any brokers or
dealers and will indemnify the Holders of the New Notes, including any
broker-dealers, against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Fried, Frank, Harris, Shriver & Jacobson, Washington, D.C.
113
<PAGE>
EXPERTS
The audited financial statements of Neff Corp. and subsidiaries and of
Richbourg's Sales & Rentals, Inc. as of December 31, 1996 and 1997 and for each
of the three years in the period ended December 31, 1997 included in this
prospectus and the related financial statement schedule of Neff Corp. and
subsidiaries included elsewhere in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the registration statement, and are included
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
The consolidated balance sheets as of July 31, 1996 and July 31, 1997 and
the consolidated statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended July 31, 1997 of Industrial
Equipment Rentals, Inc. and subsidiary included in this prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as set forth in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The consolidated financial statements of Sullair Argentina Sociedad
Anonima and its subsidiaries as of December 31, 1997 and 1996 and for each of
the three years in the period ended December 31, 1997 included in this
prospectus have been so included in reliance upon the report of Price
Waterhouse & Co., Buenos Aires, Argentina, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
114
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
NEFF CORP.
Independent Auditors' Report ................................................ F-3
Consolidated Balance Sheets as of December 31, 1996 and 1997 ................ F-4
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1997 ..................................... F-5
Consolidated Statements of Common Stockholders' Deficit
for each of the three years in the period ended December 31, 1997 ......... F-6
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1997 ..................................... F-7
Notes to Consolidated Financial Statements .................................. F-8
Consolidated Balance Sheets as of December 31, 1997 and September 30, 1998
(unaudited) ............................................................... F-23
Consolidated Statements of Operations for the nine months ended
September 30, 1997 and 1998 (unaudited) ................................... F-24
Consolidated Statement of Common Stockholders' Equity (Deficit)
for the nine months ended September 30, 1998 (unaudited) .................. F-25
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1997 and 1998 (unaudited) ................................... F-26
Notes to Consolidated Financial Statements (unaudited) ...................... F-27
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
Report of Independent Public Accountants .................................... F-35
Consolidated Balance Sheets as of July 31, 1996 and 1997 .................... F-36
Consolidated Statements of Operations for each of the three years
in the period ended July 31, 1997 ......................................... F-37
Consolidated Statements of Stockholders' Equity for each of the three years
in the period ended July 31, 1997 ......................................... F-38
Consolidated Statements of Cash Flows for each of the three years
in the period ended July 31, 1997 ......................................... F-39
Notes to Consolidated Financial Statements .................................. F-40
RICHBOURG'S SALES AND RENTALS, INC.
Independent Auditors' Report ................................................ F-52
Balance Sheets as of December 31, 1996 and 1997 ............................. F-53
Statements of Income for each of the three years
in the period ended December 31, 1997 ..................................... F-54
Statements of Common Stockholders' Equity for each of the three years
in the period ended December 31, 1997 ..................................... F-55
Statements of Cash Flows for each of the three years
in the period ended December 31, 1997 ..................................... F-56
Notes to Financial Statements ............................................... F-57
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SULLAIR ARGENTINA SOCIEDAD ANONIMA AND ITS SUBSIDIARY
SULLAIR SAN LUIS SOCIEDAD ANONIMA
Report of Independent Accountants ..................................................... F-61
Consolidated Balance Sheets as of December 31, 1997 and 1996 .......................... F-62
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995 .................................................... F-63
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995 .................................................... F-64
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 .................................................... F-65
Notes to the Consolidated Financial Statements ........................................ F-66
Consolidated Balance Sheets as of September 30, 1998 (unaudited) ...................... F-84
Consolidated Statements of Income for the nine months ended September 30, 1998 and
1997 (unaudited) .................................................................... F-85
Consolidated Statement of Changes in Shareholders' Equity for the nine months ended
September 30, 1998 (unaudited) ...................................................... F-86
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997 (unaudited) ............................................. F-87
Notes to Consolidated Financial Statements (unaudited) ................................ F-88
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Neff Corp.:
We have audited the accompanying consolidated balance sheets of Neff Corp.
and subsidiaries (the "Company"), as of December 31, 1996 and 1997, and the
related consolidated statements of operations, common stockholders' deficit and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1996 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Miami, Florida
March 11, 1998, except for the third
paragraph of Note 5 and the fourth paragraph
of Note 1 as to which the dates are April 23, 1998
and May 20, 1998, respectively
F-3
<PAGE>
NEFF CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents .................................................... $ 4,989 $ 2,885
Accounts receivable, net of allowance for doubtful accounts of $375 in 1996
and $1,092 in 1997........................................................... 10,313 25,007
Inventories .................................................................. 7,429 11,312
Rental equipment, net ........................................................ 76,794 179,547
Property and equipment, net .................................................. 4,304 23,737
Goodwill, net ................................................................ 667 29,444
Intangible assets, net ....................................................... 200 622
Prepaid expenses and other assets ............................................ 4,422 8,236
-------- ---------
Total assets .............................................................. $109,118 $ 280,790
======== =========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities
Accounts payable ............................................................ $ 7,291 $ 10,871
Accrued expenses ............................................................ 1,068 11,248
Senior credit facility ...................................................... 58,250 161,825
Term loan payable ........................................................... -- 49,916
Notes payable ............................................................... -- 14,462
Capitalized lease obligations ............................................... 1,454 2,320
Deferred income taxes ....................................................... 2,264 1,136
-------- ---------
Total liabilities ......................................................... 70,327 251,778
-------- ---------
Redeemable preferred stock
Series A Cumulative Redeemable Preferred Stock, $.01 par value;
520 shares authorized; 324 and 341 shares issued and outstanding in
1996 and 1997, respectively ............................................... 9,486 10,649
Series B Cumulative Convertible Redeemable Preferred Stock,
$.01 par value; 800 shares authorized, issued and outstanding.............. 5,324 8,336
Series C Cumulative Convertible Redeemable Preferred Stock,
$.01 par value; 800 shares authorized, issued and outstanding.............. 31,489 31,562
Preferred stock dividend payable--Series B and C ............................ -- 3,200
-------- ---------
Total redeemable preferred stock .......................................... 46,299 53,747
-------- ---------
Commitments and contingencies (Note 12) ...................................... -- --
Common stockholders' deficit
Class A Common Stock, $.01 par value; 100,000 shares authorized;
8,465 shares issued and outstanding ....................................... 85 85
Additional paid-in capital .................................................. -- --
Accumulated deficit ......................................................... (7,593) (24,820)
-------- ---------
Total common stockholders' deficit ........................................ (7,508) (24,735)
-------- ---------
Total liabilities and common stockholders' equity (deficit) ............... $109,118 $ 280,790
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
NEFF CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
---------- ------------ ------------
<S> <C> <C> <C>
Revenues
Rental revenue .................................................. $ 20,019 $ 35,808 $ 68,056
Equipment sales ................................................. 33,943 44,160 50,578
Parts and service ............................................... 13,292 15,045 23,385
-------- -------- --------
Total revenues ................................................ 67,254 95,013 142,019
-------- -------- --------
Cost of revenues
Cost of equipment sold .......................................... 26,562 33,605 40,766
Depreciation of rental equipment ................................ 11,747 19,853 24,490
Maintenance of rental equipment ................................. 3,469 8,092 19,748
Cost of parts and service ....................................... 7,504 8,143 13,741
-------- -------- --------
Total cost of revenues ........................................ 49,282 69,693 98,745
-------- -------- --------
Gross profit ..................................................... 17,972 25,320 43,274
-------- -------- --------
Other operating expenses
Selling, general and administrative expenses .................... 10,956 18,478 30,129
Other depreciation and amortization ............................. 916 1,432 2,548
Officer stock option compensation ............................... -- -- 4,400
-------- -------- --------
Total other operating expenses ................................ 11,872 19,910 37,077
-------- -------- --------
Income from operations ........................................... 6,100 5,410 6,197
-------- -------- --------
Other expense
Interest expense ................................................ 3,090 6,012 11,976
Amortization of debt issue costs ................................ -- 325 2,362
-------- -------- --------
Total other expense ........................................... 3,090 6,337 14,338
-------- -------- --------
Income (loss) before (provision for) benefit from income taxes and
extraordinary item .............................................. 3,010 (927) (8,141)
(Provision for) Benefit from income taxes ........................ (2,860) (461) 1,748
-------- -------- --------
Income (loss) before extraordinary item .......................... 150 (1,388) (6,393)
Extraordinary loss, net of income taxes .......................... -- (809) (451)
-------- -------- --------
Net income (loss) ................................................ $ 150 $ (2,197) $ (6,844)
======== ======== ========
Unaudited pro forma net income
Income before pro forma provision for income taxes .............. $ 3,010
Pro forma provision for income taxes ............................ (1,176)
--------
Pro forma net income ............................................. $ 1,834
========
Basic and diluted earnings per common share (pro forma for 1995)
Income (loss) before extraordinary item .......................... $ .22 $ (.56) $ (1.64)
Extraordinary loss, net .......................................... -- (.10) ( .05)
-------- -------- --------
Net income (loss) ................................................ $ .22 $ (.66) $ (1.69)
======== ======== ========
Weighted average common shares outstanding
(basic and diluted) ............................................. 8,465 8,465 8,465
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
NEFF CORP.
CONSOLIDATED STATEMENT OF COMMON
STOCKHOLDERS' DEFICIT FOR EACH OF THE
THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 (after giving retroactive
effect to the transaction discussed in Note 1) ..... 8,465 $85 $ 2,799 $ 1,321 $ 4,205
Net income .......................................... -- -- -- 150 150
Distributions to common stockholders ................ -- -- (2,799) (3,487) (6,286)
----- --- -------- --------- ---------
Balance, December 31, 1995 .......................... 8,465 85 -- (2,016) (1,931)
Net loss ............................................ -- -- -- (2,197) (2,197)
Preferred stock dividend ............................ -- -- -- (980) (980)
Accretion of Series A Preferred Stock and
Detachable Stock Purchase Warrant .................. -- -- -- (2,400) (2,400)
----- --- -------- --------- ---------
Balance, December 31, 1996 .......................... 8,465 85 -- (7,593) (7,508)
Net loss ............................................ -- -- -- (6,844) (6,844)
Adjustment for acquired property and equipment
(Note 13), net of taxes ............................ -- -- -- (2,936) (2,936)
Dividends in kind--Series A Preferred Stock ......... -- -- -- (657) (657)
Preferred stock dividends accrued--Series B and C ... -- -- -- (3,200) (3,200)
Accretion of Series A, B and C Preferred Stock ...... -- -- -- (3,590) (3,590)
----- --- -------- --------- ---------
Balance, December 31, 1997 .......................... 8,465 $85 $ -- $ (24,820) $ (24,735)
===== === ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
NEFF CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ................................................ $ 150 $ (2,197) $ (6,844)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities
Depreciation and amortization ................................... 12,663 21,610 29,399
Officer stock option compensation ............................... -- -- 4,400
Gain on sale of equipment ....................................... (7,381) (10,555) (9,812)
Extraordinary loss on debt extinguishment ....................... -- 1,298 722
Provision (benefit) for/(from) deferred income taxes ............ 2,860 (596) (1,748)
Change in operating assets and liabilities
Accounts receivable ............................................ (1,487) (3,329) (8,341)
Other assets ................................................... (191) 255 (4,093)
Accounts payable and accrued expenses .......................... 866 2,831 5,240
Accrued financing costs ........................................ 2,143 (2,143) --
--------- --------- ----------
Net cash provided by operating activities ..................... 9,623 7,174 8,923
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment ........................................... (52,795) (86,886) (143,515)
Proceeds from sale of equipment .................................. 33,943 44,160 50,578
Purchases of property and equipment .............................. (1,483) (1,972) (16,747)
Cash paid for acquisitions ....................................... -- -- (63,605)
--------- --------- ----------
Net cash used in investing activities ......................... (20,335) (44,698) (173,289)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issue costs ................................................. (1,623) (3,989) (2,425)
Net borrowings (repayments) under Senior Credit Facility ......... (250) -- 103,576
Advances under revolving credit facility ......................... -- 58,250 --
Borrowings under mortgage note ................................... -- -- 13,400
Borrowings under capitalized lease obligations ................... -- -- 866
Net borrowings (repayments) under floor plans payable ............ 10,039 (31,493) --
Borrowings under term loan ....................................... 17,135 -- 49,916
Repayments of notes payable ...................................... (11,285) (16,852) (135)
Repayments of notes payable to stockholders ...................... (4,836) -- --
Repayments under capitalized lease obligations ................... -- (222) --
Issuance of Series A Preferred Stock with detachable stock
purchase warrant, net of costs .................................. 11,430 -- --
Issuance of Series C Preferred Stock, net of costs ............... -- 31,489 --
Distributions to stockholders .................................... (6,286) -- (2,936)
--------- --------- ----------
Net cash provided by financing activities ..................... 14,324 37,183 162,262
--------- --------- ----------
Net increase (decrease) in cash and cash equivalents ............. 3,612 (341) (2,104)
Cash and cash equivalents, beginning of year ..................... 1,718 5,330 4,989
--------- --------- ----------
Cash and cash equivalents, end of year ........................... $ 5,330 $ 4,989 $ 2,885
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--GENERAL
DESCRIPTION OF BUSINESS
Neff Corp. (the "Company") owns and operates equipment rental locations
throughout the southern and western regions of the United States. In addition
to its rental business, the Company acts as a dealer of new equipment on behalf
of several nationally recognized equipment manufacturers. The Company also
sells used equipment, spare parts and merchandise and provides ongoing repair
and maintenance services.
Neff Corp. was formed in 1995 to serve as a holding company for its
wholly-owned subsidiaries, Neff Machinery, Inc. ("Machinery") and Neff Rental,
Inc. ("Rental"). On December 26, 1995, the stockholders of Machinery and Rental
contributed 100% of their ownership interest in Machinery and Rental to Neff
Corp. in exchange for a 100% ownership interest in Neff Corp. The transaction
was accounted for as a reorganization of entities under common control (similar
to a pooling of interest business combination due to their common ownership).
As a result, the financial statements of Neff Corp. have been presented herein
as if Neff Corp. had conducted Machinery's and Rental's businesses since their
inception.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
STOCK SPLIT
The Company has effected a 84.65 for 1.00 stock split. The accompanying
financial statements reflect the stock split on a retroactive basis from the
beginning of the periods presented.
ACQUISITION
In August 1997, the Company purchased the common stock of Industrial
Equipment Rentals, Inc. ("IER") for approximately $63.6 million. This purchase
was funded by a $50 million term loan and borrowings under the Company's Senior
Credit Facility (see Note 5). IER has rental equipment operations similar to
the Company's in Alabama, Louisiana, Mississippi and Texas. The transaction was
accounted for under the purchase method. In connection with this purchase,
goodwill of approximately $29.2 million was recorded. Subsequent to the
acquisition, IER was merged into Neff Rental, Inc.
F-8
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--GENERAL--(CONTINUED)
UNAUDITED PRO FORMA INFORMATION
The following unaudited pro forma information has been prepared to reflect
the IER acquisition as if it was consummated as of January 1, 1996, after
giving effect to certain pro forma adjustments described below (in thousands).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Revenues ......................................................... $129,172 $162,906
======== ========
(Loss) income before (provision for) benefit from income taxes and
extraordinary item .............................................. $ (63) $ (8,625)
======== ========
Net (loss) income ................................................ $ (1,895) $ (6,797)
======== ========
Basic and diluted earnings per common share
Basic ........................................................... $ (.62) $ (1.68)
======== ========
Diluted ......................................................... $ (.62) $ (1.68)
======== ========
</TABLE>
Pro forma adjustments reflect amortization of intangible assets,
depreciation of property and equipment and increased interest on borrowings to
finance the acquisitions. The unaudited pro forma information is based upon
certain assumptions and estimates and does not necessarily represent operating
results that would have occurred had the acquisitions been consummated as of
the beginning of the periods presented, nor is it necessarily indicative of
expected future operating results.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RECOGNITION OF REVENUE
Rental agreements are structured as operating leases and the related
revenues are recognized over the rental period. Sales of equipment and parts
are recognized at the time of shipment or, if out on lease, at the time a sales
contract is finalized. Equipment may at times be delivered to customers for a
trial period. Revenue on such sales are recognized at the time a sales contract
is finalized. Service revenues are recognized at the time the services are
rendered.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories, which consist principally of parts and new equipment held for
sale, are stated at the lower of cost or market, with cost determined on the
first-in, first-out basis for parts and specific identification basis for
equipment. Substantially all inventory represents finished goods held for sale.
F-9
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
RENTAL EQUIPMENT
Rental equipment is stated at cost less accumulated depreciation.
Depreciation is recorded using the straight-line method over the estimated
useful life of the related equipment (generally four to seven years with a 10%
residual value). For certain equipment, depreciation is matched against the
related rental income earned by computing depreciation on individual equipment
at the rate of 80% of the rental income earned. Routine repairs and maintenance
are expensed as incurred; improvements are capitalized at cost.
The Company routinely reviews the assumptions utilized in computing
depreciation of its rental equipment. Changes to the assumptions (such as
service lives and/or residual values) are made when, in the opinion of
management, such changes more appropriately allocate asset costs to operations
over the service life of the assets. Management utilizes, among other factors,
historical experience and industry comparison in determining the propriety of
any such changes.
During 1996 and 1997, the Company made certain changes to its depreciation
assumptions to recognize extended estimated service lives and increased
residual values of its rental equipment. The Company believes that these
changes in estimates will more appropriately reflect its financial results by
better allocating the cost of its rental equipment over the service life of
these assets.
This change in accounting estimate reduced depreciation of rental
equipment, loss before extraordinary item and net loss by approximately $5.3
million and $3.3 million or $.63 and $.39 per common share, for the years ended
December 31, 1996 and 1997, respectively.
Rental Fleet accumulated depreciation at December 31, 1996 and 1997 was
approximately $20.6 million and $34.8 million, respectively.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is recorded using accelerated and straight-line methods over the
estimated useful lives of the related assets. Significant improvements are
capitalized at cost. Repairs and maintenance are expensed as incurred.
The capitalized cost of equipment and vehicles under capital leases is
amortized over the lesser of the lease term or the asset's estimated useful
life, and is included in depreciation and amortization expense in the
consolidated statements of operations.
INTANGIBLE ASSETS
Intangible assets primarily result from business combinations and include
agreements not to compete and other identifiable intangible assets. These
assets are amortized on a straight-line basis over the estimated useful life
(five to 15 years). Accumulated amortization at December 31, 1996 and 1997 was
approximately $0.2 million and $2.5 million, respectively.
Goodwill arising from acquisitions is being amortized over 40 years using
the straight-line method. Accumulated amortization at December 31, 1996 and
1997 was approximately $0.1 million and $0.5 million, respectively.
F-10
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The carrying value of intangible assets is periodically reviewed by the
Company and impairments, if any, are recognized when the expected future
undiscounted cash flows derived from such intangible assets are less than their
carrying value.
During the first quarter of 1996, the Company adopted Statement No. 121,
("SFAS 121"), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
adoption of SFAS 121 did not have a material impact on the financial results of
the Company for the year ended December 31, 1996.
PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets primarily include debt issue costs,
prepaid expenses and deposits. Debt issue costs are amortized over the term of
the debt on a straight-line basis. For the years ended December 31, 1996 and
1997, amortization of debt issue costs was $0.3 million and $2.4 million,
respectively. There was no amortization in 1995.
STOCK OPTIONS
In October 1995, the FASB issued Statement No. 123 ("SFAS 123"),
ACCOUNTING FOR STOCK-BASED COMPENSATION, which requires companies to either
recognize expense for stock-based awards based on their fair value on the date
of grant or provide footnote disclosures regarding the impact of such changes.
The Company adopted the provisions of SFAS 123 on January 1, 1996, but will
continue to account for options issued to employees or directors under the
Company's non-qualified stock option plans in accordance with Accounting
Principles Board Opinion No. 25 ("APB 25"), ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130 ("SFAS 130"), REPORTING
COMPREHENSIVE INCOME, which is required to be adopted in the first quarter of
1998. SFAS 130 established standards for the reporting and display of
comprehensive income and its components. Comprehensive income includes certain
non-owner changes in equity that are currently excluded from net income.
In June 1997, Statement No. 131 ("SFAS 131"), DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION, was issued. SFAS 131 establishes
standards for the way that public companies disclose selected information about
operating segments in annual financial statements and requires that those
companies disclose selected information about segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997. Accordingly, the Company is not required to adopt SFAS 131
until the fiscal year ending December 31, 1998. SFAS 131 relates solely to
disclosure provisions, and therefore will not have any effect on the results of
operations, financial position and cash flows of the Company.
RECLASSIFICATIONS
Certain amounts for the prior years have been reclassified to conform with
the current year presentation.
F-11
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--ACCOUNTS RECEIVABLE
The majority of the Company's customers are engaged in the construction
and industrial business throughout the southern and western regions of the
United States. The Company extends credit to its customers based upon an
evaluation of the customer's financial condition and credit history. For sales
of certain construction equipment, the Company's policy is to secure its
accounts receivable by obtaining liens on the customer's projects and issuing
notices thereof to the projects' owners and general contractors. All other
receivables are generally unsecured.
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
------------------------- USEFUL LIVES
1996 1997 (IN YEARS)
----------- ----------- -------------
<S> <C> <C> <C>
Land ................................... $ -- $ 5,407 --
Buildings and improvements ............. -- 6,540 2-30
Office equipment ....................... 2,944 2,768 2-7
Service equipment and vehicles ......... 2,784 9,994 2-5
Shop equipment ......................... 1,060 2,075 7
Capitalized lease equipment ............ 1,706 3,230 3-5
-------- --------
8,494 30,014
Less accumulated depreciation .......... (4,190) (6,277)
-------- --------
$ 4,304 $ 23,737
======== ========
</TABLE>
The Company has entered into lease arrangements for certain property and
equipment which are classified as capital leases. Future minimum lease payments
under capitalized lease obligations are as follows (in thousands):
<TABLE>
<CAPTION>
1997
---------
<S> <C>
1998 ......................................................... $ 802
1999 ......................................................... 813
2000 ......................................................... 466
2001 ......................................................... 390
2002 ......................................................... 215
------
Total future minimum lease payments .......................... 2,686
Less amounts representing interest (6.00% to 13.5%) .......... (366)
------
Present value of net future minimum lease payments ........... $2,320
======
</TABLE>
F-12
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--NOTES PAYABLE AND DEBT
Notes payable and debt consist of the following (in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- -----------
<S> <C> <C>
$250 million revolving line of credit with interest rates ranging from the
Lender's Prime rate plus 1.5% to LIBOR plus 3.5%. At December 31,
1997, the Lender's Prime rate was 8.5% and the LIBOR rate was
5.718% ...................................................................... $58,250 $161,825
$50 million Term Loan with an interest rate of LIBOR plus 3.5%................ -- 49,916
Mortgage note payable with an interest rate of LIBOR plus 2% ................. -- 13,400
Various notes payable assumed through acquisition of IER with interest
rates ranging from 7% to 12% and maturity dates through 2001. ............... -- 1,062
------- --------
$58,250 $226,203
======= ========
</TABLE>
In December 1996, the Company and its subsidiaries (collectively referred
to as the "Borrowers") executed a $250 million revolving credit facility (the
"Senior Credit Facility") with a syndicate of lenders (the "Lenders").
Borrowings under the Senior Credit Facility are based upon eligible accounts
receivable, rental fleet and inventory amounts.
During July and December 1997, the Borrowers amended the Senior Credit
Facility (the "Amendments") with the Lenders. The Amendments, among other
things, allowed the Company to complete the IER and Richbourg acquisitions (see
Note 1 and Note 15) and revised certain financial covenants. The interest rates
on balances outstanding under the amended facility vary based upon the leverage
ratio maintained by the Borrowers. All outstanding principal balances are due
in October 1998 unless the Borrowers successfully complete the sale of at least
$200 million of Qualified Debt Securities (as defined in the Amendments) in
which case they become due in October 2001. A commitment fee of 1/2 of 1% is
charged on the aggregate daily unused balance of the Senior Credit Facility.
The Senior Credit Facility is secured by substantially all of the
Borrowers' assets and contains certain restrictive covenants which, among other
things, require the Borrowers to maintain certain financial coverage ratios and
places certain restrictions on the payment of dividends. At December 31, 1997,
the Company was not in compliance with the minimum EBITDA covenant, as defined
in the Senior Credit Facility. For the year ended December 31, 1997, the
minimum EBITDA calculation was $44.8 million of EBITDA but was required to be
$45.9 million. The lenders under the Senior Credit Facility have waived this
non-compliance.
During August 1997, the Company entered into a $50 million term loan (the
"Term Loan") in connection with its acquisition of IER (see Note 1). The Term
Loan is secured by assets acquired and is due in January 1999. During January
1998, the Company repaid all outstanding principal balances due under the Term
Loan with borrowings under its Senior Credit Facility.
In May 1997, the Company purchased land and buildings related to several
of its locations (see Note 13). The purchase was financed with a lender in the
principal amount $13.4 million. The interest rate on the outstanding balance
varies based upon the leverage ratio of the Company. As of
F-13
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--NOTES PAYABLE AND DEBT--(CONTINUED)
December 31, 1997 interest was being charged at an annual rate of LIBOR plus
2%. Five annual principal payment installments commence in May 2002. The
mortgage is secured by the land and buildings acquired.
During 1996 and 1997, the Company recorded extraordinary losses of
approximately $1.3 million and $0.7 million from the write-off of debt issue
costs associated with the early extinguishment of debt, before the related
income tax benefit of approximately $0.5 million and $0.3 million,
respectively.
Future maturities of the notes payable and debt, based upon amounts
outstanding as of December 31, 1997, are as follows (in thousands)
1998 ............... $212,077
1999 ............... 312
2000 ............... 274
2001 ............... 140
2002 ............... 2,680
Thereafter ......... 10,720
--------
$226,203
========
NOTE 6--REDEEMABLE PREFERRED STOCK AND DETACHABLE STOCK PURCHASE WARRANT
During December 1995, the Company issued 300,000 shares of Series A
Cumulative Redeemable Preferred Stock ("Series A"), and a detachable stock
purchase warrant (the "Redeemable Warrant") for $12.0 million ($11.4 million
net of certain related costs). Series A provides for the semiannual payment of
preferential dividends at an annual rate of 8% (5% beginning January 1, 1997)
of the liquidation value. The dividends are payable in cash or in additional
shares through the later of December 31, 1999 or the expiration of the
Company's Senior Credit Facility (see Note 5). Series A is scheduled to be
redeemed by the Company in December 2002 and restricts the payment of dividends
or any other distributions to holders of the Company's common stock.
The Redeemable Warrant granted the holder the right to acquire
approximately 20% of the common stock of the Company at a purchase price of
$.01 per share. The Redeemable Warrant was redeemable at the holder's option
during a specified period and at a price equal to its fair market value. The
Company had the option for a specified period of time to redeem the Redeemable
Warrant from the holder at a price equal to its fair market value as defined.
Series A and the Redeemable Warrant were recorded at their pro rata estimated
fair value in relation to the proceeds received on the date of issuance ($8.0
million for the Series A and $3.4 million for the Redeemable Warrant, net of
issue costs). Series A will be accreted to its liquidation value at maturity of
$12.0 million utilizing the effective interest method. The Redeemable Warrant
was being accreted to its fair value on a prospective basis until the mandatory
redemption date in December 2000. Through December 31, 1996, accretion to the
Series A and the Redeemable Warrant amounted to approximately $0.5 million and
$1.9 million, respectively.
During December 1996, in connection with the execution of the Senior
Credit Facility, the Company, and GE Capital, entered into certain agreements,
including an agreement to exercise the Redeemable Warrant for approximately 20%
of the Company's common stock. Simultaneously with
F-14
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--REDEEMABLE PREFERRED STOCK AND DETACHABLE STOCK PURCHASE
WARRANT--(CONTINUED)
this exercise, the Company and GE Capital agreed to exchange the shares of
common stock for 800,000 shares of Series B Cumulative Convertible Redeemable
Preferred Stock ("Series B"). The accreted balance of the Redeemable Warrant on
the date these agreements were entered into was approximately $5.3 million
which represented the carrying value of Series B as of December 31, 1996.
Series B is scheduled to be redeemed in December 2003 and provides for the
payment of dividends upon redemption of or upon conversion into common stock at
an annual rate of 5%. For the year ended December 31, 1997, accretion of Series
A and Series B amounted to approximately $0.5 million and $3.0 million,
respectively.
In a separate transaction related to the Senior Credit Facility, the
Company issued 800,000 shares of Series C Cumulative Convertible Redeemable
Preferred Stock ("Series C") to GE Capital in exchange for $32.0 million ($31.5
million net of certain related costs). Series C is scheduled to be redeemed in
December 2003 and provides for the payment of dividends upon redemption or upon
conversion into common stock at an annual rate of 5%. For the year ended
December 31, 1997, accretion of Series C amounted to approximately $0.1
million. Series B and C may be converted to common stock for a conversion fee
of $1 per share. The conversion fee shall increase by $1 per share in June and
December of each year until conversion. Similarly to Series A, Series B and
Series C will be accreted to their ultimate total liquidation value of $64
million.
NOTE 7--STOCK OPTION PLANS
In December 1995, the Company granted a key employee the option to
purchase 3% (on a fully-diluted basis) of the common stock of the Company.
Since the number of shares ultimately issuable to the key employee is not known
at the grant date, the Company estimates compensation expense at each reporting
date based upon the estimated market value of the shares to be issued. Changes
in the estimated market value of the shares to be issued continue to affect the
amount of compensation expense until the number of shares issuable are known.
No compensation expense was recognized in 1995 and 1996 since the exercise
price approximated the market value of the shares to be issued. Compensation
expense of $4.4 million was recognized in 1997. This option was one-third
vested on December 7, 1995, two-thirds vested on December 31, 1995 and fully
vested on December 31, 1996. The total exercise price for each one-third option
block, determined based upon a multiple of the Company's adjusted earnings, is
approximately $0.4 million, $0.5 million and $0.7 million, respectively. The
portion of the option that vested in 1995 expires in the year 2005 and the
balance of the option expires in the year 2006.
In May 1996, the Company also granted to another key employee an option to
purchase 84,650 shares of the Company's common stock at an exercise price of
approximately $0.5 million, determined based upon a multiple of the Company's
adjusted earnings. Since the number of shares ultimately issuable to the key
employee and the exercise price is known at the date, compensation expense is
measured only at the date of grant. No compensation expense has been recognized
at the date of grant since the exercise price of these options approximated the
estimated market value of the shares to be issued at the date of grant.
F-15
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--STOCK OPTION PLANS--(CONTINUED)
The following table sets forth pro forma net loss and earnings per share
as if the stock options were accounted for under the fair value method:
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1995 1996
---------- ------------
Pro forma net loss (in thousands) ......... $ (189) $ (2,439)
====== ========
Pro forma earnings per share
Basic ................................... $ (.02) $ (.69)
====== ========
Diluted ................................. $ (.02) $ (.69)
====== ========
The fair value of options granted, in accordance with the provisions of
SFAS 123, were determined using the Black-Scholes option pricing model with a
risk-free interest rate of 6.74%, zero volatility and expected life of 10
years.
Effective January 1, 1997, the Company adopted a phantom stock plan (the
"Phantom Plan"). The Phantom Plan is designed to reward employees for increases
in the Company's performance. The Phantom Plan enables the Company to award
employees individual units representing a hypothetical share of the Company's
stock (the "Phantom Share"). Each Phantom Share is assigned a share value on
the date granted as determined by the administrator of the Phantom Plan. The
difference between the calculated share value, as determined pursuant to a
formula set forth in the Phantom Plan, of the Phantom Share on the date
redeemed by the employee and the value assigned on the date of grant represents
the cash award the employee is entitled to receive on the redemption date. The
Phantom Shares generally vest over five years. As of December 31, 1997, the
Company had granted 155,500 Phantom Shares with an assigned per share value of
$9. No compensation expense had been recorded in the accompanying statements
of operations as the assigned share value on the date of grant exceeds the
calculated share value as of December 31, 1997.
The Company has granted to GE Capital an option to acquire common stock of
the Company in an amount that would equal 51% ownership after conversion of the
Series B and Series C preferred stock. In connection with the conversion of the
Series B and Series C preferred stock, (see Note 15), the Company and GE
Capital plan to cancel this option. The exercise price for this option is based
upon fair market value of the Company determined on the date the option is
exercised. GE Capital may exercise the option at any time from July 1, 1998
until June 30, 1999.
NOTE 8--RETIREMENT PLAN
In February 1996, the Company adopted a qualified 401(k) profit sharing
plan (the "401(k) Plan"). The 401(k) Plan covers substantially all employees of
the Company. Participating employees may contribute to the 401(k) Plan through
salary reductions. The Company may contribute, at its discretion, matching
contributions equal to 50% of the employee's contribution not to exceed 3% of
the employee's annual salary. The Company contributed approximately $0.2
million and $0.3 million to the 401(k) Plan for the years ended December 31,
1996 and 1997, respectively.
F-16
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--INCOME TAXES
As a result of the contribution by the stockholders of their ownership
interest as described in Note 1, the Company lost its Subchapter S Corporation
status under the provisions of the Internal Revenue Code. The Subchapter S
provisions provide that taxable income be included in the federal income tax
returns of the individual stockholders. As a result, the Company's net income
for the period from January 1, 1994 through December 26, 1995 is included in
the individual tax returns of the stockholders of the Company and therefore a
provision for income taxes related to this period is not included in the
accompanying statements of operations. Additionally, under the provisions of
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES, the Company recorded a deferred tax liability upon losing Subchapter S
status for existing timing differences in the amount of approximately $2.9
million. The components of the (provision for) benefit from income taxes is as
follows (in thousands):
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------
1995 1996 1997
=========== ============ =========
Current .......... $ -- $ (1,057) $ --
Deferred ......... (2,860) 596 1,748
-------- -------- ------
Total ............ $ (2,860) $ (461) $1,748
======== ======== ======
The following table summarizes the tax effects comprising the Company's
net deferred tax liabilities (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards ............................. $ 809 $ 4,347
Alternative minimum tax credits .............................. 247 874
Deferred stock option compensation ........................... -- 1,672
Intangible assets, allowance for bad debts and other ......... 219 1,037
-------- --------
Total deferred tax assets ................................. 1,275 7,930
Valuation allowance ........................................... (809) (1,368)
DEFERRED TAX LIABILITIES--Depreciation ........................ (2,730) (7,698)
-------- --------
NET DEFERRED TAX LIABILITY .................................... $ (2,264) $ (1,136)
======== ========
</TABLE>
As of December 31, 1997, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $11.4 million and
$12.7 million, respectively, expiring in 2012 (includes net operating loss
carryforwards for federal and state income tax purposes of approximately $4.4
million and $5.6 million, respectively, acquired in connection with the
acquisition of IER described in Note 1). IER's net operating loss carryforwards
may only be utilized by Rental. In addition, the Company has reduced the
adjustment to stockholders' equity by $1.8 million related to the tax benefit
of the acquisition of property from a related party (see Note 13).
Current accounting standards require that deferred income taxes reflect
the tax consequences on future years of differences between the tax bases of
assets and liabilities and their bases for financial reporting purposes. In
addition, future tax benefits, such as net operating loss (NOL) carryforwards,
F-17
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--INCOME TAXES--(CONTINUED)
are required to be recognized to the extent that realization of such benefits
is more likely than not. A valuation allowance is established for those
benefits that do not meet the more likely than not criteria.
Even though the Company has incurred tax losses for the past two years,
management believes that it is more likely than not that the Company will
generate taxable income sufficient to realize the majority of the tax benefits
associated with future deductible temporary differences and NOL carryforwards
prior to their expiration. This belief is based upon, among other factors, the
fact that all of the Company's taxable temporary differences will reverse
within the period that the deductible temporary differences will be realized,
the availability of tax planning strategies, and projection of future taxable
income.
The following table summarizes the differences between the statutory
federal income tax rate and the Company's effective income tax rate (in dollars
thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1995 1996 1997
-------------------------- ------------------------- ------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
----------- ------------ ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax
rate ............................... $ -- --% $ 315 34.0% $2,768 34.0%
State income tax, net of
federal income tax benefit ......... -- -- 33 3.5 171 2.1
Change in valuation allowance -- -- (809) (87.3) (559) (6.9)
Non-deductible expenses ............. -- -- -- -- (716) (8.8)
Loss of Subchapter S status on
December 26, 1995 .................. (2,860) (95.0) -- -- --
Other ............................... -- -- -- -- 84 1.1
-------- ----- ------ ----- ------ ----
$ (2,860) (95.0)% $ (461) (49.8)% $1,748 21.5%
======== ===== ====== ===== ====== ====
</TABLE>
Pro forma net income is presented in the accompanying statements of
operations to show the effects of income taxes as if the Company had been
subject to federal and applicable state income taxes based on the tax laws and
rates in effect during the applicable period. In addition, pro forma net income
has been adjusted for the effect of the deferred tax liability recognized by
the Company upon Machinery and Rental losing their Subchapter S Corporation
status in December 1995 as if the entities lost their Subchapter S status at
the beginning of each period presented.
F-18
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--EARNINGS PER SHARE
For the years ended December 31, 1995, 1996 and 1997, the treasury stock
method was used to determine the dilutive effect of the options and warrants on
earnings per share data. Net loss from continuing operations per share and the
weighted average number of shares outstanding used in the computations are
summarized as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997
----------------------- ------------------------- -------------------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED
----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) ...................... $ 1,834 $ 1,834 $ (2,197) $ (2,197) $ (6,844) $ (6,844)
Deduct:
Preferred stock dividend .............. -- -- 980 980 3,857 3,857
Accretion of preferred stock .......... -- -- 2,400 2,400 3,590 3,590
------- ------- -------- -------- --------- ---------
Income (loss) for per share
computations .......................... $ 1,834 $ 1,834 $ (5,577) $ (5,577) $ (14,291) $ (14,291)
Number of shares:
Weighted average common
shares outstanding .................. 8,465 8,465 8,465 8,465 8,465 8,465
Add:
Net additional shares
issued(1) ........................... -- -- -- -- -- --
------- ------- -------- -------- --------- ---------
Weighted average shares used
in the per share computations ......... 8,465 8,465 8,465 8,465 8,465 8,465
======= ======= ======== ======== ========= =========
Net income (loss) ...................... $ .22 $ .22 $ (.66) $ (.66) $ (1.69) $ (1.69)
======= ======= ======== ======== ========= =========
</TABLE>
- ----------------
(1) Assumes exercise of outstanding Common Stock equivalents (options and
warrants) at the beginning of the period, net of 20% limitation, if
applicable, on the assumed repurchase of stock.
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair market value of financial instruments held by the Company at
December 31, 1997 are based on a variety of factors and assumptions and may not
necessarily be representative of the actual gains or losses that will be
realized in the future and do not include expenses that could be incurred in an
actual sale or settlement.
DEBT
The fair value of the Company's credit facility is assumed to be equal to
its carrying value. At December 31, 1996 and 1997 approximately $58.2 million
and $161.8 million was outstanding under the credit facility, respectively.
The Company's Term Loan, mortgage note payable, other notes payable and
capitalized lease obligations are estimated to approximate fair value as
determined based on rates currently available to the Company from other
lenders.
PREFERRED STOCK
Series A, Series B and Series C do not have a quoted market price and the
Company does not believe it is practicable to estimate a fair value different
from each of the security's carrying value because of features unique to these
securities including, but not limited to, the right to appoint two
F-19
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
directors and super majority voting requirements. The amounts due upon
redemption of Series A, Series B and Series C is approximately $13.6 million,
$32.0 million and $32.0 million plus accrued and unpaid dividends,
respectively.
NOTE 12--COMMITMENTS AND CONTINGENCIES
The Company has agreements with certain equipment manufacturers which
appoint the Company, through its subsidiary, as the manufacturer's authorized
dealer in certain defined geographic areas. These agreements may be terminated
by dealers at any time. There can be no assurance that the Company will be able
to continue its current, or obtain additional, dealership agreements. The
Company's operating results could be materially adversely impacted if these
dealership agreements were terminated for any reason.
The Company is a party to certain legal actions arising in the normal
course of business. In the opinion of management, the ultimate outcome of such
litigation is not expected to have a material effect on the financial position,
results of operations or cash flows of the Company.
NOTE 13--RELATED PARTY TRANSACTIONS AND OTHER COMMITMENTS
In May 1997, the Company acquired certain land and buildings used in its
Florida operations for approximately $13.9 million from Atlantic Real Estate
Holdings Corp. ("Atlantic"), an affiliate of the Company through common
ownership ("Atlantic Acquisition"). Prior to the acquisition of these assets,
the Company leased these properties from Atlantic. The Company financed
approximately $13.4 million of the purchase price with a mortgage note payable
(see Note 5). The remaining purchase price consisted of the forgiveness of
approximately $0.5 million in notes receivable from Atlantic. The assets have
been recorded at Atlantic's historical carrying value and approximately $2.9
million, net of income tax benefit of approximately $1.8 million, has been
recorded as a distribution to common stockholders in the accompanying statement
of common stockholders' deficit.
During 1995, 1996, and 1997, revenues from affiliated companies amounted
to approximately $1.7 million, $1.5 million and $0.7 million, respectively.
OPERATING LEASES
Prior to the Atlantic Acquisition the Company leased certain office and
operating facilities from Atlantic and from other unaffiliated entities under
noncancellable operating leases expiring from 2000 through 2007. During 1995,
1996, and 1997, rental expense under noncancellable operating lease
arrangements amounted to approximately $1.7 million, $2.1 million, and $1.8
million, respectively.
F-20
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--RELATED PARTY TRANSACTIONS AND OTHER COMMITMENTS--(CONTINUED)
As of December 31, 1997, future minimum rental payments under operating
lease arrangements are as follows for the years ending December 31 (in
thousands):
1998 ............... $ 2,400
1999 ............... 2,192
2000 ............... 1,999
2001 ............... 1,549
2002 ............... 957
Thereafter ......... 2,029
-------
$11,126
=======
NOTE 14--SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------------
1995 1996 1997
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ............................................ $3,173 $6,012 $10,367
====== ====== =======
Cash paid for taxes ............................................... $ -- $ -- $ 711
====== ====== =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Purchase of equipment under capitalized lease obligations ......... $ -- $1,235 $ --
====== ====== =======
</TABLE>
NOTE 15--SUBSEQUENT EVENTS
During January 1998, the Company acquired substantially all of the assets
of Richbourg's Sales and Rentals, Inc. ("Richbourg") for approximately $100
million. Richbourg has rental equipment operations similar to the Company's
with 15 locations in three states. In connection with this acquisition, the
Company amended its Senior Credit Facility (see Note 5) and executed a $100
million term loan (the "Richbourg Term Loan") with terms and requirements
similar to the Company's Senior Credit Facility.
In February 1998, the Company entered into letters of intent to acquire
three equipment rental companies. These businesses have a total of three
equipment rental locations in California and Texas. Each of these acquisitions
is subject to a number of closing conditions, including the execution of
definitive purchase agreements, and there can be no assurance that these
acquisitions will be consummated.
The Company plans to commence an initial public offering of its Class A
Common Stock (the "Public Offering"). The Company expects to receive
approximately $100 million in proceeds from the Public Offering. The Company
intends to use the net proceeds to repay the Richbourg Term Loan.
Prior to the Public Offering, the Company's Senior Credit Facility is
expected to be amended (the "New Credit Facility"). Borrowings under the New
Credit Facility will continue to be based upon eligible accounts receivable,
rental fleet and inventory amounts. The interest rates on balances outstanding
under the New Credit Facility will vary based upon the leverage ratio
maintained by the
F-21
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--SUBSEQUENT EVENTS--(CONTINUED)
Company and range from prime rate or LIBOR plus 1% to prime plus 1.25% or LIBOR
plus 2.25%. In the event the Company repays the Richbourg Term Loan prior to
October 31, 1998, the maturity of the New Credit Facility will be due in April
2003, otherwise, the New Credit Facility will mature on October 31, 1998.
In addition, GE Capital is expected to exchange its Series B and Series C
preferred stock for shares of the Company's Class B Common Stock, liquidation
preference $11.67, prior to the Public Offering. It is also contemplated that
the Company will establish an incentive stock plan for officers and employees
concurrent with the Public Offering.
The Company also expects to commence a private debt offering (the "Private
Debt Offering"). Proceeds from the Private Debt Offering will be used to redeem
Series A and reduce amounts outstanding under the New Credit Facility.
There can be no assurance that the Public Offering or Private Debt
Offering will be consummated.
* * * * * *
F-22
<PAGE>
NEFF CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
-------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents ........................................................... $ 2,885 $ 2,769
Accounts receivable, net of allowance for doubtful accounts of
$2,589 in 1998 and $1,092 in 1997................................................... 25,007 61,156
Inventories ......................................................................... 11,312 29,294
Rental equipment, net ............................................................... 179,547 328,630
Property and equipment, net ......................................................... 23,737 44,499
Goodwill, net ....................................................................... 29,444 92,894
Deferred tax asset, net ............................................................. -- 3,227
Prepaid expenses and other assets ................................................... 8,858 8,005
--------- ---------
Total assets ..................................................................... $ 280,790 $ 570,474
========= =========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities
Accounts payable ................................................................... $ 10,871 $ 28,101
Accrued expenses ................................................................... 11,248 32,301
Senior credit facility ............................................................. 161,825 281,913
Senior subordinated notes .......................................................... -- 100,000
Term loan payable .................................................................. 49,916 --
Notes payable ...................................................................... 14,462 17,307
Capitalized lease obligations ...................................................... 2,320 1,745
Deferred income taxes .............................................................. 1,136 --
--------- ---------
Total liabilities ................................................................ 251,778 461,367
--------- ---------
Redeemable preferred stock
Series A Cumulative Redeemable Preferred Stock, $.01 par value;
520 shares authorized; 341 shares issued and outstanding in 1997 ................. 10,649 --
Series B Cumulative Convertible Redeemable Preferred Stock,
$.01 par value; 800 shares authorized, issued and outstanding in 1997............. 8,336 --
Series C Cumulative Convertible Redeemable Preferred Stock,
$.01 par value; 800 shares authorized, issued and outstanding in 1997............. 31,562 --
Preferred stock dividend payable--Series B and C ................................... 3,200 --
--------- ---------
Total redeemable preferred stock ................................................. 53,747 --
--------- ---------
Commitments and contingencies -- --
--------- ---------
Minority interest ................................................................... -- 12,335
--------- ---------
Common stockholders' equity (deficit)
Class A Common Stock, $.01 par value; 100,000 shares authorized; 8,465 and
16,065 shares issued and outstanding in 1997 and 1998, respectively .............. 85 161
Class B Special Common Stock, $.01 par value, liquidation preference
$11.67; 20,000 shares authorized; 5,100 shares issued and outstanding in 1998..... -- 51
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 .......................................... -- --
Additional paid-in capital .......................................................... -- 127,854
Accumulated deficit ................................................................. (24,820) (31,294)
--------- ---------
Total common stockholders' equity (deficit) ....................................... (24,735) 96,772
--------- ---------
Total liabilities and common stockholders' equity (deficit) ....................... $ 280,790 $ 570,474
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE>
NEFF CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1998
------------ -----------
<S> <C> <C>
Revenues
Rental revenue ................................................................ $ 42,743 $122,962
Equipment sales ............................................................... 36,019 75,208
Parts and service ............................................................. 18,019 28,839
-------- --------
Total revenues .............................................................. 96,781 227,009
-------- --------
Cost of revenues
Cost of equipment sold ........................................................ 28,965 57,499
Depreciation of rental equipment .............................................. 15,735 40,326
Maintenance of rental equipment ............................................... 11,557 34,145
Cost of parts and service ..................................................... 10,865 18,765
-------- --------
Total cost of revenues ...................................................... 67,122 150,735
-------- --------
Gross profit ................................................................... 29,659 76,274
-------- --------
Other operating expenses
Selling, general and administrative expenses .................................. 21,264 41,939
Other depreciation and amortization ........................................... 1,587 6,203
Officer stock option compensation ............................................. -- 3,198
-------- --------
Total other operating expenses .............................................. 22,851 51,340
-------- --------
Income from operations ......................................................... 6,808 24,934
-------- --------
Other expense
Interest expense .............................................................. 6,880 24,065
Amortization of debt issue costs .............................................. 1,268 2,963
-------- --------
Total other expense ......................................................... 8,148 27,028
-------- --------
Income (loss) before income taxes, minority interest and extraordinary item .... (1,340) (2,094)
Benefit from income taxes ...................................................... 224 1,043
-------- --------
Income (loss) before minority interest and extraordinary item .................. (1,116) (1,051)
Minority interest .............................................................. -- (413)
-------- --------
Loss before extraordinary item ................................................. (1,116) (1,464)
Extraordinary loss, net of income taxes ........................................ -- (2,675)
-------- --------
Net loss ....................................................................... $ (1,116) $ (4,139)
======== ========
Basic and diluted loss per common share
Loss before extraordinary item ................................................. $ (0.79) $ (0.41)
Extraordinary loss, net ........................................................ -- (0.17)
-------- --------
Net loss ....................................................................... $ (0.79) $ (0.58)
======== ========
Weighted average common shares outstanding
Basic and diluted ............................................................. 8,465 15,834
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
NEFF CORP.
STATEMENT OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK A COMMON STOCK B ADDITIONAL
----------------- ----------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------- -------- -------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 ............ 8,465 $ 85 -- -- -- $ (24,820) $ (24,735)
Net loss .............................. -- -- -- -- -- (4,139) (4,139)
Preferred stock dividends accrued--
Series A, B and C .................... -- -- -- -- -- (1,010) (1,010)
Accretion of Series A, B and C
Preferred Stock ...................... -- -- -- -- -- (1,325) (1,325)
Exchange of Preferred Stock
Series B and C for Class B
Common Stock ......................... -- -- 6,000 $ 60 $ 44,876 -- 44,936
Conversion of Class B
Common Stock to
Class A Common Stock ................. 900 9 (900) (9) -- -- --
Net proceeds from Common offering ..... 6,700 67 -- -- 85,746 -- 85,813
Redemption of Series A
Preferred Stock ...................... -- -- -- -- (2,768) -- (2,768)
----- ---- ----- ---- -------- --------- ---------
Balance, September 30, 1998 ........... 16,065 $161 5,100 $ 51 $127,854 $ (31,294) $ 96,772
====== ==== ===== ==== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE>
NEFF CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ........................................................... $ (1,116) $ (4,139)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities
Depreciation and amortization ............................................. 18,590 49,492
Officer stock option compensation ......................................... -- 3,198
Gain on sale of equipment ................................................. (7,054) (17,709)
Minority interest ......................................................... -- 413
Extraordinary loss on debt extinguishment ................................. -- 2,675
Provision for (benefit from) deferred income taxes ........................ -- (1,043)
Change in operating assets and liabilities
Accounts receivable ....................................................... (3,992) (13,984)
Other assets .............................................................. (3,555) (2,127)
Accounts payable and accrued expenses ..................................... 6,833 19,174
Other .....................................................................
Net cash (used in) provided by operating activities ...................... 9,706 35,950
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment ...................................................... (107,451) (164,495)
Proceeds from sale of equipment ............................................. 36,019 75,208
Purchases of property and equipment ......................................... (15,570) (13,740)
Cash paid for acquisitions .................................................. (63,605) (155,660)
Other ....................................................................... -- 573
---------- ----------
Net cash used in investing activities .................................... (150,607) (258,114)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issue costs ............................................................ -- (5,072)
Net borrowings under Senior Credit Facility ................................. 125,788 120,088
Borrowings (repayments) under capitalized lease obligations ................. 1,928 (575)
Proceeds from issuance of senior subordinated notes ......................... -- 97,000
Proceeds from common stock offering ......................................... -- 85,813
Net repayments under term loan .............................................. -- (49,916)
Net borrowings (repayments) under notes and mortgages payable ............... 12,548 (11,375)
Redemption of Series A Preferred Stock ...................................... -- (13,915)
Distribution to stockholders ................................................ (2,936) --
---------- ----------
Net cash provided by financing activities ................................ 137,328 222,048
---------- ----------
Net increase (decrease) in cash and cash equivalents ........................ (3,573) (116)
Cash and cash equivalents, beginning of period .............................. 4,989 2,885
---------- ----------
Cash and cash equivalents, end of period .................................... $ 1,416 $ 2,769
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 1--UNAUDITED INTERIM INFORMATION
The accompanying interim consolidated financial data are unaudited;
however, in the opinion of management, the interim data include all adjustments
necessary for a fair presentation of the results for the interim periods. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
The results of operations for the nine months ended September 30, 1998 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1998.
The interim unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for
the year ended December 31, 1997 appearing elsewhere in this Prospectus.
NOTE 2--FISCAL QUARTERS
Effective October 1, 1997, the Company changed its fiscal reporting
periods to calendar quarters. Prior to October 1997, the Company's fiscal
quarters were based on three four-week periods.
NOTE 3--CHANGE IN ACCOUNTING POLICIES
During the first quarter of 1998, the Company adopted Statement No. 130
("SFAS 130"), Reporting Comprehensive Income, which establishes standards for
the reporting and display of comprehensive income and its components.
Comprehensive income includes certain non-owner changes in equity that are
currently excluded from net income. The adoption of SFAS 130 had no effect on
the Company's consolidated financial statements.
NOTE 4--ACQUISITIONS
During January 1998, the Company acquired substantially all of the assets
of Richbourg's Sales and Rentals, Inc. ("Richbourg") for approximately $100
million. Richbourg has rental equipment operations similar to the Company's
with 15 locations in three states. In connection with this acquisition, the
Company amended its Senior Credit Facility and executed a $100 million term
loan (the "Richbourg Term Loan") with terms and requirements similar to the
Company's Senior Credit Facility. This transaction was accounted for under the
purchase method. In connection with this purchase, goodwill of approximately
$40.8 million was recorded.
During May and June 1998, the Company acquired three equipment rental
companies for an aggregate purchase price of approximately $9.3 million. These
businesses have a total of three equipment rental locations in California,
Florida and Texas. Each of these transactions was accounted for under the
purchase method. In connection with these purchases, goodwill of approximately
$4.6 million was recorded.
On June 30, 1998, the Company acquired 65% of the outstanding stock of
Sullair Argentina Sociedad Anonima ("S.A. Argentina"), for approximately $36.1
million and earn-out payments equal
F-27
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 4--ACQUISITIONS--(CONTINUED)
to 82.8% of S.A. Argentina's net income for 1998 and 1999, with such earn-out
payments not to exceed $12.6 million in the aggregate. S.A. Argentina rents and
sells industrial and construction equipment throughout South America. In
connection with this purchase, goodwill of approximately $14.0 million was
recorded.
The following pro forma information has been prepared to reflect the
Industrial Equipment Rentals, Inc. (August 1997), Richbourg (January 1998), and
S.A. Argentina (June 1998) acquisitions as if they were consummated on January
1, 1997, after giving effect to certain pro forma adjustments described below
(in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Revenues ............................................ $187,809 $253,551
Net (loss) income ................................... $ (2,583) $ (2,993)
Basic and diluted earnings per common share ......... $ (0.97) $ (0.51)
</TABLE>
Pro forma adjustments reflect amortization of intangible assets,
depreciation of property and equipment and increased interest on borrowings to
finance the acquisitions. The unaudited pro forma information is based upon
certain assumptions and estimates and does not necessarily represent operating
results that would have occurred had the acquisitions been consummated as of
the beginning of the periods presented, nor is it necessarily indicative of
expected future operating results.
NOTE 5--COMMON STOCK
During May 1998, the Company consummated its initial public offering (the
"Offering") of 6.7 million shares of Class A Common Stock at $14 per share. The
Company received net proceeds of approximately $85.8 million.
NOTE 6--DEBT
During May 1998, the Company completed the sale of $100 million of Senior
Subordinated Notes due 2008 (the "Senior Notes") as well as the Offering (see
Note 5). The net proceeds of approximately $182.8 million from the sale of the
Senior Notes and the Offering were used to repay the Richbourg Term Loan,
redeem the Series A Cumulative Redeemable Preferred Stock, repay the mortgage
notes payable and reduce the amount outstanding under the Company's New Credit
Facility.
The Senior Notes bear interest at 101/4% per annum, payable semiannually
beginning December 1, 1998. The Senior Notes are senior unsecured obligations
of the Company and are redeemable at the option of the Company, in whole or in
part, on or after June 1, 2003, at pre-established redemption prices together
with accrued and unpaid interest to the redemption date.
On May 1, 1998, the Company amended and restated its $250 million
revolving credit facility (as amended and restated, the "New Credit Facility").
Borrowings under the New Credit Facility are based upon eligible accounts
receivable, rental fleet and inventory amounts. The interest rates on balances
outstanding under the New Credit Facility vary based upon the leverage ratio
maintained by
F-28
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 6--DEBT--(CONTINUED)
the Company and range from Prime to Prime plus 1.25% or LIBOR plus 1% to LIBOR
plus 2.25%. As a result of the repayment of the Richbourg Term Loan, the New
Credit Facility was extended to April 30, 2003.
During 1998, the Company recorded an extraordinary loss of approximately
$4.3 million from the write-off of debt issue costs associated with the early
extinguishment of debt, before the related income tax benefit of approximately
$1.6 million.
On September 9, 1998, the Company increased the New Credit Facility to
$310 million. There were no other changes to the terms and requirements under
the New Credit Facility.
At September 30, 1998, the Company had approximately $10.5 million of
letters of credit outstanding.
NOTE 7--PREFERRED STOCK
Effective March 25, 1998, General Electric Capital Corporation exchanged
its Series B and Series C Cumulative Convertible Redeemable Preferred Stock for
Class B Common Stock, liquidation preference $11.67.
NOTE 8--EARNINGS PER SHARE
The table below sets forth the figures used for net income (loss) per
common share and the weighted average common shares in determining basic and
diluted earnings (loss) per common share. The treasury stock method was used to
determine the dilutive effect of options on earnings per share data.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1997 1998
------------ ------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net income (loss) ............................................. $ (1,116) $ (4,139)
Deduct:
Preferred stock dividend ..................................... (2,892) (1,010)
Accretion of preferred stock ................................. (2,694) (4,093)
-------- --------
Net income (loss) (basic and diluted) ......................... $ (6,702) $ (9,242)
======== ========
Number of shares:
Weighted average common shares outstanding--Basic ............ 8,465 15,834
Employee stock options(1) .................................... -- --
-------- --------
Weighted average common shares--Diluted(2) ................... 8,465 15,834
======== ========
Net income (loss) per common share--Basic and Diluted ......... $ (0.79) $ (0.58)
======== ========
</TABLE>
- ----------------
(1) Assumes exercise of outstanding options at the beginning of the period, net
of 20% limitation, if applicable, on the assumed repurchase of stock by
the Company.
(2) The incremental shares resulting from the assumed exercise of options for
the nine months ended 1998 would be antidilutive and are therefore, excluded
from the computation of diluted earnings (loss) per share.
F-29
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 9--SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1998
--------- ----------
(IN THOUSANDS)
Supplemental Disclosure of Cash Flow Information
Cash paid for interest ........................ $5,163 $18,194
====== =======
Cash paid for taxes ........................... $ 608 $ 142
====== =======
NOTE 10--CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Neff Corp. ("Parent") issued $100 million of senior subordinated unsecured
notes on May 22, 1998. On June 30, 1998, Neff Corp. acquired 65% of S.A.
Argentina (See Note 4). 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 are not presented for periods prior
to July 1, 1998.
F-30
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 10--CONDENSED CONSOLIDATING FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARY PARENT ELIMINATIONS CONSOLIDATED
-------------- -------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ................... $ 1,670 $ 1,099 $ -- $ -- $ 2,769
Accounts receivable, net .................... 44,165 16,991 -- -- 61,156
Inventories ................................. 12,170 17,124 -- -- 29,294
Rental equipment, net ....................... 308,115 20,515 -- -- 328,630
Property and equipment, net ................. 23,653 10,299 10,547 -- 44,499
Goodwill, net ............................... 79,070 -- -- 13,824 92,894
Deferred tax asset, net ..................... (1,439) (603) 5,269 -- 3,227
Prepaid expenses and other assets ........... 3,523 300 70,973 (66,791) 8,005
(Due to) from affiliates .................... (158,413) -- 158,413 -- --
---------- ------- --------- --------- ---------
Total assets .............................. $ 312,514 $65,725 $ 245,202 $ (52,967) $ 570,474
========== ======= ========= ========= =========
LIABILITIES AND COMMON
STOCKHOLDERS EQUITY (DEFICIT)
Liabilities
Accounts payable ........................... $ 14,903 $12,958 $ 240 $ -- $ 28,101
Accrued expenses ........................... 20,122 1,018 11,161 -- 32,301
Senior credit facility ..................... 244,884 -- 37,029 -- 281,913
101/4% senior subordinated notes ........... -- -- 100,000 -- 100,000
Notes payable .............................. 801 16,506 -- -- 17,307
Capitalized lease obligations .............. 1,745 -- -- -- 1,745
---------- ------- --------- --------- ---------
282,455 30,482 148,430 -- 461,367
---------- ------- --------- --------- ---------
Commitments and contingencies ............... -- -- -- -- --
Minority interest ........................... -- -- -- 12,335 12,335
Common 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 13 127,854 (37,090) 127,854
Retained earnings
(accumulated deficit) .................... (7,018) 35,140 (31,294) (28,122) (31,294)
---------- ------- --------- --------- ---------
Total common stockholders' equity ......... 30,059 35,243 96,772 (65,302) 96,772
---------- ------- --------- --------- ---------
Total liabilities and common
stockholders' equity .................... $ 312,514 $65,725 $ 245,202 $ (52,967) $ 570,474
========== ======= ========= ========= =========
</TABLE>
F-31
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 10--CONDENSED CONSOLIDATING FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARY PARENT ELIMINATIONS CONSOLIDATED
-------------- -------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues
Rental revenue ................................... $ 47,305 $ 3,353 $ -- $ -- $50,658
Equipment sales .................................. 21,181 6,355 -- -- 27,536
Parts and service ................................ 9,849 2,409 -- -- 12,258
-------- ------- -------- ------ -------
Total revenues .................................. 78,335 12,117 -- -- 90,452
Cost of revenues
Cost of equipment sold ........................... 16,608 5,378 -- -- 21,986
Depreciation of rental equipment ................. 14,397 1,086 -- -- 15,483
Maintenance of rental equipment .................. 12,920 1,009 -- -- 13,929
Cost of parts and service ........................ 6,201 1,825 -- -- 8,026
-------- ------- -------- ------ -------
Total cost of revenues .......................... 50,126 9,298 -- -- 59,424
-------- ------- -------- ------ -------
Gross profit ...................................... 28,209 2,819 -- -- 31,028
-------- ------- -------- ------ -------
Other operating expenses
Selling, general and administrative
expenses ....................................... 15,784 680 282 -- 16,746
Other depreciation and amortization .............. 2,031 190 147 -- 2,368
-------- ------- -------- ------ -------
Total other operating expenses .................. 17,815 870 429 -- 19,114
-------- ------- -------- ------ -------
Income from operations ............................ 10,394 1,949 (429) -- 11,914
-------- ------- -------- ------ -------
Other expense
Interest expense ................................. 7,591 475 751 -- 8,817
Amortization of debt issue costs ................. 87 -- 88 -- 175
-------- ------- -------- ------ -------
Total other expense ............................. 7,678 475 839 -- 8,992
-------- ------- -------- ------ -------
Income (loss) before income taxes and
minority interest ................................ 2,716 1,474 (1,268) -- 2,922
(Provision for) benefit from income taxes ......... (1,019) (295) 476 -- (838)
-------- ------- -------- ------ -------
Income (loss) before minority interest ............ 1,697 1,179 (792) -- 2,084
Minority interest ................................. -- -- -- (413) (413)
-------- ------- -------- ------ -------
Net income (loss) ................................. $ 1,697 $ 1,179 $ (792) $ (413) $ 1,671
======== ======= ======== ====== =======
</TABLE>
F-32
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 10--CONDENSED CONSOLIDATING FINANCIAL INFORMATION--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARY PARENT ELIMINATIONS CONSOLIDATED
-------------- -------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues
Rental revenue ................................... $119,609 $ 3,353 $ -- $ -- $122,962
Equipment sales .................................. 68,853 6,355 -- -- 75,208
Parts and service ................................ 26,430 2,409 -- -- 28,839
-------- ------- -------- ------ --------
Total revenues .................................. 214,892 12,117 -- -- 227,009
-------- ------- -------- ------ --------
Cost of revenues
Cost of equipment sold ........................... 52,121 5,378 -- -- 57,499
Depreciation of rental equipment ................. 39,240 1,086 -- -- 40,326
Maintenance of rental equipment .................. 33,136 1,009 -- -- 34,145
Cost of parts and service ........................ 16,940 1,825 -- -- 18,765
-------- ------- -------- ------ --------
Total cost of revenues .......................... 141,437 9,298 -- -- 150,735
-------- ------- -------- ------ --------
Gross profit ...................................... 73,455 2,819 -- -- 76,274
-------- ------- -------- ------ --------
Other operating expenses
Selling, general and administrative
expenses ....................................... 40,861 680 398 -- 41,939
Other depreciation and amortization .............. 5,810 190 203 -- 6,203
Officer stock option compensation ................ -- -- 3,198 -- 3,198
Total other operating expenses .................. 46,671 870 3,799 -- 51,340
-------- ------- -------- ------ --------
Income from operations ............................ 26,784 1,949 (3,799) -- 24,934
Other (income) expense
Interest expense ................................. 22,696 475 894 -- 24,065
Amortization of debt issue costs ................. 2,845 -- 118 -- 2,963
-------- ------- -------- ------ --------
Total other expense ............................. 25,541 475 1,012 -- 27,028
-------- ------- -------- ------ --------
Income (loss) before income taxes, minority
interest and extraordinary item .................. 1,243 1,474 (4,811) -- (2,094)
(Provision for) benefit from income taxes ......... (466) (295) 1,804 -- 1,043
-------- ------- -------- ------ --------
Income (loss) before minority interest and
Extraordinary item ............................... 777 1,179 (3,007) -- (1,051)
Minority interest ................................. -- -- -- (413) (413)
-------- ------- -------- ------ --------
Income (loss) before extraordinary item ........... 777 1,179 (3,007) (413) (1,464)
Extraordinary loss, net ........................... (2,675) -- -- -- (2,675)
-------- ------- -------- ------ --------
Net income (loss) ................................. $ (1,898) $ 1,179 $ (3,007) $ (413) $ (4,139)
======== ======= ======== ====== ========
</TABLE>
F-33
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 10--CONDENSED CONSOLIDATING FINANCIAL INFORMATION--(CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARY
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ........................................ $ (1,898) $ 1,179
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization ........................... 47,895 1,276
Officer stock option compensation ....................... -- --
Gain on sale of equipment ............................... (16,732) (977)
Minority Interest ....................................... -- --
Extraordinary loss on debt extinguishment ............... 2,675 --
Provision for (benefit from) deferred income taxes ...... 466 295
Change in operating assets and liabilities
Accounts receivable ..................................... (13,540) (444)
Inventories ............................................. -- --
Other assets ............................................ (2,117) (53)
Accounts payable and accrued expenses ................... 13,606 1,765
----------- ---------
Net cash provided by operating activities ............... 30,355 3,041
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment ................................... (154,812) (9,683)
Proceeds from sale of equipment .......................... 68,853 6,355
Purchases of property and equipment ...................... (12,106) (1,277)
Cash paid for acquisitions ............................... (119,607) --
Other .................................................... 573 --
----------- ---------
Net cash used in investing activities ................... (217,099) (4,605)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issue costs ......................................... (4,814) --
Net borrowings under senior credit facility .............. 83,059 --
Net repayments under capitalized lease obligations ....... (575) --
Proceeds from issuance of senior subordinated notes ...... -- --
Proceeds from common stock offering ...................... -- --
Net repayments under term loan ........................... (49,916) --
Net borrowings (repayments) under notes and
mortgage payable ........................................ (259) 2,284
Redemption of Series A Preferred Stock ................... -- --
Due to (from) affiliates ................................. 158,413 --
----------- ---------
Net cash provided by financing activities ............... 185,908 2,284
----------- ---------
Net (decrease) increase in cash and cash equivalents ..... (836) 720
Cash and cash equivalents, beginning of period ........... 2,885 --
----------- ---------
Cash and cash equivalents, end of period ................. $ 2,049 $ 720
=========== =========
<CAPTION>
PARENT ELIMINATIONS CONSOLIDATED
------------- -------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ........................................ $ (3,007) $ (413) $ (4,139)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization ........................... 321 -- 49,492
Officer stock option compensation ....................... 3,198 -- 3,198
Gain on sale of equipment ............................... -- -- (17,709)
Minority Interest ....................................... -- 413 413
Extraordinary loss on debt extinguishment ............... -- -- 2,675
Provision for (benefit from) deferred income taxes ...... (1,804) -- (1,043)
Change in operating assets and liabilities
Accounts receivable ..................................... -- -- (13,984)
Inventories ............................................. -- -- --
Other assets ............................................ 43 -- (2,127)
Accounts payable and accrued expenses ................... 3,803 -- 19,174
----------- ------ -----------
Net cash provided by operating activities ............... 2,554 -- 35,950
----------- ------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment ................................... -- -- (164,495)
Proceeds from sale of equipment .......................... -- -- 75,208
Purchases of property and equipment ...................... (357) -- (13,740)
Cash paid for acquisitions ............................... (36,053) -- (155,660)
Other .................................................... -- -- 573
----------- ------ -----------
Net cash used in investing activities ................... (36,410) -- (258,114)
----------- ------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issue costs ......................................... (258) -- (5,072)
Net borrowings under senior credit facility .............. 37,029 -- 120,088
Net repayments under capitalized lease obligations ....... -- -- (575)
Proceeds from issuance of senior subordinated notes ...... 97,000 -- 97,000
Proceeds from common stock offering ...................... 85,813 -- 85,813
Net repayments under term loan ........................... -- -- (49,916)
Net borrowings (repayments) under notes and
mortgage payable ........................................ (13,400) -- (11,375)
Redemption of Series A Preferred Stock ................... (13,915) -- (13,915)
Due to (from) affiliates ................................. (158,413) -- --
----------- ------ -----------
Net cash provided by financing activities ............... 33,856 -- 222,048
----------- ------ -----------
Net (decrease) increase in cash and cash equivalents ..... -- -- (116)
Cash and cash equivalents, beginning of period ........... -- -- 2,885
----------- ------ -----------
Cash and cash equivalents, end of period ................. $ -- $ -- $ 2,769
=========== ====== ===========
</TABLE>
F-34
<PAGE>
To the Stockholders of
Industrial Equipment Rentals, Inc.
We have audited the accompanying consolidated balance sheets of Industrial
Equipment Rentals, Inc. (a Delaware corporation), and subsidiary (the Company)
as of July 31, 1996 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended July 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of July 31, 1996 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended July 31, 1997, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements do not reflect any
adjustments associated with the sale of the Company on August 1, 1997 (see Note
2).
ARTHUR ANDERSEN LLP
Houston, Texas
September 18, 1997
F-35
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
JULY 31,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ............................................... $ 2,160 $ 1,582
Accounts receivable, net ................................................ 5,487 6,058
Inventories ............................................................. 1,321 1,247
Prepaid expenses and other .............................................. 1,006 1,100
--------- ---------
Total Current Assets ................................................... 9,974 9,987
Property, Plant and Equipment, at Cost
Rental equipment ........................................................ 37,890 39,812
Other ................................................................... 4,626 5,100
--------- ---------
42,516 44,912
Less: Accumulated depreciation .......................................... (10,729) (16,779)
--------- ---------
31,787 28,133
Other Assets, net ........................................................ 2,306 1,787
--------- ---------
Total Assets ........................................................... $ 44,067 $ 39,907
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable ........................................................ $ 2,345 $ 1,956
Accrued expenses ........................................................ 1,845 1,602
Current portion of subordinated debentures .............................. 0 8,171
Capital lease obligation ................................................ 103 74
Current portion of long-term debt ....................................... 5,809 22,630
--------- ---------
Total Current Liabilities .............................................. 10,102 34,433
Long-Term Liabilities
Long-term debt, less current portion .................................... 21,288 621
Other long-term liabilities ............................................. 454 225
Subordinated debentures, less current portion ........................... 7,811 0
Deferred taxes .......................................................... 831 1,078
--------- ---------
Total Long-Term Liabilities ............................................ 30,384 1,924
--------- ---------
Total Liabilities ...................................................... 40,486 36,357
--------- ---------
Senior mandatorily redeemable convertible preferred stock, Series A
$1 par; 107,500 shares outstanding; $20 per share redemption value...... 1,226 1,347
--------- ---------
Stockholders' Equity
Senior redeemable convertible preferred stock, Series B ................. 495 495
Junior preferred stock .................................................. 19 19
Common stock, $.01 par; 876,500 and 881,500 shares
outstanding, respectively ............................................. 9 9
Paid-in capital ......................................................... 2,806 2,806
Retained deficit ........................................................ (974) (1,126)
--------- ---------
Total Stockholders' Equity ............................................. 2,355 2,203
--------- ---------
Total Liabilities and Stockholders' Equity ............................. $ 44,067 $ 39,907
========= =========
</TABLE>
The following notes are an integral part of these consolidated financial
statements.
F-36
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rentals and related revenues ............................................ $17,522 $26,056 $30,012
Sales revenues .......................................................... 3,841 4,225 3,999
Sales of fixed assets ................................................... 1,798 2,925 1,860
------- ------- -------
Total Revenues ......................................................... 23,161 33,206 35,871
Costs and Expenses:
Rentals and related expenses ............................................ 4,374 6,663 7,019
Cost of sales ........................................................... 2,611 3,353 3,155
Cost of fixed assets disposed ........................................... 748 2,016 1,203
Wages and benefits ...................................................... 6,461 8,671 9,075
Depreciation ............................................................ 3,454 5,961 7,308
Facilities .............................................................. 864 1,400 1,636
Selling and administrative expenses ..................................... 1,446 1,796 1,659
Amortization expense .................................................... 533 596 689
------- ------- -------
Total Costs and Expenses ............................................... 20,491 30,456 31,744
------- ------- -------
Operating Income ......................................................... 2,670 2,750 4,127
Interest expense ........................................................ 2,001 3,057 3,291
Other ................................................................... 97 97 328
------- ------- -------
Income (Loss) Before Taxes ............................................... 572 (404) 508
Income Tax Expense (Benefit) ............................................ 267 (47) 296
------- ------- -------
Net Income (Loss) Before Extraordinary Item .............................. 305 (357) 212
Extraordinary loss on debt refinancing, net of tax benefit of $83........ -- (136) --
------- ------- -------
Net Income (Loss) ........................................................ $ 305 $ (493) $ 212
======= ======= =======
</TABLE>
The following notes are an integral part of these consolidated financial
statements.
F-37
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SENIOR
REDEEMABLE
CONVERTIBLE
PREFERRED JUNIOR
STOCK PREFERRED COMMON PAID-IN RETAINED
SERIES B STOCK STOCK CAPITAL DEFICIT TOTAL
------------ ----------- -------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1994 .................... $ -- $19 $ 9 $1,490 $ (58) $1,460
Net Income ................................ -- -- -- -- 305 305
Proceeds from Preferred Stock Issuance .... 495 -- -- 1,318 -- 1,813
Dividends ................................. -- -- -- -- (243) (243)
Accretion of Preferred Stock .............. -- -- -- -- (121) (121)
---- --- --- ------ -------- ------
Balance, July 31, 1995 .................... 495 19 9 2,808 (117) 3,214
Net Loss .................................. -- -- -- -- (493) (493)
Cost of Preferred Stock
Issuance ................................ -- -- -- (2) -- (2)
Dividends ................................. -- -- -- -- (243) (243)
Accretion of Preferred Stock .............. -- -- -- -- (121) (121)
---- --- --- ------ -------- ------
Balance, July 31, 1996 .................... 495 19 9 2,806 (974) 2,355
Net Income ................................ -- -- -- -- 212 212
Dividends ................................. -- -- -- -- (243) (243)
Accretion of Preferred Stock .............. -- -- -- -- (121) (121)
---- --- --- ------ -------- ------
Balance, July 31, 1997 .................... $495 $19 $ 9 $2,806 $ (1,126) $2,203
==== === === ====== ======== ======
</TABLE>
The following notes are an integral part of these consolidated
financial statements.
F-38
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31,
----------------------------------------
1995 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) ................................................... $ 305 $ (493) $ 212
Depreciation and amortization expense ............................... 3,987 6,557 7,997
Less: Gain on sale of property and equipment ........................ (966) (909) (657)
Increase (decrease) in deferred tax liability ....................... 259 (192) 247
Increase (decrease) in operating cash flows resulting from:
Accounts receivable ................................................ (1,088) (746) (311)
Inventories ........................................................ (534) 511 73
Prepaid expense and other .......................................... 165 69 151
Accounts payable ................................................... 973 (395) (402)
Accrued expenses ................................................... 309 479 (257)
-------- --------- --------
Net Cash Provided by Operating Activities ............................ 3,410 4,881 7,053
Cash Flows from Investing Activities:
Cost of acquisitions, net ........................................... (96) (3,481) (1,710)
Purchases of property and equipment
Rental equipment ................................................... (4,866) (10,101) (3,376)
Other property and equipment ....................................... (1,070) (1,277) (432)
Proceeds from sale of property and equipment ........................ 1,798 2,925 1,860
-------- --------- --------
Net Cash used for Investing Activities ............................... (4,234) (11,934) (3,658)
Cash Flows from Financing Activities:
Payments of equipment contracts ..................................... (752) (1,924) (2,675)
Retirement of debt on equipment contracts ........................... (397) (1,600) (328)
Payments/principal reductions on term loan .......................... (3,015) (2,166) (995)
Payments of other long-term capital financings ...................... (139) (229) (3,891)
Net borrowings under revolving facility ............................. 1,156 1,818 332
Proceeds from Capex notes ........................................... 4,362 7,151 3,466
Proceeds from issuance of subordinated debentures, including interest
payable ........................................................... 3,666 337 361
Cost relating to issuance of subordinated debentures ................ (42) -- --
Proceeds from issuance of Series B senior redeemable convertible
preferred stock, net .............................................. 1,813 -- --
Cost relating to refinancing of debt agreement ...................... -- 129 --
Dividends paid on preferred stock ................................... (243) (243) (243)
-------- --------- --------
Net Cash Provided by (used for) Financing Activities ................. 6,409 3,273 (3,973)
Net Increase (Decrease) in Cash and cash equivalents ................. 5,585 (3,780) (578)
Cash and cash equivalents at beginning of period .................... 355 5,940 2,160
-------- --------- --------
Cash and cash equivalents at end of period .......................... $ 5,940 $ 2,160 $ 1,582
======== ========= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Vendor financing of equipment purchases ............................. $ 618 $ 8,408 $ 1,430
Business assets acquired through seller financing ................... 90 750 266
Proceeds from capital lease obligations ............................. -- 79 --
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest ........................................................... $ 1,972 $ 3,010 $ 2,926
Income taxes ....................................................... 25 70 48
</TABLE>
The following notes are an integral part of these consolidated financial
statements.
F-39
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
The accompanying consolidated financial statements include the accounts of
Industrial Equipment Rentals, Inc. ("IER") and its wholly-owned subsidiary,
Buckner Rental Service, Inc. ("BRS," formerly IER Acquisition Corp.). IER and
BRS (the "Company"), were incorporated in the state of Delaware in May 1993.
The Company is a full service equipment rental company servicing industrial,
commercial and construction customers along the Gulf Coast. The Company rents,
sells and services a broad line of construction and industrial equipment at
each of its rental locations.
NOTE 2--SALE OF BUSINESS AND BASIS OF ACCOUNTING
Effective August 1, 1997, the Company shareholders sold their stock in the
Company to Neff Corp. The accompanying consolidated financial statements
present the Company's financial position as of July 31, 1996 and 1997 and the
results of operations and cash flows for the three years in the period ended
July 31, 1997, prior to the sale. Accordingly, the consolidated financial
statements do not include any of the expected purchase price adjustments
associated with the sale of the Company listed below, among others.
a. A pushdown of the buyer's purchase accounting, (including elimination
of existing goodwill) was made immediately following the sale of the
Company.
b. In connection with the above transaction, the Company's corporate
structure has been reorganized. As part of the restructuring, IER was
merged into its wholly-owned subsidiary ("BRS"), which has become the
wholly-owned subsidiary of another corporate entity. Shortly after
closing the transaction, the newly merged entity was merged into its
new owner.
c. Due to the redemption of the 107,500 shares of non-voting $1 par
Series A Senior Redeemable Convertible Preferred Stock (the "Senior
Series A") on August 1, 1997, there was a charge to retained earnings
of $0.8 million to accrete the stock to its redemption value (see Note
9). A similar charge of $0.4 million was made for the redemption of
the 18,936 shares of non-voting, $1 par Junior Preferred Stock (the
"Junior Series") along with adjustments for conversion of the 495,000
shares of voting $1 par Series B Redeemable Convertible Preferred
Stock (the "Senior Series B") into one share of common stock which
were redeemed for $10.2 million immediately upon sale of the Company
(see Note 9).
d. On August 1, 1997, substantially all of the Company's long-term debt
was repaid using proceeds from the sale. As a result, the Company was
required to pay approximately $81,000 in prepayment penalties and
write off a total of $0.1 milion in unamortized debt issue costs
immediately after the long-term debt was paid.
e. The Company incurred $1 million in closing fees, including $0.3
million in closing bonuses, in conjunction with the sale.
f. Due to the change of control and separate return limitations as a
result of the sale of the Company, the deferred tax assets recorded
for federal and state tax net operating losses and alternative minimum
tax carryforwards of approximately $2.1 million as of July 31, 1997
will be subject to restrictions on use. No adjustment has been
reflected in the accompanying financial statements to allow for such
potential restrictions.
F-40
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and BRS. All significant intercompany accounts and transactions
have been eliminated.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
The Company recognizes revenue on monthly contracts and other open
contracts based on the number of days of equipment usage occurring prior to the
end of the fiscal year. Accounts receivable are net of allowances for doubtful
accounts of $0.2 million at July 31, 1996 and 1997.
INVENTORIES
The Company maintains inventories of equipment for resale, parts,
merchandise and tools. Inventories are valued at the lower of cost (first-in,
first-out) or market. There was no work-in-process inventory at July 31, 1996
or 1997.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets. Rental
equipment with useful lives of five, seven and ten years is depreciated to a 20
percent salvage value at the end of their useful lives. All other property and
equipment is fully depreciated with no salvage value assumed. Prior to August
1, 1994, no salvage values were assumed on rental equipment with useful lives
of five and seven years. The change in estimate reduced depreciation expense by
approximately $0.6 million in the fiscal year ended July 31, 1995. Expenditures
for major additions and improvements are capitalized while minor replacements,
maintenance and repairs are charged to expense as incurred. Sales of the
Company's rental fleet are common but incidental to the Company's primary
rental business and are typically made to rental customers. When property is
retired, sold or otherwise disposed of, the cost and accumulated depreciation
are removed from the related accounts, and any proceeds are recognized as
revenues and included in the statement of operations.
F-41
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
In March 1995, Statement of Financial Accounting Standards SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," was issued. SFAS No. 121, which became effective for fiscal
years beginning after December 15, 1995, requires that certain long-lived
assets be reviewed for impairment whenever events indicate that the carrying
amount of an asset may not be recoverable and that an impairment loss be
recognized under certain circumstances in the amount by which the carrying
value exceeds the fair market value of the asset. The Company adopted SFAS No.
121 in the fiscal year ended July 31, 1997, as required, and the adoption did
not have a material effect on the Company's results of operations or financial
position.
OTHER ASSETS
Other assets consist of the following at July 31 (in thousands):
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD 1996 1997
------------- ----------- -----------
<S> <C> <C> <C>
Long-term portion of note receivable ......... N/A $ 247 $ --
Debt issue costs ............................. 5 yrs 204 204
Goodwill ..................................... 5,20 yrs 775 990
Non-competition agreements ................... 2,5 yrs 2,572 2,772
Other ........................................ N/A 36 38
-------- --------
3,834 4,004
Less: Accumulated amortization ............... (1,528) (2,217)
-------- --------
$ 2,306 $ 1,787
======== ========
</TABLE>
ACCOUNTING FOR INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109
"Accounting for Income Taxes," which requires that deferred income taxes be
computed using the liability method. Under the liability method, deferred
income taxes are recognized for the tax consequences of "temporary differences"
by applying statutory tax rates to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. Under
SFAS No. 109, the effect on deferred taxes of a change in tax rates is
recognized in the consolidated statement of operations in the period of the
enactment date.
RECLASSIFICATIONS
Certain amounts for the prior years have been reclassified to conform with
the current year presentation.
NOTE 4--ACQUISITIONS
A-L RENTAL CENTER
On June 14, 1995, the Company purchased substantially all of the assets of
A-l Rental Center. The acquisition price of $186,000 consisted of $90,000 in
cash, a $90,000 promissory note with 60 equal
F-42
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--ACQUISITIONS--(CONTINUED)
monthly payments with final payment due June 14, 2000, and directly related
acquisition expenses of $6,000. As part of the transaction, the Company entered
into a noncompetition agreement with the seller for the payment of $1,333 per
month commencing on July 14, 1995, with the last payment due and payable on
June 14, 2000. The Company also entered into an agreement to lease a facility
owned by the seller. The lease is an operating lease and requires payments of
$2,200 a month over a period of five years.
RENTAL WORLD
On August 1, 1995, the Company purchased substantially all of the assets
of Rental World of the Valley, Inc. ("Rental World"). The acquisition price of
$4.3 million consisted of $3.5 million in cash, $1.5 million of which was
funded using proceeds of a term loan, a $0.8 million promissory note dated
August 1, 1995 bearing interest at 7%, along with directly related acquisition
expenses of $55,600, of which $52,800 had been incurred as of July 31, 1995.
The promissory note is payable in twenty-four interest-only monthly
installments of $4,375 beginning September 1, 1995, and is equal to the
interest accrued on the principal, and forty-eight consecutive monthly
installments of principal and interest of $17,960 beginning on September 1,
1997. As part of the transaction, the Company entered into a noncompetition
agreement with the seller for the payment of $8,333 per month commencing on
September 1, 1995 with the last payment due and payable on August 1, 2000.
In conjunction with the acquisition, the Company entered into five year
lease agreements, commencing on the purchase date, to lease four of the rental
properties of the previous owner. The yearly rental expense of the four
payments is $0.2 million and is included in facilities expense.
CAMERON
On October 1, 1996, the Company purchased all of the assets of Cameron
Rental and Tank, Inc. (Cameron). The acquisition price of $1.5 million
consisted of $1.2 million in cash, a $0.3 million non-interest bearing
promissory note dated October 1, 1996 and acquisition expenses of $13,500. A
portion of the cash purchase price was funded using proceeds from the Capex
facility. The promissory note matured on January 28, 1997 and the face amount
was reduced by $6,453 in accordance with the terms of the note which required
an adjustment for the amount of cash collected by the Company 90 days after the
closing from accounts receivable and accrued or unbilled revenue of Cameron
above or below $0.3 million. As part of the transaction, the Company entered
into non-competition agreements for a period of two years with the two officers
of Cameron for the payment of $0.1 million to each payable at closing.
In conjunction with the acquisition, the Company entered into an agreement
to lease a facility owned by one of the officers of Cameron. The lease is an
operating lease and requires payments of $2,250 a month over a period of five
years.
The A-1 Rental Center, Rental World and Cameron acquisitions were
accounted for as purchases and accordingly, the purchase prices were allocated
to assets acquired based on their estimated fair market values. The results of
operations of the acquired assets are included in the accompanying financial
statements since the effective date of each acquisition.
The pro forma operating results for these acquisitions have not been
disclosed either because the effect of the acquisitions was not material (in
the case of A-1 Rental Center) or the acquisitions took place at or near the
beginning of the fiscal year.
F-43
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of July 31, 1996 and
1997 (in thousands):
<TABLE>
<CAPTION>
USEFUL LIFE 1996 1997
------------- ------------ ------------
<S> <C> <C> <C>
Rental fleet ...................................... 2-10 yrs $ 37,890 $ 39,812
Autos and trucks .................................. 3, 5, 7yrs 621 678
Buildings ......................................... 31.5 yrs 432 432
Furniture, fixtures and office equipment .......... 5 yrs 1,010 1,091
Leasehold improvements ............................ 5, 10 yrs 1,375 1,572
Land .............................................. N/A 322 322
Shop equipment .................................... 5 yrs 866 1,005
--------- ---------
42,516 44,912
Less: Accumulated depreciation .................... (10,729) (16,779)
--------- ---------
$ 31,787 $ 28,133
========= =========
</TABLE>
NOTE 6--LONG-TERM DEBT AND SUBORDINATED DEBT
Substantially all of the Company's debt was repaid subsequent to July 31,
1997 as a result of the sale of the Company and accordingly, is classified as
current liabilities in the accompanying consolidated balance sheet (see Note
2).
Secured and unsecured long-term debt consists of the following at July 31,
1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
---------- ------------
<S> <C> <C>
The Credit Agreement:
Term Loan and Revolving Facility ................ $ 11,227 $ 8,417
Capex Facility .................................. 5,897 6,435
-------- ---------
17,124 14,852
Equipment Contracts .............................. 9,149 7,592
Promissory Notes ................................. 824 807
-------- ---------
Senior Secured Borrowings ........................ 27,097 23,251
Less: Current Portion ............................ (5,809) (22,630)
-------- ---------
Total Long-Term Debt ........................... $ 21,288 $ 621
======== =========
9% Subordinated Debentures plus interest ......... $ 4,011 $ 4,371
12% Subordinated Debentures ...................... 3,800 3,800
-------- ---------
Total Subordinated Debentures .................. $ 7,811 $ 8,171
======== =========
</TABLE>
THE CREDIT AGREEMENT
On July 31, 1997, the Company had in place a credit facility that
originated on June 18, 1993 under a loan and security agreement (the "Credit
Agreement") with a financial institution (the "Lender") that initially provided
BRS with a borrowing base of up to $12 million which was increased to $18
million on July 21, 1994 ("Amendment No. 1") and $27 million on August 18, 1995
F-44
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LONG-TERM DEBT AND SUBORDINATED DEBT--(CONTINUED)
("Amendment No. 3"). The Credit Agreement provides for a term loan (the "Term
Loan") as well a revolving line of credit (the "Revolving Facility") and a
capital expenditure facility (the "Capex Facility").
The Credit Agreement was significantly amended through Amendment No. 3 to
include equipment and other eligible inventory held for resale in the borrowing
base and extend the original term of the Credit Agreement to August 31, 2000.
The existing balances as of August 18, 1995, in the Revolving Facility and the
Capex Facility were converted into the Term Loan and an additional $1 million
was funded by the Lender to increase the principal balance in the Term Loan to
$15 million. Borrowing capacity under the Capex Facility was increased to $12
million. In consideration of Amendment No. 3, the Company agreed to pay the
Lender an amendment fee of $90,000 which was paid upon the execution by
Borrower. As of July 31, 1996, the unamortized amount of this fee was $72,000
of which a total of $18,000 was expensed ratably during fiscal year 1997. Due
to the significant modification of the Credit Agreement, the remaining
unamortized balance of previous debt issue costs related to this Credit
Agreement of $0.2 million was expensed during fiscal year ended July 31, 1996
and have been reflected in the Company's consolidated statement of operations
as an extraordinary item net of income tax benefit of $83,355. During fiscal
1996 and 1997, minor modifications were made to the Credit Agreement covenants
by amendments No. 4, No. 5 and No. 6; the associated costs of these minor
amendments were expensed in the respective periods.
The Lender has a security interest in substantially all of the Company's
assets except for otherwise encumbered equipment financed by creditors other
than the Lender. The Credit Agreement requires the maintenance of certain
covenants. As of July 31, 1997, the Company was in compliance with or obtained
waivers for all such covenants. The Credit Agreement restricts BRS from
advancing or paying dividends to IER if BRS is in default under the Credit
Agreement or if its available borrowings under the Revolving Facility are below
a specified amount. Amounts outstanding under the Credit Agreement bear
interest at a rate equal to prime rate plus 2.0 percent (10.75 percent
effective rate) at July 31, 1995 prior to Amendment No. 3 and prime plus 1.5
percent thereafter or, alternatively, at the Company's option, LIBOR plus 4
percent. The Company elected the LIBOR option and as of July 31, 1996 and 1997,
the effective rates were 9.45 percent and 9.63 percent, respectively.
The Revolving Facility may be used by the Company to meet general working
capital requirements, purchase equipment, finance down payments on certain
third-party financed equipment purchases, and issue letters of credit. The
total borrowings available under the Revolving Facility are approximately equal
to 80 percent of the Company's eligible accounts receivable, 65 percent of
eligible inventory of equipment held for sale, and 50 percent of eligible
inventory comprised of all goods (other than equipment) intended for sale,
rental or lease and all work in process and raw materials not to exceed $0.4
million. Additionally, the Revolving Facility is limited to remaining
borrowings under the $27 million total credit facility after subtraction of the
Term Loan and the Capex Facility. As of July 31, 1996 and 1997, there were no
outstanding balances on the Revolving Facility. As calculated, $3.2 million and
$4.7 million of additional borrowing was available as of July 31, 1996 and
1997, respectively.
In accordance with the Credit Agreement, proceeds from the sale of
collateralized rental equipment sold in the ordinary course of business of $1.3
million during fiscal 1996 and $1 million
F-45
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LONG-TERM DEBT AND SUBORDINATED DEBT--(CONTINUED)
during fiscal 1997 were applied to the outstanding principal balance of the
Term Loan and, as a result, the scheduled monthly payments of principal were
reduced. The outstanding balance on the Term Loan and Revolving Facility was
$11.2 million and $8.4 million as of July 31, 1996 and 1997, respectively, and
was paid in full on August 1, 1997 in conjunction with the sale of the Company
(see Note 2).
The Capex Facility may be used by the Company to finance up to 80 percent
of the purchase price of capital expenditures. At six month intervals, any
outstanding Capex Loan balance is converted into a Capex Note which must be
repaid in sixty ratable monthly payments. During August 1996 and March 1997,
portions of the Capex Loan were converted into Capex Notes in the amount of
$6.1 million and $1.3 million, respectively. During fiscal 1997, $1.2 million
in principal payments were made against these notes. Interest on the Capex Loan
is charged against the Revolving Facility each month.
EQUIPMENT CONTRACTS
The equipment contracts, bearing interest at rates ranging from 7.5
percent to 11 percent, are secured by equipment purchased and are payable in
various monthly principal installments.
SUBORDINATED DEBENTURES
The total amount of subordinated debentures outstanding was $7.8 million
and $8.2 million as of July 31, 1996 and 1997, respectively. These amounts
include $3.8 million as of July 31, 1996 and 1997 of subordinated debentures
that bear interest which is payable quarterly at a rate of 12 percent per annum
(the "12% Subordinated Debentures") and $3.7 million in subordinated debentures
that bear interest at a rate of nine percent per annum (the "9% Subordinated
Debentures") as well as accrued interest payable of $0.3 million at July 31,
1996 and $0.7 million at July 31, 1997 on the 9% Subordinated Debentures. All
debentures are owed to a group of the Company's preferred shareholders and were
paid in full on August 1, 1997 in conjunction with the sale of the Company (see
Note 2). As of July 31, 1996 and 1997, accrued interest payable on the 12%
Subordinated Debentures was $38,000.
F-46
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LONG-TERM DEBT AND SUBORDINATED DEBT--(CONTINUED)
DEBT MATURITIES
The aggregate annual maturities of the senior secured subordinated and
unsecured debt as of July 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED CREDIT EQUIPMENT CONTRACTS SUBORDINATED
JULY 31 AGREEMENT AND PROMISSORY NOTES DEBENTURES TOTAL
- ----------------------- ----------- ---------------------- ------------- ----------
<S> <C> <C> <C> <C>
1998 ............. $14,852 $7,778 $8,171 $30,801
1999 ............. -- 200 -- 200
2000 ............. -- 213 -- 213
2001 ............. -- 208 -- 208
2002 ............. -- -- -- --
Thereafter ......... -- -- -- --
------- ------ ------ -------
$14,852 $8,399 $8,171 $31,422
======= ====== ====== =======
</TABLE>
NOTE 7--LEASES
At July 31, 1997, the Company had minimum annual lease commitments under
noncancelable operating leases as follows (in thousands):
YEAR ENDED JULY 31 OPERATING LEASES
- -------------------- -----------------
1998 .......... $ 698
1999 .......... 403
2000 .......... 367
2001 .......... 148
2002 .......... 48
------
$1,664
======
The Company leases its facilities at various monthly rental terms which
expire at various dates through September 2006. The above amounts include
commitments from the A-l Rental Center, Rental World, and Cameron acquisitions
(see Note 4). Total rent of $0.4 million, $0.7 million and $0.7 million for the
periods ended July 31, 1995, 1996, and 1997 were charged to facilities expense.
F-47
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--LEASES--(CONTINUED)
At July 31, 1997, the Company had future payments under capital leases as
follows (in thousands):
YEAR ENDED JULY 31 CAPITAL LEASE OBLIGATIONS
- --------------------------------------- --------------------------
1998 ............................. $ 85
1999 ............................. --
2000 ............................. --
2001 ............................. --
2002 ............................. --
-----
85
Less: Interest ..................... (11)
-----
Capital Lease Obligations .......... $ 74
=====
The Company is party to several capital leases primarily related to
computers and computer-related equipment. These leases have been capitalized
using interest rates ranging from 7 percent to 12 percent. Amortization on the
capitalized amounts is included in depreciation expense. All of the capitalized
leases were repaid subsequent to July 31, 1997 as a result of the sale of the
Company and accordingly, all capital leases payable were classified as current
liabilities in the accompanying consolidated balance sheets.
NOTE 8--INCOME TAXES
The provision (benefit) for income taxes consists of the following for the
years ended July 31 (in thousands):
1995 1996 1997
------ --------- -------
Current
Federal ......... $ -- $ -- $ --
State ........... 8 -- --
---- ------ ----
8 -- --
---- ------ ----
Deferred
Federal ......... 233 (117) 266
State ........... 26 (13) 29
---- ------ ----
259 (130) 296
---- ------ ----
$267 $ (130) $296
==== ====== ====
F-48
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--INCOME TAXES--(CONTINUED)
The reconciliation of the tax provision to the tax provision computed at
statutory rates is as follows for the years ended July 31 (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ---------- -------
<S> <C> <C> <C>
Federal tax at statutory rate (34%) .......... $195 $ (212) $173
Nondeductible expenses ....................... 42 54 48
State taxes .................................. 22 (25) 20
Valuation allowance and other ................ 8 53 55
---- ------ ----
$267 $ (130) $296
==== ====== ====
</TABLE>
The deferred income tax balances consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Property and equipment basis differences .......... $2,694 $3,336
------ ------
Total deferred tax liabilities .................... 2,694 3,336
------ ------
DEFERRED TAX ASSETS:
Net operating loss carryforwards .................. 1,371 1,721
Alternative minimum tax credit .................... 627 627
Other ............................................. 279 324
------ ------
Total deferred tax assets ......................... 2,277 2,672
Valuation allowance for deferred tax assets ......... (177) (226)
------ ------
Net deferred tax assets ............................. 2,100 2,446
------ ------
Net deferred tax liabilities ........................ $ 594 $ 890
====== ======
</TABLE>
Included in prepaid expense and other are current deferred tax assets of
$237 and $188 at July 31, 1996 and 1997, respectively.
The Company had net operating loss carryforwards for federal and state
income tax purposes of approximately $0.8 million and $2.2 million,
respectively, at July 31, 1995, $3.5 million and $4.4 million, respectively, at
July 31, 1996 and $4.4 million and $5.7 million, respectively, at July 31,
1997. The Company also has alternative minimum tax credit carryovers of
approximately $627,000 for federal income tax purposes at July 31, 1995, 1996
and 1997. For financial reporting, the loss and credit carryforwards were
recognized as deferred tax assets and an appropriate valuation allowance was
recorded to reflect the uncertainty about ultimate realization.
NOTE 9--PREFERRED STOCK
SERIES A SENIOR MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
The holders of the 107,500 shares of non-voting, $1 par Senior Series A
are entitled to receive dividends thereon in cash at the rate of 6% per annum
based on a face value of $20 per share when,
F-49
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--PREFERRED STOCK--(CONTINUED)
as and if declared by the Company's Board of Directors, out of legally
available funds. The dividends compound and accrue quarterly and are cumulative
from the date of issuance. As of July 31, 1996 and 1997, accrued dividends
payable for Senior Series A shares were $10,750. The Senior Series A was
recorded at issuance at its estimated fair market value of $0.9 million ($7.93
per Senior Series A share) and is being accreted up to its redemption value
through charges to retained earnings over the period from June 18, 1993 to the
date it is mandatorily redeemable. As of July 31, 1996 and 1997, accumulated
accretion from June 18, 1993 on Senior Series A shares were $0.4 million and
$0.5 million, respectively. Also, dividends on the Senior Series A shares are
accrued, whether or not declared, during the period to which they relate since
the mandatory redemption amount includes dividends and are included in accrued
expenses in the accompanying consolidated balance sheets. On August 1, 1997,
the holders of the Senior Series A redeemed their shares upon a change in
ownership for $20 per share (see Note 2).
SERIES B SENIOR REDEEMABLE CONVERTIBLE PREFERRED STOCK
The holders of the 495,000 shares of voting $1 par Senior Series B are not
entitled to receive dividends but have the option to redeem their shares upon a
change in ownership. The Senior Series B is not mandatorily redeemable.
Accretion of the Senior Series B is not necessary as it was recorded at its
redemption value of $3.704 per share not including the share of common stock to
be received upon redemption. The Senior Series B shares were recorded upon
issuance at the amount of net proceeds of $1.8 million which included par value
of $0.5 million with excess proceeds over par recorded as additional paid in
capital. On August 1, 1997 the holders of the Senior Series B converted their
shares into one share of common stock which were redeemed for $10.2 million
immediately upon the sale of the Company (see Note 2).
JUNIOR PREFERRED STOCK
The holders of the 18,936 shares of non-voting, $1 par Junior Series are
entitled to receive dividends in cash at the rate of 6% per annum based on a
face value of $100 per share when, as and if declared by the Board. The
dividends compound and accrue quarterly and are cumulative from the date of
issuance. As of July 31, 1996 and 1997, accrued dividends payable for Junior
Series shares were $9,468. No dividends shall be declared or paid on the Junior
Series unless full cumulative dividends have been declared or paid on the
Senior Series. The Junior Series was recorded at issuance at its estimated fair
market value of $1.5 million ($80.75 per Junior Series share). Since the Junior
Series is not mandatorily redeemable, it is not being accreted up to its
redemption value. Also, dividends on the Junior Series are accrued, whether or
not declared, during the period to which they relate and are included in
accrued expenses in the accompanying consolidated balance sheets. On August 1,
1997, the holders of the Junior Series redeemed for $1.9 million their shares
upon a change in ownership (see Note 2).
NOTE 10--EMPLOYEE BENEFIT PLAN
The Company has a defined contribution profit sharing plan (the "Plan")
covering substantially all of its employees. All employees who are at least
20.5 years old, perform at least 1,000 hours of service annually and have
satisfied the six month service requirement, are eligible to participate.
Participants accumulate ownership in the Plan assets according to a vesting
schedule over a period of
F-50
<PAGE>
INDUSTRIAL EQUIPMENT RENTALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--EMPLOYEE BENEFIT PLAN--(CONTINUED)
six years. Company contributions to the Plan are made on an annual basis at the
discretion of management, and are allocated to participants' accounts according
to annual compensation. No contribution to the plan was made for the plan years
ended July 31, 1995, 1996 or 1997.
Effective January 1, 1994, an amendment was made to the Plan to allow
401(k) contributions by the employee. The employer matches these contributions
at a rate based on a discretionary formula. Since the amendment, the Company
agreed to match 50 percent of the employee's contribution up to 6 percent of
the participants' gross pay. Such employer contributions vest over a period of
six years and totaled $67,263 during fiscal 1995, $86,318 during fiscal 1996
and $104,451 during fiscal 1997. As of July 31, 1995, 1996 and 1997, no
material amounts were outstanding and payable from the Company to the Plan.
NOTE 11--RELATED PARTY TRANSACTIONS
The Company leases eleven facilities from a corporation owned by a
stockholder, director and officer of the Company. Lease costs totaling
approximately $0.3 million for the years ended July 31, 1995, 1996 and 1997
were incurred under these lease agreements. As of July 31, 1997, these lease
agreements require minimum lease payments of approximately $346,800 per year
and expire at various times during the years from 1998 to 2002. No amendments
or terminations of any of these leases have been made as a result of the sale
of the Company (see Note 2).
The Company held one 5.33 percent interest bearing note receivable as of
July 31, 1996 and two 5.33 percent interest bearing notes receivable as of July
31, 1997 totaling approximately $301,000 and $297,000, respectively, from
certain stockholders and officers of the Company. Both notes receivable were
collected by the Company in full subsequent to July 31, 1997.
The Company paid a related party $120,000 for consulting services in
fiscal years ended July 31, 1995, 1996 and 1997, and subsequently, this
agreement was mutually terminated as of August 1, 1997.
NOTE 12--COMMITMENTS AND CONTINGENCIES
The Company is involved in certain claims and lawsuits arising in the
normal course of business. Management does not believe that uninsured losses,
if any, resulting form the ultimate resolution of these matters will have a
material adverse effect on the financial position, results of operations or
liquidity of the Company.
F-51
<PAGE>
INDEPENDENT AUDITORS' REPORT
Richbourg's Sales & Rentals, Inc.:
We have audited the accompanying balance sheets of Richbourg's Sales &
Rentals, Inc. (the "Company") as of December 31, 1996 and 1997, and the related
statements of income, stockholder's equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1996 and
1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Charlotte, North Carolina
February 27, 1998
F-52
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT PAR VALUE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
ASSETS (NOTE 8)
Cash and cash equivalents ...................................................... $ 338 $ 161
Marketable securities--trading (Note 1) ........................................ 670 593
Trade accounts receivable, net of allowance for doubtful accounts of $35 in 1996
and $81 in 1997 .............................................................. 4,214 3,126
Inventories .................................................................... 396 420
Rental fleet, net of accumulated depreciation of $27,856 in 1996 and $34,351 in
1997 (Note 1) ................................................................ 55,029 57,604
Property and equipment, net (Note 2) ........................................... 4,250 3,068
Other assets ................................................................... 171 12
------- -------
TOTAL .......................................................................... $65,068 $64,984
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable--trade and accrued expenses .................................. $ 2,283 $ 930
Accounts payable--equipment purchases ......................................... 6,468 --
Revolving credit loan (Note 3) ................................................ 16,296 26,526
Notes payable (Note 4) ........................................................ 5,054 --
------- -------
Total liabilities ............................................................ 30,101 27,456
------- -------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)
STOCKHOLDER'S EQUITY:
Common stock, $100 par value, 500 shares authorized, 100 shares issued
and outstanding ............................................................. 10 10
Additional paid-in capital .................................................... 20 20
Retained earnings ............................................................. 34,937 37,498
------- -------
Total stockholder's equity ................................................... 34,967 37,528
------- -------
TOTAL .......................................................................... $65,068 $64,984
======= =======
</TABLE>
See notes to financial statements.
F-53
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Rental of equipment ............................................. $ 26,507 $ 29,717 $ 28,894
Sales of equipment .............................................. 5,402 5,305 6,510
-------- -------- --------
Total revenues ................................................. 31,909 35,022 35,404
-------- -------- --------
COST OF REVENUES:
Depreciation of rental fleet .................................... 6,366 7,899 10,928
Maintenance of rental fleet ..................................... 10,063 10,284 10,714
Cost of equipment sold .......................................... 2,416 1,851 1,956
-------- -------- --------
Total cost of revenues ......................................... 18,845 20,034 23,598
-------- -------- --------
GROSS MARGIN ..................................................... 13,064 14,988 11,806
-------- -------- --------
OPERATING EXPENSES:
Selling ......................................................... 1,342 1,403 1,445
General and administrative ...................................... 2,193 2,692 2,715
Other depreciation .............................................. 840 1,006 880
-------- -------- --------
Total operating expenses ....................................... 4,375 5,101 5,040
-------- -------- --------
INCOME FROM OPERATIONS ........................................... 8,689 9,887 6,766
OTHER INCOME (EXPENSE):
Interest expense ................................................ (1,726) (1,749) (2,406)
Investment income ............................................... 127 84 11
Realized gain on sale of marketable securities .................. 13 75 41
Unrealized holding gain (loss) on marketable securities ......... 51 (29) 58
Other ........................................................... 150 90 30
-------- -------- --------
Total other expense, net ....................................... (1,385) (1,529) (2,266)
-------- -------- --------
INCOME BEFORE EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT ......................................... 7,304 8,358 4,500
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF
DEBT (Note 3) .................................................. -- (225) --
-------- -------- --------
NET INCOME (Note 1) .............................................. $ 7,304 $ 8,133 $ 4,500
======== ======== ========
</TABLE>
See notes to financial statements.
F-54
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ ADDITIONAL
OUTSTANDING PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 ........... 100 $10 $20 $ 23,484 $ 23,514
Net income .......................... -- -- -- 7,304 7,304
Distribution to stockholder ......... -- -- -- (1,445) (1,445)
--- --- --- -------- --------
BALANCE, DECEMBER 31, 1995 ........... 100 10 20 29,343 29,373
Net income .......................... -- -- -- 8,133 8,133
Distribution to stockholder ......... -- -- -- (2,539) (2,539)
--- --- --- -------- --------
BALANCE, DECEMBER 31, 1996 ........... 100 10 20 34,937 34,967
Net income .......................... -- -- -- 4,500 4,500
Distribution to stockholder ......... -- -- -- (1,939) (1,939)
--- --- --- -------- --------
BALANCE, DECEMBER 31, 1997 ........... 100 $10 $20 $ 37,498 $ 37,528
=== === === ======== ========
</TABLE>
See notes to financial statements.
F-55
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 7,304 $ 8,133 $ 4,500
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary loss on early extinguishment of debt ............ -- 225 --
Depreciation .................................................. 7,206 8,905 11,808
Gain on sale of rental fleet and equipment .................... (1,385) (1,065) (1,481)
Realized gain on sale of marketable securities ................ (13) (75) (41)
Unrealized (gain) loss on marketable securities ............... (51) 29 (58)
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts receivable ............. (1,143) (121) 1,088
Decrease (increase) in inventories ........................... 807 (287) (24)
(Decrease) increase in accounts payable and accrued
expenses .................................................. 136 1,018 (1,353)
Decrease (increase) in other assets .......................... (663) 543 159
Purchase of trading marketable securities .................... (979) (1,938) (77)
Proceeds from sale of trading marketable securities .......... 1,025 1,711 252
--------- --------- ---------
Net cash provided by operating activities ................... 12,244 17,078 14,773
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental fleet and equipment ......................... (19,309) (20,648) (22,123)
Proceeds from sale of rental fleet and equipment ................ 1,538 3,557 3,937
--------- --------- ---------
(17,771) (17,091) (18,186)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances under revolving credit facility .................... -- 16,296 10,230
Borrowings under notes payable .................................. 19,069 3,136 2,364
Repayment of notes payable ...................................... (11,378) (18,998) (7,419)
Distributions to stockholder .................................... (1,445) (2,539) (1,939)
--------- --------- ---------
Net cash (used in) provided by financing activities ......... 6,246 (2,105) 3,236
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ............................................... 719 (2,118) (177)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR .............................................. 1,737 2,456 338
--------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF YEAR .................................................... $ 2,456 $ 338 $ 161
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--Cash paid during the year for interest ............ $ 1,599 $ 1,665 $ 2,260
========= ========= =========
</TABLE>
See notes to financial statements.
F-56
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS--Richbourg's Sales & Rentals, Inc. (the "Company")
is engaged in the rental and sale of construction and industrial machinery and
equipment. The Company presently operates from sixteen locations in the
southeastern United States.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS--The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
INVESTMENT IN MARKETABLE SECURITIES--The Company's securities investments
are classified as trading securities and are primarily investments in stocks of
publicly traded companies. Trading securities are recorded at fair value in the
accompanying balance sheets, with the change in fair value during the period
included in earnings. Realized gains or losses in the sale of securities are
based on the specific identification method. The fair value of securities is
based on quoted market prices.
Proceeds from sales of investments for the years ended December 31, 1995,
1996 and 1997 were $1.0 million, $1.7 million and $0.3 million, respectively.
Realized and unrealized gains (losses) on trading securities during 1995, 1996
and 1997 were not significant.
ACCOUNTS RECEIVABLE--The Company carries trade accounts receivable at the
amount it deems to be collectible. Accordingly, the Company provides allowances
for trade accounts receivable it deems to be uncollectible based on
management's best estimates. Recoveries are recognized in the period they are
received. The ultimate amount of accounts receivable that becomes uncollectible
could differ from those estimated. The majority of the Company's customers are
engaged in the construction business. The Company assesses its customers'
credit worthiness prior to extending credit. The collectibility of these
receivables is dependent, in part, on the economic conditions within the
construction industry.
INVENTORIES--Inventories, which consist principally of repair parts and
supplies, are stated at the lower of cost or market (cost is determined on the
first-in, first-out basis).
RENTAL FLEET--Rental fleet is comprised principally of heavy construction
equipment which is leased by the Company to customers under operating leases.
The rental fleet is stated at cost less accumulated depreciation. Depreciation
is computed using the straight-line method over the estimated useful lives of
the related assets, which range from five to seven years, giving effect to an
estimated salvage value of one-tenth of original cost. Routine repairs and
maintenance are expensed as incurred; improvements are capitalized at cost. The
Company sells equipment in its rental fleet as part of its regular operations;
accordingly, a portion of the rental fleet may be sold within one year. The
remaining book value is charged to cost of equipment when sold.
PROPERTY AND EQUIPMENT--Property and equipment, which consists of land,
buildings, service and office equipment utilized in the Company's operations,
is stated at cost less accumulated depreciation.
F-57
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
Depreciation is recorded using the straight-line method over the estimated
useful lives of the related assets. Significant improvements are capitalized at
cost; repairs and maintenance are expensed as incurred.
ADVERTISING COSTS--The Company expenses advertising costs as incurred.
Advertising costs for the years ending December 31, 1995, 1996 and 1997
amounted to $0.1 million each year.
REVENUE RECOGNITION--Rental revenues are recognized over the rental period
using the straight-line method. Sales of assets in the rental fleet are
recognized at the time of shipment.
INCOME TAXES--The Company has elected S Corporation status for income tax
purposes. Accordingly, no provision for federal and state income taxes has been
made in these financial statements because any income tax liability is the
responsibility of the stockholder.
LONG-LIVED ASSETS--Effective January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This standard
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. The adoption of this standard had no effect on the Company's
results of operations or financial position. On an ongoing basis, the Company
will evaluate its long-lived assets. If circumstances suggest that their value
may be impaired, an assessment of recoverability will be performed.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
------------------------- USEFUL LIVES
1996 1997 (IN YEARS)
----------- ----------- -------------
<S> <C> <C> <C>
Land ......................................... $ 428 $ 428 --
Buildings and leasehold improvements ......... 2,529 1,779 7-31
Service equipment ............................ 4,558 4,625 2-5
Office furniture and equipment ............... 583 569 2-5
-------- --------
8,098 7,401
Less accumulated depreciation ................ (3,848) (4,333)
-------- --------
$ 4,250 $ 3,068
======== ========
</TABLE>
NOTE 3. REVOLVING CREDIT LOAN
In September 1996, the Company entered into a revolving credit line
(revolving loan) with a bank. Initial proceeds from this revolving loan were
used to pay off existing notes payable with another bank, as well as to fund
new equipment purchases. In connection with this refinancing, the Company was
charged a penalty of $0.2 million by the former bank lender for early payoff of
the
F-58
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
NOTE 3. REVOLVING CREDIT LOAN--(CONTINUED)
notes payable. This charge is shown as "Extraordinary Loss on Early
Extinguishment of Debt" in the accompanying Statements of Income.
The revolving loan provided for maximum borrowings up to $35.0 million
based on qualified machinery and equipment. Outstanding borrowings were due in
September 1999, with interest based on the 90 day LIBOR rate plus 1.85 (7.787%
at December 31, 1997). At December 31, 1996 and 1997, the Company had $16.3
million and $26.5 million, respectively, in outstanding borrowings on the
revolving loan. Subsequent to December 31, 1997, the Company paid off all
borrowings under its revolving credit agreement (see Note 8).
NOTE 4. NOTES PAYABLE
The Company has historically financed a portion of its rental fleet and
other fixed asset purchases through notes payable to banks, equipment vendors,
finance companies and others. In contemplation of sale of the business (see
Note 8), during December 1997 the Company paid off all its outstanding notes
payable.
Notes payable at December 31, 1996 consisted of the following (in
thousands, except payment amounts):
<TABLE>
<S> <C>
Series of 24 installment purchase notes, payable in monthly installments ranging
from $276 to $797, plus interest at 6.9%.............................................. $ 204
6.8% installment purchase note, payable in monthly installments of $7,116, including
interest ............................................................................. 165
7.3% installment purchase note, payable in monthly installments of $9,576, including
interest ............................................................................. 222
6.5% installment purchase note, payable in monthly installments of $4,841, including
interest ............................................................................. 126
6.5% installment purchase note, payable in monthly installments of $4,841, including
interest ............................................................................. 121
7.25%, 10.25% and 10.5% installment purchase notes, payable in monthly
installments ranging from $1,426 to $3,440, including interest........................ 1,755
Installment purchase note, payable in monthly installments of $43,858.................. 570
Series of seven installment purchase notes, payable in monthly installments ranging
from $3,084 to $15,770, including interest (interest rates vary per note from 4.90%
to 7.75%) ............................................................................ 840
Mortgage payable in monthly installments of $5,000 plus interest at prime (81/4% at
December 31, 1996) ................................................................... 445
Mortgage payable in monthly installments of $3,334 plus interest at prime.............. 268
Note payable in monthly installments of $5,000 plus interest at prime.................. 225
Note payable in monthly installments of $1,050 plus interest at prime.................. 113
------
Total notes payable ................................................................... $5,054
======
</TABLE>
F-59
<PAGE>
RICHBOURG'S SALES & RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
NOTE 5. RELATED PARTY TRANSACTIONS
The Company rents certain office and yard space from its sole stockholder
on a month to month basis. During 1995, 1996 and 1997, the Company paid rental
expense to its sole stockholder of approximately $0.4 million, $0.4 million and
$0.5 million, respectively.
The Company purchases automobiles and receives automotive electric
services from certain companies owned by its sole stockholder. During 1995,
1996 and 1997, the Company paid $0.1 million, $0.1 million and $0.1 million to
these related parties.
NOTE 6. RETIREMENT PLAN
The Company maintains a 401(k) defined contribution plan which covers
substantially all employees. Employees may contribute up to 5% of their
compensation. Employer matching contributions are not mandatory but the Company
is allowed to match employee contributions up to limits specified in the plan.
The Company did not make any contributions in 1995, 1996 or 1997.
NOTE 7. LEGAL MATTERS
The Company is a defendant in legal proceedings arising out of the conduct
of the Company's business. In the opinion of management, the ultimate outcome
of these legal proceedings will not have a material adverse affect on the
financial position or future results of operations and cash flows of the
Company.
NOTE 8. SUBSEQUENT EVENT--SALE OF BUSINESS
Effective January 1, 1998, the Company sold its rental fleet and certain
other tangible and intangible assets to Neff Corp., Miami, Florida, for $100.0
million cash. In addition, the purchaser assumed certain liabilities, as
defined in the purchase agreement, which consist principally of accounts
payable and accrued expenses. After the sale, the Company's assets consist of
cash, marketable securities, land, buildings and leasehold improvements. The
Company or other affiliated entities will rent certain real estate to Neff
Corp. under operating lease agreements.
The sale of net assets resulted in a significant gain, which will be
recorded in 1998. Subsequent to receipt of the sale proceeds the Company paid
off the entire balance of borrowings under its revolving loan agreement with
bank (see Note 3).
********
F-60
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Sullair Argentina Sociedad Anonima
1. We have audited the accompanying consolidated balance sheets of Sullair
Argentina Sociedad Anonima and its subsidiary Sullair San Luis Sociedad Anonima
as of December 31, 1997 and 1996, and the related consolidated statements of
income and of changes in shareholders' equity and in financial position (cash
flows) for the years ended December 31, 1997, 1996 and 1995, all expressed in
constant Argentine pesos--P$--through August 31, 1995 and in nominal pesos
thereafter (see Note 1.2.). These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
2. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statements presentation. We believe that our
audits provide a reasonable basis for our opinion.
3. Accounting principles generally accepted in Argentina require companies
with controlling financial interest in the other companies to present both
parent company, where investments in subsidiaries are accounted for by the
equity method, and consolidated financial statements, as primary and
supplementary information, respectively. Because of the special purpose of
these financial statements, parent company financial statements are not
included. This procedure has been adopted for the convenience of the reader of
the financial statements.
4. In our opinion, the consolidated financial statements audited by us
present fairly, in all material respects, the financial position of Sullair
Argentina Sociedad Anonima and its subsidiary Sullair San Luis Sociedad Anonima
at December 31, 1997 and 1996, and the results of their operations, the changes
in their shareholders' equity and the changes in their financial position (cash
flows) for the years ended December 31, 1997, 1996 and 1995 in conformity with
accounting principles generally accepted in Argentina.
5. Accounting principles generally accepted in Argentina vary in certain
important respects from accounting principles generally accepted in the United
States of America. The application of the latter would have affected the
determination of consolidated net income expressed in constant Argentine pesos
through August 31, 1995 and in nominal pesos thereafter (see Note 1.2.) for
each of the three mentioned years, and the determination of consolidated
shareholders' equity and financial position also expressed in constant
Argentine pesos through August 31, 1995 and in nominal pesos thereafter (see
Note 1.2.) at December 31, 1997, 1996 and 1995 to the extent summarized in
Notes 10, 11, and 12 to the consolidated financial statements.
6. The accompanying consolidated financial statements expressed in
constant Argentine pesos through August 31, 1995 and in nominal pesos
thereafter include a column that gives effect to the translation into U.S.
dollars of the balances at December 31, 1997, on the basis described in Note
1.2(c). This translation should not be construed as representing that the peso
amounts actually represent or have been, or could be, converted into U.S.
dollars.
Buenos Aires, Argentina PRICE WATERHOUSE & CO.
March 25, 1998 Daniel A. Lopez Lado (Partner)
F-61
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1997 1996
------------- ------------- -------------
US$(1) P$
------------- -----------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and banks .......................................... 305,876 305,876 542,989
Accounts receivable (Note 2.a)) ......................... 13,961,371 13,961,371 10,533,229
Other receivables (Note 2.b)) ........................... 2,321,217 2,321,217 4,694,592
Inventories (Note 2.c)) ................................. 12,687,639 12,687,639 11,596,926
---------- ---------- ----------
Total current assets .................................... 29,276,103 29,276,103 27,367,736
---------- ---------- ----------
NON-CURRENT ASSETS
Other receivables (Note 2.d)) ........................... 657,658 657,658 657,658
Long-term investments (Note 2.e)) ....................... 233,756 233,756 266,756
Property and equipment, net (Note 3) .................... 26,477,686 26,477,686 24,702,859
Other ................................................... 67,377 67,377 67,377
---------- ---------- ----------
Total non-current assets ................................ 27,436,477 27,436,477 25,694,650
---------- ---------- ----------
Total assets ............................................ 56,712,580 56,712,580 53,062,386
========== ========== ==========
LIABILITIES
CURRENT LIABILITIES
Accounts payable (Note 2.f)) ............................ 11,737,769 11,737,769 13,138,278
Short-term bank borrowings (Note 2.g)) .................. 6,613,730 6,613,730 8,311,896
Taxes payables .......................................... 1,059,209 1,059,209 181,630
Payroll and social security ............................. 274,995 274,995 238,974
Advances from customers ................................. 116,978 116,978 593,339
Other ................................................... -- -- 490,440
---------- ---------- ----------
Total current liabilities ............................... 19,802,681 19,802,681 22,954,557
---------- ---------- ----------
NON-CURRENT LIABILITIES
Long-term bank borrowings (Note 2.h)) ................... 5,342,376 5,342,376 3,560,501
---------- ---------- ----------
Total non-current liabilities ........................... 5,342,376 5,342,376 3,560,501
---------- ---------- ----------
Total liabilities ....................................... 25,145,057 25,145,057 26,515,058
---------- ---------- ----------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY ............................................ 727 727 450
---------- ---------- ----------
SHAREHOLDERS' EQUITY (as per related statement) ......... 31,566,796 31,566,796 26,546,878
---------- ---------- ----------
Total liabilities and shareholders' equity .............. 56,712,580 56,712,580 53,062,386
========== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c)
The accompanying notes are an integral part of these consolidated financial
statements.
F-62
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENTS OF INCOME
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1997 1996 1995
---------------- ---------------- ---------------- ----------------
US$(1) P$
---------------- --------------------------------------------------
<S> <C> <C> <C> <C>
Net sales, rentals and services (Note 2.j)) ......... 57,322,289 57,322,289 39,368,237 35,297,551
Operating costs
Cost of sales, rentals and services
(Note 2.k)) ...................................... (44,086,860) (44,086,860) (29,151,402) (28,096,627)
Administrative expenses ............................ (1,830,707) (1,830,707) (1,446,250) (1,222,513)
Selling expenses ................................... (3,205,862) (3,205,862) (2,763,704) (2,707,561)
Other .............................................. (676,674) (676,674) (690,775) (778,873)
----------- ----------- ----------- -----------
Operating income .................................... 7,522,186 7,522,186 5,316,106 2,491,977
Non-operating income (expenses)
Financial expenses (Note 2.l)) ..................... (1,118,454) (1,118,454) (1,545,224) (925,601)
Other non-operating income net
(Note 7.a)) ...................................... 629,000 629,000 681,521 628,734
----------- ----------- ----------- -----------
Income before taxes, minority interest and
extraordinary results .............................. 7,032,732 7,032,732 4,452,403 2,195,110
Income tax .......................................... (2,012,537) (2,012,537) (1,128,499) (300,578)
----------- ----------- ----------- -----------
Income before minority interest and
extraordinary results .............................. 5,020,195 5,020,195 3,323,904 1,894,532
Minority interest in results of
consolidated subsidiaries .......................... (277) (277) (172) (161)
----------- ----------- ----------- -----------
Net income before extraordinary results ............. 5,019,918 5,019,918 3,323,732 1,894,371
----------- ----------- ----------- -----------
Extraordinary results (Note 9)(2) ................... -- -- (709,666) --
----------- ----------- ----------- -----------
Net income for the year ............................. 5,019,918 5,019,918 2,614,066 1,894,371
=========== =========== =========== ===========
</TABLE>
- ----------------
(1) See Note 1.2.c).
(2) This amount includes P$349,537 (Gain) corresponding to the effect of income
taxes.
The accompanying notes are an integral part of these consolidated
financial statements.
F-63
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.)
<TABLE>
<CAPTION>
EARNINGS
ADJUSTMENTS ---------------------------
TO CAPITAL UNAPPROPRIATED TOTAL
CAPITAL STOCK LEGAL RETAINED SHAREHOLDERS'
STOCK (NOTE 1.5. I)) RESERVE EARNINGS EQUITY
--------- ---------------- --------- --------------- --------------
<S> <C> <C> <C> <C> <C>
At December 31, 1994 ................... 86,000 12,723 26,708 21,913,010 22,038,441
Net income for the year ................ -- -- -- 1,894,371 1,894,371
------ ------ ------ ---------- ----------
At December 31, 1995 ................... 86,000 12,723 26,708 23,807,381 23,932,812
Net income for the year ................ -- -- -- 2,614,066 2,614,066
------ ------ ------ ---------- ----------
At December 31, 1996 ................... 86,000 12,723 26,708 26,421,447 26,546,878
Net income for the year ................ -- -- -- 5,019,918 5,019,918
------ ------ ------ ---------- ----------
At December 31, 1997 ................... 86,000 12,723 26,708 31,441,365 31,566,796
====== ====== ====== ========== ==========
At December 31, 1997 in US$(1) ......... 86,000 12,723 26,708 31,441,365 31,566,796
====== ====== ====== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c).
The accompanying notes are an integral part of these consolidated
financial statements.
F-64
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--NOTE 1.2.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1997 1996 1995
--------------- --------------- --------------- ---------------
US$(1) P$
--------------- -----------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the year ................................ 5,019,918 5,019,918 2,614,066 1,894,371
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation ......................................... 6,360,947 6,360,947 3,272,048 2,281,111
Allowance for doubtful accounts ...................... 300,176 300,176 307,633 527,235
Minority interest .................................... 277 277 172 161
Fixed assets disposals ............................... 1,526,084 1,526,084 658,570 966,698
Taxes on income ...................................... 2,012,537 2,012,537 778,962 300,578
Financial and holding results on assets other than
cash or cash equivalents and on liabilities ........ (163,833) (163,833) 281,219 1,831,085
Decrease (increase) in assets:
Accounts receivable ................................. (3,699,866) (3,699,866) (5,097,293) 106,500
Other receivables ................................... 2,643,375 2,643,375 (556,051) (1,926,963)
Other assets ........................................ -- -- (3) 34
Inventories ......................................... (1,090,713) (1,090,713) (1,337,138) (2,079,787)
Increase (decrease) in liabilities:
Accounts payable .................................... (1,400,509) (1,400,509) 5,554,258 385,394
Payroll and social security ......................... 36,021 36,021 14,062 (56,403)
Other liabilities ................................... (490,440) (490,440) 12,143 452,310
Taxes payable ....................................... 848,287 848,287 (48,074) (1,530,653)
Advances from customers ............................. (476,361) (476,361) (106,140) 413,295
---------- ---------- ---------- ----------
Cash provided by operations ............................ 11,425,900 11,425,900 6,348,434 3,564,966
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTMENT
ACTIVITIES
Purchases of property and equipment .................... (9,580,339) (9,580,339) (4,524,287) (3,405,256)
Investments other than cash equivalents ................ 33,000 33,000 537,384 --
---------- ---------- ---------- ----------
Cash used in investment activities ..................... (9,547,339) (9,547,339) (3,986,903) (3,405,256)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans ............................... 39,132,529 39,132,529 13,269,291 6,388,024
Repayments of bank loans ............................... (39,476,652) (39,476,652) (13,838,018) (5,617,809)
Interest and related cost payments ..................... (1,771,551) (1,771,551) (1,632,095) (716,609)
----------- ----------- ----------- ----------
Cash (used in) provided by financing activities ........ (2,115,674) (2,115,674) (2,200,822) 53,606
----------- ----------- ----------- ----------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ...................................... (237,113) (237,113) 160,709 213,316
Cash and cash equivalents at the beginning of year ..... 542,989 542,989 382,280 168,964
----------- ----------- ----------- ----------
CASH AND CASH EQUIVALENTS
AT THE END OF YEAR .................................... 305,876 305,876 542,989 382,280
=========== =========== =========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c).
The accompanying notes are an integral part of these consolidated financial
statements.
F-65
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
1.1. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
These consolidated financial statements include the accounts of Sullair
Argentina Sociedad Anonima and its subsidiary, Sullair San Luis Sociedad
Anonima. All material intercompany balances, transactions and profits have been
eliminated.
Sullair Argentina Sociedad Anonima holds 99.99% of the shares of Sullair
San Luis Sociedad Anonima. In addition to its participation in Sullair San Luis
Sociedad Anonima, Sullair Argentina Sociedad Anonima holds 100% of the shares
of Bahian S.A., a company located in Uruguay. Bahian S.A. holds 49% of the
shares of Sullair Do Brasil Ltd., a Brazilian company.
The participation in Bahian S.A. has not been consolidated in view of its
low materiality and is shown in the consolidated financial statements under
non-current investments, at its cost value. This situation does not give rise
to any significant distortion that could affect the valuation and disclosure of
the consolidated financial statements.
The preparation of the financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the balance
sheet dates, and the reported amounts of revenues and expenses during the
reporting years. Actual results may differ from these estimates.
1.2. RECOGNITION OF THE EFFECTS OF INFLATION
a) Pursuant to the restatement methodology established under technical
pronouncements issued by the Federacion Argentina de Consejos Profesionales de
Ciencias Economicas (Argentine Federation of Professional Councils in Economic
Sciences, or "FACPCE"), the consolidated financial statements of Sullair
Argentina Sociedad Anonima were stated in constant Argentine pesos through
August 31, 1995. To account for the effects of inflation in Argentina and in
accordance with Argentine GAAP, prior to September 1, 1995, the Company's
financial statements were periodically restated based on the changes in the
Precios Mayoristas Nivel General (General Wholesale Price Index, or "WPI").
However, pursuant to resolutions of the Inspeccion General de Justicia (General
Inspection of Justice or "IGJ"), Argentine companies are not permitted to
reflect the effects of inflation on their financial statements as of any date
or for any period after September 1, 1995.
Accordingly, for fiscal year 1995, Sullair Argentina Sociedad Anonima and
Sullair San Luis Sociedad Anonima are required to reflect the effects of
inflation on their financial statements through August 31, 1995, but are not
permitted to do so for the four-month period ended December 31, 1995 or for
subsequent periods. Except for the portion of the fiscal year ended December
31, 1995 prior to August 31, 1995, which has been restated in constant pesos at
August 31, 1995, financial data at and for such fiscal year has not been
restated in constant pesos. For the years ended December 31, 1997 and 1996, as
the change in the WPI since August 31, 1995 has been less than 8%, financial
statements prepared in accordance with Argentine GAAP need not be adjusted for
inflation after that date. Financial statements that are not restated to
reflect the effects of inflation will not include the
F-66
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
restatement of non-monetary assets and the net gain or loss (holding gains or
losses) on exposure of monetary assets and liabilities to price level changes.
In March 1992, the monetary correction system was discontinued for tax purposes
in Argentina.
b) On January 1, 1992 the peso replaced the austral as Argentina's
official currency at a convertion rate of 10,000 australes per peso. One peso
currently is, and current Argentine law requires that one peso will continue to
be, exchangeable for not less than one dollar.
The following table shows, for the years indicated, certain information
regarding the exchange rates for U.S. dollars, expressed in nominal pesos per
dollar. The Federal Reserve Bank of New York does not report a non-buying rate
for Argentine pesos.
YEAR ENDED
DECEMBER 31, HIGH LOW AVERAGE(1) END OF PERIOD
- ------------------- ----------- ----------- ------------ --------------
1995 ......... 1.0000 0.9990 0.9995 1.0000
1996 ......... 1.0000 1.0000 1.0000 1.0000
1997 ......... 1.0000 1.0000 1.0000 1.0000
- ----------------
(1) Average of month-end rates.
SOURCES: CENTRAL BANK--BANCO DE LA NACION ARGENTINA.
c) The consolidated financial statements of Sullair Argentina Sociedad
Anonima at December 31, 1997, as well as the related notes and exhibits, have
been prepared in Argentine pesos on the basis of accounting records carried in
Argentina in that currency. These financial statements include a column that
gives effect to the translation into U.S. dollars of the balances at December
31, 1997. Balances have been translated at the exchange rate at December 31,
1997, indicated in Note 1.2.b).
1.3. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance
with Argentine GAAP and with the requirements of the IGJ, and are presented in
Argentine pesos ("P$").
1.4. CASH AND CASH EQUIVALENTS
In the consolidated statements of cash flows, the Company considers cash
and cash equivalents all its highly liquid investments purchased with an
original maturity at three months or less.
F-67
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
1.5. VALUATION CRITERIA
The principal valuation criteria used in the preparation of the
consolidated financial statements are as follows:
a) Foreign currency
Assets and liabilities denominated in foreign currency are presented at
the nominal value of the foreign currency converted to local currency at
year-end exchange rates. Exchange differences have been included in the
determination of the net income.
b) Accounts and other receivables
Accounts receivable are stated at estimated realizable values and an
allowance for doubtful accounts is provided in an amount considered by
management to be sufficient to meet probable future losses related to
uncollectible accounts. Accounts and other receivables deemed uncollectible by
management are charged against the allowance for doubtful accounts at the time
of such determination.
c) Inventories
Inventories are valued at replacement cost which, in the aggregate, is
less than recoverable value on the following basis:
Imported raw materials and supplies: at replacement cost in the
currency of origin converted at the year-end exchange rate plus the
percentage of import duties incurred.
Domestic raw materials and supplies: at replacement cost.
Imports in progress: at their import cost in the currency of origin
converted at the year-end exchange rate plus expenses incurred since
the date of origin through each year end.
d) Property and equipment
Property and equipment are presented at cost restated through August 31,
1995 (Note 1.2.), less accumulated depreciation.
Depreciation commences in the month following acquisition or placement of
the assets in service and is computed on a straight-line basis over the
estimated useful lives of the assets. Aggregate net value does not exceed
recoverable value.
Management considers that there has been no impairment in the carrying
value of property and equipment.
F-68
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
e) Long-term investments
The government bond of "Argentina Bond" has been valued at its cost,
increased on a exponential basis according to the internal rate of return at
the time of its incorporation to assets and time elapsed thereafter.
Equity investment in Bahian S.A. (Note 1.1.)
f) Administrative and selling expenses
Administrative and selling expenses are charged to income when incurred.
g) Employee severance indemnities
Employee severance indemnities are expensed as paid.
h) Income tax
Income taxes are those estimated to be paid for each year. The income tax
has been estimated by applying the 33% statutory tax rate to taxable income of
the years ended December 31, 1997 and 1996 and the 30% statutory tax rate to
taxable income of the year ended December 31, 1995. The resulting amount was
charged to income tax in the consolidated statement of income.
i) Shareholders' equity
Shareholders' equity accounts have been restated in constant pesos as of
the end of each year (Note 1.2.), except for the capital stock account which is
stated at nominal value. The adjustment required to restate such value into
constant pesos is included in the "Adjustment to capital" account.
j) Sales, rentals and services recognition
Sales, rentals and services are recognized on an accrual basis. The
Company's revenues are presented net of sales discounts.
k) Statement of income
These accounts have been restated on a constant Argentine pesos basis
through August 31, 1995 (Note 1.2.), as follows:
--Accounts accumulating monetary transactions throughout the year
(revenues, direct operating costs and non-operating expenses) have been
restated as from the month when the transaction took place.
F-69
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
--Charges to income related to non-monetary assets reflect their adjustment
to restated cost (depreciation of property and equipment), and charges
related to materials reflect their adjustment to replacement cost.
NOTE 2--ANALYSIS OF CERTAIN BALANCE SHEETS AND STATEMENTS OF INCOME ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1997 1996
-------------- -------------- ---------------
US$(1) P$
-------------- --------------------------------
<S> <C> <C> <C>
BALANCE SHEETS
CURRENT ASSETS
a) Accounts receivable
Trade receivable ...................................... 11,359,844 11,359,844 7,577,756
Notes receivable ...................................... 2,009,205 2,009,205 3,099,894
Export letters receivable ............................. 864,046 864,046 1,462,404
Less: Allowance for doubtful account (Note 4) ......... (271,724) (271,724) (1,606,825)
---------- ---------- ----------
13,961,371 13,961,371 10,533,229
========== ========== ==========
b) Other receivables
Recoverable taxes ..................................... 1,399,761 1,399,761 2,055,431
Advances to employees ................................. 132,078 132,078 72,173
Prepaid expenses ...................................... 355,698 355,698 225,731
Commissions receivable ................................ 165,228 165,228 73,917
Prepaid insurance ..................................... 196,362 196,362 106,743
Loans to Directors .................................... 34,651 34,651 1,348,933
Others ................................................ 37,439 37,439 688,848
Export credit bonds ................................... -- -- 122,816
---------- ---------- ----------
2,321,217 2,321,217 4,694,592
========== ========== ==========
c) Inventories
Finished goods ........................................ 7,458,646 7,458,646 7,919,539
Manufactured materials ................................ 2,505,660 2,505,660 1,795,516
Supplies in transit ................................... 2,427,091 2,427,091 1,856,765
Advances to suppliers ................................. 296,242 296,242 25,106
---------- ---------- ----------
12,687,639 12,687,639 11,596,926
========== ========== ==========
</TABLE>
F-70
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 2--ANALYSIS OF CERTAIN BALANCE SHEETS AND STATEMENTS OF INCOME
ACCOUNTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1997 1996
------------- ------------- -------------
US$(1) P$
------------- -----------------------------
<S> <C> <C> <C>
NON-CURRENT ASSETS
d) Other receivables
Receivables due to the partial suspension of the
tax credit ...................................... 41,396 41,396 41,396
Credits Decree No. 2054/92--VAT Purchases ......... 608,604 608,604 608,604
------- ------- -------
Subtotal (Note 7.b)) .............................. 650,000 650,000 650,000
Other tax credits ................................. 7,658 7,658 7,658
------- ------- -------
657,658 657,658 657,658
======= ======= =======
e) Long-term investments
Bahian S.A. ....................................... 199,756 199,756 199,756
Argentina Bond .................................... 34,000 34,000 67,000
------- ------- -------
233,756 233,756 266,756
======= ======= =======
CURRENT LIABILITIES
f) Accounts payable
Trade
Suppliers ........................................ 10,627,915 10,627,915 12,379,320
Related companies ................................ 1,109,854 1,109,854 758,958
---------- ---------- ----------
11,737,769 11,737,769 13,138,278
========== ========== ==========
g) Short-term bank borrowings (Note 5)
Banks
Overdrafts ....................................... 596,176 596,176 211,165
Unsecured notes .................................. 6,017,554 6,017,554 8,100,731
---------- ---------- ----------
6,613,730 6,613,730 8,311,896
========== ========== ==========
NON-CURRENT LIABILITIES
h) Long-term bank borrowings
Banks
Unsecured notes .................................. 5,342,376 5,342,376 3,560,501
========== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c).
F-71
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 2--ANALYSIS OF CERTAIN BALANCE SHEETS AND STATEMENTS OF INCOME
ACCOUNTS--(CONTINUED)
i) Aging breakdown of balance sheet accounts (amounts expressed in P$)
<TABLE>
<CAPTION>
NOT DUE
-------------------------------------------------------------------------
1ST 2ND 3RD 4TH 2ND
ITEMS QUARTER QUARTER QUARTER QUARTER YEAR TOTAL
- -------------------------------------- ----------- ----------- ------------ --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Accounts receivable ............... 8,697,997 5,202,381 332,717 -- -- 14,233,095
Other receivables ................. 731,402 866,588 670,226 53,001 657,658 2,978,875
--------- --------- ------- ------ ------- ----------
Total assets ...................... 9,429,399 6,068,969 1,002,943 53,001 657,658 17,211,970
========= ========= ========= ====== ======= ==========
LIABILITIES
Accounts payable .................. 5,519,884 6,217,885 -- -- -- 11,737,769
Notes payable to banks(1) ......... 3,181,602 1,771,986 889,308 770,834 5,342,376 11,956,106
Social security charges ........... 274,995 -- -- -- -- 274,995
Accrued taxes ..................... 162,041 897,168 -- -- -- 1,059,209
Advances from customers ........... 116,978 -- -- -- -- 116,978
--------- --------- --------- ------- --------- ----------
Total liabilities ................. 9,255,500 8,887,039 889,308 770,834 5,342,376 25,145,057
========= ========= ========= ======= ========= ==========
</TABLE>
- ----------------
(1) Corresponding to an annual rate of 7.70%.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1997 1997 1996 1995
---------------- ---------------- ---------------- ----------------
US$(1) P$
---------------- ------------------------------------------------------
<S> <C> <C> <C> <C>
STATEMENTS OF INCOME
j) Net revenues
Sales, rentals and services
Sales ............................. 37,403,570 37,403,570 25,000,149 25,067,779
Rentals and services .............. 20,673,613 20,673,613 14,927,114 10,433,168
Discounts ......................... (754,894) (754,894) (559,026) (203,396)
---------- ---------- ---------- ----------
57,322,289 57,322,289 39,368,237 35,297,551
========== ========== ========== ==========
k) Cost of sales, rentals and services
Sales .............................. (31,074,571) (31,074,571) (19,739,648) (19,566,701)
Rentals and services ............... (13,012,289) (13,012,289) (9,411,754) (8,529,926)
----------- ----------- ----------- -----------
(44,086,860) (44,086,860) (29,151,402) (28,096,627)
=========== =========== =========== ===========
l) Financial expenses
On assets .......................... 670,402 670,402 998,317 (19,979)
On liabilities ..................... (1,788,856) (1,788,856) (2,543,541) (905,622)
----------- ----------- ----------- -----------
(1,118,454) (1,118,454) (1,545,224) (925,601)
=========== =========== =========== ===========
</TABLE>
- ----------------
(1) See Note 1.2.c).
F-72
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 3--PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------
AVERAGE
USEFUL ANNUAL ORIGINAL ACCUMULATED NET BOOK NET BOOK
LIVES RATE VALUE DEPRECIATION VALUE VALUE
-------- -------- ------------ -------------- ------------ ------------
YEARS % P$ US$(1)
-------- -------- ---------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Fixed assets
Land .............................. -- -- 2,638,964 -- 2,638,964 2,638,964
Buildings ......................... 50 2 3,740,035 713,284 3,026,751 3,026,751
Fixtures .......................... 50 2 273,077 38,650 234,427 234,427
Vehicles .......................... 5 20 1,917,016 1,308,577 608,439 608,439
Machines and equipment ............ 10 10 1,119,784 771,071 348,713 348,713
Office and equipment .............. 10 10 1,004,644 558,161 446,483 446,483
Other ............................. 4 25 1,393,747 1,050,953 342,794 342,794
--------- --------- --------- ---------
Subtotal ............................ 12,087,267 4,440,696 7,646,571 7,646,571
Rental machines and equipment ....... 5 20 17,838,062 8,161,271 9,676,791 9,676,791
Fixed assets investment Petrolera
Argentina San Jorge S.A. .......... 12.5 8 11,908,436 2,754,112 9,154,324 9,154,324
---------- --------- --------- ---------
Total ............................... 41,833,765 15,356,079 26,477,686 26,477,686
========== ========== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c).
Depreciation for 1997 amounted to P$6,360,947 of which P$6,107,952 was
allocated to "Cost of sales, rentals and services"; P$126,497 to
"Administrative expenses" and P$126,498 to "Selling expenses".
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------
AVERAGE
USEFUL ANNUAL ORIGINAL ACCUMULATED NET BOOK
LIVES RATE VALUE DEPRECIATION VALUE
-------- -------- ------------ -------------- ------------
YEARS % P$
-------- -------- --------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed assets
Land .................................... -- -- 2,638,964 -- 2,638,964
Buildings ............................... 50 2 3,348,076 638,484 2,709,592
Fixtures ................................ 50 2 265,812 33,189 232,623
Vehicles ................................ 5 20 1,632,683 1,079,824 552,859
Machines and equipment .................. 10 10 962,189 685,937 276,252
Office and equipment .................... 10 10 780,130 481,577 298,553
Other ................................... 4 25 1,212,486 1,010,100 202,386
--------- --------- ---------
Subtotal .................................. 10,840,340 3,929,111 6,911,229
Rental machines and equipment ............. 7 14 12,178,247 4,675,613 7,502,634
Fixed assets investment Petrolera Argentina
San Jorge S.A. .......................... 12.5 8 11,725,018 1,436,022 10,288,996
---------- --------- ----------
Total ..................................... 34,743,605 10,040,746 24,702,859
========== ========== ==========
</TABLE>
F-73
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 3--PROPERTY AND EQUIPMENT--(CONTINUED)
Depreciation for 1996 amounted to P$3,272,048; of which P$3,133,470 was
allocated to "Cost of sales, rentals and services"; P$55,491 to "Administrative
expenses" and P$69,140 to "Selling expenses" and P$13,947 to "Other".
NOTE 4--ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 1997 1996
--------------- ----------------------- ------------
US$(1) P$
--------------- --------------------------------------
<S> <C> <C> <C>
Balance at the beginning of the year ......... 1,606,825 1,606,825 1,309,587
Increase ..................................... 300,176 300,176 307,633
Decrease ..................................... (1,635,277) (1,635,277) (2) (10,395)
---------- ---------- ---------
Balance at the end of the year ............... 271,724 271,724 1,606,825
========== ========== =========
</TABLE>
- ----------------
(1) See Note 1.2.c).
(2) Until the year ended December 31, 1996 the Company held in its accounts
receivable an amount of long-outstanding bad debts which was offset by a
corresponding allowance. During 1997 the Company reduced the bad debt
allowance by P$1,635,277 with a corresponding reduction in the related
accounts receivable. This adjustment has had no impact on results for the
year.
NOTE 5--SHORT-TERM BANK BORROWINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1997 1996
-------------- -------------- --------------
US$(1) P$
-------------- -------------------------------
<S> <C> <C> <C>
Credit balances with banks ............. 596,176 596,176 211,165
Loans .................................. 6,017,554 6,017,554 8,100,731
--------- --------- ---------
6,613,730 6,613,730 8,311,896
========= ========= =========
Weighted average interest rate ......... 7.70% 7.70% 9.50%
</TABLE>
- ----------------
(1) See Note 1.2.c).
NOTE 6--TRANSACTIONS WITH RELATED PARTIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1997 1996
----------- ----------- --------
US$(1) P$
----------- ----------------------
<S> <C> <C> <C>
Sullair Corporation(2)
Accounts payable ......... 1,109,854 1,109,854 758,958
========= ========= =======
</TABLE>
- ----------------
(1) See Note 1.2.c).
(2) Sullair Argentina Sociedad Anonima and Sullair San Luis Sociedad Anonima
buy Sullair Corporation machines and equipment.
F-74
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 7--SUBSTITUTION OF THE INDUSTRIAL PROMOTION REGIME IN SULLAIR SAN LUIS
SOCIEDAD ANONIMA
a) The fiscal benefits obtained by Sullair San Luis Sociedad Anonima under
the industrial promotion regime were substituted as established by Decree No.
2054/92 of the National Government. These benefits are currently ruled by a DGI
(tax authorities) computerized current account which can be applied, up to a
maximum per year, to the payment of tax obligations corresponding to the
remaining years of the project.
Accordingly, these benefits are accounted for under the accrual basis once
the Company complies with the obligations that produce the benefit. During the
year ended December 31, 1997 Sullair San Luis Sociedad Anonima has used
US$629,000 from the computerized current account, accounted in the consolidated
statement of income under the "Other non-operating income net" line, and
"current other receivable--recoverable taxes" (Note 2.b.).
b) In accordance with Decree No. 2054/92, the companies which were exempt
from payment of VAT on purchases until Decree No. 435/90 was annulled were
granted a tax credit for an amount equivalent to the tax paid to suppliers of
raw material and semi-manufactured products from April 1, 1990 up to November
30, 1992. Decree No. 2054/92 also established the maximum amount of the tax
credit to be recognized which cannot be exceeded. Despite the total amount of
the VAT credit paid during the abovementioned period by Sullair San Luis
Sociedad Anonima amounted to US$ 1,599,128, the Company management believes
that, although the Company is entitled to file claims, the amount to be
credited by the DGI in accordance with the provisions of the abovementioned
decree will not exceed US$650,000. This amount is shown as a receivable (see
Note 2d) and was charged to income in previous years, as the benefits were
accrued.
During June 1995, in compliance with the terms of DGI Resolutions Nos.
3838 and 3905, Sullair San Luis Sociedad Anonima applied to this authority for
the fiscal credit certificates. The DGI has resolved to grant $232,144.68 as an
anticipated refund without recognizing the origin of the credit requested under
the terms of General Resolution No. 3838, pursuant to the provisions of General
Resolution No. 4182 by virtue of the period of suspension of the promotion
benefits implemented by sections IV and V of Law No. 23697 and complementary
regulations. The DGI has not as yet issued any opinion as regards General
Resolution No. 3905.
NOTE 8--CONTRACT WITH PETROLERA ARGENTINA SAN JORGE S.A.
During March 1995, the Company signed a contract with Petrolera Argentina
San Jorge S.A. for a term of 10 years for the execution of work for the
expansion of the power station located at the "El Trapial" field in the
province of Neuquen, and for the providing of an electricity supply service
that includes the making available of certain turbo-generators and power
plants, as well as their maintenance and commissioning.
In fiscal 1997, income has been generated for approximately US$4,107,113
and costs have been generated for approximately US$1,721,770.
F-75
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 9--EXTRAORDINARY RESULTS
In 1996, during the execution of work carried out under the agreement with
Petrolera Argentina San Jorge S.A., the Company incurred in extraordinary costs
in the amount, net of the effect of income taxes, of P$ 709,666, from the
incorporation of equipment of a higher standard than originally planned to
improve service and client attention, as well as in the absorption of unplanned
expenditure during the construction and development stage of this new business.
NOTE 10--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA
The consolidated financial statements have been prepared in accordance
with Argentine GAAP, which differ in certain significant respects from US GAAP.
The significant differences as at and for the years ended December 31, 1997,
1996 and 1995 are reflected in the reconciliations provided in Note 11 and
principally relate to the items discussed in the following paragraphs:
a) Restatement of financial statements for general price-level changes
The Argentine GAAP consolidated financial statements of the Company were
restated through August 31, 1995 and updated through August 31, 1995
price-levels to reflect the effects of inflation in accordance with specified
rules as more fully explained in Note 1.2.
In most circumstances, US GAAP do not allow for the restatement of
financial statements. Under US GAAP, account balances and transactions are
generally stated in the units of currency of the year when the transactions
originated. This accounting model is commonly known as the historical cost
basis of accounting. However, as the economy of Argentina experienced periods
of significant inflation prior to September 1995, the presentation of the
consolidated financial statements restated for general price-level changes is
substantially similar to the methodology prescribed by Accounting Principles
Board Statement ("APB") No. 3, "Financial Statements Restated for General Price
Level Changes". This statement requires that companies operating in
hyper-inflationary environments in which inflation has exceeded 100% over the
last three years and which report in local currency restate their financial
statements on the basis of a general price-level index. August 1993 was the
first month in which the rate of inflation in Argentina, as measured by the
WPI, was below 100% for the first time in 36 consecutive months since the
release of Statement of Financial Accounting Standards ("SFAS") No. 52 "Foreign
Currency--Translation". The US GAAP reconciliation does not reverse the effects
of the general price-level restatement included in the Argentine GAAP financial
statements through August 31, 1995.
F-76
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 10--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA--(CONTINUED)
b) Presentation of the parent company financial statements
Argentine GAAP require companies with controlling financial interest in
other companies to present both parent company, where investments in
subsidiaries are accounted for by the equity method, and consolidated financial
statements, as primary and supplementary information, respectively. Because of
the special purpose of these financial statements, parent financial statements
are not included.
c) Capitalized interest
Argentine GAAP do not require capitalization of interest on work in
progress. Under US GAAP interest incurred on working progress should be
capitalized as part of the cost of acquiring the assets until placed into
service. Accordingly, the reconciling difference for this item is presented in
the quantitative reconciliation in Note 11.
d) Advances to suppliers
Under Argentine GAAP, funds advanced to suppliers are capitalized and
included under Property and equipment prior to purchase and specific
identification. Under US GAAP these funds are treated as a deposit until the
related assets procured by such funds have been purchased and specifically
identified. Accordingly, such funds are generally classified as "Other assets".
However, due to the nature of such funds and their relative immateriality
to the consolidated financial statements taken as a whole (Note 3), the
quantitative difference between Argentine and US GAAP would be a
reclassification from Property and equipment to Other assets and, accordingly,
it does not affect the reconciliation of net income and shareholders' equity in
Note 11.
e) Recoverability of long-lived assets to be held and used in the business
Management reviews long-lived assets, primarily Property and equipment, to
be held and used in the business, and Long-term investments for the purposes of
determining and measuring impairment. Under US GAAP, SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of", requires a company to review assets for impairment whenever
events or changes in circumstances indicate the carrying amount of an asset may
not be recoverable.
Management estimates that there is no significant impairment of assets.
F-77
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 10--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA--(CONTINUED)
f) Vacation accrual
Under Argentine GAAP, there are no specific requirements governing the
recognition of accruals for vacations. The accepted practice in Argentina is to
expense vacation when taken and to accrue only the amount of vacation in excess
of normal remuneration.
Under US GAAP, vacation expense is fully accrued in the year the employee
renders service to earn such vacation. Accordingly, the reconciling difference
for this item is presented in the quantitative reconciliation in Note 11.
g) Income taxes
Under Argentine GAAP, income tax expense is generally recognized based
upon the estimate of the current income tax liability. When income and expense
recognition for financial statement purposes does not occur in the same period
as income and expense recognition for tax purposes, the resulting temporary
differences are not considered in the computation of income tax expense for the
year.
Under US GAAP, the liability method is used to calculate the income tax
provision. Under the liability method, deferred tax assets or liabilities are
recognized with a corresponding charge or credit to income for differences
between the financial and tax basis of assets and liabilities at each year-end.
Accordingly, the reconciling difference for this item is presented in the
quantitative reconciliation in Note 11.
h) Severance indemnities
US GAAP require the accrual of liability for certain post-employment
benefits if they are related to services already rendered, are related to
rights that accumulate or vest, or are likely to be paid and can be reasonable
estimated.
As described in Note 1.5.g), the Company expenses severance indemnities
when paid. Under Argentine law, the Company is required to pay a minimum
severance indemnity based on years of service and age when an employee is
dismissed without adequate justification. While the Company expects to make
severance payments in the future, it is unable to reasonably estimate the
amount of liability, if any, at the present time. As a result, no adjustment
has been made in the US GAAP reconciliation.
i) Inventories
As described in Note 1.5.c) the Company values its inventories at
replacement cost. Under US GAAP inventories are to be valued at the lower of
cost or realizable value. There are no material
F-78
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 10--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA--(CONTINUED)
differences between the replacement cost and the US GAAP cost. As a result, no
adjustment has been made in the US GAAP reconciliation.
j) Extraordinary items
Unplanned expenditures during the construction of the project described in
Note 9 are included as an extraordinary loss under Argentine GAAP.
This concept does not qualify as an extraordinary item under US GAAP.
NOTE 11--RECONCILIATION OF NET INCOME (LOSS) AND SHAREHOLDERS' EQUITY TO US
GAAP
The following is a summary of the significant adjustments to net income
and shareholders' equity for the years ended December 31, 1997, 1996 and 1995,
which would be required if US GAAP were applied instead of Argentine GAAP in
the financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1997
----------------------------- -----------------------------
US$(1) P$
----------------------------- -----------------------------
NET SHAREHOLDERS' NET SHAREHOLDERS'
INCOME EQUITY INCOME EQUITY
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
AMOUNTS PER
ACCOMPANYING
FINANCIAL STATEMENTS ......... 5,019,918 31,566,796 5,019,918 31,566,796
US GAAP ADJUSTMENTS
Deferred income tax ............ 74,911 (79,187) 74,911 (79,187)
Vacation accrual ............... (29,738) (399,033) (29,738) (399,033)
Capitalized interest ........... 7,486 16,104 7,486 16,104
--------- ---------- --------- ----------
AMOUNTS UNDER
US GAAP ...................... 5,072,577 31,104,680 5,072,577 31,104,680
========= ========== ========= ==========
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995
----------------------------- ------------
P$
------------------------------------------
NET SHAREHOLDERS' NET
INCOME EQUITY INCOME
------------- --------------- ------------
<S> <C> <C> <C>
AMOUNTS PER
ACCOMPANYING
FINANCIAL STATEMENTS ......... 2,614,066 26,546,878 1,894,371
US GAAP ADJUSTMENTS
Deferred income tax ............ 134,320 (154,098) 90,063
Vacation accrual ............... 54,092 (369,295) (23,387)
Capitalized interest ........... (11,428) 8,618 20,046
--------- ---------- ---------
AMOUNTS UNDER
US GAAP ...................... 2,791,050 26,032,103 1,981,093
========= ========== =========
</TABLE>
- ----------------
(1) See Note 1.2.c).
F-79
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 12--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS
a) Income taxes
The Company's deferred income taxes under US GAAP are comprised as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1997 1996 1995
------------ ------------ ------------- -------------
US$(1) P$
------------ --------------------------------------------
<S> <C> <C> <C> <C>
Deferred tax assets
Allowance for doubtful accounts ......... -- -- 8,416 --
Fixed assets ............................ 11,686 11,686 11,686 46,870
------ ------ ------ ------
11,686 11,686 20,102 46,870
Deferred tax liabilities
Other receivables ....................... (90,873) (90,873) (174,200) (335,288)
------- ------- -------- --------
(90,873) (90,873) (174,200) (335,288)
------- ------- -------- --------
Net deferred tax assets ................... (79,187) (79,187) (154,098) (288,418)
======= ======= ======== ========
</TABLE>
- ----------------
(1) See Note 1.2.c).
The provision for income taxes computed in accordance with US GAAP differs
from that computed at the statutory tax rate (December 31, 1997 and 1996: 33%;
December 31, 1995: 30%) as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1997 1996 1995
------------- ------------- ------------- -------------
US$(1) P$
------------- ---------------------------------------------
<S> <C> <C> <C> <C>
Income tax expense (benefit) at statutory
tax rate on pretax income in accordance
with US GAAP ............................... 2,313,367 2,313,367 1,133,778 657,482
Change of statutory income tax rate ......... -- -- 28,842 --
Fixed assets(2) ............................. (168,171) (168,171) (293,076) (259,341)
Permanent differences(3) .................... (207,570) (207,570) (224,902) (187,626)
--------- --------- --------- --------
Income tax expense (benefit) in accordance
with US GAAP ............................... 1,937,626 1,937,626 644,642 210,515
========= ========= ========= ========
</TABLE>
- ----------------
(1) See Note 1.2.c).
(2) Effects of differing price-level adjustments for tax and financial
statement purposes.
(3) Fiscal benefits obtained by Sullair San Luis Sociedad Anonima (see Note
7.a)).
F-80
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 12--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS--(CONTINUED)
b) Supplementary cash flow information
Cash and cash equivalents at the end of each year comprises:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1997 1996 1995
--------- --------- --------- --------
US$(1) P$
--------- --------------------------------
<S> <C> <C> <C> <C>
Cash and banks .......................... 305,876 305,876 542,989 382,280
------- ------- ------- -------
Total cash and cash equivalents ......... 305,876 305,876 542,989 382,280
======= ======= ======= =======
</TABLE>
- ----------------
(1) See Note 1.2.c).
The Company has included all highly liquid investments, having an original
maturity which does not exceed 3 months as from the year, in cash and cash
equivalents.
The Company has applied the indirect method in order to reconcile net
income of each year with the cash flow provided by operating activities.
Breakdown of amounts paid during the years is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1997 1996
-------- -------- -------
US$(1) P$
-------- ------------------
<S> <C> <C> <C>
Income tax ......... 14,646 14,646 43,820
====== ====== ======
</TABLE>
Main non-cash transactions
Main non-cash transactions, consequently eliminated in the Statement of
cash flows, are the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1997 1996 1995
----------- ----------- ----------- ----------
US$(1) P$
----------- --------------------------------------
<S> <C> <C> <C> <C>
Fixed assets acquisitions financed by loans and
accounts payable ............................. -- -- 5,763,979 6,081,494
--------- --------- --------- ---------
-- -- 5,763,979 6,081,494
========= ========= ========= =========
</TABLE>
- ----------------
(1) See Note 1.2.c).
F-81
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 12--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS--(CONTINUED)
Main investing activities
Proceeds from investments other than cash equivalents are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1997 1996 1995
-------- --------- --------- --------
US$(1) P$
-------- --------------------------------
<S> <C> <C> <C> <C>
Current investments .......... -- -- 504,387 --
1998 Argentina Bond ......... 33,000 33,000 33,000 --
------ ------ ------- -------
Total ........................ 33,000 33,000 537,387 --
====== ====== ======= =======
</TABLE>
- ----------------
(1) See Note 1.2.c).
The Company has no cash balances in currency other than U.S. dollars.
Since the exchange rates remained unchanged for the years ended December 31,
1997, 1996 and 1995, no foreign exchange gains/losses shall be adjusted for US
GAAP purposes.
c) Fair value of financial instruments
In accordance with SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments", information is provided about the fair value of certain
financial instruments for which it is practicable to estimate that value.
For the purposes of SFAS No. 107, the estimated fair value of a financial
instrument is the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a forced or
liquidation sale. The carrying values of the Companies' financial instruments
as of December 31, 1997, 1996 and 1995 approximate management's best estimate
of their fair values. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments for which it is
practicable to estimate that value:
--The fair value of certain financial assets carried at cost, including
cash, short-term investments, trade receivables and other current assets
is considered to approximate their respective carrying value due to their
short-term nature.
--The fair value of accounts payable and accrued liabilities, short-term
bank borrowings, tax payable and other current liabilities is considered
to approximate their respective carrying value due to their short-term
nature.
F-82
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND IN NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 12--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS--(CONTINUED)
d) Financial instruments with off-balance sheet risk and concentrations of
credit risk
The Company has not used financial instruments to hedge its exposure to
fluctuations in foreign currency exchange or interest rates and, accordingly,
has not entered into transactions that create off-balance sheet risks
associated with such financial instruments.
Accounts receivable substantially comprise balances with a large number of
clients. Management does not believe significant concentrations of credit risk
exist.
NOTE 13--IMPACT OF NEW ACCOUNTING STANDARD NOT YET ADOPTED
In June 1997, the Financial Accounting Board issued its Statement No. 130,
"Reporting Comprehensive Income". Among other provisions, SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. It does not
address issues of recognition or measurement for comprehensive income and its
components. Management does not expect the adoption of SFAS No. 130 to have
material impact on its financial statements.
In June 1997, Statement No. 131 ("SFAS 131"), DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION, was issued. SFAS 131 establishes
standards for the way that public companies disclose selected information about
operating segments in annual financial statements and requires that those
companies disclose selected information about segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997. Accordingly, the Company is not required to adopt SFAS 131
until the fiscal year ending December 31, 1998. SFAS 131 relates solely to
disclosure provisions, and therefore will not have any effect on the results of
operations, financial position and cash flows of the Company.
* * * * * *
F-83
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED BALANCE SHEETS
(Expressed in constant pesos -P$- of August 31, 1995 and in nominal pesos
thereafter--Note 1.2.)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------------- -------------
1998 1998 1997
------------- ------------ -------------
US$ (1) P$
------------- ----------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and banks .......................................... 1,098,590 1,098,590 305,876
Accounts receivable (Note 2.a) .......................... 13,720,874 13,720,874 13,961,371
Other receivables (Note 2.b) ............................ 2,612,283 2,612,283 2,321,217
Inventories (Note 2.c) .................................. 17,123,749 17,123,749 12,687,639
---------- ---------- ----------
Total current assets .................................... 34,555,496 34,555,496 29,276,103
---------- ---------- ----------
NON-CURRENT ASSETS
Other receivables (Note 2.d) ............................ 657,658 657,658 657,658
Long-term investments (Note 2.e) ........................ 233,756 233,756 233,756
Property and equipment, net (Note 3) .................... 30,778,806 30,778,806 26,477,686
Other receivables (Note 2.d) ............................ 67,373 67,373 67,377
---------- ---------- ----------
Total non-current assets ................................ 31,737,593 31,737,593 27,436,477
---------- ---------- ----------
Total assets ............................................ 66,293,089 66,293,089 56,712,580
========== ========== ==========
LIABILITIES
CURRENT LIABILITIES
Accounts payable (Note 2.f) ............................. 12,958,340 12,958,340 11,737,769
Short-term bank borrowings (Note 2.g) ................... 13,693,143 13,693,143 6,613,730
Taxes payable ........................................... 581,735 581,735 1,059,209
Payroll and social security ............................. 407,808 407,808 274,995
Dividends payable ....................................... 116,978
Advances for customers .................................. 316,779 316,779 --
---------- ---------- ----------
Total current liabilities ............................... 27,957,805 27,957,805 19,802,681
---------- ---------- ----------
NON-CURRENT LIABILITIES
Long-term bank borrowings (Note 2.h) .................... 2,813,099 2,813,099 5,342,376
---------- ---------- ----------
Total non-current liabilities ........................... 2,813,099 2,813,099 5,342,376
---------- ---------- ----------
Total liabilities ....................................... 30,770,904 30,770,904 25,145,057
---------- ---------- ----------
MINORITY INTEREST IN
CONSOLIDATED SUBSIDIARY ............................... 896 896 727
---------- ---------- ----------
SHAREHOLDERS' EQUITY (as per related statement) ......... 35,521,289 35,521,289 31,566,796
---------- ---------- ----------
Total liabilities and shareholders' equity .............. 66,293,089 66,293,089 56,712,580
========== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c)
The accompanying notes are an integral part of these consolidated financial
statements.
F-84
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
(Expressed in constant pesos -P$- of August 31, 1995 and in nominal pesos
thereafter--Note 1.2.)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------------------
1998 1998 1997
---------------- ---------------- ----------------
US$ (1) P$
---------------- -----------------------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net sales, rentals and services (Note 2.j) ........................ 38,659,026 38,659,026 43,244,165
Operating costs
Cost of sales, rentals and services (Note 2.k) ................... (28,106,480) (28,106,480) (33,072,411)
Administrative expenses .......................................... (1,237,795) (1,237,795) (1,193,190)
Selling expenses ................................................. (1,991,398) (1,991,398) (2,184,340)
Other ............................................................ (390,155) (390,155) (225,033)
----------- ----------- -----------
Operating income .................................................. 6,933,198 6,933,198 6,569,191
----------- ----------- -----------
Non-operating income (expenses) ...................................
Financial expenses (Note 2.l) ..................................... (1,180,718) (1,180,718) (1,099,967)
Other non-operating income net (Note 7) ........................... 394,024 394,026 197,593
----------- ----------- -----------
Income before taxes and minority interest ......................... 6,146,504 6,146,506 5,666,817
----------- ----------- -----------
Income tax ........................................................ (1,691,844) (1,691,844) (1,786,170)
----------- ----------- -----------
Income before minority interest ................................... 4,454,660 4,454,662 3,880,647
----------- ----------- -----------
Minority interest in results of consolidated subsidiaries ......... (169) (169) (230)
----------- ----------- -----------
Net income for the period ......................................... 4,454,491 4,454,493 3,880,417
=========== =========== ===========
</TABLE>
- ----------------
(1) See Note 1.2.c)
The accompanying notes are an integral part of these consolidated financial
statements.
F-85
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1998
(Expressed in constant pesos -P$- of August 31, 1995 and in nominal pesos
thereafter--Note 1.2.)
<TABLE>
<CAPTION>
EARNINGS
ADJUSTMENTS -------------------------------
ADDITIONAL TO CAPITAL UNAPPROPRIATED TOTAL
CAPITAL PAID-IN STOCK RETAINED SHAREHOLDERS'
STOCK CAPITAL (NOTE 1.5 I) LEGAL RESERVE EARNINGS EQUITY
--------- ------------ -------------- --------------- --------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
At January 1, 1998 ................... 86,000 -- 12,723 26,708 31,441,365 31,566,796
Capital contribution on June 30,
1998, including additional
paid-in capital .................... 3,608 2,996,392 -- -- -- 3,000,000
Distribution of dividends ............ -- -- -- -- (3,500,000) (3,500,000)
Net income for the period ............ -- -- -- -- 4,454,493 4,454,493
------ --------- ------ ------ ---------- ----------
At September 30, 1998 ................ 89,608 2,996,392 12,723 26,708 35,392,250 35,521,289
====== ========= ====== ====== ========== ==========
At September 30, 1998 US$ (1)......... 89,608 2,996,392 12,723 26,708 35,392,250 35,521,289
====== ========= ====== ====== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c)
The accompanying notes are an integral part of these consolidated
financial statements.
F-86
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
(Expressed in constant pesos -P$- of August 31, 1995 and in nominal pesos
thereafter--Note 1.2.)
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------------
1998 1998 1997
--------------- --------------- ---------------
US$(1) P$
--------------- ---------------------------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the period ........................................ 4,454,493 4,454,493 3,880,417
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation ................................................... 3,933,495 3,933,495 5,095,424
Allowance for doubtful accounts ................................ 220,647 220,647 225,000
Minority interest .............................................. 169 169 230
Fixed assets disposals ......................................... 493,007 493,007 1,070,147
Taxes on income ................................................ 531,364 531,364 2,430,000
Financial and holding results on assets other than cash or
cash equivalents and on liabilities .......................... 1,249,718 1,249,718 1,786,170
Decrease (increase) in assets:
Accounts receivable ........................................... 282,880 282,880 (5,408,756)
Other receivables ............................................. (291,066) (291,066) 2,586,028
Inventories ................................................... (4,436,110) (4,436,110) (1,801,448)
Decrease (increase) in liabilities:
Accounts payable .............................................. 1,220,571 1,220,571 1,531,126
Payroll and social security ................................... 132,813 132,813 100,281
Other liabilities ............................................. -- -- (490,440)
Taxes payable ................................................. (1,008,838) (1,008,838) (1,110,039)
Advances from customers ....................................... 199,807 199,807 (367,509)
---------- ---------- ----------
Cash provided by operations ...................................... 6,982,948 6,982,948 9,526,631
---------- ---------- ----------
CASH FLOWS FROM INVESTMENT ACTIVITIES
Purchases of property and equipment .............................. (8,727,622) (8,727,622) (8,437,980)
---------- ---------- ----------
Cash used in investment activities ............................... (8,727,622) (8,727,622) (8,437,980)
---------- ---------- ----------
CASH FLOWS FROM FINANCIAL ACTIVITIES
Proceeds from bank loans ......................................... 11,918,000 11,918,000 7,634,000
Repayments of bank loans ......................................... (8,880,612) (8,880,612) (8,968,132)
Interest and related cost payments ...............................
Cash dividends ................................................... (3,500,000) (3,500,000) --
Capital contribution ............................................. 3,000,000 3,000,000 --
---------- ---------- ----------
Cash provided by financing activities ............................ 2,537,388 2,537,388 (1,334,132)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ............................................... 792,714 792,714 (245,481)
Cash and cash equivalents at the beginning of the period ......... -- 305,876 542,989
---------- ---------- ----------
CASH AND CASH EQUIVALENTS
AT THE END OF THE PERIOD ....................................... 1,098,590 1,098,590 297,508
========== ========== ==========
</TABLE>
- ----------------
(1) See Note 1.2.c)
The accompanying notes are an integral part of these consolidated financial
statements.
F-87
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
1.1. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of Sullair
Argentina Sociedad Anonima ("The Company") and its subsidiary, Sullair San Luis
Sociedad Anonima. All material intercompany balances, transactions and profits
have been eliminated. The consolidated financial statements of the Company have
been prepared for valuation by Neff Corp. of its participation in the capital
stock of the Company and its subsequent consolidation.
Sullair Argentina Sociedad Anonima holds 99.99% of the shares of Sullair
San Luis Sociedad Anonima. In addition to its participation in Sullair San Luis
Sociedad Anonima, Sullair Argentina Sociedad Anonima holds 100% of the shares
of Bahian S.A., a company located in Uruguay. Bahian S.A. holds 49% of the
shares of Sullair Do Brasil Ltd., a Brazilian company.
The participation in Bahian S.A. has not been consolidated in view of its
low materiality and is shown in the consolidated financial statements under
non-current investments, at its cost value.
The accompanying consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in
Argentina.
The preparation of the financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
balance sheet dates, and the reported amounts of revenues and expenses during
the reporting periods. Actual results may differ from these estimates. These
consolidated financial statements have not been subject to a full audit;
however, the Board of Directors of the Company considers that they contemplate
all adjustments (consisting only of habitual and recurrent adjustments)
necessary to present the equity and financial position and the results of
operations on a basis consistent with those of the audited annual consolidated
financial statements.
1.2. RECOGNITION OF THE EFFECTS OF INFLATION
a) Pursuant to the restatement methodology established under technical
pronouncements issued by the Federacion Argentina de Consejos Profesionales de
Ciencias Economicas (Argentine Federation of Professional Councils in Economic
Sciences, or "FACPCE"), the consolidated financial statements of the Company
were stated in constant Argentine pesos through August 31, 1995. To account for
the effects of inflation in Argentina and in accordance with Argentine GAAP,
prior to September 1, 1995, the Company's financial statements were
periodically restated based on the changes in the Precios Mayoristas Nivel
General (General Wholesale Price Index, or "WPI"). However, pursuant to
resolutions of the IGJ, Argentine companies are not permitted to reflect the
effects of inflation on their financial statements as of any date or for any
period after September 1, 1995.
Accordingly, for fiscal year 1995, the Company is required to reflect the
effects of inflation on its financial statements through August 31, 1995, but
is not permitted to do so for the four-month period
F-88
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
ended December 31, 1995 or for subsequent periods. For the nine-month period
ended September 30, 1998 and 1997, as the change in the WPI since August 31,
1995 has been less than eight percent, financial statements prepared in
accordance with Argentine GAAP need not be adjusted for inflation after that
date.
(b) On January 1, 1992 the peso replaced the austral as Argentina's
official currency at a conversion rate of 10,000 australes per peso. One peso
currently is, and current Argentine law requires that one peso will continue to
be, exchangeable for not less than one dollar.
Throughout each of the periods in the accompanying consolidated financial
statements, the exchange rate in Argentina was P$1=US$1.
c) The consolidated financial statements of Sullair Argentina Sociedad
Anonima at September 30, 1998, as well as the related notes and exhibits, have
been prepared in Argentine pesos on the basis of accounting records carried in
Argentina in that currency. These financial statements include a column that
gives effect to the translation into U.S. dollars of the balances at September
30, 1998. Balances have been translated at the exchange rate at September 30,
1998, indicated in Note 1.2.b).
1.3. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance
with Argentine GAAP and with the requirements of the IGJ and are presented in
Argentine pesos ("Ps").
1.4. CASH AND CASH EQUIVALENTS
In the consolidated statements of cash flows, the Company considers cash
and cash equivalents all its highly liquid investments purchased with an
original maturity at three months or less.
1.5. VALUATION CRITERIA
The principal valuation criteria used in the preparation of the
consolidated financial statements are as follows:
a) Foreign currency
Assets and liabilities denominated in foreign currency are presented at
the nominal value of the foreign currency converted to local currency at
period-end exchange rates. Exchange differences have been included in the
determination of the net income.
b) Accounts and other receivables
Receivables are stated at estimated realizable values and an allowance for
doubtful accounts is provided in an amount considered by management to be
sufficient to meet probable future losses
F-89
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
related to uncollectible accounts. Accounts and other receivables deemed
uncollectible by management are charged against the allowance for doubtful
accounts at the time of such determination.
c) Inventories
Inventories are valued at replacement cost, which in the aggregate is less
than recoverable value, on the following basis:
Imported raw materials and supplies: at replacement cost in the currency
of origin converted at the period-end exchange rate plus the percentage of
import duties incurred;
Domestic raw materials and supplies: at replacement cost;
Imports in progress: at their import cost in the currency of origin
converted at the period-end exchange rate plus expenses incurred since the date
of origin through each period-end.
d) Property and equipment
Property and equipment are presented at cost restated through August 31,
1995 (Note 1.2.), less accumulated depreciation.
The depreciation of the rental stock machinery, which is included in
"Rental, machines and equipment" account starts as of the month in which the
machine is incorporated into the rent stock. Depreciation of the remaining
property and equipment starts as of the year of acquisition. The depreciation
is computed on a straight-line basis over the estimated useful lives of the
assets. Aggregate net value does not exceed recoverable value.
Management considers that there has been no impairment in the carrying
value of property and equipment.
e) Long-term investments
The government bond, "Argentina Bond", has been valued at its cost,
increased on an exponential basis according to the internal rate of return at
the time of its incorporation to assets and time elapsed thereafter.
Equity investment in Bahian S.A.: see Note 1.1.
f) Administrative and selling expenses
Administrative and selling expenses are charged to income when incurred.
F-90
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
g) Employee severance indemnities
Employee severance indemnities are expensed as paid.
h) Income tax
Income taxes are those estimated to be paid for each period. The income
tax has been estimated by applying the 33% statutory tax rate to taxable income
of the periods ended September 30, 1998 and 1997. The resulting amount was
charged to income tax in the consolidated statement of income.
i) Shareholders' equity
Shareholders' equity accounts have been restated in constant pesos as of
the end of the period (see Note 1.2.), except for the capital stock account
which is stated at nominal value. The adjustment required to restate such value
into constant pesos is included in the "Adjustment to capital" account.
j) Sales, rentals and services recognition
Revenues are recognized on an accrual basis. The Company's revenues are
presented net of sales discounts.
F-91
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 2--ANALYSIS OF CERTAIN BALANCE SHEET AND STATEMENT OF INCOME ACCOUNTS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEETS
CURRENT ASSETS
a) Accounts receivable
Trade receivables ................................................... 11,677,063
Notes receivable .................................................... 679,005
Export letters receivables .......................................... 1,857,177
Less: Allowance for doubtful accounts ............................... (492,371)
----------
13,720,874
==========
CURRENT ASSETS (Contd.)
b) Other receivables
Recoverable taxes ................................................... 548,208
Advances to employees ............................................... 144,801
Prepaid expenses .................................................... 342,070
Commissions receivable .............................................. 348,016
Prepaid insurance ................................................... 248,355
Others .............................................................. 980,833
----------
2,612,283
==========
c) Inventories
Finished goods ...................................................... 9,542,546
Manufactured materials .............................................. 3,705,955
Supplies in transit ................................................. 3,831,116
Advances to suppliers ............................................... 44,132
----------
17,123,749
==========
NON-CURRENT ASSETS
d) Other receivables
Receivables due to the partial suspension of the tax credit ......... 41,396
Credits Decree No. 2054/92--VAT Purchases ........................... 608,604
----------
Subtotal ............................................................ 650,000
Other tax credits ................................................... 7,658
----------
657,658
==========
e) Long-term investments
Bahian S.A. ......................................................... 199,756
Argentina Bond ...................................................... 34,000
----------
233,756
==========
</TABLE>
F-92
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 2--ANALYSIS OF CERTAIN BALANCE SHEET AND STATEMENT OF INCOME
ACCOUNTS--(CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
--------------
(UNAUDITED)
<S> <C>
CURRENT LIABILITIES
f) Accounts payable
Trade
Suppliers ................. 10,691,052
Related companies ......... 2,267,288
----------
12,958,340
==========
g) Short-term bank borrowings
Banks
Unsecured notes ............ 13,693,143
----------
13,693,143
==========
NON-CURRENT LIABILITIES
h) Long-term bank borrowings
Banks
Unsecured notes ........... 2,813,099
==========
2,813,099
==========
</TABLE>
i) Aging breakdown of balance sheet accounts
<TABLE>
<CAPTION>
DUE
---------
(UNAUDITED)
<S> <C>
ASSETS
Accounts receivable ................. 355,331
Other receivables ................... --
-------
Total assets ........................ 355,331
=======
LIABILITIES
Accounts payable .................... --
Notes payable to banks (1) .......... --
Payroll and social security ......... --
Taxes payable ....................... --
Dividends payable ................... --
Advances for customers .............. --
-------
Total liabilities ................... --
=======
<CAPTION>
TO BE DUE
----------------------------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER 2 YEARS TOTAL
------------- ------------- ------------- ------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Accounts receivable ................. 8,385,815 4,832,503 639,596 -- -- 14,213,245
Other receivables ................... 1,380,712 1,029,683 201,888 -- 657,658 3,269,941
--------- --------- ------- -- ------- ----------
Total assets ........................ 9,766,527 5,862,186 841,484 -- 657,658 17,483,186
========= ========= ======= == ======= ==========
LIABILITIES
Accounts payable .................... 6,090,420 6,867,920 -- -- -- 12,958,340
Notes payable to banks (1) .......... 9,380,274 894,595 1,032,121 894,595 4,304,657 16,506,242
Payroll and social security ......... 407,808 -- -- -- -- 407,808
Taxes payable ....................... 581,735 -- -- -- -- 581,735
Dividends payable ................... -- -- -- -- -- --
Advances for customers .............. 316,779 -- -- -- -- 316,779
--------- --------- --------- ------- --------- ----------
Total liabilities ................... 16,777,016 7,762,515 1,032,121 894,595 4,304,657 30,770,904
========== ========= ========= ======= ========= ==========
</TABLE>
- ----------------
(1) Corresponding to an annual rate of 8%
F-93
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 2--ANALYSIS OF CERTAIN BALANCE SHEET AND STATEMENT OF INCOME
ACCOUNTS--(CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------
1998 1997
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF INCOME
j) Net sales, rentals and services
Sales rentals and services
Sales ............................. 23,217,219 28,201,363
Rentals and services .............. 16,279,092 15,596,460
Discounts ......................... (837,285) (553,658)
---------- ----------
38,659,026 43,244,165
========== ==========
k) Cost of sales, rentals and services
Sales .............................. (17,608,662) (20,835,619)
Rentals and services ............... (10,497,818) (12,236,792)
----------- -----------
(28,106,480) (33,072,411)
=========== ===========
l) Financial expenses
On assets .......................... 263,030 389,251
On liabilities ..................... (1,443,748) (1,489,218)
----------- -----------
(1,180,718) (1,099,967)
=========== ===========
</TABLE>
NOTE 3--PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
USEFUL AVERAGE ------------------------------------------------
LIVE IN ANNUAL RATE ACCUMULATED NET BOOK
YEARS % ORIGINAL VALUE DEPRECIATION VALUE
--------- ------------ ---------------- -------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Fixed assets
Land .................................. -- -- 2,718,064 -- 2,718,064
Buildings ............................. 50 2 4,019,955 812,233 3,207,722
Fixtures .............................. 10 10 873,625 770,167 103,458
Vehicles .............................. 5 20 1,743,535 1,252,674 490,861
Machines and equipment ................ 10 10 1,584,139 1,161,701 422,438
Office and equipment .................. 10 10 1,116,436 619,295 497,141
Work in progress ...................... -- -- 2,859,591 -- 2,859,591
--------- --------- ---------
Subtotal ............................... 14,915,345 4,616,070 10,299,275
Rental, machines and equipment ......... 5 20 21,766,525 9,508,475 12,258,050
Fixed assets--San Jorge contract
(see Note 8) ......................... 8 12.5 11,913,559 3,692,078 8,221,481
---------- --------- ----------
Total .................................. 48,595,429 17,816,623 30,778,806
========== ========== ==========
</TABLE>
F-94
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 3--PROPERTY AND EQUIPMENT--(CONTINUED)
Depreciation for the nine months ended on September 30 of 1998 amounted to
P$ 3,933,495 of which P$ 3,776,155 were allocated to "Cost of sales, rental and
services", P$ 78,670 to "Administrative expenses" and P$ 78,760 to "Selling
expenses".
NOTE 4--ALLOWANCE FOR DOUBTFUL ACCOUNTS
SEPTEMBER 30,
1998
--------------
(UNAUDITED)
Balance at the beginning of the period ......... 271,724
Increase ....................................... 220,647
-------
Balance at the end of the period ............... 492,371
=======
NOTE 5--SHORT-TERM BANK BORROWINGS
SEPTEMBER 30,
1998
--------------
(UNAUDITED)
Loans .................................. 13,693,143
==========
Weighted average interest rate ......... 8.50%
NOTE 6--TRANSACTIONS WITH RELATED PARTIES
SEPTEMBER 30,
1998
--------------
(UNAUDITED)
Sullair Corporation
Accounts payable ......... 2,267,288
=========
NOTE 7--SUBSTITUTION OF THE INDUSTRIAL PROMOTION REGIME IN SULLAIR SAN LUIS
SOCIEDAD ANONIMA
a) The tax benefits obtained by Sullair San Luis Sociedad Anonima under
the industrial promotion regime were substituted as established by Decree No.
2054/92 of the National Government
These benefits are currently ruled by a DGI (tax authorities) computerized
current account which can be applied, up to a maximum per year, to the payment
of tax obligations corresponding to the remaining years of the projects.
Accordingly, these benefits are accounted for under the accrual basis once
the Company complies with the obligations that produce the benefit. During the
nine-month period ended September 30, 1998 Sullair San Luis Sociedad Anonima
has used US$ 394,026 from the computerized current account, accounted in the
consolidated statement of income under "Other non-operating income, net" line
and in "Current--Other receivables--Recoverable taxes" (Note 2.b).
F-95
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 7--SUBSTITUTION OF THE INDUSTRIAL PROMOTION REGIME IN SULLAIR SAN LUIS
SOCIEDAD ANONIMA--(CONTINUED)
b) In accordance with Decree No. 2054/92, the companies which were exempt
from payment of VAT on purchases until Decree No. 435/90 was annulled were
granted a tax credit for an amount equivalent to the tax paid to suppliers of
raw material and semi-manufactured products from April 1, 1990 up to November
30, 1992. Decree No. 2054/92 also established the maximum amount of the tax
credit to be recognized which cannot be exceeded. The total amount of the VAT
credit paid during the abovementioned period by Sullair San Luis Sociedad
Anonima amounted to US$ 1,599,128, Company management believes that, although
the Company is entitled to file claims, the amount to be credited by the DGI in
accordance with the provisions of the abovementioned decree will not exceed
US$ 650,000. This amount is shown as a receivable (see Note 2.d) and was
charged to income in previous years, as the benefits were accrued.
During June 1995, in compliance with the terms of DGI Resolutions Nos.
3838 and 3905, Sullair San Luis Sociedad Anonima applied to this authority for
the fiscal credit certificates. The DGI has resolved to grant $232,144.68 as an
anticipated refund without recognizing the origin of the credit requested under
the terms of General Resolution No. 3838, pursuant to the provisions of General
Resolution No. 4182 by virtue of the period of suspension of the promotion
benefits implemented by sections IV and V of Law No. 23697 and complementary
regulations. The DGI has not as yet issued any opinion as regards General
Resolution No. 3905.
NOTE 8--CONTRACT WITH PETROLERA ARGENTINA SAN JORGE S.A.
During March 1995, the Company signed a contract with Petrolera Argentina
San Jorge S.A. for a term of 10 years for the execution of work for the
expansion of the power station located at the "El Trapial" field in the
province of Neuquen, and for the provision of an electricity supply service
that includes the making available of certain turbo-generators and power
plants, as well as their maintenance and commissioning.
NOTE 9--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA
The consolidated financial statements have been prepared in accordance
with Argentine GAAP, which differ in certain significant respects from US GAAP.
The significant differences as at and for the nine-month periods ended
September 30, 1998 and 1997 are reflected in the reconciliations provided in
Note 10 and principally relate to the items discussed in the following
paragraphs:
a) Restatement of financial statements for general price-level changes
The Argentine GAAP consolidated financial statements of the Company were
restated through August 31, 1995 and updated through August 31, 1995
price-levels to reflect the effects of inflation in accordance with specified
rules as more fully explained in Note 1.2.
F-96
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 9--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA--(CONTINUED)
In most circumstances, US GAAP do not allow for the restatement of
financial statements. Under US GAAP, account balances and transactions are
generally stated in the units of currency of the period when the transactions
originated. This accounting model is commonly known as the historical cost
basis of accounting. However, as the economy of Argentina experienced periods
of significant inflation prior to September 1995, the presentation of the
consolidated financial statements restated for general price-level changes is
substantially similar to the methodology prescribed by Accounting Principles
Board Statement ("APB") No. 3, "Financial Statements Restated for General
Price-Level-Changes". This Statement requires that companies operating in
hyper-inflationary environments in which inflation has exceeded 100% over the
last three years and which report in local currency, restate their financial
statements on the basis of a general price-level index. August 1993 was the
first month in which the rate of inflation in Argentina, as measured by the
WPI, was below 100% for the first time in 36 consecutive months since the
release of Statement of Financial Accounting Standards ("SFAS") No. 52 "Foreign
Currency Translation". The US GAAP reconciliation does not reverse the effects
of the general price-level restatement included in the Argentine GAAP financial
statements through August 31, 1995.
b) Presentation of the parent company financial statements
Argentine GAAP requires companies with controlling financial interests in
other companies to present both parent company financial statements, where
investments in subsidiaries are accounted for by the equity method, and
consolidated financial statements, as primary and supplementary information,
respectively. Because of the special purpose of these financial statements,
parent financial statements are not included.
c) Capitalized interest
Argentine GAAP do not require capitalization of interest on working
progress. Under US GAAP interest incurred on working progress should be
capitalized as part of the cost of acquiring the assets until placed into
service. Accordingly, the reconciling difference for this item is presented in
the quantitative reconciliation in Note 10.
d) Advances to suppliers
Under Argentine GAAP, funds advanced to suppliers are capitalized and
included under Property and equipment prior to purchase and specific
identification. Under US GAAP these funds are treated as a deposit until the
related assets procured by such funds have been purchased and specifically
identified. Accordingly, such funds are generally classified as "Other assets".
However, due to the nature of such funds and their relative immateriality
to the financial statements taken as a whole (Note 3), the quantitative
difference between Argentine and US GAAP would be a reclassification from
Property and equipment to Other assets and, accordingly, it does not affect the
reconciliation of net income and shareholders' equity in Note 10.
F-97
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 9--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA--(CONTINUED)
e) Recoverability of long-lived assets to be held and used in the business
Management reviews long-lived assets, primarily property and equipment, to
be held and used in the business and long-term investments for the purposes of
determining and measuring impairment. Under US GAAP, SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" requires a company to review assets for impairment whenever events
or changes in circumstances indicate the carrying amount of an asset may not be
recoverable.
Management estimates that there is no significant impairment of assets.
f) Vacation accrual
Under Argentine GAAP, there are no specific requirements governing the
recognition of accruals for vacations. The accepted practice in Argentina is to
expense vacation when taken and to accrue only the amount of vacation in excess
of normal remuneration.
Under US GAAP, vacation expense is fully accrued in the year the employee
renders service to earn such vacation. Accordingly, the reconciling difference
for this item is presented in the quantitative reconciliation in Note 10.
g) Income taxes
Under Argentine GAAP, income tax expense is generally recognized based
upon the estimate of the current income tax liability. When income and expense
recognition for financial statement purposes does not occur in the same period
as income and expense recognition for tax purposes, the resulting temporary
differences are not considered in the computation of income tax expense for the
year.
Under US GAAP, the liability method is used to calculate the income tax
provision. Under the liability method, deferred tax assets or liabilities are
recognized with a corresponding charge or credit to income for differences
between the financial and tax basis of assets and liabilities at each period-
end. Accordingly, the reconciling difference for the item is presented in the
quantitative reconciliation in Note 10.
h) Severance indemnities
US GAAP require the accrual of liability for certain post-employment
benefits if they are related to services already rendered, are related to
rights that accumulate or vest, or are likely to be paid and can be reasonable
estimated.
As described in Note 1.5.g), the Company expenses severance indemnities
when paid. Under Argentine law, the Company is required to pay a minimum
severance indemnity based on years of
F-98
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 9--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA--(CONTINUED)
service and age when an employee is dismissed without adequate justification.
While the Company expects to make severance payments in the future, it is
unable to reasonably estimate the amount of liability, if any, at the present
time. As a result, no adjustment has been made in the US GAAP reconciliation.
i) Inventories
As described in Note 1.5.c) the Company values its inventories at
replacement cost. Under US GAAP inventories are to be valued at the lower of
cost or realizable value. There are no differences between the replacement cost
and the US GAAP cost. As a result, no adjustment has been made in the US GAAP
reconciliation.
NOTE 10--RECONCILIATION OF NET INCOME (LOSS) AND SHAREHOLDERS' EQUITY TO US
GAAP
The following is a summary of the significant adjustments to net income
(loss) and shareholders' equity for the nine-month periods ended September 30,
1998 and 1997, which would be required if US GAAP had been applied instead of
Argentine GAAP in the financial statements.
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------------------------
1998 1997
----------------------------- ----------------------------
NET SHAREHOLDERS' NET SHAREHOLDERS'
INCOME EQUITY INCOME EQUITY
----------- --------------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Amounts per accompanying financial statements ......... 4,454,491 35,521,289 3,880,417 30,427,295
US GAAP adjustments
Deferred income tax ................................... 57,912 (21,275) 94,708 (59,390)
Vacation accrual ...................................... 106,677 (292,356) 70,020 (299,275)
Capitalized interest .................................. 19,044 35,148 640 9,783
--------- ---------- --------- ----------
Amounts under US GAAP ................................. 4,638,124 35,242,806 4,045,785 30,078,413
========= ========== ========= ==========
</TABLE>
F-99
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 11--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS
a) Income taxes
SEPTEMBER 30,
1998
--------------
(UNAUDITED)
Deferred tax assets
Other receivables ............................ (10,519)
Fixed assets ................................. 3,491
-------
(7,028)
-------
Deferred tax liabilities
Inventories .................................. (14,247)
-------
(14,247)
-------
Net deferred tax assets (liabilities) ......... (21,275)
=======
The provision for income taxes computed in accordance with US GAAP differs
from that computed at the statutory tax rate as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
--------------
(UNAUDITED)
<S> <C>
Income tax expense (benefit) at statutory tax on pretax income
in accordance with US GAAP ..................................... 2,069,834
Fixed assets (1) ................................................ (305,874)
Permanent differences (2) ....................................... (130,028)
---------
Income tax expense (benefit) in accordance with US GAAP ......... 1,633,932
=========
<FN>
- ----------------
(1) Effects of differing price-level adjustments for tax and financial
statement purposes.
(2) Tax benefits obtained by Sullair San Luis Sociedad Anonima (see Note 7).
</FN>
</TABLE>
b) Supplementary cash flow information
Cash and cash equivalents comprises:
SEPTEMBER 30,
1998
--------------
(UNAUDITED)
Cash and banks .......................... 1,098,590
---------
Total cash and cash equivalents ......... 1,098,590
=========
The Company has included all highly liquid investments, having an original
maturity which does not exceed three months as from the year-end, in cash and
cash equivalents.
The Company has applied the indirect method in order to reconcile net
income of each period with the cash flow provided by operating activities.
F-100
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 11--OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS--(CONTINUED)
Breakdown of amounts paid during the period:
SEPTEMBER 30,
1998
--------------
(UNAUDITED)
Income tax ......... 1,160,480
=========
The Company has no cash balances in currency other than U.S. dollars.
Since the exchange rates remained unchanged for the nine-month periods ended
September 30, 1998 and 1997, no foreign exchange gains/losses shall be adjusted
for US GAAP purposes.
c) Fair value of financial instruments
In accordance with SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments" information is provided about the fair value of certain
financial instruments for which it is practicable to estimate that value.
For the purposes of SFAS No. 107, the estimated fair value of a financial
instrument is the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a forced or
liquidation sale. The carrying values of the Company's financial instruments as
of September 30, 1998 and 1997 approximate management's best estimate of their
fair values. The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is practicable
to estimate that value.
The fair value of certain financial assets carried at cost, including
cash, short-term investments, trade receivables and other current assets is
considered to approximate their respective carrying values due to their
short-term nature.
The fair value of accounts payable and accrued liabilities, short-term
bank borrowings, tax payable and other current liabilities are considered to
approximate their respective carrying values due to their short-term nature.
d) Financial instruments with off-balance sheet risk and concentrations of
credit risk
The Company has not used financial instruments to hedge its exposure to
fluctuations in foreign currency exchange or interest rates and, accordingly,
has not entered into transactions that create off-balance sheet risks
associated with such financial instruments.
Accounts receivable substantially comprise balances with a large number of
clients. Management does not believe significant concentrations of credit risk
exist.
NOTE 12--IMPACT OF NEW ACCOUNTING STANDARD NOT YET ADOPTED
In June 1997, the Financial Accounting Board issued its Statement No. 130,
"Reporting Comprehensive Income". Among other provisions, SFAS No. 130
establishes standards for reporting
F-101
<PAGE>
SULLAIR ARGENTINA SOCIEDAD ANONIMA
AND ITS SUBSIDIARY SULLAIR SAN LUIS SOCIEDAD ANONIMA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXPRESSED IN CONSTANT PESOS--P$--OF AUGUST 31, 1995 AND NOMINAL PESOS
THEREAFTER--
NOTE 1.2.--UNLESS OTHERWISE STATED)
NOTE 12--IMPACT OF NEW ACCOUNTING STANDARD NOT YET ADOPTED--(CONTINUED)
and display of comprehensive income and its components in a full set of
general-purpose financial statements. It does not address issues of recognition
or measurement for comprehensive income and its components. Management does not
expect the adoption of SFAS No. 130 to have material impact on its financial
statements.
In June 1997, Statement No. 131 ("SFAS"), "Disclosures about segment of an
Enterprise and Related Information" was issued. SFAS 131 establishes Standards
for the way that public companies disclose select information about operating
segments in annual financial statements and requires that those companies
disclose selected information about segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and series, geographic areas, and major customers. SFAS 131 is
effective for financial statements for periods beginning after December 15,
1997. Accordingly, the Company is not required to adopt SFAS 131 until the
fiscal year ending December 31, 1998. SFAS 131 relates solely to disclosure
provisions and, therefore, will not have any effect on the results of
operations, financial position and cash flows of the Company.
F-102
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation provides that the Company shall
indemnify to the fullest extent authorized by the DGCL, each person who is
involved in any litigation or other proceeding because such person is or was a
director or officer of the Company, against all expense, loss or liability
reasonably incurred or suffered in connection therewith. The Company's
Certificate of Incorporation provides that a director or officer may be paid
expenses incurred in defending any proceeding in advance of its final
disposition upon receipt by the Company of an undertaking, by or on behalf of
the director or officer, to repay all amounts so advanced if it is ultimately
determined that such director or officer is not entitled to indemnification.
Section 145 of the DGCL permits a corporation to indemnify any director or
officer of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding brought by reason of
the fact that such person is or was a director or officer of the corporation,
if such person acted in good faith and in a manner that he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, if he had no reason to believe
his conduct was unlawful. In a derivative action, (i.e., one brought by or on
behalf of the corporation), indemnification may be made only for expenses,
actually and reasonably incurred by any director or officer in connection with
the defense or settlement of such an action or suit, if such person acted in
good faith and in a manner that he reasonably believed to be in or not opposed
to the best interests of the corporation, except that no indemnification shall
be made if such person shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which the action
or suit was brought shall determine that the defendant is fairly and reasonably
entitled to indemnity for such expenses despite such adjudication of liability.
Pursuant to Section 102(b)(7) of the DGCL, the Company's Certificate of
Incorporation eliminates the liability of a director to the corporation or its
stockholders for monetary damages for such breach of fiduciary duty as a
director, except for liabilities arising (1) from any breach of the director's
duty of loyalty to the corporation or its stockholders; (2) from acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (3) under Section 174 of the DGCL; or (4) from any
transaction from which the director derived an improper personal benefit.
The Company has obtained primary and excess insurance policies insuring
the directors and officers of the Company and its subsidiaries against certain
liabilities they may incur in their capacity as directors and officers. Under
such policies, the insurer, on behalf of the Company, may also pay amounts for
which the Company has granted indemnification to the directors or officers.
Additionally, reference is made to the Registration Rights Agreement filed
as Exhibit 1.1 hereto, which provides for indemnification by the Participants
(as defined in the Registration Rights Agreement) of the Company, its directors
and officers who sign the registration statement and persons who control the
Company, under certain circumstances.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as exhibits to this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ---------- -----------------------
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended and restated, filed as Exhibit 3.1
to the Company's Registration Statement on Form S-4 (Registration No. 333-59313), dated
July 17, 1998, incorporated herein by reference.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------- -----------------------
<S> <C>
3.2 By-Laws of the Company, as amended and restated, filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-4 (Registration No. 333-59313), dated July 17, 1998,
incorporated herein by reference.
4.1 Indenture, by and among the Company, the Guarantors and State Street Bank & Trust
Company, as Trustee, dated as of May 28, 1998, filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-4 (Registration No. 333-59313), dated July 17, 1998,
incorporated herein by reference.
4.2 Indenture, by and among the Company, the Guarantors and State Street Bank & Trust
Company, as Trustee, dated as of December 9, 1998.
4.3 Form of 10 1/4% Senior Subordinated Notes due 2008, issued May 28, 1998 (included in
Exhibit 4.1).
4.4 Form of 10 1/4% Senior Subordinated Notes due 2008, issued December 9, 1998 (included in
Exhibit 4.2).
4.5 Registration Rights Agreement, by and among the Company, the Guarantors, BT Alex.
Brown Incorporated, Bear, Stearns & Co., Inc. and Morgan Stanley & Co. Incorporated,
dated as of May 28, 1998, filed as Exhibit 4.3 to the Company's Registration Statement on
Form S-4 (Registration No. 333-59313), dated July 17, 1998, incorporated herein by
reference.
4.6 Registration Rights Agreement, by and among the Company, the Guarantors, Donaldson,
Lufkin & Jenrette, BT Alex. Brown Incorporated and Bear, Stearns & Co., Inc., dated as of
December 9, 1998.
4.7 Form of Certificate of Class A Common Stock, filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-48077), dated March 17, 1998,
incorporated herein by reference.
4.8 Registration Rights Agreement, by and between Neff Corp. and GECFS, Inc., dated as of
March 25, 1998, filed as Exhibit 4.2 to the Company's Registration Statement on Form S-1
(Registration No. 333-48077), dated March 17, 1998, incorporated herein by reference.
4.9 Registration Rights Agreement, by and between Neff Corp. and Santos Fund I, L.P., dated
as of March 25, 1998, filed as Exhibit 4.3 to the Company's Registration Statement on Form
S-1 (Registration No. 333-48077), dated March 17, 1998, incorporated herein by reference.
4.10 Registration Rights Agreement, by and between Neff Corp. and Santos Capitol Advisors,
Inc., dated as of March 25, 1998, filed as Exhibit 4.4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-48077), dated March 17, 1998, incorporated
herein by reference.
4.11 Amended and Restated Stockholders' Agreement by and among Jorge Mas, Juan Carlos
Mas, Jose Ramon Mas, General Electric Capital Corporation, GECFS, Inc., Kevin P
Fitzgerald, Santos Fund I, L.P, Santos Capital Advisors, Inc. and Neff Corp., dated as of
March 25, 1998, filed as Exhibit 4.5 to the Company's Registration Statement on Form S-1
(Registration No. 333-48077), dated March 17, 1998, incorporated herein by reference.
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson.
10.1 Amended and Restated Credit Agreement, by and among Neff Corp., Neff Machinery, Inc.
and Neff Rental, Inc., and Bankers Trust Company, as Agent, dated as of May 1, 1998, filed
as Exhibit 10.1 to the Company's Registration Statement on Form S-1 (Registration No.
333-48077), dated March 17, 1998, incorporated herein by reference.
10.2 First Amendment to Amended and Restated Credit Agreement, by and among Neff Corp.,
Neff Machinery, Inc. and Neff Rental, Inc., and Bankers Trust Company, as Agent, dated as
of, June 8, 1998.
10.3 Second Amendment to Amended and Restated Credit Agreement, by and among Neff
Corp., Neff Machinery, Inc. and Neff Rental, Inc., and Bankers Trust Company, as Agent,
dated as of September 3, 1998.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------- -----------------------
<S> <C>
10.4 Third Amendment to Amended and Restated Credit Agreement, by and among Neff Corp.,
Neff Machinery, Inc. and Neff Rental, Inc., and Bankers Trust Company, as Agent, dated as
of December 1, 1998.
10.5 John Deere Light Industrial Equipment Dealer Agreement by and between John Deere
Construction Equipment Company and Neff Machinery, Inc., dated May 6, 1998, filed as
Exhibit 10.2 to the Company's Registration Statement on Form S-1 (Registration No.
333-48077), dated March 17, 1998, incorporated herein by reference.
10.6 John Deere Light Industrial Equipment Dealer Security Agreement by and between John
Deere Construction Equipment Company and Neff Machinery, Inc., dated May 6, 1998, filed
as Exhibit 10.3 to the Company's Registration Statement on Form S-1 (Registration No.
333-48077), dated March 17, 1998, incorporated herein by reference.
10.7 Stock Purchase and Redemption Agreement by and among Neff Corp., Industrial
Equipment Rentals, Inc. and all of the Shareholders and Holders of Subordinated
Debentures, dated July 14, 1997, filed as Exhibit 10.4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-48077), dated March 17, 1998, incorporated
herein by reference.
10.8 Asset Purchase Agreement by and among Richbourg's Sales & Rentals, Inc., Bruce E.
Richbourg and Neff Corp., dated December 23, 1997, filed as Exhibit 10.5 to the Company's
Registration Statement on Form S-1 (Registration No. 333-48077), dated March 17, 1998,
incorporated herein by reference.
10.9 Stock Option Agreement by and between Neff Corp. and Kevin P Fitzgerald, filed as
Exhibit 10.6 to the Company's Registration Statement on Form S-1 (Registration No.
333-48077), dated March 17, 1998, incorporated herein by reference.
10.10 Stock Option Agreement by and between Neff Corp. and Robert G. Warren, filed as
Exhibit 10.7 to the Company's Registration Statement on Form S-1 (Registration No.
333-48077), dated March 17, 1998, incorporated herein by reference.
10.11 Standstill Agreement by and among Neff Corp., General Electric Capital Corporation,
GECFS, Inc. and Santos Capital Advisors, Inc., filed as Exhibit 10.9 to the Company's
Registration Statement on Form S-1 (Registration No. 333-48077), dated March 17, 1998,
incorporated herein by reference.
10.12 Neff Corp. 1998 Incentive Stock Plan, filed as Exhibit 10.10 to the Company's Registration
Statement on Form S-1 (Registration No. 333-48077), dated March 17, 1998, incorporated
herein by reference.
10.13 Letter Agreement by and among John Deere Construction Equipment Company, Neff
Corp., Neff Machinery, Inc. and Santos Capital Advisors, Inc., dated April 29, 1998, filed as
Exhibit 10.11 to the Company's Registration Statement on Form S-1 (Registration No.
333-48077), dated March 17, 1998, incorporated herein by reference.
10.14 Neff Corp. Phantom Stock Plan, filed as Exhibit 10.12 to the Company's Registration
Statement on Form S-1 (Registration No. 333-48077), dated March 17, 1998, incorporated
herein by reference.
10.15 Amendment No. 1 to Neff Corp. Phantom Stock Plan.
10.16 Amendment No. 2 to Neff Corp. Phantom Stock Plan.
10.17 Form of Rights Agreement, filed as Exhibit 10.13 to the Company's Registration Statement
on Form S-1 (Registration No. 333-48077), dated March 17, 1998, incorporated herein by
reference.
10.18 Stock Purchase Agreement by and between Neff Corp. and Sullair Argentina Sociedad
Anonima, dated June 30, 1998, filed as Exhibit 10.14 to the Company's Registration
Statement on Form S-4 (Registration No. 333-59313), dated July 17, 1998, incorporated
herein by reference.
12 Statement re: Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Company.
23.1 Consents of Deloitte & Touche LLP.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------- -------------------------------------------------------------------------------------------
<S> <C>
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Price Waterhouse & Co.
23.4 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 5.1 above).
24 Power of Attorney (included on Signature Page of this Registration Statement).
25 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, on Form T-1 of
State Street Bank & Trust Company, as Trustee under the Indenture
99.1 Form of Letter of Transmittal
99.2 Notice of Guaranteed Delivery
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual reports pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
(3) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form,
II-4
<PAGE>
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miami, State of Florida,
on January 21, 1999.
NEFF CORP.
By: /s/ KEVIN P. FITZGERALD
------------------------------------
Kevin P. Fitzgerald
Chief Executive Officer
The undersigned directors and officers of Neff Corp. hereby constitute and
appoint Kevin P. Fitzgerald and Bonnie S. Biumi and each of them with full
power to act without the other and with full power of substitution and
resubstitution, our true and lawful attorneys-in-fact with full power to
execute any and all amendments thereto and to file the same, with all exhibits
thereto and other documents in connection therewith, with the SEC and hereby
ratify and confirm that all such attorneys-in-fact, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ------------------------------ -----------------
<S> <C> <C>
/s/ JORGE MAS Chairman of the Board January 21, 1999
---------------------------
Jorge Mas
/s/ KEVIN P. FITZGERALD President and January 21, 1999
--------------------------- Chief Executive Officer
Kevin P. Fitzgerald (Principal Executive Officer)
/s/ JOSE RAMON MAS Director January 21, 1999
---------------------------
Jose Ramon Mas
/s/ JUAN CARLOS MAS Director January 21, 1999
---------------------------
Juan Carlos Mas
/s/ ARTHUR LAFFER Director January 21, 1999
---------------------------
Arthur Laffer
/s/ JOEL-TOMAS CITRON Director January 21, 1999
---------------------------
Joel-Tomas Citron
/s/ BONNIE S. BIUMI Chief Financial Officer January 21, 1999
--------------------------- (Principal Financial Officer
Bonnie S. Biumi and Accounting Officer)
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miami, State of Florida,
on January 21, 1999.
NEFF RENTAL, INC.
By: /s/ KEVIN P. FITZGERALD
------------------------------------
Kevin P. Fitzgerald
Chief Executive Officer
The undersigned director and officers of Neff Rental, Inc. hereby
constitute and appoint Kevin P. Fitzgerald and Bonnie S. Biumi and each of them
with full power to act without the other and with full power of substitution
and resubstitution, our true and lawful attorneys-in-fact with full power to
execute any and all amendments thereto and to file the same, with all exhibits
thereto and other documents in connection therewith, with the SEC and hereby
ratify and confirm that all such attorneys-in-fact, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ---------------------------------------- -----------------
<S> <C> <C>
/s/ KEVIN P. FITZGERALD President, Chief Executive Officer and January 21, 1999
--------------------------- Sole Director
Kevin P. Fitzgerald (Principal Executive Officer)
/s/ MARK IRION Chief Financial Officer January 21, 1999
--------------------------- (Principal Financial and
Mark Irion Accounting Officer)
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miami, State of Florida,
on January 21, 1999.
NEFF MACHINERY, INC.
By: /s/ KEVIN P. FITZGERALD
------------------------------------
Kevin P. Fitzgearald
Chief Executive Officer
The undersigned director and officers of Neff Machinery, Inc. hereby
constitute and appoint Kevin P. Fitzgerald and Bonnie S. Biumi and each of them
with full power to act without the other and with full power of substitution
and resubstitution, our true and lawful attorneys-in-fact with full power to
execute any and all amendments thereto and to file the same, with all exhibits
thereto and other documents in connection therewith, with the SEC and hereby
ratify and confirm that all such attorneys-in-fact, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ---------------------------------------- -----------------
<S> <C> <C>
/s/ KEVIN P. FITZGERALD President, Chief Executive Officer and January 21, 1999
--------------------------- Sole Director
Kevin P. Fitzgerald (Principal Executive Officer)
/s/ MANUEL A. ALVAREZ Chief Financial Officer January 21, 1999
--------------------------- (Principal Financial and
Manuel A. Alvarez Accounting Officer)
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miami, State of Florida,
on January 21, 1999.
NEFF ASSET MANAGEMENT, INC.
By: /s/ KEVIN P. FITZGERALD
------------------------------------
Kevin P. Fitzgerald
Chief Executive Officer
The undersigned directors and officers of Neff Asset Management, Inc.
hereby constitute and appoint Kevin P. Fitzgerald and Bonnie S. Biumi and each
of them with full power to act without the other and with full power of
substitution and resubstitution, our true and lawful attorneys-in-fact with
full power to execute any and all amendments thereto and to file the same, with
all exhibits thereto and other documents in connection therewith, with the SEC
and hereby ratify and confirm that all such attorneys-in-fact, or any of them,
or their substitutes shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ------------------------------------ -----------------
<S> <C> <C>
/s/ KEVIN P. FITZGERALD President, Chief Executive Officer January 21, 1999
--------------------------- and Director
Kevin P. Fitzgerald (Principal Executive Officer)
/s/ JOEL-TOMAS CITRON Director January 21, 1999
---------------------------
Joel-Tomas Citron
/s/ BONNIE S. BIUMI Vice President January 21, 1999
--------------------------- (Principal Financial
Bonnie S. Biumi and Accounting Officer)
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miami, State of Florida,
on January 21, 1999.
AIR RENTAL & SUPPLY, INC.
By: /s/ KEVIN P. FITZGERALD
------------------------------------
Kevin P. Fitzgerald
Chief Executive Officer
The undersigned directors and officers of Air Rental & Supply, Inc. hereby
constitute and appoint Kevin P. Fitzgerald and Bonnie S. Biumi and each of them
with full power to act without the other and with full power of substitution
and resubstitution, our true and lawful attorneys-in-fact with full power to
execute any and all amendments thereto and to file the same, with all exhibits
thereto and other documents in connection therewith, with the SEC and hereby
ratify and confirm that all such attorneys-in-fact, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ------------------------------------ -----------------
<S> <C> <C>
/s/ KEVIN P. FITZGERALD President, Chief Executive Officer January 21, 1999
--------------------------- and Sole Director
Kevin P. Fitzgerald (Principal Executive Officer)
/s/ JOEL-TOMAS CITRON Director January 21, 1999
---------------------------
Joel-Tomas Citron
/s/ BONNIE S. BIUMI Vice President January 21, 1999
--------------------------- (Principal Financial
Bonnie S. Biumi and Accounting Officer)
</TABLE>
II-10
<PAGE>
SCHEDULE II
NEFF CORP.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
AT BEGINNING COSTS AND AT END
OF PERIOD EXPENSES OTHER DEDUCTIONS(1) OF PERIOD
-------------- ------------ ------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Classification
YEAR ENDED 12/31/95:
Allowance for doubtful accounts ......... $246 $270 $ -- $ (219) $ 297
==== ==== ==== ====== ======
YEAR ENDED 12/31/96:
Allowance for doubtful accounts ......... $297 $520 $ -- $ (442) $ 375
==== ==== ==== ====== ======
YEAR ENDED 12/31/97:
Allowance for doubtful accounts ......... $375 $957 $ -- $ (240) $1,092
==== ==== ==== ====== ======
</TABLE>
- ----------------
(1) Deductions represent bad debt write-offs and adjustments to accumulated
amortization for assets sold.
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
- --------- ----------- -------------
<S> <C> <C>
4.2 Indenture, by and among the Company, the Guarantors and State Street Bank &
Trust Company, as Trustee, dated as of December 9, 1998.
4.6 Registration Rights Agreement, by and among the Company, the Guarantors,
Donaldson, Lufkin & Jenrette, BT Alex. Brown Incorporated and Bear, Stearns
& Co., Inc., dated as of December 9, 1998.
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson.
10.2 First Amendment to Amended and Restated Credit Agreement, by and among
Neff Corp., Neff Machinery, Inc. and Neff Rental, Inc., and Bankers Trust
Company, as Agent, dated as of, June 8, 1998.
10.3 Second Amendment to Amended and Restated Credit Agreement, by and
among Neff Corp., Neff Machinery, Inc. and Neff Rental, Inc., and Bankers Trust
Company, as Agent, dated as of September 3, 1998.
10.4 Third Amendment to Amended and Restated Credit Agreement, by and among
Neff Corp., Neff Machinery, Inc. and Neff Rental, Inc., and Bankers Trust
Company, as Agent, dated as of December 1, 1998.
10.15 Amendment No. 1 to Neff Corp. Phantom Stock Plan.
10.16 Amendment No. 2 to Neff Corp. Phantom Stock Plan.
12 Statement re: Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Company.
23.1 Consents of Deloitte & Touche LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Price Waterhouse & Co.
25 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, on
Form T-1 of State Street Bank & Trust Company, as Trustee under the Indenture
99.1 Form of Letter of Transmittal
99.2 Notice of Guaranteed Delivery
</TABLE>
EXHIBIT 4.2
Neff Corp.
as Issuer
Neff Asset Management, Inc.
Neff Machinery, Inc.
Neff Rental, Inc. and
Air Rental & Supply, Inc.,
as Guarantors
up to $200,000,000
10 1/4% Senior Subordinated Notes
due 2008
---------------------
INDENTURE
Dated as of December 9, 1998
---------------------
State Street Bank and Trust Company,
as Trustee
<PAGE>
INDENTURE dated as of December 9, 1998, among Neff Corp, a
Delaware corporation (the "Company"), and Neff Asset Management, Inc., a
Delaware corporation, Neff Machinery, Inc., a Florida corporation, Neff Rental,
Inc., a Florida corporation, and Air Rental & Supply, Inc., a Texas corporation,
each as guarantors and any other Subsidiaries (as defined herein) of the Company
that executes a Subsidiary Guarantee (as defined herein) guaranteeing the Notes
in accordance with the provisions hereof (collectively, the "Guarantors"), and
State Street Bank and Trust Company, as trustee (the "Trustee").
Each party agrees as follows for the benefit of each other and
for the equal and ratable benefit of the Holders of the 10 1/4% Series A Senior
Subordinated Notes due 2008 issued under this Indenture (the "Series A Notes")
and the 10 1/4% Series B Senior Subordinated Notes due 2008 issued under this
Indenture (the "Series B Notes" and, together with the Series A Notes, the
"Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01 Definitions
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any
of its Subsidiaries existing at the time such Person becomes a Restricted
Subsidiary of the Company or at the time it merges or consolidates with the
Company or any of its Subsidiaries or assumed in connection with the acquisition
of assets from such Person and in each case not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"ADDITIONAL INTEREST" means all Additional Interest then owing
pursuant to Section 4 of the Registration Rights Agreement.
"AFFILIATE" means, with respect to any specified Person, any
other Person who directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such specified
Person. The term "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative of the foregoing.
"AGENT" means any Registrar, Paying Agent or co-registrar.
"ASSET ACQUISITION" means (a) an Investment by the Company or
any Restricted Subsidiary of the Company in any other Person pursuant to which
such Person shall become a Restricted Subsidiary of the Company or any
Restricted Subsidiary of the Company, or shall be merged with or into the
Company or any Restricted Subsidiary of the Company, or (b) the acquisition by
the Company or any Restricted Subsidiary of the Company of the assets of any
1
<PAGE>
Person (other than a Restricted Subsidiary of the Company) which constitute all
or substantially all of the assets of such Person or comprises any division or
line of business of such Person or any other properties or assets of such Person
other than in the ordinary course of business.
"ASSET SALE" means any direct or indirect sale, issuance,
conveyance, transfer, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by the
Company or any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company of (a) any Capital Stock of any Restricted Subsidiary
of the Company; or (b) any other property or assets of the Company or any
Restricted Subsidiary of the Company other than in the ordinary course of
business; PROVIDED, HOWEVER, that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration of less than $1.0
million, (ii) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of the Company as permitted under Section
5.01 of this Indenture, (iii) disposals or replacements of obsolete or outdated
equipment in the ordinary course of business and (iv) the sale or discount, in
each case without recourse (other than recourse for a breach of a representation
or warranty), of accounts receivable arising in the ordinary course of business,
but only in connection with the compromise or collection thereof in the ordinary
course of business and not as part of a financing transaction.
"BANKRUPTCY LAW" means title 11, U.S. Code or any similar
Federal or state law for the relief of debtors.
"BOARD OF DIRECTORS" means, as to any Person, the board of
directors of such Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy
of a resolution certified by the Secretary or an Assistant Secretary of such
Person to have been duly adopted by the Board of Directors of such Person and to
be in full force and effect on the date of such certification, and delivered to
the Trustee.
"BUSINESS DAY" means a day that is not a Legal Holiday.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"CAPITAL STOCK" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and (ii) with
respect to any Person that is not a corporation, any and all partnership or
other equity interests of such Person.
2
<PAGE>
"CASH EQUIVALENTS" means (i) marketable direct obligations
issued by, or unconditionally guaranteed by, the United States Government or
issued by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof; (ii) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Corporation ("S&P") or
Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no
more than one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized under
the laws of the United States of America or any state thereof or the District of
Columbia or any U.S. branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than $250,000,000; (v)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) above entered into with any bank
meeting the qualifications specified in clause (iv) above; and (vi) investments
in money market funds which invest substantially all their assets in securities
of the types described in clauses (i) through (v) above.
"CERTIFICATED NOTE" has the meaning set forth in Section
2.06(d)(i) hereof.
"CHANGE OF CONTROL" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company to any Person or group of related Persons for purposes
of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates
thereof (whether or not otherwise in compliance with the provisions of the
Indenture) (other than to the Permitted Holders); (ii) the approval by the
holders of Capital Stock of the Company of any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); (iii) any Person or Group
(other than the Permitted Holders(s)) shall become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 50
percent of the aggregate ordinary voting power represented by the issued and
outstanding Capital Stock of the Company; or (iv) the replacement of a majority
of the Board of Directors of the Company over a two-year period from the
directors who constituted the Board of Directors of the Company at the beginning
of such period, and such replacement shall not have been approved by a vote of
at least a majority of the Board of Directors of the Company then still in
office who either were members of such Board of Directors at the beginning of
such period or whose election as a member of such Board of Directors was
previously so approved.
"COMMON STOCK" of any Person means any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or non-voting) of such Person's common stock, whether
outstanding on the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
3
<PAGE>
"COMMON STOCK OFFERING" means the initial public offering of
the Company's Class A Common Stock, including the exercise of the over-allotment
option, if any, pursuant to the Registration Statement on Form S-1 (File No.
333-48077), originally filed on March 17, 1998, as amended, modified or
supplemented.
"CONSOLIDATED EBITDA" means, with respect to any Person, for
any period, the sum (without duplication) of (i) Consolidated Net Income and
(ii) to the extent Consolidated Net Income has been reduced thereby, (A) all
income taxes of such Person and its Restricted Subsidiaries paid or accrued in
accordance with GAAP for such period (other than income taxes attributable to
extraordinary, unusual or nonrecurring gains or losses or taxes attributable to
sales or dispositions outside the ordinary course of business), (B) Consolidated
Interest Expense and (C) Consolidated Non-cash Charges LESS any non-cash items
increasing Consolidated Net Income for such period, all as determined on a
consolidated basis for such Person and its Restricted Subsidiaries in accordance
with GAAP.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect
to any Person, the ratio of Consolidated EBITDA of such Person during the four
full fiscal quarters (the "Four Quarter Period") ending on or prior to the date
of the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a PRO
FORMA (including any pro forma expense and cost reductions calculated on a basis
consistent with Regulation S-X under the Securities Act) basis for the period of
such calculation to (i) the incurrence or repayment of any Indebtedness of such
Person or any of its Restricted Subsidiaries (and the application of the
proceeds thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes pursuant to working
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the Four
Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any Consolidated EBITDA (provided that such
Consolidated EBITDA shall be included only to the extent includable pursuant to
the definition of "Consolidated Net Income") attributable to the assets which
are the subject of the Asset Acquisition or Asset Sale during the Four Quarter
Period) occurring during the Four Quarter Period or at any time subsequent to
the last day of the Four Quarter Period and on or prior to the Transaction Date,
as if such Asset Sale or Asset Acquisition (including the incurrence, assumption
or liability for any such Acquired Indebtedness) occurred on the first day of
the Four Quarter Period. If such Person or any of its Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the incurrence of such guaranteed Indebtedness as
if such
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Person or any Restricted Subsidiary of such Person had directly incurred or
otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"CONSOLIDATED FIXED CHARGES" means, with respect to any Person
for any period, the sum, without duplication, of (i) Consolidated Interest
Expense, plus (ii) the product of (x) the amount of all dividend payments on any
series of Preferred Stock of such Person (other than dividends paid in Qualified
Capital Stock) paid, accrued or scheduled to be paid or accrued during such
period times (y) a fraction, the numerator of which is one and the denominator
of which is one minus the then current effective consolidated federal, state and
local income tax rate of such Person, expressed as a decimal.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any
Person for any period, the sum of, without duplication: (i) the aggregate of the
interest expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount and amortization or write-off
of deferred financing costs, (b) the net costs under Interest Swap Obligations,
(c) all capitalized interest and (d) the interest portion of any deferred
payment obligation; and (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such Person
and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any Person,
for any period, the aggregate net income (or loss) of such Person and its
Restricted Subsidiaries for such period on a consolidated basis, determined in
accordance with GAAP; PROVIDED that there shall be excluded therefrom (a) for
purposes of calculating the Consolidated Fixed Charge Coverage Ratio only,
after-tax gains or losses (net of any related fees and expenses) from Asset
Sales or abandonments or reserves relating thereto, (b) after-tax items
classified as extraordinary or nonrecurring gains or losses, (c) the net income
(or loss) of any Person acquired in a "pooling of interests" transaction accrued
prior to the date it becomes a Restricted Subsidiary of the referent Person or
is merged or consolidated with the referent Person or any Restricted Subsidiary
of the referent Person, (d) the net income (but not loss) of any Restricted
Subsidiary of the referent Person to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that income
is restricted by a contract, operation of law or otherwise, (e) the net income
of any Person, other
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than a Restricted Subsidiary of the referent Person, except to the extent of
cash dividends or distributions paid to the referent Person or to a Restricted
Subsidiary of the referent Person by such Person (in the case that any such
Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, the portion
of net income included therein will be equal to the Company's interest in such
Restricted Subsidiary), (f) for purposes of calculating the Consolidated Fixed
Charge Coverage Ratio only, any restoration to income of any contingency
reserve, except to the extent that provision for such reserve was made out of
Consolidated Net Income accrued at any time following the Issue Date, (g) income
or loss attributable to discontinued operations (including, without limitation,
operations disposed of during such period whether or not such operations were
classified as discontinued), and (h) in the case of a successor to the referent
Person by consolidation or merger or as a transferee of the referent Person's
assets, any earnings of the successor corporation prior to such consolidation,
merger or transfer of assets.
"CONSOLIDATED NET WORTH" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Capital Stock of such Person, PROVIDED that the Consolidated Net
Worth of any Person shall exclude the effect of any non-cash charges relating to
the acceleration of stock options or similar securities of such Person or
another Person with which such Person is merged or consolidated.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any
Person, for any period, the aggregate depreciation, amortization and other
non-cash expenses of such Person and its Restricted Subsidiaries reducing
Consolidated Net Income of such Person and its Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such charges constituting an extraordinary item or loss or any such charge
which requires an accrual of or a reserve for cash charges for any future
period).
"CORPORATE TRUST ADMINISTRATION OFFICE OF THE TRUSTEE" shall
be at either address of the Trustee specified in Section 12.02 hereof or such
other address as to which the Trustee may give notice to the Company.
"CREDIT AGREEMENT" means the Amended and Restated Credit
Agreement dated as of May 1, 1998, among the Company, Neff Rental, Inc., Neff
Machinery, Inc., the lenders party thereto in their capacities as lenders
thereunder and Bankers Trust Company, as agent, together with the related
documents thereto (including, without limitation, any guarantee agreements and
security documents), in each case as such agreements may be amended (including
any amendment and restatement thereof), supplemented or otherwise modified from
time to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder or adding Restricted Subsidiaries of the Company
as additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
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"CURRENCY AGREEMENT" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any Restricted Subsidiary of the Company against
fluctuations in currency values.
"DEFAULT" means an event or condition the occurrence of which
is, or with the lapse of time or the giving of notice or both would be, an Event
of Default.
"DEPOSITARY" means, with respect to the Notes issuable or
issued in whole or in part in global form, the Person specified in Section 2.03
hereof as the Depositary with respect to the Notes, until a successor shall have
been appointed and become such Depositary pursuant to the applicable provision
of this Indenture, and, thereafter, "Depositary" shall mean or include such
successor.
"DESIGNATED SENIOR DEBT" means (i) Indebtedness under or in
respect of the Credit Agreement and (ii) any other Indebtedness constituting
Senior Debt which, at the time of determination, has an aggregate principal
amount of at least $25,000,000 and is specifically designated in the instrument
evidencing such Senior Debt as "Designated Senior Debt" by the Company.
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital
Stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof on or prior to the final maturity date of the Notes.
"ELIGIBLE ACCOUNTS" has the meaning specified in the Credit
Agreement.
"ELIGIBLE FINANCED EQUIPMENT" has the meaning specified in the
Credit Agreement.
"ELIGIBLE PARTS INVENTORY" has the meaning specified in the
Credit Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any successor statute or statutes thereto.
"EXCHANGE OFFER" means the offer that may be made by the
Company pursuant to the Registration Rights Agreement to exchange Series B Notes
for Series A Notes.
"FAIR MARKET VALUE" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between a willing seller and a willing and able buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Unless the TIA otherwise requires, fair market value shall be
determined by the Board of Directors of the Company acting reasonably and in
good faith (which determination shall be conclusive) and shall be evidenced by a
Board Resolution of the Board of Directors of the Company delivered to the
Trustee.
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"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect as of the
Issue Date. All ratios and computations based on GAAP contained in the Indenture
shall be computed in conformity with GAAP applied on a consistent basis, except
that calculations made for purposes of determining compliance with the terms of
the covenants and with other provisions of the Indenture shall be made without
giving effect to (i) the deduction or amortization of any premiums, fees and
expenses incurred in connection with any financings or any other permitted
incurrence of Indebtedness and (ii) depreciation, amortization or other expenses
recorded as a result of the application of purchase accounting in accordance
with Accounting Principles Board Opinion Nos. 16 and 17.
"GLOBAL NOTE" means a Note that contains the paragraph
referred to in footnote 1 to the form of the Note attached hereto as Exhibit A.
"GUARANTEE" means any obligation, contingent or otherwise, of
any person directly or indirectly guaranteeing any Indebtedness of any Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such Person (whether arising by virtue of agreements to
keep well, to purchase assets, goods, letters of credit, reimbursement
agreements, securities or services, to take-or-pay or to maintain financial
statement conditions or otherwise) or (ii) entered into for the purpose of
assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); PROVIDED, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business or
guarantees (other than guarantees of Indebtedness) by the Company in respect of
assisting one or more Subsidiaries in the ordinary course of their respective
businesses, including without limitation guarantees of trade obligations and
operating leases, on ordinary business terms. The term "Guarantee" used as a
verb has corresponding meaning. The Subsidiary Guarantees shall constitute
Guarantees under this Indenture.
"GUARANTOR" means (i) each of Neff Rental, Inc., Neff
Machinery, Inc., Neff Asset Management, Inc. and Air Rental & Supply, Inc. and
(ii) each of the Company's Restricted Subsidiaries that in the future executes a
supplemental indenture in which such Restricted Subsidiary agrees to be bound by
the terms of the Indenture as a Guarantor; PROVIDED that any Person constituting
a Guarantor as described above shall cease to constitute a Guarantor when its
respective Guarantee is released in accordance with the terms of the Indenture.
"GUARANTOR SENIOR DEBT" means with respect to any Guarantor,
(i) the principal of, premium, if any, and interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on any Indebtedness of a
Guarantor, whether outstanding on the Issue Date or thereafter created, incurred
or assumed,
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unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Debt" shall also include the principal of, premium, if any,
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on, and all other amounts owing in respect of, (x) all monetary obligations
(including guarantees thereof) of every nature of such Guarantor under the
Credit Agreement, including, without limitation, obligations to pay principal
and interest, reimbursement obligations under letters of credit, fees, expenses
and indemnities, (y) all Interest Swap Obligations (including guarantees
thereof) and (z) all obligations (including guarantees thereof) under Currency
Agreements, in each case whether outstanding on the Issue Date or thereafter
incurred. Notwithstanding the foregoing, "Guarantor Senior Debt" shall not
include (i) any Indebtedness of such Guarantor to a Restricted Subsidiary of
such Guarantor or any Affiliate of such Guarantor or any of such Affiliate's
Subsidiaries, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of such Guarantor or any Restricted Subsidiary of
such Guarantor (including, without limitation, amounts owed for compensation),
(iii) Indebtedness to trade creditors and other amounts incurred in connection
with obtaining goods, materials or services (excluding purchase money
indebtedness to equipment manufacturers), (iv) Indebtedness represented by
Disqualified Capital Stock, (v) any liability for federal, state, local or other
taxes owed or owing by such Guarantor, (vi) that portion of any Indebtedness
incurred in violation of Section 4.10 of this Indenture (but, as to any such
obligation, no such violation shall be deemed to exist for purposes of this
clause (vi) if the holder(s) of such obligation or their representative and the
Trustee shall have received an Officers' Certificate of the Company to the
effect that the incurrence of such Indebtedness does not (or, in the case of
revolving credit Indebtedness, that the incurrence of the entire committed
amount thereof at the date on which the initial borrowing thereunder is made
would not) violate such provisions of the Indenture), (vii) Indebtedness which,
when incurred and without respect to any election under Section 1111(b) of Title
11, United States Code, is without recourse to the Company and (viii) any
Indebtedness which is, by its express terms, subordinated in right of payment to
any other Indebtedness of such Guarantor.
"HOLDER" means a Person in whose name a Note is registered on
the Registrar's books.
"INDEBTEDNESS" means with respect to any Person, without
duplication, (i) all Obligations of such Person for borrowed money, (ii) all
Obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all Capitalized Lease Obligations of such Person,
(iv) all Obligations of such Person issued or assumed as the deferred purchase
price of property, all conditional sale obligations and all Obligations under
any title retention agreement (but excluding trade accounts payable and other
accrued liabilities arising in the ordinary course of business), (v) all
Obligations for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (vi) guarantees and other
contingent obligations in respect of Indebtedness referred to in clauses (i)
through (v) above and clause (viii) below, (vii) all Obligations of any other
Person of the type referred to in clauses (i)
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through (vi) which are secured by any lien on any property or asset of such
Person, the amount of such Obligation being deemed to be the lesser of the fair
market value of such property or asset or the amount of the Obligation so
secured, (viii) all Obligations under currency agreements and interest swap
agreements of such Person and (ix) all Disqualified Capital Stock issued by such
Person with the amount of Indebtedness represented by such Disqualified Capital
Stock being equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price, but excluding accrued
dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of
any Disqualified Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Capital
Stock as if such Disqualified Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the fair market value of such
Disqualified Capital Stock, such fair market value shall be determined
reasonably and in good faith by the Board of Directors of the issuer of such
Disqualified Capital Stock. Indebtedness shall not include any liability for (i)
federal, state, local or other taxes, (ii) endorsements or negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business or (iii) any indebtedness that has been defeased or satisfied
in accordance with the terms of the documents governing such indebtedness.
The amount of Indebtedness of any Person at any date shall be
the outstanding balance on such date of all unconditional Obligations as
described above, and the maximum liability upon the occurrence of the
contingency giving rise to the Obligation, on any contingent Obligations at such
date; PROVIDED, HOWEVER, that the amount outstanding at any time of any
Indebtedness incurred with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP.
"INDENTURE" means this Indenture, as amended or supplemented
from time to time.
"INDEPENDENT FINANCIAL ADVISOR" means a firm (i) which does
not, and whose directors, officers and employees or Affiliates do not, have a
direct or indirect financial interest in the Company and (ii) which, in the
judgment of the Board of Directors of the Company, is otherwise independent and
qualified to perform the task for which it is to be engaged.
"INTEREST SWAP OBLIGATIONS" means the obligations of any
Person pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"INVESTMENT" means, with respect to any Person, any direct or
indirect loan or other extension of credit (including, without limitation, a
guarantee) or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition by such Person of any Capital
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<PAGE>
Stock, bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit by
the Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of Section 4.09 of this
Indenture, (i) "Investment" shall include and be valued at the fair market value
of the net assets of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary and shall exclude the fair
market value of the net assets of any Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the
amount of any Investment shall be the original cost of such Investment plus the
cost of all additional Investments by the Company or any of its Restricted
Subsidiaries, without any adjustments for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment, reduced by
the payment of dividends or distributions in connection with such Investment or
any other amounts received in respect of such Investment; PROVIDED that no such
payment of dividends or distributions or receipt of any such other amounts shall
reduce the amount of any Investment if such payment of dividends or
distributions or receipt of any such amounts would be included in Consolidated
Net Income. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Common Stock of any direct or indirect Restricted
Subsidiary of the Company (other than all of the Common Stock of such Restricted
Subsidiary) such that, after giving effect to any such sale or disposition, the
Company no longer owns, directly or indirectly, 100 percent of the outstanding
Common Stock of such Restricted Subsidiary, the Company shall be deemed to have
made an Investment on the date of any such sale or disposition equal to the fair
market value of the Common Stock of such Restricted Subsidiary not sold or
disposed of.
"ISSUE DATE" means the date of original issuance of the Series
A Notes.
"JUNIOR SECURITIES" of the Company or any Guarantor means
securities of the Company or such Guarantor that are junior in right of payment
to the Notes or the applicable Guarantee.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or the city in which the principal
corporate trust office of the Trustee is located, or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
"LIEN" means any lien, mortgage, deed of trust, pledge,
security interest, charge or encumbrance of any kind (including any conditional
sale or other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"MAY 1998 GUARANTEES" means the Guarantees of any of the
Guarantors entered into in connection with the issuance of the May 1998 Notes.
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"MAY 1998 NOTES" means the 10 1/4% Senior Subordinated Notes
due 2008 of the Company issued on May 28, 1998.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of its Restricted Subsidiaries from
such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions), (b) taxes paid or payable after
taking into account any reduction in consolidated tax liability due to available
tax credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that either (A) is secured by a Lien on the property or assets sold
or (B) is required to be repaid in connection with such Asset Sale (or in order
to obtain a consent required in connection therewith), (d) appropriate amounts
to be provided by the Company or any Restricted Subsidiary, as the case may be,
as a reserve, in accordance with GAAP, against any liabilities associated with
such Asset Sale and retained by the Company or any Restricted Subsidiary, as the
case may be, after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, (e) any consideration for an Asset Sale (which would otherwise
constitute Net Cash Proceeds) that is required to be held in escrow pending
determination of whether a purchase price adjustment will be made, but amounts
under this clause (e) shall become Net Cash Proceeds at such time and to the
extent such amounts are released to such Person and (f) a pro rata portion of
the amount of cash or Cash Equivalents received by any non-Guarantor Restricted
Subsidiary that are held by Persons other than the Company or its Restricted
Subsidiaries.
"NOTE CUSTODIAN" means the Trustee, as custodian with respect
to the Global Notes, or any successor entity thereto.
"OBLIGATIONS" means all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"OFFERING" means the Offering of the Notes by the Company.
"OFFICER" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
the General Counsel, the Controller, the Secretary or any Vice-President of such
Person.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf
of the Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 12.05 hereof.
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"OPINION OF COUNSEL" means a written opinion in form and
substance reasonably satisfactory to the Trustee and from legal counsel who is
reasonably acceptable to the Trustee that meets the requirements of Section
12.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"PARTS INVENTORY" has the meaning specified in the Credit
Agreement.
"PERMITTED HOLDER(S)" means (i) Jorge Mas, Juan Carlos Mas and
Jose Ramon Mas and any of their respective Affiliates, spouses, siblings, lineal
descendants or lineal ascendants or any trust for the benefit of such persons,
(ii) General Electric Capital Corporation and GECFS, Inc. and their Affiliates,
(iii) Kevin P. Fitzgerald, (iv) Santos Fund L.L.P., Santos Capital Advisors,
Inc. and their Affiliates and (v) an entity (a "Holding Company") that owns,
directly or indirectly, beneficially or of record, 100 percent of the ordinary
voting power represented by the outstanding Capital Stock of the Company,
PROVIDED that no Person or Group (other than a Permitted Holder) becomes the
owner, directly or indirectly, beneficially or of record, of more than 50
percent of the ordinary voting power represented by the outstanding Capital
Stock of such Holding Company.
"PERMITTED INDEBTEDNESS" means, without duplication, each of
the following:
(i) Indebtedness under the Notes, the Indenture and the
Guarantees in an aggregate principal amount not to exceed $100.0
million;
(ii) Indebtedness under the May 1998 Notes, and the indenture
and the guarantees related thereto, in an aggregate principal amount
not to exceed $100.0 million;
(iii) Indebtedness incurred pursuant to the Credit Agreement
in an aggregate principal amount at any time outstanding not to exceed
the greater of (A) $350.0 million or (B) the sum of (i) 100 percent of
the net book value of Eligible Financed Equipment of the Company and
its Restricted Subsidiaries, (ii) 85 percent of the book value of the
Eligible Accounts of the Company and its Restricted Subsidiaries and
(iii) 60 percent of Parts Inventory of the Company and its Restricted
Subsidiaries, reduced in the case of the preceding clause (A) by any
required permanent repayments from the application of the use of
proceeds from Asset Sales (which in the case of a revolving credit
facility are accompanied by a corresponding permanent commitment
reduction) thereunder;
(iv) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payments or mandatory prepayments when actually
paid or permanent reductions thereof;
(v) Interest Swap Obligations of the Company or any of its
Restricted Subsidiaries covering Indebtedness of the Company or such
Restricted Subsidiary; PROVIDED, HOWEVER, that such Interest Swap
Obligations are entered into to protect the Company and its Restricted
Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with this Indenture to the extent the notional
principal amount of such Interest
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Swap Obligation does not exceed the principal amount of the
Indebtedness to which such Interest Swap Obligation relates;
(vi) Indebtedness under Currency Agreements; PROVIDED that in
the case of Currency Agreements which relate to Indebtedness, such
Currency Agreements do not increase the Indebtedness of the Company and
its Restricted Subsidiaries outstanding other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(vii) Indebtedness of a Wholly Owned Restricted Subsidiary of
the Company to the Company or to a Wholly Owned Restricted Subsidiary
of the Company for so long as such Indebtedness is held by the Company,
a Wholly Owned Restricted Subsidiary of the Company or the lenders or
collateral agent under the Credit Agreement, in each case subject to no
Lien held by a Person other than the Company, a Wholly Owned Restricted
Subsidiary of the Company or the lenders or collateral agent under the
Credit Agreement; PROVIDED that if as of any date any Person other than
the Company, a Wholly Owned Restricted Subsidiary of the Company or the
lenders or collateral agent under the Credit Agreement owns or holds
any such Indebtedness or holds a Lien in respect of such Indebtedness,
such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by the issuer of such Indebtedness
pursuant to this clause (vii);
(viii) Indebtedness of the Company to a Wholly Owned
Restricted Subsidiary of the Company for so long as such Indebtedness
is held by a Restricted Subsidiary of the Company or the lenders or
collateral agent under the Credit Agreement, in each case subject to no
Lien (other than a lien in favor of the lenders or collateral agent
under the Credit Agreement); PROVIDED that (a) any Indebtedness of the
Company to any Wholly Owned Restricted Subsidiary of the Company that
is not a Guarantor is unsecured and subordinated, pursuant to a written
agreement, to the Company's obligations under this Indenture and the
Notes and (b) if as of any date any Person other than a Wholly Owned
Restricted Subsidiary of the Company or the lenders or collateral agent
under the Credit Agreement owns or holds any such Indebtedness or any
Person holds a Lien in respect of such Indebtedness, such date shall be
deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the Company pursuant to this clause (viii);
(ix) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business; PROVIDED,
HOWEVER, that such Indebtedness is extinguished within two business
days of incurrence;
(x) Indebtedness of the Company or any of its Restricted
Subsidiaries represented by letters of credit for the account of the
Company or such Restricted Subsidiary, as the case may be, in order to
provide security for workers' compensation claims, payment obligations
in connection with self-insurance or similar requirements in the
ordinary course of business;
(xi) Refinancing Indebtedness;
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(xii) Capitalized Lease Obligations and Purchase Money
Indebtedness of the Company or any of its Restricted Subsidiaries not
to exceed $20.0 million at any one time outstanding;
(xiii) Indebtedness permitted by clauses (iii) and (xiii) of
the definition of "Permitted Investments;"
(xiv) guarantees of Indebtedness otherwise permitted under
this Indenture; and
(xv) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount (or, in the case of
Indebtedness issued at a discount, an accreted amount (determined in
accordance with GAAP)) not to exceed $10.0 million at any one time
outstanding (which may, but need not, be incurred in whole or in part
under the Credit Agreement).
For purposes of determining compliance with Section 4.10 of
this Indenture, in the event that an item of Indebtedness meets the criteria of
more than one of the types of Permitted Indebtedness described in the above
clauses, the Company, in its sole discretion shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses. Any Permitted Indebtedness initially
incurred pursuant to any of the clauses in the preceding paragraph may at any
time at the sole discretion of the Company be treated as having been incurred
pursuant to any other clause as long as the outstanding amount of such Permitted
Indebtedness at the time of any reclassification could be made pursuant to such
other clause.
"PERMITTED INVESTMENTS" means (i) Investments by the Company
or any Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Wholly Owned Restricted Subsidiary of the
Company or that will merge or consolidate into the Company or a Wholly Owned
Restricted Subsidiary of the Company, (ii) Investments in the Company by any
Restricted Subsidiary of the Company; PROVIDED that any Indebtedness evidencing
such Investment is unsecured and, to the extent made by a Restricted Subsidiary
that is not a Guarantor, subordinated, pursuant to a written agreement, to the
Company's obligations under the Notes and this Indenture; (iii) Investments in
an aggregate amount not to exceed $10.0 million by the Company or any Restricted
Subsidiary of the Company in any Person that is or will become immediately after
such Investment a non-Guarantor Restricted Subsidiary of the Company or that
will merge or consolidate into the Company or a non-Guarantor Restricted
Subsidiary of the Company, (iv) an Investment in the amount of up to $38.0
million to purchase 51 percent of the Capital Stock of Sullair Argentina; (v)
investments in cash and Cash Equivalents; (vi) loans and advances to employees
and officers of the Company and its Restricted Subsidiaries in the ordinary
course of business for bona fide business purposes not in excess of $1.0 million
at any one time outstanding; (vii) Currency Agreements and Interest Swap
Obligations entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' businesses and otherwise in compliance with this
Indenture; (viii) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors
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or customers or in good faith settlement of delinquent obligations of such trade
creditors or customers or in good faith settlement of delinquent obligations of
such trade creditors or customers; (ix) Investments made by the Company or its
Restricted Subsidiaries as a result of consideration received in connection with
an Asset Sale made in compliance with Section 4.08 of this Indenture; (x)
Investments existing on the Issue Date; (xi) guarantees of Indebtedness
otherwise permitted under this Indenture, (xii) obligations of one or more
officers or other employees of the Company or any of its Restricted Subsidiaries
in connection with such officers' or employee's acquisition of shares of Common
Stock of the Company so long as no cash is paid by the Company or any of its
Restricted Subsidiaries to such officers or employees in connection with the
acquisition of any such obligations; and (xiii) additional Investments in an
aggregate amount that, together with all other Investments made pursuant to this
clause (xiii), does not exceed $25.0 million.
For purposes of determining compliance with Section 4.09 of
this Indenture, in the event that an Investment meets the criteria of more than
one of the types of Permitted Investments described in the clauses in the
preceding paragraph, the Company, in its sole discretion, shall classify such
Permitted Investment and only be required to include the amount and type of such
Permitted Investment in one of such clauses. Any Permitted Investment initially
made pursuant to any of the clauses in the preceding paragraph may at any time
at the sole discretion of the Company be treated as having been made pursuant to
any other clause as long as the outstanding amount of such Permitted Investment
at the time of any reclassification could be made pursuant to such other clause.
"PERMITTED LIENS" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or
claims that are either (a) not yet due or are delinquent for less than
ninety days or (b) being contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves, if any, as may be
required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law incurred in the ordinary course of business for
sums not yet delinquent or being contested in good faith, if such
reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment
insurance and other types of social security;
(iv) Liens securing (a) letters of credit issued in the
ordinary course of business consistent with past practice in connection
therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed
money) and any bank's
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unexercised right of set off with respect to deposits made in the
ordinary course and (b) indemnity obligations in respect of the
disposition of any business or assets of the Company or any Restricted
Subsidiary (PROVIDED that the property subject to such Lien does not
have a fair market value in excess of the cash or cash equivalent
proceeds received by the Company and its Restricted Subsidiaries in
connection with such disposition);
(v) Liens securing indebtedness otherwise permitted under this
Indenture owing to John Deere Construction Equipment Company and its
Affiliates;
(vi) judgment Liens not giving rise to an Event of Default;
(vii) Liens on parts inventory, as incurred in accordance with
the Credit Agreement;
(viii) easements, rights-of-way, municipal ordinances, zoning
restrictions and other similar charges, encumbrances, title defects or
irregularities not interfering in any material respect with the
ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries;
(ix) any interest or title of a lessor under any Capitalized
Lease Obligation; PROVIDED that such Liens do not extend to any
property or assets which is not leased property subject to such
Capitalized Lease Obligation;
(x) purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary of the Company acquired in the
ordinary course of business; PROVIDED, HOWEVER, that (A) the related
purchase money Indebtedness shall not exceed the cost of such property
or assets (including the cost of design, development, improvement,
production, acquisition, construction, installation and integration)
and shall not be secured by any property or assets of the Company or
any Restricted Subsidiary of the Company other than the property and
assets so acquired or constructed (and any improvements) and (B) the
Lien securing such Indebtedness shall be created within six months of
such acquisition, construction or improvement;
(xi) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person
to facilitate the purchase, shipment or storage of such inventory or
other goods;
(xii) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other
property relating to such letters of credit and products and proceeds
thereof;
(xiii) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual, or warranty
requirements of the Company or any of its Restricted Subsidiaries,
including rights of offset and set-off;
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(xiv) Liens securing Interest Swap Obligations which Interest
Swap Obligations relate to Indebtedness that is otherwise permitted
under this Indenture;
(xv) Liens securing Indebtedness under Currency Agreements;
(xvi) any lease or sublease to a third party not interfering
in any material respect with the business of the Company and its
Restricted Subsidiaries;
(xvii) Liens placed upon assets of a foreign Restricted
Subsidiary of the Company to service Indebtedness of such foreign
Restricted Subsidiary that is otherwise permitted under this Indenture
and;
(xviii) Liens securing Acquired Indebtedness incurred in
accordance with Section 4.10 of this Indenture; PROVIDED that (A) such
Liens secured such Acquired Indebtedness at the time of and prior to
the incurrence of such Acquired Indebtedness by the Company or a
Restricted Subsidiary of the Company and were not granted in connection
with, or in anticipation of, the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company
and (B) such Liens do not extend to or cover any property or assets of
the Company or of any of its Restricted Subsidiaries other than the
property or assets that secured the Acquired Indebtedness prior to the
time such Indebtedness became Acquired Indebtedness of the Company or a
Restricted Subsidiary of the Company and are no more favorable to the
lienholders than those securing the Acquired Indebtedness prior to the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary of the Company.
"PERSON" means an individual, partnership, corporation,
unincorporated organization, association, limited liability company, joint stock
company, trust or joint venture, or a governmental agency or political
subdivision thereof or any other entity.
"PREFERRED STOCK" of any Person means any Capital Stock of
such Person that has preferential rights to any other Capital Stock of such
Person with respect to dividends or redemptions or upon liquidation.
"PUBLIC EQUITY OFFERING" means an underwritten public offering
of Qualified Capital Stock (other than the Common Stock Offering) of the Company
for cash after the Issue Date pursuant to a registration statement filed with
the Commission in accordance with the Securities Act.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the
Company and its Restricted Subsidiaries incurred in the normal course of
business for the purpose of financing all or any part of the purchase price, or
the cost of installation, construction or improvement, of property or equipment.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not
Disqualified Capital Stock.
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"REFINANCE" means, in respect of any security or Indebtedness,
to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire,
or to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing by the
Company or any Restricted Subsidiary of the Company of Indebtedness incurred in
accordance with Section 4.10 of this Indenture (other than pursuant to clause
(iii), (v), (vi), (vii), (viii), (ix), (x) or (xv) of the definition of
Permitted Indebtedness), in each case that does not (1) result in an increase in
the aggregate principal amount of Indebtedness of such Person as of the date of
such proposed Refinancing (plus the amount of any interest or premium required
to be paid under the terms of the instrument governing such Indebtedness and
plus the amount of reasonable fees and expenses incurred by the Company in
connection with such Refinancing) or (2) create Indebtedness with (A) a Weighted
Average Life to Maturity that is less than the Weighted Average Life to Maturity
of the Indebtedness being Refinanced or (B) a final maturity earlier than the
final maturity of the Indebtedness being Refinanced; PROVIDED that (x) if such
Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if
such Indebtedness being Refinanced is subordinate or junior to the Notes, then
such Refinancing Indebtedness shall be subordinate to the Notes at least to the
same extent and in the same manner as the Indebtedness being Refinanced.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the date of this Indenture, by and among the Company and
the other parties named on the signature pages thereof, as such agreement may be
amended, modified or supplemented from time to time.
"REGULATION S" means Regulation S promulgated under the
Securities Act.
"REPRESENTATIVE" means the indenture trustee or other trustee,
agent or representative in respect of any Designated Senior Debt; PROVIDED that
if, and for so long as, any Designated Senior Debt lacks such a representative,
then the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"RESPONSIBLE OFFICER," when used with respect to the Trustee,
means any officer within the Corporate Trust Department of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of
such Person which at the time of determination is not an Unrestricted
Subsidiary.
"RULE 144A" means Rule 144A promulgated under the Securities
Act.
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"SALE AND LEASEBACK TRANSACTION" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such Property.
"SEC" means the United States Securities and Exchange
Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
or any successor statute or statutes thereto.
"SENIOR DEBT" means the principal of, premium, if any, and
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on any Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Debt" shall also include the principal of, premium, if
any, interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (x) all monetary
obligations (including guarantees thereof) of every nature of the Company under
the Credit Agreement, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit, fees,
expenses and indemnities, (y) all Interest Swap Obligations (including
guarantees thereof) and (z) all obligations (including guarantees thereof) under
Currency Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall not
include (i) any Indebtedness of the Company to a Subsidiary of the Company or
any Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii)
Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer
or employee of the Company or any Subsidiary of the Company (including, without
limitation, amounts owed for compensation), (iii) Indebtedness to trade
creditors and other amounts incurred in connection with obtaining goods,
materials or services (excluding purchase money indebtedness to equipment
manufacturers), (iv) Indebtedness represented by Disqualified Capital Stock, (v)
any liability for federal, state, local or other taxes owed or owing by the
Company, (vi) that portion of any Indebtedness incurred in violation of Section
4.10 of this Indenture (but, as to any such obligation, no such violation shall
be deemed to exist for purposes of this clause (vi) if the holder(s) of such
obligation or their representative and the Trustee shall have received an
Officers' Certificate of the Company to the effect that the incurrence of such
Indebtedness does not (or, in the case of revolving credit Indebtedness, that
the incurrence of the entire committed amount thereof at the date on which the
initial borrowing thereunder is made would not) violate such provisions of this
Indenture), (vii) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11,
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United States Code, is without recourse to the Company and (viii) any
Indebtedness which is, by its express terms, subordinated in right of payment to
any other Indebtedness of the Company.
"SERIES A PREFERRED STOCK" means the 340,907 shares of the
Company's Series A Cumulative Redeemable Preferred Stock with Detachable Stock
Purchase Warrants, $.01 par value per share.
"SIGNIFICANT SUBSIDIARY" shall have the meaning set forth in
Rule 1.02(w) of Regulation S-X under the Securities Act.
"SUBSIDIARY" with respect to any Person, means (i) any
corporation of which the outstanding Capital Stock having at least a majority of
the votes entitled to be cast in the election of directors under ordinary
circumstances shall at the time be owned, directly or indirectly, by such Person
or (ii) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly, owned by
such Person.
"SUBSIDIARY GUARANTEES" means the Subsidiary Guarantees of the
Guarantors in the form set forth as Exhibit B hereto.
"SULLAIR ARGENTINA" shall mean Sullair Argentina S.A., a
corporation organized under the laws of the Republic of Argentina.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"TRANSFER RESTRICTED NOTES" means Notes that bear or are
required to bear the legend set forth in Section 2.06(g)(i) hereof.
"TRUSTEE" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
"UNRESTRICTED SUBSIDIARY" of any Person means (i) any
Subsidiary of such Person that at the time of determination shall be or continue
to be designated an Unrestricted Subsidiary by the Board of Directors of such
Person in the manner provided below and (ii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, the Company or any other Subsidiary of the Company that is not
a Subsidiary of the Subsidiary to be so designated; PROVIDED that (x) the
Company certifies to the Trustee that such designation complies with Section
4.09 of this Indenture and (y) each Subsidiary to be so designated and each of
its Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if (x) immediately after giving effect to
such
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designation, the Company is able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.10
of this Indenture and (y) immediately before and immediately after giving effect
to such designation, no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced to
the Trustee by promptly filing with the Trustee a copy of the Board Resolution
giving effect to such designation and an officers' certificate certifying that
such designation complied with the foregoing provisions.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any
Restricted Subsidiary of such Person of which all the outstanding voting
securities (other than in the case of a foreign Restricted Subsidiary,
directors' qualifying shares or an immaterial amount of shares required to be
owned by other Persons pursuant to applicable law) are owned by such Person or
any Wholly Owned Restricted Subsidiary of such Person.
Section 1.02 Other Definitions
TERM DEFINED IN
- ---- SECTION
-------
"Acceleration Notice" 6.02
"Affiliate Transaction" 4.14
"Benefitted Party" 11.01
"Blockage Period" 10.03
"Change of Control Offer" 4.07
"Change of Control Payment Date" 4.07
"Covenant Defeasance" 8.03
"Default Notice" 10.03
"DTC" 2.03
"Event of Default" 6.01
"Incur" 4.10
"Legal Defeasance" 8.02
"Net Proceeds Offer" 4.08
"Net Proceeds Offer Amount" 4.08
"Net Proceeds Offer Payment Date" 4.08
"Net Proceeds Offer Trigger Date" 4.08
"Paying Agent" 2.03
"Payment Notice" 10.03
"Reference Date" 4.09
"Registrar" 2.03
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TERM DEFINED IN
- ---- SECTION
-------
"Registration" 4.03
"Replacement Assets" 4.08
"Surviving Entity" 5.01
Section 1.03 Incorporation by Reference of Trust Indenture Act
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"INDENTURE SECURITIES" means the Notes;
"INDENTURE SECURITY HOLDER" means a Holder of a Note;
"INDENTURE TO BE QUALIFIED" means this Indenture;
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the
Trustee;
"OBLIGOR" on the Notes means the Company, the Guarantors and
any successor obligor upon the Notes.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
Section 1.04 Rules of Construction
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular;
(5) provisions apply to successive events and transactions;
and
(6) references to sections of or rules under the Securities
Act shall be deemed to include substitute, replacement of successor
sections or rules adopted by the SEC from time to time.
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ARTICLE 2
THE NOTES
Section 2.01 Form and Dating
The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. The Company shall furnish any such legend not contained in Exhibit A to
the Trustee in writing. Each Note shall be dated the date of its authentication.
Notes shall be issuable in fully registered form only, without coupons, in
denominations of $1,000 and any integral multiple thereof.
The terms and provisions contained in the Notes shall
constitute, and are hereby expressly made, a part of this Indenture and the
Company and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby. In the
event of a conflict, the terms of this Indenture shall control.
Global Notes shall be substantially in the form of Exhibit A
attached hereto (including the text referred to in footnote 1 thereto). Notes
issued in certificated form shall be substantially in the form of Exhibit A
attached hereto (but without including the text referred to in footnote 1
thereto). Each Global Note shall represent such of the outstanding Notes as
shall be specified therein and each shall provide that it shall represent the
aggregate amount of outstanding Notes from time to time endorsed thereon and
that the aggregate amount of outstanding Notes represented thereby may from time
to time be reduced or increased, as appropriate, to reflect exchanges and
redemptions. Any endorsement of a Global Note to reflect the amount of any
increase or decrease in the amount of outstanding Notes represented thereby
shall be made by the Trustee or the Note Custodian, at the direction of the
Trustee, in accordance with instructions given by the Holder thereof as required
by Section 2.06 hereof.
Section 2.02 Execution and Authentication
Two Officers shall sign the Notes for the Company by manual or
facsimile signature.
If an Officer whose signature is on a Note no longer holds
that office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed
by two Officers, authenticate Notes for original issue up to the aggregate
principal amount stated in paragraph 4 of the Notes, but in any case not to
exceed $200,000,000, in one or more series; provided, however, that if any
series of Notes issued under this Indenture subsequent to the Issue Date is
determined, pursuant to an Opinion of Counsel of the Company in a form
reasonably satisfactory
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to the Trustee, to be a different class of security than the Notes outstanding
at such time for federal income tax purposes, the Company may obtain a "CUSIP"
number for such Notes that is different than the "CUSIP" number printed on the
Notes then outstanding. Notwithstanding the foregoing, all Notes issued under
the Indenture shall vote and consent together on all matters as one class and no
series of Notes will have the right to vote or consent as a separate class on
any matter. The aggregate principal amount of Notes outstanding at any time may
not exceed such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.
Section 2.03 Registrar and Paying Agent; Depositary
The Company shall maintain an office or agency where Notes may
be presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company
("DTC") to act as depositary with respect to the Global Notes (the
"Depositary").
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Note Custodian with respect to the
Global Notes.
Section 2.04 Paying Agent to Hold Money in Trust
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of principal, premium, if any, or Additional Interest, if any, or
interest on the Notes, and will notify the Trustee of any default by the Company
in making any such payment. While any such default continues, the Trustee may
require a Paying Agent to pay all money held by it to the Trustee. The Company
at any time may require a Paying Agent to pay all money held by it to the
Trustee and account for any funds disbursed, and the Trustee may at any time
during the continuance of any default in the payment of principal of, premium,
if any, or accrued interest or Additional Interest, if any, on the Notes
pursuant to Sections 6.01(i) and 6.01(ii) hereof, upon written request to a
Paying Agent, require such Paying Agent to pay all money held by it to the
Trustee and to account for all funds
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disbursed. Upon payment over to the Trustee, the Paying Agent (if other than the
Company or a Subsidiary) shall have no further liability for the money. If the
Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a
separate trust fund for the benefit of the Holders all money held by it as
Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the
Company, the Company shall so notify the Trustee, and thereafter the Trustee
shall serve as Paying Agent for the Notes.
Section 2.05 Holder Lists
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of all Holders and shall otherwise comply with TIA /section/ 312(a).
If the Trustee is not the Registrar, the Company shall furnish to the Trustee at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of the
Holders of Notes and the Company shall otherwise comply with TIA /section/
312(a).
Section 2.06 Transfer and Exchange
(a) TRANSFER AND EXCHANGE OF CERTIFICATED NOTES. When
Certificated Notes are presented by a Holder to the Registrar with a request:
(x) to register the transfer of the Certificated Notes; or (y) to exchange such
Certificated Notes for an equal principal amount of Certificated Notes of other
authorized denominations, the Registrar shall register the transfer or make the
exchange as requested if its requirements for such transactions are met;
PROVIDED, HOWEVER, that the Certificated Notes presented or surrendered for
register of transfer or exchange: (i) shall be duly endorsed or accompanied by a
written instruction of transfer in form satisfactory to the Registrar duly
executed by such Holder or by his attorney, duly authorized in writing; and (ii)
in the case of a Certificated Note that is a Transfer Restricted Note, such
request shall be accompanied by the following additional information and
documents, as applicable: (A) if such Transfer Restricted Note is being
delivered to the Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification to that effect from such Holder (in
substantially the form of Exhibit C hereto) and, at the option of the Company or
the Registrar, an Opinion of Counsel from such Holder or the transferee
reasonably acceptable to the Company and to the Registrar to the effect that
such transfer is in compliance with the Securities Act; or (B) if such Transfer
Restricted Note is being transferred to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) in accordance with Rule 144A
under the Securities Act, an institutional "accredited investor" (as defined in
Rule 501(a)(1),(2),(3) or (7) of Regulation D under the Securities Act) that,
prior to such transfer, furnishes the Trustee a signed letter containing certain
representations and agreements relating to the transfer of the Notes, or
pursuant to an exemption from registration in accordance with Rule 144, Rule 903
or Rule 904 under the Securities Act or pursuant to an effective registration
statement under the Securities Act, a certification to that effect from such
Holder (in substantially the form of Exhibit C hereto) and, at the option of the
Company or the Registrar, an Opinion of Counsel from such Holder or the
transferee reasonably acceptable to the Company and to the Registrar to the
effect that such transfer is in compliance with the Securities Act; or (C) if
such Transfer Restricted Note is being
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transferred in reliance on another exemption from the registration requirements
of the Securities Act, a certification to that effect from such Holder (in
substantially the form of Exhibit C hereto) and an Opinion of Counsel from such
Holder or the transferee reasonably acceptable to the Company and to the
Registrar to the effect that such transfer is in compliance with the Securities
Act.
(b) TRANSFER OF A CERTIFICATED NOTE FOR A BENEFICIAL INTEREST
IN A GLOBAL NOTE. A Certificated Note may not be exchanged for a beneficial
interest in a Global Note except upon satisfaction of the requirements set forth
below and only if the Company, at the time of such transfer, has appointed a
Depositary that is registered as a clearing agency under the Exchange Act. Upon
receipt by the Trustee of a Certificated Note, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Trustee,
together with: (i) if such Certificated Note is a Transfer Restricted Note, a
certification from the Holder thereof (in substantially the form of Exhibit C
hereto) to the effect that such Certificated Note is being transferred by such
Holder to a "qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities Act; and (ii)
whether or not such Certificated Note is a Transfer Restricted Note, written
instructions from the Holder thereof directing the Trustee to make, or to direct
the Note Custodian to make, an endorsement on the Global Note to reflect an
increase in the aggregate principal amount of the Notes represented by the
Global Note, in which case the Trustee shall cancel such Certificated Note in
accordance with Section 2.11 hereof and cause, or direct the Note Custodian to
cause, in accordance with the standing instructions and procedures existing
between the Depositary and the Note Custodian, the aggregate principal amount of
Notes represented by the Global Note to be increased accordingly. If no Global
Notes are then outstanding, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.02 hereof, the Trustee shall
authenticate a new Global Note in the appropriate principal amount.
(c) TRANSFER AND EXCHANGE OF GLOBAL NOTES. The transfer and
exchange of Global Notes or beneficial interests therein shall be effected
through the Depositary, in accordance with this Indenture and the procedures of
the Depositary therefor, which shall include restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
(d) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL NOTE FOR A
CERTIFICATED NOTE.
(i) Any Person having a beneficial interest in a
Global Note may upon request exchange such beneficial interest for a
Certificated Note. Upon receipt by the Trustee of written instructions or such
other form of instructions as is customary for the Depositary, from the
Depositary or its nominee on behalf of any Person having a beneficial interest
in a Global Note, and, in the case of a Transfer Restricted Note, the following
additional information and documents (all of which may be submitted by
facsimile): (A) if such beneficial interest is being transferred to the Person
designated by the Depositary as being the beneficial owner, a certification to
that effect from such Person (in substantially the form of Exhibit C hereto); or
(B) if such beneficial interest is being transferred to a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act) in
accordance with Rule 144A under the Securities Act or
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an institutional "accredited investor" (as defined in Rule 501(a)(1),(2),(3) or
(7) of Regulation D under the Securities Act) that, prior to such transfer,
furnishes the Trustee a signed letter containing certain representations and
agreements relating to the transfer of the Notes, a certification to that effect
from the transferor (in substantially the form of Exhibit C hereto); or (C) if
such beneficial interest is being transferred pursuant to an exemption from
registration in accordance with Rule 144, Rule 903 or Rule 904 under the
Securities Act or pursuant to an effective registration statement under the
Securities Act, a certification to that effect from the transferor (in
substantially the form of Exhibit C hereto) and, at the option of the Company or
the Registrar, an Opinion of Counsel from such beneficial owner or the
transferee reasonably acceptable to the Company and the Registrar to the effect
that such transfer is in compliance with the Securities Act; or (D) if such
beneficial interest is being transferred in reliance on another exemption from
the registration requirements of the Securities Act, a certification to that
effect from the transferor (in substantially the form of Exhibit C hereto) and
an Opinion of Counsel from the transferee or transferor reasonably acceptable to
the Company and to the Registrar to the effect that such transfer is in
compliance with the Securities Act; in which case the Trustee or the Note
Custodian, at the direction of the Trustee, shall, in accordance with the
standing instructions and procedures existing between the Depositary and the
Note Custodian, cause the aggregate principal amount of Global Notes to be
reduced accordingly and, following such reduction, the Company shall execute
and, upon receipt of an authentication order in accordance with Section 2.02
hereof, the Trustee shall authenticate and deliver to the transferee a
Certificated Note in the appropriate principal amount.
(ii) Certificated Notes issued in exchange for a
beneficial interest in a Global Note pursuant to this Section 2.06(d) shall be
registered in such names and in such authorized denominations as the Depositary,
pursuant to instructions from its direct or indirect participants or otherwise,
shall instruct the Trustee. The Trustee shall deliver such Certificated Notes to
the Persons in whose names such Notes are so registered.
(e) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL NOTES.
Notwithstanding any other provision of this Indenture (other than the provisions
set forth in subsection (f) of this Section 2.06), a Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary or
a nominee of such successor Depositary.
(f) AUTHENTICATION OF CERTIFICATED NOTES IN ABSENCE OF
DEPOSITARY. If at any time: (i) the Depositary for the Notes notifies the
Company that the Depositary is unwilling or unable to continue as Depositary for
the Global Notes and a successor Depositary for the Global Notes is not
appointed by the Company within 90 days after delivery of such notice; or (ii)
the Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of Certificated Notes under this Indenture; then the Company
shall execute, and the Trustee shall, upon receipt of an authentication order in
accordance with Section 2.02 hereof, authenticate and deliver Certificated Notes
in accordance with Section 2.06(d)(ii) above in an aggregate principal amount
equal to the principal amount of the Global Notes in exchange for such Global
Notes.
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(g) LEGENDS.
(i) Except as permitted by the following paragraphs
(ii) and (iii), each Note certificate evidencing Global Notes and Certificated
Notes (and all Notes issued in exchange therefor or substitution thereof) shall
bear legends in substantially the following form:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE.
BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (i) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE ACT)(A "QIB"), (ii) IT HAS ACQUIRED
THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATIONS UNDER THE
ACT OR (iii) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE ACT (AN "IAI"),
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS
NOTE EXCEPT (i) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (ii) TO A PERSON WHO
THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(iii) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF
THE ACT, (iv) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
ACT, (v) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE AND
THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER
OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND (vi) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT OR (vii)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE
WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION, AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED
STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE
ACT. THE INDENTURE CONTAINS A PROVISION
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REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN
VIOLATION OF THE FOREGOING.
(ii) Upon any sale or transfer of a Transfer
Restricted Note (including any Transfer Restricted Note represented by a Global
Note) pursuant to Rule 144 under the Securities Act or pursuant to an effective
registration statement under the Securities Act: (A) in the case of any Transfer
Restricted Note that is a Certificated Note, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted Note for a Certificated Note
that does not bear the legend set forth in (i) above and rescind any restriction
on the transfer of such Transfer Restricted Note; and (B) in the case of any
Transfer Restricted Note represented by a Global Note, such Transfer Restricted
Note shall not be required to bear the first legend set forth in (i) above, but
shall continue to be subject to the provisions of Section 2.06(c) hereof;
PROVIDED, HOWEVER, that with respect to any request for an exchange of a
Transfer Restricted Note that is represented by a Global Note for a Certificated
Note that does not bear the first legend set forth in (i) above, which request
is made in reliance upon Rule 144, the Holder thereof shall certify in writing
to the Registrar that such request is being made pursuant to Rule 144 (such
certification to be substantially in the form of Exhibit C hereto).
(iii) Notwithstanding the foregoing, upon
consummation of the Exchange Offer, the Company shall issue and, upon receipt of
an authentication order in accordance with Section 2.02 hereof, the Trustee
shall authenticate Series B Notes in exchange for Series A Notes accepted for
exchange in the Exchange Offer, which Series B Notes shall not bear the first
legend set forth in (i) above, and the Registrar shall rescind any restriction
on the transfer of such Notes, in each case unless the Holder of such Series A
Notes is either (A) a Person participating in the distribution of the Series A
Notes, (B) a Person who is an affiliate (as defined in Rule 405 promulgated
under the Securities Act) of the Company or the Guarantors or (C) a
broker-dealer that will receive Series B Notes for its own account in exchange
for Series A Notes that were acquired as a result of market-making or other
trading activities, that it will deliver a prospectus in connection with any
resale of such series B Notes.
(h) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such
time as all beneficial interests in Global Notes have been exchanged for
Certificated Notes, redeemed, repurchased or cancelled, all Global Notes shall
be returned to or retained and cancelled by the Trustee in accordance with
Section 2.11 hereof. At any time prior to such cancellation, if any beneficial
interest in a Global Note is exchanged for Certificated Notes, redeemed,
repurchased or cancelled, the principal amount of Notes represented by such
Global Note shall be reduced accordingly and an endorsement shall be made on
such Global Note, by the Trustee or the Notes Custodian, at the direction of the
Trustee, to reflect such reduction.
(i) GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES.
(i) To permit registrations of transfers and
exchanges, the Company shall execute and the Trustee shall authenticate
Certificated Notes and Global Notes at the Registrar's request.
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(ii) No service charge shall be made to a Holder for
any registration of transfer or exchange, but the Company may require payment of
a sum sufficient to cover any transfer tax or similar governmental charge
payable in connection therewith.
(iii) The Registrar shall not be required to register
the transfer of or exchange any Note selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
(iv) All Certificated Notes and Global Notes issued
upon any registration of transfer or exchange of Certificated Notes or Global
Notes shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Certificated
Notes or Global Notes surrendered upon such registration of transfer or
exchange.
(v) The Company and the Registrar shall not be
required: (A) to issue, to register the transfer of or to exchange Notes during
a period beginning at the opening of business 15 days before the day of any
selection of Notes for redemption under Section 3.02 hereof and ending at the
close of business on the day of selection; or (B) to register the transfer of or
to exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part; or (C) to register the
transfer of or to exchange a Note between a record date and the next succeeding
interest payment date.
(vi) Prior to due presentment for the registration of
a transfer of any Note, the Trustee, any Agent and the Company may deem and
treat the Person in whose name any Note is registered as the absolute owner of
such Note for the purpose of receiving payment of principal of and interest on
such Notes, and neither the Trustee, any Agent nor the Company shall be affected
by notice to the contrary.
(vii) The Trustee shall authenticate Certificated
Notes and Global Notes in accordance with the provisions of Section 2.02 hereof.
Section 2.07 Replacement Notes
If any mutilated Note is surrendered to the Trustee, or the
Company or the Trustee receives evidence to its satisfaction of the destruction,
loss or theft of any Note, the Company shall issue and the Trustee, upon the
written order of the Company signed by two Officers of the Company, shall
authenticate a replacement Note if the Trustee's requirements are met. If
required by the Trustee or the Company, an indemnity bond must be supplied by
the Holder that is sufficient in the judgment of the Trustee and the Company to
protect the Company, the Trustee, any Agent and any authenticating agent from
any loss that any of them may suffer if a Note is replaced. The Company may
charge the Holder for its expenses in replacing a Note.
Every replacement Note is an additional Obligation of the
Company and shall be entitled to all of the benefits of this Indenture equally
and proportionately with all other Notes duly issued hereunder.
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Section 2.08 Outstanding Notes
The Notes outstanding at any time are all the Notes
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, those reductions in the interest in a Global Note
effected by the Trustee in accordance with the provisions hereof, and those
described in this Section 2.08 as not outstanding. Except as set forth in
Section 2.09 hereof, a Note does not cease to be outstanding because the
Company, a Guarantor or an Affiliate of the Company or a Guarantor holds the
Note.
If a Note is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary of
the Company or an Affiliate) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
Section 2.09 Treasury Notes
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, amendment, supplement, waiver
or consent, Notes owned by the Company, or by any Affiliate, shall be considered
as though not outstanding, except that for the purposes of determining whether
the Trustee shall be protected in relying on any such direction, amendment,
supplement, waiver or consent, only Notes that have been identified to the
Trustee in writing as owned by the Company or an Affiliate of the Company shall
be so disregarded. The Company shall notify the Trustee in writing, when it or
any Affiliate repurchases or otherwise acquires Notes of the aggregate principal
amount of such Notes so repurchased or otherwise acquired.
Section 2.10 Temporary Notes
Until Certificated Notes are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary Notes upon a written
order of the Company signed by two Officers of the Company. Temporary Notes
shall be substantially in the form of Certificated Notes but may have variations
that the Company considers appropriate for temporary Notes and as shall be
reasonably acceptable to the Trustee. Without unreasonable delay, the Company
shall prepare and the Trustee shall, as soon as practicable upon its receipt of
a written order of the Company signed by two Officers, authenticate Certificated
Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the
benefits of this Indenture.
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Section 2.11 Cancellation
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall deliver to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all cancelled Notes shall be delivered
to the Company. Subject to Section 2.07, the Company may not issue new Notes to
replace Notes that it has paid or that have been delivered to the Trustee for
cancellation.
Section 2.12 Defaulted Interest.
If the Company defaults in a payment of interest on the Notes,
it shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date, PROVIDED that no such special
record date shall be less than 15 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.
Section 2.13 Satisfaction and Discharge.
This Indenture will be discharged and will cease to be of further
effect (except as to surviving rights or registration of transfer or exchange of
the Notes, as expressly provided for in this Indenture) as to all outstanding
Notes when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under this Indenture by the Company;
and (iii) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel stating that all conditions precedent under this Indenture
relating to the satisfaction and discharge of this Indenture have been complied
with.
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ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01 Notices to Trustee
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days (unless a shorter period is consented to in writing by the
Trustee) but not more than 60 days before a redemption date, an Officers'
Certificate setting forth (i) the clause of this Indenture pursuant to which the
redemption shall occur, (ii) the redemption date, (iii) the principal amount of
Notes to be redeemed and (iv) the redemption price.
Section 3.02 Selection of Notes to be Redeemed
In the event that less than all of the Notes are to be
redeemed at any time, selection of such Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which such Notes are listed or, if such Notes are not then
listed on a national securities exchange, on a PRO RATA basis, by lot or by such
method as the Trustee shall deem fair and appropriate; PROVIDED, HOWEVER, that
no Notes of a principal amount of $1,000 or less shall be redeemed in part,
PROVIDED, FURTHER, that if a partial redemption is made with the proceeds of a
Public Equity Offering, selection of the Notes or portions thereof for
redemption shall be made by the Trustee only on a PRO RATA basis or on as nearly
a PRO RATA basis as is practicable (subject to DTC procedures), unless such
method is otherwise prohibited. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as the Company
has deposited with the Paying Agent funds in satisfaction of the applicable
redemption price pursuant to this Indenture.
Section 3.03 Notice of Redemption
Subject to the provisions of Section 3.07 hereof, at least 30
days but not more than 60 days before a redemption date, the Company shall mail
or cause to be mailed, by first class mail, a notice of redemption to each
Holder whose Notes are to be redeemed at its registered address as shown upon
the registry books of the Registrar.
The notice shall identify the Notes to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price;
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(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed, the portion of the principal
amount equal to the unredeemed portion thereof, and that, after the redemption
date upon surrender of such Note, a new Note or Notes in principal amount equal
to the unredeemed portion shall be issued upon cancellation of the original
Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such
redemption payment, interest on Notes called for redemption ceases to accrue on
and after the redemption date; and
(g) the paragraph of the Notes and/or Section of this
Indenture pursuant to which the Notes called for redemption are being redeemed.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; PROVIDED, HOWEVER, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
Section 3.04 Effect of Notice of Redemption
Once notice of redemption is mailed in accordance with Section
3.03 hereof, Notes called for redemption become irrevocably due and payable on
the redemption date at the redemption price. A notice of redemption may not be
conditional.
Section 3.05 Deposit of Redemption Price
At least one Business Day prior to the redemption date, the
Company shall deposit with the Trustee or with the Paying Agent immediately
available funds sufficient to pay the redemption price of and accrued interest
and Additional Interest, if any, on all Notes to be redeemed on that date. The
Trustee or the Paying Agent shall promptly return to the Company any money
deposited with the Trustee or the Paying Agent by the Company in excess of the
amounts necessary to pay the redemption price of, and accrued interest and
Additional Interest, if any, on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption unless the Company
defaults in such payments due on the redemption date. If a Note is redeemed on
or after an interest record date but on or prior to the related interest payment
date, then any accrued and unpaid interest shall be paid to the Person in whose
name such Note was registered at the close of business on such record date. If
any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the
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Company to comply with the preceding paragraph, interest shall be paid on the
unpaid principal from the redemption date until such principal is paid and, to
the extent lawful, on any interest not paid on such unpaid principal, in each
case at the rate provided in the Notes and in Section 4.01 hereof.
Section 3.06 Notes Redeemed in Part
Upon surrender of a Note that is redeemed in part, the Company
shall issue and the Trustee shall as soon as practicable, upon its receipt of a
written order of the Company signed by two Officers, authenticate for the Holder
at the expense of the Company a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
Section 3.07 Optional Redemption
(a) Except as set forth in clause (b) of this Section 3.07,
the Notes will be redeemable, at the Company's option, in whole at any time or
in part from time to time, on and after June 1 , 2003, upon not less than 30 nor
more than 60 days' notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during the twelve-month
period commencing on June 1 of the year set forth below, plus, in each case,
accrued and unpaid interest thereon, if any, to the date of redemption:
PERCENTAGE
----------
YEAR
----
2003.................................... 105.125%
2004.................................... 103.417%
2005.................................... 101.708%
2006 and thereafter..................... 100.000%
(b) Notwithstanding the provisions of clause (a) of this
Section 3.07, at any time, or from time to time, on or prior to June 1, 2001,
the Company may, at its option, use the net cash proceeds of one or more Public
Equity Offerings to redeem up to 30% of the initial aggregate principal amount
of the Notes issued under this Indenture at a redemption price equal to 110.250
percent of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of redemption; PROVIDED that at least 70% of the
initial aggregate principal amount of the Notes issued under this Indenture
remains outstanding immediately after any such redemption. In order to effect
the foregoing redemption with the proceeds of any Public Equity Offering, the
Company shall make such redemption not more than 120 days after the consummation
of any such Public Equity Offering.
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
Section 3.08 No Mandatory Redemption
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The Company shall not be required to make mandatory redemption
payments with respect to the Notes.
Section 3.09 No Sinking Fund
The Notes shall not have the benefit of a sinking fund.
ARTICLE 4
COVENANTS
Section 4.01 Payment of Notes
The Company shall pay or cause to be paid the principal of,
premium, if any, Additional Interest, if any, and interest on the Notes on the
dates and in the manner provided in the Notes. Principal, premium, if any,
Additional Interest, if any, and interest shall be considered paid on the date
due if the Trustee or Paying Agent (other than the Company or a Subsidiary
thereof) (i) holds as of 11:00 a.m. New York time on the due date money
deposited by the Company in immediately available funds and designated for and
sufficient to pay all principal, premium, if any, Additional Interest, if any,
and interest then due and (ii) is not prohibited from paying such money to the
Holders pursuant to the terms of this Indenture or the Notes. The Company shall
pay all Additional Interest, if any, in the same manner on the dates and in the
amounts set forth in the Registration Rights Agreement. The Company shall notify
the Trustee of the amount of Additional Interest, if any, within one business
day after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid. In the absence of such notice, the
Trustee is conclusively entitled to assume that no Additional Interest is
payable under the Registration Rights Agreement.
The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal and
premium, if any, at the rate equal to the then applicable interest rate on the
Notes to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest (without regard to any applicable grace period), at the same rate to
the extent lawful. Interest is computed on the basis of a 360-day year
consisting of twelve 30-day months and, in the case of a partial month, the
actual number of days elapsed.
Section 4.02 Maintenance of Office or Agency
The Company shall maintain in the Borough of Manhattan, the
City of New York, an office or agency (which may be an office of the Trustee or
an affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address
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thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Administration Office of the Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
PROVIDED, HOWEVER, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust
Administration Office of the Trustee as one such office or agency of the Company
in accordance with Section 2.03 hereof.
Section 4.03 Reports
(a) The Company will deliver to the Trustee within 15 days
after the filing of the same with the SEC, copies of the quarterly and annual
reports and of the information, documents and other reports, if any, which the
Company is required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act. At all times from and after the earlier of (i) the date of the
commencement of an Exchange Offer or the effectiveness of the Shelf Registration
Statement (the "Registration") and (ii) May 11, 1999, in either case
notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the SEC, to the extent permitted, and provide the Trustee and Holders with
such annual reports and such information, documents and other reports specified
in Sections 13 and 15(d) of the Exchange Act for so long as any Notes are
outstanding. The Company will also comply with the other provisions of TIA
314(a).
(b) For so long as any Transfer Restricted Notes remain
outstanding, the Company and the Subsidiary Guarantors shall furnish to all
Holders, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
Section 4.04 Compliance Certificate
(a) The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has, in all material
respects, kept, observed, performed and fulfilled its obligations under this
Indenture, and further stating, as to each such Officer signing such
certificate, that to the best of his or her knowledge the Company has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of any of the
terms, provisions and conditions of this Indenture (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he or she may have knowledge and what action the Company is taking (or
proposes to take with respect thereto).
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(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
year-end financial statements delivered pursuant to Section 4.03(a) hereof shall
be accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial statements,
nothing has come to their attention that would lead them to believe that the
Company has violated any provisions of Article 4 or Article 5 hereof or, if any
such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, upon any Officer becoming aware of any
Default or Event of Default, an Officers' Certificate specifying such Default or
Event of Default and what action the Company is taking or proposes to take with
respect thereto within 30 days of such occurrence.
Section 4.05 Taxes
The Company and Guarantors shall pay, and shall cause each of
their Subsidiaries to pay, prior to delinquency, all material taxes,
assessments, and governmental levies except such as are contested in good faith
and by appropriate proceedings or where the failure to effect such payment is
not adverse in any material respect to the Holders of the Notes.
Section 4.06 Stay, Extension and Usury Laws
The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not, by resort to any
such law, hinder, delay or impede the execution of any power herein granted to
the Trustee, but shall suffer and permit the execution of every such power as
though no such law has been enacted.
Section 4.07 Repurchase of Notes at the Option of the Holder upon a Change
of Control
Upon the occurrence of a Change of Control, each Holder will
have the right to require that the Company purchase all or a portion of such
Holder's Notes pursuant to the offer described below (the "Change of Control
Offer"), at a purchase price equal to 101 percent of the principal amount
thereof plus accrued and unpaid interest to the date of purchase. The Company is
not required to make a Change of Control Offer if a third party makes a Change
of Control Offer that would be in compliance with the provisions described in
this section if it were made by the Company and such third party purchases (for
the consideration referred to in the immediate preceding sentence) the Notes
validly tendered and not withdrawn.
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Prior to the mailing of the notice referred to below, but in
any event within 30 days following any Change of Control, the Company covenants
to (i) repay in full and terminate all commitments under Indebtedness under the
Credit Agreement and all other Senior Debt the terms of which require repayment
upon a Change of Control or offer to repay in full and terminate all commitments
under all Indebtedness under the Credit Agreement and all such other Senior Debt
and to repay the Indebtedness owed to each lender which has accepted such offer
or (ii) obtain the requisite consents under the Credit Agreement and all such
other Senior Debt to permit the repurchase of the Notes as provided below. The
Company shall first comply with the covenant in the immediately preceding
sentence before it shall be required to repurchase Notes pursuant to the
provisions described below. The Company's failure to comply with the covenant
described in the immediately preceding sentence shall constitute an Event of
Default described in clause (iii) and not in clause (ii) under "Events of
Default" below in Section 6.01.
Within 30 days following the date upon which the Change of
Control occurred, the Company must send, by first class mail, a notice to each
Holder, with a copy to the Trustee, which notice shall govern the terms of the
Change of Control Offer. Such notice shall state, among other things, the
purchase date, which must be no earlier than 30 days nor later than 45 days from
the date such notice is mailed, other than as may be required by law (the
"Change of Control Payment Date"). Holders electing to have a Note purchased
pursuant to a Change of Control Offer will be required to surrender the Note,
with the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third business day prior to the Change of
Control Payment Date.
The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with this Section
4.07, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.07.
Section 4.08 Limitation on Asset Sales
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or
the applicable Restricted Subsidiary, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the fair market value of the
assets sold or otherwise disposed of (as determined in good faith by the
Company's Board of Directors), (ii) at least 70 percent of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash or Cash Equivalents and is received
at the time of such disposition; and (iii) upon the consummation of an Asset
Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the
Net Cash Proceeds relating to such Asset Sale within 365 days of receipt thereof
either (A) to prepay any Senior Debt or Guarantor Senior Debt and, in the case
of any Senior Debt or Guarantor Senior Debt under any revolving credit facility,
effect a permanent reduction in the availability under such revolving credit
facility, (B) to make an investment in properties and
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assets that replace the properties and assets that were the subject of such
Asset Sale or in properties and assets that will be used in the business of the
Company and its Restricted Subsidiaries as existing on the Issue Date or in
businesses reasonably related thereto ("Replacement Assets"), or (C) a
combination of prepayment and investment permitted by the foregoing clauses
(iii)(A) and (iii)(B). On the 366th day after an Asset Sale or such earlier
date, if any, as the Board of Directors of the Company or of such Restricted
Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset
Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next
preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate
amount of Net Cash Proceeds which have not been applied on or before such Net
Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B) and
(iii)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount")
shall be applied by the Company or such Restricted Subsidiary to make an offer
to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer
Payment Date") not less than 30 days nor more than 45 days following the
applicable Net Proceeds Offer Trigger Date, from all Holders on a PRO RATA
basis, that amount of Notes equal to the Net Proceeds Offer Amount at a price
equal to 100 percent of the principal amount of the Notes to be purchased, plus
accrued and unpaid interest thereon, if any, to the date of purchase; PROVIDED,
HOWEVER, that if at any time any non-cash consideration received by the Company
or any Restricted Subsidiary of the Company, as the case may be, in connection
with any Asset Sale is converted into or sold or otherwise disposed of for cash
(other than interest received with respect to any such non-cash consideration),
then such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance with
this covenant. The Company may defer the Net Proceeds Offer until there is an
aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $10.0
million resulting from one or more Asset Sales (at which time, the entire
unutilized Net Proceeds Offer Amount, and not just the amount in excess of $10.0
million, shall be applied as required pursuant to this paragraph).
In the event of the transfer of substantially all (but not
all) of the property and assets of the Company and its Restricted Subsidiaries
as an entirety to a Person in a transaction permitted under Section 5.01 of this
Indenture, the successor corporation shall be deemed to have sold the properties
and assets of the Company and its Restricted Subsidiaries not so transferred for
purposes of this covenant, and shall comply with the provisions of this covenant
with respect to such deemed sale as if it were an Asset Sale. In addition, the
fair market value of such properties and assets of the Company or its Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this covenant.
Notwithstanding the two immediately preceding paragraphs, the
Company and its Restricted Subsidiaries shall be permitted to consummate an
Asset Sale without complying with such paragraphs to the extent (i) at least 80
percent of the consideration for such Asset Sale constitutes Replacement Assets
and (ii) such Asset Sale is for fair market value; PROVIDED that any
consideration not constituting Replacement Assets received by the Company or any
of its Restricted Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall constitute Net Cash Proceeds subject to
the provisions of the two preceding paragraphs.
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Each Net Proceeds Offer shall be mailed to the record Holders
as shown on the register of Holders within 30 days following the Net Proceeds
Offer Trigger Date, with a copy to the Trustee, and shall comply with the
procedures set forth in this Indenture. Upon receiving notice of the Net
Proceeds Offer, Holders may elect to tender their Notes in whole or in part in
integral multiples of $1,000 in exchange for cash. To the extent Holders
properly tender Notes in an amount exceeding the Net Proceeds Offer Amount,
Notes of tendering Holders will be purchased on a PRO RATA basis (based on
amounts tendered). A Net Proceeds Offer shall remain open for a period of 20
Business Days or such longer period as may be required by law.
The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with this Section
4.08, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.08.
Section 4.09 Limitation on Restricted Payments
The Company shall not, and shall not cause or permit any of
their Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any
dividend or make any distribution (other than dividends or distributions payable
in Qualified Capital Stock of the Company) on or in respect of shares of the
Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem
or otherwise acquire or retire for value any Capital Stock of the Company or any
warrants, rights or options to purchase or acquire shares of any class of such
Capital Stock, (c) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund payment,
any Indebtedness of the Company that is subordinate or junior in right of
payment to the Notes or (d) make any Investment (other than Permitted
Investments) (each of the foregoing actions set forth in clauses (a), (b) (c)
and (d) being referred to as a "Restricted Payment"), if at the time of such
Restricted Payment or immediately after giving effect thereto, (i) a Default or
an Event of Default shall have occurred and be continuing or (ii) the Company is
not able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with Section 4.10 of this Indenture or
(iii) the aggregate amount of Restricted Payments (including such proposed
Restricted Payment) made subsequent to May 28, 1998 (the amount expended for
such purposes, if other than in cash, being the fair market value of such
property as determined reasonably and in good faith by the Board of Directors of
the Company) shall exceed the sum of the following amounts (without
duplication): (1) 50 percent of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus 100 percent of such
loss) of the Company accrued on a cumulative basis during the period beginning
on July 1, 1998 and ending on the last day of the last fiscal quarter preceding
the date the Restricted Payment occurs (the "Reference Date") (treating such
period as a single accounting period); plus (2) 100 percent of the aggregate net
cash proceeds received by the Company from any Person (other than a Subsidiary
of the Company) from the issuance and sale subsequent to May 28, 1998 and on or
prior to the Reference Date of Qualified Capital Stock of the Company or any
options, warrants or other rights to acquire Qualified Capital Stock of the
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Company; plus (3) 100 percent of the aggregate net cash proceeds received
subsequent to May 28, 1998 by the Company from any Person (other than a
Subsidiary of the Company) from the issuance or sale of debt securities or
shares of Disqualified Capital Stock that have been converted into or exchanged
for Qualified Capital Stock, together with the aggregate cash received by the
Company at the time of such conversion or exchange; plus (4) 100 percent of the
aggregate net cash proceeds of any equity contribution received by the Company
from a holder of the Company's Capital Stock; plus (5) an amount equal to the
net reduction in Investment made pursuant to this first paragraph of this
Section 4.09 in any Person resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances, or other transfers of assets, in
each case to the Company or any Restricted Subsidiary (except to the extent any
such payment is included in the calculation of Consolidated Net Income), or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries valued in
each case as provided in the definition of "Investments," not to exceed the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Person.
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph do not prohibit: (1) the payment of any dividend
or the consummation of any irrevocable redemption within 60 days after the date
of declaration of such dividend or the giving of notice of such irrevocable
redemption if the dividend or redemption would have been permitted on the date
of declaration or the giving of such irrevocable redemption notice; (2) if no
Default or Event of Default shall have occurred and be continuing, the
repurchase, redemption or other acquisition or retirement of any shares of
Capital Stock of the Company, either (i) solely in exchange for shares of
Qualified Capital Stock of the Company or any options, warrants or other rights
to acquire Qualified Capital Stock of the Company or (ii) through the
application of net proceeds of a substantially concurrent sale for cash (other
than to a Subsidiary of the Company and other than the Common Stock Offering) of
shares of Qualified Capital Stock of the Company, or any options, warrants or
other rights to acquire Qualified Capital Stock of the Company; (3) if no
Default or Event of Default shall have occurred and be continuing, the
acquisition of any Indebtedness of the Company that is subordinate or junior in
right of payment to the Notes either (i) solely in exchange for shares of
Qualified Capital Stock of the Company or any options, warrants or other rights
to acquire Qualified Capital Stock of the Company, (ii) through the application
of net proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the Company and other than the Common Stock Offering) of shares of
Qualified Capital Stock of the Company or any options, warrants or other rights
to acquire Qualified Capital Stock of the Company, or (iii) if the acquisition
of such Indebtedness would constitute Refinancing Indebtedness; (4) if no
Default or Event of Default shall have occurred and be continuing, the
redemption at maturity of, or the payment of dividends in the form of additional
shares of Preferred Stock on the Series A Preferred Stock to the extent required
pursuant to the terms thereof or the payment of cash dividends on the Series A
Preferred Stock in an amount not to exceed $1.0 million in any fiscal year; and
(5) so long as no Default or Event of Default shall have occurred and be
continuing, repurchases by the Company of Common Stock of the Company from
employees of the Company or any of its Subsidiaries or their authorized
representatives upon the death, disability or termination of employment of such
employees, in an aggregate amount not to exceed $1.0 million in any calendar
year. In determining the aggregate amount of Restricted Payments made subsequent
to the Issue Date in accordance with clause (iii)
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of the immediately preceding paragraph, amounts expended pursuant to clauses
(1), (2)(ii), (3)(ii), (4) and (5) of this paragraph shall be included in such
calculation.
Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment complies with this Indenture and setting forth in reasonable
detail the basis upon which the required calculations were computed, which
calculations may be based upon the Company's latest available internal quarterly
financial statements.
Section 4.10 Limitation on Incurrence of Additional Indebtedness
Except as set forth in this Section 4.10, the Company shall
not, and shall not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); PROVIDED, HOWEVER, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company or any Guarantor may incur
Indebtedness (including, without limitation, Acquired Indebtedness), if on the
date of the incurrence of such Indebtedness, after giving effect to the
incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company
is greater than 2.0 to 1.0 if such date of incurrence is on or prior to June 1,
2000 and greater than 2.25 to 1.0 thereafter. For purposes of determining any
particular amount of Indebtedness under this Section 4.10, (1) guarantees, Liens
or obligations with respect to letters of credit supporting Indebtedness
otherwise included in the determination of such particular amount shall not be
included and (2) any Liens granted pursuant to the equal and ratable provisions
referred to in Section 4.11 of this Indenture shall not be treated as
Indebtedness.
Upon each incurrence of Indebtedness, the Company may
designate under which provision of this Indenture such Indebtedness is being
incurred and such Indebtedness should be deemed to have been so incurred under
such provision and no other provision of this Indenture except as specifically
provided otherwise.
Section 4.11 Limitation on Liens Securing Indebtedness
The Company shall not, and shall not cause or permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens of any kind against or upon any property or
assets of the Company or any of its Restricted Subsidiaries whether owned on the
Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless (i) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes, the Notes are secured by
a Lien on such property, assets or proceeds that is senior in priority to such
Liens and (ii) in all other cases, the Notes are equally and ratably secured,
except for (A) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date; (B) Liens securing Senior
Debt and Liens securing Guarantor Senior Debt; (C) Liens securing the Notes and
the Guarantees; (D) Liens of the Company or a Wholly Owned Restricted Subsidiary
of the Company on assets of any Subsidiary
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of the Company; (E) Liens securing Refinancing Indebtedness which is incurred to
Refinance any Indebtedness which has been secured by a Lien permitted under this
Indenture and which has been incurred in accordance with the provisions of this
Indenture; PROVIDED, HOWEVER, that such Liens (A) are no less favorable to the
Holders and are not more favorable to the lienholders with respect to such Liens
than the Liens in respect of the Indebtedness being Refinanced and (B) do not
extend to or cover any property or assets of the Company or any of its
Restricted Subsidiaries not securing the Indebtedness so Refinanced; and (F)
Permitted Liens.
Section 4.12 Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries
The Company shall not, and shall not cause or permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or permit to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary of the Company to (a) pay dividends or
make any other distributions on or in respect of its Capital Stock; (b) make
loans or advances or to pay any Indebtedness or other obligation owed to the
Company or any other Restricted Subsidiary of the Company; or (c) transfer any
of its property or assets to the Company or any other Restricted Subsidiary of
the Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) this Indenture; (3) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Restricted Subsidiary of the Company; (4) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired; (5) the Credit Agreement; (6)
agreements existing on the Issue Date to the extent and in the manner such
agreements are in effect on the Issue Date; (7) restrictions on the transfer of
assets subject to any Lien permitted under this Indenture imposed by the holder
of such Lien; (8) restrictions imposed by any agreement to sell assets permitted
under this Indenture to any Person pending the closing of such sale; (9) any
agreement or instrument governing Capital Stock of any Person that is acquired;
or (10) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred to in
clause (2), (4),(5) or (6) above; PROVIDED, HOWEVER, that the provisions
relating to such encumbrance or restriction contained in any such Indebtedness
are no less favorable to the Company in any material respect as determined by
the Board of Directors of the Company in their reasonable and good faith
judgment than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clause (2), (4), (5) or (6),
respectively.
Section 4.13 Prohibition on Incurrence of Senior Subordinated Debt;
Limitation on Layering
The Company shall not incur or suffer to exist Indebtedness
that is senior in right of payment to the Notes and subordinate in right of
payment to any other Indebtedness of the Company.
Section 4.14 Limitations on Transactions with Affiliates
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into or permit to
exist any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease or exchange of any
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property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other property with a fair market value in excess of $5,000,000 shall be
approved by the Board of Directors of the Company or such Restricted Subsidiary,
as the case may be, such approval to be evidenced by a Board Resolution stating
that such Board of Directors has determined that such transaction complies with
the foregoing provisions. If the Company or any Restricted Subsidiary of the
Company enters into an Affiliate Transaction (or a series of related Affiliate
Transactions related to a common plan) that involves an aggregate fair market
value of more than $10,500,000, the Company or such Restricted Subsidiary, as
the case may be, shall, prior to the consummation thereof, obtain a favorable
opinion as to the fairness of such transaction or series of related transactions
to the Company or the relevant Restricted Subsidiary, as the case may be, from a
financial point of view, from an Independent Financial Advisor and file the same
with the Trustee.
(b) The restrictions set forth in clause (a) above shall not
apply to (i) reasonable fees and compensation paid to, loans or advances to, and
indemnity provided on behalf of, officers, directors, employees or consultants
of the Company or any Restricted Subsidiary of the Company as determined in good
faith by the Company's Board of Directors or senior management; (ii)
transactions exclusively between or among the Company and any of its Wholly
Owned Restricted Subsidiaries or exclusively between or among such Wholly Owned
Restricted Subsidiaries, provided such transactions are not otherwise prohibited
by this Indenture; (iii) any payments or transactions pursuant to agreements in
effect as of the Issue Date or any amendment thereto or any transaction
contemplated thereby (including pursuant to any amendment thereto) in any
replacement agreement thereto so long as any such amendment or replacement
agreement is not more disadvantageous to the Holders in any material respect
than the original agreement as in effect on the Issue Date; (iv) Restricted
Payments permitted by this Indenture; and (v) any Investments by an Affiliate of
the Company in the Capital Stock (other than Disqualified Stock) of the Company
or any Restricted Subsidiary of the Company.
Section 4.15 Additional Subsidiary Guarantors
If the Company or any Guarantor transfers or causes to be
transferred, in one transaction or a series of related transactions, any
property with a fair market value of $500,000 or more to any domestic Restricted
Subsidiary that is not a Guarantor, or if the Company or any of its Restricted
Subsidiaries shall organize, acquire or otherwise invest in another domestic
Restricted Subsidiary having total assets with a book value in excess of
$500,000, then such transferee or acquired or other domestic Restricted
Subsidiary shall (i) execute and deliver to the Trustee a supplemental indenture
in form reasonably satisfactory to the Trustee pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of the Company's obligations
under the Notes and this Indenture on the terms set forth in this Indenture and
(ii) deliver to the Trustee an Opinion of Counsel that such supplemental
indenture has been duly
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authorized, executed and delivered by such Restricted Subsidiary and constitutes
a legal, valid, binding and enforceable obligation of such Restricted
Subsidiary. Thereafter, such Restricted Subsidiary shall be a Guarantor for all
purposes of this Indenture.
Section 4.16 Release of Guarantors
No Guarantor shall consolidate or merge with or into (whether
or not such Guarantor is the surviving Person) another Person unless (i) subject
to the provisions of this Section 4.16 and certain other provisions of this
Indenture, the Person formed by or surviving any such consolidation or merger
(if other than such Guarantor) assumes all the obligations of such Guarantor
pursuant to a supplemental indenture in form reasonably satisfactory to the
Trustee, pursuant to which such person shall unconditionally guarantee, on a
senior subordinated basis, all of such Guarantor's obligations under such
Guarantor's guarantee, on the terms set forth in this Indenture; and (ii)
immediately before and immediately after giving effect to such transaction on a
PRO FORMA basis, no Default or Event of Default shall have occurred or be
continuing, or unless such Guarantor is consolidating or merging with or into or
selling its assets to the Company or another Guarantor that is a Wholly Owned
Restricted Subsidiary of the Company.
Upon the sale or disposition (whether by merger, stock
purchase, asset sale or otherwise) of a Guarantor of all of its assets to an
entity which is not a Guarantor or the designation of a Guarantor to become an
Unrestricted Subsidiary, which transaction is otherwise in compliance with this
Indenture (including, without limitation, the provisions of Section 4.08 and
5.01 hereof), such Guarantor will be deemed released from its obligations under
its Guarantee of the Notes; PROVIDED, however, that any such termination shall
occur only in the event that the Guarantor is released from all of its
obligations under the Credit Agreement.
Section 4.17 Conduct of Business
The Company and its Restricted Subsidiaries shall not engage
in any businesses which are not the same, similar or related to the businesses
in which the Company and its Restricted Subsidiaries are engaged on the Issue
Date.
Section 4.18 Corporate Existence
Subject to Article 5 hereof, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect (i)
its corporate existence, and the corporate, partnership or other existence of
each of its Restricted Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of the
Company or any such Restricted Subsidiary and (ii) the rights (charter and
statutory), licenses and franchises of the Company and its Restricted
Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any of its Restricted Subsidiaries if the Board of Directors
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and its Restricted Subsidiaries, taken as
a whole.
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Section 4.19 Limitation of Preferred Stock of Restricted Subsidiaries
The Company shall not permit any of its Restricted
Subsidiaries to issue any Preferred Stock (other than to the Company or to a
Wholly Owned Restricted Subsidiary of the Company) or permit any Person (other
than the Company or a Wholly Owned Restricted Subsidiary of the Company) to own
any Preferred Stock of any Restricted Subsidiary of the Company.
ARTICLE 5
SUCCESSORS
Section 5.01 Merger, Sale or Consolidation
The Company will not, in a single transaction or series of
related transactions, consolidate or merge with or into any Person, or sell,
assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or
otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Company's Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless: (i) either (1) the Company shall be the surviving or continuing
corporation or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company and of the Company's Restricted
Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be
a corporation organized and validly existing under the laws of the United States
or any State thereof or the District of Columbia and (y) shall expressly assume,
by supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes, this Indenture and the Registration
Rights Agreement on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction), the Company or such
Surviving Entity, as the case may be, (1) shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction and (2) shall be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to Section
4.10 of this Indenture; (iii) immediately before and immediately after giving
effect to such transaction and the assumption contemplated by clause (i)(2)(y)
above (including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or in respect of the transaction), no Default or
Event of Default shall have occurred or be continuing; and (iv) the Company or
the Surviving Entity shall have delivered to the Trustee an officers'
certificate and an Opinion of Counsel, each stating that such consolidation,
merger, sale, assignment, transfer, lease, conveyance or other disposition and,
if a supplemental indenture is required in connection with such transaction,
such supplemental
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indenture comply with the applicable provisions of this Indenture and that all
conditions precedent in this Indenture relating to such transaction have been
satisfied.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Restricted Subsidiaries of the Company the Capital Stock of which
constitutes all or substantially all of the properties and assets of the
Company, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company. Notwithstanding the foregoing clauses (ii)
and (iii) of this Section 5.01, any Restricted Subsidiary of the Company may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company or a Guarantor.
Section 5.02 Successor Corporation Substituted
Upon any consolidation, combination or merger or any transfer
of all or substantially all of the assets of the Company in accordance with the
foregoing, in which the Company is not the continuing corporation, the successor
Person formed by such consolidation or into which the Company is merged or to
which such conveyance, lease or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture and the Notes with the same effect as if such surviving entity
had been named as such; PROVIDED that solely for the purpose of calculating
amounts described in clause (c) of the first paragraph of Section 4.09, any such
Surviving Person shall only be deemed to have succeeded to and be substituted
for the Company with respect to the period subsequent to the effective time of
this transaction (and the Company shall be deemed to be the "Company" for such
purposes for all prior periods).
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01 Events of Default
The following events shall constitute an "Event of Default":
(i) the failure to pay interest on any Notes when the
same becomes due and payable and the default continues for a period of
30 days (whether or not such payment shall be prohibited by the
subordination provisions of this Indenture);
(ii) the failure to pay the principal on any Notes,
when such principal becomes due and payable, at maturity, upon
redemption or otherwise (including the failure to make a payment to
purchase Notes tendered pursuant to a Change of Control Offer or a Net
Proceeds Offer) (whether or not such payment shall be prohibited by the
subordination provisions of this Indenture);
(iii) default in the observance or performance of any
other covenant or agreement contained in this Indenture which default
continues for a period of 30 days
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after the Company receives written notice specifying the default (and
demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the
Notes (except in the case of a default with respect to Section 5.01 of
this Indenture, which will constitute an Event of Default with such
notice requirement but without such passage of time requirement);
(iv) the failure to pay at final maturity (giving
effect to any applicable grace periods and any extensions thereof) the
principal amount of any Indebtedness of the Company or any Restricted
Subsidiary of the Company and such failure continues for a period of 20
days or more, or the acceleration of the final stated maturity of any
such Indebtedness (which acceleration is not rescinded, annulled or
otherwise cured within 20 days of receipt by the Company or such
Restricted Subsidiary of notice of any such acceleration) if the
aggregate principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure
to pay principal at final maturity or which has been accelerated, in
each case with respect to which the 20-day period described above has
passed, aggregates $5,000,000 or more at any time;
(v) one or more judgments in an aggregate amount in
excess of $5,000,000 shall have been rendered against the Company or
any of its Significant Subsidiaries and such judgments remain
undischarged, unpaid or unstayed for a period of 60 days after such
judgment or judgments become final and non-appealable;
(vi) the following events of bankruptcy, insolvency
or reorganization under applicable Bankruptcy Laws in respect of the
Company or any of its Significant Subsidiaries:
(a) the Company or any of its Significant
Subsidiaries pursuant to or within the meaning of any
Bankruptcy Law (i) commences a voluntary case, (ii) consents
to the entry of an order for relief against it in an
involuntary case, (iii) consents to the appointment of a
custodian of it or for all or substantially all of its
property, (iv) consents to or acquiesces in the institution of
a bankruptcy or an insolvency proceeding against it, or (v)
makes a general assignment for the benefit of its creditors;
or
(b) a court of competent jurisdiction enters
an order or decree under any Bankruptcy Law that (i) is for
relief against the Company or any Significant Subsidiary in an
involuntary case, (ii) appoints a custodian of the Company or
any Significant Subsidiary or for all or substantially all of
the property of the Company or a Significant Subsidiary, or
(iii) orders the liquidation of the Company or any Significant
Subsidiary, and, in each case of the preceding (i), (ii) or
(iii), the order or decree remains unstayed and in effect for
60 consecutive days.
(vii) any of the Guarantees of a Guarantor that is a
Significant Subsidiary ceases to be in full force and effect or any of
such Guarantees is declared to be null and void and unenforceable or
any of such Guarantees is found to be invalid or any
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of such Guarantors denies its liability under its Guarantee (other than
by reason of release of such Guarantor in accordance with the terms of
this Indenture).
Section 6.02 Acceleration
If an Event of Default (other than an Event of Default
specified in clause (vi) above with respect to the Company) shall occur and be
continuing, the Trustee or the Holders of at least 25% in principal amount of
outstanding Notes may declare the principal of and accrued interest on all the
Notes to be due and payable by notice in writing to the Company and the Trustee
specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same (i) shall become
immediately due and payable or (ii) if there are any amounts outstanding under
the Credit Agreement, shall become immediately due and payable upon the first to
occur of an acceleration under the Credit Agreement or 5 business days after
receipt by the Company and the Representative under the Credit Agreement of such
Acceleration Notice but only if such Event of Default is then continuing. If an
Event of Default specified in clause (vi) above with respect to the Company
occurs and is continuing, then all unpaid principal of, and premium, if any, and
accrued and unpaid interest on all of the outstanding Notes shall IPSO FACTO
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder.
At any time after a declaration of acceleration with respect
to the Notes as described in the preceding paragraph, the Holders of a majority
in principal amount of the Notes may rescind and cancel such declaration and its
consequences (i) if the rescission would not conflict with any judgment or
decree, (ii) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration, (iii) to the extent the payment of such interest is lawful,
interest on overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has been paid,
(iv) if the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances and (v) in
the event of the cure or waiver of an Event of Default of the type described in
clause (vi) of the description above of Events of Default, the Trustee shall
have received an Officers' Certificate and an Opinion of Counsel that such Event
of Default has been cured or waived. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
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Section 6.03 Other Remedies
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by proceeding at law or in equity to collect the
payment of principal, premium, if any, or Additional Interest, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture. Holders of the Notes may not enforce this Indenture or
the Notes except as provided in this Indenture and under the TIA. Subject to the
provisions of this Indenture relating to the duties of the Trustee, the Trustee
is under no obligation to exercise any of its rights or powers under this
Indenture at the request, order or direction of any of the Holders, unless such
Holders have offered to the Trustee reasonable indemnity.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of a Note in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
Section 6.04 Waiver of Past Defaults
The Holders of a majority in principal amount of the then
outstanding Notes may waive any existing Default or Event of Default under this
Indenture, and its consequences, except a default in the payment of the
principal of or interest on any Notes.
Section 6.05 Control by Majority
Subject to all provisions of this Indenture and applicable
law, the Holders of a majority in aggregate principal amount of the then
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. However, the Trustee may refuse to
follow any direction that conflicts with law or this Indenture that the Trustee,
in its sole discretion, determines may be unduly prejudicial to the rights of
other Holders of Notes, that may result in the incurrence of liability by the
Trustee or if the Trustee determines that it does not have reasonable security
or, at the option of the Trustee, in lieu of such security, an indemnification
against any loss or expense; PROVIDED, that the Trustee may take any other
action deemed proper by the Trustee which is not inconsistent with such
direction. This Section 6.05 shall be in lieu of TIA /section/ 315(d)(3) and
said TIA section is hereby expressly excluded from this Indenture, as permitted
by the TIA.
Section 6.06 Limitation on Suits
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(a) the Holder gives to the Trustee written notice of a
continuing Event of Default;
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(b) the Holders of at least 25% in principal amount of the
then outstanding Notes make a written request to the Trustee to pursue
the remedy;
(c) such Holder or Holders offer and, if requested, provide to
the Trustee security or, at the option of the Trustee, in lieu of such
security, an indemnity satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the
provision of the security or, at the option of the Trustee, in lieu of
such security, an indemnity; and
(e) during such 60-day period the Holders of a majority in
aggregate principal amount of the then outstanding Notes do not give
the Trustee a direction which, in the opinion of the Trustee, is
inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of another Holder or
to obtain a preference or priority over another Holder.
Section 6.07 Rights of Holders of Notes to Receive Payment
Notwithstanding any other provision of this Indenture, the
right of any Holder to receive payment of principal, premium, if any, and
Additional Interest, if any, and interest on the Note, on or after the
respective due dates expressed in the Note (including in connection with an
offer to purchase), or to bring suit for the enforcement of any such payment on
or after such respective dates, shall not be impaired or affected without the
consent of such Holder.
Section 6.08 Collection Suit by Trustee
If an Event of Default, specified in Section 6.01(1) or (2),
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal of, premium, if any, and Additional Interest, if any, and
interest remaining unpaid on the Notes and interest on overdue principal and, to
the extent lawful, interest and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel and any other amounts due to the Trustee pursuant to Section 7.07.
Section 6.09 Trustee May File Proof of Claim
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
the Holders allowed in any judicial proceedings relative to the Company (or any
other obligor upon the Notes), its creditors or its property and shall be
entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby
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authorized by each Holder to make such payments to the Trustee, and in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To
the extent that the payment of any such compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.07 hereof out of the estate in any such proceeding
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders may be entitled to receive in
such proceeding, whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
Section 6.10 Priorities
If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: subject to Articles Ten and Eleven, to Holders for
amounts due and unpaid on the Notes for interest and premium, if any, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for interest and premium, if any, respectively;
THIRD: subject to Articles Ten and Eleven, to Holders for
amounts due and unpaid on the Notes for principal, ratably without preference or
priority of any kind, according to the amounts due and payable on the Notes for
principal; and.
FOURTH: subject to Articles Ten and Eleven, to the Company,
the Guarantors, if any, or any obligor on the Notes, as their interests may
appear, or as a court of competent jurisdiction may direct.
The Trustee may fix a record date and payment date for any
payment to Holders pursuant to this Section 6.10.
Section 6.11 Undertaking for Costs
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit
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by the Trustee, a suit by a Holder pursuant to Section 6.07 hereof, or a suit by
Holders of more than 10% in principal amount of the then outstanding Notes.
Section 6.12 Restoration of Rights and Remedies
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
ARTICLE 7
TRUSTEE
Section 7.01 Duties of Trustee
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default of
which the Trustee is charged with knowledge pursuant to Section 7.02(g):
(i) the duties of the Trustee shall be determined
solely by the express provisions of this Indenture and the Trustee need
perform only those duties that are specifically set forth in this
Indenture and no others, and no implied covenants or obligations shall
be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, in the case of an Officers' Certificate or
Opinion of Counsel, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture but need not verify the contents thereof. This
subparagraph (b)(ii) shall be in lieu of TIA /section/ 315(d)(3) and
said TIA section is hereby expressly excluded from this Indenture, as
permitted by the TIA.
(c) The Trustee may not be relieved from liabilities for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section;
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(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Sections 6.02, 6.04 or 6.05
hereof.
(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), (c), (e) and (f) of this Section and Section 7.02.
(e) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under this
Indenture at the request of the Company or any Holder, unless the Company or
such Holder, as the case may be, shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.02 Rights of Trustee
(a) The Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any document believed by it
to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both, which shall
conform to Sections 12.04 and 12.05 hereof. The Trustee shall not be liable for
any action it takes or omits to take in good faith in reliance on such Officers'
Certificate or Opinion of Counsel. The Trustee may consult with counsel and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection from liability in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
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(e) Unless otherwise specifically provided in this Indenture,
any demand, request, direction or notice from the Company shall be sufficient if
signed by two Officers of the Company.
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.
(g) Except with respect to Section 4.01 herein, the Trustee
shall have no duty to inquire as to the performance of the Company's covenants
in Article 4 hereof. In addition, the Trustee shall not be deemed to have
knowledge of any Default or Event of Default except (i) any Event of Default
occurring pursuant to Sections 6.01(i) or 6.01(ii) and Section 4.01 or (ii) any
Default or Event of Default of which the Trustee shall have received written
notification in accordance with Section 12.02 hereof from the Company or any
Holder.
Section 7.03 Individual Rights of Trustee
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate with the same rights it would have if it were not Trustee. However, in
the event that the Trustee acquires any conflicting interest, it must eliminate
such conflict within 90 days, apply to the SEC for permission to continue as
Trustee or resign. Any Agent may do the same with like rights and duties. The
Trustee is also subject to Sections 7.10 and 7.11 hereof.
Section 7.04 Trustee's Disclaimer
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the Notes, it
shall not be accountable for the Company's use of the proceeds from the Notes or
any money paid to the Company or upon the Company's direction under any
provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of authentication
or for compliance by the Company with the Registration Rights Agreement.
Section 7.05 Notice of Defaults
If a Default or Event of Default occurs and is continuing and
if the Trustee is charged with knowledge thereof pursuant to Section 7.02(g)
hereof, the Trustee shall mail to Holders of Notes a notice of the Default or
Event of Default within 90 days after it occurs. Except in the case of a Default
or Event of Default in payment of principal of, premium, if any, Additional
Interest, if any, or interest on any Note, the Trustee may withhold the notice
if and so long as a committee of at least two of its Responsible Officers in
good faith determines that withholding the notice is in the interests of the
Holders of the Notes. The second sentence of this
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Section 7.05 shall be in lieu of the proviso to TIA /section/ 315(b) and said
TIA section is hereby expressly excluded from this Indenture, as permitted by
the TIA.
Section 7.06 Reports by Trustee to Holders of the Notes
Within 60 days after each August 1, beginning with the August
1 following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA /section/ 313(a) (but if
no event described in TIA /section/ 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA /section/ 313(b)(2). The Trustee shall also transmit by
mail all reports as required by TIA /section/ 313(c).
A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed to the Company and filed with the SEC and each
stock exchange on which the Notes are listed in accordance with TIA /section/
313(d). The Company shall promptly notify the Trustee when the Notes are listed
on any stock exchange or national securities market.
Section 7.07 Compensation and Indemnity
The Company shall pay to the Trustee from time to time
compensation for its acceptance of this Indenture and services hereunder in
accordance with a written agreement between the Trustee and the Company. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Company and the Guarantors shall jointly and severally
indemnify the Trustee and its agents, employees, officers, directors and
shareholders for, and hold the Trustee and its agents, employees, officers,
directors and shareholders harmless against, any and all losses, liabilities or
expenses (including, without limitation, reasonable attorneys' fees and
expenses) incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Indenture, including the costs and
expenses of enforcing this Indenture against the Company (including this Section
7.07) and defending itself against any claim (whether asserted by the Company or
any Holder or any other Person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent any
such loss, liability or expense may be attributable to its negligence or bad
faith or willful misconduct. The Trustee shall notify the Company promptly of
any claim for which it may seek indemnity. Failure by the Trustee to so notify
the Company shall not relieve the Company of its obligations hereunder. At the
Trustee's sole discretion, the Company shall defend the claim with counsel
designated by the Company, who may be outside counsel to the Company but shall
in all events be reasonably satisfactory to the Trustee, and the Trustee shall
cooperate in the defense at the Company's expense. In addition, the Trustee may
retain separate counsel and, if the Trustee shall have been advised by such
counsel that there may be one or more legal defenses available to the Trustee
which are different from or in addition to those available to the Company and
which the counsel designated by the Company would be precluded from asserting or
that the
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Trustee has one or more interests that conflict with those of the Company, the
Company shall pay the reasonable fees and expenses of such separate counsel. The
indemnification herein extends to any settlement, PROVIDED that the Company will
not be liable for any settlement made without its written consent, provided,
further, that such consent shall not be unreasonably withheld.
The obligations of the Company and the Guarantors under this
Section 7.07 shall survive the resignation or removal of the Trustee and/or the
satisfaction and discharge or termination of this Indenture.
To secure the Company's payment obligations in this Section,
the Trustee shall have a Lien prior to the Notes on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the resignation or removal
of the Trustee and/or satisfaction and discharge or termination of this
Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(vi) hereof occurs, the expenses and
the compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA /section/
313(b)(2) to the extent applicable.
Section 7.08 Replacement of Trustee
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Holders of a majority in principal amount of the then outstanding Notes may
remove the Trustee by so notifying the Trustee and the Company in writing, and
may appoint a successor Trustee with the Company's consent. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof,
unless the Trustee's duty to resign is stayed as provided in TIA
/section/ 310(b);
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee
or its property; or
(d) the Trustee becomes incapable of acting.
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If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in aggregate principal amount of the then outstanding
Notes may appoint a successor Trustee to replace the successor Trustee appointed
by the Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of at least 10% in aggregate principal amount of the
then outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, unless the
Trustee's duty to resign is stayed as provided in TIA /section/ 310(b), any
Holder, who has been a bona fide Holder for at least six (6) months, may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, PROVIDED all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
Section 7.09 Successor Trustee by Merger, etc.
Subject to Section 7.10, if the Trustee consolidates, merges
or converts into, or transfers all or substantially all of its corporate trust
business to, another corporation, the successor corporation without any further
act shall be the successor Trustee. The provisions of TIA /section/ 310 shall
apply to the Company as obligor on the Notes.
Section 7.10 Eligibility; Disqualification
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $50,000,000 as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA /section/ 310(a)(1), (2) and (5). The Trustee is subject to
TIA /section/ 310(b).
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Section 7.11 Preferential Collection of Claims Against Company
The Trustee is subject to TIA /section/ 311(a), excluding any
creditor relationship listed in TIA /section/ 311(b). A Trustee who has resigned
or been removed shall be subject to TIA /section/ 311(a) to the extent indicated
therein. The provisions of TIA /section/ 311 shall apply to the Company as
obligor on the Notes.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding
Notes upon compliance with the conditions set forth below in this Article 8.
Section 8.02 Legal Defeasance and Discharge
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.02, the Company may elect to have its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, except for (i) the rights of Holders to
receive payments in respect of the principal of, premium, if any, and interest
on the Notes when such payments are due, (ii) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payments, (iii) the rights, powers, trust, duties and immunities of
the Trustee and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of this Indenture. The Company may exercise its
option under this Section 8.02 notwithstanding the prior exercise of its option
under Section 8.03 hereof.
Section 8.03 Covenant Defeasance
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03, the Company and Guarantors shall,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be released from its obligations under the covenants contained in Sections 4.03,
4.04, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16 and 4.17 hereof
with respect to the outstanding Notes on and after the date the conditions set
forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes
shall thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
breach thereof) in connection with such covenants, but shall continue to be
deemed "outstanding" for all other purposes hereunder (it being understood that
such Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Company may omit
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to comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Section 6.01 hereof, but, except as specified above, the
remainder of this Indenture and such Notes shall be unaffected thereby. In
addition, upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, subject to the satisfaction of the conditions
set forth in Section 8.04, Sections 6.01(iii), 6.01(v) and 6.01(vii) hereof
shall not constitute Events of Default.
Section 8.04 Conditions to Legal or Covenant Defeasance
The following shall be the conditions to the application of
either Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(i) the Company must irrevocably deposit with the
Trustee, in trust, for the benefit of the Holders cash in U.S. dollars,
non-callable U.S. government obligations, or a combination thereof, in
such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal
of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may
be;
(ii) in the case of Legal Defeasance, the Company
shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of this Indenture, there
has been a change in the applicable United States federal income tax
law, in either case to the effect that, and based thereon such opinion
of counsel shall confirm that, the Holders will not recognize income,
gain or loss for United States federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would
have been the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company
shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders
will not recognize income, gain or loss for United States federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to United States federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred;
(iv) immediately after giving effect to such deposit
on a pro forma basis, no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the incurrence of
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Indebtedness, all or a portion of the proceeds of which will be used to
defease the Notes) or, insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on
the 91st day after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default
under this Indenture (other than a Default or Event of Default
resulting from the incurrence of Indebtedness, all or a portion of the
proceeds of which will be used to defease the Notes) or any other
material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(vi) the Company shall have delivered to the Trustee
an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company or others;
(vii) the Company shall have delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel, each stating that
all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance have been complied with;
(viii) the Company shall have delivered to the
Trustee an Opinion of Counsel to the effect that (A) the trust funds
will not be subject to any rights of holders of Senior Debt, including,
without limitation, those arising under this Indenture and (B) after
the 91st day following the deposit, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally; and
(ix) certain other customary conditions precedent are
satisfied.
Notwithstanding the foregoing, the Opinion of Counsel required
by clause (ii) above need not be delivered if all Notes not theretofore
delivered to the Trustee for cancellation (x) have become due and payable, (y)
will become due and payable on the maturity date within one year or (z) are to
be called for redemption within one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in the name, and
at the expense, of the Company.
If the funds deposited with the Trustee to effect Covenant
Defeasance are insufficient to pay the principal of, premium, if any, Additional
Interest, if any, and interest on the Notes when due, then the obligations of
the Company and the Guarantors under this Indenture will be revived and no such
defeasance will be deemed to have occurred.
Section 8.05 Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions
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Subject to Section 8.06 hereof, all money and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee satisfactory to the Company and the Trustee,
collectively for purposes of this Section 8.05, the "Trustee") pursuant to
Section 8.04 hereof in respect of the outstanding Notes shall be held in trust
and applied by the Trustee, in accordance with the provisions of such Notes and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as Paying Agent) as the Trustee may determine, to
the Holders of such Notes of all sums due and to become due thereon in respect
of principal, premium, if any, Additional Interest, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash or U.S.
Government Obligations deposited pursuant to Section 8.04 hereof or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders.
Anything in this Article 8 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon the
request of the Company any money or U.S. Government Obligations held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee are in excess of the amount thereof that would
then be required to be deposited to effect an equivalent Legal Defeasance or
Covenant Defeasance.
Section 8.06 Repayment to Company
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of, premium,
if any, Additional Interest, or interest on any Note and remaining unclaimed for
two years after such principal, and premium, if any, Additional Interest or
interest has become due and payable shall be paid to the Company on its request
or (if then held by the Company) shall be discharged from such trust; and the
Holder of such Note shall thereafter, as a secured creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper of general
circulation, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
Section 8.07 Reinstatement
If the Trustee or Paying Agent is unable to apply any United
States dollars or U.S. Government Obligations in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
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Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; PROVIDED, HOWEVER, that, if the Company makes any
payment of principal of, premium, if any, Additional Interest, if any, or
interest on any Note following the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Notes to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01 Without Consent of Holders of Notes
Notwithstanding Section 9.02 of this Indenture, the Company,
the Guarantors and the Trustee may amend or supplement this Indenture, the
Guarantees or the Notes from time to time without the consent of any Holder of a
Note (so long as such amendment or supplement does not, in the opinion of the
Trustee, adversely affect the rights of any of the Holders in any material
respect):
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in
place of Certificated Notes;
(c) to provide for the assumption of the Company's obligations
to the Holders in the case of a merger, sale or consolidation pursuant
to Article 5 hereof;
(d) to provide for additional Guarantors as set forth in
Section 4.15 and successor Guarantors as set forth in Section 11.03;
(e) to make any change that would provide any additional
rights or benefits to the Holders (including the addition of any
Guarantors) or that does not adversely affect the legal rights
hereunder of any Holder;
(f) to comply with requirements of the SEC in order to effect
or maintain the qualification of this Indenture under the TIA; or
(g) to evidence, and provide for acceptance of, the
appointment of a successor Trustee hereunder.
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental indenture, and upon receipt by the Trustee of the documents
described in Section 9.06 hereof, stating that the execution of such amended or
supplemental indenture is authorized or permitted by this Indenture, the Trustee
shall join with the Company in the execution of any amended or supplemental
indenture authorized or permitted by the terms of this Indenture and to make any
further appropriate agreements and stipulations that may be therein contained,
but the Trustee
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shall not be obligated to enter into such amended or supplemental indenture that
affects its own rights, duties or immunities under this Indenture or otherwise.
In order for the Trustee to formulate its opinion on the above matters, the
Trustee will be entitled to rely on such evidence as it deems appropriate,
including, without limitation, solely on an Opinion of Counsel.
Section 9.02 With Consent of Holders of Notes
Other modifications and amendments of this Indenture may be
made with the consent of the Holders of a majority in principal amount of the
then outstanding Notes issued under this Indenture, except that, without the
consent of each Holder affected thereby, no amendment may: (i) reduce the amount
of Notes whose Holders must consent to an amendment; (ii) reduce the rate of or
change or have the effect of changing the time for payment of interest,
including defaulted interest, on any Notes; (iii) reduce the principal of or
change or have the effect of changing the fixed maturity of any Notes, or change
the date on which any Notes may be subject to redemption or repurchase, or
reduce the redemption or repurchase price therefor; (iv) make any Notes payable
in money other than that stated in the Notes; (v) make any change in provisions
of this Indenture protecting the right of each Holder to receive payment of
principal of and interest on such Note on or after the due date thereof or to
bring suit to enforce such payment, or permitting Holders of a majority in
principal amount of Notes to waive Defaults or Events of Default; (vi) amend,
change or modify in any material respect the obligation of the Company to make
and consummate a Change of Control Offer in the event of a Change of Control or
make and consummate a Net Proceeds Offer with respect to any Asset Sale that has
been consummated or modify any of the provisions or definitions with respect
thereto; or (vii) modify or change any provision of this Indenture or the
related definitions affecting the subordination or ranking of the Notes or any
Guarantee in a manner which adversely affects the Holders; or (viii) release any
Guarantor from any of its obligations under its Guarantee or this Indenture
otherwise than in accordance with the terms of this Indenture.
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 9.06
hereof, the Trustee shall join with the Company in the execution of such amended
or supplemental indenture unless such amended or supplemental indenture affects
the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its sole discretion, but shall not
be obligated to, enter into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof. The calculation of Holders of Notes so consenting shall be made
pursuant to Section 2.09 hereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the
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amendment, supplement or waiver. Any failure of the Company to mail such notice,
or any defect therein, shall not, however, in any way impair or affect the
validity of any such amended or supplemental indenture or waiver.
Section 9.03 Compliance with Trust Indenture Act
Every amendment or supplement to this Indenture or the Notes
shall be set forth in an amended or supplemental indenture that complies with
the TIA as then in effect.
Section 9.04 Revocation and Effect of Consents
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by such Holder and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver, which record date shall be at least 30 days
prior to the first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
Persons who were Holders at such record date (or their duly designated proxies),
and only those Persons, shall be entitled to revoke any consent previously
given, whether or not such Persons continue to be holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
Section 9.05 Notation on or Exchange of Notes
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Note thereafter authenticated. The
Company in exchange for all Notes may issue and the Trustee shall authenticate
new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
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Section 9.06 Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01) shall be
fully protected in relying upon, an Officers' Certificate and an Opinion of
Counsel stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture and that such supplemental indenture
and this Indenture, as so amended or supplemented, constitute the valid and
binding obligations of the Company and the Guarantors, enforceable against each
of them in accordance with their respective terms (subject to customary and
necessary exceptions) and all conditions precedent have been complied with.
ARTICLE 10
SUBORDINATION
Section 10.01 Agreement to Subordinate
The Company agrees, and each Holder by accepting a Note
agrees, that the payment of all Obligations on the Notes is subordinated in
right of payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Debt whether outstanding on the Issue Date or thereafter
incurred, including, without limitation, the Company's obligations under the
Credit Agreement. The Notes will rank PARI PASSU with the May 1998 Notes. This
Article 10 shall constitute a continuing offer to all Persons who become holders
of, or continue to hold, Senior Debt, and such provisions are made for the
benefit of the holders of Senior Debt.
Section 10.02 Liquidation; Dissolution; Bankruptcy
(a) Upon any payment or distribution of assets or securities
of the Company of any kind or character, whether in cash, property or
securities, to creditors upon any total or partial liquidation, dissolution,
winding-up, reorganization, assignment for the benefit of creditors or
marshaling of assets of the Company, or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, whether voluntary or involuntary, all Obligations with respect to all
Senior Debt shall first be paid in full, in cash or Cash Equivalents, before any
payment or distribution of any kind or character is made on account of any
Obligations on the Notes, or for the acquisition of any of the Notes for cash or
property or otherwise; and until all such Obligations with respect to all Senior
Debt are paid in full in cash or Cash Equivalents, any distribution to which the
Holders of the Notes would be entitled but for the subordination provisions will
be made to the holders of Senior Debt as their interests may appear. Upon any
such dissolution, winding-up, liquidation, reorganization, bankruptcy,
insolvency, receivership or similar proceeding or assignment for the benefit of
creditors or marshaling of assets, any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
which the Holders of the Notes or the Trustee under this Indenture would be
entitled, except for the provisions hereof, shall be paid
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by the Company or by any receiver, trustee in bankruptcy, liquidating trustee,
agent or other person making such payment or distribution, or by the Holders of
the Notes or by the Trustee under this Indenture if received by them, directly
to the holders of Senior Debt (PRO RATA to such holders on the basis of the
respective amounts of Senior Debt held by such holders) or their respective
Representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Senior Debt may have been issued, as their respective
interests may appear, for application to the payment of Senior Debt remaining
unpaid until all such Senior Debt has been paid in full in cash or Cash
Equivalents after giving effect to any concurrent payment, distribution or
provision therefor to or for the holders of Senior Debt.
(b) To the extent any payment of Senior Debt (whether by or on
behalf of the Company, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to any receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then, if such payment is recovered by, or
paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar person, the Senior Debt or part thereof originally intended to
be satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred.
(c) In the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, shall be received by the Trustee or any
Holder when such payment or distribution is prohibited by Section 10.03(a), such
payment or distribution shall be held in trust for the benefit of, and shall be
paid over or delivered to, the holders of Senior Debt (PRO RATA to such holders
on the basis of the respective amount of Senior Debt held by such holders) or
their respective Representatives, or to the trustee or trustees under any
indenture pursuant to which any of such Senior Debt may have been issued, as
their respective interests may appear, for application to the payment of Senior
Debt remaining unpaid until all such Senior Debt has been paid in full in cash
or Cash Equivalents, after giving effect to any concurrent payment, distribution
or provision therefor to or for the holders of such Senior Debt.
Section 10.03 Default on Senior Debt
If any default occurs and is continuing in the payment when
due, whether at maturity, upon any redemption, by declaration or otherwise, of
any principal of, interest on, unpaid drawings for letters of credit issued in
respect of, or regularly accruing fees with respect to, any Senior Debt, no
payment of any kind or character shall be made by or on behalf of the Company or
any other Person on its or their behalf with respect to any Obligations on the
Notes or to acquire any of the Notes for cash or property or otherwise. In
addition, if any other event of default occurs and is continuing with respect to
any Designated Senior Debt, as such event of default is defined in the
instrument creating or evidencing such Designated Senior Debt, permitting the
holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the event of default to the
Trustee (a "Default Notice"), then, unless and until all events of default have
been cured or waived or have ceased to exist or the Trustee
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receives notice from the Representative for the respective issue of Designated
Senior Debt terminating the Blockage Period (as defined below), during the 180
days after the delivery of such Default Notice (the "Blockage Period"), neither
the Company nor any other Person on its behalf shall (x) make any payment of any
kind or character with respect to any Obligations on the Notes or (y) acquire
any of the Notes for cash or property or otherwise. Notwithstanding anything
herein to the contrary, in no event will a Blockage Period extend beyond 180
days from the date the payment on the Notes was due and only one such Blockage
Period may be commenced within any 360 consecutive days. No event of default
which existed or was continuing on the date of the commencement of any Blockage
Period with respect to the Designated Senior Debt shall be, or be made, the
basis for commencement of a second Blockage Period by the Representative of such
Designated Senior Debt whether or not within a period of 360 consecutive days,
unless such event of default shall have been cured or waived for a period of not
less than 90 consecutive days (it being acknowledged that any subsequent action,
or any breach of any financial covenants for a period commencing after the date
of commencement of such Blockage Period that, in either case, would give rise to
an event of default pursuant to any provisions under which an event of default
previously existed or was continuing shall constitute a new event of default for
this purpose).
Section 10.04 Acceleration of Notes
If payment of the Notes is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Debt of the
acceleration.
Section 10.05 When Distribution Must Be Paid Over
In the event that the Trustee or any Holder receives any
payment or distribution of assets of the Company or any Guarantor at a time when
such payment is prohibited by Section 10.03 hereof, such payment or distribution
shall be held in trust for the benefit of the holders of such Senior Debt, and
shall be paid or delivered by the Trustee or the Holders of the Notes, as the
case may be, to the holders of such Senior Debt remaining unpaid or unprovided
for or to their representative or representatives, or to the trustee or trustees
under any indenture pursuant to which any instruments evidencing any of such
Senior Debt may have been issued, ratably according to the aggregate principal
amounts remaining unpaid on account of such Senior Debt held or represented by
each, for application to the payment of all such Senior Debt remaining unpaid,
to the extent necessary to pay or to provide for the payment of all such Senior
Debt in full in cash or Cash Equivalents or otherwise to the extent holders
accept satisfaction of amounts due by settlement in other than cash or Cash
Equivalents after giving effect to any concurrent payment or distribution to the
holders of such Senior Debt.
With respect to the holders of Senior Debt, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Debt shall be read into this
Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Debt and shall not be liable to any such
holders if the Trustee shall pay over or distribute to or on behalf of Holders
or the Company or any other Person money or assets to
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which any holders of Senior Debt shall be entitled by virtue of this Article 10,
except if such payment is made as a result of the willful misconduct or gross
negligence of the Trustee.
Section 10.06 Notice by Company
The Company shall give prompt written notice to the Trustee of
any fact known to the Company which would prohibit the making of any payment to
or by the Trustee in respect of the Notes pursuant to the provisions of this
Article Ten. Regardless of anything to the contrary contained in this Article
Ten or elsewhere in this Indenture, the Trustee shall not be charged with
knowledge of the existence of any default or event of default with respect to
any Senior Debt or of any other facts which would prohibit the making of any
payment to or by the Trustee unless and until the Trustee shall have received
notice in writing from the Company, or from a holder of Senior Debt or a
Representative therefor, and, prior to the receipt of any such written notice,
the Trustee shall be entitled to assume (in the absence of actual knowledge to
the contrary) that no such facts exist.
In the event that the Trustee determines in good faith that
any evidence is required with respect to the right of any person as a holder of
Senior Debt to participate in any payment or distribution pursuant to this
Article Ten, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amounts of Senior Debt held by
such person, the extent to which such person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
person under this Article Ten and, if such evidence is not furnished, the
Trustee may defer any payment to such person pending judicial determination as
to the right of such person to receive such payment.
Section 10.07 Subrogation
After all Senior Debt is paid in full and until the Notes are
paid in full, Holders shall be subrogated (equally and ratably with all other
Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt
to receive distributions applicable to Senior Debt to the extent that
distributions otherwise payable to the Holders have been applied to the payment
of Senior Debt. A distribution made under this Article 10 to holders of Senior
Debt that otherwise would have been made to Holders is not, as between the
Company and Holders, a payment by the Company on the Notes.
Section 10.08 Relative Rights
This Article 10 defines the relative rights of Holders and
holders of Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Company, the Guarantors and
Holders, the obligation of the Company and the Guarantors, which is
absolute and unconditional, to pay, when due, principal of, premium, if
any, and interest and Additional Interest, if any, on the Notes in
accordance with their terms;
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(2) affect the relative rights of Holders and creditors of the
Company other than their rights in relation to holders of Senior Debt;
or
(3) prevent the occurrence of any Default or Event of Default
under this Indenture or limit the Trustee or any Holder from exercising
its available remedies upon a Default or Event of Default, subject to
the rights of holders and owners of Senior Debt to receive
distributions and payments otherwise payable to Holders.
If the Company fails because of this Article 10 to pay
principal of or interest on a Note on the due date, the failure is still a
Default or Event of Default.
Section 10.09 Subordination May Not Be Impaired by Company
No right of any holder of Senior Debt to enforce the
subordination of the Indebtedness evidenced by the Notes shall be impaired by
any act or failure to act by the Company or any Holder or by the failure of the
Company or a Guarantor, as applicable, or any Holder to comply with this
Indenture.
Section 10.10 Distribution or Notice to Representative
Whenever a distribution is to be made or a notice given to
holders of Senior Debt, the distribution may be made and the notice given to
their Representative. The Company shall provide to the Trustee, in writing,
notice of the name and address of any Representative. In the absence of such a
notice, the Trustee may conclusively assume that no Representative exists.
Upon any payment or distribution of assets of the Company
referred to in this Article Ten, the Trustee, subject to the provisions of
Article Seven hereof, and the Holders of the Notes shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction in which
bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings
are pending, or upon certificate of the receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making such payment or distribution,
delivered to the Trustee or the Holders of the Notes, for the purpose of
ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Debt and other Indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article Ten.
Section 10.11 Rights of Trustee and Paying Agent
The Trustee and any agent of the Company or the Trustee shall
be entitled to all the rights set forth in this Article Ten with respect to any
Senior Debt which may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Senior Debt and nothing in
this Indenture shall deprive the Trustee or any such agent of any of its rights
as such holder.
With respect to the holders of Senior Debt, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article
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Ten, and no implied covenants or obligations with respect to the holders of
Senior Debt shall be read into this Indenture against the Trustee. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Senior Debt and
shall not be liable to any such holders if the Trustee shall pay over or
distribute to or on behalf of Holders or the Company or any other person money
or assets to which any holders of Senior Debt shall be entitled by virtue of
this Article Ten, except if such payment is made as a result of willful
misconduct or gross negligence of the Trustee.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have received at the
Corporate Trust Administration Office of the Trustee at least one Business Day
prior to the date of such payment written notice of facts that would cause the
payment of any Obligations with respect to the Notes to violate this Article 10.
Only the Company or a Representative of Senior Debt previously identified by the
Company to the Trustee pursuant to Section 10.10 may give the notice. Nothing in
this Article 10 shall impair the claims of, or payments to, the Trustee under or
pursuant to Section 7.07 hereof.
Section 10.12 Authorization to Effect Subordination
Each Holder of a Note by the Holder's acceptance thereof
authorizes and directs the Trustee on the Holder's behalf to take such action as
may be necessary or appropriate to effectuate the subordination as provided in
this Article 10, and appoints the Trustee to act as the Holder's
attorney-in-fact for any and all such purposes. If the Trustee does not file a
proper proof of claim or proof of debt in the form required in any proceeding
referred to in Section 6.09 hereof at least 30 days before the expiration of the
time to file such claim, either the Representative or the holders of the Senior
Debt are hereby authorized to file an appropriate claim for and on behalf of the
Holders of the Notes.
Section 1.01 Subordination Rights Not Impaired by Acts or Omissions of
the Company or Holders of Senior Debt.
No right of any present or future holders of any Senior Debt
to enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the Trustee, without incurring
responsibility to the Trustee or the Holders of the Notes and without impairing
or releasing the subordination provided in this Article Ten or the obligations
hereunder of the Holders of the Notes to the holders of the Senior Debt, do any
one or more of the following: (i) change the manner, place or terms of payment
or extend the time of payment
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of, or renew or alter, Senior Debt, or otherwise amend or supplement in any
manner Senior Debt, or any instrument evidencing the same or any agreement under
which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing Senior Debt; (iii)
release any Person liable in any manner for the payment or collection of Senior
Debt; and (iv) exercise or refrain from exercising any rights against the
Company and any other Person.
Section 1.02 Amendments
The provisions of this Article 10 shall not be amended or
modified in a manner materially adverse to the holders of Senior Debt without
the written consent of the holders of all Senior Debt.
Section 10.13 Trustee's Compensation Not Prejudiced
Nothing in this Article 10 shall apply to amounts due to the
Trustee, in its capacity as such, pursuant to other Sections of this Indenture.
ARTICLE 11
SUBSIDIARY GUARANTEES
Section 11.01 Subsidiary Guarantees
Subject to the provisions of this Article 11, each Guarantor,
jointly and severally, hereby unconditionally guarantees on a senior
subordinated basis to each Holder of a Note authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, that: (a) the
principal of, and premium, if any, Additional Interest, if any, and interest on
the Notes will be duly and punctually paid in full when due, subject to any
applicable grace period, whether at maturity, by acceleration or otherwise, and
interest on overdue principal of, and premium, if any, Additional Interest, if
any and (to the extent permitted by law) interest on any interest, if any, on
the Notes and all other obligations of the Company to the Holders or the Trustee
hereunder or under the Notes (including fees, expenses or other) will be
promptly paid in full or performed, all in accordance with the terms hereof; (b)
in case of any extension of time of payment or renewal of any Notes or any of
such other obligations, the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, subject to
any applicable grace period, whether at stated maturity, by acceleration or
otherwise; and (c) the other obligations of the Company under this Indenture.
Failing payment when due of any amount so guaranteed or failing performance of
any other obligation of the Company to the Holders, for whatever reason, each
Guarantor will be obligated to pay, or to perform or to cause the performance
of, the same immediately. An Event of Default under this Indenture or the Notes
shall constitute an event of default under this Subsidiary Guarantee, and shall
entitle the Holders of Notes to accelerate the obligations of each Guarantor
hereunder in the same manner and to the same extent as the obligations of the
Company. Each Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or
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enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any thereof, the entry of any judgment against the Company, any action to
enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a Guarantor.
Each Guarantor hereby waives and relinquishes: (a) any right
to require the Trustee, the Holders or the Company (each, a "Benefitted Party")
to proceed against the Company, the Subsidiaries or any other Person or to
proceed against or exhaust any security held by a Benefitted Party at any time
or to pursue any other remedy in any secured party's power before proceeding
against the Guarantors; (b) any defense that may arise by reason of the
incapacity, lack of authority, death or disability of any other Person or
Persons or the failure of a Benefitted Party to file or enforce a claim against
the estate (in administration, bankruptcy or any other proceeding) of any other
Person or Persons; (c) demand, protest and notice of any kind (except as
expressly required by this Indenture), including but not limited to notice of
the existence, creation or incurring of any new or additional Indebtedness or
obligation or of any action or non-action on the part of the Guarantors, the
Company, the Subsidiaries, any Benefitted Party, any creditor of the Guarantors,
the Company or the Subsidiaries or on the part of any other Person whomsoever in
connection with any obligations the performance of which are hereby guaranteed;
(d) any defense based upon an election of remedies by a Benefitted Party,
including but not limited to an election to proceed against the Guarantors for
reimbursement; (e) any defense based upon any statute or rule of law which
provides that the obligation of a surety must be neither larger in amount nor in
other respects more burdensome than that of the principal; (f) any defense
arising because of a Benefitted Party's election, in any proceeding instituted
under Bankruptcy Law, of the application of Section 1111(b)(2) of the United
States Federal Bankruptcy Code; and (g) any defense based on any borrowing or
grant of a security interest under Section 364 of the Bankruptcy Code. The
Guarantors hereby covenant that the Subsidiary Guarantee will not be discharged
except by payment in full of all principal, premium, if any, Additional
Interest, if any, and interest on the Notes and all other costs provided for
under this Indenture, or as provided in Section 8.01.
If any Holder or the Trustee is required by any court or
otherwise to return to either the Company or the Guarantors, or any trustee or
similar official acting in relation to either the Company or the Guarantors, any
amount paid by the Company or the Guarantors to the Trustee or such Holder, the
Subsidiary Guarantees, to the extent theretofore discharged, shall be reinstated
in full force and effect. Each of the Guarantors agrees that it will not be
entitled to any right of subrogation in relation to the Holders in respect of
any obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby. Each Guarantor agrees that, as between it, on the one hand,
and the Holders of Notes and the Trustee, on the other hand, (x) the maturity of
the obligations guaranteed hereby may be accelerated as provided in Article 6
hereof for the purposes hereof, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Article 6 hereof, such obligations (whether or not due and
payable) shall forthwith become due and payable by such Guarantor for the
purpose of the Subsidiary Guarantee.
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Section 11.02 Execution and Delivery of Subsidiary Guarantees
To evidence the Subsidiary Guarantees set forth in Section
11.01 hereof, each of the Guarantors agrees that a notation of the Subsidiary
Guarantees substantially in the form included in Exhibit B shall be endorsed on
each Note authenticated and delivered by the Trustee and that this Indenture
shall be executed on behalf of the Guarantors by the Chairman of the Board, any
Vice Chairman, the President or one of the Vice Presidents of the Guarantors and
attested to by an Officer.
Each of the Guarantors agree that the Subsidiary Guarantees
set forth in this Article 11 will remain in full force and effect and apply to
all the Notes notwithstanding any failure to endorse on each Note a notation of
the Subsidiary Guarantees.
If an Officer whose facsimile signature is on a Note no longer
holds that office at the time the Trustee authenticates the Note on which the
Subsidiary Guarantees are endorsed, the Subsidiary Guarantees shall be valid
nevertheless.
The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the
Subsidiary Guarantees set forth in this Indenture on behalf of the Guarantors.
Section 11.03 Consolidation or Merger of Guarantors
(a) Each Guarantor may consolidate with or merge into or sell
its assets to the Company or another Guarantor that is a Wholly Owned Restricted
Subsidiary of the Company, or with other Persons upon the terms and conditions
set forth in this Section 11.03 and Section 11.04. Upon any such consolidation,
merger, transfer or sale, the Subsidiary Guarantee of such Guarantor shall no
longer have any force or effect.
(b) Except as set forth in paragraph (a) of this Section
11.03, each Guarantor (other than any Guarantor whose Guarantee is to be
released in accordance with the terms of the Guarantee and this Indenture in
connection with any transaction complying with the provisions of Section 4.08 of
this Indenture will not, and the Company will not cause or permit any Guarantor
to, consolidate with or merge with or into any Person other than the Company or
any other Guarantor unless: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Guarantor) or to which such sale,
lease, conveyance or other disposition shall have been made is a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia; (ii) such entity assumes by supplemental indenture
all of the obligations of the Guarantor on the Guarantee; (iii) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing; and (iv) immediately after giving effect to
such transaction and the use of any net proceeds therefrom on a PRO FORMA basis,
the Company could satisfy the provisions of clause (ii) of the first paragraph
of Section 5.01 of this Indenture. Any merger or consolidation of a Guarantor
with and into the Company (with the Company being the surviving entity) or
another Guarantor that is a Wholly Owned Restricted Subsidiary of the Company
need only comply with clause (iv) of the first paragraph of Section 5.01 of this
Indenture.
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Section 11.04 Releases Following Sale of Assets
Upon the sale or disposition (whether by merger, stock
purchase, asset sale or otherwise) of a Guarantor of all of its assets to an
entity which is not a Guarantor or the designation of a Guarantor to become an
Unrestricted Subsidiary, which transaction is otherwise in compliance with this
Indenture (including, without limitation, the provisions of Section 4.08), such
Guarantor shall be deemed released from its obligations under its Guarantee of
the Notes or Section 11.03 hereof, as the case may be; PROVIDED, however, that
any such termination shall occur only in the event that the Guarantor is
released from all of its obligations under the Credit Agreement. In the event of
an Asset Sale, the Net Cash Proceeds from such sale or other disposition are
treated in accordance with the provisions of Section 4.08 hereof. Upon delivery
by the Company to the Trustee of an Officers' Certificate and Opinion of
Counsel, each to the effect that such sale or other disposition was made by the
Company in accordance with the provisions of this Indenture, including without
limitation Section 4.08 hereof, the Trustee shall execute any documents
reasonably required in order to evidence the release of any such Guarantor from
its obligations under its Subsidiary Guarantee. Any Guarantor not released from
its obligations under its Subsidiary Guarantee shall remain liable for the full
amount of principal of and interest on the Notes and for the other obligations
of any Guarantor under this Indenture as provided in this Article 11.
Section 11.05 Limitation of Guarantor's Liability
Each Guarantor, and by its acceptance hereof each Holder,
hereby confirms that it is the intention of all such parties that the guarantee
by such Guarantor pursuant to its Subsidiary Guarantee not constitute a
fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar
federal or state law. To effectuate the foregoing intention, the Holders and
such Guarantor hereby irrevocably agree that the obligations of such Guarantor
under this Article 11 shall be limited to the maximum amount which, after giving
effect to all other contingent and fixed liabilities of such Guarantor and after
giving effect to any collections from or payments made by or on behalf of any
other Guarantor in respect of the Obligations of such other Guarantor under this
Article 11, results in the Obligations of such Guarantor under the Subsidiary
Guarantee of such Guarantor not constituting a fraudulent transfer or conveyance
under federal or state law. Each Guarantor that makes a payment or distribution
under a Subsidiary Guarantee shall be entitled to a contribution from each other
Guarantor in an amount PRO RATA, based on the net assets of each Guarantor,
determined in accordance with GAAP.
Section 11.06 Application of Certain Terms and Provisions to the Guarantor
(a) For purposes of any provision of this Indenture which
provides for the delivery by any Guarantor of an Officers' Certificate and/or an
Opinion of Counsel, the definitions of such terms in Section 1.01 shall apply to
such Guarantor as if references therein to the Company were references to such
Guarantor.
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(b) Any request, direction, order or demand which by any
provision of this Indenture is to be made by any Guarantor, shall be sufficient
if evidenced as described in Section 12.02 as if references therein to the
Company were references to such Guarantor.
(c) Any notice or demand which by any provision of this
Indenture is required or permitted to be given or served by the Trustee or by
the Holders to or on any Guarantor may be given or served as described in
Section 12.02 as if references therein to the Company were references to such
Guarantor.
(d) Upon any demand, request or application by any Guarantor
to the Trustee to take any action under this Indenture, such Guarantor shall
furnish to the Trustee such certificates and opinions as are required in Section
11.04 hereof as if all references therein to the Company were references to such
Guarantor.
Section 11.07 Subordination of Subsidiary Guarantees
The Obligations of each Guarantor under its Subsidiary
Guarantee pursuant to this Article 11 shall be junior and subordinated to all
obligations in respect of the Senior Debt of such Guarantor on the same basis as
the Notes are junior and subordinated to all obligations in respect of the
Senior Debt of the Company. The Guarantees will rank PARI PASSU with the May
1998 Guarantees. For the purposes of the foregoing sentence, (a) each Guarantor
may make, and the Trustee and the Holders of the Notes shall have the right to
receive and/or retain, payments by any of the Guarantors only at such times as
they may receive and/or retain payments in respect of the Notes pursuant to this
Indenture, including Article 10 hereof, and (b) the rights and obligations of
the relevant parties relative to the Subsidiary Guarantees shall be the same as
their respective rights and obligations relative to the Notes and Senior Debt of
the Company pursuant to Article 10.
Section 11.08 No Payment on Guarantees in Certain Circumstances.
(a) If any default occurs and is continuing in the payment
when due, whether at maturity, upon any redemption, by declaration or otherwise,
of any principal of, interest on, unpaid drawings for letters of credit issued
in respect of, or regularly accruing fees with respect to, any Guarantor Senior
Debt or Senior Debt guaranteed by any Guarantor (a "GUARANTOR PAYMENT DEFAULT"),
no payment of any kind or character shall be made by or on behalf of the
Guarantor or any other Person on its behalf with respect to any Obligations on
the Notes or any of the obligations of such Guarantor on its Guarantee or to
acquire any of the Notes for cash or property or otherwise. In addition, if any
event of default other than a Guarantor Payment Default (a "GUARANTOR
NON-PAYMENT DEFAULT") occurs and is continuing with respect to any Designated
Senior Debt guaranteed by a Guarantor (which guarantee constitutes Guarantor
Senior Debt of such Guarantor), as such event of default is defined in the
instrument creating or evidencing such Designated Senior Debt, permitting the
holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the Guarantor Non-payment Default
to the Trustee (a "GUARANTOR DEFAULT NOTICE"), then, unless and until all
Guarantor Non-payment Defaults have been cured or waived or have ceased to exist
or the Trustee receives notice from
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the Representative for the respective issue of Designated Senior Debt
terminating the Guarantor Blockage Period (as defined below), during the 180
days after the delivery of such Guarantor Default Notice (the "GUARANTOR
BLOCKAGE PERIOD"), neither the Guarantor nor any other Person on its behalf
shall (x) make any payment of any kind or character with respect to any
Obligations on the Notes or under its Guarantee or (y) acquire any of the Notes
for cash or property or otherwise. For all purposes of this Section 11.10(a), in
no event will a Guarantor Blockage Period extend beyond 180 days from the date
the payment on the Notes was due and only one such Guarantor Blockage Period may
be commenced within any 360 consecutive days. No Guarantor Non-payment Default
which existed or was continuing on the date of the commencement of any Guarantor
Blockage Period with respect to the Designated Senior Debt shall be, or be made,
the basis for commencement of a second Guarantor Blockage Period by the
Representative of such Designated Senior Debt whether or not within a period of
360 consecutive days, unless such Non-payment Default shall have been cured or
waived for a period of not less than 90 consecutive days (it being acknowledged
that any subsequent action or any breach of any financial covenants for a period
commencing after the date of commencement of such Guarantor Blockage Period
that, in either case, would give rise to a Guarantor Non-payment Default
pursuant to any provisions under which a Guarantor Non-payment Default
previously existed or was continuing shall constitute a new Guarantor
Non-payment Default for this purpose).
(b) In the event that, notwithstanding the foregoing, any
payment shall be received by the Trustee or any Holder when such payment is
prohibited by Section 11.08(a), such payment shall be held in trust for the
benefit of, shall be paid over or delivered to, the holders of Guarantor Senior
Debt (PRO RATA to such holders on the basis of the respective amount of
Guarantor Senior Debt held by such holders) or their respective Representatives,
as their respective interests may appear. The Trustee shall be entitled to rely
on information regarding amounts then due and owing on the Guarantor Senior
Debt, if any, received from the holders of Guarantor Senior Debt (or their
Representatives) or, if such information is not received from such holders or
their Representatives, from such Guarantor and only amounts included in the
information provided to the Trustee shall be paid to the holders of Guarantor
Senior Debt.
Nothing contained in this Article Eleven shall limit the right
of the Trustee or the Holders of Notes to take any action to accelerate the
maturity of the Notes pursuant to Section 6.02 or to pursue any rights or
remedies hereunder; provided that all Guarantor Senior Debt thereafter due or
declared to be due shall first be paid in full in cash or Cash Equivalents
before the Holders are entitled to receive any payment of any kind or character
with respect to the Obligations on the Notes or on account of any Guarantor's
Guarantee.
Section 11.09 Payment Over of Proceeds Upon Dissolution, Etc.
(a) Upon any payment or distribution of assets of any
Guarantor of any kind or character, whether in cash, property or securities, to
creditors upon any total or partial liquidation, dissolution, winding-up,
reorganization, assignment for the benefit of creditors or marshaling of assets
of such Guarantor, or in a bankruptcy, reorganization, insolvency, receivership
or similar proceeding relating to any Guarantor or its property, whether
voluntary or
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involuntary, all Obligations with respect to all Guarantor Senior Debt shall
first be paid in full, in cash or Cash Equivalents, before any payment or
distribution of any kind or character is made on account of any Obligations on
the Notes or any of the Obligations of such Guarantor on its Guarantee, or for
the acquisition of any of the Notes for cash or property or otherwise; and until
all such Obligations with respect to all Guarantor Senior Debt are paid in full
in cash or Cash Equivalents, any distribution to which the Holders of the Notes
would be entitled but for the subordination provisions will be made to the
holders of Guarantor Senior Debt as their interests may appear. Upon any such
dissolution, winding-up, liquidation, reorganization, bankruptcy, insolvency,
receivership or similar proceeding or assignment for the benefit of creditors or
marshaling of assets, any payment or distribution of assets of any Guarantor of
any kind or character, whether in cash, property or securities, to which the
Holders of the Notes or the Trustee under this Indenture would be entitled,
except for the provisions hereof, shall be paid by such Guarantor or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, or by the Holders of the Notes or by the
Trustee under this Indenture if received by them, directly to the holders of
Guarantor Senior Debt (PRO RATA to such holders on the basis of the respective
amounts of Guarantor Senior Debt held by such holders) or their respective
Representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Guarantor Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of Guarantor
Senior Debt remaining unpaid until all such Guarantor Senior Debt has been paid
in full in cash or Cash Equivalents after giving effect to any concurrent
payment, distribution or provision therefor to or for the holders of Guarantor
Senior Debt.
(b) To the extent any payment of Guarantor Senior Debt
(whether by or on behalf of such Guarantor, as proceeds of security or
enforcement of any right of setoff or otherwise) is declared to be fraudulent or
preferential, set aside or required to be paid to any receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar person under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then, if such payment is recovered by, or paid over to, such receiver, trustee
in bankruptcy, liquidating trustee, agent or other similar person, the Guarantor
Senior Debt or part thereof originally intended to be satisfied shall be deemed
to be reinstated and outstanding as if such payment had not occurred.
(c) In the event that, notwithstanding the foregoing, any
payment or distribution of assets of a Guarantor of any kind or character,
whether in cash, property or securities, shall be received by the Trustee or any
Holder when such payment or distribution is prohibited by Section 11.09(a), such
payment or distribution shall be held in trust for the benefit of, and shall be
paid over or delivered to, the holders of Guarantor Senior Debt (PRO RATA to
such holders on the basis of the respective amount of Guarantor Senior Debt held
by such holders) or their respective Representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Guarantor Senior Debt
may have been issued, as their respective interests may appear, for application
to the payment of Guarantor Senior Debt remaining unpaid until all such
Guarantor Senior Debt has been paid in full in cash or Cash Equivalents, after
giving effect to any concurrent payment, distribution or provision therefor to
or for the holders of such Guarantor Senior Debt.
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Section 11.10 Payments May Be Paid Prior to Dissolution.
Nothing contained in this Article Eleven or elsewhere in this
Indenture shall prevent (i) any Guarantor, except under the conditions described
in Sections 10.02, 10.03, 11.08 and 11.09, from making payments at any time for
the purpose of making payments of principal of and interest on the Notes, or
from depositing with the Trustee any moneys for such payments, or (ii) in the
absence of actual knowledge by the Trustee that a given payment would be
prohibited by Section 10.02, 10.03, 11.08 or 11.09, the application by the
Trustee of any moneys deposited with it for the purpose of making such payments
of principal of and interest on the Notes to the Holders entitled thereto unless
at least one Day prior to the date upon which such payment would otherwise
become due and payable, the Trustee shall have received the written notice
provided for in Section 10.02(a), 10.07, 11.08(a) or in Section 11.09 (provided
that, notwithstanding the foregoing, such application shall otherwise be subject
to the provisions of the first sentence of Section 10.02(a), 11.08(a) and
Section 11.09). Each Guarantor shall give prompt written notice to the Trustee
of any dissolution, winding-up, liquidation or reorganization of any Guarantor.
Section 11.11 Subrogation
Subject to the payment in full in cash or Cash Equivalents of
all Guarantor Senior Debt, the Holders shall be subrogated to the rights of the
holders of Guarantor Senior Debt to receive payments or distributions of cash,
property or securities of such Guarantor applicable to the Guarantor Senior Debt
of such Guarantor until the Notes shall be paid in full; and, for the purposes
of such subrogation, no such payments or distributions to the holders of the
Guarantor Senior Debt by or on behalf of such Guarantor or by or on behalf of
the Holders by virtue of this Article Eleven which otherwise would have been
made to the Holders shall, as between the Guarantors and the Holders of the
Notes, be deemed to be a payment by such Guarantor to or on account of the
Guarantor Senior Debt, it being understood that the provisions of this Article
Eleven are and are intended solely for the purpose of defining the relative
rights of the Holders of the Notes, on the one hand, and the holders of the
Guarantor Senior Debt, on the other hand.
If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article Eleven shall
have been applied, pursuant to the provisions of this Article Eleven, to the
payment of amounts payable under the Guarantor Senior Debt, then the Holders
shall be entitled to receive from the holders of such Guarantor Senior Debt any
payments or distributions received by such holders of Guarantor Senior Debt in
excess of the amount sufficient to pay all amounts payable under or in respect
of the Guarantor Senior Debt in full in cash or Cash Equivalents.
Section 11.12 Subordination Rights Not Impaired by Acts or Omissions of a
Guarantor or Holders of Guarantor Senior Debt.
No right of any present or future holders of any Guarantor
Senior Debt to enforce subordination as provided herein shall at any time in any
way be prejudiced or impaired by any act or failure to act on the part of any
Guarantor or by any act or failure to act, in good faith, by any such holder, or
by any noncompliance by such Guarantor with the terms of this Indenture,
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regardless of any knowledge thereof which any such holder may have or otherwise
be charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Guarantor Senior Debt may, at any time and from time
to time, without the consent of or notice to the Trustee, without incurring
responsibility to the Trustee or the Holders and without impairing or releasing
the subordination provided in this Article Eleven or the obligations hereunder
of the Holders to the holders of the Guarantor Senior Debt, do any one or more
of the following: (i) change the manner, place or terms of payment or extend the
time of payment of, or renew or alter, Guarantor Senior Debt, or otherwise amend
or supplement in any manner Guarantor Senior Debt, or any instrument evidencing
the same or any agreement under which Guarantor Senior Debt is outstanding; (ii)
sell, exchange, release or otherwise deal with any property pledged, mortgaged
or otherwise securing Guarantor Senior Debt; (iii) release any person liable in
any manner for the payment or collection of Guarantor Senior Debt; and (iv)
exercise or refrain from exercising any rights against such Guarantor and any
other person.
Section 11.13 Noteholders Authorize Trustee To Effectuate Subordination of
Guarantees.
Each Holder by its acceptance of them authorizes and expressly
directs the Trustee on its behalf to take such action as may be necessary or
appropriate to effectuate, as between the holders of Guarantor Senior Debt and
the Holders, the subordination provided in this Article Eleven, and appoints the
Trustee its attorney-in-fact for such purposes, including, in the event of any
dissolution, winding-up, liquidation or reorganization of any Guarantor (whether
in bankruptcy, insolvency, receivership, reorganization or similar proceedings
or upon an assignment for the benefit of creditors or otherwise) tending towards
liquidation of the business as assets of such Guarantor, the filing of a claim
for the unpaid balance of its or his Notes and accrued interest in the form
required in those proceedings.
If the Trustee does not file a proper claim or proof of debt
in the form required in such proceeding prior to 30 days before the expiration
of the time to file such claim or claims, then the holders of the Guarantor
Senior Debt or their Representative are or is hereby authorized to have the
right to file and are or is hereby authorized to file an appropriate claim for
and on behalf of the Holders of said Notes. Nothing herein contained shall be
deemed to authorize the Trustee or the holders of Guarantor Senior Debt or their
Representative to authorize or consent to or accept or adopt on behalf of any
Holders any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof, or to authorize the
Trustee or the holders of Guarantor Senior Debt or their Representative to vote
in respect of the claim of any Holder in any such proceeding.
Section 1.01 Obligations of Each Guarantor Unconditional.
Nothing contained in this Article Eleven or elsewhere in this
Indenture or in the Notes or the Guarantees is intended to or shall impair, as
among any Guarantor, its creditors other than the holders of Guarantor Senior
Debt, and the Holders of the Notes, the obligation of such Guarantor, which is
absolute and unconditional, to pay to the Holders of the Notes the
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principal of and any interest on the Notes as and when the same shall become due
and payable in accordance with the terms of the Guarantees, or is intended to or
shall affect the relative rights of the Holders of the Notes and creditors of
any Guarantor other than the holders of Guarantor Senior Debt, nor shall
anything herein or therein prevent the Holder of any Note or the Trustee on its
behalf from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, in respect of cash,
property or securities of any Guarantor received upon the exercise of any such
remedy.
Section 1.02 Notice to Trustee.
The Company or any Guarantor shall give prompt written notice
to the Trustee of any fact known to the Company or any such Guarantor which
would prohibit the making of any payment to or by the Trustee in respect of the
Guarantees pursuant to the provisions of this Article Eleven. Regardless of
anything to the contrary contained in this Article Eleven or elsewhere in this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any default or event of default with respect to any Guarantor Senior Debt or of
any other facts which would prohibit the making of any payment to or by the
Trustee unless and until the Trustee shall have received notice in writing from
the Company or a Guarantor, or from a holder of Guarantor Senior Debt or a
Representative therefor, and, prior to the receipt of any such written notice,
the Trustee shall be entitled to assume (in the absence of actual knowledge to
the contrary) that no such facts exist.
In the event that the Trustee determines in good faith that
any evidence is required with respect to the right of any person as a holder of
Guarantor Senior Debt to participate in any payment or distribution pursuant to
this Article Eleven, the Trustee may request such person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amounts of Guarantor Senior
Debt held by such person, the extent to which such person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such person under this Article Eleven, and if such evidence is not
furnished the Trustee may defer any payment to such person pending judicial
determination as to the right of such person to receive such payment.
Section 1.03 Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets of any Guarantor
referred to in this Article Eleven, the Trustee, subject to the provisions of
Article Seven hereof, and the Holders of the Notes shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction in which
bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings
are pending, or upon certificate of the receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making such payment or distribution,
delivered to the Trustee or the holders of the Notes, for the purpose of
ascertaining the persons entitled to participate in such distribution, the
holders of the Guarantor Senior Debt and other Indebtedness of such Guarantor,
the amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article Eleven.
Section 1.04 Trustee's Relation to Guarantor Senior Debt.
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The Trustee and any agent of any Guarantor or the Trustee
shall be entitled to all the rights set forth in this Article Eleven with
respect to any Guarantor Senior Debt which may at any time be held by it in its
individual or any other capacity to the same extent as any other holder of
Guarantor Senior Debt and nothing in this Indenture shall deprive the Trustee or
any such agent of any of its rights as such holder.
With respect to the holders of Guarantor Senior Debt, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Eleven, and no implied
covenants or obligations with respect to the holders of Guarantor Senior Debt
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Guarantor Senior Debt and
shall not be liable to any such holders if the Trustee shall pay over or
distribute to or on behalf of Holders or any such Guarantor or any other person
money or assets to which any holders of Guarantor Senior Debt shall be entitled
by virtue of this Article, except if such payment is made as a result of willful
misconduct or gross negligence of the Trustee.
Whenever a distribution is to be made or a notice given to
holders or owners of Guarantor Senior Debt, the distribution may be made and the
notice given to their Representatives, if any.
Section 1.05 Trustee's Compensation Not Prejudiced.
Nothing in this Article Eleven will apply to amounts due to
the Trustee, in its capacity as such, pursuant to other sections in this
Indenture.
Section 11.14 Article Eleven Not To Prevent Events of Default.
The failure to make a payment on account of principal of or
interest on the Notes by reason of any provision of this Article Eleven will not
be construed as preventing the occurrence of an Event of Default.
ARTICLE 12
MISCELLANEOUS
Section 12.01 Trust Indenture Act Controls
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA /section/ 318(c), the imposed duties
shall control.
Section 12.02 Notices
Any notices or other communications required or permitted
hereunder shall be in writing, and shall be sufficiently given if made by hand
delivery, by private courier service guaranteeing next day delivery, by telex,
by telecopier or registered or certified mail, postage prepaid, return receipt
requested, addressed as follows:
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If to the Company or the Guarantors, if any:
Neff Corp.
3750 N.W. 87th Avenue
Miami, Florida 33178
Telephone No.: (305) 513-3350
Telecopier No.: (305) 513-4255
Attention: Kevin P. Fitzgerald
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Ave., NW, Suite 800
Washington, DC 20004
Telephone No.: (202)
Telecopier No.: (202) 639-7003
Attention: Stephen I. Glover
If to the Trustee:
State Street Bank and Trust Company
Goodwin Square
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Telephone No.: (860)
Telecopier No.: (860) 244-1897
Attention: Philip G. Kane, Jr.
with a copy to:
State Street Bank and Trust Company
61 Broadway, 15th Floor
New York, New York 10006
Telephone No.: (212)
Telecopier No.: (212) 612-3201
Attention: Corporate Trust Administration
The Company or the Trustee, by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication to the Company, the Guarantors, if
any, or the Trustee shall be deemed to have been given or made as of the date so
delivered if personally delivered or delivered by private courier service
guaranteeing next day delivery; when answered back, if telexed; when receipt is
acknowledged, if faxed; and five (5) calendar days after mailing if sent by
registered or certified mail, postage prepaid (except that a notice of change of
address shall not be deemed to have been given until actually received by the
addressee).
Any notice or communication to a Holder shall be mailed by
first class mail, certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on the
register kept by the Registrar. Any notice or communication shall also be so
mailed to any Person described in TIA /section/ 313(c), to the extent required
by the
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TIA. Failure to mail a notice or communication to a Holder or any defect in it
shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time. If the Trustee
or an Agent mails a notice or communication to Holders, it shall mail a copy to
the Company at the same time.
Section 12.03 Communication by Holders of Notes with Other Holders of Notes
Holders may communicate pursuant to TIA /section/ 312(b) with
other Holders with respect to their rights under this Indenture or the Notes.
The Company, the Trustee, the Registrar and any other relevant Person shall have
the protection of TIA /section/ 312(c).
Section 12.04 Certificate and Opinion as to Conditions Precedent
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 12.05 hereof) stating that, in the opinion of the
signers, all conditions precedent and covenants, if any, provided for
in this Indenture relating to the proposed action have been satisfied;
and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 12.05 hereof) stating that, in the opinion of such
counsel, all such conditions precedent and covenants have been
satisfied.
Section 12.05 Statements Required in Certificate or Opinion
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA /section/ 314(a)(4)) shall comply with the provisions
of TIA /section/ 314(e) and shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been satisfied; and
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(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
Section 12.06 Rules by Trustee and Agents
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
Section 12.07 No Personal Liability of Directors, Officers, Employees
and Shareholders
No direct or indirect shareholder, employee, officer or
director, as such, past, present or future of the Company, the Guarantors or any
successor entity shall have any personal liability in respect of the Obligations
of the Company or the Guarantors under this Indenture or the Notes solely by
reason of his or its status as such shareholder, employee, officer or director,
except that this provision shall in no way limit the Obligation of any Guarantor
pursuant to any guarantee of the Notes. Each Holder by accepting a Note waives
and releases all such liability. Such waiver and release are part of the
consideration for the issuance of the Notes. This provision does not affect any
possible claims under state and federal securities laws.
Section 12.08 Governing Law
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES,
WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS THEREOF TO THE EXTENT THAT
THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. IF
ANY ACTION OR PROCEEDING SHALL BE BROUGHT BY A HOLDER OF ANY OF THE NOTES OR BY
THE TRUSTEE IN ORDER TO ENFORCE ANY RIGHT OR REMEDY UNDER THIS INDENTURE OR
UNDER THE NOTES, THE COMPANY AND THE GUARANTORS HEREBY CONSENT AND WILL SUBMIT
TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN THE CITY
OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE CITY OF NEW YORK. THE COMPANY
AND THE GUARANTORS HEREBY AGREE TO ACCEPT SERVICE OF PROCESS BY NOTICE GIVEN TO
THE COMPANY PURSUANT TO THE PROVISIONS OF SECTION 12.02.
Section 12.09 No Adverse Interpretation of Other Agreements
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Company or its Subsidiaries or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
Section 12.10 Successors
All agreements of the Company in this Indenture and the Notes
shall bind its successors. All agreements of the Trustee in this Indenture shall
bind its successors.
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Section 12.11 Severability
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
Section 12.12 Counterpart Originals
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
Section 12.13 Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following pages]
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IN WITNESS WHEREOF, each of the parties have executed this
Indenture as of the date first written above.
THE COMPANY:
NEFF CORP.
By:
--------------------------------
Kevin P. Fitzgerald
Chief Executive Officer
THE GUARANTORS:
NEFF ASSET MANAGEMENT, INC.
By:
--------------------------------
Kevin P. Fitzgerald
President
NEFF MACHINERY, INC.
By:
--------------------------------
Kevin P. Fitzgerald
President
NEFF RENTAL, INC.
By:
--------------------------------
Kevin P. Fitzgerald
President
Attest: AIR RENTAL & SUPPLY, INC.
------------------------
Bonnie S. Biumi By:
Vice President of each --------------------------------
of Neff Asset Management, Kevin P. Fitzgerald
Inc., Neff Machinery, Inc., President
Neff Rental, Inc. and
Air Rental & Supply, Inc.
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THE TRUSTEE:
STATE STREET BANK AND TRUST COMPANY
By:
--------------------------------
Philip G. Kane, Jr.
Vice President
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CUSIP No.__________
ISIN_______________
Exhibit A
(Face of Note)
10 1/4% [Series A] [Series B] Senior Subordinated Notes due 2008
No. _____ $200,000,000
NEFF CORP.
promises to pay to Cede & Co. or registered assigns, the principal sum of
__________________Dollars on June 1, 2008
Interest Payment Dates: June 1 and December 1
Record Dates: May 15 and November 15
Dated: _______________, 199__
NEFF CORP.
By:
------------------------------------------
Name:
Title:
By:
------------------------------------------
Name:
Title:
This is one of the 10 1/4% Senior
Subordinated Notes referred to in the
within-mentioned Indenture:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:
------------------------------------------
Name:
Title:
A-1
<PAGE>
(Back of Note)
10 1/4% [Series A] [Series B] Senior Subordinated Notes due 2008
[THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY
OR A NOMINEE OR A DEPOSITARY OR A SUCCESSOR DEPOSITARY. UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED FORM, THIS NOTE MAY NOT
BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE
DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER
NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE,
BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (i) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE ACT)(A "QIB"), (ii) IT HAS ACQUIRED
THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
ACT OR (iii) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE ACT (AN "IAI"),
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS
NOTE EXCEPT (i) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (ii) TO A PERSON WHO
THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(iii) IN AN OFFSHORE
- ------------
1 Include this paragraph only if the certificate represents a Global Note.
A-2
<PAGE>
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE ACT, (iv) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE ACT, (v) TO AN IAI
THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE AND THE COMPANY SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, AND (vi) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT OR (vii) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION, AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED
STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE
ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING.
Capitalized terms used herein shall have the meanings assigned
to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Neff Corp, a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at 10
1/4% per annum from December 9, 1998 until maturity and shall pay the Additional
Interest, if any, payable pursuant to Section 4 of the Registration Rights
Agreement referred to below. The Company will pay interest and Additional
Interest semi-annually on June 1 and December 1 of each year, or if any such day
is not a Business Day, on the next succeeding Business Day (each an "Interest
Payment Date"). Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
issuance; PROVIDED that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; PROVIDED, FURTHER, that
the first Interest Payment Date shall be December 1, 1999. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, at the rate equal then
applicable interest rate on the Notes to the extent lawful; it shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace period) at the same rate to the extent lawful.
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<PAGE>
2. METHOD OF PAYMENT. The Company will pay interest on the
Notes (except defaulted interest) and Additional Interest, if any, to the
Persons who are registered Holders of Notes at the close of business on the May
15 or November 15 next preceding the Interest Payment Date, even if such Notes
are cancelled after such record date and on or before such Interest Payment
Date, except as provided in Section 2.12 of the Indenture with respect to
defaulted interest. The Notes will be payable as to principal, premium, if any,
interest and Additional Interest, if any, at the office or agency of the Company
maintained for such purpose in the Borough of Manhattan, The City of New York,
or, at the option of the Company, payment of interest and Additional Interest,
if any, may be made by check mailed to the Holders at their addresses set forth
upon the registry books of the Company, PROVIDED that payment by wire transfer
of immediately available funds will be required with respect to principal of,
interest, premium, if any, and Additional Interest, if any, on all Global Notes
and all other Notes the Holders of which shall have provided wire transfer
instructions to the Company or the Paying Agent. Such payment shall be in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank
and Trust Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE. The Company issued the Notes under an Indenture
dated as of December 9, 1998 ("Indenture") between the Company, the Guarantors
and the Trustee. The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code /sections/ 77aaa-77bbbb). The Notes are subject
to all such terms, and Holders are referred to the Indenture and such act for a
statement of such terms. The Notes are unsecured obligations of the Company
limited to $200,000,000 in aggregate principal amount.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Section
of this Note, the Company shall not have the option to redeem the Notes prior to
June 1, 2003 other than out of the Net Cash Proceeds of a Public Equity Offering
of common stock. Thereafter, the Notes will be redeemable at the Company's
option, in whole at any time or in part from time to time, on or after June 1,
2003, upon not less than 30 nor more than 60 days' notice to each holder of
Notes, at the following redemption prices (expressed as percentages of the
principal amount thereof) if redeemed during the twelve-month period commencing
June 1 of the year set forth below, plus, in each case, accrued and unpaid
interest thereon, if any, to the date of redemption:
PERCENTAGE
----------
YEAR
----
2003.............................. 105.125%
2004.............................. 103.417%
2005.............................. 101.708%
2006 and thereafter............... 100.000%
A-4
<PAGE>
(b) Notwithstanding the provisions of clause (a) of
this Section of the Notes, at any time, or from time to time, on or prior to
June 1, 2001, the Company may, at its option, use the net cash proceeds of one
or more Public Equity Offerings (as defined below) to redeem up to 30% of the
initial aggregate principal amount of the Notes issued under this Indenture at a
redemption price equal to 110.250 percent of the principal amount thereof plus
accrued and unpaid interest thereon, if any, to the date of redemption; PROVIDED
that at least 70% of the initial aggregate principal amount of the Notes issued
under this Indenture remains outstanding immediately after any such redemption.
In order to effect the foregoing redemption with the proceeds of any Public
Equity Offering, the Company shall make such redemption not more than 120 days
after the consummation of any such Public Equity Offering.
(c) In the event that less than all of the Notes are
to be redeemed at any time, selection of such Notes for redemption will be made
by the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which such Notes are listed or, if such Notes
are not then listed on a national securities exchange, on a PRO RATA basis, by
lot or by such method as the Trustee shall deem fair and appropriate; PROVIDED,
HOWEVER, that no Notes of a principal amount of $1,000 or less shall be redeemed
in part, PROVIDED, FURTHER, that if a partial redemption is made with the
proceeds of a Public Equity Offering, selection of the Notes or portions thereof
for redemption shall be made by the Trustee only on a PRO RATA basis or on as
nearly a PRO RATA basis as is practicable (subject to DTC procedures), unless
such method is otherwise prohibited. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as the Company
has deposited with the Paying Agent funds in satisfaction of the applicable
redemption price pursuant to the Indenture. On and after the redemption date
interest ceases to accrue on Notes or portions thereof called for redemption
unless the Company defaults in such payments due on the redemption date.
6. Mandatory Redemption.
The Company shall not be required to make mandatory
redemption payments with respect to the Notes.
7. Repurchase at Option of Holder Upon Certain Events.
(a) Upon the occurrence of a Change of Control, each
Holder will have the right to require that the Company purchase all or a portion
of such Holder's Notes pursuant to the offer described below (the "Change of
Control Offer"), at a purchase price equal to 101 percent of the principal
amount thereof plus accrued and unpaid interest to the date of purchase. The
Company is not required to make a Change of Control Offer if a third party makes
a Change of Control Offer that would be in compliance with the provisions
described in this
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<PAGE>
section if it were made by the Company and such third party purchases (for the
consideration referred to in the immediate preceding sentence) the Notes validly
tendered and not withdrawn.
Prior to the mailing of the notice referred to below,
but in any event within 30 days following any Change of Control, the Company
covenants to (i) repay in full and terminate all commitments under Indebtedness
under the Credit Agreement and all other Senior Debt the terms of which require
repayment upon a Change of Control or offer to repay in full and terminate all
commitments under all Indebtedness under the Credit Agreement and all such other
Senior Debt and to repay the Indebtedness owed to each lender which has accepted
such offer or (ii) obtain the requisite consents under the Credit Agreement and
all such other Senior Debt to permit the repurchase of the Notes as provided
below. The Company shall first comply with the covenant in the immediately
preceding sentence before it shall be required to repurchase Notes pursuant to
the provisions described below. The Company's failure to comply with the
covenant described in the immediately preceding sentence shall constitute an
Event of Default described in clause (iii) and not in clause (ii) under "Events
of Default" below.
Within 30 days following the date upon which the
Change of Control occurred, the Company must send, by first class mail, a notice
to each Holder, with a copy to the Trustee, which notice shall govern the terms
of the Change of Control Offer. Such notice shall state, among other things, the
purchase date, which must be no earlier than 30 days nor later than 45 days from
the date such notice is mailed, other than as may be required by law (the
"Change of Control Payment Date"). Holders electing to have a Note purchased
pursuant to a Change of Control Offer will be required to surrender the Note,
with the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third business day prior to the Change of
Control Payment Date.
(b) The Company shall not, and shall not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 70 percent of the
consideration received by the Company or the Restricted Subsidiary, as the case
may be, from such Asset Sale shall be in the form of cash or Cash Equivalents
and is received at the time of such disposition; and (iii) upon the consummation
of an Asset Sale, the Company shall apply, or cause such Restricted Subsidiary
to apply, the Net Cash Proceeds relating to such Asset Sale within 365 days of
receipt thereof either (A) to prepay any Senior Debt or Guarantor Senior Debt
and, in the case of any Senior Debt or Guarantor Senior Debt under any revolving
credit facility, effect a permanent reduction in the availability under such
revolving credit facility, (B) to make an investment in properties and assets
that replace the properties and assets that were the subject of such Asset Sale
or in properties and assets that will be used in the business of the Company and
its Restricted Subsidiaries as existing on the Issue Date or in businesses
reasonably related thereto ("Replacement Assets"), or (C) a combination of
prepayment and investment permitted by the foregoing clauses (iii)(A) and
(iii)(B). On the 366th day after an Asset Sale or such earlier date, if any, as
the Board of Directors of the Company or of such Restricted Subsidiary
determines not to
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<PAGE>
apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses
(iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each, a "Net
Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which
have not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding
sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company or
such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds
Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 days
nor more than 45 days following the applicable Net Proceeds Offer Trigger Date,
from all Holders on a PRO RATA basis, that amount of Notes equal to the Net
Proceeds Offer Amount at a price equal to 100 percent of the principal amount of
the Notes to be purchased, plus accrued and unpaid interest thereon, if any, to
the date of purchase; PROVIDED, HOWEVER, that if at any time any non-cash
consideration received by the Company or any Restricted Subsidiary of the
Company, as the case may be, in connection with any Asset Sale is converted into
or sold or otherwise disposed of for cash (other than interest received with
respect to any such non-cash consideration), then such conversion or disposition
shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds
thereof shall be applied in accordance with this covenant. The Company may defer
the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer
Amount equal to or in excess of $10.0 million resulting from one or more Asset
Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not
just the amount in excess of $10.0 million, shall be applied as required
pursuant to this paragraph).
In the event of the transfer of substantially all
(but not all) of the property and assets of the Company and its Restricted
Subsidiaries as an entirety to a Person in a transaction permitted under Section
5.01 of the Indenture, the successor corporation shall be deemed to have sold
the properties and assets of the Company and its Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Notwithstanding the two immediately preceding
paragraphs, the Company and its Restricted Subsidiaries shall be permitted to
consummate an Asset Sale without complying with such paragraphs to the extent
(i) at least 80 percent of the consideration for such Asset Sale constitutes
Replacement Assets and (ii) such Asset Sale is for fair market value; PROVIDED
that any consideration not constituting Replacement Assets received by the
Company or any of its Restricted Subsidiaries in connection with any Asset Sale
permitted to be consummated under this paragraph shall constitute Net Cash
Proceeds subject to the provisions of the two preceding paragraphs.
Each Net Proceeds Offer shall be mailed to the record
Holders as shown on the register of Holders within 30 days following the Net
Proceeds Offer Trigger Date, with a copy to the Trustee, and shall comply with
the procedures set forth in the Indenture. Upon receiving notice of the Net
Proceeds Offer, Holders may elect to tender their Notes in whole or in part in
integral multiples of $1,000 in exchange for cash. To the extent Holders
properly tender Notes in an amount exceeding the Net Proceeds Offer Amount,
Notes of tendering Holders will
A-7
<PAGE>
be purchased on a PRO RATA basis (based on amounts tendered). A Net Proceeds
Offer shall remain open for a period of 20 Business Days or such longer period
as may be required by law.
The Company shall comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of Notes pursuant to a Net Proceeds Offer. To the extent
that the provisions of any securities laws or regulations conflict with this
Section 4.08 of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section 4.08 of the Indenture.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, the Company need not exchange or register the transfer of any Notes
for a period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
9. PERSONS DEEMED OWNERS. The registered Holder of a Note may
be treated as its owner for all purposes.
10. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions set forth in the Indenture, the Indenture or the Notes may be amended
or supplemented with the consent of the Holders of a majority in aggregate
principal amount of the then outstanding Notes, and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in aggregate principal amount of the
then outstanding Notes. Without the consent of any Holder of a Note, the
Indenture or the Notes may be amended or supplemented to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Notes in addition to or
in place of certificated Notes, to provide for the assumption of the Company's
obligations to Holders of the Notes in case of a merger or consolidation, to
make any change that would provide any additional rights or benefits to the
Holders of the Notes (including the addition of any Guarantors) or that does not
adversely affect the legal rights under the Indenture of any such Holder, to
comply with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act or to evidence and
provide for acceptance of, the appointment of a successor Trustee.
11. DEFAULTS AND REMEDIES. The following events are defined in
the Indenture as "Events of Default": (i) the failure to pay interest on any
Notes when the same becomes due and payable and the default continues for a
period of 30 days (whether or not such payment shall be prohibited by the
subordination provisions of the Indenture); (ii) the failure to pay the
A-8
<PAGE>
principal on any Notes, when such principal becomes due and payable, at
maturity, upon redemption or otherwise (including the failure to make a payment
to purchase Notes tendered pursuant to a Change of Control Offer or a Net
Proceeds Offer) (whether or not such payment shall be prohibited by the
subordination provisions of the Indenture); (iii) default in the observance or
performance of any other covenant or agreement contained in the Indenture which
default continues for a period of 30 days after the Company receives written
notice specifying the default (and demanding that such default be remedied) from
the Trustee or the Holders of at least 25 of the outstanding principal amount of
the Notes (except in the case of a default with respect to Section 5.01 of the
Indenture, which will constitute an Event of Default with such notice
requirement but without such passage of time requirement); (iv) the failure to
pay at final maturity (giving effect to any applicable grace periods and any
extensions thereof) the principal amount of any Indebtedness of the Company or
any Restricted Subsidiary of the Company and such failure continues for a period
of 20 days or more, or the acceleration of the final stated maturity of any such
Indebtedness (which acceleration is not rescinded, annulled or otherwise cured
within 20 days of receipt by the Company or such Restricted Subsidiary of notice
of any such acceleration) if the aggregate principal amount of such
Indebtedness, together with the principal amount of any other such Indebtedness
in default for failure to pay principal at final maturity or which has been
accelerated, in each case with respect to which the 20-day period described
above has passed, aggregates $5,000,000 or more at any time; (v) one or more
judgments in an aggregate amount in excess of $5,000,000 shall have been
rendered against the Company or any of its Significant Subsidiaries and such
judgments remain undischarged, unpaid or unstayed for a period of 60 days after
such judgment or judgments become final and non-appealable;(vi) certain events
of bankruptcy, insolvency or reorganization in respect of the Company or any of
its Significant Subsidiaries; (vii) any of the Guarantees of a Guarantor that is
a Significant Subsidiary ceases to be in full force and effect or any of such
Guarantees is declared to be null and void and unenforceable or any of such
Guarantees is found to be invalid or any of such Guarantors denies its liability
under its Guarantee (other than by reason of release of such Guarantor in
accordance with the terms of this Indenture).
If an Event of Default (other than an Event of Default
specified in clause (vi) above with respect to the Company) shall occur and be
continuing, the Trustee or the Holders of at least 25 in principal amount of
outstanding Notes may declare the principal of and accrued interest on all the
Notes to be due and payable by notice in writing to the Company and the Trustee
specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same (i) shall become
immediately due and payable or (ii) if there are any amounts outstanding under
the Credit Agreement, shall become immediately due and payable upon the first to
occur of an acceleration under the Credit Agreement or 5 business days after
receipt by the Company and the Representative under the Credit Agreement of such
Acceleration Notice but only if such Event of Default is then continuing. If an
Event of Default specified in clause (vi) above with respect to the Company
occurs and is continuing, then all unpaid principal of, and premium, if any, and
accrued and unpaid interest on all of the outstanding Notes shall IPSO FACTO
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder.
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<PAGE>
At any time after a declaration of acceleration with respect
to the Notes as described in the preceding paragraph, the Holders of a majority
in principal amount of the Notes may rescind and cancel such declaration and its
consequences (i) if the rescission would not conflict with any judgment or
decree, (ii) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration, (iii) to the extent the payment of such interest is lawful,
interest on overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has been paid,
(iv) if the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances and (v) in
the event of the cure or waiver of an Event of Default of the type described in
clause (vi) of the description above of Events of Default, the Trustee shall
have received an officers' certificate and an opinion of counsel that such Event
of Default has been cured or waived. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
The Holders of a majority in principal amount of the then
outstanding Notes may waive any existing Default or Event of Default under this
Indenture, and its consequences, except a default in the payment of the
principal of or interest on any Notes.
12. SUBORDINATION. The payment of principal of, premium, if
any, and interest on the Notes will be subordinated in right of payment to the
prior payment in full of Senior Debt as set forth in Article 10 of the
Indenture.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or shareholder, of the Company, as such, shall not have any
liability for any Obligations of the Company under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of, such Obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. This waiver and release are part of the consideration for the
issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED NOTES.
In addition to the rights provided to Holders of Notes under the Indenture,
Holders of Transfer Restricted Notes shall have all the rights set forth in the
Registration Rights Agreement dated as of the date of the Indenture, between the
Company and the parties named on the signature pages thereof (the "Registration
Rights Agreement").
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<PAGE>
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture. Requests may be made to:
Neff Corp.
3750 N.W. 87th Avenue
Miami, Florida 33178
Telephone No.: (305) 513-3350
Telecopier No.: (305) 513-4156
Attention: Bonnie S. Biumi
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<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED NOTE
The following exchanges of a part of this Global Note for
Certificated Notes have been made:
<TABLE>
<CAPTION>
DATE OF EXCHANGE AMOUNT OF DECREASE IN AMOUNT OF INCREASE IN PRINCIPAL AMOUNT OF THIS SIGNATURE OF
- ---------------- PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF GLOBAL NOTE FOLLOWING AUTHORIZED OFFICER
THIS GLOBAL NOTE THIS GLOBAL NOTE SUCH DECREASE OF
---------------------- ---------------------- (OR INCREASE) TRUSTEE OR NOTE
------------------------- CUSTODIAN
-------------------
<S> <C> <C> <C> <C>
</TABLE>
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<PAGE>
Assignment Form
To assign this Note, fill in the form below: (I) or (we)
assign and transfer this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
________________________________________________________________________________
Date:__________________________________
Your Signature:_______________________________________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee.
A-13
<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.07 or 4.08 of the Indenture, check the box below:
G Section 4.07 G Section 4.08
If you want to elect to have only part of the Note purchased
by the Company pursuant to Section 4.07 or Section 4.08 of the Indenture, state
the amount you elect to have purchased: $___________
Date:__________________________________
Your Signature:_______________________________________________
(Sign exactly as your name appears on the
face of this Note)
Tax Identification No.:_____
Signature Guarantee.
A-14
<PAGE>
EXHIBIT B
SUBSIDIARY GUARANTY
The Guarantors listed below (hereinafter referred to as the
"Guarantors," which term includes any successor or assign under the Indenture
(the "Indenture") and any additional Guarantors), have irrevocably and
unconditionally guaranteed (i) the due and punctual payment of the principal of,
premium, if any, Additional Interest, if any, and interest on the 10 1/4% Senior
Subordinated Notes due 2008 and issued in December 1998 (the "Notes") of Neff
Corp., a Delaware corporation (the "Company"), whether at stated maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal, Additional Interest, if any, and premium, if any, and (to the
extent permitted by law) interest on any interest, if any, on the Notes, and the
due and punctual performance of all other obligations of the Company, to the
Holders or the Trustee all in accordance with the terms set forth in Article 11
of the Indenture, (ii) in case of any extension of time of payment or renewal of
any Notes or any such other obligations, that the same will be promptly paid in
full when due or performed in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise, and (iii) the
payment of any and all costs and expenses (including reasonable attorneys' fees)
incurred by the Trustee or any Holder in enforcing any rights under this
Subsidiary Guarantee.
The obligations of each Guarantor to the Holder and to the
Trustee pursuant to this Subsidiary Guarantee and the Indenture are expressly
set forth in Article 11 of the Indenture and reference is hereby made to such
Indenture for the precise terms of this Guarantee.
No shareholder, officer, director, employee or incorporator,
as such, past, present or future of each Guarantor shall have any liability
under this Subsidiary Guarantee by reason of his or its status as such
shareholder, officer, director, employee or incorporator. Each Holder by
accepting a Note waives and releases all such liability. Such waiver and release
are part of the consideration for the issuance of the Notes. This provision does
not affect any possible claims under state and federal securities laws.
This is a continuing Guarantee and shall remain in full force
and effect and shall be binding upon each Guarantor and its successors and
assigns until full and final payment of all of the Company's obligations under
the Notes and Indenture and shall inure to the benefit of the successors and
assigns of the Trustee and the Holders, and, in the event of any transfer or
assignment of rights by any Holder or the Trustee, the rights and privileges
herein conferred upon that party shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions hereof.
This is a Guarantee of payment and not of collectibility.
This Subsidiary Guarantee shall not be valid or obligatory for
any purpose until the certificate of authentication on the Notes to which this
Subsidiary Guarantee relates shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized officers.
B-1
<PAGE>
The Obligations of each Guarantor under its Subsidiary
Guarantee shall be limited to the extent necessary to insure that it does not
constitute a fraudulent conveyance under applicable law.
The Obligations of each Guarantor under its Subsidiary
Guarantee pursuant to Article 11 of the Indenture shall be junior and
subordinated to the Senior Debt (as defined in the Indenture) of such Guarantor
on the same basis as the Notes are junior and subordinated to the Senior Debt of
the Company. For the purposes of the foregoing sentence, (a) each Guarantor may
make, and the Trustee and the Holders of the Notes shall have the right to
receive and/or retain, payments by any of the Guarantors only at such times as
they may receive and/or retain payments in respect of the Notes pursuant to the
Indenture, including Article 10 thereof, and (b) the rights and obligations of
the relevant parties relative to the Subsidiary Guarantees and the Guarantor
Senior Debt shall be the same as their respective rights and obligations
relative to the Notes and Senior Debt of the Company pursuant to Article 10 of
the Indenture.
The Obligations of each Guarantor under its Subsidiary
Guarantee pursuant to Article 11 of the Indenture shall rank PARI PASSU with the
May 1998 Guarantees.
THE TERMS OF ARTICLE 11 OF THE INDENTURE ARE INCORPORATED
HEREIN BY REFERENCE.
Capitalized terms used herein have the same meanings given in
the Indenture unless otherwise indicated.
B-2
<PAGE>
IN WITNESS WHEREOF, each of the parties have executed this
Subsidiary Guarantee as of December 9, 1998.
Guarantors:
NEFF ASSET MANAGEMENT, INC.
By:
------------------------------------------
Name:
Title:
NEFF MACHINERY, INC.
By:
------------------------------------------
Name:
Title:
NEFF RENTAL, INC.
By:
------------------------------------------
Name:
Title:
AIR RENTAL & SUPPLY, INC.
By:
------------------------------------------
Name:
Title:
B-3
<PAGE>
EXHIBIT C
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES
Re: 10 1/4% Senior Subordinated Notes due 2008
This Certificate relates to $__________ principal amount of Notes held in
* __________ book-entry or *__________ certificated form by_____________________
(the "Transferor").
The Transferor*:
has requested the Trustee by written order to deliver in
exchange for its beneficial interest in the Global Note held by the Depositary a
Note or Notes in certificated, registered form of authorized denominations in an
aggregate principal amount equal to its beneficial interest in such Global Note
(or the portion thereof indicated above); or
has requested the Trustee by written order to exchange or
register the transfer of a Note or Notes.
In connection with such request and in respect of each such
Note, the Transferor does hereby certify that Transferor is familiar with the
Indenture relating to the above captioned Notes and as provided in Section 2.06
of such Indenture, the transfer of this Note does not require registration under
the Securities Act (as defined below) because:*
Such Note is being acquired for the Transferor's own account,
without transfer;
1. It is purchasing the Notes for its own account or
an account with respect to which it exercises sole investment discretion and
that it and/or any such account is not an "affiliate" (as defined in Rule 144
under the Securities Act) of the Company, is not acting on behalf of the Company
and is either:
a. a "Qualified Institutional Buyer" within the
meaning of Rule 144A promulgated under the Securities Act and
is aware that any sale of Notes to it will be made in reliance
on Rule 144A and such acquisition will be for its own account
or for the account of another Qualified Institutional Buyer;
or
b. a person that, at the time the buy order for the
Notes was originated, was outside the United States and was
not a U.S. person (and was not purchasing for the account or
benefit of a U.S. person) within the meaning of Regulation S
under the Securities Act.
2. The Notes are being offered for resale in a
transaction not involving any public offering in the United States within the
meaning of the Securities Act. The Notes have not been registered under the
Securities Act or any U.S. securities laws and they are being offered for resale
in transactions not requiring registration under the Securities Act. The
C-1
<PAGE>
Notes may not be reoffered, resold, pledged or otherwise transferred within two
years after the original issuance of the Notes except (i) to a person whom the
purchaser reasonably believes is a Qualified Institutional Buyer in a
transaction meeting the requirements of Rule 144A, (ii) in an offshore
transaction complying with Rule 903 or Rule 904 of Regulation S, (iii) pursuant
to an exemption from registration under the Securities Act provided by Rule 144
thereunder (if available), (iv) to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act, an "IAI") that, prior to such transfer furnishes the Trustee a signed
letter containing certain representations and agreements relating to the
transfer of the Notes and, if such transfer is in respect of an aggregate
principal amount of Notes less than $250,000, an opinion of counsel acceptable
to the Company, if the Company so requests, that the transfer is in compliance
with the Securities Act, (v) in accordance with another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel acceptable to the Company, if the Company so requests), (vi) to the
Company or (vii) pursuant to an effective registration statement under the
Securities Act, and, in each case, in accordance with all applicable U.S. state
securities laws. The purchaser will notify any subsequent purchaser from it of
the resale restrictions set forth in the preceding sentence. No representation
is being made as to the availability of the exemption provided by Rule 144 for
resales of the Notes.
Such Note is being transferred in reliance on and in
compliance with an exemption from the registration requirements of the
Securities Act, other than Rule 144A, 144 or Rule 904 under the Securities Act.
An Opinion of Counsel to the effect that such transfer does not require
registration under the Securities Act accompanies this Certificate.
------------------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
---------------------------------------------
Date:
-------------------------------------------
C-2
<PAGE>
CROSS-REFERENCE TABLE*
TRUST INDENTURE INDENTURE SECTION
ACT SECTION
--------------- -----------------
310 (a)(1) 7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4) N.A.
(b) 7.08; 7.10; 12.02
(c) N.A.
311 (a) 7.11
(b) 7.11
(c) N.A.
312 (a) 2.05
(b) 12.03
(c) 12.03
313 (a) 7.06
(b)(1) N.A.
(b)(2) 7.06
(c) 7.06; 12.02
(d) 7.06
314 (a) 4.03(a); 4.04(a)(b) 12.02
(b) N.A.
(c)(1) 12.04
(c)(2) 7.02; 12.04
(c)(3) N.A.
(d) N.A.
(e) 12.05
(f) N.A.
315 (a) 7.01(b)
(b) 7.05; 12.02
(c) 7.01(A)
(d) 7.01(c)
(e) 6.11
316 (a)(last sentence) 2.09
(a)(1)(A) 6.05
(a)(1)(B) 6.04
(a)(2) N.A.
(b) 6.07
317 (a)(1) 6.08
(a)(2) 6.09
(b) 2.04
318(a) 12.01
1
<PAGE>
- ---------------------
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Article 1 DEFINITIONS AND INCORPORATION BY REFERENCE.............................................................1
Section 1.01 Definitions...........................................................................1
Section 1.02 Other Definitions....................................................................22
Section 1.03 Incorporation by Reference of Trust Indenture Act....................................23
Section 1.04 Rules of Construction................................................................23
Article 2 THE NOTES.............................................................................................24
Section 2.01 Form and Dating......................................................................24
Section 2.02 Execution and Authentication.........................................................24
Section 2.03 Registrar and Paying Agent; Depositary...............................................25
Section 2.04 Paying Agent to Hold Money in Trust..................................................25
Section 2.05 Holder Lists.........................................................................26
Section 2.06 Transfer and Exchange................................................................26
Section 2.07 Replacement Notes....................................................................31
Section 2.08 Outstanding Notes....................................................................32
Section 2.09 Treasury Notes.......................................................................32
Section 2.10 Temporary Notes......................................................................32
Section 2.11 Cancellation.........................................................................33
Section 2.12 Defaulted Interest...................................................................33
Section 2.13 Satisfaction and Discharge...........................................................33
Article 3 REDEMPTION AND PREPAYMENT.............................................................................34
Section 3.01 Notices to Trustee...................................................................34
Section 3.02 Selection of Notes to be Redeemed....................................................34
Section 3.03 Notice of Redemption.................................................................34
Section 3.04 Effect of Notice of Redemption.......................................................35
Section 3.05 Deposit of Redemption Price..........................................................35
Section 3.06 Notes Redeemed in Part...............................................................36
Section 3.07 Optional Redemption..................................................................36
Section 3.08 No Mandatory Redemption..............................................................36
Section 3.09 No Sinking Fund......................................................................37
Article 4 COVENANTS.............................................................................................37
Section 4.01 Payment of Notes.....................................................................37
Section 4.02 Maintenance of Office or Agency......................................................37
Section 4.03 Reports..............................................................................38
Section 4.04 Compliance Certificate...............................................................38
Section 4.05 Taxes................................................................................39
Section 4.06 Stay, Extension and Usury Laws.......................................................39
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 4.07 Repurchase of Notes at the Option of the Holder upon a
Change of Control....................................................................39
Section 4.08 Limitation on Asset Sales............................................................40
Section 4.09 Limitation on Restricted Payments....................................................42
Section 4.10 Limitation on Incurrence of Additional Indebtedness..................................44
Section 4.11 Limitation on Liens Securing Indebtedness............................................44
Section 4.12 Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries...............................................................45
Section 4.13 Prohibition on Incurrence of Senior Subordinated Debt;
Limitation on Layering...............................................................45
Section 4.14 Limitations on Transactions with Affiliates..........................................45
Section 4.15 Additional Subsidiary Guarantors.....................................................46
Section 4.16 Release of Guarantors................................................................47
Section 4.17 Conduct of Business..................................................................47
Section 4.18 Corporate Existence..................................................................47
Section 4.19 Limitation of Preferred Stock of Restricted Subsidiaries.............................48
Article 5 SUCCESSORS............................................................................................48
Section 5.01 Merger, Sale or Consolidation........................................................48
Section 5.02 Successor Corporation Substituted....................................................49
Article 6 DEFAULTS AND REMEDIES.................................................................................49
Section 6.01 Events of Default....................................................................49
Section 6.02 Acceleration.........................................................................51
Section 6.03 Other Remedies.......................................................................52
Section 6.04 Waiver of Past Defaults..............................................................52
Section 6.05 Control by Majority..................................................................52
Section 6.06 Limitation on Suits..................................................................52
Section 6.07 Rights of Holders of Notes to Receive Payment........................................53
Section 6.08 Collection Suit by Trustee...........................................................53
Section 6.09 Trustee May File Proof of Claim......................................................53
Section 6.10 Priorities...........................................................................54
Section 6.11 Undertaking for Costs................................................................54
Section 6.12 Restoration of Rights and Remedies...................................................55
Article 7 TRUSTEE 55
Section 7.01 Duties of Trustee....................................................................55
Section 7.02 Rights of Trustee....................................................................56
Section 7.03 Individual Rights of Trustee.........................................................57
Section 7.04 Trustee's Disclaimer.................................................................57
Section 7.05 Notice of Defaults...................................................................57
Section 7.06 Reports by Trustee to Holders of the Notes...........................................58
Section 7.07 Compensation and Indemnity...........................................................58
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 7.08 Replacement of Trustee...............................................................59
Section 7.09 Successor Trustee by Merger, etc.....................................................60
Section 7.10 Eligibility; Disqualification........................................................60
Section 7.11 Preferential Collection of Claims Against Company....................................61
Article 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE..............................................................61
Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance.............................61
Section 8.02 Legal Defeasance and Discharge.......................................................61
Section 8.03 Covenant Defeasance..................................................................61
Section 8.04 Conditions to Legal or Covenant Defeasance...........................................62
Section 8.05 Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions................................................63
Section 8.06 Repayment to Company.................................................................64
Section 8.07 Reinstatement........................................................................64
Article 9 AMENDMENT, SUPPLEMENT AND WAIVER......................................................................65
Section 9.01 Without Consent of Holders of Notes..................................................65
Section 9.02 With Consent of Holders of Notes.....................................................66
Section 9.03 Compliance with Trust Indenture Act..................................................67
Section 9.04 Revocation and Effect of Consents....................................................67
Section 9.05 Notation on or Exchange of Notes.....................................................67
Section 9.06 Trustee to Sign Amendments, etc......................................................68
Article 10 SUBORDINATION........................................................................................68
Section 10.01 Agreement to Subordinate.............................................................68
Section 10.02 Liquidation; Dissolution; Bankruptcy.................................................68
Section 10.03 Default on Senior Debt...............................................................69
Section 10.04 Acceleration of Notes................................................................70
Section 10.05 When Distribution Must Be Paid Over..................................................70
Section 10.06 Notice by Company....................................................................71
Section 10.07 Subrogation..........................................................................71
Section 10.08 Relative Rights......................................................................71
Section 10.09 Subordination May Not Be Impaired by Company.........................................72
Section 10.10 Distribution or Notice to Representative.............................................72
Section 10.11 Rights of Trustee and Paying Agent...................................................72
Section 10.12 Authorization to Effect Subordination................................................73
Section 10.13 Subordination Rights Not Impaired by Acts or Omissions
of the Company or Holders of Senior Debt.............................................73
Section 10.14 Amendments...........................................................................74
Section 10.15 Trustee's Compensation Not Prejudiced................................................74
Article 11 SUBSIDIARY GUARANTEES................................................................................74
Section 11.01 Subsidiary Guarantees................................................................74
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Section 11.02 Execution and Delivery of Subsidiary Guarantees......................................76
Section 11.03 Consolidation or Merger of Guarantors................................................76
Section 11.04 Releases Following Sale of Assets....................................................77
Section 11.05 Limitation of Guarantor's Liability..................................................77
Section 11.06 Application of Certain Terms and Provisions to the Guarantor.........................77
Section 11.07 Subordination of Subsidiary Guarantees...............................................78
Section 11.08 No Payment on Guarantees in Certain Circumstances....................................78
Section 11.09 Payment Over of Proceeds Upon Dissolution, Etc.......................................79
Section 11.10 Payments May Be Paid Prior to Dissolution............................................81
Section 11.11 Subrogation..........................................................................81
Section 11.12 Subordination Rights Not Impaired by Acts or Omissions of a
Guarantor or Holders of Guarantor Senior Debt........................................81
Section 11.13 Noteholders Authorize Trustee To Effectuate Subordination of
Guarantees...........................................................................82
Section 11.14 Obligations of Each Guarantor Unconditional..........................................82
Section 11.15 Notice to Trustee....................................................................83
Section 11.16 Reliance on Judicial Order or Certificate of Liquidating
Agent................................................................................83
Section 11.17 Trustee's Relation to Guarantor Senior Debt..........................................83
Section 11.18 Trustee's Compensation Not Prejudiced................................................84
Section 11.19 Article Eleven Not To Prevent Events of Default......................................84
Article 12 MISCELLANEOUS........................................................................................84
Section 12.01 Trust Indenture Act Controls.........................................................84
Section 12.02 Notices..............................................................................84
Section 12.03 Communication by Holders of Notes with Other Holders of Notes........................86
Section 12.04 Certificate and Opinion as to Conditions Precedent...................................86
Section 12.05 Statements Required in Certificate or Opinion........................................86
Section 12.06 Rules by Trustee and Agents..........................................................87
Section 12.07 No Personal Liability of Directors, Officers, Employees and
Shareholders.........................................................................87
Section 12.08 Governing Law........................................................................87
Section 12.09 No Adverse Interpretation of Other Agreements........................................87
Section 12.10 Successors...........................................................................87
Section 12.11 Severability.........................................................................88
Section 12.12 Counterpart Originals................................................................88
Section 12.13 Table of Contents, Headings, etc.....................................................88
EXHIBITS
Exhibit A FORM OF NOTE A-1
Exhibit B FORM OF GUARANTEE B-1
Exhibit C CERTIFICATE OF TRANSFEROR C-1
</TABLE>
iv
EXHIBIT 4.6
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of December 9, 1998
By and Among
NEFF CORP.
as Issuer
THE GUARANTORS
named herein
and
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT ALEX. BROWN INCORPORATED
and
BEAR, STEARNS & CO. INC.
as Initial Purchasers
================================================================================
$100,000,000
10 1/4% SENIOR SUBORDINATED NOTES DUE 2008
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions............................................................1
2. Exchange Offer.........................................................4
3. Shelf Registration.....................................................8
4. Additional Interest....................................................9
5. Registration Procedures...............................................11
6. Registration Expenses.................................................20
7. Indemnification.......................................................21
8. Rule 144 and 144A.....................................................24
9. Underwritten Registrations............................................25
10. Miscellaneous........................................................25
(a) No Inconsistent Agreements.................................25
(b) Adjustments Affecting Registrable Securities...............25
(c) Amendments and Waivers.....................................26
(d) Notices....................................................26
(e) Successors and Assigns.....................................28
(f) Counterparts...............................................28
(g) Headings...................................................28
(h) Governing Law..............................................28
(i) Severability...............................................29
(j) Securities Held by the Issuers or Their Affiliates.........29
(k) Third Party Beneficiaries..................................29
(l) Entire Agreement...........................................29
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") is dated
as of December 9, 1998 by and among Neff Corp., a Delaware corporation (the
"COMPANY"), the Guarantors named on the signature pages hereto (the "GUARANTORS"
and, together with the Company, the "ISSUERS") and Donaldson, Lufkin & Jenrette
Securities Corporation, BT Alex. Brown Incorporated and Bear, Stearns & Co. Inc.
(the "INITIAL PURCHASERS").
This Agreement is entered into in connection with the Purchase
Agreement, dated as of December 2, 1998, between the Company, the Guarantors and
the Initial Purchasers (the "PURCHASE AGREEMENT") that provides for the sale by
the Company to the Initial Purchasers of $100,000,000 aggregate principal amount
of the Company's 10 1/4% Senior Subordinated Notes due 2008 (thE "NOtes"). The
Notes will be guaranteed (the "GUARANTEES") on a senior basis by the Guarantors.
The Notes and the Guarantees together are herein referred to as the
"SECURITIES". In order to induce the Initial Purchasers to enter into the
Purchase Agreement, the Issuers have agreed to provide the registration rights
set forth in this Agreement for the benefit of the Initial Purchasers and their
direct and indirect transferees and assigns. The execution and delivery of this
Agreement is a condition to the Initial Purchasers' obligation to purchase the
Securities under the Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
ADDITIONAL INTEREST: See Section 4(a) hereof.
ADVICE: See the last paragraph of Section 5 hereof.
AGREEMENT: See the first introductory paragraph hereto.
APPLICABLE PERIOD: See Section 2(b) hereof.
CLOSING DATE: The Closing Date as defined in the Purchase
Agreement.
COMPANY: See the first introductory paragraph hereto.
EFFECTIVENESS DATE: The date that is 150 days after the
Issue Date.
EFFECTIVENESS PERIOD: See Section 3(a) hereof.
-1-
<PAGE>
EVENT DATE: See Section 4(b) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
EXCHANGE OFFER: See Section 2(a) hereof.
EXCHANGE REGISTRATION STATEMENT: See Section 2(a) hereof.
EXCHANGE SECURITIES: See Section 2(a) hereof.
FILING DATE: Within 75 days after the Issue Date.
HOLDER: Any holder of a Registrable Security or Registrable
Securities.
INDEMNIFIED PERSON: See Section 7(c) hereof.
INDEMNIFYING PERSON: See Section 7(c) hereof.
INDENTURE: The Indenture, dated as of December 9, 1998 by and
among the Company, the Guarantors and State Street Bank and Trust Company, as
trustee, pursuant to which the Securities are being issued, as amended or
supplemented from time to time in accordance with the terms thereof.
INITIAL PURCHASERS: See the first introductory paragraph
hereto.
INSPECTORS: See Section 5(o) hereof.
ISSUE DATE: The date on which the original Securities were
sold to the Initial Purchasers pursuant to the Purchase Agreement.
ISSUERS: See the introductory paragraph hereto.
NASD: See Section 5(s) hereof.
NOTES: See the second introductory paragraph hereto.
PARTICIPANT: See Section 7(a) hereof.
PARTICIPATING BROKER-DEALER: See Section 2(b) hereof.
-2-
<PAGE>
PERSON: An individual, trustee, corporation, partnership,
limited liability company, joint stock company, trust, unincorporated
association, union, business association, firm or other legal entity.
PRIVATE EXCHANGE: See Section 2(b) hereof.
PRIVATE EXCHANGE SECURITIES: See Section 2(b) hereof.
PROSPECTUS: The prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, and all other amendments and supplements to the
Prospectus, with respect to the terms of the offering of any portion of the
Registrable Securities covered by such Registration Statement including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.
PURCHASE AGREEMENT: See the second introductory paragraph
hereto.
RECORDS: See Section 5(o) hereof.
REGISTRABLE SECURITIES: Each Security upon original issuance
of the Securities and at all times subsequent thereto, each Exchange Security as
to which Section 2(c)(v) hereof is applicable upon original issuance and at all
times subsequent thereto and each Private Exchange Security upon original
issuance thereof and at all times subsequent thereto, until in the case of any
such Security, Exchange Security or Private Exchange Security, as the case may
be, the earliest to occur of (i) a Registration Statement (other than, with
respect to any Exchange Security as to which Section 2(c)(v) hereof is
applicable, the Exchange Registration Statement) covering such Security,
Exchange Security or Private Exchange Security, as the case may be, has been
declared effective by the SEC and such Security, Exchange Security or Private
Exchange Security, as the case may be, has been disposed of in accordance with
such effective Registration Statement, (ii) such Security, Exchange Security or
Private Exchange Security, as the case may be, is sold in compliance with Rule
144, (iii) such Security has been exchanged for an Exchange Security or Exchange
Securities pursuant to an Exchange Offer and is entitled to be resold without
complying with the prospectus delivery requirements of the Securities Act or
(iv) such Security, Exchange Security or Private Exchange Security, as the case
may be, ceases to be outstanding for purposes of the Indenture.
REGISTRATION STATEMENT: Any registration statement of the
Company, including, but not limited to, the Exchange Registration Statement and
any registration statement filed in
-3-
<PAGE>
connection with a Shelf Registration, filed with the SEC pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
RULE 144: Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
RULE 144A: Rule 144A promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the SEC.
RULE 415: Rule 415 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
SECURITIES: See the second introductory paragraph hereto.
SECURITIES ACT: The Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
SHELF NOTICE: See Section 2(c) hereof.
SHELF REGISTRATION: See Section 3(a) hereof.
TIA: The Trust Indenture Act of 1939, as amended.
TRUSTEE: The trustee under the Indenture and, if existent,
the trustee under any indenture governing the Exchange Securities and Private
Exchange Securities (if any).
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. EXCHANGE OFFER
(a) The Company and the Guarantors shall file with the SEC no later than
the Filing Date an offer to exchange (the "EXCHANGE OFFER") any and all
of the Registrable Securities (other than the
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Private Exchange Securities, if any) for a like aggregate principal
amount of debt securities of the Company that are identical in all
material respects to the Securities (the "EXCHANGE SECURITIES") (and
that are entitled to the benefits of the Indenture or a trust indenture
that is identical in all material respects to the Indenture (other than
such changes to the Indenture or any such identical trust indenture as
are necessary to comply with any requirements of the SEC to effect or
maintain the qualification thereof under the TIA) and that, in either
case, has been qualified under the TIA), except that the Exchange
Securities (other than Private Exchange Securities, if any) shall have
been registered pursuant to an effective Registration Statement under
the Securities Act and shall contain no restrictive legend thereon. The
Exchange Offer shall be registered under the Securities Act on the
appropriate form (the "EXCHANGE REGISTRATION STATEMENT") and shall
comply with all applicable tender offer rules and regulations under the
Exchange Act. The Company and the Guarantors agree to use their
respective reasonable best efforts to (x) cause the Exchange
Registration Statement to be declared effective under the Securities
Act on or before the Effectiveness Date; (y) keep the Exchange Offer
open for at least 20 business days (or longer if required by applicable
law) after the date that notice of the Exchange Offer is mailed to
Holders; and (z) consummate the Exchange Offer on or prior to the 190th
day following the Issue Date. If after such Exchange Registration
Statement is declared effective by the SEC, the Exchange Offer or the
issuance of the Exchange Securities thereunder is interfered with by
any stop order, injunction or other order or requirement of the SEC or
any other governmental agency or court, such Exchange Registration
Statement shall be deemed not to have become effective for purposes of
this Agreement. Each Holder who participates in the Exchange Offer will
be required to represent in writing that any Exchange Securities
received by it will be acquired in the ordinary course of its business,
that at the time of the consummation of the Exchange Offer such Holder
will have no arrangement or understanding with any Person to
participate in the distribution of the Exchange Securities in violation
of the provisions of the Securities Act and that such Holder is not an
affiliate of the Company or the Guarantors within the meaning of the
Securities Act and is not acting on behalf of any persons or entities
who could not truthfully make the foregoing representations. Upon
consummation of the Exchange Offer in accordance with this Section 2,
the provisions of this Agreement shall continue to apply, MUTATIS
MUTANDIS, solely with respect to Registrable Securities that are
Private Exchange Securities and Exchange Securities held by
Participating Broker-Dealers, and the Company shall have no further
obligation to register Registrable Securities (other than Private
Exchange Securities and other than in respect of any Exchange
Securities as to which clause 2(c)(v) hereof applies) pursuant to
Section 3 hereof. No securities other than the Exchange Securities
shall be included in the Exchange Registration Statement.
(b) The Company and the Guarantors shall include within the Prospectus
contained in the Exchange Registration Statement a section entitled
"Plan of Distribution," reasonably acceptable to the Initial
Purchasers, that shall contain a summary statement of the positions
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taken or policies made by the Staff of the SEC with respect to the
potential "underwriter" status of any broker-dealer that is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of
Exchange Securities received by such broker-dealer in the Exchange
Offer (a "PARTICIPATING BROKER-DEALER"), whether such positions or
policies have been publicly disseminated by the staff of the SEC or
such positions or policies, in the judgment of the Initial Purchasers,
represent the prevailing views of the Staff of the SEC. Such "Plan of
Distribution" section shall also expressly permit the use of the
Prospectus by all Persons subject to the prospectus delivery
requirements of the Securities Act, including all Participating
Broker-Dealers, and include a statement describing the means by which
Participating Broker-Dealers may resell the Exchange Securities.
The Company and the Guarantors shall use their respective
reasonable best efforts to keep the Exchange Registration Statement effective
and to amend and supplement the Prospectus contained therein in order to permit
such Prospectus to be lawfully delivered by all Persons subject to the
prospectus delivery requirements of the Securities Act for such period of time
as is necessary to comply with applicable law in connection with any resale of
the Exchange Securities; PROVIDED, HOWEVER, that such period shall not exceed
270 days after the consummation of the Exchange Offer (or such longer period if
extended pursuant to the last paragraph of Section 5 hereof) (the "APPLICABLE
PERIOD").
If, prior to consummation of the Exchange Offer, the Initial
Purchasers hold any Securities acquired by them and having, or that are
reasonably likely to be determined to have, the status of an unsold allotment in
the initial distribution, the Issuers, upon the request of the Initial
Purchasers simultaneously with the delivery of the Exchange Securities in the
Exchange Offer, shall issue and deliver to the Initial Purchasers in exchange
(the "PRIVATE EXCHANGE") for such Securities held by the Initial Purchasers a
like principal amount of debt securities of the Issuers that are identical in
all material respects to the Exchange Securities(the "PRIVATE EXCHANGE
SECURITIES") (and that are issued pursuant to the same indenture as the Exchange
Securities), except for the placement of a restrictive legend on such Private
Exchange Securities. The Private Exchange Securities shall bear the same CUSIP
number as the Exchange Securities.
Interest on the Exchange Securities and the Private Exchange
Securities will accrue from the last interest payment date on which interest was
paid on the Securities surrendered in exchange therefor or, if no interest has
been paid on the Securities, from the Issue Date.
In connection with the Exchange Offer, the Company and the
Guarantors shall:
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(1) mail to each Holder a copy of the Prospectus forming part
of the Exchange Registration Statement, together with an appropriate
letter of transmittal and related documents;
(2) utilize the services of a depositary for the Exchange
Offer with an address in the Borough of Manhattan, The City of New
York;
(3) permit Holders to withdraw tendered Securities at any time
prior to the close of business, New York time, on the last business day
on which the Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all
applicable laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer
or the Private Exchange, as the case may be, the Company and the Guarantors
shall:
(1) accept for exchange all Securities properly tendered and
not validly withdrawn pursuant to the Exchange Offer or the Private
Exchange;
(2) deliver to the Trustee for cancellation all Securities so
accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to
each Holder of Securities, Exchange Securities or Private Exchange
Securities, as the case may be, equal in principal amount to the
Securities of such Holder so accepted for exchange.
The Exchange Securities and the Private Exchange Securities
may be issued under (i) the Indenture or (ii) an indenture identical in all
material respects to the Indenture, which in either event shall provide that (1)
the Exchange Securities shall not be subject to the transfer restrictions set
forth in the Indenture and (2) the Private Exchange Securities shall be subject
to the transfer restrictions set forth in the Indenture. The Indenture or such
indenture shall provide that the Exchange Securities, the Private Exchange
Securities and the Notes shall vote and consent together on all matters as one
class and that neither the Exchange Securities, the Private Exchange Securities
or the Securities will have the right to vote or consent as a separate class on
any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Issuers are not permitted
to effect an Exchange Offer, (ii) the Exchange Offer is not consummated
within 190 days of the Issue Date, (iii) the holder of Private Exchange
Securities so requests at any time after the consummation of the
Private Exchange, (iv) the Holders of not less than a majority in
aggregate principal amount of the Registrable Securities
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determine that the interests of the Holders would be materially
adversely affected by consummation of the Exchange Offer or (v) in the
case of any Holder that participates in the Exchange Offer, such Holder
does not receive Exchange Securities on the date of the exchange that
may be sold without restriction under state and federal securities laws
(other than due solely to the status of such Holder as an affiliate of
the Company or any of the Guarantors within the meaning of the
Securities Act), then the Company shall promptly deliver written notice
thereof (the "SHELF NOTICE") to the Trustee and in the case of clauses
(i), (ii) and (iv), all Holders, in the case of clause (iii), the
Holders of the Private Exchange Securities and in the case of clause
(v), the affected Holder, and shall file a Shelf Registration pursuant
to Section 3 hereof.
3. SHELF REGISTRATION
If a Shelf Notice is delivered as contemplated by Section 2(c)
hereof, then:
(a) SHELF REGISTRATION. The Company and the Guarantors shall as promptly as
reasonably practicable file with the SEC a Registration Statement for
an offering to be made on a continuous basis pursuant to Rule 415
covering all of the Registrable Securities (the "SHELF REGISTRATION").
If the Company and the Guarantors shall not have yet filed an Exchange
Registration Statement, the Company and the Guarantors shall use their
respective reasonable best efforts to file with the SEC the Shelf
Registration on or prior to the Filing Date. The Shelf Registration
shall be on Form S-1 or another appropriate form permitting
registration of such Registrable Securities for resale by Holders in
the manner or manners designated by them (including, without
limitation, one or more underwritten offerings). The Company and the
Guarantors shall not permit any securities other than the Registrable
Securities to be included in the Shelf Registration.
The Company and the Guarantors shall use their respective
reasonable best efforts to cause the Shelf Registration to be declared effective
under the Securities Act on or prior to the Effectiveness Date and to keep the
Shelf Registration continuously effective under the Securities Act until the
date that is two years from the Issue Date (the "EFFECTIVENESS PERIOD"), or such
shorter period ending when all Registrable Securities covered by the Shelf
Registration have been sold in the manner set forth and as contemplated in the
Shelf Registration.
(b) WITHDRAWAL OF STOP ORDERS. If the Shelf Registration ceases to be
effective for any reason at any time during the Effectiveness Period
(other than because of the sale of all of the securities registered
thereunder), the Company and the Guarantors shall use their respective
reasonable best efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof.
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(c) SUPPLEMENTS AND AMENDMENTS. The Company and the Guarantors shall
promptly supplement and amend the Shelf Registration if required by the
rules, regulations or instructions applicable to the registration form
used for such Shelf Registration, if required by the Securities Act, or
if reasonably requested by the Holders of a majority in aggregate
principal amount of the Registrable Securities covered by such
Registration Statement or by any underwriter of such Registrable
Securities.
4. ADDITIONAL INTEREST
(a) The Company, the Guarantors and the Initial Purchasers agree that the
Holders of Registrable Securities will suffer damages if the Company
and the Guarantors fail to fulfill their respective obligations under
Section 2 or Section 3 hereof and that it would not be feasible to
ascertain the extent of such damages with precision. Accordingly, the
Company and the Guarantors agree to pay, as liquidated damages,
additional interest on the Securities("ADDITIONAL INTEREST") under the
circumstances and to the extent set forth below (without duplication):
(i) if (A) neither the Exchange Registration Statement nor the
Shelf Registration has been filed on or prior to the Filing
Date or (B) notwithstanding that the Company and the
Guarantors have consummated or will consummate an Exchange
Offer, the Company and the Guarantors are required to file a
Shelf Registration and such Shelf Registration is not filed on
or prior to the date required by Section 3 of this Agreement,
Additional Interest shall accrue on the Securities over and
above the stated interest at a rate of 0.50% per annum for the
first 90 days immediately following the Filing Date, such
Additional Interest rate increasing by an additional 0.50% per
annum at the beginning of each subsequent 90-day period;
(ii) if (A) neither the Exchange Registration Statement nor
the Initial Shelf Registration is declared effective by the
SEC on or prior to the Effectiveness Date or (B)
notwithstanding that the Company and the Guarantors have
consummated or will consummate an Exchange Offer, the Company
and the Guarantors are required to file a Shelf Registration
and such Shelf Registration is not declared effective by the
Commission on or prior to the 60th day following the date such
Shelf Registration was filed, then, commencing on the 61st day
after the applicable filing date, Additional Interest shall be
accrued on the Securities included or that should have been
included in such Registration Statement over and above the
stated interest at a rate of 0.50% per annum for the first 90
days immediately following such date, such Additional Interest
rate increasing by an additional 0.50% per annum at the
beginning of each subsequent 90-day period; and
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(iii) if either (A) the Company and the Guarantors have not
exchanged Exchange Securities for all Securities validly
tendered in accordance with the terms of the Exchange Offer on
or prior to the 75th day after the date on which the Exchange
Registration Statement was declared effective or (B) the
Exchange Registration Statement ceases to be effective at any
time prior to the time that the Exchange Offer is consummated
or (C) if applicable, the Shelf Registration has been declared
effective and such Shelf Registration ceases to be effective
at any time during the Effectiveness Period (other than after
such time as all Securities have been disposed of thereunder),
then Additional Interest shall be accrued on the Securities
(over and above any interest otherwise payable on the
Securities) at a rate of 0.50% per annum on (x) the 76th day
after such effective date, in the case of (A) above, or (y)
the day the Exchange Registration Statement ceases to be
effective without being declared effective within five
business days in the case of (B) above, or (z) the day such
Shelf Registration ceases to be effective, in the case of (C)
above, such Additional Interest rate increasing by an
additional 0.50% per annum at the beginning of each such
subsequent 90-day period (it being understood and agreed that,
notwithstanding any provision to the contrary, so long as any
Security that is the subject of a Shelf Notice is then covered
by an effective Shelf Registration Statement, no Additional
Interest shall accrue on such Security);
PROVIDED, HOWEVER, that the Additional Interest rate on any affected Security
may not exceed at any one time in the aggregate 2.0% per annum; and PROVIDED,
FURTHER, that (1) upon the filing of the Exchange Registration Statement or a
Shelf Registration (in the case of clause (i) of this Section 4(a)), (2) upon
the effectiveness of the Exchange Registration Statement or the Shelf
Registration (in the case of clause (ii) of this Section 4(a)), or (3) upon the
exchange of Exchange Securities for all Securities tendered (in the case of
clause (iii)(A) of this Section 4(a)), or upon the effectiveness of the Exchange
Registration Statement that had ceased to remain effective (in the case of
(iii)(B) of this Section 4(a)) or upon the effectiveness of the Shelf
Registration that had ceased to remain effective (in the case of (iii)(C) of
this Section 4(a)), Additional Interest on the affected Securities as a result
of such clause (or the relevant subclause thereof), as the case may be, shall
cease to accrue.
(b) The Company and the Guarantors shall notify the Trustee within one
business day after each and every date on which an event occurs in
respect of which Additional Interest is required to be paid (an "EVENT
DATE"). Any amounts of Additional Interest due pursuant to (a)(i),
(a)(ii) or (a)(iii) of this Section 4 will be payable in cash on the
same original interest payment dates as the Notes, commencing with the
first such date occurring after any such Additional Interest commences
to accrue. The amount of Additional Interest will be determined by
multiplying the applicable Additional Interest rate by the principal
amount of the Registrable Securities, multiplied by a fraction, the
numerator of which is the number of days such Additional Interest rate
was applicable during such period (determined on the basis of a 360-day
year
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consisting of twelve 30-day months and, in the case of a partial month,
the actual number of days elapsed) and the denominator of which is 360.
5. REGISTRATION PROCEDURES
In connection with the filing of any Registration Statement
pursuant to Sections 2 or 3 hereof, the Company and the Guarantors shall effect
such registrations to permit the sale of the securities covered thereby in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto and in connection with any Registration Statement filed by the
Company and the Guarantors hereunder, the Company and the Guarantors shall:
(a) Prepare and file with the SEC prior to the Filing Date, a
Registration Statement or Registration Statements as prescribed by
Sections 2 or 3 hereof, and use its reasonable best efforts to cause
each such Registration Statement to become effective and remain
effective as provided herein; PROVIDED, HOWEVER, that, if (1) such
filing is pursuant to Section 3 hereof or (2) a Prospectus contained in
an Exchange Registration Statement filed pursuant to Section 2 hereof
is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities
during the Applicable Period, before filing any Registration Statement
or Prospectus or any amendments or supplements thereto, the Company and
the Guarantors shall furnish to and afford the Holders of the
Registrable Securities covered by such Registration Statement or each
such Participating Broker-Dealer, as the case may be, their counsel and
the managing underwriters, if any, a reasonable opportunity to review
copies of all such documents (including copies of any documents to be
incorporated by reference therein and all exhibits thereto) proposed to
be filed (in each case at least three business days prior to such
filing). The Company and the Guarantors shall not file any Registration
Statement or Prospectus or any amendments or supplements thereto if the
Holders of a majority in aggregate principal amount of the Registrable
Securities covered by such Registration Statement, or any such
Participating Broker-Dealer, as the case may be, or their counsel, or
the managing underwriters, if any, shall reasonably object.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration or Exchange
Registration Statement, as the case may be, as may be necessary to keep
such Registration Statement continuously effective for the
Effectiveness Period or the Applicable Period, as the case may be;
cause the related Prospectus to be supplemented by any prospectus
supplement required by applicable law, and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in force)
promulgated under the Securities Act; and comply with the provisions of
the Securities Act and the Exchange Act applicable to it
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with respect to the disposition of all securities covered by such
Registration Statement as so amended or in such Prospectus as so
supplemented and with respect to the subsequent resale of any
securities being sold by a Participating Broker-Dealer covered by any
such Prospectus; the Company and the Guarantors shall be deemed not to
have used their respective reasonable best efforts to keep a
Registration Statement effective during the Applicable Period if each
of the Company and the Guarantors voluntarily takes any action that
would result in selling Holders of the Registrable Securities covered
thereby or Participating Broker-Dealers seeking to sell Exchange
Securities not being able to sell such Registrable Securities or such
Exchange Securities during that period, unless such action is required
by applicable law or unless the Company and the Guarantors comply with
this Agreement, including without limitation, the provisions of
paragraph 5(k) hereof and the last paragraph of this Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3
hereof or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Securities during the Applicable Period,
notify the selling Holders of Registrable Securities, or each such
Participating Broker-Dealer, as the case may be, their counsel and the
managing underwriters, if any, promptly (but in any event within two
business days) and confirm such notice in writing, (i) when a
Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective under the
Securities Act (including in such notice a written statement that any
Holder may, upon request, obtain, at the sole expense of the Issuers,
one conformed copy of such Registration Statement or post-effective
amendment including financial statements and schedules, documents
incorporated or deemed to be incorporated by reference and exhibits),
(ii) of the issuance by the SEC of any stop order suspending the
effectiveness of a Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus or the initiation of
any proceedings for that purpose, (iii) if at any time when a
prospectus is required by the Securities Act to be delivered in
connection with sales of the Registrable Securities or resales of
Exchange Securities by Participating Broker-Dealers the representations
and warranties of the Issuers contained in any agreement (including any
underwriting agreement), contemplated by Section 5(n) hereof cease to
be true and correct, (iv) of the receipt by the Issuers of any
notification with respect to the suspension of the qualification or
exemption from qualification of a Registration Statement or any of the
Registrable Securities or the Exchange Securities to be sold by any
Participating Broker-Dealer for offer or sale in any jurisdiction, or
the initiation or written threat of any proceeding for such purpose,
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(v) of the happening of any event, the existence of any condition or
any information becoming known that makes any statement made in such
Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue
in any material respects or that requires the making of any changes in
or amendments or supplements to such Registration Statement, Prospectus
or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and that in the case of the
Prospectus, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading and (vi) of
the Issuers' determination that a post-effective amendment to a
Registration Statement would be appropriate.
(d) Use their respective reasonable best efforts to prevent
the issuance of any order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending the use
of a Prospectus or suspending the qualification (or exemption from
qualification) of any of the Registrable Securities or the Exchange
Securities for sale in any jurisdiction and, if any such order is
issued, to use their reasonable best efforts to obtain the withdrawal
of any such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and
if requested by the managing underwriter or underwriters, if any, or
the Holders of a majority in aggregate principal amount of the
Registrable Securities being sold in connection with an underwritten
offering, (i) promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriter
or underwriters, if any, such Holders or counsel for any of them
determine is reasonably necessary to be included therein, (ii) make all
required filings of such prospectus supplement or such post-effective
amendment as soon as practicable after the Issuers have received
notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment and (iii) supplement or make
amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3
hereof or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Securities during the Applicable Period,
furnish to each selling Holder of Registrable Securities and to each
such Participating Broker-Dealer who so requests and to their
respective counsel and each managing underwriter, if any, at the sole
expense of the Issuers, one conformed copy of the
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Registration Statement or Registration Statements and each
post-effective amendment thereto, including financial statements and
schedules and, if requested, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3
hereof or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Securities during the Applicable Period,
deliver to each selling Holder of Registrable Securities, or each such
Participating Broker-Dealer, as the case may be, their respective
counsel and the underwriters, if any, at the sole expense of the
Issuers, as many copies of the Prospectus or Prospectuses (including
each form of preliminary prospectus) and each amendment or supplement
thereto and any documents incorporated by reference therein as such
Persons may reasonably request; and, subject to the last paragraph of
this Section 5, the Company and the Guarantors hereby consent to the
use of such Prospectus and each amendment or supplement thereto by each
of the selling Holders of Registrable Securities or each such
Participating Broker-Dealer, as the case may be, and the underwriters
or agents, if any, and dealers, if any, in connection with the offering
and sale of the Registrable Securities covered by, or the sale by
Participating Broker-Dealers of the Exchange Securities pursuant to,
such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities or
Exchange Securities or any delivery of a Prospectus contained in the
Exchange Registration Statement by any Participating Broker-Dealer who
seeks to sell Exchange Securities during the Applicable Period, to use
their reasonable best efforts to register or qualify and to cooperate
with the selling Holders of Registrable Securities or each such
Participating Broker-Dealer, as the case may be, the managing
underwriter or underwriters, if any, and their respective counsel in
connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for
offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any selling Holder,
Participating Broker-Dealer or the managing underwriter or underwriters
reasonably request in writing; PROVIDED, HOWEVER, that where Exchange
Securities held by Participating Broker-Dealers or Registrable
Securities are offered other than through an underwritten offering, the
Company and the Guarantors agree to cause their counsel to perform Blue
Sky investigations and file registrations and qualifications required
to be filed pursuant to this Section 5(h); use their reasonable best
efforts to keep each such registration or qualification (or exemption
therefrom) effective during the period such Registration Statement is
required to be kept effective and do any and all other acts or things
reasonably necessary or advisable to enable the disposition in such
jurisdictions of the
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Exchange Securities held by Participating Broker-Dealers or the
Registrable Securities covered by the applicable Registration
Statement; PROVIDED, HOWEVER, that none of the Company or the
Guarantors shall be required to (A) qualify generally to do business in
any jurisdiction where it is not then so qualified, (B) take any action
that would subject it to general service of process in any such
jurisdiction where it is not then so subject or (C) subject itself to
taxation in any such jurisdiction where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3
hereof, cooperate with the selling Holders of Registrable Securities
and the managing underwriter or underwriters, if any, to facilitate the
timely preparation and delivery of certificates representing
Registrable Securities to be sold, which certificates shall not bear
any restrictive legends and shall be in a form eligible for deposit
with The Depository Trust Company; and enable such Registrable
Securities to be in such denominations and registered in such names as
the managing underwriter or underwriters, if any, or Holders may
reasonably request.
(j) Use its reasonable best efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with
or approved by such other governmental agencies or authorities as may
be necessary to enable the Holders thereof or the underwriter or
underwriters, if any, to consummate the disposition of such Registrable
Securities, except as may be required solely as a consequence of the
nature of such selling Holder's business, in which case the Company and
the Guarantors will cooperate in all reasonable respects with the
filing of such Registration Statement and the granting of such
approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3
hereof or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Securities during the Applicable Period,
upon the occurrence of any event contemplated by paragraph 5(c)(v) or
5(c)(vi), hereof, as promptly as practicable prepare and (subject to
Section 5(a) hereof) file with the SEC, at the Issuers' sole expense, a
supplement or post-effective amendment to the Registration Statement or
a supplement to the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference, or file any other
required document so that, as thereafter delivered to the purchasers of
the Registrable Securities being sold thereunder or to the purchasers
of the Exchange Securities to whom such Prospectus will be delivered by
a Participating Broker-Dealer, any such Prospectus will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
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(l) Use their respective reasonable best efforts to cause the
Registrable Securities covered by a Registration Statement or the
Exchange Securities, as the case may be, to be rated with the
appropriate rating agencies, if so requested by the Holders of a
majority in aggregate principal amount of Registrable Securities
covered by such Registration Statement or the Exchange Securities, as
the case may be, or the managing underwriter or underwriters, if any.
(m) Prior to the effective date of the first Registration
Statement relating to the Registrable Securities, (i) provide the
Trustee with certificates for the Registrable Securities or Exchange
Securities, as the case may be, in a form eligible for deposit with The
Depository Trust Company and (ii) provide a CUSIP number for the
Registrable Securities or Exchange Securities, as the case may be.
(n) In connection with any underwritten offering of
Registrable Securities pursuant to a Shelf Registration, enter into an
underwriting agreement as is customary in underwritten offerings of
debt securities similar to the Securities and take all such other
actions as are reasonably requested by the managing underwriter or
underwriters in order to expedite or facilitate the registration or the
disposition of such Registrable Securities and, in such connection, (i)
make such representations and warranties to, and covenants with, the
underwriters with respect to the business of the Issuers and their
subsidiaries (including any acquired business, properties or entity, if
applicable) and the Registration Statement, Prospectus and documents,
if any, incorporated or deemed to be incorporated by reference therein,
in each case, as are customarily made by issuers to underwriters in
underwritten offerings of debt securities similar to the Securities,
and confirm the same in writing if and when requested; (ii) obtain the
written opinion of counsel to the Issuers and written updates thereof
in form, scope and substance reasonably satisfactory to the managing
underwriter or underwriters, addressed to the underwriters covering the
matters customarily covered in opinions requested in underwritten
offerings of debt similar to the Securities and such other matters as
may be reasonably requested by the managing underwriter or
underwriters; (iii) obtain "cold comfort" letters and updates thereof
in form, scope and substance reasonably satisfactory to the managing
underwriter or underwriters from the independent certified public
accountants of the Issuers (and, if necessary, any other independent
certified public accountants of any subsidiary of the Issuers or of any
business acquired by the Issuers for which financial statements and
financial data are, or are required to be, included or incorporated by
reference in the Registration Statement), addressed to each of the
underwriters, such letters to be in customary form and covering matters
of the type customarily covered in "cold comfort" letters in connection
with underwritten offerings of debt securities similar to the
Securities and such other matters as reasonably requested by the
managing underwriter or underwriters; and (iv) if an underwriting
agreement is entered into, the same shall
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contain indemnification provisions and procedures no less favorable
than those set forth in Section 7 hereof (or such other provisions and
procedures acceptable to Holders of a majority in aggregate principal
amount of Registrable Securities covered by such Registration Statement
and the managing underwriter or underwriters or agents) with respect to
all parties to be indemnified pursuant to said Section. The above shall
be done at each closing under such underwriting agreement, or as and to
the extent required thereunder.
(o) If (1) a Shelf Registration is filed pursuant to Section 3
hereof or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Securities during the Applicable Period,
upon reasonable advance notice make available for inspection by any
selling Holder of such Registrable Securities being sold, or each such
Participating Broker-Dealer, as the case may be, any underwriter
participating in any such disposition of Registrable Securities, if
any, and any attorney, accountant or other agent retained by any such
selling Holder or each such Participating Broker-Dealer, as the case
may be, or underwriter (collectively, the "INSPECTORS"), at the offices
where normally kept, during reasonable business hours without
interfering in the orderly business of the Company or Guarantors, all
financial and other records, pertinent corporate documents and
instruments of the Issuers and their subsidiaries (collectively, the
"RECORDS") as shall be reasonably necessary to enable them to exercise
any applicable due diligence responsibilities, and cause the respective
officers, directors and employees of the Issuers and their subsidiaries
to supply all information reasonably requested by any such Inspector in
connection with such Registration Statement. Records that the Issuers
determine, in good faith, to be confidential and any Records that they
notify the Inspectors are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records is necessary to
avoid or correct a material misstatement or omission in such
Registration Statement, (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction, (iii) after giving reasonable prior notice to the
Company, disclosure of such information is, in the opinion of counsel
for any Inspector, necessary or advisable in connection with any
action, claim, suit or proceeding, directly or indirectly, involving or
potentially involving such Inspector and arising out of, based upon,
relating to or involving this Agreement or any transactions
contemplated hereby or arising hereunder or (iv) the information in
such Records has been made generally available to the public. Each
selling Holder of such Registrable Securities and each such
Participating Broker-Dealer will be required to agree that information
obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it as the basis for any market
transactions in the securities of the Company unless and until such
information
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is generally available to the public. Each selling Holder of such
Registrable Securities and each such Participating Broker-Dealer will
be required to further agree that it will, upon learning that
disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company to
undertake appropriate action to prevent disclosure of the Records
deemed confidential at the Issuers' sole expense.
(p) Provide an indenture trustee for the Registrable
Securities or the Exchange Securities, as the case may be, and cause
the Indenture or the trust indenture provided for in Section 2(a)
hereof, as the case may be, to be qualified under the TIA not later
than the effective date of the Exchange Offer or the first Registration
Statement relating to the Registrable Securities; and in connection
therewith, cooperate with the trustee under any such indenture and the
Holders of the Registrable Securities, to effect such changes to such
indenture as may be required for such indenture to be so qualified in
accordance with the terms of the TIA; and execute, and use its
reasonable best efforts to cause such trustee to execute, all documents
as may be required to effect such changes and all other forms and
documents required to be filed with the SEC to enable such indenture to
be so qualified in a timely manner.
(q) Comply with all applicable rules and regulations of the
SEC and make generally available to its securityholders earning
statements satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder (or any similar rule promulgated under the
Securities Act) no later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period
is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Securities are sold to underwriters in a firm
commitment or reasonable best efforts underwritten offering and (ii) if
not sold to underwriters in such an offering, commencing on the first
day of the first fiscal quarter of the Issuers after the effective date
of a Registration Statement, which statements shall cover said 12-month
periods.
(r) Upon consummation of an Exchange Offer or a Private
Exchange, obtain an opinion of counsel to the Issuers, who may, at the
Issuer's election, be internal counsel to the Issuers, in a form
customary for underwritten transactions, addressed to the Trustee for
the benefit of all Holders of Registrable Securities participating in
the Exchange Offer or the Private Exchange, as the case may be, that
the Exchange Securities or Private Exchange Securities, as the case may
be, and the related indenture constitute legal, valid and binding
obligations of the Issuers, enforceable against the Issuers in
accordance with its respective terms, subject to customary exceptions
and qualifications.
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(s) If an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Securities by Holders to
the Company (or to such other Person as directed by the Company) in
exchange for the Exchange Securities or the Private Exchange
Securities, as the case may be, the Company shall mark, or cause to be
marked, on such Registrable Securities that such Registrable Securities
are being cancelled in exchange for the Exchange Securities or the
Private Exchange Securities, as the case may be; in no event shall such
Registrable Securities be marked as paid or otherwise satisfied.
(t) Cooperate with each seller of Registrable Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Registrable Securities and
their respective counsel in connection with any filings required to be
made with the National Association of Securities Dealers, Inc. (the
"NASD").
(u) Use their respective reasonable best efforts to take all
other steps necessary or advisable to effect the registration of the
Registrable Securities covered by a Registration Statement contemplated
hereby.
The Company and the Guarantors may require each seller of
Registrable Securities as to which any registration is being effected to furnish
to the Company and the Guarantors such information regarding such seller and the
distribution of such Registrable Securities as the Company and the Guarantors
may, from time to time, reasonably request. The Company and the Guarantors may
exclude from such registration the Registrable Securities of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request and in such event shall have no further obligation under
this Agreement (including, without limitation, obligations under Section 4
hereof) with respect to such seller or any subsequent holder of such Registrable
Securities. Each seller as to which any Shelf Registration is being effected
agrees to furnish promptly to the Company and the Guarantors all information
required to be disclosed in order to make the information previously furnished
to the Company and the Guarantors by such seller not materially misleading.
Each Holder of Registrable Securities and each Participating
Broker-Dealer agrees by acquisition of such Registrable Securities or Exchange
Securities to be sold by such Participating Broker-Dealer, as the case may be,
that, upon actual receipt of any notice from the Company of the happening of any
event of the kind described in Sections 5(c)(ii), 5(c)(iv), 5(c)(v) or 5(c)(vi)
hereof, such Holder will forthwith discontinue disposition of such Registrable
Securities covered by such Registration Statement or Prospectus or Exchange
Securities to be sold by such Holder or Participating Broker-Dealer, as the case
may be, until such Holder's or Participating Broker-Dealer's receipt of the
copies of the supplemented or
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amended Prospectus contemplated by Section 5(k) hereof, or until it is advised
in writing (the "ADVICE") by the Company that the use of the applicable
Prospectus may be resumed, and has received copies of any amendments or
supplements thereto. In the event that the Company shall give any such notice,
each of the Effectiveness Period and the Applicable Period shall be extended by
the number of days during such periods from and including the date of the giving
of such notice to and including the date when each seller of Registrable
Securities covered by such Registration Statement or Exchange Securities to be
sold by such Participating Broker-Dealer, as the case may be, shall have
received (x) the copies of the supplemented or amended Prospectus contemplated
by Section 5(k) hereof or (y) the Advice; PROVIDED, HOWEVER, that the
Effectiveness Period shall not be extended for a period longer than two years
from the Issue Date.
6. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or compliance with
this Agreement by the Company and the Guarantors shall be borne by the
Company and the Guarantors whether or not the Exchange Offer or a Shelf
Registration is filed or becomes effective, including, without
limitation, (i) all registration and filing fees (including, without
limitation, (A) fees with respect to filings required to be made with
the NASD in connection with an underwritten offering and (B) fees and
expenses of compliance with state securities or Blue Sky laws
(including, without limitation, reasonable fees and disbursements of
counsel in connection with Blue Sky qualifications of the Registrable
Securities or Exchange Securities and determination of the eligibility
of the Registrable Securities or Exchange Securities for investment
under the laws of such jurisdictions (x) where the holders of
Registrable Securities are located, in the case of the Exchange
Securities, or (y) as provided in Section 5(h) hereof, in the case of
Registrable Securities or Exchange Securities to be sold by a
Participating Broker-Dealer during the Applicable Period)), (ii)
printing expenses, including, without limitation, expenses of printing
certificates for Registrable Securities or Exchange Securities in a
form eligible for deposit with The Depository Trust Company and of
printing prospectuses if the printing of prospectuses is requested by
the managing underwriter or underwriters, if any, by the Holders of a
majority in aggregate principal amount of the Registrable Securities
included in any Registration Statement or sold by any Participating
Broker-Dealer, as the case may be, (iii) messenger, telephone and
delivery expenses, (iv) fees and disbursements of counsel for the
Company and fees and disbursements of special counsel for the sellers
of Registrable Securities(subject to the provisions of Section 6(b)
hereof), (v) fees and disbursements of all independent certified public
accountants referred to in Section 5(n)(iii) hereof (including, without
limitation, the expenses of any special audit and "cold comfort"
letters required by or incident to such performance), (vi) rating
agency fees, if any, and any fees associated with making the
Registrable Securities or Exchange Securities eligible for trading
through the Depository Trust Company, (vii) Securities Act liability
insurance, if the Company desires such insurance, (viii) fees and
expenses of all other Persons
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retained by the Company, (ix) internal expenses of the Company
(including, without limitation, all salaries and expenses of officers
and employees of the Company performing legal or accounting duties),
(x) the expense of any annual audit, (xi) the fees and expenses
incurred in connection with the listing of the securities to be
registered on any securities exchange, if applicable, and (xii) the
expenses relating to printing, word processing and distributing of all
Registration Statements, underwriting agreements, securities sales
agreements, indentures and any other documents necessary to comply with
this Agreement.
(b) The Company and the Guarantors shall (i) reimburse the Holders of the
Registrable Securities being registered in a Shelf Registration for the
reasonable fees and disbursements of not more than one counsel chosen
by the Holders of a majority in aggregate principal amount of the
Registrable Securities to be included in such Registration Statement
and (ii) reimburse reasonable out-of-pocket expenses (other than legal
expenses) of Holders of Registrable Securities incurred in connection
with the registration and sale of the Registrable Securities pursuant
to a Shelf Registration or in connection with the exchange of
Registrable Securities pursuant to the Exchange Offer.
7. INDEMNIFICATION
(a) Each of the Company and the Guarantors agrees to indemnify and hold
harmless each Holder of Registrable Securities offered pursuant to a
Shelf Registration Statement and each Participating Broker-Dealer
selling Exchange Securities during the Applicable Period, the officers
and directors of each such Person or its affiliates, and each other
Person, if any, who controls any such Person or its affiliates within
the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act (each, a "PARTICIPANT"), from and against any and all
losses, claims, damages and liabilities (including, without limitation,
the reasonable legal fees and other expenses actually incurred in
connection with any suit, action or proceeding or any claim asserted)
caused by, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration
Statement pursuant to which the offering of such Registrable Securities
or Exchange Securities, as the case may be, is registered (or any
amendment thereto) or related Prospectus (or any amendments or
supplements thereto) or any related preliminary prospectus, or caused
by, arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; PROVIDED,
HOWEVER, that none of the Company or the Guarantors will be required to
indemnify a Participant if (i) such losses, claims, damages or
liabilities are caused by any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity
with information relating to any Participant furnished to the Company
in writing by or on behalf of such Participant expressly for use
therein or (ii) if such Participant sold to the person asserting the
claim the Registrable Notes or Exchange Securities that are the subject
of such claim and
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such untrue statement or omission or alleged untrue statement or
omission was contained or made in any preliminary prospectus and
corrected in the Prospectus or any amendment or supplement thereto and
the Prospectus does not contain any other untrue statement or omission
or alleged untrue statement or omission of a material fact that was the
subject matter of the related proceeding and it is established by the
Company in the related proceeding that such Participant failed to
deliver or provide a copy of the Prospectus (as amended or
supplemented) to such Person with or prior to the confirmation of the
sale of such Registrable Notes or Exchange Notes sold to such Person if
required by applicable law, unless such failure to deliver or provide a
copy of the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to indemnify and
hold harmless the Company and each of the Guarantors, the Company's
directors and officers, each Guarantor's directors and officers and
each Person who controls the Company and the Guarantors within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the
Company to each Participant, but only (i) with reference to information
relating to such Participant furnished to the Company in writing by or
on behalf of such Participant expressly for use in any Registration
Statement or Prospectus, any amendment or supplement thereto or any
preliminary prospectus or (ii) with respect to any untrue statement or
representation made by such Participant in writing to the Company. The
liability of any Participant under this paragraph shall in no event
exceed the proceeds received by such Participant from sales of
Registrable Securities or Exchange Securities giving rise to such
obligations.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted
against any Person in respect of which indemnity may be sought pursuant
to either of the two preceding paragraphs, such Person (the
"INDEMNIFIED PERSON") shall promptly notify the Person against whom
such indemnity may be sought (the "INDEMNIFYING PERSON") in writing,
and the Indemnifying Person, upon request of the Indemnified Person,
shall retain counsel reasonably satisfactory to the Indemnified Person
to represent the Indemnified Person and any others the Indemnifying
Person may reasonably designate in such proceeding and shall pay the
reasonable fees and expenses actually incurred by such counsel related
to such proceeding; PROVIDED, HOWEVER, that the failure to so notify
the Indemnifying Person shall not relieve it of any obligation or
liability that it may have hereunder or otherwise (unless and only to
the extent that such failure directly results in the loss or compromise
of any material rights or defenses by the Indemnifying Person and the
Indemnifying Person was not otherwise aware of such action or claim).
In any such proceeding, any Indemnified Person shall have the right to
retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such Indemnified Person unless (i) the
Indemnifying Person and the Indemnified Person shall have mutually
agreed in writing to the contrary, (ii) the Indemnifying Person shall
have failed within a reasonable period of time to
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retain counsel reasonably satisfactory to the Indemnified Person or
(iii) the named parties in any such proceeding (including any impleaded
parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. It is understood that, unless there exists a conflict among
Indemnified Persons, the Indemnifying Person shall not, in connection
with any one such proceeding or separate but substantially similar
related proceeding in the same jurisdiction arising out of the same
general allegations, be liable for the fees and expenses of more than
one separate firm (in addition to any local counsel) for all
Indemnified Persons, and that all such fees and expenses shall be
reimbursed promptly as they are incurred. Any such separate firm for
the Participants and such control Persons of Participants shall be
designated in writing by Participants who sold a majority in interest
of Registrable Securities and Exchange Securities sold by all such
Participants and any such separate firm for the Company, its directors,
its officers and such control Persons of the Company shall be
designated in writing by the Company. The Indemnifying Person shall not
be liable for any settlement of any proceeding effected without its
prior written consent, but if settled with such consent or if there be
a final non-appealable judgment for the plaintiff for which the
Indemnified Person is entitled to indemnification pursuant to this
Agreement, the Indemnifying Person agrees to indemnify and hold
harmless each Indemnified Person from and against any loss or liability
by reason of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an Indemnified Person shall have requested an
Indemnifying Person to reimburse the Indemnified Person for reasonable
fees and expenses actually incurred by counsel as contemplated by the
third sentence of this paragraph, the Indemnifying Person agrees that
it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more
than 30 days after receipt by such Indemnifying Person of the aforesaid
request and (ii) such Indemnifying Person shall not have reimbursed the
Indemnified Person in accordance with such request prior to the date of
such settlement; PROVIDED, HOWEVER, that the Indemnifying Person shall
not be liable for any settlement effected without its consent pursuant
to this sentence if the Indemnifying Person is contesting, in good
faith, the request for reimbursement. No Indemnifying Person shall,
without the prior written consent of the Indemnified Person, effect any
settlement or compromise of any pending or threatened proceeding in
respect of which any Indemnified Person is or could have been a party,
and indemnity could have been sought hereunder by such Indemnified
Person, unless such settlement (A) includes an unconditional written
release of such Indemnified Person, in form and substance reasonably
satisfactory to such Indemnified Person, from all liability on claims
that are the subject matter of such proceeding and (B) does not include
any statement as to an admission of fault, culpability or failure to
act by or on behalf of any Indemnified Person.
(d) If the indemnification provided for in the first and second paragraphs
of this Section 7 is for any reason unavailable to, or insufficient to
hold harmless, an Indemnified Person in respect
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of any losses, claims, damages or liabilities referred to therein, then
each Indemnifying Person under such paragraphs, in lieu of indemnifying
such Indemnified Person thereunder and in order to provide for just and
equitable contribution, shall contribute to the amount paid or payable
by such Indemnified Person as a result of such losses, claims, damages
or liabilities in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Person or Persons on the one hand
and the Indemnified Person or Persons on the other in connection with
the statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in
respect thereof). The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Issuers
on the one hand or such Participant or such other Indemnified Person,
as the case may be, on the other, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission, and any other equitable considerations
appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by PRO RATA
allocation (even if the Participants were treated as one entity for
such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified
Person as a result of the losses, claims, damages and liabilities
referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the
amount by which proceeds received by such Participant from sales of
Registrable Securities or Exchange Securities, as the case may be,
exceeds the amount of any damages that such Participant has otherwise
been required to pay or has paid by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this Section 7
will be in addition to any liability that the Indemnifying Persons may
otherwise have to the Indemnified Persons referred to above.
8. RULE 144 AND 144A
The Company and the Guarantors covenant that they will file
the reports required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations adopted by the SEC thereunder in a timely
manner in accordance with the
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requirements of the Securities Act and the Exchange Act and, if at any time the
Company and the Guarantors not required to file such reports, they will, upon
the request of any Holder of Registrable Securities, make publicly available
annual reports and such information, documents and other reports of the type
specified in Sections 13 and 15(d) of the Exchange Act. The Company and the
Guarantors further covenant for so long as any Registrable Securities remain
outstanding, to make available to any Holder or beneficial owner of Registrable
Securities in connection with any sale thereof and any prospective purchaser of
such Registrable Securities from such Holder or beneficial owner the information
required by Rule 144A(d)(4) under the Securities Act in order to permit resales
of such Registrable Securities pursuant to Rule 144A.
9. UNDERWRITTEN REGISTRATIONS
If any of the Registrable Securities covered by any Shelf
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will manage the offering will
be selected by the Holders of a majority in aggregate principal amount of such
Registrable Securities included in such offering and reasonably acceptable to
the Company and the Guarantors.
No Holder of Registrable Securities may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
10. MISCELLANEOUS
(a) NO INCONSISTENT AGREEMENTS. The Issuers have not entered into, as of
the date hereof, and shall not, after the date of this Agreement, enter
into any agreement with respect to any of the Company's securities that
is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions
hereof. Except for registration rights agreements with GECFS, Inc.,
Kevin Fitzgerald, George Mas, Jose Ramon Mas, Juan Carlos Mas and
Santos Capital Advisors, Inc. and Santos Fund I L.P., the Issuers have
not entered and will not enter into any agreement with respect to any
of the Company's securities that will grant to any Person piggy-back
registration rights with respect to a Registration Statement.
(b) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Issuers shall not,
directly or indirectly, take any action with respect to the Registrable
Securities as a class that would adversely affect
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the ability of the Holders of Registrable Securities to include such
Registrable Securities in a registration undertaken pursuant to this
Agreement.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than
with the prior written consent of the Holders of not less than a
majority in aggregate principal amount of the then outstanding
Registrable Securities. Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders of Registrable
Securities whose securities are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect, impair,
limit or compromise the rights of other Holders of Registrable
Securities may be given by Holders of at least a majority in aggregate
principal amount of the Registrable Securities being sold by such
Holders pursuant to such Registration Statement; PROVIDED, HOWEVER,
that the provisions of this sentence may not be amended, modified or
supplemented except in accordance with the provisions of the
immediately preceding sentence.
(d) NOTICES. All notices and other communications (including without
limitation any notices or other communications to the Trustee) provided
for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, next-day air courier or facsimile:
1. if to a Holder of the Registrable Securities or
any Participating Broker-Dealer, at the most current address
of such Holder or Participating Broker-Dealer, as the case may
be, set forth on the records of the registrar under the
Indenture, with a copy in like manner to the Initial
Purchasers as follows:
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
BT ALEX. BROWN INCORPORATED
BEAR, STEARNS & CO. INC.
c/o Donaldson, Lufkin & Jenrette Securities
Corporation
277 Park Avenue
New York, New York 10172
Facsimile No.:
Attention: Syndicate Department
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with a copy to:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street, 30th Floor
Los Angeles, California 90017
Facsimile No.: (213) 629-5063
Attention: Kenneth J. Baronsky, Esq.
2. if to the Initial Purchasers, at the addresses
specified in Section 10(d)(1)
3.
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4. if to the Issuer, at the address as follows:
NEFF CORP.
3750 N.W. 87th Avenue
Miami, FL 33178
Facsimile No.: (305) 513-4155
Attention: Kevin P. Fitzgerald
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue, N.W.
Washington, DC 20004
Facsimile No.: (202) 639-7003
Attention: Stephen I. Glover, Esq.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; one business
day after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the Trustee at
the address and in the manner specified in such Indenture.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties
hereto; PROVIDED, HOWEVER, that this Agreement shall not inure to the
benefit of or be binding upon a successor or assign of a Holder unless
and to the extent such successor or assign holds Registrable
Securities.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(g) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES
HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE
-28-
<PAGE>
COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT.
(i) SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force
and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their reasonable best efforts to find
and employ an alternative means to achieve the same or substantially
the same result as that contemplated by such term, provision, covenant
or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or
unenforceable.
(j) SECURITIES HELD BY THE ISSUERS OR THEIR AFFILIATES. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the
Issuers or their affiliates (as such term is defined in Rule 405 under
the Securities Act) shall not be counted in determining whether such
consent or approval was given by the Holders of such required
percentage.
(k) THIRD PARTY BENEFICIARIES. Holders of Registrable Securities and
Participating Broker-Dealers are intended third party beneficiaries of
this Agreement and this Agreement may be enforced by such Persons.
(l) ENTIRE AGREEMENT. This Agreement, together with the Purchase Agreement
and the Indenture, is intended by the parties as a final and exclusive
statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein and any and
all prior oral or written agreements, representations, or warranties,
contracts, understandings, correspondence, conversations and memoranda
between the Initial Purchasers on the one hand and the Issuers on the
other, or between or among any agents, representatives, parents,
subsidiaries, affiliates, predecessors in interest or successors in
interest with respect to the subject matter hereof and thereof are
merged herein and replaced hereby.
-29-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
NEFF CORP.
By: ________________________________________
Name:
Title:
NEFF RENTAL INC.
By: ________________________________________
Name:
Title:
NEFF MACHINERY INC.
By: ________________________________________
Name:
Title:
AIR RENTAL & SUPPLY, INC.
By: ________________________________________
Name:
Title:
NEFF ASSET MANAGEMENT, INC.
By: ________________________________________
Name:
Title:
S-1
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: ________________________________________
Name:
Title:
BT ALEX. BROWN INCORPORATED
By: ________________________________________
Name:
Title:
BEAR, STEARNS & CO. INC.
By: ________________________________________
Name:
Title:
S-2
EXHIBIT 5.1
January 22, 1999
(202) 639-7315
Board of Directors
Neff Corp.
3750 N.W. 87th Avenue
Miami, Florida 33166
Gentlemen:
We are acting as special counsel for Neff Corp., a Delaware corporation
(the "Company"), Neff Machinery, Inc., a Florida corporation ("Neff Machinery"),
Neff Rental, Inc., a Florida corporation ("Neff Rental"), Air Rental & Supply,
Inc., a Texas corporation ("Air Rental") and Neff Asset Management, Inc., a
Delaware corporation ("Neff Asset Management," and together with Neff Machinery,
Neff Rental and Air Rental, the "Guarantors"), in connection with the offer by
the Company to exchange up to $100,000,000 aggregate principal amount of the
Company's 10 1/4% Senior Subordinated Notes due 2008 (the "New Notes"), which
will be registered under the Securities Act of 1933, as amended (the "Securities
Act"), for a like principal amount at maturity of the Company's issued and
outstanding 10 1/4% Senior Subordinated Notes due 2008 (the "Old Notes," and
together with the New Notes, the "Notes") (the "Exchange Offer") pursuant to the
Registration Statement on Form S-4 filed on January 22, 1999, as amended (the
"Registration Statement") under the Securities Act. The Old Notes are, and the
New Notes will be, unconditionally guaranteed (the "Guarantees") by the
Guarantors.
In connection with this opinion, we have (i) investigated such
questions of law, (ii) examined originals or certified, conformed or
reproduction copies of such agreements, instruments, documents and records of
each of the Company and the Guarantors, (iii) examined such certificates of
public officials, officers or other representatives of each of the Company and
the Guarantors, and other persons, and such other documents, and (iv) reviewed
such information from officers and representatives of each of the Company and
the Guarantors and others as we have deemed necessary or appropriate for the
purposes of this opinion.
In all such examinations, we have assumed the legal capacity of all
natural persons executing documents (other than the capacity of officers of the
Company executing documents in such capacity), the genuineness of all signatures
on original or certified copies and the conformity to original or certified
documents of all copies submitted to us as conformed or reproduction copies. As
to various questions of fact relevant to the opinions expressed herein, we have
relied upon, and assumed the accuracy of, certificates and oral or written
statements and other information of or from public officials, officers or other
representatives of each of the Company and the Guarantors and other persons.
<PAGE>
BOARD OF DIRECTORS
NEFF CORP. PAGE 2
To the extent that it may be relevant to the opinion expressed herein,
we have assumed, for purposes of the opinions expressed herein, that (i) the
trustee for the Notes (the "Trustee") has the power and authority to enter into
and perform the indenture for the Notes (the "Indenture"), (ii) the Indenture
has been duly authorized, executed and delivered by the Trustee and is a valid
and binding obligation of the Trustee, enforceable against the Trustee in
accordance with its terms and (iii) the Notes have been duly authenticated and
delivered by the Trustee.
Based upon the foregoing, and subject to the limitations,
qualifications and assumptions set forth herein, we are of the opinion that:
1. The New Notes have been duly and validly authorized by the Company,
and when duly executed by the proper officers of the Company and issued in
exchange for the Old Notes as contemplated by the Registration Statement, will
constitute valid and legally binding obligations of the Company, entitled to the
benefits of the Indenture, and enforceable against the Company in accordance
with their terms.
2. The Guarantees of the New Notes have been duly authorized and, when
the New Notes have been duly executed and the Guarantees have been duly executed
in accordance with the terms of the Indenture, will constitute valid and legally
binding obligations of the Guarantors, entitled to the benefits of the
Indenture, and enforceable against the Guarantors in accordance with their
terms.
The enforceability and effectiveness of the provisions of the New Notes
and the Guarantees are limited by and subject to (i) applicable bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect affecting creditors' rights generally and (ii)
general principles of equity (including, without limitation, standards of
materiality, good faith, fair dealing and reasonableness) whether such
principles are considered in a proceeding at law or in equity.
The opinions set forth above are subject to the following
qualifications:
(A) The opinions expressed herein are limited to the federal laws of
the United States and the laws of the State of New York and, to the extent
relevant hereto, the General Corporation Law of the State of Delaware. We assume
no obligations to supplement this letter if any applicable laws change after the
date hereof or if we become aware of any facts that might change the opinions
expressed herein after the date hereof.
(B) Provisions in the Guarantees that provide that the Guarantors'
liability thereunder shall not be affected by actions or failures to act on the
part of the recipient of the Guarantees or by amendments or waivers of
provisions of documents governing the guaranteed obligations might not be
enforceable under circumstances in which such actions, failures to act,
amendments or waivers so radically change the essential nature of the terms and
conditions of the guaranteed obligations that, in effect, a new contract has
arisen between such recipient and the primary obligor on whose behalf any
Guarantor may have the rights and remedies of a "debtor" under the UCC. We have
assumed that sufficient valid consideration has been received by each Guarantor
for entry into the Guarantee.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus forming a part of the Registration Statement.
In giving this consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/ STEPHEN I. GLOVER
-----------------------------------------
Stephen I. Glover
EXHIBIT 10.2
FIRST AMENDMENT AND CONSENT
FIRST AMENDMENT AND CONSENT TO CREDIT AGREEMENT (this "Amendment"),
dated as of June 8, 1998, among NEFF CORP. (the "Company"), NEFF RENTAL, INC.
("Neff Rental"), NEFF MACHINERY, INC. ("Neff Machinery", and together with the
Company and Neff Rental, the "Borrowers", and each a "Borrower"), the lenders
party to the Credit Agreement referred to below (the "Lenders"), and Bankers
Trust Company, as Agent (the "Agent"). All capitalized terms used herein and not
otherwise defined herein shall have the respective meanings provided such terms
in the Credit Agreement.
WITNESSETH:
WHEREAS, the Borrowers, the Lenders, and the Agent are party to a
Credit Agreement, dated as of May 1, 1998 (as amended, modified or supplemented
to, but not including, the date hereof, the "Credit Agreement");
WHEREAS, the Borrowers, the Lenders, and the Agent are party to a
Modification to Credit Agreement, dated as of May 20, 1998 (the "Modification");
WHEREAS, the Borrowers wish to terminate the $10,000,000 increase to
the Total Commitment under the Credit Agreement made pursuant to the
Modification; and
WHEREAS, subject to the terms and conditions of this Amendment, the
parties hereto agree as follows;
NOW, THEREFORE, it is agreed:
1. Notwithstanding anything to the contrary contained in Section 1(b)
of the Modification, the Borrowers and the Lenders hereby agree that on the
Amendment Effective Date (as defined below) (x) the Scheduled Repayment Date
under, and as defined in, the Modification shall be deemed to have occurred, (y)
the increase in the Commitments of the respective Lenders made pursuant to the
Modification shall be terminated and (z) the Borrowers will repay outstanding
Revolving Loans from certain Lenders (and pay any breakage costs incurred by the
Lenders in connection therewith) and incur additional Revolving Loans from other
Lenders, in each case as contemplated in Section 1(b) of the Modification.
2. Section 9.05 of the Credit Agreement is hereby amended by deleting
clause (xiv) appearing therein and inserting the following new clause (xiv) in
lieu thereof:
<PAGE>
"(xiv) the Company and its Subsidiaries may make additional Investments
not otherwise permitted under this Section 9.05 in an aggregate amount not
to exceed $15,000,000 at any time outstanding (determined without regard to
any write-downs or write-offs thereof)."
3. In order to induce the Lenders to enter into this Agreement, each
Borrower hereby represents and warrants that (i) no Default or Event of Default
exists as of the Amendment Effective Date, both before and after giving effect
to this Amendment and (ii) on the Amendment Effective Date, both before and
after giving effect to this Amendment, all representations and warranties
contained in the Credit Agreement and in the other Credit Documents are true and
correct in all material respects.
4. This Amendment shall become effective on the date (the "Amendment
Effective Date") when each Borrower and the Required Lenders shall have signed a
counterpart hereof (whether the same or different counterparts) and shall have
delivered (including by way of facsimile transmission) the same to the Agent at
the Notice Office.
5. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
6. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with each Borrower and the Agent.
7. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.
***
-2-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed and delivered as of the date hereof.
NEFF CORP.
By /s/ [ILLEGIBLE]
------------------------------------------------
Title:
NEFF RENTAL, INC.
By /s/ [ILLEGIBLE]
------------------------------------------------
Title:
NEFF MACHINERY, INC.
By /s/ [ILLEGIBLE]
------------------------------------------------
Title:
BANKERS TRUST COMPANY, Individually
and as Agent
By /s/ [ILLEGIBLE]
------------------------------------------------
Title:
DEUTSCHE FINANCIAL SERVICES
By /s/ [ILLEGIBLE]
------------------------------------------------
Title:
<PAGE>
TRANSAMERICA BUSINESS CREDIT CORPORATION
By /s/ [ILLEGIBLE]
------------------------------------------------
Title: SVP
LASALLE BUSINESS CREDIT, INC.
By
------------------------------------------------
Title:
CIT GROUP/BUSINESS CREDIT, INC.
By
------------------------------------------------
Title:
IBJ SCHRODER BUSINESS CREDIT CORPORATION
By
------------------------------------------------
Title:
NATIONAL BANK OF CANADA
By
------------------------------------------------
Title:
<PAGE>
SUMMIT BANK
By /s/ NANCY Z. REIMANN
------------------------------------------------
Title: VICE PRESIDENT
EXHIBIT 10.3
SECOND AMENDMENT
SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
September 3, 1998, among NEFF CORP. (the "Company"), NEFF RENTAL, INC. ("Neff
Rental"), NEFF MACHINERY, INC. ("Neff Machinery", and together with the Company
and Neff Rental, the "Borrowers", and each a "Borrower"), the lenders party to
the Credit Agreement referred to below (the "Lenders"), and Bankers Trust
Company, as Agent (the "Agent"). All capitalized terms used herein and not
otherwise defined herein shall have the respective meanings provided such terms
in the Credit Agreement.
WITNESSETH:
WHEREAS, the Borrowers, the Lenders, and the Agent are party to a
Credit Agreement, dated as of May 1, 1998 (as amended, modified or supplemented
to, but not including, the date hereof, the "Credit Agreement"); and
WHEREAS, subject to the terms and conditions of this Amendment, the
parties hereto agree as follows;
NOW, THEREFORE, it is agreed:
1. Section 13.17 of the Credit Agreement is hereby amended by deleting
the reference to the amount "$20,000,000" appearing therein and inserting the
amount "$5,000,000" in lieu thereof.
2. In order to induce the Lenders to enter into this Amendment, each
Borrower hereby represents and warrants that (i) no Default or Event of Default
exists as of the Amendment Effective Date (as defined below), both before and
after giving effect to this Amendment and (ii) on the Amendment Effective Date,
both before and after giving effect to this Amendment, all representations and
warranties contained in the Credit Agreement and in the other Credit Documents
are true and correct in all material respects.
3. This Amendment shall become effective on the date (the "Amendment
Effective Date") when each Borrower and the Required Lenders shall have signed a
counterpart hereof (whether the same or different counterparts) and shall have
delivered (including by way of facsimile transmission) the same to the Agent at
the Notice Office.
4. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
<PAGE>
5. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with each Borrower and the Agent.
6. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.
***
-2-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed and delivered as of the date hereof.
NEFF CORP.
By /s/ BONNIE BUIMI
------------------------------------------------
Title: Chief Financial Officer
NEFF RENTAL, INC.
By /s/ BONNIE BUIMI
------------------------------------------------
Title: Chief Financial Officer
NEFF MACHINERY, INC.
By /s/ BONNIE BUIMI
------------------------------------------------
Title: Chief Financial Officer
BANKERS TRUST COMPANY, Individually
and as Agent
By
------------------------------------------------
Title:
DEUTSCHE FINANCIAL SERVICES
By
------------------------------------------------
Title:
<PAGE>
TRANSAMERICA BUSINESS CREDIT CORPORATION
By /s/ PERRY VAVOULES
------------------------------------------------
Title: Senior Vice President
LASALLE BUSINESS CREDIT, INC.
By
------------------------------------------------
Title:
CIT GROUP/BUSINESS CREDIT, INC.
By
------------------------------------------------
Title:
IBJ SCHRODER BUSINESS CREDIT CORPORATION
By
------------------------------------------------
Title:
NATIONAL BANK OF CANADA
By
------------------------------------------------
Title:
SUMMIT BANK
By
------------------------------------------------
Title:
<PAGE>
FIRST UNION NATIONAL BANK
By
------------------------------------------------
Title:
UNION BANK OF CALIFORNIA N.A.
By /s/ ALAN YOUNG
------------------------------------------------
Title: Assistant Vice President
<PAGE>
BANK ATLANTIC
By /s/ [ILLEGIBLE]
------------------------------------------------
Title:
<PAGE>
BNY FINANCIAL CORPORATION
By /s/ JOHN SEAROCK
------------------------------------------------
Title: Vice President
<PAGE>
FLEET NATIONAL BANK
By /s/ [ILLEGIBLE]
------------------------------------------------
Title: Vice President
<PAGE>
MORGAN STANLEY DEAN WITTER
PRIME INCOME TRUST
By: /s/ SHEILA FINNERTY
------------------------------------------------
Title: Vice President
EXHIBIT 10.4
THIRD AMENDMENT
THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
December 1, 1998, among NEFF CORP. (the "Company"), NEFF RENTAL, INC. ("Neff
Rental"), NEFF MACHINERY, INC. ("Neff Machinery", and together with the Company
and Neff Rental, the "Borrowers", and each a "Borrower"), the lenders party to
the Credit Agreement referred to below (the "Lenders"), and Bankers Trust
Company, as Agent (the "Agent"). All capitalized terms used herein and not
otherwise defined herein shall have the respective meanings provided such terms
in the Credit Agreement.
WITNESSETH:
WHEREAS, the Borrowers, the Lenders and the Agent are party to a Credit
Agreement, dated as of May 1, 1998 (as amended, modified or supplemented to, but
not including, the date hereof, the "Credit Agreement"); and
WHEREAS, subject to the terms and conditions of this Amendment, the
parties hereto agree as follows;
NOW, THEREFORE, it is agreed:
1. The parenthetical appearing in Section 3.03(c) the Credit Agreement
is hereby amended by deleting the text "(other than pursuant to clause (viii)(v)
thereof)" appearing in said parenthetical.
2. Section 4.02 of the Credit Agreement is hereby amended by inserting
the following new clause (d) at the end thereof:
"(d) In addition to any other mandatory repayments pursuant to this
Section 4.02, on each date on or after December 1, 1998 upon which the
Company or any of its Subsidiaries receives any cash proceeds from the
issuance by the Company or any of its Subsidiaries of any Senior
Subordinated Notes pursuant to Section 9.04(viii), an amount equal to 100%
of the Net Debt Proceeds of the respective issuance of Senior Subordinated
Notes shall be applied on such date as a mandatory repayment of principal of
then outstanding Loans."
3. Section 9.04(viii) of the Credit Agreement is hereby amended by
deleting sub-clause (v) appearing therein in its entirety and inserting the
following new sub-clause (v) in lieu thereof:
<PAGE>
"(v) the Net Debt Proceeds from the issuance of any subsequent Senior
Subordinated Notes are applied to repay principal of then outstanding Loans
pursuant to Section 4.02(d)".
4. In order to induce the Lenders to enter into this Agreement, each
Borrower hereby represents and warrants that (i) no Default or Event of Default
exists as of the Amendment Effective Date (as defined below), both before and
after giving effect to this Amendment, and (ii) on the Amendment Effective Date,
both before and after giving effect to this Amendment, all representations and
warranties contained in the Credit Agreement and in the other Credit Documents
are true and correct in all material respects.
5. This Amendment shall become effective on the date (the "Amendment
Effective Date") when each Borrower and the Required Lenders shall have signed a
counterpart hereof (whether the same or different counterparts) and shall have
delivered (including by way of facsimile transmission) the same to the Agent at
the Notice Office.
6. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
7. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with each Borrower and the Agent.
8. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.
***
-2-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed and delivered as of the date hereof.
NEFF CORP.
By
------------------------------------------------
Title:
NEFF RENTAL, INC.
By
------------------------------------------------
Title:
NEFF MACHINERY, INC.
By
------------------------------------------------
Title:
BANKERS TRUST COMPANY, Individually
and as Agent
By
------------------------------------------------
Title:
DEUTSCHE FINANCIAL SERVICES
By
------------------------------------------------
Title:
<PAGE>
TRANSAMERICA BUSINESS CREDIT CORPORATION
By
------------------------------------------------
Title:
LASALLE BUSINESS CREDIT, INC.
By
------------------------------------------------
Title:
CIT GROUP/BUSINESS CREDIT, INC.
By
------------------------------------------------
Title:
IBJ SCHRODER BUSINESS CREDIT CORPORATION
By
------------------------------------------------
Title:
NATIONAL BANK OF CANADA
By
------------------------------------------------
Title:
SUMMIT BANK
By
------------------------------------------------
Title:
<PAGE>
FIRST UNION NATIONAL BANK
By
------------------------------------------------
Title:
UNION BANK OF CALIFORNIA N.A.
By
------------------------------------------------
Title:
BANK ATLANTIC
By
------------------------------------------------
Title:
BNY FINANCIAL CORPORATION
By
------------------------------------------------
Title:
BNY FINANCIAL CORPORATION
By
------------------------------------------------
Title:
FLEET NATIONAL BANK
By
------------------------------------------------
Title:
<PAGE>
BANKBOSTON, N.A.
By
------------------------------------------------
Title:
EXHIBIT 10.15
FIRST AMENDMENT TO THE NEFF CORP.
PHANTOM STOCK PLAN
This First Amendment to the Neff Corp. Phantom Stock Plan dated January 1,
1997 (the "Plan") is made as of May 19, 1998. Capitalized terms used herein and
not otherwise defined shall have the meanings assigned to such terms in the
Plan.
WHEREAS the Company has (i) converted the Common Stock, par value $.01 per
share of the Company into Class A Common Stock, par value $.01 per share of the
Company (the "Class A Common Stock"), (ii) exchanged all of the issued and
outstanding shares of Series B and Series C Cumulative Convertible Redeemable
Preferred Stock for shares of Class B Special Common Stock, par value $.01 per
share (the "Class B Common Stock") and (iii) effected an 84.65 for 1.00 stock
split of the Class A Common Stock and the Class B Common Stock; and
WHEREAS the Plan Administrator wishes to amend the Plan and the Phantom
Stock Agreements issued under the Plan to reflect the foregoing changes in the
Company's capital structure;
Now therefore, pursuant to Article X of the Plan, the Plan Administrator
hereby amends the Plan as follows:
1. Section 2.8 is modified by deleting it in its entirety and replacing it with
the following text:
EQUITY DIVISOR means one-hundred (100) times the total number of shares of
Stock of the Company which have been issued as of the Valuation Date or which
have been reserved for issuance either in connection with options granted to
employees or in connection with the conversion of the Class B Common Stock.
2. Section 2.12 is modified by deleting it in its entirety and replacing it with
the following text:
REDEMPTION SHARE VALUE means the difference between (a) (the greater
of (i) the value of a Participant's Award as of the Valuation Date
(the Calculated Share Value) and (ii) the average closing price of the
Stock as quoted on the New York Stock Exchange, or if the Stock is not
listed thereon, then the average of the closing "bid" and "ask" prices
per share in the over-the-counter securities market, for the thirty
(30) trading days prior to the Valuation Date) and (b) the value of
the Participant's Award on the date on which such Award was granted to
the participant (the Calculated Share Value as of the date the Award
was made ($9.00 per Unit for Awards granted as of January 1, 1997)).
The following example illustrates the calculation of the Redemption
Share Value:
<PAGE>
Calculated Share Value as of the payment date (per Unit) $14.00
- Calculsted Share Value at date of issuance (per Unit) 9.00
------
= Redemption Share Value (per Unit) $5.00
x Number of Units Granted to Participant 5,000.00
--------
= Total Redemption Share Value $25,000.00
3. Section 2.14 is modified by deleting it in its entirety and replacing it with
the following text:
STOCK means the Class A Common Stock, par value $.01 per share,
of the Company.
2
<PAGE>
IN WIINESS WHEREOF, the Plan Administrator has executed this First
Amendment to the Plan as of the day and year indicated above.
/s/ Kevin P. Fitzgerald
-----------------------
Kevin P. Fitzgerald
EXHIBIT 10.16
SECOND AMENDMENT TO THE NEFF CORP.
PHANTOM STOCK PLAN
This Second Amendment to the Neff Corp. Phantom Stock Plan dated January 1,
1997 (the "Plan" is made as of January 5, 1999. Capitalized terms used herein
and not otherwise defined shall have the meanings assigned to such terms in the
Plan.
WHEREAS the Company has effected an 84.65 for 1.00 stock split of the Class
A Common Stock ant the Class B Common Stock; and
WHEREAS the Plan Administrator wishes to amend the Plan and the Phantom
Stock Agreements issued under the Plan to reflect the foregoing changes in the
Company's capital structure;
Now therefore, pursuant to Article X of the Plan, the Plan Administrator
hereby amends the Plan as follows:
Section 2.8 is modified by deleting it in its entirety and replacing it
with the following text:
EQUITY DIVISOR means the sum of (i) the total number of shares of Stock
of the Company which have been issued as of the Valuation Date and (ii) shares
which have been reserved for issuance either in connection with options granted
to employees or in connection with the conversion of the Class B Common Stock.
IN WITNESS WHEREOF, the Plan Administrator has executed this First
Amendment to the Plan as of the day and year indicated above.
/s/ Kevin P. Fitzgerald
--------------------------------
Kevin P. Fitzgerald
EXHIBIT 12
Neff Corp.
Ratio of Earnings to Fixed Charges
For the Five Years Ending 1997 and Nine Months Ending
September 30, 1997 and 1998
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 9/30/97 9/30/98
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before provision for
income taxes and extraordinary items $ 2,682 $ 4,324 $ 3,010 $ (927) $ (8,141) $ (1,340) $ (2,094)
------- ------- ------- ------ -------- -------- --------
Fixed Charges:
Interest expense 1,537 1,669 3,090 6,012 11,976 6,880 24,065
Amortization of Debt Issue Costs - - - 325 2,362 1,268 2,963
Operating Leases* 48 501 567 700 608 429 842
Preferred Stock Dividends** - - - 1,566 5,120 4,627 1,616
Preferred Stock Accretion** - - - 3,840 5,744 4,310 6,549
------- -------- ------- -------- ------ ------- -------
Total Fixed Charges 1,585 2,170 3,657 12,443 25,810 17,515 36,035
------- -------- ------- ------ ------ ------ -------
Earnings before income taxes,
extraordinary items and fixed charges 4,267 8,494 6,667 11,516 17,669 16,175 33,941
------- -------- ------- ------ ------ ------ ------
Ratio of earnings to fixed charges 2.7 3.0 1.8 0.9 0.7 0.9 0.9
------- -------- ------- ------ ------ ------ ------
Fixed Charges in excess of earnings $ - $ - $ - $ (927) $ (8,141) $(1,340) $(2,094)
------- -------- ------- ------ ------- ------ ------
</TABLE>
* Represents the estimated interest portion thereof.
**Represents the pre-tax earnings required to cover Preferred Stock Dividends
and Prefered Stock Accretion.
EXHIBIT 21
SUBSIDIARIES OF NEFF CORP.
State of
Name Incorporation
---- --------------
Neff Rental, Inc. Florida
Neff Machinery, Inc. Florida
Neff Asset Management, Inc. Delaware
Air Rental & Supply, Inc. Texas
Sullair Argentina Sociedad Anonima Argentina
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To Neff Corp.:
We consent to the use in this Registration Statement of Neff Corp. on Form
S-4 of our report dated March 11, 1998, except for the third paragraph of Note
5 and the fourth paragraph of Note 1 as to which the dates are April 23, 1998
and May 20, 1998, respectively, on the financial statements of Neff Corp. and
subsidiaries as of December 31, 1996 and 1997 and for each of the three years
in the period ended December 31, 1997, appearing in the Prospectus, which is
part of this Registration Statement, and of our report also dated March 11,
1998 relating to the financial statement schedule appearing elsewhere in this
Registration Statement.
We also consent to the reference to us under the hearings "Selected
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Miami, Florida
January 21, 1999
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Neff Corp. on Form
S-4 of our report dated February 27, 1998 on the financial statements of
Richbourg's Sales & Rentals, Inc. as of December 31, 1996 and 1997 and for each
of the three years in the period ended December 31, 1997, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
January 21, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated September 18, 1997 on the financial statements of Industrial
Equipment Rentals, Inc. and subsidiary (and to all references to our Firm)
included in or made a part of this Registration Statement on Form S-4 filed by
Neff Corp.
Arthur Andersen LLP
Houston, Texas
January 21, 1999
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to use in the Prospectus constituting part of this Registration
Statement on Form S-4 of our report dated March 25, 1998, relating to the
consolidated financial statements of Sullair Argentina Sociedad Anonima and its
subsidiary, which appears in such Prospectus. We also consent to the reference
to us under the headings "Experts" in such Prospectus.
PRICE WATERHOUSE & CO.
Buenos Aires, Argentina
January 21, 1999
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
STATE STREET BANK AND TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
Massachusetts 04-1867445
(JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER
ORGANIZATION IF NOT A U.S. NATIONAL BANK) IDENTIFICATION NO.)
225 Franklin Street, Boston, Massachusetts 02110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
NEFF CORP.
(NAME OF ISSUER)
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE (65-0626400 )
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
(ADDRESS OF ISSUER)
(Address of principal executive offices) (Zip Code)
3750 N.W. 87TH AVENUE
MIAMI,FLORIDA 33178
(TYPE OF SECURITIES)
10 1/4% SENIOR SUBORDINATED NOTES DUE 2008
(TITLE OF INDENTURE SECURITIES)
<PAGE>
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with
the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference
thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE>
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the January 15, 1999.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Philip G. Kane, Jr.
----------------------------------
NAME PHILIP G. KANE, JR.
TITLE VICE PRESIDENT
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by NEFF CORP..
of its 10 1/4% SENIOR SUBORDINATED NOTES DUE 2008 , we hereby consent that
reports of examination by Federal, State, Territorial or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Philip G. Kane, Jr.
-----------------------------------
NAME PHILIP G. KANE, JR.
TITLE VICE PRESIDENT
DATED: JANUARY 15, 1999
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business SEPTEMBER 30, 1998,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin .............. 2,008,956
Interest-bearing balances ....................................... 12,286,877
Securities ............................................................... 9,654,241
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ............................. 10,922,779
Loans and lease financing receivables:
Loans and leases, net of unearned income ........... 7,457,235
Allowance for loan and lease losses ................ 82,851
Allocated transfer risk reserve..................... 0
Loans and leases, net of unearned income and allowances ......... 7,374,384
Assets held in trading accounts .......................................... 1,898,804
Premises and fixed assets ................................................ 513,372
Other real estate owned .................................................. 100
Investments in unconsolidated subsidiaries ............................... 484
Customers' liability to this bank on acceptances outstanding ............. 48,563
Intangible assets ........................................................ 220,613
Other assets ............................................................. 1,333,210
-----------
Total assets ............................................................. 46,262,383
===========
LIABILITIES
Deposits:
In domestic offices ............................................. 9,557,938
Noninterest-bearing ....................... 7,158,356
Interest-bearing .......................... 2,399,582
In foreign offices and Edge subsidiary .......................... 18,451,054
Noninterest-bearing ....................... 429,797
Interest-bearing .......................... 18,021,257
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ............................. 12,023,438
Demand notes issued to the U.S. Treasury.................................. 451,424
Trading liabilities...................................... 1,582,933
Other borrowed money ..................................................... 323,782
Subordinated notes and debentures ........................................ 0
Bank's liability on acceptances executed and outstanding ................. 48,563
Other liabilities ........................................................ 1,226,129
Total liabilities ........................................................ 43,665,261
-----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus............................. 0
Common stock ............................................................. 29,931
Surplus .................................................................. 462,782
Undivided profits and capital reserves/Net unrealized holding gains (losses) 2,080,148
Net unrealized holding gains (losses) on
available-for-sale securities....................... 27,376
Cumulative foreign currency translation adjustments ..................... (3,115)
Total equity capital ..................................................... 2,597,122
-----------
Total liabilities and equity capital ..................................... 46,262,383
-----------
</TABLE>
4
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<PAGE>
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS
IN DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter of the
obligor, the trustee has relied upon the information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer to Item 2. of this statement will be amended, if necessary,
to reflect any facts which differ from those stated and which would have been
required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation duly
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the January 19, 1999.
STATE STREET BANK AND TRUST COMPANY
By: /s/ PHILIP G. KANE, JR.
-------------------------------------
NAME PHILIP G. KANE, JR.
TITLE VICE PRESIDENT
6
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by NEFF CORP..
of its 10 1/4% SENIOR SUBORDINATED NOTES DUE 2008, we hereby consent that
reports of examination by Federal, State, Territorial or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ PHILIP G. KANE, JR.
----------------------------------
NAME PHILIP G. KANE, JR.
TITLE VICE PRESIDENT
DATED: JANUARY 15, 1999
7
EXHIBIT 99.1
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON _________, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE").
- -------------------------------------------------------------------------------
NEFF CORP.
Offer to Exchange Its
New 10 1/4% Senior Subordinated Notes due 2008
Which Have Been Registered Under the Securities Act of 1933
for Any and All of Its Outstanding 10 1/4% Senior Subordinated Notes due 2008
Pursuant to the Prospectus
Dated ______ __, 1999
If you desire to accept the Exchange Offer (as defined below), this
Letter of Transmittal should be completed, signed, and submitted to:
STATE STREET BANK & TRUST COMPANY, as Exchange Agent
BY MAIL: OVERNIGHT COURIER:
State Street Bank & Trust Company State Street Bank & Trust Company
Corporate Trust Department Corporate Trust Department
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: ___________ Attention: _________
BY HAND IN NEW YORK (AS DROP AGENT): BY HAND IN BOSTON:
State Street Bank & Trust Company, N.A. State Street Bank & Trust Company
61 Broadway Two International Place
15th Floor, Corporate Trust Window Fourth Floor, Corporate Trust Department
New York, New York 10006 Boston, Massachusetts 02110
FACSIMILE TRANSMISSION: CONFIRM BY TELEPHONE:
(For Eligible Institutions Only) (617) 664-5314
(617) 664-5290
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA A FACSIMILE NUMBER
OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
PLEASE READ THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THIS LETTER OF TRANSMITTAL.
The undersigned acknowledges that he or she has received the Prospectus
dated _______ __, 1999 (the "Prospectus") of Neff Corp., a Delaware corporation
(the "Company") and this Letter of Transmittal (the "Letter of Transmittal"),
which together constitute the Company's offer (the "Exchange Offer") to exchange
$1,000 principal amount of its 10 1/4% Senior Subordinated Notes due 2008, (the
"New Notes"), which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement of which
the Prospectus is a part, for each $1,000 principal amount of its outstanding
10 1/4% Senior Subordinated Notes due 2008 (the "Old Notes"), of which
$100,000,000 principal amount is outstanding. Other capitalized terms used but
not defined herein have the meaning given to them in the Prospectus.
The Letter of Transmittal is to be used by Holders of Old Notes (i) if
certificates representing the Old Notes are to be physically delivered herewith,
(ii) if tender of Old Notes is to be made according to the guaranteed delivery
procedures described in the Prospectus or (iii) if tenders of Old Notes are to
be made by book-entry transfer to an account maintained by the Exchange Agent at
The Depository Trust Company pursuant to the procedures set forth in "The
Exchange Offer - Procedures for Tendering Old Notes" in the Prospectus and an
"Agent's Message" (as defined in the Prospectus) is not delivered.
The term "Holder" with respect to the Exchange Offer means any person
in whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this letter in its entirety.
Your bank or broker can assist you in completing this form. Questions
and requests for assistance or for additional copies of the Prospectus and this
Letter of Transmittal may be directed to the Exchange Agent.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
DESCRIPTION OF 10 1/4% SENIOR SUBORDINATED NOTES DUE 2008 (OLD NOTES)
-----------------------------------------------------------------------------
Principal Amount
Tendered (must be
Names and Address(es) Aggregate Principal in integral
of Registered Holder(s) Certificate Amount Represented by multiple of
- 2 -
<PAGE>
(Please fill in, if blank) Number(s) Certificate(s) $1,000)*
- ---------------------------- ----------------- ------------------------- -------------------
<S> <C> <C> <C>
Total
<FN>
* Unless indicated in the column labeled "Principal Amount Tendered," any
tendering Holder of Old Notes will be deemed to have tendered the entire
aggregate principal amount represented by the column labeled "Aggregate
Principal Amount Represented by Certificate(s)."
</FN>
</TABLE>
If the space provided above is inadequate, list the certificate numbers
and principal amounts on a separate signed schedule and affix the list
to this Letter of Transmittal.
The minimum permitted tender is $1,000 in principal amount of Old Notes.
All tenders must be integral multiples of $1,000.
- ------------------------------------ ------------------------------------
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4, 5 and 6) (See Instructions 4, 5 and 6)
To be completed ONLY if certificates To be completed ONLY if certificates
for Old Notes in a principal amount for Old Notes in a principal amount
not tendered or accepted for not tendered or accepted for
exchange, or New Notes issued in exchange, or New Notes issued in
exchange for Old Notes accepted for exchange for Old Notes accepted for
exchange, are to be issued in the exchange, are to be sent to someone
name of someone other than the other than the undersigned, or to
undersigned. the undersigned at an address other
than that shown above.
Name _______________________________ Name _______________________________
Address ____________________________ Address ____________________________
____________________________________ ____________________________________
(Zip Code) (Zip Code)
____________________________________ ____________________________________
(Tax Identification or Social (Tax Identification or Social
Security No.) Security No.)
- 3 -
<PAGE>
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:__________________________________________
Address: ______________________________________
- 4 -
<PAGE>
Holders of the Old Notes who wish to tender their Old Notes and (i)
whose Old Notes are not immediately available or (ii) who cannot deliver their
Old Notes, this Letter of Transmittal or any other documents required hereby to
the Exchange Agent prior to the Expiration Date, may tender their Old Notes
according to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." See
Instruction 1 regarding the completion of the Letter of Transmittal printed
below.
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of Old Notes
indicated above. Subject to and effective upon the acceptance for exchange of
the principal amount of Old Notes tendered in accordance with this Letter of
Transmittal, the undersigned sells, assigns and transfers to, or upon the order
of, the Company, all right, title and interest in and to the Old Notes tendered
hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent its agent and attorney-in-fact (with full knowledge that the Exchange
Agent also acts as the agent of the Company) with respect to the tendered Old
Notes with full power of substitution to (i) deliver certificates for such Old
Notes to the Company and deliver all accompanying evidences of transfer and
authenticity to, or upon the order of, the Company and (ii) present such Old
Notes for transfer on the books of the Company and receive all benefits and
otherwise exercise all rights of beneficial ownership of such Old Notes, all in
accordance with the terms of the terms of the Exchange Offer. The power of
attorney granted in this paragraph shall be deemed irrevocable and coupled with
an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim, when the same are acquired by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the Holder, that neither the Holder nor any such other person has an arrangement
with any person to participate in the distribution of such New Notes within the
meaning of the Securities Act and that neither the Holder nor any such other
person is an "affiliate," as defined under Rule 405 of the Securities Act, of
the Company or any of its subsidiaries or, if such Holder is an "affiliate,"
that such Holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. If the undersigned
is not a broker-dealer, the undersigned represents that it is not engaged in,
and does not intend to engage in, a distribution of New Notes. If the
undersigned is a broker-dealer that will receive New Notes, it represents that
the Old Notes to be exchanged for New Notes were acquired as a result of
market-making activities or other trading activities, and it acknowledges that
it will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. The undersigned will, upon request, execute and deliver any
additional documents deemed by the
- 5 -
<PAGE>
Exchange Agent or the Company to be necessary or desirable to complete the
assignment, transfer and purchase of the Old Notes tendered hereby.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Old Notes when, as and if the Company has given oral
or written notice thereof to the Exchange Agent.
If any tendered Old Notes are not accepted for exchange pursuant to the
Exchange Offer for any reason, certificates for any such unaccepted Old Notes
will be returned, without expense, to the undersigned at the address shown below
or at a different address as may be indicated herein under "Special Payment
Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Payment Instructions," please
issue the certificates representing the New Notes issued in exchange for the Old
Notes accepted for exchange and return any Old Notes not tendered or not
exchanged in the name(s) of the undersigned. Similarly, unless otherwise
indicated under "Special Delivery Instructions," please send the certificates
representing the New Notes issued in exchange for the Old Notes accepted for
exchange and any certificates for Old Notes not tendered or not exchanged (and
accompanying documents, as appropriate) to the undersigned at the address shown
below the undersigned's signatures. In the event that both "Special Payment
Instructions" and "Special Delivery Instructions" are completed, please issue
the certificates representing the New Notes issued in exchange for the Old Notes
accepted for exchange and return any Old Notes not tendered or not exchanged in
the name(s) of, and send said certificates to, the person(s) so indicated. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Payment Instructions" and "Special Delivery Instructions" to transfer
any Old Notes from the name of the registered holder(s) thereof if the Company
does not accept for exchange any of the Old Notes so tendered.
- 6 -
<PAGE>
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
X ______________________________ Date __________________________
X ______________________________ Date __________________________
Signature(s) of Registered Holder(s)
or Authorized Signatory
Area Code and Telephone Number: ____________________________________
The above lines must be signed by the registered holder(s) of Old Notes
as their name(s) appear(s) on the Old Notes or by person(s) authorized to become
registered holder(s) by a properly completed bond power from the registered
holder(s), a copy of which must be transmitted with this Letter of Transmittal.
If Old Notes to which this Letter of Transmittal relates are held of record by
two or more joint holders, then all such holders must sign this Letter of
Transmittal. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, such person must (i) set forth his or her full title
below and (ii) unless waived by the Company, submit evidence satisfactory to the
Company of such person's authority so to act. See Instruction 5 regarding the
completion of this Letter of Transmittal printed below.
Name(s): ________________________________
(Please Print)
Capacity: ________________________________
Address: _________________________________
(Include Zip Code)
Signature(s) Guaranteed by an Eligible Institution:
(If required by Instruction 5)
_____________________________________
(Authorized Signature)
_____________________________________
(Title)
_____________________________________
(Name of Firm)
Dated:____________________, 1999
- 7 -
<PAGE>
INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Old Notes.
The tendered Old Notes, as well as a properly completed and duly
executed copy of this Letter of Transmittal or facsimile hereof and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein prior to 5:00 P.M., New York City
time, on the Expiration Date. The method of delivery of the tendered Old Notes,
this Letter of Transmittal and all other required documents to the Exchange
Agent is at the election and risk of the Holder and, except as otherwise
provided below, the delivery will be deemed made only when actually received by
the Exchange Agent. Instead of delivery by mail, it is recommended that the
Holder use an overnight or hand delivery service. If sent by mail, it is
recommended that registered mail, properly insured, with return receipt
requested, be used. In all cases, sufficient time should be allowed to assure
delivery to the Exchange Agent before the Expiration Date. No Letter of
Transmittal or Old Notes should be sent to the Company.
Holders who wish to tender their Old Notes and (i) whose Old Notes are
not immediately available, or (ii) who cannot deliver their Old Notes, this
Letter of Transmittal or any other documents required hereby to the Exchange
Agent prior to 5:00 P.M., New York City time, on the Expiration Date, must
tender their Old Notes according to the guaranteed delivery procedures set forth
in the Prospectus. Pursuant to such procedures: (i) such tender must be made by
or through a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (an "Eligible Institution"); (ii) prior to the
Expiration Date, the Exchange Agent must have received from the Eligible
Institution a properly completed and duly executed Notice of Guaranteed Delivery
(by facsimile transmission, mail or hand delivery) setting forth the name and
address of the Holder of the Old Notes, the certificate number or numbers of
such Old Notes and the principal amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three business days
after the date of the execution of the Notice of Guaranteed Delivery, this
Letter of Transmittal (or facsimile hereof) together with the certificates
representing the Old Notes and any other required documents will be deposited by
the Eligible Institution with the Exchange Agent; and (iii) such properly
completed and executed Letter of Transmittal (or facsimile hereof), as well as
all other documents required by this Letter of Transmittal and the certificates
representing all tendered Old Notes in proper form for transfer, must be
received by the Exchange Agent within three business days after the date of the
execution of the Notice of Guaranteed Delivery, all as provided in the
Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures." Any Holder of Old Notes who wishes to tender his or her Old Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery prior to 5:00
P.M., New York City
- 8 -
<PAGE>
time, on the Expiration Date. Upon request of the Exchange Agent, a Notice of
Guaranteed Delivery will be sent to Holders who wish to tender their Old Notes
according to the guaranteed delivery procedures set forth above.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Old Notes not properly tendered or any Old Notes the
Company's acceptance of which might, in the judgment of the Company or counsel
for the Company, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or conditions of tender as to the Exchange
Offer and/or particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in this Letter of
Transmittal) shall be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such reasonable period of time as the Company shall determine. Neither
the Company, the Exchange Agent nor any other person shall be under any duty to
give notification of defects or irregularities with respect to tenders of Old
Notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such defects or irregularities have been cured or waived. Any Old Notes received
by the Exchange Agent that are not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders of Old Notes, unless otherwise provided in this
Letter of Transmittal, as soon as practicable following the Expiration Date.
2. Tender by Holder.
Only a Holder of Old Notes may tender such Old Notes in the Exchange
Offer. Any beneficial holder of Old Notes who is not the registered holder and
who wishes to tender should arrange with the registered holder to execute and
deliver this Letter of Transmittal on his or her behalf or must, prior to
completing and executing this Letter of Transmittal and delivering his or her
Old Notes, either make appropriate arrangements to register ownership of the Old
Notes in such holder's name or obtain a properly completed bond power from the
registered holder.
3. Partial Tenders.
Tenders of Old Notes will be accepted only in integral multiples of
$1,000. If less than the entire principal amount of any Old Notes is tendered,
the tendering Holder should fill in the principal amount tendered in the fourth
column of the box entitled "Description of 10 1/4% Senior Subordinated Notes due
2008 (Old Notes)" above. The entire principal amount of Old Notes delivered to
the Exchange Agent will be deemed to have been tendered unless otherwise
indicated. If the entire principal amount of all Old Notes is not tendered, then
Old Notes for the principal amount of Old Notes not tendered and a certificate
or certificates representing New Notes issued in exchange for any Old Notes
accepted will be sent to the Holder at his or her registered address, unless a
different address is provided in the appropriate box on this Letter of
Transmittal and Consent, promptly after the Old Notes are accepted for exchange.
- 9 -
<PAGE>
4. Withdrawal of Tenders.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the registered number or
numbers and principal amount of such Old Notes or, in the case of Old Notes
transferred by book-entry transfer, the name and number of the account at the
Book-Entry Transfer Facility to be credited), (iii) be signed by the Holder in
the same manner as the original signature on the Letter of Transmittal by which
such Old Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have State Street Bank &
Trust Company, the trustee with respect to the Old Notes (the "Trustee"),
register the transfer of such Old Notes into the name of the person withdrawing
the tender and (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no New Notes will be issued with
respect thereto unless the Old Notes so withdrawn are validly re-tendered.
Properly withdrawn Old Notes may be re-tendered by following one of the
procedures set forth in this letter at any time prior to 5:00 p.m., New York
City time, on the Expiration Date.
5. Signatures on the Letter of Transmittal; Bond Powers and
Endorsements; Guarantee of Signatures.
If this Letter of Transmittal (or facsimile hereof) is signed by the
record Holder(s) of the Old Notes tendered hereby, the signature must correspond
with the name(s) as written on the face of the Old Notes without alteration,
enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of Old Notes tendered and the certificate or
certificates for New Notes issued in exchange therefor are to be issued (or any
untendered principal amount of Old Notes is to be reissued) to the registered
Holder, the said Holder need not and should not endorse any tendered Old Notes,
nor provide a separate bond power. In any other case, such Holder must either
properly endorse the Old Notes tendered or transmit a properly completed
separate bond power with this Letter of Transmittal, with the signatures on the
endorsement or bond power guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a
person or persons other than the registered Holder or Holders of any Old Notes
listed, such Old Notes must be endorsed or accompanied by appropriate bond
powers, in either case signed by the registered Holder or
- 10 -
<PAGE>
Holders exactly as the name or names of the registered Holder or Holders appear
on the Old Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact or officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 4 must be guaranteed by an Eligible Institution.
Except as otherwise provided below, all signatures on this Letter of
Transmittal (or facsimile hereof) must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed if (i) this
Letter of Transmittal is signed by the registered Holder(s) of the Old Notes
tendered herewith and such Holder(s) have not completed the box set forth herein
entitled "Special Payment Instructions" or the box entitled "Special Delivery
Instructions" or (ii) such Old Notes are tendered for the account of an Eligible
Institution.
6. Special Payment and Delivery Instructions.
Tendering Holders should indicate, in the applicable box or boxes, the
name and address to which New Notes or substitute Old Notes for principal
amounts not tendered or not accepted for exchange are to be issued or sent, if
different from the name and address of the person signing this Letter of
Transmittal. In the case of issuance in a different name, the taxpayer
identification or social security number of the person named must also be
indicated.
7. Tax Identification Number.
Federal income tax law requires that a Holder whose offered Old Notes
are accepted for exchange must provide the Company (as payor) with his, her or
its correct Taxpayer Identification Number ("TIN"), which, in the case of an
exchanging Holder who is an individual, is his or her social security number. If
the Company is not provided with the correct TIN or an adequate basis for
exemption, such Holder may be subject to a $50 penalty imposed by the Internal
Revenue Service (the "IRS"). In addition, delivery to such Holder of New Notes
may be subject to backup withholding in an amount equal to 31% of the gross
proceeds resulting from the Exchange Offer. If withholding results in an
overpayment of taxes, a refund may be obtained from the IRS by the Holder.
Exempt Holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9."
To prevent backup withholding, each exchanging Holder must provide his,
her or its correct TIN by completing the Substitute Form W-9 enclosed herewith,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN) and that (i) the Holder is exempt from
- 11 -
<PAGE>
backup withholding, (ii) the Holder has not been notified by the IRS that he,
she or it is subject to backup withholding as a result of a failure to report
all interest or dividends or (iii) the IRS has notified the Holder that he, she
or it is no longer subject to backup withholding. In order to satisfy the
Exchange Agent that a foreign individual qualifies as an exempt recipient, such
Holder must submit a statement signed under penalty of perjury attesting to such
exempt status. Such statements may be obtained from the Exchange Agent. If the
Old Notes are in more than one name or are not in the name of the actual owner,
consult the Substitute Form W-9 for information on which TIN to report. If you
do not provide your TIN to the Company within 60 days, backup withholding will
begin and continue until you furnish your TIN to the Company.
8. Transfer Taxes.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered Holder of the Old Notes
tendered hereby, or if tendered Old Notes are registered in the name of any
person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or on any other persons) will be
payable by the tendering Holder. If satisfactory evidence of payment of taxes or
exemption from taxes is not submitted with this Letter of Transmittal, the
amount of transfer taxes will be billed directly to the tendering Holder.
Except as provided in this Instruction 8, it will not be necessary
for transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
9. Waiver of Conditions.
The Company reserves the absolute right to amend, waive or modify
specified conditions in the Exchange Offer in the case of any Old Notes
tendered.
10. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any tendering Holder whose Old Notes have been mutilated, lost, stolen
or destroyed should contact the Exchange Agent at the address indicated herein
for further instructions.
11. Requests for Assistance or Additional Copies.
Questions and requests for assistance and requests for additional
copies of the Prospectus or this Letter of Transmittal may be directed to the
Exchange Agent at the address specified in the Prospectus. Holders may also
contact their broker, dealer, commercial bank, trust company or other nominee
for assistance concerning the Exchange Offer.
- 12 -
<PAGE>
(DO NOT WRITE IN SPACE BELOW)
<TABLE>
<CAPTION>
================================= ========================== ================================
Certificate Old Notes Old Notes
Surrendered Tendered Accepted
================================= ========================== ================================
<S> <C> <C>
- --------------------------------- -------------------------- --------------------------------
- --------------------------------- -------------------------- --------------------------------
- --------------------------------- -------------------------- --------------------------------
- --------------------------------- -------------------------- --------------------------------
- --------------------------------- -------------------------- --------------------------------
</TABLE>
Delivery Prepared by ___________ Checked By _______________ Date __________
- 13 -
<PAGE>
================================================================================
PAYOR'S NAME: NEFF CORP.
================================================================================
SUBSTITUTE Name (if joint names, list first and circle the name
of the person or entity whose number you enter in
Part I below. See instructions if your name has
changed.)
FORM W-9
Department of the
Treasury
Internal Revenue
Service
-----------------------------------------------------
Address
-----------------------------------------------------
City, State and Zip Code
-----------------------------------------------------
List account number(s) here (optional)
-----------------------------------------------------
Part 1 - PLEASE PROVIDE YOUR Social Security
TAXPAYER IDENTIFICATION NUMBER number or TIN
("TIN") IN THE BOX AT RIGHT AND
CERTIFY BY SIGNING AND DATING BELOW
----------------------------------------------------
Part 2 - Check the box if you are NOT subject to
backup withholding under the provisions of section
3408(a)(1)(C) of the Internal Revenue Code because
(1) you have not been notified that you are subject
to backup withholding as a result of failure to
report all interest or dividends or (2) the Internal
Revenue Service has notified you that you are no
longer subject to backup withholding. [ ]
- -------------------------- ----------------------------------------------------
Payor's Request for TIN CERTIFICATION - UNDER THE PENALTIES Part 3 - Check
OF PERJURY. I CERTIFY THAT THE if awaiting TIN
INFORMATION ON THIS FORM IS TRUE, [ ]
CORRECT AND COMPLETE.
Signature _____________ Date _____
- -------------------------- ----------------------------------------------------
Note: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
- 14 -
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Obtaining a Number
If you don't have a taxpayer identification number or you don't know
your number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and apply
for a number.
Payees Exempt from Backup Withholding
Payees specifically exempted from backup withholding on ALL payments
include the following:
/bullet/ A corporation.
/bullet/ An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under Section 403(b)(7).
/bullet/ The United States or any agency or instrumentality thereof.
/bullet/ A state, the District of Columbia, a possession of the United States,
or any subdivision or instrumentality thereof, or a foreign government
or any political subdivision, agency or instrumentality thereof.
bullet/ An international organization or any agency or instrumentality thereof.
/bullet/ A foreign central bank of issue.
/bullet/ A registered dealer in securities or commodities registered in the U.S.
or a possession of the U.S.
/bullet/ A futures commission merchant registered with the Commodity Futures
Trading Commission.
/bullet/ A real estate investment.
/bullet/ An entity registered at all times during the tax year under the
Investment Company Act of 1940 or a common trust fund operated by a
bank under section 584(a).
/bullet/ A financial institution.
/bullet/ A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List.
/bullet/ A trust exempt from tax under section 664 as described in section 4947.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
/bullet/ Payments to nonresident aliens subject to withholding under section
1441.
/bullet/ Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
- 15 -
<PAGE>
/bullet/ Payments of patronage dividends where the amount received is not paid
in money.
/bullet/ Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding
include the following:
/bullet/ Payments of interest on obligations issued by individuals. Note: You
may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payor's trade or business and you have
not provided your correct taxpayer identification number to the payor.
/bullet/ Payments of tax-exempt interest (including exempt-interest dividends
under section 852).
/bullet/ Payments described in section 6049(b)(5) to nonresident aliens.
/bullet/ Payments on tax-free covenant bonds under section 1451.
/bullet/ Payments made by certain foreign organizations.
/bullet/ Mortgage interest paid to you.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYOR, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYOR. ALSO SIGN AND DATE THE FORM. Certain payments other than interest,
dividends, and patronage dividends that are not subject to information reporting
are also not subject to backup withholding. For details, see the regulations
under sections 6041, 6041A(a), 6042, 6044, 6045, 6049, 6050A and 6050N.
Privacy Act Notice. -- Section 6109 requires most recipients of dividend
interest or other payments to give taxpayer identification numbers to payors who
must report the payments to the IRS. The IRS uses the numbers for identification
purposes. Payors must be given the numbers whether or not recipients are
required to file tax returns. Payors must generally withhold 20% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to a payor. Certain penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number. --
If you fail to furnish your taxpayer identification number to a payor, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) Civil Penalty for False Information With Respect to Withholding. --
If you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(3) Criminal Penalty for Falsifying Information.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
- 16 -
<PAGE>
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE
INTERNAL REVENUE SERVICE.
- 17 -
EXHIBIT 99.2
Notice of Guaranteed Delivery
For Tender of
10 1/4% Senior Subordinated Notes due 2008 in
Exchange for Registered 10 1/4% Senior Subordinated
Notes due 2008
of
NEFF CORP.
This form must be used to accept the Exchange Offer of Neff Corp. (the
"Company") made pursuant to the Prospectus dated _________________, 1999 (the
"Prospectus") if certificates for the 10 1/4% Senior Subordinated Notes due 2008
(the "Old Notes") of the Company are not immediately available or if the Old
Notes, the Letter of Transmittal or any other documents required thereby cannot
be delivered to the Exchange Agent prior to 5:00 P.M., New York City time, on
the Expiration Date (as defined in the Prospectus). Such form may be delivered
by hand or transmitted by facsimile transmission, overnight courier or mail to
the Exchange Agent. Capitalized terms used but not defined herein have the
meaning given to them in the Prospectus.
The Exchange Agent for the Exchange Offer is:
State Street Bank & Trust Company
<TABLE>
<S> <C>
BY MAIL: OVERNIGHT COURIER:
State Street Bank & Trust Company State Street Bank & Trust Company
Corporate Trust Department Corporate Trust Department
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: _________ Attention: _________
BY HAND IN NEW YORK (AS DROP AGENT): BY HAND IN BOSTON:
State Street Bank & Trust Company, N.A. State Street Bank & Trust Company
61 Broadway Two International Place
15th Floor, Corporate Trust Window Fourth Floor, Corporate Trust Department
New York, New York 10006 Boston, Massachusetts 02110
FACSIMILE TRANSMISSION: CONFIRM BY TELEPHONE:
(For Eligible Institutions Only) (617) 664-5314
(617) 664-5290
</TABLE>
1
<PAGE>
Delivery of this instrument to an address, or transmission of
instructions via a facsimile, other than as set forth above, does not constitute
a valid delivery.
This form is not to be used to guarantee signatures. If a signature on
the Letter of Transmittal to be used to tender Old Notes is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the Letter
of Transmittal.
Ladies and Gentlemen:
The undersigned hereby tenders to Neff Corp., a Delaware corporation (the
"Company"), upon the terms and subject to the conditions set forth in the
Prospectus and the Letter of Transmittal (which together constitute the
"Exchange Offer"), receipt of which is hereby acknowledged, __________________
________________________________________________ (number of Old Notes) Old Notes
pursuant to the guaranteed delivery procedures set forth in Instruction 1 of the
Letter of Transmittal.
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW.
<TABLE>
<S> <C>
Certificate No(s). for Old Notes (if
available) Name(s) of Record Holder(s)
-------------------------------------------- ------------------------------------------------
Please Print or Type
--------------------------------------------
Address ----------------------------------------
-------------------------------------------------
Area Code & Tel. No. ----------------------------
Signature(s) ------------------------------------
-------------------------------------------------
Dated: ------------------------------------------
</TABLE>
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Old Notes exactly as its (their) name(s) appear on certificates for
Old Notes or on a security position listing as the owner of Old Notes, or by
person(s) authorized to become registered holder(s) by endorsements and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person must
provide the following information.
2
<PAGE>
Please print name(s) and addresses)
Name(s):-----------------------------------------------------------------------
Capacity:----------------------------------------------------------------------
Address(es):-------------------------------------------------------------------
The undersigned acknowledges that it must deliver the Letter of
Transmittal and Old Notes tendered hereby to the Exchange Agent within the time
period set forth and that failure to do so could result in financial loss to the
undersigned.
3
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the United
States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
hereby (a) represents that the above named person(s) "own(s)" the Old Notes
tendered hereby within the meaning of Rule 10b-4 under the Exchange Act, (b)
represents that such tender of Old Notes complies with Rule l0b-4 under the
Exchange Act and (c) guarantees that delivery to the Exchange Agent of
certificates for the Old Notes tendered hereby, in proper form for transfer,
with delivery of a properly completed and duly executed Letter of Transmittal
(or manually signed facsimile thereof) with any required signature and any other
required documents, will be received by the Exchange Agent at one of its
addresses set forth above within three business days after the date of the
execution of the Notice of Guaranteed Delivery. The undersigned acknowledges
that it must deliver the Letter of Transmittal and Old Notes tendered hereby to
the Exchange Agent within the time period set forth and that failure to do so
could result in financial loss to the undersigned.
Name of Firm________________________________ ______________________________
Authorized Signature
Address_____________________________________ Name__________________________
Please Print or Type
____________________________________________
Zip Code Title_________________________
Area Code and Tel. No.______________________
Dated:______________________________________ Date__________________________
NOTE: DO NOT SEND OLD NOTES WITH THIS FORM; OLD NOTES SHOULD BE SENT WITH
YOUR LETTER OF TRANSMITTAL SO THAT THEY ARE RECEIVED BY THE EXCHANGE
AGENT WITHIN THREE BUSINESS DAYS AFTER THE DATE OF THE EXECUTION OF
THE NOTICE OF GUARANTEED DELIVERY.
4
