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TABLE OF CONTENTS
Index to Financial Statements
As filed with the Securities and Exchange Commision on November 10, 2014
Registration No. 333-198559
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Neff Corporation
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
7359 (Primary Standard Industrial Classification Code Number) |
30-0843609 (I.R.S. Employer Identification No.) |
3750 N.W. 87th Avenue, Suite 400
Miami, FL 33178
(305) 513-3350
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Mark Irion
Chief Financial Officer
Neff Corporation
3750 N.W. 87th Avenue, Suite 400
Miami, FL 33178
(305) 513-3350
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to: | ||
Kirk A. Davenport II, Esq. Dennis Lamont, Esq. Latham & Watkins LLP 885 Third Avenue, Suite 1000 New York, New York 10022 (212) 906-1200 |
Arthur D. Robinson, Esq. Lesley C. Peng, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, NY 10017 (212) 455-2000 |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
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 statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Securities Exchange Act of 1934 (the "Exchange Act"). (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer ý (Do not check if a smaller reporting company) |
Smaller reporting company o |
CALCULATION OF REGISTRATION FEE
|
||||||||
Title of Each Class of Securities To Be Registered |
Amount to be Registered(1) |
Proposed Maximum Offering Price Per Share(2) |
Proposed Maximum Aggregate Offering Price(2) |
Amount of Registration Fee |
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Class A common stock, par value $0.01 par value per share |
12,047,618 | $22.00 | $265,047,596 | $30,799(3) | ||||
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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, or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
PROSPECTUS (Subject to Completion)
Issued November 10, 2014
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
10,476,190 Shares
Neff Corporation
CLASS A COMMON STOCK
Neff Corporation is offering 10,476,190 shares of its Class A common stock. This is our initial public offering and no public market currently exists for our Class A common stock. The initial public offering price is expected to be between $20.00 and $22.00 per share.
We will apply to list our Class A common stock on The New York Stock Exchange ("NYSE") under the symbol "NEFF".
We will have two classes of common stock outstanding after this offering: Class A common stock and Class B common stock. Each share of Class A common stock and Class B common stock entitles its holder to one vote on all matters presented to our stockholders generally. All of our Class B common stock will be held by Wayzata Opportunities Fund II, L.P. and Wayzata Opportunities Fund Offshore II, L.P., private investment funds managed by Wayzata Investment Partners LLC, which we refer to collectively as "Wayzata." Immediately following this offering, the holders of our Class A common stock will collectively hold 100% of the economic interests in us and 45.0% of the voting power in us, and Wayzata, through its ownership of all of the outstanding Class B common stock, will hold the remaining 55.0% of the voting power in us. As a result, we will be a "controlled company" within the meaning of the corporate governance standards of the NYSE. We will be a holding company, and upon consummation of this offering and the application of proceeds therefrom our sole asset will be the common units of Neff Holdings LLC ("Neff Holdings"), representing a 45.0% economic interest in Neff Holdings. The remaining 55.0% economic interest in Neff Holdings will be owned by Wayzata through its ownership of common units of Neff Holdings.
We are an "emerging growth company" under applicable federal securities laws and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.
Investing in our Class A common stock involves risks. Please see "Risk Factors" beginning on page 21.
PRICE $ A SHARE
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Price to Public |
Underwriting Discounts and Commissions(1) |
Proceeds to Company, Before Expenses |
|||
---|---|---|---|---|---|---|
Per Share |
$ | $ | $ | |||
Total |
$ | $ | $ |
We have granted the underwriters the right to purchase up to an additional 1,571,428 shares of Class A common stock from us.
The Securities and Exchange Commission (the "SEC") and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares of Class A common stock to purchasers on or about , 2014.
MORGAN STANLEY | JEFFERIES | PIPER JAFFRAY | ||
BofA MERRILL LYNCH |
WELLS FARGO SECURITIES |
, 2014
You should rely only on the information contained in this prospectus and any free writing prospectus we have prepared. We have not, and the underwriters have not, authorized anyone to provide you with information or make any representations different from or in addition to those contained in this prospectus or any free writing prospectus we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to, the reliability of any other information that others may give you. We are offering to sell shares of Class A common stock and are seeking offers to buy shares of our Class A common stock only in jurisdictions where offers and sales are permitted.
Until , 2014 (25 days after the commencement of the offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
For investors outside the United States: We have not, and the underwriters have not, done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus and any such free writing prospectus outside of the United States.
We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. In addition, our names, logos and website names and addresses are our service marks or trademarks. Other trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners. Some of the trademarks we own or have the right to use include "Neff Rental" and "We Care More." Solely for convenience, the trademarks, service marks, tradenames and copyrights referred to in this prospectus are listed without the ©, ® and TM symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and tradenames.
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This summary highlights information contained elsewhere in this prospectus. It does not contain all of the information that you may consider important in making your investment decision and is qualified in its entirety by the more detailed information and historical financial statements, including the notes thereto, that are included elsewhere in this prospectus. You should read this entire prospectus carefully and consider, among other things, the matters discussed in the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Certain statements in this summary are forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from future results contemplated in the forward-looking statements. See "Forward-Looking Statements."
Except as otherwise stated or required by the context, in this prospectus, the "Company," "we," "our" and "us" refer (1) prior to the consummation of the Organizational Transactions described under "The Organizational Transactions," to Neff Holdings LLC ("Neff Holdings") and, unless the context otherwise requires, its consolidated subsidiaries, and (2) after the consummation of the Organizational Transactions described under "The Organizational Transactions," to Neff Corporation and, unless the context otherwise requires, its consolidated subsidiaries, including Neff Holdings.
Our Company
We are a leading regional equipment rental company in the United States, focused on the fast-growing Sunbelt states. We offer a broad array of equipment rental solutions for our diverse customer base, including non-residential construction, oil and gas and residential construction customers. Our broad fleet of equipment includes earthmoving, material handling, aerial and other rental equipment, which we package together to meet the specific needs of our customers. We consider the earthmoving equipment category to be a core competency of our Company and a key differentiator of our business. We believe that the earthmoving equipment category offers a return on investment and future growth prospects that are among the strongest in the equipment rental industry. For the 12 months ended September 30, 2014, we generated revenues of $358.3 million (88% from equipment rentals), net income of $15.9 million and Adjusted EBITDA (as defined below) of $176.1 million.
Our Branch Network and Fleet
As of September 30, 2014, we operated 64 branches organized into operating clusters in five regions in the United States: Florida, Atlantic, Central, Southeastern and Western. We are strategically located in markets that we believe feature high levels of population growth as well as high levels of construction activity over the near term. We believe that our clustering approach enables us to establish a strong local presence in targeted markets and meet the needs of our customers that have multiple projects within a specific region. Furthermore, we have invested in and developed a highly successful fleet management capability which allows us to share equipment among our branches in order to improve time utilization (as defined below) and drive a higher return on invested capital.
Revenues by Region for the 12 Months Ended September 30, 2014
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We seek to improve returns on our investments in rental equipment by applying a highly-disciplined asset-management approach to acquiring, renting, maintaining and divesting our fleet. This effort is supported by our customized asset tracking software and a rigorous maintenance and repair program, which promotes the extended useful life of our equipment. As of September 30, 2014, our rental fleet consisted of over 13,650 units of equipment with an original equipment cost, or OEC (as defined below), of approximately $723.6 million and an average age of approximately 46 months. Our earthmoving fleet represented approximately 54% of OEC and had an average age of approximately 34 months. We believe that our focus on earthmoving equipment positions us to take advantage of future growth opportunities in our key end-markets.
Rental Fleet by Equipment Category as a Percentage of OEC as of September 30, 2014
Industry Overview
According to the American Rental Association, the North American rental industry grew from approximately $18 billion in annual rental revenues in 1997 to approximately $38 billion in 2013, representing a compounded annual growth rate ("CAGR") of approximately 5%. The primary end-markets served by the rental industry include the broader industrial and construction markets, which
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include non-residential construction, oil and gas and residential construction. The American Rental Association projects that the North American rental industry will grow by approximately 8% annually through 2018, resulting in estimated annual rental revenues of $56 billion by 2018. We believe that approximately 70% of total North American rental industry revenues is attributable to the industrial and commercial construction markets.
North America Rental Industry Revenues: 1997 - 2018E
Source: American Rental Association Rental Market Monitor.
We believe that part of this industry growth will be driven by the ongoing secular shift in North America toward reliance on equipment rental instead of ownership, as evidenced by the increasing percentage of new equipment sold to rental companies as a percentage of the total amount of new equipment sold, which we refer to as the penetration rate. According to the American Rental Association'sEquipment Rental Penetration Index, the penetration rate rose from 41% in 2003 to 53% in 2013.
North America Equipment Rental Penetration Rate Index
Source: American Rental Association Equipment Rental Penetration Index.
We believe that the shift from owning to renting equipment in North America will continue as construction and industrial firms recognize the advantages of renting rather than owning equipment, and that this trend will continue to result in increased penetration rates in the future. Renting equipment allows firms to:
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Furthermore, the material handling and aerial categories each have higher penetration rates than the earthmoving equipment category. Given the relatively lower penetration rate in the earthmoving equipment category, we expect growth in this category to outpace the overall equipment rental market.
North America Penetration Rates by Category for 2013 Equipment Rental Market
Source: Yengst Associates Market Machinery Research Rental Industry Report. Data segmented by the Company to reflect the three primary equipment classes.
The equipment rental industry in North America is highly fragmented. According to Yengst Associates, the industry is comprised of approximately 4,000 rental business locations that offer construction equipment as a primary source of revenue. In 2013, according to the Rental Equipment Register, revenues of the 15 largest equipment rental companies accounted for approximately 30% of the total market. We believe that larger rental companies will be able to continue to increase their market share and outperform smaller, independent companies by better meeting customer demands to deliver a broad selection of high-quality and reliable equipment in a timely and efficient manner.
Our Business Strengths
Well Positioned to Capitalize on Key End-Market Growth. For the 12 months ended September 30, 2014, approximately 85% of our rental revenues were derived from five key end-markets: infrastructure, non-residential construction, oil and gas, municipal and residential construction. The U.S. equipment rental industry has historically benefitted from growth in these end-markets, which are expected to grow at a weighted average CAGR of approximately 8% from 2014 to 2018, as shown below. We believe that our current business is well aligned with these growing end-markets, and that we will continue to benefit from macroeconomic growth.
Our Rental Revenues by End-Market for the 12 Months Ended September 30, 2014 |
Projected End-Market Growth: 2014E - 2018E CAGRs |
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Source: Company data. | Source: FMI Construction Outlook Q3 2014 data; Oil and Gas Capital Expenditures from IHS data as of October 2014. |
Prominent Position in Fast-Growing Sunbelt States. 60 of our 64 branches are located in the Sunbelt states of Virginia, North Carolina, South Carolina, Florida, Georgia, Alabama, Tennessee, Louisiana, Texas, Arizona, Nevada and California. Our Sunbelt state locations benefit from favorable climate conditions that facilitate year-round construction activity and reduce seasonality in our business. According
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to the American Rental Association, construction and industrial equipment rental revenue in the states where we have branch locations is expected to grow approximately 10% annually from 2014 to 2018, compared to an average growth rate of approximately 8% for all other states. By clustering our operations and concentrating our branches in these strategic regional markets, we have established a strong local presence and developed significant brand recognition in those markets.
High-Quality Fleet Focused on Earthmoving Equipment. We offer our customers a broad array of rental equipment with a focus on the earthmoving category. We believe that we are well positioned to benefit from additional penetration in the earthmoving equipment category, which had a penetration rate of approximately 51% in 2013, compared to approximately 95% for the aerial and 85% for the material handling categories, respectively. As of September 30, 2014, we had over 5,200 units of earthmoving equipment, accounting for 54% of the OEC of our rental fleet. By comparison, as presented below, the earthmoving equipment category represented only 13-22% of the OEC of selected public industry peers.
Percentage of Earthmoving Equipment OEC Among Selected
Public Industry Peers
Source: Company data and most recent public filings for selected public industry peers.
Disciplined Sales Culture Drives Strong Customer Relationships. We have a diverse base of repeat customers who we believe value our knowledge and expertise. Our customer base includes large and mid-sized construction firms, municipalities, utilities and industrial users. Typically, we serve over 14,000 customers annually. For the 12 months ended September 30, 2014, no single customer accounted for more than 1% of our total rental revenues and our ten largest customers accounted for approximately 5% of our total rental revenues. Our culture is built around the disciplined use of our customer relationship management system, or "CRM system," at every level of our organization, which we believe provides our employees with the tools and information to efficiently provide customized solutions to our existing and potential customers. In addition, our CRM system automatically notifies our sales force of new construction projects within their territories and provides them with the names and contact information of key contractors. We believe that the consistent and disciplined use of our CRM system is a competitive advantage that has resulted in greater sales coordination, increased corporate control over customer account information, high-quality customer service and higher time utilization.
Strong Operating Trends. We have experienced substantial earnings momentum since 2011, driven by the rebound in our end-markets and supported by significant investment in our fleet, which has resulted in an increase in OEC from $471.1 million at December 31, 2011 to $723.6 million at September 30, 2014. In addition, our time utilization has increased from 65% for the year ended December 31, 2011 to 71% for the 12 months ended September 30, 2014, and our rental rates (as defined below) have increased by over 6% on an annual basis over the same period. We believe that the combination of favorable industry dynamics, significant investments in our fleet and our focus on operating leverage (which has seen our Adjusted EBITDA margin increase from 35% for the year ended December 31, 2011 to 49% for the 12 months ended September 30, 2014) have driven our Adjusted EBITDA from $86.7 million to $176.1 million over this period.
Experienced Management Team. Our senior management team has significant operating experience in the equipment rental industry and has worked together at our Company for over a decade. Graham Hood, our Chief Executive Officer, has 36 years of rental industry experience and Mark Irion, our Chief Financial Officer, has 16 years of rental industry experience. Our regional Vice Presidents, with an average of
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17 years with our Company and 29 years of industry experience, provide us with a stable base of operating management with long-term, local relationships and deep equipment rental industry expertise. This industry expertise, combined with our disciplined sales culture and CRM system, enables our regional management team to respond quickly to changing market conditions.
Our Business Strategy
Focus on Premium Customer Service to Create Strong Customer Relationships. We are committed to providing our customers with premium service. We believe that our customers value our strong regional presence, well-established local relationships and full-service branches, which offer 24/7 customer support. Furthermore, our regional presence is supplemented by a national account focus that allows us to differentiate our brand and product offering to our larger customer accounts. We believe that our ability to provide expert advice with respect to earthmoving equipment is an advantage over our competitors. As of September 30, 2014, we have received over 98% favorable customer reviews based on our policy of polling a sampling of all customer transactions. We intend to continue to leverage our national account program, our customer service capabilities and our advanced CRM system to retain our existing customers and further penetrate our target customer base.
Emphasis on Active Asset Management. We have invested significantly in both customized technologies and the development of our personnel to ensure that we manage our fleet efficiently to increase our returns on invested capital. Our technologies form the basis of our sales force's customer targeting efforts and allow us to improve rental rates and identify equipment demand changes in real time. Our equipment clustering strategy allows us to share and re-deploy equipment among our branches as demand for equipment shifts throughout our branch network. Over time, we have demonstrated our ability to both increase and decrease the age of our fleet in response to changing market conditions. We actively monitor the market environment to determine where investment in fleet assets should be made or when fleet asset divestitures should occur. Our emphasis on active asset management, combined with our rigorous repair and maintenance program, allows us to increase time utilization, extend the useful life of our fleet and results in higher resale value of our equipment.
Focus on Growing Markets. We believe that our focus on the non-residential construction, oil and gas and residential construction end-markets positions us to benefit from favorable industry and macroeconomic trends. We believe that all of these end-markets are currently experiencing significant growth and will continue to benefit from investment spending driven by the economic recovery in the United States. FMI Construction Outlook predicts that U.S. infrastructure spending will grow approximately 5% annually through 2018, U.S. non-residential construction spending will grow at 5% annually through 2018, and U.S. residential construction will grow 9% annually through 2018. IHS estimates that oil and gas investment in the United States will grow 9% annually through 2018. We believe that our focus on these end-markets will position us to achieve significant growth in revenues.
Capitalize on Operating Leverage. We have a highly scalable business model constructed around our network of 64 full-service branch locations. We believe that our current network can support significant additions to our rental fleet without substantial additional investment in infrastructure, personnel or information technology. We intend to capitalize on anticipated growth opportunities primarily by increasing our fleet size within our existing branch network, using our active asset management capabilities to increase time utilization and improve pricing levels and serving customers who value our equipment mix and service capabilities. We have a proven track record of successfully opening new branches in our key markets, as evidenced by the successful development of six new branch locations since January 1, 2011. We regularly evaluate new branch opportunities based on stringent return criteria to identify promising new branch locations, and will continue to monitor opportunities to expand our strategic branch network.
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Ability to Generate Free Cash Flow. Our significant rental fleet investment and focus on active asset management provide us the operational flexibility to generate cash flow through different business cycles. We believe that our borrowing availability as of September 30, 2014, after giving effect to this offering and the use of proceeds therefrom, will provide the resources to continue to invest in our rental fleet. Our fleet investments are largely discretionary and we have the ability to temporarily defer capital expenditures or sell used rental equipment to manage cash flows. There is a developed secondary market for used rental equipment, and industry resale values of equipment have averaged approximately 49% of OEC over the past three years. We believe that our focus on cash flow and operating flexibility will allow us to continue to generate strong returns throughout various business cycles.
The Organizational Transactions
Wayzata Opportunities Fund II, L.P. and Wayzata Opportunities Fund Offshore II, L.P., private investment funds managed by Wayzata Investment Partners LLC (collectively, "Wayzata"), formed Neff Corporation as a Delaware corporation on August 18, 2014 to serve as the issuer of the Class A common stock offered hereby. On or prior to the closing of this offering we will consummate the following organizational transactions:
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We collectively refer to the foregoing transactions as the "Organizational Transactions."
Immediately following the completion of this offering and the Organizational Transactions:
For more information regarding our structure, see "Our Organizational Structure."
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Ownership Structure
The following diagram sets forth our ownership structure after giving effect to the Organizational Transactions and this offering:
Our Sponsor
Neff Holdings is owned by Wayzata Opportunities Fund II, L.P. and Wayzata Opportunities Fund Offshore II, L.P., which are investment funds managed by Wayzata Investment Partners LLC ("Wayzata Investment Partners"). Wayzata Investment Partners was formed in May 2004 and is based in Wayzata, Minnesota. The senior management team at Wayzata Investment Partners has significant experience in investing in alternative investments.
After completion of this offering, Wayzata will continue to control a majority of the voting power of our outstanding common stock. For a discussion of certain risks, potential conflicts and other matters associated with Wayzata's control, see "Risk FactorsRisks Relating to Our Organizational StructureWayzata will continue to have substantial control over us after this offering including over decisions that require the approval of stockholders, and its interest in our business may conflict with yours."
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Implications of Being an Emerging Growth Company
As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" ("EGC") as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), under the rules and regulations of the SEC. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include:
We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. In future years, we will cease to be an emerging growth company if we have more than $1.0 billion in annual revenue, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion of non-convertible debt securities over a three-year period. We may choose to take advantage of some but not all of these reduced requirements.
We have elected to take advantage of certain of the reduced disclosure obligations regarding financial statements and executive compensation in this prospectus and may elect to take advantage of other reduced requirements in future filings. As a result, the information we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.
The JOBS Act permits an EGC like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to take advantage of this provision and, as a result, we will not be required to comply with new or revised accounting standards until those standards would otherwise apply to private companies.
Corporate Information
Neff Corporation is a Delaware corporation. Our principal executive offices are located at 3750 N.W. 87th Avenue, Suite 400, Miami, Florida 33178, and our telephone number is (305) 513-3350. Our website address is www.neffrental.com. The information contained on, or accessible through, our website is not incorporated into this prospectus and is not part of this prospectus.
After giving effect to the Organizational Transactions, Neff Corporation will be a holding company whose only asset will be 45.0% of the outstanding common units of Neff Holdings, a Delaware limited liability company (or 48.5% if the underwriters exercise in full their option to purchase additional shares of Class A common stock). Neff Holdings was formed by Wayzata to acquire our business in the bankruptcy proceedings of Neff Holdings Corp. pursuant to a plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code. The acquisition was completed on October 1, 2010. We refer to Neff Holdings Corp. and certain of its affiliates as our "Prior Predecessor."
Risk Factors
Participating in this offering involves substantial risk. Our ability to execute our strategy is also subject to certain risks. The risks described under the heading "Risk Factors" included elsewhere in this prospectus may cause us not to realize the full benefits of our strengths or may cause us to be unable to
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successfully execute all or part of our strategy. Some of the most significant challenges and risks include the following:
Before you invest in our Class A common stock, you should carefully consider all the information in this prospectus, including matters set forth under the heading "Risk Factors."
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Issuer |
Neff Corporation. | |
Shares of Class A common stock offered by us |
10,476,190 shares. |
|
Underwriters' option to purchase additional shares of our Class A common stock |
1,571,428 shares. |
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Shares of Class A common stock to be outstanding immediately after this offering |
10,476,190 shares, representing a 45.0% voting interest (or 12,047,618 shares, representing a 48.5% voting interest, if the underwriters exercise in full their option to purchase additional shares of Class A common stock). |
|
Shares of Class B common stock to be outstanding immediately after this offering |
12,808,768 shares, representing a 55.0% voting interest (or a 51.5% voting interest in us if the underwriters exercise in full their option to purchase additional shares of Class A common stock), all of which will be beneficially owned by Wayzata. |
|
Common units of Neff Holdings to be outstanding immediately after this offering |
23,284,958 units (or 24,856,386 units if the underwriters exercise in full their option to purchase additional shares of Class A common stock). |
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Ratio of shares of common stock to common units |
Our certificate of incorporation and the Neff Holdings LLC Agreement will require that we and Neff Holdings at all times maintain a one-to-one ratio between the number of shares of Class A common stock issued by us and the number of common units owned by us, as well as a one-to-one ratio between the number of shares of Class B common stock owned by Wayzata and the number of common units owned by Wayzata. This construct is intended to result in Wayzata having a voting interest in Neff Corporation that is substantially the same as Wayzata's percentage economic interest in Neff Holdings. Wayzata will own 100% of our outstanding Class B common stock. |
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Voting rights |
Holders of our Class A common stock and Class B common stock will vote together as a single class on all matters presented to stockholders for their vote or approval, except as otherwise required by law. Each share of Class A common stock and Class B common stock will entitle its holder to one vote per share on all such matters. See "Description of Capital Stock." |
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Redemption rights of holders of common units |
The members of Neff Holdings, other than Neff Corporation, from time to time may require Neff Holdings to redeem all or a portion of their common units in exchange for, at Neff Corporation's option, a newly-issued share of our Class A common stock on a one-for-one basis or a cash payment equal to the volume weighted average market price of one share of our Class A common stock for each common unit (subject to customary adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the Neff Holdings LLC Agreement; provided that, at Neff Corporation's election, Neff Corporation may effect a direct exchange of such Class A common stock or such cash for such common units. See "Certain Relationships and Related Party TransactionsNeff Holdings LLC Agreement." |
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Registration Rights Agreement |
Pursuant to the Registration Rights Agreement, we will agree to file registration statements for the sale of the shares of our Class A common stock that are issuable upon redemption or exchange of common units of Neff Holdings upon request and cause those registration statements to be declared effective by the SEC as soon as practicable thereafter. See "Certain Relationships and Related Party TransactionsRegistration Rights Agreement." |
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Use of proceeds |
We will receive net proceeds from this offering of approximately $204.6 million (or $235.3 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock), after deducting underwriting discounts and commissions but before other offering expenses. We intend to use the net proceeds from this offering (excluding any net proceeds from any exercise of the underwriters' option to purchase additional shares of Class A common stock) as follows (i) to purchase 2,142,857 common units of Neff Holdings directly from Wayzata at a price per unit equal to the initial public offering price per share of Class A common stock in this offering less the underwriting discounts and commissions, in an amount aggregating $41.8 million, and (ii) to purchase 8,333,333 common units directly from Neff Holdings at the same price per unit, in an amount aggregating $162.8 million. We will use all net proceeds, if any, received upon exercise of the underwriters' option to purchase additional shares of Class A common stock to purchase additional common units directly from Neff Holdings at the same price per unit. Neff Holdings will use the proceeds from the sale of common units to Neff Corporation to repay or prepay certain indebtedness (including any prepayment premiums) and to pay the other fees and expenses of this offering. See "Use of Proceeds." |
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Conflicts of interest |
An affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated will receive more than 5% of the net proceeds of this offering in connection with the repayment of the Revolving Credit Facility. See "Use of Proceeds." Accordingly, this offering is being made in compliance with the requirements of FINRA Rule 5121. This rule requires, among other things, that a "qualified independent underwriter" has participated in the |
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preparation of, and has exercised the usual standards of "due diligence" with respect to, the registration statement. Morgan Stanley & Co. LLC has agreed to act as qualified independent underwriter for this offering and to undertake the legal responsibilities and liabilities of an underwriter under the Securities Act. See "Underwriting (Conflicts of Interest)." |
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Dividend policy |
We do not intend to pay cash dividends on our Class A common stock following this offering. Any declaration and payment of future dividends to holders of our Class A common stock may be limited by restrictive covenants in our debt agreements or the debt agreements of Neff Holdings and its subsidiaries, and will be at the sole discretion of our board of directors and will depend on many factors, including our financial condition, earnings, capital requirements, level of indebtedness, statutory and contractual restrictions applicable to the payment of dividends and other considerations that our board of directors deems relevant. See "Dividend Policy." |
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Controlled company exemption |
After completion of this offering, we will be considered a "controlled company" for the purposes of the NYSE listing requirements. As a "controlled company," we are not subject to certain corporate governance requirements, including the requirement that we perform annual performance evaluations of the nominating and corporate governance and compensation committee. As a result, we do not expect to perform annual performance evaluations of the nominating and corporate governance and compensation committee unless and until such time as we are required to do so. |
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Tax Receivable Agreement |
We will enter into a Tax Receivable Agreement with Neff Holdings, Wayzata and the holders of existing options to acquire common units in Neff Holdings that will provide for the payment by Neff Corporation to such persons of 85% of the amount of tax benefits, if any, that Neff Corporation actually realizes (or in some circumstances is deemed to realize) as a result of (i) increases in tax basis resulting from any purchase of common units from Wayzata with proceeds from this offering, the use of the proceeds from this offering to repay certain indebtedness of Neff Holdings and any redemptions or exchanges of common units described above under "Redemption rights of holders of common units," (ii) certain allocations as a result of the application of the principles of Section 704(c) of the Internal Revenue Code to take into account the difference between the fair market value and the adjusted tax basis of certain assets of Neff Holdings on the date that we purchase Neff Holdings common units directly from Neff Holdings with a portion of the proceeds from this offering and (iii) certain other tax benefits related to our entering into the Tax Receivable Agreement, including tax benefits attributable to payments under the Tax Receivable Agreement. See "Certain Relationships and Related Party TransactionsTax Receivable Agreement" for a discussion of the Tax Receivable Agreement and certain allocations resulting from the application of the principles of Section 704(c) of the Internal Revenue Code. |
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14
Trading symbol |
We intend to apply for listing of our Class A common stock on the NYSE under the symbol "NEFF". |
Unless we indicate otherwise or the context otherwise requires, all information in this prospectus:
15
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following tables present, as of the dates and for the periods indicated, (i) the summary historical consolidated financial and other data for Neff Holdings and its subsidiaries and (ii) the summary unaudited pro forma financial data for Neff Corporation and its subsidiaries, including Neff Holdings. Neff Holdings is the predecessor of the issuer, Neff Corporation, for financial reporting purposes. The historical financial statements of Neff Corporation have not been presented in this "Summary Historical and Pro Forma Consolidated Financial Data" section because it is a newly-incorporated entity, had no assets or liabilities during the periods presented and has had no business transactions or activities to date.
Neff Holdings is a holding company that conducts no operations and its only material asset as of the consummation of this offering is its membership interests in Neff LLC. Neff LLC is a holding company that conducts no operations and its only material asset is its membership interests in Neff Rental LLC, the principal operating company for our business.
We have derived the summary historical financial data as of and for the years ended December 31, 2012 and 2013 from the audited consolidated financial statements of Neff Holdings included elsewhere in this prospectus. We have derived the summary historical financial data as of and for the year ended December 31, 2011 from the audited consolidated financial statements of Neff Holdings not included in this prospectus. We have derived the summary historical financial data as of September 30, 2014 and for the nine months ended September 30, 2013 and 2014 from the unaudited consolidated financial statements of Neff Holdings included elsewhere in this prospectus. We have derived the summary historical financial data as of September 30, 2013 from the unaudited consolidated financial statements of Neff Holdings not included in this prospectus. In the opinion of management, such unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for those periods. We have derived the summary historical financial data for the 12 months ended September 30, 2014 by adding the summary historical financial data for the nine months ended September 30, 2014 to the summary historical financial data for the year ended December 31, 2013, and then subtracting the summary historical financial data for the nine months ended September 30, 2013. This 12-month period has not been audited or reviewed.
We have derived the summary unaudited pro forma financial data of Neff Corporation presented below from the application of pro forma adjustments to the historical consolidated financial statements of Neff Holdings included elsewhere in this prospectus. See "Unaudited Pro Forma Condensed Consolidated Financial Information." The summary unaudited pro forma financial data for the year ended December 31, 2013 and as of and for the nine months ended September 30, 2014 give effect to, among other adjustments described under the caption "Unaudited Pro Forma Condensed Consolidated Financial Information," the Organizational Transactions as described in "Our Organizational Structure" and the consummation of this offering, including the use of the estimated net proceeds of this offering as described in "Use of Proceeds," in each case as if all such transactions had occurred on January 1, 2013, in the case of the unaudited pro forma consolidated statement of operations data, and on September 30, 2014, in the case of the unaudited pro forma consolidated balance sheet data.
The results of operations for the periods presented below are not necessarily indicative of the results to be expected for any future period and the results for any interim period are not necessarily indicative of the results that may be expected for a full fiscal year. The following summary historical and pro forma consolidated financial data should be read in conjunction with, and is qualified by reference to, "Use of Proceeds," "Capitalization," "Unaudited Pro Forma Condensed Consolidated Financial Information," "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial
16
Condition and Results of Operations" and the financial statements and the notes thereto included elsewhere in this prospectus.
|
Historical Neff Holdings | ||||||||||||||||||
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Nine Months Ended September 30, |
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Year Ended December 31, | |
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12 Months Ended September 30, 2014 |
||||||||||||||||||
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2011 | 2012 | 2013 | 2013 | 2014 | ||||||||||||||
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(in thousands of dollars, except percent data) |
||||||||||||||||||
Statement of Operations Data: |
|||||||||||||||||||
Revenues: |
|||||||||||||||||||
Rental revenues |
$ | 197,430 | $ | 234,609 | $ | 281,038 | $ | 206,910 | $ | 240,362 | $ | 314,490 | |||||||
Equipment sales |
36,934 | 44,828 | 33,487 | 20,210 | 17,355 | 30,632 | |||||||||||||
Parts and service |
10,478 | 11,540 | 12,682 | 9,642 | 10,125 | 13,165 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total revenues |
244,842 | 290,977 | 327,207 | 236,762 | 267,842 | 358,287 | |||||||||||||
Cost of revenues: |
|||||||||||||||||||
Cost of equipment sold |
27,497 | 25,528 | 19,204 | 11,685 | 9,877 | 17,396 | |||||||||||||
Depreciation of rental equipment |
84,438 | 66,017 | 70,768 | 52,606 | 54,831 | 72,993 | |||||||||||||
Cost of rental revenues |
64,824 | 69,337 | 74,482 | 54,943 | 59,669 | 79,208 | |||||||||||||
Cost of parts and service |
6,452 | 6,982 | 7,677 | 5,808 | 6,158 | 8,027 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total cost of revenues |
183,211 | 167,864 | 172,131 | 125,042 | 130,535 | 177,624 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Gross profit |
61,631 | 123,113 | 155,076 | 111,720 | 137,307 | 180,663 | |||||||||||||
Other operating expenses: |
|||||||||||||||||||
Selling, general and administrative expenses |
65,901 | 71,621 | 78,617 | 58,540 | 61,453 | 81,530 | |||||||||||||
Other depreciation and amortization |
11,937 | 9,041 | 8,968 | 6,826 | 7,149 | 9,291 | |||||||||||||
Transaction bonus(1) |
| | | | 24,506 | 24,506 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total other operating expenses |
77,838 | 80,662 | 87,585 | 65,366 | 93,108 | 115,327 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
(Loss) income from operations |
(16,207 | ) | 42,451 | 67,491 | 46,354 | 44,199 | 65,336 | ||||||||||||
Other expenses: |
|||||||||||||||||||
Interest expense(2) |
16,524 | 23,221 | 24,598 | 18,257 | 28,313 | 34,654 | |||||||||||||
Loss on extinguishment of debt(3) |
| | | | 15,896 | 15,896 | |||||||||||||
Other non-operating expenses, net(4) |
3,267 | 1,563 | 1,929 | 1,217 | 2,695 | 3,407 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total other expenses |
19,791 | 24,784 | 26,527 | 19,474 | 46,904 | 53,957 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Income (loss) before (provision for) benefit from income taxes |
(35,998 | ) | 17,667 | 40,964 | 26,880 | (2,705 | ) | 11,379 | |||||||||||
(Provision for) benefit from income taxes |
(785 | ) | (159 | ) | (471 | ) | (352 | ) | 4,610 | 4,491 | |||||||||
| | | | | | | | | | | | | | | | | | | |
Net (loss) income |
$ | (36,783 | ) | $ | 17,508 | $ | 40,493 | $ | 26,528 | $ | 1,905 | $ | 15,870 | ||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Balance Sheet Data (as of period end): |
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Cash and cash equivalents |
$ | 162 | $ | 586 | $ | 190 | $ | 186 | $ | 1,999 | |||||||||
Rental equipment: |
|||||||||||||||||||
Rental equipment at cost |
318,855 | 440,810 | 516,182 | 523,415 | 625,557 | ||||||||||||||
Accumulated depreciation |
(90,250 | ) | (124,930 | ) | (168,926 | ) | (161,379 | ) | (208,225 | ) | |||||||||
| | | | | | | | | | | | | | | | | | | |
Rental equipment, net |
228,605 | 315,880 | 347,256 | 362,036 | 417,332 | ||||||||||||||
Total assets |
377,052 | 479,059 | 526,702 | 530,895 | 606,655 | ||||||||||||||
Total indebtedness(5) |
278,700 | 342,621 | 479,200 | 374,000 | 889,195 | ||||||||||||||
Members' surplus (deficit) |
52,379 | 71,365 | 3,082 | 98,811 | (324,106 | ) | |||||||||||||
Cash Flow Data: |
|||||||||||||||||||
Cash flow from operating activities |
44,238 | 68,331 | 108,410 | 86,452 | 68,356 | 90,314 | |||||||||||||
Cash flow from investing activities |
(90,663 | ) | (131,022 | ) | (125,332 | ) | (118,231 | ) | (130,304 | ) | (137,405 | ) | |||||||
Cash flow from financing activities |
45,684 | 63,115 | 16,526 | 31,379 | 63,757 | 48,904 | |||||||||||||
Other Financial Data: |
|||||||||||||||||||
Adjusted EBITDA(6) |
86,663 | 119,919 | 150,794 | 108,095 | 133,353 | 176,052 | |||||||||||||
Capital expenditures: |
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Non-rental |
9,592 | 11,556 | 11,852 | 11,214 | 11,729 | 12,367 | |||||||||||||
Rental |
108,606 | 159,192 | 144,483 | 124,743 | 135,930 | 155,670 | |||||||||||||
Proceeds from sales of used equipment |
(36,934 | ) | (44,828 | ) | (33,487 | ) | (20,210 | ) | (17,355 | ) | (30,632 | ) | |||||||
| | | | | | | | | | | | | | | | | | | |
Net capital expenditures |
81,264 | 125,920 | 122,848 | 115,747 | 130,304 | 137,405 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Other Operating Data: |
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Average OEC(7) |
$ | 470,638 | $ | 527,266 | $ | 606,624 | $ | 599,362 | $ | 678,808 | $ | 666,209 | |||||||
Average fleet age in months (as of period end) |
55 | 48 | 46 | 46 | 46 | 46 | |||||||||||||
Weighted average rate growth(9) |
8.3 | % | 6.5 | % | 6.4 | % | 6.4 | % | 7.0 | % | 6.9 | % | |||||||
Time utilization(10) |
65.0 | % | 68.7 | % | 70.9 | % | 71.1 | % | 70.5 | % | 70.5 | % |
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|
Pro Forma Neff Corporation | ||||||
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|
Year Ended December 31, 2013 |
Nine Months Ended September 30, 2014 |
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(in thousands, except per share data) |
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Statement of Operations Data: |
|||||||
Revenues: |
|||||||
Rental revenues |
$ | 281,038 | $ | 240,362 | |||
Equipment sales |
33,487 | 17,355 | |||||
Parts and service |
12,682 | 10,125 | |||||
| | | | | | | |
Total revenues |
327,207 | 267,842 | |||||
| | | | | | | |
Cost of revenues: |
|||||||
Cost of equipment sold |
19,204 | 9,877 | |||||
Depreciation of rental equipment |
70,768 | 54,831 | |||||
Cost of rental revenues |
74,482 | 59,669 | |||||
Cost of parts and service |
7,677 | 6,158 | |||||
| | | | | | | |
Total cost of revenues |
172,131 | 130,535 | |||||
| | | | | | | |
Gross profit |
155,076 | 137,307 | |||||
| | | | | | | |
Other operating expenses: |
|||||||
Selling, general and administrative expenses |
79,418 | 62,054 | |||||
Other depreciation and amortization |
8,968 | 7,149 | |||||
Transaction bonus(1) |
| 24,506 | |||||
| | | | | | | |
Total other operating expenses |
88,386 | 93,709 | |||||
| | | | | | | |
Income from operations |
66,690 | 43,598 | |||||
| | | | | | | |
Other expenses: |
|||||||
Interest expense(2) |
38,275 | 31,596 | |||||
Amortization and write-off of debt issue costs(4) |
1,311 | 1,386 | |||||
| | | | | | | |
Total other expenses |
39,586 | 32,982 | |||||
| | | | | | | |
Income (loss) before income taxes |
27,104 | 10,616 | |||||
(Provision for) benefit from income taxes |
(4,757 | ) | (1,863 | ) | |||
| | | | | | | |
Net income |
22,347 | 8,753 | |||||
| | | | | | | |
Net income attributable to non-controlling interest |
14,907 | 5,839 | |||||
Net income attributable to Neff Corporation |
7,440 | 2,914 | |||||
| | | | | | | |
| | | | | | | |
Net Income Per Share Data(8): |
|||||||
Weighted average shares of Class A common stock outstanding: |
|||||||
Basic |
10,476 | 10,476 | |||||
Diluted |
10,555 | 10,555 | |||||
Net income available to Class A common stock per share: |
|||||||
Basic |
$ | 0.71 | $ | 0.28 | |||
Diluted |
$ | 0.70 | $ | 0.28 | |||
Balance Sheet Data (as of period end): |
|||||||
Cash and cash equivalents |
$ | 1,999 | |||||
Total assets |
670,114 | ||||||
Total indebtedness(5) |
744,310 | ||||||
Total members' deficit/stockholders' equity (deficit) |
(25,436 | ) | |||||
Other Financial Data: |
|||||||
Adjusted EBITDA(6) |
150,794 | 133,353 |
18
expenses and $0.5 million for loss on an interest rate swap for the year ended December 31, 2011. Other non-operating expenses, net also includes $0.1 million for loss on an interest rate swap for the year ended December 31, 2012.
19
|
Historical Neff Holdings |
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Pro Forma Neff Corporation | |||||||||||||||||||||||||
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Nine Months Ended September 30, |
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Year Ended December 31, | 12 Months Ended September 30, 2014 |
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Year Ended December 31, 2013 |
Nine Months Ended September 30, 2014 |
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2011 | 2012 | 2013 | 2013 | 2014 |
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(in thousands of dollars) |
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Net (loss) income |
$ | (36,783 | ) | $ | 17,508 | $ | 40,493 | $ | 26,528 | $ | 1,905 | $ | 15,870 | $ | 22,347 | $ | 8,753 | ||||||||||
Interest expense |
16,524 | 23,221 | 24,598 | 18,257 | 28,313 | 34,654 | 38,275 | 31,596 | |||||||||||||||||||
Provision for (benefit from) income taxes |
785 | 159 | 471 | 352 | (4,610 | ) | (4,491 | ) | 4,757 | 1,863 | |||||||||||||||||
Depreciation of rental equipment |
84,438 | 66,017 | 70,768 | 52,606 | 54,831 | 72,993 | 70,768 | 54,831 | |||||||||||||||||||
Other depreciation and amortization |
11,937 | 9,041 | 8,968 | 6,826 | 7,149 | 9,291 | 8,968 | 7,149 | |||||||||||||||||||
Amortization of debt issue costs |
1,164 | 1,461 | 1,929 | 1,217 | 2,695 | 3,407 | 1,311 | 1,386 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
EBITDA |
78,065 | 117,407 | 147,227 | 105,786 | 90,283 | 131,724 | 146,426 | 105,578 | |||||||||||||||||||
Loss on extinguishment of debt(a) |
| | | | 15,896 | 15,896 | | | |||||||||||||||||||
Transaction bonus(b) |
| | | | 24,506 | 24,506 | | 24,506 | |||||||||||||||||||
Rental split expense(c) |
1,750 | 932 | 2,343 | 1,391 | 1,876 | 2,828 | 2,343 | 1,876 | |||||||||||||||||||
Equity based compensation expense(d) |
1,891 | 1,478 | 1,224 | 918 | 792 | 1,098 | 2,025 | 1,393 | |||||||||||||||||||
Other(e) |
4,957 | 102 | | | | | | | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA |
$ | 86,663 | $ | 119,919 | $ | 150,794 | $ | 108,095 | $ | 133,353 | $ | 176,052 | $ | 150,794 | $ | 133,353 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
20
In addition to the other information included in this prospectus, you should carefully consider the risks described below before deciding to invest in our Class A common stock. Any of the following risks could materially and adversely affect our business, financial condition, results of operations or cash flows. In such case, you may lose all or part of your original investment in our Class A common stock.
Risks Relating to Our Business
Past economic downturns have had, and future economic downturns could have, a material adverse impact on our business.
Economic downturns in the areas we do business adversely affect us as our end-markets are in the highly cyclical construction area. A slowdown in the economic recovery or worsening of economic conditions, in particular with respect to U.S. construction and industrial activities, could have a material adverse effect on our overall business, results of operations and financial condition in a number of ways, including the following:
During the financial crisis of 2007-2009, there was an abrupt decline in non-residential construction activity that materially adversely affected customer demand and equipment rental volumes. This material adverse effect resulted in rental rate reductions and led to a corresponding decline in revenue of Neff Holdings Corp., our Prior Predecessor, thereby resulting in an adverse impact on its cash flows and liquidity. As a result, our Prior Predecessor initiated proceedings under Chapter 11 of the U.S. Bankruptcy Code in May 2010. Pursuant to the plan of reorganization approved by the bankruptcy court, substantially all of the Prior Predecessor's assets were acquired by Neff Holdings and its subsidiaries (entities formed by Wayzata to acquire our Prior Predecessor's assets in the bankruptcy proceedings) in October 2010.
Our revenues and operating results will fluctuate, which could affect the volatility of the trading of our Class A common stock.
Our revenues and operating results fluctuate from quarter to quarter due to various factors, including:
21
Any of these factors could increase the volatility, or materially adversely affect, the trading price of our Class A common stock.
The equipment rental industry is highly cyclical. Decreases in construction or industrial activities could materially adversely affect our revenues and operating results by decreasing the demand for our equipment or the rental rates or prices we can charge.
The equipment rental industry is highly cyclical and its revenues are closely tied to general economic conditions and to conditions in the non-residential construction industry in particular. Our products and services are used primarily in non-residential construction and oil and gas end-markets and, to a lesser extent, in industrial activity and residential construction end-markets. These are cyclical businesses that are sensitive to changes in general economic conditions. Weakness in our end-markets, such as a decline in non-residential construction or industrial activity, may in the future lead to a decrease in the demand for our equipment or the rental rates or prices we can charge. For example, in 2009 and 2010, there were significant decreases in non-residential construction activity compared to prior periods, which materially adversely affected our results for those periods. Factors that may cause weakness in our end-markets include:
Future declines in non-residential construction and industrial activity could materially adversely affect our operating results by decreasing our revenues and gross profit margins. Because of our focus on the earthmoving equipment category, which represented approximately 54% of our OEC as of September 30, 2014, any such declines may affect us more than our competitors.
22
In addition, the cyclicality of our industry makes it more difficult for us to forecast trends. Uncertainty regarding future product demand could cause us to maintain excess equipment inventory and increase our equipment inventory costs. Alternatively, during periods of increased demand, we may not have enough rental equipment to satisfy demand, which could result in a loss of market share.
The equipment rental industry is highly competitive, and competitive pressures could lead to a decrease in our market share or in rental rates and our ability to sell equipment at favorable prices.
The equipment rental industry is highly fragmented and very competitive. Our competitors include:
Some of our competitors are significantly larger than we are and have greater financial and marketing resources than we have. In addition, some of our competitors have a more diversified offering than us. Some of our competitors also have greater technical resources, longer operating histories, lower cost structures and better relationships with equipment manufacturers than we have. In addition, certain of our competitors are more geographically diverse than we are and have greater name recognition among customers than we do. As a result, our competitors that have the advantages identified above may be able to provide their products and services at lower costs. We may in the future encounter increased competition in the equipment rental market, equipment sales market or in the equipment repair and services market from existing competitors or from new market entrants.
We believe that rental rates, fleet size and quality are the primary competitive factors in the equipment rental industry. From time to time, we or our competitors may attempt to compete aggressively by lowering rental rates or prices. Competitive pressures could materially adversely affect our revenues and operating results by decreasing our market share or depressing the rental rates. To the extent we lower rental rates or increase our fleet in order to retain or increase market share, our operating margins would be adversely impacted. In addition, we may not be able to match a larger competitor's price reductions or fleet investment because of its greater financial resources, all of which could adversely impact our operating results through a combination of a decrease in our market share and revenues.
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. These risks may intensify as consolidation continues in our industry.
We are exposed to various risks relating to legal proceedings or claims that could materially adversely affect our operating results. The nature of our business exposes us to various liability claims which may exceed the level of our insurance coverage and thereby not fully protect us, or not be covered by our insurance at all, and this could have a material adverse effect on our operating performance.
We are a party to lawsuits in the normal course of our business. Litigation in general can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. Responding to lawsuits brought against us, or legal actions that we may initiate, can often be expensive and time-consuming. Unfavorable outcomes from these claims and/or lawsuits could materially adversely affect our business, results of operations and financial condition, and we could incur substantial monetary liability and/or be required to change our business practices.
Our business exposes us to claims for personal injury, death or property damage resulting from the use of the equipment we rent, sell, service or repair and from injuries caused in motor vehicle accidents in
23
which our personnel are involved and other employee-related matters. Additionally, we could be subject to potential litigation associated with compliance with various laws and governmental regulations at the federal, state or local levels, such as those relating to the protection of persons with disabilities, employment, health, safety, security and other regulations under which we operate.
We carry comprehensive insurance, subject to deductibles, at levels we believe are sufficient to cover existing and future claims made during the respective policy periods. However, we may be exposed to multiple claims, including workers compensation claims, that do not exceed our deductibles, and, as a result, we could incur significant out-of-pocket costs that could materially adversely affect our business, financial condition and results of operations. In addition, the cost of such insurance policies may increase significantly upon renewal of those policies as a result of general rate increases for the type of insurance we carry as well as our historical experience and experience in our industry. Our existing or future claims may exceed the coverage level of our insurance, and such insurance may not continue to be available on economically reasonable terms, or at all. If we are required to pay significantly higher premiums for insurance, are not able to maintain insurance coverage at affordable rates or if we must pay amounts in excess of claims covered by our insurance, we could experience higher costs that could materially adversely affect our business, financial condition and results of operations. In addition, we may be subject to various legal proceedings and claims, such as claims for punitive damages or damages arising from intentional misconduct, either asserted or unasserted, that may not be covered by our insurance. Any such claims, whether with or without merit, could be time-consuming and expensive to defend and could divert management's attention and resources.
Our substantial indebtedness could materially adversely affect our business, financial condition, results of operations and cash flows.
We have a significant amount of indebtedness. As of September 30, 2014, on a pro forma basis after giving effect to this offering and the application of net proceeds therefrom, we would have had total indebtedness of approximately $744.3 million (of which $467.3 million would have consisted of borrowings under the Second Lien Loan and $277.0 million would have consisted of borrowings under our Revolving Credit Facility). As of September 30, 2014, on a pro forma basis after giving effect to this offering and the application of net proceeds therefrom, based on our borrowing base as of such date, we would have had availability under our Revolving Credit Facility, net of approximately $4.7 million in outstanding letters of credit, of $143.3 million, subject to certain conditions. In addition, subject to certain conditions, our Second Lien Loan can be increased by an additional $75.0 million under an uncommitted incremental facility. See "Description of Certain Indebtedness." Under the terms of the agreements governing our indebtedness, we may be able to incur substantial indebtedness in the future.
Our substantial indebtedness could have important consequences to you. For example, it could:
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In addition, the agreements governing our indebtedness contain restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness. In the past, we have had to seek waivers and amendments to certain covenants from our lenders which we obtained. There can be no assurance that we will not be required to seek waivers and amendments in the future or that, if sought, our lenders would grant such waivers or amendments.
To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control and any failure to meet our debt service obligations could harm our business, financial condition and results of operations.
As a result of our significant indebtedness, we have substantial debt service requirements. Our ability to satisfy our debt service requirements and to meet our other capital and liquidity needs will depend on our ability to generate sufficient cash flow. Our ability to generate sufficient cash flow to satisfy our debt service requirements is subject to numerous factors, many of which are beyond our control, such as general economic conditions and changes in our industry. Also, we are dependent on the ability of our subsidiaries to distribute their operating cash flow to the borrower under our indebtedness to satisfy our debt service requirements. If our subsidiaries are restricted from distributing cash, whether by reason of contractual limitations, legal restrictions or otherwise, we may not be able to cause such cash to be distributed.
We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our Revolving Credit Facility in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. Any refinancing of our indebtedness could be at high interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. We cannot assure you that we will be able to refinance any of our indebtedness, including our Revolving Credit Facility and the Second Lien Loan, on commercially reasonable terms or at all.
Without a refinancing, we could be forced to sell assets to make up for any shortfall in our payment obligations under unfavorable circumstances. The Revolving Credit Facility and the documentation governing the Second Lien Loan limit our ability to sell assets and also restrict the use of proceeds from such a sale. Moreover, the Revolving Credit Facility is secured on a first-priority basis by substantially all of our assets and the Second Lien Loan and the guarantees are secured on a second-priority basis by substantially the same assets. We may not be able to sell assets quickly enough or for sufficient amounts to enable us to meet our obligations.
Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Borrowings under our Revolving Credit Facility and the Second Lien Loan are at variable rates of interest and expose us to interest rate risk. We have generally not entered into hedging arrangements in the ordinary course of our business. As such, our results of operations are sensitive to movements in interest rates. There are many economic factors outside our control that have in the past and may, in the future, impact rates of interest including publicly announced indices that underlie the interest obligations related to a certain portion of our debt. Factors that impact interest rates include governmental monetary policies, inflation, recession, changes in unemployment, the money supply, international disorder and instability in domestic and foreign financial markets. If interest rates increase, our debt service obligations
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on the variable rate indebtedness would increase even though the amount borrowed remained the same. See "Description of Certain Indebtedness."
The terms of our Revolving Credit Facility and the Second Lien Loan may restrict our current and future operations, particularly our ability to respond to changes in our business or to take certain actions.
Our Revolving Credit Facility and the documentation governing the Second Lien Loan contain, and the terms of any future indebtedness of ours would likely contain, a number of restrictive covenants that will impose significant operating and other restrictions on us. These restrictions will affect, and in many respects will limit or prohibit, among other things, our ability to:
In addition, our Revolving Credit Facility includes other more restrictive covenants and limits us from prepaying our other indebtedness, including the Second Lien Loan, while borrowings under the Revolving Credit Facility are outstanding.
The operating and financial restrictions and covenants in our existing debt agreements and any future financing agreements may adversely affect our ability to finance future operations or capital needs or to engage in other business activities. In addition, a failure to comply with the covenants contained in the credit agreements governing our Revolving Credit Facility or the Second Lien Loan could result in an event of default under the applicable facility which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations. If we default under our Revolving Credit Facility or the Second Lien Loan, the lenders thereunder:
Any of these actions under one of our credit facilities could result in an event of default under the other facility or a future debt facility.
If the indebtedness under our Revolving Credit Facility or the Second Lien Loan were to be accelerated, there can be no assurance that our assets would be sufficient to repay such indebtedness in full and we could be forced into bankruptcy or liquidation. See "Description of Certain Indebtedness."
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If we are unable to obtain additional capital as required, we may be unable to fund the capital outlays required for the success of our business, including those relating to purchasing equipment, opening new rental locations, making acquisitions and refinancing existing indebtedness.
Our business has significant capital requirements. Our ability to remain competitive, sustain our growth and expand our operations through start-up locations and acquisitions largely depends on our access to capital. If the cash that we generate from our business, together with cash on hand and borrowings under our Revolving Credit Facility, to the extent available, is not sufficient to meet our capital needs and implement our growth strategy, we will require additional financing. However, we may not succeed in obtaining additional financing on terms that are satisfactory to us or at all. In addition, our ability to obtain additional financing will be restricted by the terms of our Revolving Credit Facility and by the terms of the Second Lien Loan. If we are unable to obtain sufficient additional capital in the future, we may be unable to fund the capital outlays required for the success and growth of our business, including those relating to purchasing equipment, opening new rental locations and completing acquisitions. Any additional indebtedness that we do incur will make us more vulnerable to economic downturns and may limit our ability to withstand competitive pressures.
We depend on key personnel whom we may not be able to retain.
Our operations are managed by a small number of key executive officers, and our future performance depends on the continued contributions of those management personnel. A loss of one or more of these key people could harm our business and prevent us from implementing our business strategy. We do not maintain "key man" life insurance on the lives of any members of our senior management. We have existing employment agreements with certain key executives. However, each of the employment agreements is of limited duration. We cannot assure you that these executives will remain employed with us for the full term of their agreements or that the term of their agreements will be extended beyond the current term.
The success of our operations also depends in part on our ability to attract, hire, train and retain qualified managerial, sales and marketing personnel. Competition for these types of personnel is high. We may be unsuccessful in attracting and retaining the personnel we require to conduct our operations successfully and, in such an event, our business could be materially adversely affected.
We may recognize significantly higher maintenance costs in connection with increases in the weighted average age of our rental fleet.
As our fleet of rental equipment ages, the cost of maintaining such equipment, if not replaced, will likely increase. We manage the average age of different types of equipment according to the expected wear and tear that a specific type of equipment is expected to experience over its useful life. As of September 30, 2014, the average age of our rental equipment fleet was approximately 46 months. As of September 30, 2014, approximately 54% (based on OEC) of our rental fleet consisted of earthmoving equipment, which generally has higher maintenance costs than similar-sized aerial or material handling equipment. It is possible that we may allow the average age of our rental equipment fleet to increase, which would require an increase in the amounts we invest in maintenance, parts and repair. We cannot assure you that costs of maintenance, parts or repair will not materially increase in the future. Any material increase in such costs could have a material adverse effect on our business, financial condition and results of operations.
We are subject to numerous environmental and health and safety laws and regulations that may result in our incurring liabilities, which could have a material adverse effect on our operating performance.
Our facilities and operations are subject to comprehensive and frequently changing federal, state and local laws and regulations relating to environmental protection and health and safety. These laws and regulations govern, among other things, the discharge of substances into the air, water and land, the handling, storage, transport, use and disposal of hazardous materials and wastes and the cleanup of
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properties affected by pollutants. If we violate environmental laws or regulations, we may be required to implement corrective actions and could be subject to civil or criminal fines or penalties or other sanctions. Although expenses related to environmental compliance have not been material to date, we cannot assure you that we will not have to make significant capital or operating expenditures in the future in order to comply with applicable laws and regulations or that we will comply with applicable environmental laws at all times. Such violations or liability could have a material adverse effect on our business, financial condition and results of operations.
Environmental laws also impose obligations and liability for the investigation and cleanup of properties affected by hazardous substance spills or releases. These liabilities are often joint and several (which could result in an entity paying for more than its fair share), and may be imposed on the parties generating or disposing of such substances or on the owner or operator of affected property, often without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous substances. We may also have liability for past contamination as successors-in-interest for companies which were acquired or where there was a merger. Accordingly, we may become liable, either contractually or by operation of law, for investigation, remediation, monitoring and other costs even if the contaminated property is not presently owned or operated by us, or if the contamination was caused by third parties during or prior to our ownership or operation of the property. Contamination and exposure to hazardous substances can also result in claims for damages, including personal injury, property damage, and natural resources damage claims.
All of our properties currently have above ground and/or underground storage tanks and oil-water separators (or equivalent wastewater collection/treatment systems). Given the nature of our operations (which involve the use of diesel and other petroleum products, solvents and other hazardous substances) for fueling, washing and maintaining our rental equipment and vehicles, and the historical operations at some of our properties, we may incur material costs associated with soil or groundwater contamination. Future events, such as changes in existing laws or policies or their enforcement, or the discovery of currently unknown contamination, may give rise to remediation liabilities or other claims or costs that may be material.
Various U.S. and international authorities continue to consider legislation and regulations related to greenhouse gas emissions. Should legislation or regulations be adopted imposing significant limitations on greenhouse gas emissions or costs on entities deemed to be responsible for such emissions, demand for our services could be affected, our costs could increase, and our business, financial condition and results of operations could be materially adversely affected.
Termination of one or more of our relationships with any of our equipment manufacturers could have a material adverse effect on our business.
We purchase most of our rental and sales equipment from a limited number of OEMs. For example, as of September 30, 2014, equipment from JLG Industries, Komatsu, Genie and John Deere represented approximately 12%, 10%, 10% and 9%, respectively, of our total OEC. Termination of one or more of our relationships with any of these or other major suppliers could have a material adverse effect on our business, financial condition and results of operations if we were unable to obtain adequate equipment for rental and sale from other sources in a timely manner, on favorable terms or at all. Because our major suppliers also sell equipment to our competitors, our relationships with our suppliers do not provide us any particular competitive advantage.
Our rental fleet is subject to residual value risk upon disposition.
The market value of any given piece of rental equipment could be less than its depreciated value at the time it is sold. The market value of used rental equipment depends on several factors, including:
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We include in income from operations the difference between the sales price and the depreciated value of an item of equipment sold. Changes in our assumptions regarding depreciation could change our depreciation expense, as well as the gain or loss realized upon disposal of equipment. If prices we are able to obtain for our used rental equipment decline or fall below our projections or if we sell our equipment in lesser quantities as a result of the above or other factors, our operating results may be materially adversely affected.
The cost of new equipment we use in rental fleet is increasing, which may cause us to spend significantly more for replacement equipment, and in some cases we may not be able to procure equipment at all due to supplier constraints.
We operate in a capital intensive business. Price increases could materially adversely affect our business, financial condition and results of operations.
While we can manage the size and aging of our fleet generally over time, eventually we must retire older equipment and either allow our fleet to shrink or replace the older equipment in our fleet with newer models. We anticipate that we will need to purchase additional equipment in 2015 in order to supplement our current fleet. We may be at a competitive disadvantage if the average age of our fleet increases compared to the age of our competitors' fleets.
In some cases, we may not be able to procure replacement equipment on a timely basis to the extent that manufacturers for the equipment we need are not able to produce sufficient inventory on schedules that meet our timing demands. If demand for new equipment increases significantly, manufacturers may not be able to meet customer orders on a timely basis. As a result, we at times may experience long lead-times for certain types of new equipment and we cannot assure you that we will be able to acquire the types or sufficient numbers of the equipment we need to replace older equipment as quickly as we would like. Consequently, we may have to age our fleet longer than we would consider optimal or shrink our fleet, either of which could restrict our ability to grow our business.
Disruptions in our information technology and customer relationship management systems could materially adversely affect our operating results by limiting our capacity to effectively monitor and control our operations.
Our information technology systems facilitate our ability to monitor and control our operations to adjust to changing market conditions, including management of our rental fleet. Our CRM system allows our sales force to access comprehensive information about customer activity relating to specific accounts to assist their sales efforts. The effectiveness of our sales force depends upon the continuous availability and reliability of our CRM system. Consequently, any disruptions in our information technology or customer relationship management systems or the failure of these systems, including our redundant systems, to operate as expected could, depending on the magnitude of the problem, impair our ability to effectively monitor and control our existing operations and improve our future sales efforts, and thereby materially adversely affect our operating results.
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Potential acquisitions and expansions into new markets may result in significant transaction expenses and expose us to risks associated with entering new markets and integrating new or acquired operations.
We may encounter risks associated with entering new markets in which we have limited or no experience. Start-up rental locations, in particular, require significant capital expenditures and may initially have a negative impact on our short-term cash flow, net income and results of operations. New start-up locations may not become profitable when projected or ever. Acquisitions may impose significant strains on our management, operating systems and financial resources and could experience unanticipated integration issues. The pursuit and integration of acquisitions will require substantial attention from our senior management, which will limit the amount of time they have available to devote to our existing operations. Our ability to realize the expected benefits from any future acquisitions depends in large part on our ability to integrate and consolidate the new operations with our existing operations in a timely and effective manner. Future acquisitions also could result in the incurrence of substantial amounts of indebtedness and contingent liabilities (including potentially environmental, employee benefits and safety and health liabilities), accumulation of goodwill that may become impaired, and an increase in amortization expenses related to intangible assets. Any significant diversion of management's attention from our existing operations, the loss of key employees or customers of any acquired business, any major difficulties encountered in the opening of start-up locations or the integration of acquired operations or any associated increases in indebtedness, liabilities or expenses could have a material adverse effect on our business, financial condition and results of operations, which could decrease our cash flows and make it more difficult for us to make payments on the notes.
We have operations throughout the United States, which exposes us to multiple state and local regulations. Changes in applicable law, regulations or requirements, or our material failure to comply with any of them, can increase our costs and have other negative impacts on our business.
Our 64 branch locations are located in 14 states and we must comply with many different state and local regulations. These laws and requirements address multiple aspects of our operations, such as worker safety, consumer rights, privacy, employee benefits and more, and can often have different requirements in different jurisdictions. Changes in these requirements, or any material failure by our branches to comply with them, can increase our costs, affect our reputation, limit our business, drain management time and attention and otherwise impact our operations in adverse ways.
If we determine that our goodwill has become impaired, we may incur impairment charges, which would negatively impact our operating results.
At September 30, 2014, we had $58.8 million of goodwill on our consolidated balance sheet. Goodwill represents the excess of cost over the fair value of identifiable net assets of businesses acquired. We assess potential impairment of our goodwill at least annually. Impairment may result from significant changes in the manner of use of the acquired assets, negative industry or economic trends and/or significant underperformance relative to historic or projected operating results. A material impairment charge may occur in a future period. Such a charge could materially adversely affect our financial condition and results of operations.
Labor disputes could disrupt our ability to serve our customers and/or lead to higher labor costs.
Although none of our employees are currently represented by unions or covered by collective bargaining agreements, union organizing activity may take place in the future. Union organizing efforts or collective bargaining negotiations could potentially lead to work stoppages and/or slowdowns or strikes by certain of our employees, which could materially adversely affect our ability to serve our customers. Further, settlement of actual or threatened labor disputes or an increase in the number of our employees covered by collective bargaining agreements can have unknown effects on our labor costs, productivity and flexibility.
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Risks Relating to Our Organizational Structure
Wayzata will continue to have substantial control over us after this offering including over decisions that require the approval of stockholders, and its interest in our business may conflict with yours.
Immediately after the consummation of this offering, Wayzata will hold a majority of the combined voting power of our common stock through its ownership of 100% of our outstanding Class B common stock.
Accordingly, Wayzata, acting alone, will have the ability to approve or disapprove substantially all transactions and other matters submitted to a vote of our stockholders, such as a merger, consolidation, dissolution or sale of all or substantially all of our assets, the issuance or redemption of certain additional equity interests, and the election of directors. These voting and class approval rights may enable Wayzata to consummate transactions that may not be in the best interests of holders of our Class A common stock or, conversely, prevent the consummation of transactions that may be in the best interests of holders of our Class A common stock. In addition, although Wayzata will have voting control of us, Wayzata's entire economic interest in us will be in the form of its direct interest in Neff Holdings through the ownership of Neff Holdings' common units, the payments it may receive from us under the Tax Receivable Agreement and the proceeds it may receive upon any redemption of its common units in Neff Holdings, including issuance of shares of our Class A common stock upon any such redemption and any subsequent sale of such Class A common stock. As a result, Wayzata's interests may conflict with the interests of our Class A common stockholders. For example, Wayzata may have different tax positions from us which could influence its decisions regarding whether and when to dispose of assets, whether and when to incur new or refinance existing indebtedness, especially in light of the existence of the Tax Receivable Agreement that we will enter in connection with this offering, and whether and when we should terminate the Tax Receivable Agreement and accelerate our obligations thereunder. In addition, the structuring of future transactions may take into consideration tax or other considerations of Wayzata or other existing owners even in situations where no similar considerations are relevant to us. See "Certain Relationships and Related Party TransactionsTax Receivable Agreement."
In addition, Wayzata is in the business of making or advising on investments in companies and may hold, and may from time to time in the future acquire interests in or provide advice to businesses that directly or indirectly compete with certain portions of our business or are suppliers or customers of ours. Our amended and restated certificate of incorporation will provide that, to the fullest extent permitted by law, none of Wayzata or any director who is not employed by us or his or her affiliates will have any duty to refrain from engaging in a corporate opportunity in the same or similar lines of business as us. Wayzata may also pursue acquisitions that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
We are a "controlled company" within the meaning of the NYSE listing requirements and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such corporate governance requirements.
Because of the voting power over our Company held by Wayzata, we are considered a "controlled company" for the purposes of the NYSE listing requirements. As such, we are exempt from certain corporate governance requirements, including the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.
The corporate governance requirements and specifically the independence standards are intended to ensure that directors who are considered independent are free of any conflicting interest that could influence their actions as directors. Following this offering, we intend to utilize certain exemptions afforded to a "controlled company." As a result, we will not be required to conduct annual performance evaluations of the nominating and corporate governance and compensation committees. See "Management." Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.
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Our only asset after the completion of this offering will be our interest in Neff Holdings, and accordingly we will depend on distributions from Neff Holdings to pay taxes and expenses, including payments under the Tax Receivable Agreement. Neff Holdings' ability to make such distributions may be subject to various limitations and restrictions.
Upon consummation of this offering, we will be a holding company and will have no material assets other than our ownership of common units of Neff Holdings. We will have no independent means of generating revenue or cash flow, and our ability to pay dividends in the future, if any, will be dependent upon the financial results and cash flows of Neff Holdings and its subsidiaries and distributions we receive from Neff Holdings. There can be no assurance that our subsidiaries will generate sufficient cash flow to dividend or distribute funds to us or that applicable state law and contractual restrictions, including negative covenants in our debt instruments, will permit such dividends or distributions.
Neff Holdings will be treated as a partnership for U.S. federal income tax purposes and, as such, will not be subject to any entity-level U.S. federal income tax. Instead, taxable income will be allocated to holders of its common units, including us. As a result, we will incur income taxes on our allocable share of any net taxable income of Neff Holdings. Under the terms of Neff Holdings' second amended and restated limited liability company agreement, which will become effective upon the completion of this offering (the "Neff Holdings LLC Agreement"), Neff Holdings will be obligated to make tax distributions to holders of its common units, including us. In addition to tax expenses, we will also incur expenses related to our operations, including expenses under the Tax Receivable Agreement, which could be significant. See "Certain Relationships and Related Party TransactionsTax Receivable Agreement." We intend, as its managing member, to cause Neff Holdings to make distributions in an amount sufficient to allow us to pay our taxes and operating expenses, including any payments due under the Tax Receivable Agreement. However, Neff Holdings' ability to make such distributions may be subject to various limitations and restrictions including, but not limited to, restrictions on distributions that would either violate any contract or agreement to which Neff Holdings LLC is then a party, including debt agreements, or any applicable law, or that would have the effect of rendering Neff Holdings insolvent. If Neff Holdings does not have sufficient funds to pay tax or other liabilities to fund our operations, we may have to borrow funds, which could materially adversely affect our liquidity and financial condition and subject us to various restrictions imposed by any such lenders. To the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, such payments will be deferred and will accrue interest until paid. If Neff Holdings does not have sufficient funds to make distributions, our ability to declare and pay cash dividends may also be restricted or impaired. See "Risks Relating to This Offering and Ownership of Our Class A Common Stock."
Our Tax Receivable Agreement with our existing owners requires us to make cash payments to them in respect of certain tax benefits to which we may become entitled, and the amounts that we may be required to pay could be significant.
In connection with the consummation of this offering, we will enter into a Tax Receivable Agreement with our existing owners. Pursuant to the Tax Receivable Agreement, we will be required to make cash payments to our existing owners equal to 85% of the tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize as a result of (i) increases in tax basis resulting from any purchase of common units of Neff Holdings from Wayzata with proceeds from this offering, the use of proceeds from this offering to repay certain indebtedness of Neff Holdings and any redemptions or exchanges of common units described under "Certain Relationships and Related Party TransactionsNeff Holdings LLC AgreementAgreement in Effect Upon Completion of the OfferingCommon Unit Redemption Right," (ii) certain allocations as a result of the application of the principles of Section 704(c) of the Internal Revenue Code to take into account the difference between the fair market value and the adjusted tax basis of certain assets of Neff Holdings on the date that we purchase Neff Holdings common units directly from Neff Holdings with a portion of the proceeds from this offering and (iii) certain other tax benefits related to our entering into the Tax Receivable Agreement, including tax benefits attributable to payments under the Tax Receivable Agreement. The amount of the cash payments that we may be required to make under the Tax Receivable Agreement could be significant. Payments under the Tax Receivable Agreement will be
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based on the tax reporting positions that we determine, which tax reporting positions will be based on the advice of our tax advisors. Any payments made by us to our existing owners under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been available to us. To the extent that we are unable to make timely payments under the Tax Receivable Agreement for any reason, the unpaid amounts will be deferred and will accrue interest until paid by us. Furthermore, our future obligation to make payments under the Tax Receivable Agreement could make us a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax benefits that may be deemed realized under the Tax Receivable Agreement. The payments under the Tax Receivable Agreement are also not conditioned upon our existing owners maintaining a continued ownership interest in either Neff Holdings or us. See "Certain Relationships and Related Party TransactionsTax Receivable Agreement."
The amounts that we may be required to pay to our existing owners under the Tax Receivable Agreement may be accelerated in certain circumstances and may also significantly exceed the actual tax benefits that we ultimately realize.
The Tax Receivable Agreement provides that if certain mergers, asset sales, other forms of business combination, or other changes of control were to occur, or that if, at any time, we elect an early termination of the Tax Receivable Agreement, then the Tax Receivable Agreement will terminate and our obligations, or our successor's obligations, to make payments under the Tax Receivable Agreement would accelerate and become immediately due and payable. The amount due and payable in that circumstance is determined based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax Receivable Agreement.
As a result of a change in control or our election to terminate the Tax Receivable Agreement early, (i) we could be required to make cash payments to our existing owners that are greater than the specified percentage of the actual benefits we ultimately realize in respect of the tax benefits that are subject to the Tax Receivable Agreement and (ii) we would be required to make an immediate cash payment equal to the present value of the anticipated future tax benefits that are the subject of the Tax Receivable Agreement, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits. In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combination, or other changes of control. There can be no assurance that we will be able to finance our obligations under the Tax Receivable Agreement.
We will not be reimbursed for any payments made to our existing investors under the Tax Receivable Agreements in the event that any tax benefits are disallowed.
We will not be reimbursed for any cash payments previously made to our existing owners pursuant to the Tax Receivable Agreement if any tax benefits initially claimed by us are subsequently challenged by a taxing authority and are ultimately disallowed. Instead, any excess cash payments made by us to an existing owner will be netted against any future cash payments that we might otherwise be required to make under the terms of the Tax Receivable Agreement. However, we might not determine that we have effectively made an excess cash payment to our existing owners for a number of years following the initial time of such payment. As a result, it is possible that we could make cash payments under the Tax Receivable Agreement that are substantially greater than our actual cash tax savings. See "Certain Relationships and Related Party TransactionsTax Receivable Agreement."
Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our operating results and financial condition.
We are subject to income taxes in the United States, and our domestic tax liabilities will be subject to the allocation of expenses in differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:
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In addition, we may be subject to audits of our income, sales and other transaction taxes by U.S. federal and state authorities. Outcomes from these audits could have an adverse effect on our operating results and financial condition.
If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), as a result of our ownership of Neff Holdings, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.
Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an "investment company" for purposes of the 1940 Act if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an "investment company," as such term is defined in either of those sections of the 1940 Act.
As the sole managing member of Neff Holdings, we will control and operate Neff Holdings. On that basis, we believe that our interest in Neff Holdings is not an "investment security" as that term is used in the 1940 Act. However, if we were to cease participation in the management of Neff Holdings, our interest in Neff Holdings could be deemed an "investment security" for purposes of the 1940 Act.
We and Neff Holdings intend to conduct our operations so that we will not be deemed an investment company. However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.
Risks Relating to This Offering and Ownership of Our Class A Common Stock
Immediately following the consummation of this offering, Wayzata will directly (through Class B common stock) and indirectly (through ownership of Neff Holdings common units) own interests in us, and Wayzata will have the right to redeem and cause us to redeem, as applicable, such interests pursuant to the terms of the Neff Holdings LLC Agreement.
After this offering, we will have an aggregate of more than 89,523,810 shares of Class A common stock authorized but unissued (or 87,952,382 if the underwriters exercise their option to purchase additional shares), including approximately 12,808,768 shares of Class A common stock issuable, at our election, upon redemption of Neff Holdings common units that will be held by Wayzata. Neff Holdings will enter into the Neff Holdings LLC Agreement, and subject to certain restrictions set forth therein and as described elsewhere in this prospectus, Wayzata will be entitled to redeem its common units for an aggregate of up to 12,808,768 shares of our Class A common stock, subject to customary adjustments. We also intend to enter into a Registration Rights Agreement pursuant to which the shares of Class A common stock issued upon such redemption will be eligible for resale, subject to certain limitations set forth therein. See "Certain Relationships and Related Party TransactionsRegistration Rights Agreement."
We cannot predict the size of future issuances of our Class A common stock or the effect, if any, that future issuances and sales of shares of our Class A common stock may have on the market price of our Class A common stock. Sales or distributions of substantial amounts of our Class A common stock,
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including shares issued in connection with an acquisition, or the perception that such sales or distributions could occur, may cause the market price of our Class A common stock to decline.
You will suffer immediate and substantial dilution in the net tangible book value of the Class A common stock you purchase.
The price you pay for shares of our Class A common stock sold in this offering is substantially higher than our pro forma net tangible book value per share. Based on the initial public offering price for our Class A common stock of $21.00 per share (which is the midpoint of the price range set forth on the cover page of this prospectus), you will incur immediate dilution in net tangible book value per share of $47.51. Dilution is the difference between the offering price per share and the pro forma as adjusted net tangible book value per share of our Class A common stock immediately after the offering. As a result of this dilution, investors purchasing stock in this offering may receive significantly less than the full purchase price that they paid for the stock purchased in this offering in the event of liquidation. See "Dilution."
You may be diluted by future issuances of additional Class A common stock in connection with our incentive plans, acquisitions or otherwise; future sales of such shares in the public market, or the expectations that such sales may occur, could lower our stock price.
Our amended and restated certificate of incorporation authorizes us to issue shares of Class A common stock and options, rights, warrants and appreciation rights relating to Class A common stock for the consideration and on the terms and conditions established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise. In addition, we and our existing owners will be party to the Neff Holdings LLC Agreement under which they (or certain permitted transferees thereof) will have the right (subject to the terms of the Neff Holdings LLC Agreement) to have their common units redeemed by Neff Holdings in exchange for, at Neff Corporation's election, shares of our Class A common stock on a one-for-one basis or a cash payment equal to the volume-weighted average market price of one share of our Class A common stock for each common unit (subject to customary adjustments, including for stock splits, stock dividends and reclassifications); provided that, at Neff Corporation's election, Neff Corporation may effect a direct exchange of such Class A common stock or such cash for such common units. See "Certain Relationships and Related Party TransactionsNeff Holdings LLC Agreement." The market price of shares of our Class A common stock could decline as a result of these redemptions or the perception that a redemption could occur. These redemptions, or the possibility that these redemptions may occur, also might make it more difficult for holders of our Class A common stock to sell such stock in the future at a time and at a price that they deem appropriate.
We have reserved shares for issuance under our 2014 Incentive Award Plan in an amount equal to 1.5 million shares of Class A common stock, and we expect to grant options and restricted stock units under the 2014 Incentive Award Plan covering a total of 139,466 shares of Class A common stock concurrently with the consummation of this offering. Any Class A common stock that we issue, including under our 2014 Incentive Award Plan or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by the investors who purchase Class A common stock in this offering. In addition, each common unit held by our existing owners and each common unit received upon the exercise of outstanding options to acquire membership units in Neff Holdings will, including outstanding options to acquire 1,145,342 common units in Neff Holdings which are exercisable at the time of the consummation of this offering, be redeemable for, at Neff Corporation's option, newly-issued shares of Class A common stock on a one-for-one basis or a cash payment equal to the market price of one share of Class A common stock (subject to customary adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the Neff Holdings LLC Agreement; provided that, at Neff Corporation's election, Neff Corporation may effect a direct exchange of such Class A common stock or such cash for such common units. In addition, we may issue equity in future offerings to fund acquisitions and other expenditures, which may further decrease the value for our stockholders' investment in us.
We and our officers and directors and existing stockholders have agreed, subject to certain exceptions, that, without the prior written consent of Morgan Stanley & Co. LLC and Jefferies LLC on behalf of the
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underwriters, we and they will not, during the period ending 180 days after the date of this prospectus (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of Class A common stock or any securities convertible into or exercisable or exchangeable for shares of Class A common stock; (ii) file any registration statement with the SEC relating to the offering of any shares of Class A common stock or any securities convertible into or exercisable or exchangeable for Class A common stock; or (iii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of Class A common stock. Morgan Stanley & Co. LLC and Jefferies LLC, in their sole discretion, may release the Class A common stock and other securities subject to the lock-up agreements described above in whole or in part at any time with or without notice. See "Underwriters (Conflicts of Interest)."
The market price of our Class A common stock may decline significantly when the restrictions on resale by our existing stockholders lapse. A decline in the price of our Class A common stock might impede our ability to raise capital through the issuance of additional shares of Class A common stock or other equity securities.
In connection with the completion of this offering, we intend to enter into a Registration Rights Agreement with our existing owners. Any sales in connection with the Registration Rights Agreement, or the prospect of any such sales, could materially impact the market price of our Class A common stock and could impair our ability to raise capital through future sales of equity securities. For a further description of our Registration Rights Agreement, see "Certain Relationships and Related Party TransactionsRegistration Rights Agreement."
Our Class A common stock price may be volatile or may decline regardless of our operating performance and you may not be able to resell your shares at or above the initial public offering price.
Prior to this offering, there has not been a public trading market for shares of our Class A common stock. It is possible that after this offering an active trading market will not develop or continue or, if developed, that any market will be sustained, which could make it difficult for you to sell your shares of Class A common stock at an attractive price or at all. The initial public offering price of our Class A common stock will be determined by negotiations between us and the representative of the underwriters based upon a number of factors and may not be indicative of prices that will prevail in the open market following the consummation of this offering. See "Underwriters (Conflicts of Interest)." Consequently, you may not be able to sell our shares of Class A common stock at prices equal to or greater than the price you paid in this offering.
Volatility in the market price of our Class A common stock may prevent you from being able to sell your shares at or above the price you paid for them. Many factors, which are outside our control, may cause the market price of our Class A common stock to fluctuate significantly, including those described elsewhere in this "Risk Factors" section and this prospectus, as well as the following:
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As a result, volatility in the market price of our Class A common stock may prevent investors from being able to sell their Class A common stock at or above the initial public offering price or at all. These broad market and industry factors may materially reduce the market price of our Class A common stock, regardless of our operating performance. In addition, price volatility may be greater if the public float and trading volume of our Class A common stock is low. As a result, you may suffer a loss on your investment.
We do not intend to pay dividends on our Class A common stock for the foreseeable future.
We currently have no intention to pay dividends on our Class A common stock at any time in the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial conditions, cash requirement, contractual restrictions and other factors that our board of directors may deem relevant. Certain of our debt instruments contain covenants that restrict the ability of our subsidiaries to pay dividends to us. See "Description of Certain Indebtedness." In addition, we will be permitted under the terms of our debt instruments to incur additional indebtedness, which may restrict or prevent us from paying dividends on our Class A common stock. Furthermore, our ability to declare and pay dividends may be limited by instruments governing future outstanding indebtedness we may incur.
Delaware law and certain provisions in our amended and restated certificate of incorporation may prevent efforts by our stockholders to change the direction or management of our Company.
We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and our amended and restated by-laws contain provisions that may make the acquisition of our company more difficult without the approval of our board of directors, including, but not limited to, the following:
These provisions could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take other corporate actions you desire. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team.
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We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our Class A common stock, which could depress the price of our Class A common stock.
Our amended and restated certificate of incorporation will authorize us to issue one or more series of preferred stock. Our board of directors will have the authority to determine the preferences, limitations and relative rights of the shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our Class A common stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our Class A common stock at a premium to the market price, and materially and adversely affect the market price and the voting and other rights of the holders of our Class A common stock.
For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies.
We are an "emerging growth company," as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies," including, but not limited to, (i) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, (ii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (iii) exemptions from the requirements of holding a non-binding advisory vote on executive compensation and of shareholder approval of any golden parachute payments not previously approved. We have elected to adopt these reduced disclosure requirements. We cannot predict if investors will find our Class A common stock less attractive as a result of our taking advantage of these exemptions and as a result, there may be a less active trading market for our Class A common stock and our stock price may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period. As a result, our financial statements may not be comparable to companies that comply with public company effective dates.
We could remain an "emerging growth company" for up to five years or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (b) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter and (c) the date on which we have issued more than $1 billion in non-convertible debt securities during the preceding three-year period.
The obligations associated with being a public company will require significant resources and management attention, which may divert from our business operations.
As a result of this offering, we will become subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting. As a result, we will incur significant legal, accounting and other expenses that we did not previously incur.
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In addition, the need to establish the corporate infrastructure demanded of a public company may divert management's attention from implementing our business strategy, which could prevent us from improving our business, results of operations and financial condition. We have made, and will continue to make, changes to our internal controls, including information technology controls, and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. If we do not continue to develop and implement the right processes and tools to manage our changing enterprise and maintain our culture, our ability to compete successfully and achieve our business objectives could be impaired, which could negatively impact our business, financial condition and results of operations. In addition, we cannot predict or estimate the amount of additional costs we may incur to comply with these requirements. We anticipate that these costs will materially increase our general and administrative expenses.
Furthermore, as a public company, we will incur additional legal, accounting and other expenses that have not been reflected in our predecessor's historical financial statements or our pro forma financial statements. In addition, rules implemented by the SEC and the NYSE have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. These rules and regulations result in our incurring legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers.
Our failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act as a public company could have a material adverse effect on our business and share price.
Prior to the completion of this offering, we have not operated as a public company and have not had to independently comply with Section 404(a) of the Sarbanes-Oxley Act. Section 404(a) of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting, starting with the second annual report that we would expect to file with the SEC. We anticipate being required to meet these standards in the course of preparing our financial statements as of and for the year ended December 31, 2015, and our management will be required to report on the effectiveness of our internal control over financial reporting for such year. Additionally, once we are no longer an emerging growth company, as defined by the JOBS Act, our independent registered public accounting firm will be required pursuant to Section 404(b) of the Sarbanes-Oxley Act to attest to the effectiveness of our internal control over financial reporting on an annual basis. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. We are currently in the process of reviewing, documenting and testing our internal control over financial reporting, but we are not currently in compliance with, and we cannot be certain when we will be able to implement the requirements of Section 404(a). We may encounter problems or delays in implementing any changes necessary to make a favorable assessment of our internal control over financial reporting. In addition, we may encounter problems or delays in completing the implementation of any requested improvements and receiving a favorable attestation in connection with the attestation to be provided by our independent registered public accounting firm after
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we cease to be an emerging growth company. If we cannot favorably assess the effectiveness of our internal control over financial reporting, or if our independent registered public accounting firm is unable to provide an unqualified attestation report on our internal controls after we cease to be an emerging growth company, investors could lose confidence in our financial information and the price of our Class A common stock could decline.
Additionally, the existence of any material weakness or significant deficiency would require management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner. The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause shareholders to lose confidence in our reported financial information, all of which could materially and adversely affect our business and share price.
An active trading market for our Class A common stock may never develop or be sustained.
Although the shares of our Class A common stock will be authorized for trading on the NYSE, an active trading market for our Class A common stock may not develop on that exchange or elsewhere or, if developed, that market may not be sustained. Accordingly, if an active trading market for our Class A common stock does not develop or is not maintained, the liquidity of our Class A common stock, your ability to sell your shares of our Class A common stock when desired and the prices that you may obtain for your shares of Class A common stock will be adversely affected.
If securities analysts do not publish research or reports about our company, or if they issue unfavorable commentary about us or our industry or downgrade our Class A common stock, the price of our Class A common stock could decline.
The trading market for our Class A common stock will depend in part on the research and reports that third-party securities analysts publish about our company and our industry. We may be unable or slow to attract research coverage and if one or more analysts cease coverage of our company, we could lose visibility in the market. In addition, one or more of these analysts could downgrade our Class A common stock or issue other negative commentary about our company or our industry. As a result of one or more of these factors, the trading price of our Class A common stock could decline.
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Wayzata formed Neff Corporation as a Delaware corporation on August 18, 2014 to serve as the issuer of the Class A common stock offered hereby. On or prior to the closing of this offering we will consummate the Organizational Transactions.
Existing Organization
Neff Holdings is treated as a partnership for U.S. federal income tax purposes and, as such is not subject to any U.S. federal entity-level income taxes. Rather, taxable income or loss is included in the U.S. federal income tax returns of Neff Holdings' members. Prior to the consummation of this offering, the Wayzata funds are the only members of Neff Holdings.
The following diagram sets forth our ownership structure prior to giving effect to the Organizational Transactions and this offering:
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Organizational Structure Following this Offering:
Immediately following the completion of this offering and the Organizational Transactions:
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The following diagram sets forth our ownership structure after giving effect to the Organizational Transactions and this offering:
As the sole managing member of Neff Holdings, we will operate and control all of the business and affairs of Neff Holdings and, through Neff Holdings and its subsidiaries, conduct our business. Following the Organizational Transactions and offering, we will record a significant non-controlling interest in our consolidated subsidiary, Neff Holdings, relating to the ownership interest of Wayzata in Neff Holdings. Accordingly, although Neff Corporation will have a minority economic interest in Neff Holdings, it will have a majority voting interest in, and control the management of, Neff Holdings. As a result, Neff Corporation will consolidate Neff Holdings and record a non-controlling interest in consolidated entity for the economic interest in Neff Holdings held by Wayzata.
Incorporation of Neff Corporation
Neff Corporation was incorporated as a Delaware corporation on August 18, 2014. Neff Corporation has not engaged in any material business or other activities except in connection with its formation. The amended and restated certificate of incorporation of Neff Corporation authorizes two classes of common stock, Class A common stock and Class B common stock, each having the terms described in "Description of Capital Stock."
Reclassification and Amendment and Restatement of Neff Holdings LLC Agreement
Prior to or substantially concurrently with the completion of this offering, the limited liability company agreement of Neff Holdings will be amended and restated to, among other things, modify its capital structure by creating a single new class of units that we refer to as "common units" and providing for a right of redemption of common units in exchange for our Class A common stock. See "Certain Relationships and Related Party TransactionsNeff Holdings LLC Agreement."
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This prospectus contains "forward-looking statements." We use words such as "could," "may," "might," "will," "expect," "likely," "believe," "continue," "anticipate," "estimate," "intend," "plan," "project" and other similar expressions to identify some forward-looking statements, but not all forward-looking statements include these words. All of our forward-looking statements involve estimates and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Accordingly, any such statements are qualified in their entirety by reference to the information described under the caption "Risk Factors" and elsewhere in this prospectus.
The forward-looking statements contained in this prospectus are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this prospectus, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond our control) and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual operating and financial performance and cause our performance to differ materially from the performance anticipated in the forward-looking statements. We believe these factors include, but are not limited to, those described under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual operating and financial performance may vary in material respects from the performance projected in these forward-looking statements.
Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement contained in this prospectus to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances, except as otherwise required by law. New factors that could cause our business not to develop as we expect emerge from time to time, and it is not possible for us to predict all of them. Further, we cannot assess the impact of each currently known or new factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
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This prospectus includes market and industry data and forecasts that we have derived from independent consultant reports, publicly available information, various industry publications, other published industry sources and our internal data and estimates. Independent consultant reports, industry publications and other published industry sources generally indicate that the information contained therein was obtained from sources believed to be reliable.
Our internal data and estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which we operate and our management's understanding of industry conditions. Although we believe that such information is reliable, we have not had this information verified by any independent sources.
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We do not anticipate declaring or paying in the foreseeable future any cash dividends on our capital stock. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our operating results, financial condition, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. See "Risk FactorsRisks Relating to This Offering and Ownership of Our Class A Common StockWe do not intend to pay dividends on our Class A common stock for the foreseeable future." In addition, we are a holding company and have no direct operations, and therefore we will only be able to pay dividends from our available cash on hand and any funds we receive from our subsidiaries. The terms of indebtedness of our subsidiaries restrict our subsidiaries from paying dividends to us. See "Description of Capital Stock" and "Description of Certain Indebtedness."
Neff Holdings paid cash distributions to our existing owners during the year ended December 31, 2013 and the nine months ended September 30, 2014 aggregating $110.0 million and $329.9 million, respectively.
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We estimate that the net proceeds to us from the sale of the shares of Class A common stock by us in this offering will be approximately $204.6 million (or $235.3 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock), assuming an initial public offering price of $21.00 per share (the midpoint of the range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions but before other offering expenses. A $1.00 increase (decrease) in the assumed initial public offering price of $21.00 per share would increase (decrease) the net proceeds to us from this offering by $9.7 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. An increase (decrease) of 1,000,000 shares from the expected number of shares to be sold in this offering, assuming no change in the assumed initial public offering price per share, would increase (decrease) our net proceeds from this offering by $19.5 million, after deducting estimated underwriting discounts and commissions but before other offering expenses.
We intend to use the net proceeds from this offering (excluding any net proceeds from any exercise of the underwriters' option to purchase additional shares of Class A common stock) as follows (i) to purchase 2,142,857 common units of Neff Holdings directly from Wayzata at a price per unit equal to the initial public offering price per share of Class A common stock in this offering less the underwriting discounts and commissions, in an amount aggregating $41.8 million, and (ii) to purchase 8,333,333 common units directly from Neff Holdings at the same price per unit, in an amount aggregating $162.8 million. We will use all net proceeds, if any, received upon exercise of the underwriters' option to purchase additional shares of Class A common stock to purchase additional common units directly from Neff Holdings at the same price per unit.
Neff Holdings anticipates that it will use the $162.8 million in net proceeds it receives from the sale of common units to Neff Corporation (together with any additional proceeds it may receive if the underwriters exercise their option to purchase additional shares of Class A common stock) as follows:
If the net proceeds of this offering are higher or lower than expected, the net proceeds available to Neff Holdings to prepay the Second Lien Loan will increase or decrease accordingly.
Upon prepayment of approximately $105.4 million of the Second Lien Loan and repayment of approximately $40.0 million under our Revolving Credit Facility, we will recognize a loss of approximately $0.5 million in the quarter during which such prepayments occur.
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Certain affiliates of the underwriters hold a portion of the indebtedness being repaid with a portion of the proceeds of this offering as described above. See "Underwriters (Conflicts of Interest)."
On June 9, 2014, we amended our Revolving Credit Facility and borrowed the Second Lien Loan in connection with the refinancing of our Senior Secured Notes (as defined under "Management's Discussion and Analysis of Financial Condition and Results of OperationsFinancial HighlightsRefinancing"). The net proceeds of the Second Lien Loan were used to (1) prepay the Senior Secured Notes in full, together with a prepayment premium and accrued and unpaid interest thereon, and to pay fees and expenses in connection with such refinancing and the amendment of our Revolving Credit Facility, and (2) make a $354.4 million distribution to the members of Neff Holdings and to make payments to certain management and independent members of the board of directors. See "Management's Discussion and Analysis of Financial Condition and Results of OperationsFinancial HighlightsRefinancing."
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The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2014:
You should read this table in conjunction with the consolidated financial statements and the related notes, "Use of Proceeds," "Our Organizational Structure," "Unaudited Pro Forma Condensed Consolidated Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.
|
As of September 30, 2014 | ||||||
---|---|---|---|---|---|---|---|
|
Neff Holdings Actual |
Neff Corporation Pro Forma(1) |
|||||
|
(in thousands of dollars) |
||||||
Cash and cash equivalents |
$ | 1,999 | $ | 1,999 | |||
| | | | | | | |
Long-term indebtedness: |
|||||||
Revolving Credit Facility(2) |
317,000 | 277,000 | |||||
Second Lien Loan(3) |
572,195 | 467,310 | |||||
| | | | | | | |
Total indebtedness |
889,195 | 744,310 | |||||
| | | | | | | |
Total equity (deficiency): |
|||||||
Members' deficit |
(324,106 | ) | | ||||
Class A common stock, par value $0.01 per share, 100,000,000 shares authorized, 0 shares issued and outstanding on an actual basis, 10,476,190 shares issued and outstanding on a pro forma basis |
| 105 | |||||
Class B common stock, par value $0.01 per share, 15,000,000 shares authorized, 0 shares issued and outstanding on an actual basis, 12,808,768 shares issued and outstanding on a pro forma basis |
| 128 | |||||
Additional paid-in capital |
| (21,575 | ) | ||||
Accumulated deficit |
| (4,094 | ) | ||||
| | | | | | | |
Total members' deficit/stockholders' equity (deficit) |
(324,106 | ) | (25,436 | ) | |||
| | | | | | | |
Non-controlling interest |
| (176,556 | ) | ||||
| | | | | | | |
Total members' equity (deficit) |
(324,106 | ) | (201,992 | ) | |||
| | | | | | | |
Total capitalization |
$ | 565,089 | $ | 542,318 | |||
| | | | | | | |
| | | | | | | |
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from the amount set forth above, we will repay a greater or lesser amount under the Second Lien Loan than we currently anticipate, which would correspondingly decrease or increase each of total indebtedness, additional paid-in capital, total members' deficit/stockholders' equity (deficit), total members' equity (deficit) and total capitalization.
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Because our existing shareholders do not own any Class A common stock or other economic interests in Neff Corporation, we have presented dilution in pro forma net tangible book value per share after this offering assuming that all existing options to acquire units of Neff Holdings that are vested on or within 60 days of September 30, 2014, which we refer to as "vested LLC options," are exercised and that all of the holders of units in Neff Holdings LLC (other than Neff Corporation) had their units redeemed in exchange for newly-issued shares of Class A common stock on a one-for-one basis in order to more meaningfully present the dilutive impact on the investors in this offering. We refer to the assumed exercise of vested LLC options and the assumed redemption of all units for shares of Class A common stock as described in the previous sentence as the "Assumed Redemption."
Dilution is the amount by which the offering price paid by the purchasers of the Class A common stock in this offering exceeds the pro forma net tangible book value per share of Class A common stock after the offering. Net tangible book value per share is determined at any date by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of Class A common stock deemed to be outstanding at that date.
Neff Holdings' net tangible book deficit as of September 30, 2014 was $(399.9) million. After giving effect to the Organizational Transactions and the transactions described under "Unaudited Pro Forma Condensed Consolidated Financial Information," including the application of the proceeds from this offering as described in "Use of Proceeds," our pro forma net tangible book value as of September 30, 2014 would have been approximately $(277.7) million, or $(26.51) per share, assuming that on the closing date of this offering Wayzata and the holders of vested LLC options all redeemed their units in exchange for shares of our Class A common stock on a one-for-one basis. This represents an immediate dilution of $47.51 per share to new investors purchasing Class A common stock in this offering. The following table illustrates this substantial and immediate dilution to new investors on a per share basis:
Assumed initial public offering price per share |
$ | 21.00 | ||
| | | | |
Pro forma net tangible book value per share as of September 30, 2014 before this offering(1) |
$ | (38.17 | ) | |
| | | | |
Increase attributable to this offering |
$ | 11.66 | ||
| | | | |
Pro forma net tangible book value after this offering |
$ | (26.51 | ) | |
| | | | |
Dilution per share to new Class A common stock investors |
$ | 47.51 | ||
| | | | |
| | | | |
Each $1.00 increase (decrease) in the assumed initial public offering price of $21.00 per share would increase (decrease) our pro forma net tangible book value after this offering by $8.2 million, or by $0.78 per share and the dilution in pro forma net tangible book value to new investors in this offering by $0.22 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
If the underwriters exercise their option to purchase additional shares in full, our pro forma net tangible book value per share after the offering would be $(20.60) per share, the increase in pro forma net tangible book value attributable to the offering would be $12.59 per share and the dilution in pro forma net tangible book value to new investors would be $41.60 per share.
The following table summarizes, as of September 30, 2014 after giving effect to this offering, the differences between our existing owners and our new investors in this offering with regard to:
51
assuming those members of Neff Holdings redeemed all of their units in exchange for shares of Class A common stock,
based upon the assumed initial public offering price of $21.00 per share, the midpoint of the range set forth on the cover of this prospectus, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
|
Shares Purchased | Total Consideration | |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Average Price Per Share |
|||||||||||||||
|
Number | Percent | Amount | Percent | ||||||||||||
|
(in thousands, except percent data) |
|||||||||||||||
Existing shareholders |
12,809 | 55.0 | % | $ | | 0.0 | % | $ | | |||||||
New investors |
10,476 | 45.0 | % | $ | 220,000 | 100.0 | % | $ | 21.00 | |||||||
| | | | | | | | | | | | | | | | |
Total |
23,285 | 100.0 | % | $ | 220,000 | 100.0 | % | $ | 9.45 | |||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Each $1.00 increase (decrease) in the assumed initial public offering price of $21.00 per share would increase (decrease) the total consideration paid by new investors and the total consideration paid by all shareholders by $9.7 million, assuming the number of shares offered by us remains the same and after deducting estimated underwriting discounts and commissions but before estimated offering expenses.
52
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
We have derived the unaudited pro forma statement of operations for the year ended December 31, 2013 from the audited historical consolidated financial statements of Neff Holdings for the year ended December 31, 2013 set forth elsewhere in this prospectus. We have derived the unaudited pro forma statement of operations for the nine months ended September 30, 2014 and the unaudited pro forma balance sheet data as of September 30, 2014 from the unaudited condensed consolidated financial statements of Neff Holdings as of and for the nine months ended September 30, 2014 set forth elsewhere in this prospectus. The pro forma financial information is qualified in its entirety by reference to, and should be read in conjunction with, our historical financial statements and the related notes included elsewhere in this prospectus.
The unaudited pro forma statement of operations for the year ended December 31, 2013 and the nine months ended September 30, 2014 give effect to this offering, the Refinancing and the Organizational Transactions as if the same had occurred on January 1, 2013. The unaudited pro forma balance sheet as of September 30, 2014 gives effect to this offering and the Organizational Transactions as if the same had occurred on September 30, 2014.
The pro forma adjustments are described in the notes to the unaudited pro forma financial information, and principally include the following:
The unaudited pro forma condensed consolidated financial information presented assumes no exercise by the underwriters of the option to purchase up to an additional 1,571,428 shares of Class A common stock from us.
As described in greater detail under "Certain Relationships and Related Party TransactionsTax Receivable Agreement," prior to the completion of this offering, we will enter into the Tax Receivable
53
Agreement with our existing owners. See "Management's Discussion and Analysis of Financial Condition and Results of OperationsCompany Structure and Effects of the Organizational Transactions."
As a public company, we will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. We expect to incur additional annual expenses related to these steps and, among other things, additional directors' and officers' liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses. We have not included any pro forma adjustments relating to these costs.
We provide this unaudited pro forma condensed consolidated financial information for informational and comparative purposes only. The pro forma adjustments are described in greater detail in the accompanying footnotes, which you should read in conjunction with the unaudited pro forma condensed consolidated financial information. We have made the pro forma adjustments described in the accompanying footnotes based on available information.
The assumptions used in the preparation of the unaudited pro forma condensed consolidated financial information may not prove to be correct. The pro forma adjustments do not purport to be and should not be considered indicative of what our actual financial position or results of operations would have been if the transactions described had been completed as of the dates indicated or for any future date or for any period. The unaudited pro forma condensed consolidated financial information should be read together with "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Executive Compensation," the consolidated historical financial statements and the related notes thereto, and the other financial information included elsewhere in this prospectus.
54
Neff Corporation and Subsidiaries
Unaudited Pro Forma Balance Sheet as of September 30, 2014
|
Historical Neff Holdings |
Offering and Organizational Transaction Adjustments |
Pro Forma Neff Corporation |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands of dollars) |
|||||||||
ASSETS |
||||||||||
Cash and cash equivalents |
$ | 1,999 | $ | | $ | 1,999 | ||||
Accounts receivable, net |
58,962 | | 58,962 | |||||||
Inventories |
2,377 | | 2,377 | |||||||
Rental equipment, net |
417,332 | | 417,332 | |||||||
Property and equipment, net |
31,152 | | 31,152 | |||||||
Prepaid expenses and other assets |
19,089 | (1,429 | )(1) | 17,660 | ||||||
Deferred tax assets |
| 64,888 | (2) | 64,888 | ||||||
Goodwill |
58,765 | | 58,765 | |||||||
Intangible assets, net |
16,979 | | 16,979 | |||||||
| | | | | | | | | | |
Total assets |
$ | 606,655 | $ | 63,459 | $ | 670,114 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
LIABILITIES AND MEMBERS' DEFICIT/STOCKHOLDERS' EQUITY (DEFICIENCY) |
||||||||||
Liabilities |
||||||||||
Accounts payable |
$ | 10,370 | $ | | $ | 10,370 | ||||
Accrued expenses and other liabilities |
31,196 | | 31,196 | |||||||
Tax receivable agreement liability |
| 86,230 | (2) | 86,230 | ||||||
Revolving Credit Facility |
317,000 | (40,000 | )(3) | 277,000 | ||||||
Second Lien Loan |
572,195 | (104,885 | )(3) | 467,310 | ||||||
| | | | | | | | | | |
Total liabilities |
930,761 | (58,655 | ) | 872,106 | ||||||
| | | | | | | | | | |
Members' deficit/stockholders' equity |
||||||||||
Members' deficit |
(324,106 | ) | 324,106 | (4) | | |||||
Class A common stock, par value $0.01 per share |
| 105 | (5) | 105 | ||||||
Class B common stock, par value $0.01 per share |
| 128 | (5) | 128 | ||||||
Additional paid-in capital |
| (21,342 | )(2) | (21,575 | ) | |||||
|
(147,550 | )(4) | ||||||||
|
189,400 | (6) | ||||||||
|
(233 | )(6) | ||||||||
|
(41,850 | )(6) | ||||||||
Accumulated deficit |
| (4,094 | )(7) | (4,094 | ) | |||||
| | | | | | | | | | |
Total members' deficit/stockholders' equity (deficit) |
(324,106 | ) | 298,670 | (25,436 | ) | |||||
| | | | | | | | | | |
Non-controlling interest |
| (176,556 | )(4) | (176,556 | ) | |||||
| | | | | | | | | | |
Total members' equity (deficit) |
(324,106 | ) | 122,114 | (201,992 | ) | |||||
| | | | | | | | | | |
Total liabilities and members' deficit/stockholders' equity (deficit) |
$ | 606,655 | $ | 63,459 | $ | 670,114 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
55
Neff Corporation and Subsidiaries
Unaudited Pro Forma Balance Sheet as of September 30, 2014
Deferred tax assets pro forma adjustment related to TRA |
$ | 64,888 | ||
TRA liability |
(86,230 | ) | ||
| | | | |
Net adjustment |
$ | (21,342 | ) |
Paydown of Second Lien Loan(a) |
$ | 105,399 | ||
Second Lien Loan prepayment premium |
2,151 | |||
Paydown of Revolving Credit Facility |
40,000 | |||
| | | | |
Total |
$ | 147,550 | ||
| | | | |
| | | | |
(a) Paydown of Second Lien Loan |
$ | 105,399 | ||
Writeoff of portion of original issue discount for Second Lien Loan |
(514 | ) | ||
| | | | |
Total adjustments to Second Lien Loan |
$ | 104,885 | ||
| | | | |
| | | | |
56
Neff Corporation and Subsidiaries
Unaudited Pro Forma Balance Sheet as of September 30, 2014
Historical Neff Holdings equity held by the non-controlling interest holders |
$ | (324,106 | ) | |
Proceeds from this offering used to purchase common units of Neff Holdings from Neff Holdings |
147,550 | |||
| | | | |
Total |
$ | (176,556 | ) | |
| | | | |
| | | | |
Offering proceeds (gross) |
$ | 220,000 | ||
Underwriting discount and commissions |
(15,400 | ) | ||
Payments to certain management and directors |
(9,900 | ) | ||
Other offering expenses |
(5,300 | ) | ||
| | | | |
Total |
$ | 189,400 | ||
| | | | |
| | | | |
Par value of Class A common stock |
$ | (105 | ) | |
Par value of Class B common stock |
(128 | ) | ||
| | | | |
Total |
$ | (233 | ) | |
| | | | |
| | | | |
Offering proceeds used to purchase common units of Neff Holdings directly from Wayzata |
$ | (41,850 | ) | |
| | | | |
| | | | |
Second Lien Loan prepayment premium |
$ | 2,151 | ||
Writeoff of portion of Second Lien Loan issue costs |
1,429 | |||
Writeoff of portion of original issue discount on Second Lien Loan |
514 | |||
| | | | |
Total |
$ | 4,094 | ||
| | | | |
| | | | |
57
Neff Corporation and Subsidiaries
Unaudited Pro Forma Statement of Operations for the Year Ended December 31, 2013
|
Historical Neff Holdings |
Offering and Organizational Transaction Adjustments |
Pro Forma Neff Corporation |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands, except per share data) |
|||||||||
Revenues: |
||||||||||
Rental revenues |
$ | 281,038 | $ | | $ | 281,038 | ||||
Equipment sales |
33,487 | | 33,487 | |||||||
Parts and service |
12,682 | | 12,682 | |||||||
| | | | | | | | | | |
Total revenues |
327,207 | | 327,207 | |||||||
| | | | | | | | | | |
Cost of revenues: |
||||||||||
Cost of equipment sold |
19,204 | | 19,204 | |||||||
Depreciation of rental equipment |
70,768 | | 70,768 | |||||||
Cost of rental revenues |
74,482 | | 74,482 | |||||||
Cost of parts and service |
7,677 | | 7,677 | |||||||
| | | | | | | | | | |
Total cost of revenues |
172,131 | | 172,131 | |||||||
| | | | | | | | | | |
Gross profit |
155,076 | | 155,076 | |||||||
| | | | | | | | | | |
Other operating expenses: |
||||||||||
Selling, general and administrative expenses |
78,617 | 801 | (1) | 79,418 | ||||||
Other depreciation and amortization |
8,968 | | 8,968 | |||||||
| | | | | | | | | | |
Total other operating expenses |
87,585 | 801 | 88,386 | |||||||
| | | | | | | | | | |
Income from operations |
67,491 | (801 | ) | 66,690 | ||||||
| | | | | | | | | | |
Other expense: |
||||||||||
Interest expense |
24,598 | 13,677 | (2) | 38,275 | ||||||
Amortization and write-off of debt issue costs |
1,929 | (618 | )(3) | 1,311 | ||||||
| | | | | | | | | | |
Total other expenses |
26,527 | 13,059 | 39,586 | |||||||
| | | | | | | | | | |
Income before income taxes |
40,964 | (13,860 | ) | 27,104 | ||||||
Provision for income taxes |
(471 | ) | (4,286 | )(4) | (4,757 | ) | ||||
| | | | | | | | | | |
Net income |
40,493 | (18,146 | ) | 22,347 | ||||||
| | | | | | | | | | |
Net income attributable to non-controlling interest |
| 14,907 | (5) | 14,907 | ||||||
| | | | | | | | | | |
Net income attributable to Neff Corporation |
$ | 40,493 | $ | (33,053 | ) | $ | 7,440 | |||
| | | | | | | | | | |
| | | | | | | | | | |
Net income per share data:(6) |
||||||||||
Weighted average shares of Class A common stock outstanding: |
||||||||||
Basic |
10,476 | |||||||||
Diluted |
10,555 | |||||||||
Net income available to Class A common stock per share: |
||||||||||
Basic |
$ | 0.71 | ||||||||
Diluted |
$ | 0.70 |
58
Neff Corporation and Subsidiaries
Unaudited Pro Forma Statement of Operations for the Year Ended December 31, 2013 (Continued)
on January 1, 2013 as set forth below (in thousands of dollars). As the Refinancing occurred on June 9, 2014, the adjustments for the Second Lien Loan and Senior Secured Notes are for the full year.
Interest expense and amortization of original issue discount incurred in connection with the Second Lien Loan (accrues interest at 7.3%) |
$ | 41,688 | ||
Reduction in interest expense in connection with repayment of the Senior Secured Notes in the Refinancing (accrued interest at 9.6%) |
(19,250 | ) | ||
Reduction in interest expense in connection with the repayment of a portion of the Revolving Credit Facility with a portion of the net proceeds of this offering (accrues interest at 2.8%) |
(1,120 | ) | ||
Reduction in interest expense in connection with the prepayment of a portion of the Second Lien Loan with a portion of the net proceeds of this offering (accrues interest at 7.3%) |
(7,641 | ) | ||
| | | | |
Total |
$ | 13,677 | ||
| | | | |
| | | | |
Elimination of full year of debt issuance costs for the Senior Secured Notes |
$ | (1,233 | ) | |
Full year amortization of debt issue costs for the Second Lien Loan |
615 | |||
| | | | |
Total |
$ | (618 | ) | |
| | | | |
| | | | |
Income before taxes |
$ | 27,104 | ||
Less non-controlling interest (55.0%) |
(14,907 | ) | ||
| | | | |
Net income before tax attributable to Neff Corporation |
12,197 | |||
| | | | |
Provision for income taxes (39.0%) |
$ | (4,757 | ) | |
| | | | |
| | | | |
Income before taxes |
$ | 27,104 | ||
| | | | |
Non-controlling interest (55.0%) |
$ | 14,907 | ||
| | | | |
| | | | |
59
Neff Corporation and Subsidiaries
Unaudited Pro Forma Statement of Operations for the Nine Months Ended September 30, 2014
|
Historical Neff Holdings |
Offering and Organizational Transaction Adjustments |
Pro Forma Neff Corporation |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands, except per share data) |
|||||||||
Revenues: |
||||||||||
Rental revenues |
$ | 240,362 | $ | | $ | 240,362 | ||||
Equipment sales |
17,355 | | 17,355 | |||||||
Parts and service |
10,125 | | 10,125 | |||||||
| | | | | | | | | | |
Total revenues |
267,842 | | 267,842 | |||||||
| | | | | | | | | | |
Cost of revenues: |
||||||||||
Cost of equipment sold |
9,877 | | 9,877 | |||||||
Depreciation of rental equipment |
54,831 | | 54,831 | |||||||
Cost of rental revenues |
59,669 | | 59,669 | |||||||
Cost of parts and service |
6,158 | | 6,158 | |||||||
| | | | | | | | | | |
Total cost of revenues |
130,535 | | 130,535 | |||||||
| | | | | | | | | | |
Gross profit |
137,307 | | 137,307 | |||||||
| | | | | | | | | | |
Other operating expenses: |
||||||||||
Selling, general and administrative expenses |
61,453 | 601 | (1) | 62,054 | ||||||
Other depreciation and amortization |
7,149 | | 7,149 | |||||||
Transaction bonus |
24,506 | | 24,506 | |||||||
| | | | | | | | | | |
Total other operating expenses |
93,108 | 601 | 93,709 | |||||||
| | | | | | | | | | |
Income from operations |
44,199 | (601 | ) | 43,598 | ||||||
| | | | | | | | | | |
Other expense: |
||||||||||
Interest expense |
28,313 | 3,283 | (2) | 31,596 | ||||||
Loss on extinguishment of debt |
15,896 | (15,896) | (3) | | ||||||
Amortization and write-off of debt issue costs |
2,695 | (1,309) | (4) | 1,386 | ||||||
| | | | | | | | | | |
Total other expenses |
46,904 | (13,922 | ) | 32,982 | ||||||
| | | | | | | | | | |
Income (loss) before income taxes |
(2,705 | ) | 13,321 | 10,616 | ||||||
(Provision for) benefit from income taxes |
4,610 | (6,473) | (5) | (1,863 | ) | |||||
| | | | | | | | | | |
Net income |
1,905 | 6,848 | 8,753 | |||||||
| | | | | | | | | | |
Net income attributable to non-controlling interest |
| 5,839 | (6) | 5,839 | ||||||
| | | | | | | | | | |
Net income attributable to Neff Corporation |
$ | 1,905 | $ | 1,009 | $ | 2,914 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
Net income per share data:(7) |
||||||||||
Weighted average shares of Class A common stock outstanding: |
||||||||||
Basic |
10,476 | |||||||||
Diluted |
10,555 | |||||||||
Net income available to Class A common stock per share: |
||||||||||
Basic |
$ | 0.28 | ||||||||
Diluted |
$ | 0.28 |
60
Neff Corporation and Subsidiaries
Unaudited Pro Forma Statement of Operations for the Nine Months Ended September 30, 2014 (Continued)
a portion of the net proceeds of this offering assuming that the Refinancing and this offering occurred on January 1, 2013 as set forth below (in thousands of dollars). As the Refinancing occurred on June 9, 2014, the adjustments for the Second Lien Loan and Senior Secured Notes are for approximately five months.
Interest expense and amortization of original issue discount incurred in connection with the Second Lien Loan (accrues interest at 7.3%) |
$ | 18,274 | ||
Reduction in interest expense in connection with repayment of the Senior Secured Notes in the Refinancing (accrued interest at 9.6%) |
(8,438 | ) | ||
Reduction in interest expense in connection with the repayment of a portion of the Revolving Credit Facility with a portion of the net proceeds of this offering (accrues interest at 2.8%) |
(838 | ) | ||
Reduction in interest expense in connection with the prepayment of a portion of the Second Lien Loan with a portion of the net proceeds of this offering (accrues interest at 7.3%) |
(5,715 | ) | ||
| | | | |
Total |
$ | 3,283 | ||
| | | | |
| | | | |
Elimination of approximately five months of debt issuance costs for the Senior Secured Notes |
$ | (1,549 | ) | |
Approximately five months of amortization of debt issue costs for the Second Lien Loan |
240 | |||
| | | | |
Total |
$ | (1,309 | ) | |
| | | | |
| | | | |
Income (loss) before taxes |
$ | 10,616 | ||
Less non-controlling interest (55.0%) |
(5,839 | ) | ||
| | | | |
Net income before tax attributable to Neff Corporation |
4,777 | |||
| | | | |
(Provision for) benefit from income taxes (39.0%) |
$ | (1,863 | ) | |
| | | | |
| | | | |
61
Neff Corporation and Subsidiaries
Unaudited Pro Forma Statement of Operations for the Nine Months Ended September 30, 2014 (Continued)
management of, Neff Holdings. As a result, Neff Corporation will consolidate Neff Holdings and record a non-controlling interest relating to the ownership interest of Wayzata in Neff Holdings as follows (in thousands of dollars):
Income before taxes |
$ | 10,616 | ||
| | | | |
Non-controlling interest (55.0%) |
$ | 5,839 | ||
| | | | |
| | | | |
62
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables present, as of the dates and for the periods indicated, the selected historical consolidated financial data for Neff Holdings and its subsidiaries. Neff Holdings is the predecessor of the issuer, Neff Corporation, for financial reporting purposes. The historical financial statements of Neff Corporation have not been presented in this "Selected Historical Consolidated Financial Data" section because it is a newly-incorporated entity, had no assets or liabilities during the periods presented and has had no business transactions or activities to date.
Neff Holdings is a holding company that conducts no operations and its only material asset as of the consummation of this offering is its membership interests in Neff LLC. Neff LLC is a holding company that conducts no operations and its only material asset is its membership interests in Neff Rental LLC, the principal operating company for our business.
We have derived the selected historical financial data as of and for the years ended December 31, 2012 and 2013 from the audited consolidated financial statements of Neff Holdings included elsewhere in this prospectus. We have derived the selected historical financial data as of and for the year ended December 31, 2011 from the audited consolidated financial statements of Neff Holdings not included in this prospectus. We have derived the selected historical financial data as of September 30, 2014 and for the nine months ended September 30, 2013 and 2014 from the unaudited consolidated financial statements of Neff Holdings included elsewhere in this prospectus. We have derived the selected historical financial data as of September 30, 2013 from the unaudited consolidated financial statements of Neff Holdings not included in this prospectus. In the opinion of management, such unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for those periods.
The results of operations for the periods presented below are not necessarily indicative of the results to be expected for any future period and the results for any interim period are not necessarily indicative of the results that may be expected for a full fiscal year. The following selected historical consolidated financial data should be read in conjunction with, and is qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and the notes thereto included elsewhere in this prospectus.
63
|
Historical Neff Holdings | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Year Ended December 31, | Nine Months Ended September 30, |
||||||||||||||
|
2011 | 2012 | 2013 | 2013 | 2014 | |||||||||||
|
(in thousands of dollars) |
|||||||||||||||
Statement of Operations Data: |
||||||||||||||||
Revenues: |
||||||||||||||||
Rental revenues |
$ | 197,430 | $ | 234,609 | $ | 281,038 | $ | 206,910 | $ | 240,362 | ||||||
Equipment sales |
36,934 | 44,828 | 33,487 | 20,210 | 17,355 | |||||||||||
Parts and service |
10,478 | 11,540 | 12,682 | 9,642 | 10,125 | |||||||||||
| | | | | | | | | | | | | | | | |
Total revenues |
244,842 | 290,977 | 327,207 | 236,762 | 267,842 | |||||||||||
Cost of revenues: |
||||||||||||||||
Cost of equipment sold |
27,497 | 25,528 | 19,204 | 11,685 | 9,877 | |||||||||||
Depreciation of rental equipment |
84,438 | 66,017 | 70,768 | 52,606 | 54,831 | |||||||||||
Cost of rental revenues |
64,824 | 69,337 | 74,482 | 54,943 | 59,669 | |||||||||||
Cost of parts and service |
6,452 | 6,982 | 7,677 | 5,808 | 6,158 | |||||||||||
| | | | | | | | | | | | | | | | |
Total cost of revenues |
183,211 | 167,864 | 172,131 | 125,042 | 130,535 | |||||||||||
| | | | | | | | | | | | | | | | |
Gross profit |
61,631 | 123,113 | 155,076 | 111,720 | 137,307 | |||||||||||
Other operating expenses: |
||||||||||||||||
Selling, general and administrative expenses |
65,901 | 71,621 | 78,617 | 58,540 | 61,453 | |||||||||||
Other depreciation and amortization |
11,937 | 9,041 | 8,968 | 6,826 | 7,149 | |||||||||||
Transaction bonus(1) |
| | | | 24,506 | |||||||||||
| | | | | | | | | | | | | | | | |
Total other operating expenses |
77,838 | 80,662 | 87,585 | 65,366 | 93,108 | |||||||||||
| | | | | | | | | | | | | | | | |
(Loss) income from operations |
(16,207 | ) | 42,451 | 67,491 | 46,354 | 44,199 | ||||||||||
Other expenses: |
||||||||||||||||
Interest expense(2) |
16,524 | 23,221 | 24,598 | 18,257 | 28,313 | |||||||||||
Loss on extinguishment of debt(3) |
| | | | 15,896 | |||||||||||
Other non-operating expenses, net(4) |
3,267 | 1,563 | 1,929 | 1,217 | 2,695 | |||||||||||
| | | | | | | | | | | | | | | | |
(Provision for) benefit from income taxes |
(785 | ) | (159 | ) | (471 | ) | (352 | ) | 4,610 | |||||||
| | | | | | | | | | | | | | | | |
Net (loss) income |
$ | (36,783 | ) | $ | 17,508 | $ | 40,493 | $ | 26,528 | $ | 1,905 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance Sheet Data (as of period end): |
||||||||||||||||
Cash and cash equivalents |
$ | 162 | $ | 586 | $ | 190 | $ | 186 | $ | 1,999 | ||||||
Rental equipment: |
||||||||||||||||
Rental equipment at cost |
318,855 | 440,810 | 516,182 | 523,415 | 625,557 | |||||||||||
Accumulated depreciation |
(90,250 | ) | (124,930 | ) | (168,926 | ) | (161,379 | ) | (208,225 | ) | ||||||
| | | | | | | | | | | | | | | | |
Rental equipment, net |
228,605 | 315,880 | 347,256 | 362,036 | 417,332 | |||||||||||
Total assets |
377,052 | 479,059 | 526,702 | 530,895 | 606,655 | |||||||||||
Total indebtedness(5) |
278,700 | 342,621 | 479,200 | 374,000 | 889,195 | |||||||||||
Members' surplus (deficit) |
52,379 | 71,365 | 3,082 | 98,811 | (324,106 | ) | ||||||||||
Cash Flow Data: |
||||||||||||||||
Cash flow from operating activities |
44,238 | 68,331 | 108,410 | 86,452 | 68,356 | |||||||||||
Cash flow from investing activities |
(90,663 | ) | (131,022 | ) | (125,332 | ) | (118,231 | ) | (130,304 | ) | ||||||
Cash flow from financing activities |
45,684 | 63,115 | 16,526 | 31,379 | 63,757 |
64
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read together with the sections entitled "Risk Factors," "Selected Historical Consolidated Financial Data" and the financial statements and the notes thereto included elsewhere in this prospectus. The historical financial data discussed below reflects the historical results of operations and financial condition of Neff Holdings and its consolidated subsidiaries and does not give effect to the Organizational Transactions. See "Our Organizational Structure" and "Unaudited Pro Forma Condensed Consolidated Financial Information" included elsewhere in this prospectus for a description of the Organizational Transactions and their effect on our historical results of operations. In addition, the statements in this discussion and analysis regarding industry outlook, our expectations regarding the performance of our business and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in "Risk Factors" and "Forward-Looking Statements." Our actual results may differ materially from those contained in or implied by any forward-looking statements.
Overview
We are a leading regional equipment rental company in the United States, focused on the fast-growing Sunbelt states. We offer a broad array of equipment rental solutions for our diverse customer base, including infrastructure, non-residential construction, oil and gas, municipal and residential construction customers. Our broad fleet of equipment includes earthmoving, material handling, aerial and other related rental equipment, which we package together to meet the specific needs of our customers. We consider the earthmoving equipment category to be a core competency of our Company and a key differentiator of our business.
Our revenues are affected primarily by the time utilization of the equipment in our rental fleet, the rental rates we can charge for that equipment and the amount of equipment we have in our fleet available for rent. See "Key Performance Measures" for definitions of time utilization and rental rates. We generate revenues from the following three sources:
Outlook
We operate in a competitive and capital-intensive environment. The participants in our industry consist of national, regional and local rental companies, certain original equipment manufacturers, or OEMs, and their dealers. The equipment rental industry is highly cyclical and its revenues are closely tied to general economic conditions and to conditions in the construction industry in particular. Time utilization and rental rates are a function of market demand, which in turn is tied to the general economic conditions in the geographic regions in which we operate, particularly conditions affecting the non-residential construction industry.
Beginning in the second half of 2011 and continuing through the present, the U.S. construction industry has been growing, which in turn has had a positive impact on the equipment rental industry. We believe that the rental industry will continue to benefit from improving macroeconomic and construction industry conditions. Industry research sources have recently provided optimistic outlooks for U.S.
65
construction spending, including FMI Construction Outlook, which estimates total U.S. construction spending to grow by more than 6.6% each year from 2014 to 2018. We believe that part of this industry growth will be driven by the ongoing secular shift in North America toward reliance on equipment rental instead of ownership, as evidenced by the increasing penetration rate. According to the American Rental Association Equipment Rental Penetration Index, the penetration rate rose from 51% in 2012 to 53% in 2013. We believe that the shift from owning to renting equipment in North America will continue as construction and industrial firms recognize the advantages of renting rather than owning equipment, and that this trend will continue to result in increased penetration rates in the future. We believe that these trends should continue to support increased rental demand and will result in continued improvement in our business. However, these macroeconomic factors are outside of our control, and we cannot assure you that the improvement in our operating results that we have experienced will continue in future periods. See "Risk FactorsRisks Relating to Our BusinessThe equipment rental industry is highly cyclical. Decreases in construction or industrial activities could materially adversely affect our revenues and operating results by decreasing the demand for our equipment or the rental rates or prices we can charge."
Overall, the rental industry has benefited from growth in U.S. construction spending over the past two years and a decrease in excess available rental equipment. These factors, along with management initiatives focused on increasing rental rates, have led to strong year-over-year increases in rental rates and rental revenues for approximately the past four years. A large proportion of our costs are fixed and, as a result, there is a strong correlation between an increase or decrease in our rental revenues and an increase or decrease in our profitability. Thus, the recent increases in rental revenues have led to a significant improvement in our income from operations. We believe that we will continue to benefit from the operating leverage afforded us by the fixed cost nature of our business to the extent we are able to continue to grow our revenues in future periods through increases in rental rates and the amount of equipment we are able to support on our existing branch network.
Seasonality and Other External Factors That Affect Our Business
Our operating results are subject to annual and seasonal fluctuations resulting from a variety of factors, including:
In addition, our operating results may be affected by severe weather events (such as hurricanes and flooding) in the regions we serve. Severe weather events can result in short-term reductions in construction activity levels, but after these periods of reduced construction activity, repair and reconstruction efforts have historically resulted in periods of increased demand for rental equipment.
Financial Highlights
During the years ended December 31, 2012 and 2013 and the nine months ended September 30, 2014, our business has benefitted from the sustained strengthening in the demand for rental equipment in the end-markets and regions we serve for the reasons discussed above. Time utilization of the units in our rental fleet first stabilized in 2010, and since then it has increased and continues to hold at strong levels. With improved time utilization, we have been able to adjust our rental rates in line with customer demand. The increased revenues resulting from the combination of improved time utilization and rental rates gave us the momentum and the liquidity to invest significantly in purchasing additional equipment to add to our rental fleet, and therefore further increase our operating income as we leveraged a larger rental fleet across our existing scalable network of branch locations. As a result, our Adjusted EBITDA increased
66
25.7% to $150.8 million for the year ended December 31, 2013 as compared to the prior year, and increased 23.4% to $133.4 million for the nine months ended September 30, 2014 as compared to the same period in the prior year, as illustrated in the table below:
|
Year Ended December 31, |
Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2013 | 2013 | 2014 | |||||||||
|
(in thousands of dollars) |
||||||||||||
Net income |
$ | 17,508 | $ | 40,493 | $ | 26,528 | $ | 1,905 | |||||
Interest expense |
23,221 | 24,598 | 18,257 | 28,313 | |||||||||
Provision for (benefit from) income taxes |
159 | 471 | 352 | (4,610 | ) | ||||||||
Depreciation of rental equipment |
66,017 | 70,768 | 52,606 | 54,831 | |||||||||
Other depreciation and amortization |
9,041 | 8,968 | 6,826 | 7,149 | |||||||||
Amortization of debt issue costs |
1,461 | 1,929 | 1,217 | 2,695 | |||||||||
| | | | | | | | | | | | | |
EBITDA |
117,407 | 147,227 | 105,786 | 90,283 | |||||||||
Loss on extinguishment of debt(a) |
| | | 15,896 | |||||||||
Transaction bonus(b) |
| | | 24,506 | |||||||||
Rental split expense(c) |
932 | 2,343 | 1,391 | 1,876 | |||||||||
Equity based compensation expense(d) |
1,478 | 1,224 | 918 | 792 | |||||||||
Other(e) |
102 | | | | |||||||||
| | | | | | | | | | | | | |
Adjusted EBITDA |
$ | 119,919 | $ | 150,794 | $ | 108,095 | $ | 133,353 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
For more information regarding our calculation and inclusion of Adjusted EBITDA, see "Prospectus SummarySummary Historical and Pro Forma Consolidated Financial Data."
Refinancing
On June 9, 2014, Neff Holdings completed a refinancing, which we refer to as the "Refinancing," in which it refinanced certain of its existing debt, paid a distribution to its members and paid related fees and expenses. Prior to the Refinancing, Neff Holdings and its subsidiaries had a long-term debt capitalization consisting of a $375.0 million senior secured asset-based revolving credit facility, which we refer to as the "Revolving Credit Facility," and $200.0 million in aggregate principal amount of 9.625% Senior Secured Notes due 2016, which we refer to as the "Senior Secured Notes." In the Refinancing, Neff Holdings and its subsidiaries:
67
As a result of the Refinancing, the net indebtedness of Neff Holdings and its subsidiaries increased by approximately $375.0 million and we estimate that our effective per annum interest expense increased by approximately $22.4 million per year. We intend to apply approximately $105.4 million of the net proceeds from this offering to prepay a portion of the Second Lien Loan and approximately $40.0 million of the net proceeds from this offering to repay a portion of borrowings outstanding under our Revolving Credit Facility, and we expect that our total per annum interest expense will decline accordingly. Because the Refinancing occurred in June 2014, the net increase in interest expense is not fully reflected in the nine months ended September 30, 2014. However, other expenses incurred in connection with the Refinancing adversely affected our results for the nine months ended September 30, 2014, including a loss on the extinguishment of debt related to the redemption of the Senior Secured Notes of $15.9 million and an expense for the payments made to certain members of management and independent members of the board of directors in connection with the completion of the Refinancing of $24.5 million.
Company Structure and Effects of the Organizational Transactions
The historical results of operations discussed in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" are those of Neff Holdings and its consolidated subsidiaries prior to the Organizational Transactions and this offering, and do not reflect certain items that we expect will affect our results of operations and financial condition after giving effect to the Organizational Transactions and the use of proceeds from this offering.
Neff Holdings is treated as a partnership for U.S. federal income tax purposes and, as such, is not subject to any entity-level U.S. federal income tax. Rather, taxable income or loss is included in the respective U.S. federal income tax returns of Neff Holdings' members. Prior to the consummation of this offering, the Wayzata funds are the only members of Neff Holdings.
Following the completion of the Organizational Transactions and this offering, Neff Corporation, the issuer in this offering, will become the sole managing member of Neff Holdings and will purchase newly-issued common units of Neff Holdings representing a 45.0% equity interest in Neff Holdings (or 48.5% if the underwriters exercise in full their option to purchase additional shares of our Class A common stock). As the sole managing member of Neff Holdings, we will control its business and affairs and, therefore, we will consolidate its financial results with ours. Immediately after the Organizational Transactions and this offering, Wayzata will retain common units in Neff Holdings representing a collective 55.0% economic interest (or 51.5% if the underwriters exercise in full their option to purchase additional shares of our Class A common stock) and a non-controlling interest in Neff Holdings, and we will reflect Wayzata's collective economic interest as a non-controlling interest in our consolidated financial statements. As a result, our net income, after excluding the non-controlling interest of Wayzata, will represent 45.0% of Neff Holdings' net income (or 48.5% if the underwriters exercise in full their option to purchase additional shares of our Class A common stock) and our only material asset will be our corresponding 45.0% economic interest (or 48.5% if the underwriters exercise in full their option to purchase additional shares of our Class A common stock) and controlling interest in Neff Holdings. Neff Holdings is a holding
68
company that conducts no operations and, as of the consummation of this offering, its only material asset will be the equity interests of its direct and indirect subsidiaries. Neff Holdings acquired the equity of its subsidiaries, which we refer to as the "Acquisition," from our Prior Predecessor pursuant to our Prior Predecessor's plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code. The Acquisition closed on October 1, 2010.
After completion of the Organizational Transactions and this offering, we expect that our results of operations and financial condition will be affected by the following additional factors that are not reflected in the historical financial information of Neff Holdings discussed below. For more information on the pro forma impact of the Organizational Transactions and this offering, as well as the other aspects of the Organizational Transactions, see "Our Organizational Structure" and "Unaudited Pro Forma Condensed Consolidated Financial Information."
69
for the effects of these increases in tax basis and associated payments under the Tax Receivable Agreement arising from future redemptions or exchanges as follows:
All of the effects of changes in any of our estimates after the date of the exchange will be included in net income for the period in which those changes occur. Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income for the period in which the change occurs. For more information on the Tax Receivable Agreement, including a discussion of the range of aggregated payments to be made, the timing of such payments, and how we intend to fund such payments, see "Certain Relationships and Related Party TransactionsTax Receivable Agreement."
Payments in the aggregate amount of $9.9 million will be made to certain members of management and non-employee members of the board of directors in connection with the consummation of this offering if the gross proceeds to us from this offering exceed $175 million. See "Executive CompensationOther Compensation ProgramsNeff Holdings Amended and Restated Sale Transaction Bonus Plan." We will also grant 78,587 stock options and 60,879 restricted stock units, in each case over shares of Class A common stock, to certain of our directors and certain of our employees as described under the captions "Executive CompensationDirector Compensation Following this Offering" and "Executive CompensationOffering Grants to Employees under the 2014 Incentive Award Plan."
In addition, we expect that after the consummation of this offering our financial statements also will reflect additional equity incentive compensation expense, certain public company compliance costs and the effects of non-controlling interests in Neff Holdings. See "Risk Factors," "Executive Compensation," "Certain Relationships and Related Party Transactions," and "Unaudited Pro Forma Condensed Consolidated Financial Information."
Key Performance Measures
From time to time we use certain key performance measures in evaluating our business and results of operations and we may refer to one or more of these key performance measures in this "Management's Discussion and Analysis of Financial Condition and Results of Operations." These key performance measures include:
70
Results of Operations
The following summary highlights the key elements of certain line items discussed further below in the period-over-period analysis of our results of operations:
71
We utilize rental splits in our operations. Rental splits are a consignment arrangement of new equipment by OEMs in which we hold their equipment in our rental fleet for a period of time (typically between three and 12 months) and agree to share with the OEM a percentage of the rental revenue we receive on the rental of that unit. We do not take title to the unit under this arrangement and we can return the unit to the OEM at any time at no additional cost to us. We also can elect to purchase the unit from the OEM from time to time. The revenue we pay to the OEM under rental splits is expensed in cost of rental revenues on our statement of operations, but added back to Adjusted EBITDA in order to maintain comparability to our results from period to period. If we exercise the option to purchase the unit, the unit becomes part of our rental fleet and is depreciated, with depreciation added back to Adjusted EBITDA. Before we exercise the option to purchase a unit, we count the unit as part of our rental fleet for OEC calculations but do not depreciate the unit. As of September 30, 2014, rental splits accounted for approximately 4.1% of our average OEC.
72
Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013
The following table illustrates our operating activity for the nine months ended September 30, 2014 and the nine months ended September 30, 2013.
|
For the Nine Months Ended September 30, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2014 | % Change | |||||||
|
(in thousands of dollars) |
|
||||||||
Revenues: |
||||||||||
Rental revenues |
$ | 206,910 | $ | 240,362 | 16.2 | |||||
Equipment sales |
20,210 | 17,355 | (14.1 | ) | ||||||
Parts and service |
9,642 | 10,125 | 5.0 | |||||||
| | | | | | | | | | |
Total revenues |
236,762 | 267,842 | 13.1 | |||||||
| | | | | | | | | | |
Cost of revenues: |
||||||||||
Cost of equipment sold |
11,685 | 9,877 | (15.5 | ) | ||||||
Depreciation of rental equipment |
52,606 | 54,831 | 4.2 | |||||||
Cost of rental revenues |
54,943 | 59,669 | 8.6 | |||||||
Cost of parts and service |
5,808 | 6,158 | 6.0 | |||||||
| | | | | | | | | | |
Total cost of revenues |
125,042 | 130,535 | 4.4 | |||||||
| | | | | | | | | | |
Gross profit |
111,720 | 137,307 | 22.9 | |||||||
| | | | | | | | | | |
Other operating expenses: |
||||||||||
Selling, general and administrative expenses |
58,540 | 61,453 | 5.0 | |||||||
Other depreciation and amortization |
6,826 | 7,149 | 4.7 | |||||||
Transaction bonus |
| 24,506 | nm | |||||||
| | | | | | | | | | |
Total other operating expenses |
65,366 | 93,108 | 42.4 | |||||||
| | | | | | | | | | |
Income from operations |
46,354 | 44,199 | (4.6 | ) | ||||||
| | | | | | | | | | |
Other expenses: |
||||||||||
Interest expense |
18,257 | 28,313 | 55.1 | |||||||
Loss on extinguishment of debt |
| 15,896 | nm | |||||||
Amortization of debt issue costs |
1,217 | 2,695 | nm | |||||||
| | | | | | | | | | |
Total other expenses |
19,474 | 46,904 | nm | |||||||
| | | | | | | | | | |
Income (loss) before income taxes |
26,880 | (2,705 | ) | nm | ||||||
(Provision for) benefit from income taxes |
(352 | ) | 4,610 | nm | ||||||
| | | | | | | | | | |
Net income |
$ | 26,528 | $ | 1,905 | (92.8 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
"nm"means not meaningful
Total Revenues. Total revenues for the nine months ended September 30, 2014 increased 13.1% to $267.8 million from $236.8 million for the nine months ended September 30, 2013. The components of our revenues are rental revenues, equipment sales, and parts and service, and the changes between periods in each of these components are discussed below.
Rental Revenues. Rental revenues for the nine months ended September 30, 2014 increased 16.2% to $240.4 million from $206.9 million for the nine months ended September 30, 2013. Approximately half of the increase in rental revenues was due to an increase in the amount of equipment on rent as a result of an increase in the size of our rental fleet, partially offset by a modest decline in the time utilization of the larger fleet. The remaining portion of the increase was attributable to an increase in rental rates. For the nine months ended September 30, 2014, the average OEC of our rental fleet increased by 13.2% to $678.8 million from $599.4 million at September 30,
73
2013, as a result of increased capital expenditures. For the nine months ended September 30, 2014, we estimate that our rental rates increased 7.0%, driven by stronger economic conditions. Time utilization for the nine months ended September 30, 2014 decreased slightly to 70.5% from 71.1% for the nine months ended September 30, 2013.
Equipment Sales. Equipment sales for the nine months ended September 30, 2014 decreased 14.1% to $17.4 million from $20.2 million for the nine months ended September 30, 2013. The decrease in equipment sales revenues was primarily due to lower volume of sales of used equipment.
Parts and Service. Revenues from the sales of parts and service for the nine months ended September 30, 2014 increased 5.0% to $10.1 million from $9.6 million for the nine months ended September 30, 2013. The increase in these revenues for the nine months ended September 30, 2014 was primarily due to increased fuel costs charged to customers as a result of the increase in the amount of equipment on rent.
Cost of Equipment Sold. Costs associated with the sale of rental equipment decreased 15.5% to $9.9 million for the nine months ended September 30, 2014 from $11.7 million for the nine months ended September 30, 2013. The decrease in costs associated with the sale of rental equipment was due primarily to the lower volume of equipment sold during the nine months ended September 30, 2014.
Depreciation of Rental Equipment. Depreciation of rental equipment increased 4.2% to $54.8 million for the nine months ended September 30, 2014 from $52.6 million for the nine months ended September 30, 2013. The increased depreciation expense of rental equipment was primarily due to the increase in the number of units in our rental fleet and the related increase in the cost of our rental equipment. As a percentage of rental revenues, depreciation of rental equipment decreased to 22.8% for the nine months ended September 30, 2014 from 25.4% for the nine months ended September 30, 2013. This decrease was primarily attributable to the increase in comparative rental revenues, since depreciation expense is more closely correlated to the size of the rental fleet and does not necessarily increase at the same rate as the increase in rental revenue.
Cost of Rental Revenues. Costs associated with our rental revenues increased 8.6% to $59.7 million for the nine months ended September 30, 2014 from $54.9 million for the nine months ended September 30, 2013. The increase in cost of rental revenues was primarily a result of increased payroll and payroll related expenses and increased equipment repair costs due primarily to higher rental volume. As a percentage of rental revenues, cost of rental revenues decreased to 24.8% for the nine months ended September 30, 2014 from 26.6% for the nine months ended September 30, 2013. This decrease was primarily attributable to the increase in comparative rental revenues, since cost of rental revenues includes costs that are more fixed in nature and do not necessarily increase at the same rate as the increase in rental revenue.
Cost of Parts and Service. Costs associated with generating our parts and service revenues increased 6.0% to $6.2 million for the nine months ended September 30, 2014 from $5.8 million for the nine months ended September 30, 2013 due primarily to increased fuel costs.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the nine months ended September 30, 2014 increased $3.0 million, or 5.0%, to $61.5 million from $58.5 million for the nine months ended September 30, 2013. The net increase in selling, general and administrative expenses was attributable to several factors. Employee salaries, benefits and related employee expenses increased $2.2 million primarily as a result of higher salaries, wages and payroll taxes and increased commissions and incentive pay that resulted from higher rental revenues and improved results. Software licensing costs increased by $0.3 million and provision for bad debt expense increased by $0.6 million. As a percentage of total revenues, selling, general and administrative expenses were 22.9% for the nine months
74
ended September 30, 2014, a decrease of 7.3% from 24.7% for the nine months ended September 30, 2013, primarily as a result of the current year increase in total revenues.
Other Depreciation and Amortization. Other depreciation and amortization expense increased slightly to $7.1 million for the nine months ended September 30, 2014 from $6.8 million for the nine months ended September 30, 2013.
Transaction Bonus. Transaction bonus expense for the nine months ended September 30, 2014 was $24.5 million. This amount reflects payments made in connection with the consummation of the Refinancing on June 9, 2014. There was no transaction bonus for the nine months ended September 30, 2013. See "Financial HighlightsRefinancing."
Interest Expense. Interest expense for the nine months ended September 30, 2014 increased 55.1% to $28.3 million from $18.3 million for the nine months ended September 30, 2013. The increase in interest expense was primarily due to the Refinancing. On June 9, 2014, in connection with the Refinancing, we redeemed $200.0 million of our Senior Secured Notes, which accrued interest at 9.6% per annum, with the proceeds of our $575.0 million Second Lien Loan, which effectively accrues interest at 7.3% per annum. The net increase in annualized interest expense between the Senior Secured Notes and the Second Lien Loan is approximately $22.4 million, but because the Refinancing occurred very near the end of quarter two it affected interest expense for approximately three months of the nine months ended September 30, 2014. See "Financial HighlightsRefinancing."
Loss on Extinguishment of Debt. Loss on extinguishment of debt was $15.9 million for the nine months ended September 30, 2014. The loss on extinguishment of debt included the write-off of $8.7 million in unamortized debt issue costs on the Senior Secured Notes, as well as $7.2 million paid in call premiums, paid in connection with the redemption of the Senior Secured Notes. There was no loss on extinguishment of debt for the nine months ended September 30, 2013.
Amortization of Debt Issue Costs. Amortization of debt issue costs for the nine months ended September 30, 2014 increased to $2.7 million from $1.2 million for the nine months ended September 30, 2013. The increase in amortization of debt issue costs was primarily due to consent fees paid in November 2013 relating to amendments to our Revolving Credit Facility and the Senior Secured Notes.
75
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
The following table illustrates our operating activity for the years ended December 31, 2013 and 2012.
|
For the Year Ended December 31, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2013 | % Change | |||||||
|
(in thousands of dollars) |
|
||||||||
Revenues: |
||||||||||
Rental revenues |
$ | 234,609 | $ | 281,038 | 19.8 | |||||
Equipment sales |
44,828 | 33,487 | (25.3 | ) | ||||||
Parts and service |
11,540 | 12,682 | 9.9 | |||||||
| | | | | | | | | | |
Total revenues |
290,977 | 327,207 | 12.5 | |||||||
| | | | | | | | | | |
Cost of revenues: |
||||||||||
Cost of equipment sold |
25,528 | 19,204 | (24.8 | ) | ||||||
Depreciation of rental equipment |
66,017 | 70,768 | 7.2 | |||||||
Cost of rental revenues |
69,337 | 74,482 | 7.4 | |||||||
Cost of parts and service |
6,982 | 7,677 | 10.0 | |||||||
| | | | | | | | | | |
Total cost of revenues |
167,864 | 172,131 | 2.5 | |||||||
| | | | | | | | | | |
Gross profit |
123,113 | 155,076 | 26.0 | |||||||
| | | | | | | | | | |
Other operating expenses: |
||||||||||
Selling, general and administrative expenses |
71,621 | 78,617 | 9.8 | |||||||
Other depreciation and amortization |
9,041 | 8,968 | (0.8 | ) | ||||||
| | | | | | | | | | |
Total other operating expenses |
80,662 | 87,585 | 8.6 | |||||||
| | | | | | | | | | |
Income from operations |
42,451 | 67,491 | 59.0 | |||||||
| | | | | | | | | | |
Other expenses: |
||||||||||
Interest expense |
23,221 | 24,598 | 5.9 | |||||||
Loss on interest rate swaps |
102 | | nm | |||||||
Amortization of debt issue costs |
1,461 | 1,929 | 32.0 | |||||||
| | | | | | | | | | |
Total other expenses |
24,784 | 26,527 | 7.0 | |||||||
| | | | | | | | | | |
Income before income taxes |
17,667 | 40,964 | 131.9 | |||||||
Provision for income taxes |
(159 | ) | (471 | ) | nm | |||||
| | | | | | | | | | |
Net income |
$ | 17,508 | $ | 40,493 | 131.3 | |||||
| | | | | | | | | | |
| | | | | | | | | | |
"nm"means not meaningful
Total Revenues. Total revenues for the year ended December 31, 2013 increased 12.5% to $327.2 million from $291.0 million for the year ended December 31, 2012. The components of our total revenues are rental revenues, equipment sales and parts and service, and the changes between periods in each of these components are discussed below.
Rental Revenues. Rental revenues for the year ended December 31, 2013 increased 19.8% to $281.0 million from $234.6 million for the year ended December 31, 2012. The most significant factors driving the increase in rental revenues, combining to contribute approximately 60% of the year-over-year increase in rental revenues, were an increase in the amount of equipment on rent, as a result of an increase in the size of our rental fleet, and an increase in the time utilization of our larger fleet. The remainder of the increase in rental revenues was attributable to an increase in rental rates, which contributed approximately 40% of the year-over-year increase in rental revenues. For the year ended December 31, 2013, the average OEC, including cost of equipment under lease, of our rental fleet increased by 15.0% to $606.6 million at December 31, 2013 from $527.3 million at December 31, 2012, as a result of increased capital expenditures. Time utilization for the year ended December 31, 2013
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increased 3.2% to 70.9% from 68.7% for the year ended December 31, 2012. For the year ended December 31, 2013, we estimate that our rental rates increased 6.4%, driven by stronger economic conditions and an increase in demand for equipment in certain key regions in which we operate.
Equipment Sales. Equipment sales for the year ended December 31, 2013 decreased 25.3% to $33.5 million from $44.8 million for the year ended December 31, 2012. The decrease in equipment sales revenues was primarily due to lower volume of sales of used equipment.
Parts and Service. Revenues from the sales of parts and service for the year ended December 31, 2013 increased 9.9% to $12.7 million from $11.5 million for the year ended December 31, 2012. The increase in these revenues for the year ended December 31, 2013, was primarily due to increased parts and supplies charged to customers for the year ended December 31, 2013 as a result of the increase in the amount of equipment on rent.
Cost of Equipment Sold. Costs associated with the sale of rental equipment decreased 24.8% to $19.2 million for the year ended December 31, 2013 from $25.5 million for the year ended December 31, 2012. The decrease in costs associated with the sale of rental equipment was due primarily to the decrease in volume of equipment sales.
Depreciation of Rental Equipment. Depreciation of rental equipment increased 7.2% to $70.8 million for the year ended December 31, 2013 from $66.0 million for the year ended December 31, 2012. The increased depreciation expense of rental equipment was primarily due to the increase in the number of units in our rental fleet and the related increase in the cost of our rental fleet. As a percentage of rental revenues, depreciation of rental equipment decreased to 25.2% for the year ended December 31, 2013 from 28.1% for the year ended December 31, 2012. This decrease was primarily attributable to the increase in comparative rental revenues, since depreciation expense is more closely correlated to the size of the rental fleet and does not necessarily increase at the same rate as the increase in rental revenue.
Cost of Rental Revenues. Costs associated with our rental revenues increased 7.4% to $74.5 million for the year ended December 31, 2013 from $69.3 million for the year ended December 31, 2012. The increase in cost of rental revenues was primarily a result of increased rental split expense, increased payroll and payroll related expenses and increased equipment repair costs due primarily to higher amounts of equipment on rent. As a percentage of rental revenues, cost of rental revenues decreased to 26.5% for the year ended December 31, 2013 from 29.6% for the year ended December 31, 2012. This decrease was primarily attributable to the increase in comparative rental revenues, since cost of rental revenues includes costs that are more fixed in nature and do not necessarily increase at the same rate as the increase in rental revenue.
Cost of Parts and Service. Costs associated with generating our parts and service revenues increased 10.0% to $7.7 million for the year ended December 31, 2013 from $7.0 million for the year ended December 31, 2012. The increase in cost of parts and service was primarily due to the increase in parts and service charged to customers.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $7.0 million, or 9.8%, to $78.6 million for the year ended December 31, 2013 from $71.6 million for the year ended December 31, 2012. The net increase in selling, general and administrative expenses was attributable to several factors. Employee salaries, benefits and related employee expenses increased $4.6 million primarily as a result of higher salaries, wages and payroll taxes and increased commissions and incentive pay that resulted from higher rental revenues and improved results. Personal property taxes increased $0.5 million and software licensing costs increased by $0.4 million. As a percentage of total revenues, selling, general and administrative expenses were 24.0% for the year ended December 31, 2013, a decrease from 24.6% for the same period in 2012, primarily as a result of the current year increase in total revenues.
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Other Depreciation and Amortization. Other depreciation (which relates to non-rental property, plant and equipment) and amortization expense for the year ended December 31, 2013 decreased slightly to $9.0 million.
Interest Expense. Interest expense for the year ended December 31, 2013 increased 5.9%, to $24.6 million from $23.2 million for the year ended December 31, 2012. The increase in interest expense was primarily due to an increase in outstanding balances on our Revolving Credit Facility.
Loss on Interest Rate Swaps. On January 4, 2013, we made the final scheduled semiannual net payment of approximately $2.5 million. No gain or loss was recorded on interest rate swaps for the year ended December 31, 2013.
Amortization of Debt Issue Costs. Amortization of debt issue costs for the year ended December 31, 2013 increased 32.0%, to $1.9 million from $1.5 million for the year ended December 31, 2012. The increase in amortization of debt issue costs was primarily due to consent fees paid in November 2013 relating to amendments to our Revolving Credit Facility and the Senior Secured Notes.
Liquidity and Capital Resources
Overview
Our principal needs for liquidity historically have been the purchase of rental fleet equipment, other capital expenditures, including funding start-up costs for new branch locations, and debt service. These will be our principal liquidity needs going forward, in addition to payments under the Tax Receivable Agreement.
Our largest use of liquidity has been and will continue to be the acquisition of equipment for our rental fleet. Our large rental fleet requires a substantial ongoing commitment of capital. While we can manage the size and aging of our fleet generally over time, eventually we must retire older equipment and either allow our fleet to shrink or replace the older equipment in our fleet with newer models. For the years ended December 31, 2012 and 2013, our net rental equipment capital expenditures totaled approximately $114.9 million and $111.9 million, respectively. We expect net rental equipment capital expenditures for the full years 2014 and 2015 to be similar. We have historically financed these net additions to our rental fleet using cash flow from operations and borrowings under our Revolving Credit Facility, and we expect that to continue in the future.
We also use our liquidity to finance other non-rental equipment capital expenditures, typically consisting of property, plant and equipment and funding start-up costs for new branch locations. The liquidity required to open a new branch location typically ranges from $5.0 million to $10.0 million, the majority of which consists of acquisitions of rental fleet equipment for the new branch location. For each of the years ended December 31, 2012 and 2013, our net other capital expenditures totaled approximately $11.0 million, respectively. We expect net other capital expenditures for the full years 2014 and 2015 to be similar. We have historically financed these net other capital expenditures using cash flow from operations and borrowings under our Revolving Credit Facility, and we expect that to continue in the future.
Under the terms of our Second Lien Loan as of September 30, 2014, we are not required to make principal payments prior to the stated maturity of June 9, 2021. After giving effect to this offering and the use of proceeds therefrom as described above under "Use of Proceeds," our pro forma annual interest expense (including amortization of original issue discount incurred in connection with our Second Lien Loan and amortization of debt issue costs) would be $42.1 million in fiscal 2014 and we expect a similar level of interest expense in fiscal 2015. We expect to finance our debt service going forward, which will consist primarily of interest payments, out of cash flow from operations.
We will use liquidity going forward to make payments under the Tax Receivable Agreement. We expect these payments to be approximately $5.1 million for the year ending December 31, 2014 and from
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$15.0 million to $18.0 million for the year ending December 31, 2015. However, the actual payments under the Tax Receivable Agreement will vary depending on a number of factors. For a discussion of these factors and the Tax Receivable Agreement, see "Certain Relationships and Related Party TransactionsTax Receivable Agreement."
As of September 30, 2014, our principal sources of liquidity consisted of $2.0 million of cash and cash equivalents and availability of $103.3 million under our Revolving Credit Facility. As of September 30, 2014, on a pro forma basis after giving effect to this offering and the application of the proceeds therefrom, including to repay $40 million of borrowings under our Revolving Credit Facility and prepay $105.4 million of outstanding Second Lien Loans, we would have had outstanding indebtedness of $744.3 million, cash and cash equivalents of $2.0 million and availability of approximately $143.3 million under our Revolving Credit Facility, subject to customary borrowing conditions. We believe that our cash flow from operations, available cash and cash equivalents and available borrowing capacity under the Revolving Credit Facility will be sufficient to meet our liquidity needs for at least the next 12 months.
To the extent we require additional liquidity, we anticipate that it will be funded through the incurrence of other indebtedness (which may include capital markets indebtedness, the incremental facility under the credit agreement for the Second Lien Loan or indebtedness under other credit facilities), equity financings or a combination thereof. Although we have no specific current plans to do so, if we decide to pursue one or more significant acquisitions, we may incur additional debt or sell additional equity to finance such acquisitions.
Cash Flows for the Nine Months Ended September 30, 2014 and 2013
During the nine months ended September 30, 2014, our operating activities provided net cash flow of $68.4 million as compared to $86.5 million for the nine months ended September 30, 2013. The decrease in cash flows from operating activities was due primarily to the payments to certain management and independent members of the board of directors which totaled $24.5 million. The decrease was also partially attributable to decreases in working capital.
Cash used in investing activities was $130.3 million for the nine months ended September 30, 2014 as compared to $118.2 million for the nine months ended September 30, 2013. Cash used for the purchase of rental equipment was $135.9 million for the nine months ended September 30, 2014, compared to $124.7 million for the nine months ended September 30, 2013. We received $17.4 million in cash proceeds from the sale of equipment for the nine months ended September 30, 2014 compared to $20.2 million for the nine months ended September 30, 2013.
Net cash provided by financing activities was $63.8 million for the nine months ended September 30, 2014, compared to $31.4 million for the nine months ended September 30, 2013. As part of the Refinancing, we received $572.1 million in net proceeds from the Second Lien Loan which was offset partially by prepayment of our Senior Secured Notes totaling $207.2 million (including call premiums), payment of a $329.9 million distribution in June 2014 and other refinancing related fees and expenses. The remaining change in cash from financing activities was primarily due to cash provided by the Revolving Credit Facility needed for equipment purchases for the nine months ended September 30, 2013.
Cash Flows for the Years Ended December 31, 2013 and 2012
During the year ended December 31, 2013, our operating activities provided net cash flow of $108.4 million as compared to $68.3 million for the year ended December 31, 2012. The increase is attributable primarily to increases in net income and working capital in 2013 as compared to the prior year.
Cash used in investing activities was $125.3 million for the year ended December 31, 2013 as compared to $131.0 million for the year ended December 31, 2012. Cash used for the purchase of rental equipment was $144.5 million for the year ended December 31, 2013, compared to $159.2 million for the
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year ended December 31, 2012. We received $33.5 million in cash proceeds from the sale of equipment for the year ended December 31, 2013 compared to $44.8 million for the year ended December 31, 2012.
Net cash provided by financing activities was $16.5 million for the year ended December 31, 2013, compared to $63.1 million for the year ended December 31, 2012. The change in cash provided by financing activities was primarily due to a return in capital to members of Neff Holdings partially offset by an increase in borrowings under the Revolving Credit Facility. See "Financial HighlightsRefinancing."
Revolving Credit Facility
Certain of our subsidiaries entered into the Revolving Credit Facility with Bank of America, N.A. as agent, swing line lender and letter of credit issuer, Bank of America, N.A. and Wells Fargo Capital Finance, LLC as co-collateral agents and a syndicate of other banks and financial institutions on October 1, 2010. The Revolving Credit Facility was amended and restated on November 20, 2013, and further amended on June 9, 2014 as part of the Refinancing.
The Revolving Credit Facility provides $425.0 million in commitments for revolving borrowings, including a $30.0 million sub-limit for the issuance of letters of credit, and a $42.5 million sub-limit for swing-line loans, subject to certain availability conditions. The aggregate amount of all borrowings available to us under the Revolving Credit Facility is the lesser of the aggregate commitments and the "borrowing base", which is a formula that applies certain advance rates against our eligible accounts receivable and our eligible rental equipment and, as a result of which, could result in us not being able to borrow all of the available commitments at any given time. As of September 30, 2014, the borrowing base under the Revolving Credit Facility was $425.0 million. The Revolving Credit Facility matures on November 20, 2018. Borrowings under the Revolving Credit Facility bear interest, at our option, at either a LIBOR rate or base rate, in each case plus an applicable margin. LIBOR loans bear interest at the LIBOR rate plus 250 basis points and base rate loans bear interest at the sum of (a) 150 basis points plus (b) the greatest of (i) the prime rate, (ii) the federal funds rate plus 50 basis points and (iii) LIBOR plus 100 basis points. The applicable margin for LIBOR loans and base rate loans will be subject to quarterly performance pricing adjustments based on our average availability and our consolidated total leverage ratio under the Revolving Credit Facility for the most recently completed quarter. The Revolving Credit Facility provides for the payment to the lenders of an unused line fee of 0.50% if less than 33% of the daily average unused portion under the Revolving Credit Facility is utilized, 0.375% if less than 66% but at least 33% is utilized, and 0.25% if 66% or more is utilized. The unused line fee is payable on the daily average unused portion of the commitments under the Revolving Credit Facility (whether or not then available).
Neff Holdings and each of its subsidiaries is a borrower or a credit party under the Revolving Credit Facility. Neff Corporation is not a party to the Revolving Credit Facility. The Revolving Credit Facility is secured by first-priority liens on substantially all of the assets of the borrower and the guarantors. The credit agreement for the Revolving Credit Facility contains customary restrictive covenants applicable to each credit party, including, among others, restrictions on the ability to incur additional indebtedness, create liens, make investments and declare or pay dividends. In addition, the Revolving Credit Facility contains financial covenants, applicable at any time excess availability is less than the greater of $35.0 million and 10% of the aggregate commitments of all lenders, or $42.5 million as of September 30, 2014, which require us to maintain (i) a consolidated total leverage ratio of not more than 4.50 to 1.00 from May 1, 2011 to June 9, 2014, 5.95 to 1.00 for each fiscal quarter ended during the period from June 9, 2014 through and including June 30, 2014, stepping down to 5.75 to 1.00 for each fiscal quarter ended during the period from July 1, 2014 through and including December 31, 2014, stepping down to 5.50 to 1.00 for each fiscal quarter ended during the period from January 1, 2015 through and including June 30, 2015, stepping down to 5.25 to 1.00 for each fiscal quarter ended during the period from July 1, 2015 through and including September 30, 2015, stepping down to 5.00 to 1.00 for each fiscal quarter ended during the period from October 1, 2015 through and including December 31, 2015, stepping down to 4.75 to 1.00 for each fiscal quarter ended during the period from January 1, 2016 through and including June 30, 2016,
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stepping down to 4.50 to 1.00 for each fiscal quarter ended during the period from September 30, 2016 and thereafter, and (ii) a fixed charge coverage ratio of not less than 1.00 to 1.00, in each case, until such time as excess availability exceeds the threshold described above for a period of at least 30 consecutive days. As of September 30, 2014, we had availability under the Revolving Credit Facility of $103.3 million and were in compliance with the applicable covenants in the Revolving Credit Facility. However, the financial covenants in the Revolving Credit Facility would have prohibited us from borrowing in excess of $60.8 million as of September 30, 2014, on an actual basis, and $100.8 million on a pro forma basis after giving effect to this offering and the application of net proceeds therefrom. For additional information regarding the Revolving Credit Facility, see "Description of Certain IndebtednessThe Revolving Credit Facility."
We have entered into an amendment to our Revolving Credit Facility conditioned on the consummation of this offering to, among other things, reflect the changes in our structure as a result of the Organizational Transactions. We intend to repay approximately $40.0 million of our borrowings under the Revolving Credit Facility with the net proceeds of this offering. See "Use of Proceeds."
Second Lien Loan
Our subsidiary, Neff Rental LLC, incurred the Second Lien Loan under a senior secured credit facility with Credit Suisse AG, as administrative agent and collateral agent, and the other lenders and agents thereto, on June 9, 2014. The credit agreement for the Second Lien Loan provides for (a) a $575.0 million term loan facility, all of which was drawn on June 9, 2014, and (b) an uncommitted incremental term loan facility not to exceed (together with any incremental equivalent debt) $75.0 million plus additional amounts that may be incurred subject to a pro forma total leverage ratio of 5.25:1.00 and certain other customary conditions. The Second Lien Loan matures on June 9, 2021. The Second Lien Loan bears interest, at our option, at either a LIBOR rate or base rate, in each case plus an applicable margin. LIBOR loans bear interest at the LIBOR rate plus 625 basis points and base rate loans bear interest at the sum of (a) 525 basis points plus (b) the greatest of (i) the prime rate, (ii) the federal funds rate plus 50 basis points and (iii) LIBOR plus 100 basis points. The LIBOR rate margin is subject to a "floor" of 100 basis points. We generally elect the LIBOR rate, and given LIBOR currently is less than 1.00%, our interest rate as of September 30, 2014 under the Second Lien Loan was 7.25% per annum. We must make mandatory prepayments of principal on the Second Lien Loan if our total leverage ratio for any fiscal year, commencing with the fiscal year ending December 15, 2015, exceeds 3.00 to 1.00. These prepayment provisions require us to prepay an amount equal to (i) either 25% of our excess cash flow (if our total leverage ratio is equal to or less than 4.00 to 1.00 but greater than 3.00 to 1.00) or 50% of our excess cash flow (if our total leverage ratio is greater than 4.00 to 1.00) over (ii) the optional prepayment amount for such excess cash flow period.
Neff Holdings and each of its subsidiaries is a borrower or a credit party under the Second Lien Loan. Neff Corporation is not a party to the Second Lien Loan. The Second Lien Loan is secured by second-priority liens on substantially all of the assets of the borrower and the guarantors. The credit agreement for the Second Lien Loan contains customary incurrence-based restrictive covenants applicable to each credit party, including, among other things, restrictions on the ability to incur additional indebtedness, create liens, make investments and declare or pay dividends. For additional information regarding the Second Lien Loan, see "Description of Certain IndebtednessThe Second Lien Loan Facility."
We have entered into an amendment to our Second Lien Loan conditioned on the consummation of this offering to, among other things, reflect the changes in our structure as a result of the Organizational Transactions. We intend to prepay approximately $105.4 million of the principal amount of the Second Lien Loan with the net proceeds of this offering and pay approximately $2.2 million in prepayment premiums in connection with that prepayment. See "Use of Proceeds."
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Certain Information Concerning Off-Balance Sheet Arrangements
As part of our on-going business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of September 30, 2014, we are not involved in any variable interest entities transactions and do not otherwise have any off-balance sheet arrangements.
In the normal course of our business activities, we lease real estate for our headquarters and branch locations and we may from time to time lease rental equipment and non-rental equipment under operating leases. See "Contractual and Commercial Commitments" below.
Contractual and Commercial Commitments
Our contractual obligations and commercial commitments principally include obligations associated with our outstanding indebtedness and interest payments. The following table summarizes our contractual and commercial obligations at December 31, 2013 on an actual basis:
|
Payments Due by Year | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Total | 2014 | 2015-2016 | 2017-2018 | Thereafter | |||||||||||
|
(in thousands of dollars) |
|||||||||||||||
Revolving Credit Facility(1) |
$ | 279,200 | $ | | $ | 279,200 | $ | | $ | | ||||||
Interest on Revolving Credit Facility(2) |
16,938 | 7,818 | 9,121 | | | |||||||||||
Senior Secured Notes(3) |
200,000 | | 200,000 | | | |||||||||||
Interest on Senior Secured Notes(2) |
46,521 | 19,250 | 27,271 | | | |||||||||||
Second Lien Loan(4) |
| | | | | |||||||||||
Interest on Second Lien Loan(2) |
| | | | | |||||||||||
Operating leases(5) |
21,451 | 6,246 | 8,333 | 4,800 | 2,072 | |||||||||||
| | | | | | | | | | | | | | | | |
Total contractual cash obligations |
$ | 564,110 | $ | 33,314 | $ | 523,925 | $ | 4,800 | $ | 2,072 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
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From time to time we may also enter into capital leases with respect to equipment, but as of December 31, 2013 and September 30, 2014 we did not have any capital leases. In addition, after this offering from time to time we may accrue contractual payment obligations under the Tax Receivable Agreement. See "Certain Relationships and Related Party TransactionsTax Receivable Agreement."
Quantitative and Qualitative Disclosures about Market Risk
We are subject to interest rate risk in connection with our long-term indebtedness. Our principal interest rate exposure relates to loans outstanding under our Revolving Credit Facility and Second Lien Loan. All outstanding indebtedness under the Revolving Credit Facility and Second Lien Loan bears interest at a variable rate based on LIBOR. Each quarter point change in interest rates on the variable portion of indebtedness under our Revolving Credit Facility and Second Lien Loan would result in a change of $0.8 million and $1.4 million, respectively, to our interest expense on an annual basis.
Inflation
Although we cannot accurately anticipate the effect of inflation on our operations, we believe that inflation has not had for the three most recent fiscal years ended, and is not likely in the foreseeable future to have, a material impact on our results of operations.
Critical Accounting Policies and Estimates
This "Management's Discussion and Analysis of Financial Condition and Results of Operations" discusses our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the 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. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, intangible assets, income taxes, self-insurance, contingencies and reserves for claims. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about operating results and the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies, among others, involve its more significant estimates and judgments and are therefore particularly important to an understanding of our results of operations and financial position.
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Valuation of Accounts Receivable
We evaluate the collectability of our receivables based on a combination of factors. We regularly analyze our customer accounts. When we become aware of a specific customer's inability to meet its financial obligations to us, such as in the case of bankruptcy or deterioration in the customer's operating results or financial position, we record a specific reserve for bad debt to reduce the related receivable to the amount we reasonably believe is collectible. We also record reserves for bad debt for all other customers based on a variety of factors including the length of time the receivables are past due, the financial health of the customer, macroeconomic considerations and historical experience. If circumstances related to specific customers change, we may determine that an increase to the reserve is required. Additionally, if actual collections of accounts receivable differ from the estimates we used to determine our reserve, we will increase or decrease, as applicable, the reserve through charges or credits to selling, general and administrative expenses in the consolidated statement of operations for the period in which such changes in collection become known. If conditions change in future periods, additional reserves or reversals may be required.
Useful Lives and Salvage Value of Rental Equipment
Rental equipment is initially recorded at cost and is stated less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful life of the related equipment (generally two to eight years with estimated 10-20% residual values).
We routinely review the assumptions utilized in computing rates of depreciation of our rental equipment. Changes to the assumptions (such as the length of service lives and/or the amount of residual values) are made when, in the opinion of management, such changes are necessary to more appropriately allocate asset costs to operations over the service life of the assets. Management utilizes, among other factors, historical experience and industry comparisons in determining the propriety of any such changes. We may be required to change these estimates based on changes in our industry, end-markets or other circumstances. If these estimates change in the future, we may be required to recognize increased or decreased depreciation expense for these assets.
Goodwill and Intangibles with Indefinite Useful Lives
Goodwill represents the excess of cost over the fair value of identifiable net assets of businesses acquired.
Goodwill is not amortized, but instead is reviewed for impairment annually, or more frequently if events indicate a decline in fair value below its carrying value. To perform an impairment test we must first determine whether the fair value of the goodwill is at least equal to the recorded value on our balance sheet. If the fair value of the goodwill is less than the recorded value, we are required to write-off the excess goodwill as an operating expense.
Neff Holdings performs its goodwill impairment testing annually. We tested our goodwill on October 1 of 2013, 2012 and 2011 and in each case determined that the estimated fair value of Neff Holdings' reporting unit was substantially in excess of its carrying value and our goodwill was not impaired at any such time.
Neff Holdings uses an equally weighted combination of the income and market approaches to determine the fair value of its reporting unit when performing its impairment test of goodwill. Neff Holdings assigns an equal weight to the respective methods as they are both acceptable valuation approaches in determining the fair value of a business.
The income approach establishes fair value by methods which discount or capitalize earnings and/or cash flow by a discount or capitalization rate that reflects market rate of return expectations, market conditions and the risk of the relative investment. Neff Holdings uses a discounted cash flow method when
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applying the income approach. The market approach establishes fair value by comparing Neff Holdings to publicly traded companies or by analyzing actual transactions of similar businesses.
Neff Holdings' trademarks and tradenames are intangible assets with indefinite useful lives. Neff Holdings tests its trademarks and tradenames using the royalty savings method for impairment at least annually or as of an interim date if circumstances suggest that assets may be impaired. The fair value of the trademarks and tradenames is measured using a multi-period royalty savings method which includes inputs such as revenue, a royalty rate and a discount rate, to reflect the savings realized by owning the trademarks and tradenames, and thus not having to pay a royalty fee to a third party. Neff Holdings' expenses costs to renew or extend the term of a recognized intangible asset.
Valuation of Long-Lived Assets and Intangibles with Finite Useful Lives
Long-lived assets on our balance sheet consist primarily of rental equipment, property and equipment and customer list. We periodically review the carrying value of all of these assets. Long-lived assets and intangibles with finite useful lives are evaluated for impairment if events or circumstances suggest that assets may be impaired. An assessment of recoverability is performed prior to any write-down of assets based on the undiscounted cash flows of the assets. An impairment charge is recorded on those assets considered impaired for which the estimated fair value is below the carrying amount. While we believe that the estimates we use to value these assets are reasonable, different assumptions regarding items such as future cash flows and the volatility inherent in markets which we serve could affect our evaluations and result in impairment charges against the carrying value of these assets. Any impairment charge that we record would reduce our earnings.
There were no events or circumstances that triggered an impairment test for Neff Holdings long-lived assets and intangibles with finite useful lives at September 30, 2014 and December 31, 2013.
Income Taxes
Neff Holdings is a limited liability company that is treated as a partnership for U.S. federal income tax purposes. Neff Holdings is not subject to entity-level U.S. federal income taxes. Rather, taxable income or loss is included in the U.S. federal income tax returns of Neff Holdings' members.
At September 30, 2014 and December 31, 2013, the amount of uncertain tax positions was approximately $1.6 million and $4.8 million, respectively. The uncertain tax positions relate solely to tax positions taken by our Prior Predecessor prior to the Acquisition, and are recorded in accrued expenses and other liabilities. Our practice is to recognize interest and penalties on uncertain tax positions in income tax expense. In addition, we have accrued interest and penalties of $0.9 million and $2.3 million as of September 30, 2014 and December 31, 2013, respectively, which is also recorded in accrued expenses and other liabilities.
Equity-Based Compensation
Unless we otherwise indicate, the fair value of all equity-based compensation granted is estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used in this model are expected life, expected level of forfeitures, risk free interest rate, expected volatility and expected dividends.
Reserve for Claims
We are exposed to various claims relating to our business. These may include claims relating to motor vehicle accidents involving our delivery and service personnel, employment related claims and claims relating to personal injury or death caused by equipment rented or sold. We establish reserves for reported claims that are asserted against us and the claims that we believe have been incurred but not reported.
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These reserves reflect our estimates of the amounts that we will be required to pay in connection with these claims, net of insurance recoveries. Our estimate of reserves is based on an actuarial reserve analysis that takes into consideration the probability of losses and our historical payment experience related to claims settlements. These estimates may change based on, among other things, changes in our claims history or receipt of additional information relevant to assessing the claims. Accordingly, we may increase or decrease our reserves for claims, and such changes could be significant.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), which provides guidance on recognizing revenue. The guidance includes steps an entity should apply to achieve the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual and interim reporting periods beginning after December 15, 2016. Early adoption is not permitted. We expect to adopt ASU 2014-09 when effective, and the impact on our financial statements is not currently estimable. There are no other recently issued accounting pronouncements that are expected to affect our financial reporting.
JOBS Act Accounting Election
We are an "emerging growth company," as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected to avail ourselves of this exemption from adopting new or revised accounting standards and, therefore, will not be subject to new or revised accounting standards until such time as those standards apply to private companies.
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Our Company
We are a leading regional equipment rental company in the United States, focused on the fast-growing Sunbelt states. We offer a broad array of equipment rental solutions for our diverse customer base, including non-residential construction, oil and gas and residential construction customers. Our broad fleet of equipment includes earthmoving, material handling, aerial and other rental equipment, which we package together to meet the specific needs of our customers. We consider the earthmoving equipment category to be a core competency of our Company and a key differentiator of our business. We believe that the earthmoving equipment category offers a return on investment and future growth prospects that are among the strongest in the equipment rental industry.
Our Predecessor, Neff Holdings was formed as a limited liability company on May 12, 2010 to acquire the assets and operations of our Prior Predecessor. On May 16, 2010, our Prior Predecessor filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. Our Prior Predecessor's plan of reorganization went effective on October 1, 2010. Pursuant to the plan of reorganization approved by the bankruptcy court, substantially all of the Prior Predecessor's assets were acquired by Neff Holdings and its subsidiaries (entities formed by Wayzata to acquire our Prior Predecessor's assets in the bankruptcy proceeding).
Our Branch Network and Fleet
As of September 30, 2014, we operated 64 branches organized into operating clusters in five regions in the United States: Florida, Atlantic, Central, Southeastern and Western. We are strategically located in markets that we believe feature high levels of population growth as well as high levels of construction activity over the near term. We believe that our clustering approach enables us to establish a strong local presence in targeted markets and meet the needs of our customers that have multiple projects within a specific region. Furthermore, we have invested in and developed a highly successful fleet management capability which allows us to share equipment among our branches in order to improve time utilization and drive a higher return on invested capital.
Revenues by Region for the 12 Months Ended September 30, 2014
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We seek to improve returns on our investments in rental equipment by applying a highly-disciplined asset-management approach to acquiring, renting, maintaining and divesting our fleet. This effort is supported by our customized asset tracking software and a rigorous maintenance and repair program, which promotes the extended useful life of our equipment. As of September 30, 2014, our rental fleet consisted of over 13,650 units of equipment with an OEC of approximately $723.6 million and an average age of approximately 46 months. Our earthmoving fleet represented approximately 54% of OEC and had an average age of approximately 34 months. We believe that our focus on earthmoving equipment positions us to take advantage of future growth opportunities in our key end-markets.
Rental Fleet by Equipment Category as a Percentage of OEC as of September 30, 2014
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Industry Overview
According to the American Rental Association, the North American rental industry grew from approximately $18 billion in annual rental revenues in 1997 to approximately $38 billion in 2013, representing a CAGR of approximately 5%. The primary end-markets served by the rental industry include the broader industrial and construction markets, which include non-residential construction, oil and gas and residential construction. The American Rental Association projects that the North American rental industry will grow by approximately 8% annually through 2018, resulting in estimated annual rental revenues of $56 billion by 2018. We believe that approximately 70% of total North American rental industry revenues is attributable to the industrial and commercial construction markets.
North America Rental Industry Revenues: 1997 - 2018E
Source: American Rental Association Rental Market Monitor.
We believe that part of this industry growth will be driven by the ongoing secular shift in North America toward reliance on equipment rental instead of ownership, as evidenced by the increasing percentage of new equipment sold to rental companies as a percentage of the total amount of new equipment sold, which we refer to as the penetration rate. According to the American Rental Association'sEquipment Rental Penetration Index, the penetration rate rose from 41% in 2003 to 53% in 2013.
North America Equipment Rental Penetration Rate Index
Source: American Rental Association Equipment Rental Penetration Index.
We believe that the shift from owning to renting equipment in North America will continue as construction and industrial firms recognize the advantages of renting rather than owning equipment, and that this trend will continue to result in increased penetration rates in the future. Renting equipment allows firms to:
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Furthermore, the material handling and aerial categories each have higher penetration rates than the earthmoving equipment category. Given the relatively lower penetration rate in the earthmoving equipment category, we expect growth in this category to outpace the overall equipment rental market.
North America Penetration Rates by Category for 2013 Equipment Rental Market
Source: Yengst Associates Market Machinery Research Rental Industry Report. Data segmented by the Company to reflect the three primary equipment classes.
The equipment rental industry in North America is highly fragmented. According to Yengst Associates, the industry is comprised of approximately 4,000 rental business locations that offer construction equipment as a primary source of revenue. In 2013, according to the Rental Equipment Register, revenues of the 15 largest equipment rental companies accounted for approximately 30% of the total market. We believe that larger rental companies will be able to continue to increase their market share and outperform smaller, independent companies by better meeting customer demands to deliver a broad selection of high-quality and reliable equipment in a timely and efficient manner.
Our Business Strengths
Well Positioned to Capitalize on Key End-Market Growth. For the 12 months ended September 30, 2014, approximately 85% of our rental revenues were derived from five key end-markets: infrastructure, non-residential construction, oil and gas, municipal and residential construction. The U.S. equipment rental industry has historically benefitted from growth in these end-markets, which are expected to grow at a weighted average CAGR of approximately 8% from 2014 to 2018, as shown below. We believe that our current business is well aligned with these growing end-markets, and that we will continue to benefit from macroeconomic growth.
In addition, oil and gas related construction has increased meaningfully over the last several years due to advancements in oil extraction technology in the United States. This growth has impacted our end markets and created opportunities for increased oil and gas related construction in the geographies where we are focused.
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Our Rental Revenues by End-Market for the 12 Months Ended September 30, 2014 |
Projected End-Market Growth: 2014E - 2018E CAGRs |
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Source: Company data. |
Source: FMI Construction Outlook Q3 2014 data; Oil and Gas Capital Expenditures from IHS data as of October 2014. |
Prominent Position in Fast-Growing Sunbelt States. 60 of our 64 branches are located in the Sunbelt states of Virginia, North Carolina, South Carolina, Florida, Georgia, Alabama, Tennessee, Louisiana, Texas, Arizona, Nevada and California. Our Sunbelt state locations benefit from favorable climate conditions that facilitate year-round construction activity and reduce seasonality in our business. According to the American Rental Association, construction and industrial equipment rental revenue in the states where we have branch locations is expected to grow approximately 10% annually from 2014 to 2018, compared to an average growth rate of approximately 8% for all other states. By clustering our operations and concentrating our branches in these strategic regional markets, we have established a strong local presence and developed significant brand recognition in those markets.
High-Quality Fleet Focused on Earthmoving Equipment. We offer our customers a broad array of rental equipment with a focus on the earthmoving category. We believe that we are well positioned to benefit from additional penetration in the earthmoving equipment category, which had a penetration rate of approximately 51% in 2013, compared to approximately 95% for the aerial and 85% for the material handling categories, respectively. As of September 30, 2014, we had over 5,200 units of earthmoving equipment, accounting for 54% of the OEC of our rental fleet. By comparison, as presented below, the earthmoving equipment category represented only 13-22% of the OEC of selected public industry peers.
Percentage of Earthmoving Equipment OEC Among Selected
Public Industry Peers
Source: Company data and most recent public filings for selected public industry peers.
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Disciplined Sales Culture Drives Strong Customer Relationships. We have a diverse base of repeat customers who we believe value our knowledge and expertise. Our customer base includes large and mid-sized construction firms, municipalities, utilities and industrial users. Typically, we serve over 14,000 customers annually. For the 12 months ended September 30, 2014, no single customer accounted for more than 1% of our total rental revenues and our ten largest customers accounted for approximately 5% of our total rental revenues. Our culture is built around the disciplined use of our CRM system at every level of our organization, which we believe provides our employees with the tools and information to efficiently provide customized solutions to our existing and potential customers. In addition, our CRM system automatically notifies our sales force of new construction projects within their territories and provides them with the names and contact information of key contractors. We believe that the consistent and disciplined use of our CRM system is a competitive advantage that has resulted in greater sales coordination, increased corporate control over customer account information, high-quality customer service and higher time utilization.
Strong Operating Trends. We have experienced substantial earnings momentum since 2011, driven by the rebound in our end-markets and supported by significant investment in our fleet, which has resulted in an increase in OEC from $471.1 million at December 31, 2011 to $723.6 million at September 30, 2014. In addition, our time utilization has increased from 65% for the year ended December 31, 2011 to 71% for the 12 months ended September 30, 2014, and our rental rates (as defined below) have increased by over 6% on an annual basis over the same period. We believe that the combination of favorable industry dynamics, significant investments in our fleet and our focus on operating leverage (which has seen our Adjusted EBITDA margin increase from 35% for the year ended December 31, 2011 to 49% for the 12 months ended September 30, 2014) have driven our Adjusted EBITDA from $86.7 million to $176.1 million over this period.
Experienced Management Team. Our senior management team has significant operating experience in the equipment rental industry and has worked together at our Company for over a decade. Graham Hood, our Chief Executive Officer, has 36 years of rental industry experience and Mark Irion, our Chief Financial Officer, has 16 years of rental industry experience. Our regional Vice Presidents, with an average of 17 years with our Company and 29 years of industry experience, provide us with a stable base of operating management with long-term, local relationships and deep equipment rental industry expertise. This industry expertise, combined with our disciplined sales culture and CRM system, enables our regional management team to respond quickly to changing market conditions.
Our Business Strategy
Focus on Premium Customer Service to Create Strong Customer Relationships. We are committed to providing our customers with premium service. We believe that our customers value our strong regional presence, well-established local relationships and full-service branches, which offer 24/7 customer support. Furthermore, our regional presence is supplemented by a national account focus that allows us to differentiate our brand and product offering to our larger customer accounts. We believe that our ability to provide expert advice with respect to earthmoving equipment is an advantage over our competitors. As of September 30, 2014, we have received over 98% favorable customer reviews based on our policy of polling a sampling of all customer transactions. We intend to continue to leverage our national account program, our customer service capabilities and our advanced CRM system to retain our existing customers and further penetrate our target customer base.
Emphasis on Active Asset Management. We have invested significantly in both customized technologies and the development of our personnel to ensure that we manage our fleet efficiently to increase our returns on invested capital. Our technologies form the basis of our sales force's customer targeting efforts and allow us to improve rental rates and identify equipment demand changes in real time. Our equipment clustering strategy allows us to share and re-deploy equipment among our branches as demand for
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equipment shifts throughout our branch network. Over time, we have demonstrated our ability to both increase and decrease the age of our fleet in response to changing market conditions. We actively monitor the market environment to determine where investment in fleet assets should be made or when fleet asset divestitures should occur. Our emphasis on active asset management, combined with our rigorous repair and maintenance program, allows us to increase time utilization, extend the useful life of our fleet and results in higher resale value of our equipment.
Focus on Growing Markets. We believe that our focus on the non-residential construction, oil and gas and residential construction end-markets positions us to benefit from favorable industry and macroeconomic trends. We believe that all of these end-markets are currently experiencing significant growth and will continue to benefit from investment spending driven by the economic recovery in the United States. FMI Construction Outlook predicts that U.S. infrastructure spending will grow approximately 5% annually through 2018, U.S. non-residential construction spending will grow at 5% annually through 2018, and U.S. residential construction will grow 9% annually through 2018. IHS estimates that oil and gas investment in the United States will grow 9% annually through 2018. We believe that our focus on these end-markets will position us to achieve significant growth in revenues.
Capitalize on Operating Leverage. We have a highly scalable business model constructed around our network of 64 full-service branch locations. We believe that our current network can support significant additions to our rental fleet without substantial additional investment in infrastructure, personnel or information technology. We intend to capitalize on anticipated growth opportunities primarily by increasing our fleet size within our existing branch network, using our active asset management capabilities to increase time utilization and improve pricing levels and serving customers who value our equipment mix and service capabilities. We have a proven track record of successfully opening new branches in our key markets, as evidenced by the successful development of six new branch locations since January 1, 2011. We regularly evaluate new branch opportunities based on stringent return criteria to identify promising new branch locations, and will continue to monitor opportunities to expand our strategic branch network.
Ability to Generate Free Cash Flow. Our significant rental fleet investment and focus on active asset management provide us the operational flexibility to generate cash flow through different business cycles. We believe that our borrowing availability as of September 30, 2014, after giving effect to this offering and the use of proceeds therefrom, will provide the resources to continue to invest in our rental fleet. Our fleet investments are largely discretionary and we have the ability to temporarily defer capital expenditures or sell used rental equipment to manage cash flows. There is a developed secondary market for used rental equipment, and industry resale values of equipment have averaged approximately 49% of OEC over the past three years. We believe that our focus on cash flow and operating flexibility will allow us to continue to generate strong returns throughout various business cycles.
Operations
Through our 64 branches, located primarily in the Sunbelt states of Virginia, North Carolina, South Carolina, Florida, Georgia, Alabama, Tennessee, Louisiana, Texas, Arizona, Nevada and California, we generate revenues primarily through the rental of a broad array of construction and industrial equipment, the sale of used and new equipment and the sale of parts, supplies and related merchandise.
Equipment Rentals. Our broad fleet of equipment includes earthmoving, material handling, aerial and other rental equipment. We consider the earthmoving equipment category to be a core competency of our Company and a key differentiator of our business. As of September 30, 2014, we had over 5,200 units of earthmoving equipment, accounting for 54% of the OEC of our rental fleet. We generate revenue under leases for our rental equipment as well as from fees we charge for the pickup and delivery of equipment, damage waivers and other surcharges.
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As of September 30, 2014, our rental fleet is comprised of the following equipment categories and primary suppliers:
Equipment Category |
Primary Fleet Equipment | Primary OEM Suppliers |
Percentage of OEC |
|||||
---|---|---|---|---|---|---|---|---|
Earthmoving |
Excavators, backhoes, loaders, dozers, mini-excavators, trenchers, sweepers and tractors, track loaders and skid steers | Komatsu, John Deere, Kobelco, Doosan, Bobcat, IHI, JCB, Link-Belt and Case | 54 | % | ||||
Material Handling |
Reach forklifts, industrial forklifts and straight-mast forklifts |
Genie, JLG, Case, Gehl, JCB and Komatsu |
16 |
% |
||||
Aerial |
Personnel lifts, electric scissor lifts, dual fuel scissor lifts, articulating boom lifts and straight boom lifts |
Genie, JLG and Skyjack |
13 |
% |
||||
Other Rental Equipment |
Compaction and concrete, trucks and trailers, sweepers, air equipment, generators, welders, lighting, pumps and other small equipment and tools |
Hamm, Bomag, Wacker, Multiquip, Magnum and Lincoln |
17 |
% |
We offer our equipment for rent on a daily, weekly and monthly basis and our customers typically execute written rental agreements, which we account for as leases under GAAP. The majority of our written rental agreements are short-term and do not include specific provisions for early termination. We determine rental rates for each type of equipment based on the cost and expected time utilization of the equipment and adjust rental rates at each location based on demand, length of rental, volume of equipment rented and other competitive considerations.
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 average age of our rental fleet. We attempt to balance the objective of obtaining acceptable prices from used equipment sales against the recurring revenues obtainable from equipment rentals. Our highly experienced staff of mechanics and branch and regional managers evaluates every disposition of equipment to determine the right time to sell our used equipment. We believe that 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 that this proactive management of our rental fleet allows us to adjust the rate and timing of new equipment purchases and used equipment sales to improve time utilization rates, take advantage of attractive disposition opportunities and respond to changing economic conditions. Used equipment disposition is an integral part of our asset management program and an important focus of management. Proceeds from the sale of used rental equipment represent an important source of re-investment capital for us. We sell used rental equipment to our existing customers, used equipment buyers and OEMs as part of trade packages for new fleet and third-party auctioneers.
To a much lesser extent, we also generate revenue through the sale of ancillary new equipment.
Parts and Service. We sell complementary parts, supplies, fuel and merchandise to our customers in conjunction with our equipment rental and sales businesses. We maintain an inventory of fuel, maintenance and replacement parts and related products, which are important for timely parts and service support and helps reduce downtime for both our customers and us.
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Fleet Management
Our branches are often within close geographic proximity to each other and are all connected through a central system which allows any other branch to view rental equipment availability throughout our entire branch network. As a result, we can respond quickly to the needs of our customers and increase the time utilization rates of our equipment, thereby improving profitability and reducing capital expenditures.
We actively monitor fleet purchases to maintain appropriate inventory levels and to manage capital expenditures. We regularly review our fleet to determine which pieces of equipment should be replaced in order to maintain our high-quality standards. At times, we may selectively increase or decrease the age of our fleet in response to changing market conditions. We actively monitor the market environment to determine where investment in fleet assets should be made or when fleet asset divestitures should be made.
We purchase our equipment from vendors who we believe have reputations for good product quality and support. We identify vendors who can supply quality, reliable products and provide value added support services. We believe that the length of our vendor relationships has helped us to compete effectively with the largest rental companies in the industry.
See "Operations" above for our primary OEM suppliers.
We provide transportation of our rental equipment to and from the customer's location and our payroll expenses reflect the cost of providing such transportation. Once our drivers have delivered rental equipment to the customer, the customer takes complete control of operating the equipment. All customers are expected to provide insurance coverage of the rental equipment under their control during the period of utilization of such rental equipment.
Customers
Our large customer base, which includes more than 14,000 customers over the last twelve months, is diversified among various industries, including infrastructure, non-residential construction, oil and gas, municipal and residential construction. In particular within these industries, we serve industrial and civil construction, manufacturing, public utilities, offshore oil exploration and drilling, refineries and petrochemical facilities, municipalities, golf course construction, shipping and the military. We target mid-sized, regional and local construction companies that value customer service. Our customer base includes both large Fortune 500 companies who have elected to outsource some of their equipment needs and small construction contractors, subcontractors and machine operators whose equipment needs are job-based. Our top ten customers accounted for approximately 5% of our total rental revenues for the 12 months ended September 30, 2014, and no single customer accounted for more than 1% of our total rental revenues for the 12 months ended September 30, 2014.
We largely conduct our business on account with customers who are screened through a credit application process. Credit account customers are our core customers, accounting for approximately 99% of our total revenues for the 12 months ended September 30, 2014. We also assist customers in arranging financing for purchases of large equipment through a variety of sources, including manufacturers, banks, finance companies and other financial institutions.
Sales and Marketing
We maintain a strong sales and marketing orientation throughout our organization, which we believe helps us to increase our customer base and better understand and serve our customers. Managers develop relationships with local customers and assist them in planning their equipment rental requirements. They are also responsible for managing the mix of equipment at their locations, keeping current on local construction activity and monitoring competitors in their respective markets. To stay informed about their local markets, salespeople track rental opportunities and construction projects in the area through
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Equipment Data Reports, F.W. Dodge Reports, PEC (Planning, Engineering and Construction) Reports and local contacts.
Our national accounts are serviced by a core team of dedicated managers to provide continuity and customized solutions to our national account customers.
Our sales training program emphasizes customer service and focuses on sales generation. Additionally, our CRM system helps increase sales and revenue opportunities. As part of this system, the sales force is automatically notified of new construction projects in their territories. We believe that this ability to track, manage and share recent account activity enables us to improve our time utilization. We believe that our CRM system helps us to identify opportunities that might otherwise go undetected by our sales force and management, and that such opportunities help us create company-wide sales synergies. We believe that the consistent and disciplined use of our CRM system is a competitive advantage that has resulted in greater sales coordination, increased corporate control over customer account information, high-quality customer service and higher time utilization.
Management Information Systems
In addition to our CRM system, we have developed customized management information systems, capable of monitoring our branch operations and sales force productivity on a real-time basis, which management believes can support our current and future needs. These systems link all of our rental locations and allow management to track customer and sales information, as well as the location, rental status and maintenance history of every major piece of equipment in the rental fleet. By using these systems, branch managers can search our entire rental fleet for needed equipment, quickly determine the closest location of such equipment and arrange for delivery of equipment to the customer's work site. This practice helps diminish lost opportunities, improves time utilization and makes equipment available in markets where it can improve revenue potential. We use these systems to improve time utilization and determine the optimal fleet composition by market.
Employees
As of September 30, 2014, we had 1,061 full-time employees. None of our employees are represented by a union or covered by a collective bargaining agreement. We believe we have satisfactory relations with our employees.
Our sales force is divided into salaried sales coordinators and field sales professionals. Our sales people represent some of our most experienced employees and possess substantial knowledge of the equipment rental industry. Our sales coordinators and sales professionals receive monthly sales commissions based on rental revenue and a percentage of the gross profit from the sale of used and new equipment.
Properties
As of September 30, 2014, we operated in 64 rental locations in 14 states. We lease approximately 18,000 square feet for our corporate headquarters in an office building in Miami, Florida. We own the buildings and the land at one of our locations. All other sites are leased, generally for terms of five years with renewal options. Owned and leased sites range from approximately 4,000 to 40,000 square feet and 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, with the mix of equipment available designed to meet the anticipated needs of the customers in each location.
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The following table lists our rental facilities by location (one of the below facilities, Texas City, TX, is owned by us, and all other facilities are leased by us).
Florida Region | Central Region | |
Miami, FL | Houston, TX | |
West Palm Beach, FL | Ft. Worth, TX | |
Port St. Lucie, FL | Texas City, TX | |
Ft. Myers, FL | Austin, TX | |
Pompano, FL | Odessa, TX | |
Tampa, FL | Houma, LA | |
Venice, FL | Lafayette, LA | |
Jacksonville, FL | New Iberia, LA | |
Tallahassee, FL | St. Rose, LA | |
South Orlando, FL | Baton Rouge, LA | |
Sanford, FL | Bossier City, LA | |
Merritt Island, FL | San Antonio, TX | |
Atlantic Region |
Western Region |
|
Charlotte, NC | Las Vegas, NV | |
Raleigh, NC | Phoenix, AZ | |
Charleston, SC | Denver, CO | |
Wilmington, NC | Tucson, AZ | |
Durham, NC | Denver (Central), CO | |
Fayetteville, NC | Littleton (South), CO | |
Florence, SC | San Bernardino, CA | |
Columbia, SC | Anaheim, CA | |
Greenville, NC | Escondido, CA | |
Greer, SC | San Diego, CA | |
Richmond, VA | Sacramento, CA | |
Norfolk, VA | Roseville, CA | |
Newport News, VA | ||
Manassas, VA | ||
Greensboro, NC | ||
Landover, MD | ||
Southeastern Region |
||
Doraville, GA | ||
Forest Park, GA | ||
Brunswick, GA | ||
Nashville, TN | ||
Marietta, GA | ||
Athens, GA | ||
Augusta, GA | ||
Macon, GA | ||
Knoxville, TN | ||
Mobile, AL | ||
Birmingham, AL | ||
Savannah, GA |
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Seasonality and Cyclicality
Our Sunbelt state locations benefit from favorable climate conditions that facilitate year-round construction activity and reduce seasonality in our business. Our operating results are subject to annual and seasonal fluctuations resulting from a variety of factors, including:
In addition, our operating results may be affected by severe weather events (such as hurricanes and flooding) in the regions we serve. Severe weather events can result in short-term reductions in construction activity levels, but after these periods of reduced construction activity, repair and reconstruction efforts have historically resulted in periods of increased demand for rental equipment.
Competition
The equipment industry is highly fragmented and we believe that competition tends to be based on geographic proximity and availability of products. While the competitive landscape also includes small, independent businesses with only a few rental locations, we believe that we mostly compete against regional competitors which operate in one or more states, public companies and equipment vendors and dealers who both sell and rent equipment directly to customers. Some of these competitors include United Rentals, Hertz Equipment Rental, Ahern Rentals, H&E Equipment Services, CAT Rental, Sunstate Equipment and Sunbelt Rentals.
We believe that, in general, large companies may enjoy competitive advantages compared to smaller operators, including greater purchasing power, a lower cost of capital, the ability to provide customers with a broader range of equipment and services, and greater flexibility to transfer equipment among locations in response to customer demand. See "Risk FactorsRisks Relating to Our BusinessThe equipment rental industry is highly competitive, and competitive pressures could lead to a decrease in our market share or in rental rates and our ability to sell equipment at favorable prices."
Environmental and Safety Regulations
We and our facilities and operations are subject to comprehensive and frequently changing federal, state and local environmental and safety and health requirements, including those relating to discharges of substances to the air, water and land, the handling, storage, transport, use and disposal of hazardous materials and wastes and the cleanup of properties affected by pollutants. In connection with our vehicle and equipment fueling and maintenance, repair and washing operations, we use regulated substances such as petroleum products and solvents and we generate small quantities of regulated waste such as used oil, radiator fluid and spent solvents. All of our properties currently have above ground and/or underground storage tanks and oil-water separators (or equivalent wastewater collection/treatment systems). Although we have made, and will continue to make, capital and other expenditures to comply with environmental requirements, we do not anticipate that compliance with such requirements will have a material adverse effect on our business or financial condition or competitive position. However, in the future, new or more stringent laws or regulations could be adopted. Accordingly, we cannot assure you that we will not have to make significant capital or other expenditures in the future in order to comply with applicable laws and regulations or that we will be able to remain in compliance at all times.
Most, but not all, of our current properties have been the subject of an environmental site assessment conducted with the goal of identifying conditions that may cause us to incur costs under applicable environmental laws. In addition, all but one of our properties are leased and certain of our lease
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agreements provide that the site owner has responsibility for the pre-existing environmental contamination at the property and that we are liable for contamination caused by us or that occurs during the term of the lease. However, given the nature of our operations and the historical operations conducted at these properties, and inherent limits on the information from the environmental site assessments mentioned above, we cannot assure you that all potential instances of contamination have been identified, that our operations have not caused contamination or that our landlords will be able or willing to hold us harmless for pre-existing contamination at the relevant sites. Future events, such as changes in laws or policies, the discovery of previously unknown contamination, or the failure of another party to honor an obligation it may have to indemnify us for remediation costs or liabilities, may give rise to remediation costs which may be material. See "Risk FactorsRisks Relating to Our BusinessWe are subject to numerous environmental and health and safety laws and regulations that may result in our incurring liabilities, which could have a material adverse effect on our operating performance."
Legal Proceedings
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We cannot estimate with certainty our ultimate legal and financial liability with respect to our pending litigation matters. However, we believe, based on our examination of such matters, that our ultimate liability with respect to these matters will not have a material adverse effect on our business, financial condition, results of operations or cash flows.
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Directors and Executive Officers
The following table provides information regarding our executive officers and members of our board of directors (ages as of September 30, 2014):
Name
|
Age | Position(s) | |||
---|---|---|---|---|---|
Graham Hood |
59 | Director, Chief Executive Officer | |||
Mark Irion |
48 | Chief Financial Officer | |||
Westley Parks |
52 | Vice PresidentAtlantic Region | |||
Robert Singer |
58 | Director | |||
James Continenza |
52 | Chairman | |||
Joseph Deignan |
41 | Director | |||
Gerard E. Holthaus |
65 | Director |
Executive Officers and Employee Directors
Graham HoodMr. Hood has served as our and our Prior Predecessor's Chief Executive Officer since June 2007. Prior to serving as our Chief Executive Officer, Mr. Hood served as our Prior Predecessor's Chief Operating Officer from January 2003 through May 2007 and as a Regional Vice President for the Southeastern Region from 1995 through December 2002. Mr. Hood has over 36 years of industry experience, 17 years of which were with Hertz Equipment Rental Corporation. Mr. Hood has served as a member of the boards of managers of our subsidiaries, Neff Rental LLC, Neff LLC and Neff Holdings, from October 2010 through the date of this offering. In May 2010, Neff Holdings Corp., our Prior Predecessor, filed for protection under Chapter 11 of the United States Bankruptcy Code. At the time of such filing, Mr. Hood was an executive officer of Neff Holdings Corp.
Mr. Hood has served on our board of directors since August 2014 and will continue to serve as a member of our board of directors upon consummation of this offering. We believe Mr. Hood's extensive leadership experience enables him to play a key role in all matters involving our board of directors and contribute an additional perspective from the rental industry.
Mark IrionMr. Irion has served as our and our Prior Predecessor's Chief Financial Officer since 1998. Prior to joining Neff, he served as the Chief Financial Officer of Markvision Holdings, Inc., a computer distribution company, from 1994 to 1998. Prior to 1994, Mr. Irion was employed by Deloitte & Touche LLP. Mr. Irion has over 16 years of equipment rental industry experience. In May 2010, Neff Holdings Corp., our Prior Predecessor, filed for protection under Chapter 11 of the United States Bankruptcy Code. At the time of such filing, Mr. Irion was an executive officer of Neff Holdings Corp.
Westley ParksMr. Parks has served as our and our Prior Predecessor's Vice President for the Atlantic Region since 1998. Prior to serving as our Vice President for the Atlantic Region, Mr. Parks served as our Prior Predecessor's regional manager, opening the first standalone rental locations in Doraville and Forest Park, GA, from 1995 to 1998. Prior to 1995, Mr. Parks was employed by Hertz Equipment Rental Corporation, Grace Equipment and Lane Crane and Equipment. Mr. Parks has over 28 years of equipment rental industry experience.
Non-Employee Directors
Robert SingerMr. Singer has served as a member of our subsidiaries' board of directors or board of managers since November 2010 and was appointed to our board of directors in November 2014. Mr. Singer has been the Executive Vice President and Chief Financial Officer of SunGard Availability Services, an information availability company, since January 2011. Prior to joining SunGard Availability Services, Mr. Singer was Executive Vice President and Chief Financial Officer of Algeco Scotsman, a provider of modular space solutions and rental services company, from February 2005 to July 2010. Mr. Singer also
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serves on the board of Penhall Company and CHA Media. We believe Mr. Singer's financial and executive experience makes him well-qualified to serve as a member of our board of directors.
James ContinenzaMr. Continenza has served as the Chairman of our subsidiaries' board of directors or board of managers since October 2010 and was appointed to our board of directors in November 2014. Mr. Continenza has been the Chief Executive Officer of TBC Holdings I, Inc., the parent company of The Berry Company, LLC, a holding company created to acquire and manage various advertising, marketing and technology companies focused primarily on providing a wide range of digital and legacy leads-generating products to local and national advertisers, from September 2012 to the present. Prior to joining TBC Holdings I, Inc., Mr. Continenza was President of STi Prepaid, LLC, a provider of various domestic and international long distances services in the United States, from June 2010 to February 2011. Mr. Continenza currently serves as either Chair or Director on the boards of Tembec Corp, Kodak, Merrill Corp, Broadview Networks, Southwest Georgia Ethanol, Aventine Renewable Energy, The Berry Company, LLC and Neff Rental LLC. Previously, he was a director for Blaze Recycling, Portola Packaging, Hawkeye Renewables, Anchor Glass Container Corp., Rath-Gibson, Inc., Rural Cellular Corp., U.S. Mobility Inc., Maxim Crane Works, Inc., Arch Wireless Inc. and Microcell Telecommunications Inc. We believe that Mr. Continenza's industry expertise, leadership and board expertise makes him well-qualified to serve as a member of our board of directors.
Joseph DeignanMr. Deignan is currently a partner at Wayzata and has served as a member of our subsidiaries' board of directors or board of managers since October 2010 and was appointed to our board of directors in November 2014. Mr. Deignan currently serves on the board of directors of Mastercraft Boat Company and Perkins and Marie Callender's Holding, LLC, among other Wayzata portfolio company boards. Mr. Deignan joined the predecessor entity to Wayzata Investment Partners LLC in 1997. Prior to joining Wayzata, Mr. Deignan worked at Wessels, Arnold & Henderson in its investment banking team. We believe Mr. Deignan's financial and executive experience enables him to play a key role in all matters involving our board of directors and makes him well-qualified to serve as a member of our board of directors.
Gerard HolthausMr. Holthaus was appointed to our board of directors in November 2014. Mr. Holthaus has been the non-executive Chairman of the Board of Algeco Scotsman, a provider of modular space solutions and rental services company, since April 2010, prior to which Mr. Holthaus was the executive Chairman of the Board and Chief Executive Officer of Algeco Scotsman from November 2007 to April 2010. Prior to joining Algeco Scotsman, Mr. Holthaus was President and Chief Executive Officer of Williams Scotsman International, Inc., which is now a subsidiary of Algeco Scotsman, from April 1997 to October 2007. Mr. Holthaus currently serves as either Chair or Director on the boards of FTI Consulting, Inc., the Baltimore Life Companies and Baker Tanks. Mr. Holthaus also currently serves as a trustee of Loyola University Maryland. We believe Mr. Holthaus's financial, executive and board experience makes him well-qualified to serve as a member of our board of directors.
Board of Directors
Upon the consummation of this offering, the number of directors will be increased to five. Directors will be subject to removal only for cause. Further, our amended and restated certificate of incorporation and by-laws will provide for the division of our board of directors into three classes, as nearly equal in number as possible, with the directors in each class serving for a three-year term, and one class being elected each year by our stockholders. Mr. Hood will serve as a Class I director with an initial term expiring in 2015. Mr. Deignan and Mr. Singer will each serve as a Class II director with an initial term expiring in 2016. Mr. Holthaus and Mr. Continenza will each serve as a Class III director with an initial term expiring in 2017.
Director Independence
Prior to the consummation of this offering, our board of directors (including for this purpose, each of our directors) undertook a review of the independence of our directors and considered whether any of
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those persons has a material relationship with us that could compromise that person's ability to exercise independent judgment in carrying out his or her responsibilities as a director of our company. Our board of directors has determined that, except as described below with respect to Mr. Hood and with respect to Mr. Deignan's service on the audit committee, all of the members of each of our board of directors' three standing committees are independent as defined under the rules of the NYSE, including, in the case of all members of the audit committee other than Mr. Deignan, the independence requirements contemplated by Rule 10A-3 under the Exchange Act.
Our board of directors determined that Mr. Hood is not independent for purposes of the rules of the NYSE and for purposes of Rule 10A-3 under the Exchange Act because he is our Chief Executive Officer and part of our management team. Our board of directors determined that Mr. Deignan is not independent for purposes of Rule 10A-3 under the Exchange Act and our audit committee because he is a partner at Wayzata, which is our affiliate as of the date of this prospectus. Our board of directors determined that, as of the date of this prospectus, Mr. Deignan is independent under the rules of the NYSE although they noted that in the future Mr. Deignan may cease to qualify as an independent director under those rules to the extent Wayzata receives remuneration from us in excess of certain thresholds under the Tax Receivable Agreement or otherwise.
Background and Experience of Directors
When considering whether directors have the experience, qualifications, attributes or skills, taken as a whole, to enable our board of directors to satisfy its oversight responsibilities effectively in light of our business and structure, the board of directors focuses primarily on each person's background and experience as reflected in the information discussed in each of the directors' individual biographies set forth above. We believe that our directors provide an appropriate mix of experience and skills relevant to the size and nature of our business.
Controlled Company Exception
As a result of the significant ownership of our Class B common shares by Wayzata, more than 50% of the combined voting powers of our common stock will be held by Wayzata. As a result, we will be a "controlled company" within the meaning of the corporate governance standards of the NYSE. Under these corporate governance standards, a company of which more than 50% of the combined voting power is held by an individual, group or another company is a "controlled company" and may elect not to comply with certain corporate governance standards, including the requirement that we perform annual performance evaluations of the nominating and corporate governance and compensation committees. Immediately following the offering we do not expect to perform annual performance evaluations of the nominating and corporate governance and compensation committees. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of these corporate governance requirements. In the event that we cease to be a "controlled company" and our shares continue to be listed on the NYSE, we will be required to comply with these provisions within the applicable transition periods.
Committees of Our Board of Directors
Our board of directors directs the management of our business and affairs, as provided by Delaware law, and conducts its business through meetings of the board of directors and standing committees. We will have a standing audit committee and compensation committee. We will create a standing nominating and corporate governance committee prior to the consummation of this offering. In addition, from time to time, special committees may be established under the direction of the board of directors when necessary to address specific issues.
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Audit Committee
Our audit committee is responsible for, among other things, engaging our independent public accountants, reviewing with the independent public accountants the plans and results of the audit engagement, approving professional services provided by the independent public accountants, reviewing the independence of the independent public accountants, considering the range of audit and non-audit fees and reviewing the adequacy of our internal accounting controls.
Upon the closing of this offering, our audit committee will consist of Messrs. Singer, Holthaus and Deignan, with Messr. Singer serving as chair. Rule 10A-3 of the Exchange Act and the NYSE rules require that our audit committee have at least one independent member upon the listing of our Class A common stock, have a majority of independent members within 90 days of the date of this prospectus and be composed entirely of independent members within one year of the date of this prospectus. Our board of directors has affirmatively determined that Messrs. Singer and Holthaus each meet the definition of "independent director" for purposes of serving on the audit committee under Rule 10A-3 and NYSE rules, and we intend to comply with the other independence requirements within the time periods specified. In addition, our board of directors has determined that Messr. Singer will qualify as an "audit committee financial expert," as such term is defined in Item 407(d)(5) of Regulation S-K. Our board of directors will adopt a new written charter for the audit committee, which will be available on our principal corporate website at www.neffrental.com substantially concurrently with the closing of this offering.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee will be responsible for assisting our board of directors in selecting new directors, evaluating the overall effectiveness of our board of directors and reviewing developments in corporate governance compliance.
Upon the closing of this offering, our nominating and corporate governance committee will consist of Messrs. Continenza and Holthaus, with Messr. Continenza serving as chair. Our board of directors has affirmatively determined that all of the members of our nominating and corporate governance committee currently meet the definition of "independent director" for purposes of serving on a nominating and corporate governance committee under the NYSE rules. Our board of directors will adopt a new written charter for the nominating and corporate governance committee, which will be available on our principal corporate website at www.neffrental.com substantially concurrently with the closing of this offering.
Compensation Committee
Our compensation committee is responsible for determining compensation for our most highly paid employees and administering our other compensation programs. The compensation committee is also charged with establishing, periodically re-evaluating and, where appropriate, adjusting and administering policies concerning compensation of management personnel.
Upon the closing of this offering, our compensation committee will consist of Messrs. Continenza, Holthaus and Deignan, with Mr. Continenza serving as chair. Our board of directors has affirmatively determined that all of the members of our compensation committee currently meet the definition of "independent director" for purposes of serving on a compensation committee under the NYSE rules. Our board of directors will adopt a new written charter for the compensation committee, which will be available on our principal corporate website at www.neffrental.com substantially concurrently with the closing of this offering.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the board of directors or compensation committee (or other committee performing equivalent functions) of any entity that has one or more executive officers serving on our board of directors or compensation committee.
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This section discusses the material components of the executive compensation program for our executive officers who are named in the "2013 Summary Compensation Table" below. In 2013, our "named executive officers" consisted of our Chief Executive Officer and the two other most highly compensated executive officers who were serving as executive officers as of December 31, 2013:
This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt following the completion of this offering may differ materially from the currently planned programs summarized in this discussion.
2013 Summary Compensation Table
The following table sets forth information concerning the compensation of our named executive officers for the year ended December 31, 2013.
Name and Principal Position
|
Salary ($) | Non-Equity Incentive Plan Compensation ($) |
All Other Compensation ($)(2) |
Total ($) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Graham Hood |
450,000 | 371,354 | (1) | 19,650 | 841,004 | ||||||||
Chief Executive Officer |
|||||||||||||
Mark Irion |
314,000 |
259,122 |
(1) |
18,450 |
591,572 |
||||||||
Chief Financial Officer |
|||||||||||||
Westley Parks |
252,000 |
173,791 |
(3) |
18,450 |
444,241 |
||||||||
Vice PresidentAtlantic |
|||||||||||||
Region |
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Narrative Disclosure to Summary Compensation Table
Employment Agreements
We are a party to employment agreements with each of Messrs. Hood and Irion and an employment letter with Mr. Parks. The employment agreement for Mr. Hood, effective as of March 2007, was amended on September 30, 2010 and May 10, 2013. The employment agreement for Mr. Irion, effective as of March 1, 2000, was amended on January 31, 2005, July 8, 2005, May 31, 2007, September 30, 2010 and June 1, 2011. Mr. Parks' employment letter is dated November 29, 2011 and replaced a prior employment agreement. We intend to enter into amended and restated employment agreements with each of Messrs. Hood and Irion, effective upon the closing of this offering, in order to consolidate the prior amendments and make certain additional changes described below.
Employment Agreements with Graham Hood and Mark Irion
Employment Term and Position
The terms of employment for each of Messrs. Hood and Irion have been automatically extended for one year periods beyond their initial (and for Mr. Irion, secondary) three year terms and their employment remains subject to continued automatic one-year extensions provided neither party provides written notice of non-extension within six months of the expiration of the then-current term. The employment agreements provide that, during their respective terms of employment, Mr. Hood will serve as the Chief Executive Officer and Mr. Irion will serve as the Chief Financial Officer.
Base Salary, Annual Bonus and Equity Compensation
Pursuant to their employment agreements, Messrs. Hood and Irion were entitled to initial base salaries of $450,000 and $225,000, respectively. Mr. Irion's base salary was increased to $314,000 as of September 3, 2012. Base salaries in place for Messrs. Hood and Irion in 2013 remained the same as those in place for 2012. In 2014, Mr. Irion's base salary was increased to $327,000.
Each of Messrs. Hood and Irion is eligible for an annual cash incentive performance-based bonus, as determined in accordance with certain performance measures. For a further description of the cash incentive bonuses that have been awarded Messrs. Hood and Irion, please see below under "Annual Cash Incentive Compensation."
For a description of the equity awards granted to Messrs. Hood and Irion, please see below under "Equity-Based Compensation Awards."
Severance
Each employment agreement provides for severance upon a termination by us without cause (other than by reason of death or disability) or by the named executive officer for good reason.
Upon a termination of Mr. Hood's employment by us without cause (other than by reason of death or disability) or by reason of his resignation for good reason, Mr. Hood is entitled to severance consisting of (a) two times the sum of Mr. Hood's base salary and the highest annual bonus amount paid to Mr. Hood for any of the three calendar years preceding the year in which the termination occurs, payable in 24 monthly installments, and (b) the continuation of all Company-sponsored health and welfare benefits and Company-provided car allowance through the earlier of the second anniversary of the termination date and the date on which Mr. Hood violates any restrictive covenant set forth within his agreement.
Upon a termination of Mr. Irion's employment by us without cause (other than by reason of death or disability) or by reason of his resignation for good reason, Mr. Irion is entitled to severance consisting of (a) three times Mr. Irion's base salary, payable in 36 monthly installments, (b) three times the highest annual bonus paid to Mr. Irion for any of the three fiscal years preceding the year in which the termination
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occurs, payable in a single lump sum cash payment, (c) the continuation of all Company-sponsored health and welfare benefits and Company-provided car allowance for 36 months following the date of termination and (d) full acceleration of vesting of any outstanding equity awards.
For purposes of Mr. Hood's employment agreement, "good reason" is defined generally as Mr. Hood's voluntary termination of employment after the occurrence, without Mr. Hood's consent, of (i) a material modification of the nature of his duties or scope of responsibilities resulting in a demotion of Mr. Hood or a substantial reduction in his responsibilities, (ii) a reduction of base salary, (iii) a material breach of his employment agreement by us, (iv) the failure of any of our successors to assume the severance obligations under his employment agreement, (v) the relocation of his place of employment more than 25 miles from his current office location, or (vi) the failure of Mr. Hood to report directly to the board of directors or a reduction in his title as provided for within his employment agreement.
For purposes of Mr. Irion's employment agreement, "good reason" is defined generally as Mr. Irion's voluntary termination of employment after the occurrence, without Mr. Irion's consent, of (i) a material modification of the nature of his duties or scope of responsibilities, resulting in a demotion of Mr. Irion or a substantial reduction in his responsibilities, (ii) a reduction of base salary, (iii) a material breach of his employment agreement by us, (iv) the failure of any of our successors to assume his employment agreement in any situation other than a change in control (as defined in his employment agreement), or (v) any of the following within the two-year period following a change in control (as defined in his employment agreement): change in status, title or responsibilities (other than a promotion), a reduction in base salary or failure to pay compensation or benefits owed within five days of the date due, failure to increase base salary at least annually at a percentage no less than the average increases granted to Mr. Irion during the three most recent full years prior to the change in control, the failure to continue compensation and benefits in effect prior to the change in control or provide at least equal levels and opportunities of the same, the filing of a petition for bankruptcy, any material breach of Mr. Irion's employment agreement by us, any termination for cause which does not comply with the terms of the agreement, the failure of any of our successors to agree to assume his employment agreement, and the relocation of his place of employment more than 50 miles from his current office location.
Restrictive Covenants
Pursuant to their respective employment agreements, Messrs. Hood and Irion are each subject to non-competition and non-solicitation restrictions for a two-year period after termination of employment; provided, however, that in the event of a material breach of any of the covenants set forth within their respective agreements (a) we may cease making severance payments to Mr. Hood and Mr. Hood must repay all severance amounts previously received from the Company in addition to any amounts received from us due to the purchase of any common stock in connection with his termination of employment and (b) Mr. Irion must pay us the sum of $1,000 per day for each day during which he is in breach of such covenants, or the amount of damages we can reasonably demonstrate were incurred, if greater.
Section 280G Cutback
Each of Messrs. Hood and Irion's employment agreements contains a cutback provision pursuant to which, to the extent either of Messrs. Hood or Irion receives any payment or other benefit in connection with a change in control transaction that would subject him to excise taxes imposed pursuant to Section 4999 of the Internal Revenue Code (the "Code"), such payments will be reduced by such amount and in such order provided for within his employment agreement in order to avoid excise taxes, such that he will receive either (i) the full amount of all such payments or (ii) a portion of the payments having a value equal to $1 less than the amount that would trigger excise taxes, whichever provides the greatest portion of payments on an after-tax basis.
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Amendments in Connection with this Offering
Pursuant to the amended and restated employment agreements intended to be entered into with each of Messrs. Hood and Irion (the "A&R Agreements"), the Company will agree to employ each of Messrs. Hood and Irion for a new three-year term starting on the date of this offering. After the initial three-year term, each executive's agreement will be subject to automatic one-year extensions unless either party provides written notice of non-extension to the other party prior to six months of the expiration of the then-current term.
Pursuant to Mr. Hood's A&R Agreement, Mr. Hood's annual base salary will be increased to $500,000 as of the closing of this offering. In addition, Mr. Hood's A&R Agreement will provide that as of the date of this offering he will serve as a member of our board of directors and that during the term of Mr. Hood's A&R Agreement we will nominate him for continued service on our board when his then-current term as a director ends.
Mr. Irion's A&R Agreement will be revised to reflect Mr. Irion's current annual base salary of $327,000. In addition, pursuant to Mr. Irion's A&R Agreement, his severance multiple will be decreased from three to two, such that he will be entitled to receive only 24 months of continued base salary and benefits and two times his highest recent bonus as severance. Mr. Irion will also no longer be entitled to the acceleration of his equity awards upon termination of employment under the agreement, although pursuant to the terms of the offering grant agreements for Messrs. Hood and Irion, each will be entitled to pro rata vesting of his offering grant RSUs upon a termination of employment by us without cause or by the executive for good reason, based on actual Company performance with respect to the performance targets. Mr. Irion's "good reason" definition will be revised to include a demotion in title or relocation of his place of employment more than 50 miles from his current office location prior to a change in control and the provision requiring Mr. Irion to pay us liquidated damages while he is in breach of the restrictive covenants will be removed.
Finally, each A&R Agreement will (a) include specified target bonus percentages, (b) provide that we will maintain a directors and officers insurance policy covering the applicable executive, (c) provide for the payment of a pro rated bonus (based on actual performance) as part of severance, (d) eliminate the car allowance from the benefits provided during the severance period and (e) provide that non-renewal of the term of the employment agreement by the Company will not constitute a severance event under the A&R Agreement.
Employment Letter with Westley Parks
Employment Term and Position
Mr. Parks is party to an employment letter that replaced a prior employment agreement in order to remove his fixed employment term. Pursuant to his employment letter, Mr. Parks serves as the Vice PresidentAtlantic Region.
Base Salary, Annual Bonus, Benefits
Pursuant to the terms of his employment letter, Mr. Parks is entitled to an annual base salary of $242,000. Mr. Parks' base salary was subsequently increased and is currently $252,000 per year. In 2013, Mr. Parks was also eligible to receive an annual bonus in accordance with the RVP Bonus Plan (as defined below). For a description of this cash incentive bonus plan, please see below under "Annual Cash Incentive Compensation." Further, Mr. Parks is eligible for health benefits and a car allowance.
Severance
Mr. Parks' employment letter provides for severance upon a termination by us without cause or by Mr. Parks for good reason pursuant to our Severance Policy (as described below). In accordance with our
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Severance Policy, upon a termination of Mr. Parks' employment by us without cause or by reason of his resignation for "good reason" (as defined in the Severance Policy), Mr. Parks is entitled to severance consisting of (a) continued base salary for 24 months, payable in 24 monthly installments, and (b) continued health benefits for the same 24-month period. We have the option to reduce Mr. Parks' severance package by the same amount by which we reduce the duration of Mr. Parks' non-compete period (as described below), should we choose to do so, but by no more than 50% in either case. The Neff Holdings LLC Executive Severance Policy (the "Severance Policy") defines "good reason" generally as (i) a material reduction in the executive's annual base salary, (ii) a material modification of the executive's duties where such modification constitutes a demotion, or (iii) the required relocation (on a permanent basis) of the executive's office location by more than fifty miles from his or her current office location.
Restrictive Covenants
Pursuant to his employment letter, Mr. Parks is subject to non-competition and non-solicitation restrictions for a 24 month period after termination of employment, subject to reduction or clawback in accordance with the terms of the Severance Policy. As described above, in accordance with our Severance Policy, we are permitted to reduce the duration of Mr. Parks' non-compete period by up to 50%, which will result in a corresponding reduction in Mr. Parks' severance payment by the same percentage.
Annual Cash Incentive Compensation
For fiscal year 2013, we sponsored the Neff Rental 2013 Incentive PlanCEO and CFO (the "CEO and CFO Bonus Plan"), a corporate level bonus program whereby both Messrs. Hood and Irion were eligible for a target bonus equal to 50% of base salary based on corporate rental EBITDA, which we calculate as Adjusted EBITDA excluding any gain from sales of rental equipment, and corporate rental EBITDA minus net capital expenditure targets, with a maximum bonus payout equal to 100% of base salary. Pursuant to the CEO and CFO Bonus Plan, Mr. Irion's bonus was also subject to certain key performance objectives, or "KPOs," related to timeliness of financial reporting, monitoring rate improvement and achieving a specified ratio of revenue growth to EBITDA growth. For each KPO not achieved, Mr. Irion's bonus would have been reduced by 10%; however, all of the KPOs for 2013 were achieved. Mr. Hood's bonus was not subject to any KPOs for fiscal year 2013.
For fiscal year 2013, we sponsored the Neff Rental Compensation Plan 2013Region Vice President (the "RVP Bonus Plan"), a regional level bonus program for regional vice presidents. Under the RVP Bonus Plan, Mr. Parks was eligible to receive an annual bonus in an amount up to 100% of his base salary, where 80% of his annual bonus was based upon the achievement of regional rental EBITDA performance targets and 20% of his annual bonus was based upon the achievement of corporate rental EBITDA performance targets (calculated as described for purposes of the CEO and CFO Bonus Plan). Pursuant to the RVP Bonus Plan, Mr. Parks' bonus was also subject to certain KPOs related to the improvement of rental rates, fleet return on investment and improved worker safety. For each KPO not achieved, Mr. Parks' bonus would have been reduced by 10%; however, all of the KPOs for 2013 were achieved.
The actual dollar amounts of annual cash bonuses awarded to each named executive officer for 2013 performance are set forth above in the "2013 Summary Compensation Table" in the column entitled "Non-Equity Incentive Plan Compensation." Such actual bonuses represent 112% achievement of the corporate rental EBITDA target for Messrs. Hood and Irion under the CEO and CFO Bonus Plan and represent 116% achievement of the regional rental EBITDA target and 112% achievement of the corporate rental EBITDA target for Mr. Parks under the RVP Bonus Plan.
Equity-Based Compensation Awards
We currently sponsor the Neff Holdings LLC Management Equity Plan, as adopted October 1, 2010 (the "2010 Option Plan"), which is described below under the heading "Equity Compensation Plans."
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Pursuant to the 2010 Option Plan, we have provided long-term equity compensation to our named executive officers in the form of options to acquire our Class B limited voting membership units ("Class B units" and such options, the "2010 Employee Options"). No named executive officer received unit option awards in 2013 under the 2010 Option Plan. Effective October 12, 2010, Messrs. Hood, Irion and Parks were granted options to purchase 218,000, 130,000 and 60,000 Class B units, respectively, at an exercise price of $23.86 per unit. As described below, all options under the 2010 Option Plan will be converted to options with respect to common units in connection with this offering. On June 1, 2011, the exercise price of these options was reduced to $10.82 in connection with Neff Holdings' distribution in 2011 of $120 million to its members as a return of capital (the "2011 Distribution"). A portion (62.5%) of the 2010 Employee Options granted under the 2010 Option Plan to Messrs. Hood, Irion and Parks vest over time (the "Service Options") and the remaining portion (37.5%) vest in equal installments upon the achievement of certain earnings-based targets (the "Performance Options"). The Service Options vest in equal installments on each of the first four anniversaries of the grant date, beginning with October 12, 2011. The vesting of the Performance Options is subject to achievement of certain earnings-based targets over four periods beginning with the period October 1, 2010 through December 31, 2011 and then over the next three calendar years, with the ability to vest in previous periods' tranches if cumulative targets are met. Upon a change in control of Neff Holdings, all of the then-outstanding 2010 Employee Options will fully vest and become exercisable. The Organizational Transactions will not trigger a change in control for purposes of the 2010 Option Plan.
Any unvested options will generally terminate on the date of the named executive officer's termination, except that if the named executive officer is terminated by us without cause or resigns for good reason (as defined in the applicable named executive officer's employment agreement or employment letter), any portion of the Service Option that would have vested in the 90 day period immediately following the date of termination will vest as if the employment had not been terminated. Unvested Performance Options will remain outstanding following the date of termination through the date of determination of performance if the termination is by us without cause or by the executive for good reason following the end of the applicable performance period and prior to the date the performance conditions are determined. All outstanding vested Service Options (including any Service Options accelerated upon termination) and Performance Options will terminate and no longer be exercisable 90 days after the date of termination, with the exception that in the event that the performance conditions with respect to any Performance Option are determined to be satisfied after the 60th day following the date of termination, the named executive officer will have 30 days following the date of such determination to exercise such portion of the Performance Option. If the named executive officer is terminated for any reason prior to this offering, we can repurchase all or any portion of the units issued pursuant to the exercise of the executive's option. Because no options have been exercised and because we do not intend to terminate any named executive officer prior to the consummation of this offering, no such repurchase is contemplated.
For additional information about all outstanding options held by our named executive officers, please see the "Outstanding Equity Awards at Fiscal Year End" table below.
Going forward, we intend to adopt a 2014 Incentive Award Plan in order to facilitate the grant of cash and equity incentives to directors, employees (including our named executive officers) and consultants of our company and certain of its affiliates and to enable our company and certain of its affiliates to obtain and retain services of these individuals, which is essential to our long-term success. We expect that the 2014 Incentive Award Plan will be effective on the date on which it is adopted by our board of directors, subject to approval of such plan by our stockholders. For additional information about the 2014 Incentive Award Plan, please see the section titled "Equity Compensation Plans" below.
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Offering Grants to Employees under the 2014 Incentive Award Plan
In connection with this offering, we intend to grant equity awards, with respect to an aggregate of 139,466 shares of our Class A common stock under the 2014 Incentive Award Plan, consisting of 78,587 options and 60,879 RSUs (based on a price per share of our Class A common stock of $21.00, the midpoint of the proposed price range), to certain of our directors and employees, including the named executive officers (the "offering grants"). We intend that the offering grants for Messrs. Hood, Irion and Parks will have a grant-date fair value equal to 100%, 70% and 50% of their base salaries, respectively. Each named executive officer's offering grant is intended to be composed of 50% of stock options and 50% of restricted stock units, or "RSUs." The stock options are intended to vest, subject to continued employment, in equal annual installments on the first four anniversaries of the date of grant. The RSUs are intended to cliff-vest on the third anniversary of the date of grant, subject to continued employment (except as otherwise described above with respect to Messrs. Hood and Irion), and (a) in the case of 50% of each such executive's RSUs, only if the Company's return on invested capital for the three-year period from the date of grant exceeds its weighted average cost of capital for such period and (b) in the case of the other 50% of each such executive's RSUs, only if our total shareholder return, as measured for such period, is equal to or greater than the median total shareholder return of companies in the Trading Companies and Distributors GICS Sub-Industry for such period.
Other Elements of Compensation
Retirement Plans
We currently maintain the Neff Rental LLC 401(k) Plan (the "401(k) Plan"), a 401(k) retirement savings and profit-sharing plan for our employees, including our named executive officers, who satisfy certain eligibility requirements. Our named executive officers are eligible to participate in the 401(k) Plan on the same terms as other full-time employees. The Code allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) Plan. Currently, we provide a discretionary match of contributions made by participants in the 401(k) Plan, whereby our matching contributions begin to vest upon the participant's completion of his or her second year of service and continue vesting ratably on each of the next five anniversaries thereafter through the participant's sixth year of service. We believe that providing a vehicle for tax-deferred retirement savings though our 401(k) Plan, and making matching contributions, adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies.
We do not maintain any qualified pension plans or non-qualified deferred compensation plans.
Employee Benefits and Perquisites
Health/Welfare Plans. All of our full-time employees, including our named executive officers, are eligible to participate in our health and welfare plans, including:
Perquisites. We provide members of our management team, including our named executive officers, with a car allowance. In 2013, Messrs. Hood, Irion and Parks each received a car allowance, equal to $12,000, $10,800 and $10,800, respectively.
We believe the benefits and perquisites described above are necessary and appropriate to provide a competitive compensation package to our named executive officers.
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No Tax Gross-Ups
We do not make gross-up payments to cover our named executive officers' personal income taxes that may pertain to any of the compensation or perquisites paid or provided by our company.
Executive Stock Ownership Policy
We intend to adopt an executive stock ownership policy in connection with this offering which will encourage our executives, within five years after this offering, to hold shares of our common stock with a value equal to a specified multiple of base salary (five times annual base salary, in the case of the Chief Executive Officer, three times annual base salary, in the case of the Chief Financial Officer and our executive and senior vice presidents, and one times annual base salary, in the case of our other vice presidents).
Outstanding Equity Awards at Fiscal Year-End
The following table summarizes the number of Class B units underlying outstanding equity incentive plan awards for each named executive officer as of December 31, 2013.
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|
Option Awards(1) | |
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
Grant Date |
Number of Securities Underlying Unexercised Options (#) Exercisable |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options(#) |
Option Exercise Price ($) |
Option Expiration Date |
||||||||||
Graham Hood |
10/12/10 | 163,500 | 34,063 | 20,438 | 10.82 | 10/12/2020 | ||||||||||
Mark Irion |
10/12/10 | 97,500 | 20,313 | 12,188 | 10.82 | 10/12/2020 | ||||||||||
Westley Parks |
10/12/10 | 45,000 | 9,375 | 5,625 | 10.82 | 10/12/2020 |
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The following table sets forth information concerning the compensation of our non-employee directors for the year ended December 31, 2013.
Name
|
Fees Earned or Paid in Cash ($)(1) |
Option Awards ($)(2) |
Total ($) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
James Continenza |
75,000 | | 75,000 | |||||||
Robert Singer |
60,000 | | 60,000 |
Name
|
Grant Date | Options Outstanding at Fiscal Year End(a) |
||||
---|---|---|---|---|---|---|
James Continenza |
11/11/10 | 12,573 | (b) | |||
Robert Singer |
11/11/10 | 8,801 | (c) |
Our third non-employee director, Mr. Joseph Deignan, did not receive any compensation during fiscal year 2013.
We reimbursed each non-employee director for expenses incurred during fiscal year 2013 in connection with his services as a director.
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Director Compensation Following this Offering
We intend to adopt a compensation policy that, effective upon the closing of this offering, will be applicable to all of our non-employee directors other than Mr. Deignan. Pursuant to this policy, each eligible non-employee director other than the chairperson of the board will receive an annual cash retainer of $45,000 and the chairperson will receive an annual cash retainer of $80,000. Each compensation committee member other than the committee chairperson will receive an additional annual cash retainer of $5,000 and the committee chairperson will receive an additional annual cash retainer of $10,000. Each audit committee member other than the committee chairperson will receive an additional annual cash retainer of $7,500 and the committee chairperson will receive an additional annual cash retainer of $15,000. Each nominating and corporate governance committee member other than the committee chairperson will receive an additional annual cash retainer of $2,500 and the committee chairperson will receive an additional annual cash retainer of $5,000. Each annual retainer will be paid quarterly in arrears.
Also, pursuant to this director compensation policy, each year, we intend to grant each eligible non-employee director an award of restricted stock units in Neff Corporation with a grant-date fair value of $85,000 for each non-employee director other than the chairperson of the board of directors and $100,000 for the chairperson. The terms of each such award will be set forth in a written award agreement between each director and us, which we intend will generally provide for vesting after one year of continued service as a director. We expect that the first such award, consisting of 12,858 RSUs, will be made in connection with this offering. Directors elected or appointed mid-quarter will receive a pro-rated portion of the annual retainer and the annual award, in each case adjusted to reflect his or her period of service.
We intend to adopt a director stock ownership policy encouraging directors to hold shares of our common stock with a value equal to three times his or her annual cash retainer fee (exclusive of any committee retainers).
Equity Compensation Plans
Neff Holdings LLC Management Equity Plan (the "2010 Option Plan")
Neff Holdings currently sponsors the 2010 Option Plan, in order to align the interests of our employees, managers and directors with the interests of our company. The 2010 Option Plan permits the grant of awards in the form of Class B units, phantom units or options, warrants or other securities that are convertible, exercisable or exchangeable for or into Class B units, as the committee determines, but to date, only options to purchase Class B units have been granted under the 2010 Option Plan. In connection with this offering, all such options will be converted into options with respect to common units. We expect that on and after the completion of this offering and following the effectiveness of the Neff Corporation 2014 Incentive Award Plan (as described below), no further grants will be made under the 2010 Option Plan.
2014 Incentive Award Plan
We intend to adopt the Neff Corporation 2014 Incentive Award Plan (the "Plan"), subject to approval by our stockholders, under which we may grant cash and equity incentive awards to eligible service providers in order to attract, motivate and retain the talent for which we compete. The material terms of the Plan, as it is currently contemplated, are summarized below. Our board of directors is still in the process of developing, approving and implementing the Plan and, accordingly, this summary is subject to change.
Eligibility and Administration. Our employees, consultants and directors, and employees, consultants and directors of our affiliates will be eligible to receive awards under the Plan. Following this offering, the Plan will be administered by our board of directors with respect to awards to non-employee directors and by our compensation committee with respect to other participants, each of which may delegate its duties
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and responsibilities to committees of our directors and/or officers (referred to collectively as the plan administrator below), subject to certain limitations that may be imposed under Section 162(m) of the Code, Section 16 of the Exchange Act, and/or stock exchange rules, as applicable. The plan administrator will have the authority to make all determinations and interpretations under, prescribe all forms for use with, and adopt rules for the administration of, the Plan, subject to its express terms and conditions. The plan administrator will also set the terms and conditions of all awards under the Plan, including any vesting and vesting acceleration conditions.
Limitation on Awards and Shares Available. An aggregate of 1,500,000 shares of Class A common stock (referred to in this summary as common shares) will be available, net of 139,466 shares of Class A common stock reserved for option and RSU grants upon the consummation of this offering, for issuance under awards granted pursuant to the Plan, which shares may be authorized but unissued shares, or shares purchased in the open market. If an award under the Plan is forfeited, expires or is settled for cash, any shares subject to such award may, to the extent of such forfeiture, expiration or cash settlement, be used again for new grants under the Plan. However, the following shares may not be used again for grant under the Plan: (1) shares tendered or withheld to satisfy grant or exercise price or tax withholding obligations associated with an option or SAR (as defined below); (2) shares subject to an SAR that are not issued in connection with the stock settlement of the SAR on its exercise; and (3) shares purchased on the open market with the cash proceeds from the exercise of options.
Awards granted under the Plan upon the assumption of, or in substitution for, awards authorized or outstanding under a qualifying equity plan maintained by an entity with which we enter into a merger or similar corporate transaction will not reduce the shares available for grant under the Plan. The maximum number of common shares that may be subject to one or more awards granted to any person pursuant to the Plan during any calendar year will be 375,000 and the maximum amount that may be paid under a cash award pursuant to the Plan to any one participant during any calendar year period will be $5.0 million. Further, the maximum aggregate grant date fair value of awards granted to any non-employee director during any calendar year will be $500,000.
Awards. The Plan will provide for the grant of stock options, including incentive stock options, or "ISOs," nonqualified stock options, or "NSOs," restricted stock, dividend equivalents, stock payments, restricted stock units, or "RSUs," deferred stock, deferred stock units, performance awards, and stock appreciation rights, or "SARs." No determination has been made as to the types or amounts of awards that will be granted to specific individuals pursuant to the Plan. Certain awards under the Plan may constitute or provide for a deferral of compensation, subject to Section 409A of the Code, which may impose additional requirements on the terms and conditions of such awards. All awards under the Plan will be set forth in award agreements, which will detail all terms and conditions of the awards, including any applicable vesting and payment terms and post-termination exercise limitations. Awards other than cash awards generally will be settled in common shares, but the plan administrator may provide for cash settlement of any award. A brief description of each award type follows.
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exercise price of a SAR may not be less than 100% of the fair market value of the underlying share on the date of grant (except with respect to certain substitute SARs granted in connection with a corporate transaction) and the term of a SAR may not be longer than ten years. Vesting conditions determined by the plan administrator may apply to SARs and may include continued service, performance and/or other conditions.
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upon the value of common shares and that performance awards may also include bonuses that may be granted by the administrator on an individual or group basis and which may be payable in cash or in common shares or in a combination of both.
Section 162(m). Section 162(m) of the Code imposes a $1,000,000 cap on the compensation deduction that a public company may take in respect of compensation paid to our "covered employees" (which should include our Chief Executive Officer and our next three most highly compensated employees other than our Chief Financial Officer), but excludes from the calculation of amounts subject to this limitation any amounts that constitute qualified performance based compensation ("QPBC"). Under current tax law, we do not expect Section 162(m) of the Code to apply to certain awards under the Plan until the earliest to occur of (1) our annual stockholders' meeting that occurs during 2018 at which members of our board of directors are to be elected; (2) a material modification of the Plan; (3) an exhaustion of the share supply under the Plan; and (4) the expiration of the Plan. However, QPBC performance criteria may be used with respect to performance awards that are not intended to constitute QPBC. In addition, the company may issue awards that are not intended to constitute QPBC even if such awards might be non-deductible as a result of Section 162(m) of the Code.
In order to constitute QPBC under Section 162(m) of the Code, in addition to certain other requirements, the relevant amounts must be payable only upon the attainment of pre-established, objective performance goals set by our compensation committee and linked to stockholder-approved performance criteria. For purposes of the Plan, one or more of the following performance criteria will be used in setting performance goals applicable to QPBC, and may be used in setting performance goals applicable to other performance awards: (i) net earnings or losses (either before or after one or more of the following: (A) interest, (B) taxes, (C) depreciation and (D) amortization); (ii) gross or net sales or revenue; (iii) revenue growth or product revenue growth; (iv) net income (either before or after taxes); (v) adjusted net income; (vi) operating earnings or profit (either before or after taxes); (vii) cash flow (including, but not limited to, operating cash flow and free cash flow); (viii) return on assets or net assets; (ix) return on capital (or invested capital) and cost of capital; (x) return on stockholders' equity; (xi) total stockholder return; (xii) return on sales; (xiii) gross or net profit or operating margin; (xiv) costs, reductions in costs and cost control measures; (xv) funds from operations or funds available for distributions; (xvi) expenses; (xvii) working capital; (xviii) earnings or loss per share; (xix) adjusted earnings per share; (xx) price per share of and dividends with respect to common shares or appreciation in and/or maintenance of such price or dividends; (xxi) economic value added models or similar metrics; (xxii) regulatory achievements or compliance (including, without limitation, regulatory body approval for commercialization of a product); (xxiii) implementation or completion of critical projects or processes; (xxiv) sales, unit volume or market share; (xxv) licensing revenue; (xxvi) brand recognition/acceptance, (xxvii) inventory turns or cycle time, (xxviii) strategic initiatives (including, without limitation, with respect to market penetration and spending efficiency, geographic business expansion, manufacturing, commercialization, production and productivity, customer satisfaction and growth, employee satisfaction, recruitment and maintenance of personnel, human resources management, supervision of litigation and other legal matters, information technology, strategic partnerships and transactions (including acquisitions, dispositions, joint ventures, in-licensing and out-licensing of intellectual property, and establishment of relationships with commercial entities with respect to the marketing, distribution and sale of Company products, and factoring transactions, research and development and related activity, financial or other capital raising transactions, operating efficiency, and asset quality); (xxix) financial ratios (including, without limitation, those measuring liquidity, activity, profitability or leverage); and (xxx) lease placement of equipment, any of which may be measured either in absolute terms or as compared to any incremental increase or decrease or as compared to results of a peer group or to market performance indicators or indices. The Plan also permits the plan administrator to provide for objectively determinable adjustments to the applicable performance criteria in setting performance goals for QPBC awards.
Certain Transactions. The plan administrator has broad discretion to take action under the Plan, as well as make adjustments to the terms and conditions of existing and future awards, to prevent the dilution
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or enlargement of intended benefits and facilitate necessary or desirable changes in the event of certain transactions and events affecting common shares, such as stock dividends, stock splits, mergers, acquisitions, consolidations and other corporate transactions. In addition, in the event of certain non-reciprocal transactions with our stockholders known as "equity restructurings," the plan administrator will make equitable adjustments to the Plan and outstanding awards. In the event of a change in control (as defined in the Plan) of our company, to the extent that the surviving entity declines to continue, convert, assume or replace outstanding awards, then the administrator may cause any or all of such awards to become fully vested and exercisable in connection with the transaction. Upon or in anticipation of a change in control, the plan administrator may cause any outstanding awards to terminate at a specified time in the future and give the participant the right to exercise such awards during a period of time determined by the plan administrator in its sole discretion. Individual award agreements may provide for additional accelerated vesting and payment provisions.
Foreign Participants, Claw-Back Provisions, Transferability, and Participant Payments. The plan administrator may modify award terms, establish subplans and/or adjust other terms and conditions of awards, subject to the share limits described above, in order to facilitate grants of awards subject to the laws and/or stock exchange rules of countries outside of the United States. All awards will be subject to the provisions of any claw-back policy implemented by our company to the extent set forth in such claw-back policy and/or in the applicable award agreement. With limited exceptions for estate planning, domestic relations orders, certain beneficiary designations and the laws of descent and distribution, awards under the Plan are generally non-transferable prior to vesting, and are exercisable only by the participant. With regard to tax withholding, exercise price and purchase price obligations arising in connection with awards under the Plan, the plan administrator may, in its discretion, accept cash or check, common shares that meet specified conditions, a "market sell order" or such other consideration as it deems suitable.
Plan Amendment and Termination. Our board of directors may amend or terminate the Plan at any time; however, except in connection with certain changes in our capital structure, stockholder approval will be required for any amendment that increases the number of shares available under the Plan, "reprices" any stock option or SAR, or cancels any stock option or SAR in exchange for cash or another award when the option or SAR price per share exceeds the fair market value of the underlying shares. No award may be granted pursuant to the Plan after the tenth anniversary of the date on which our board of directors adopts the Plan.
Other Compensation Programs
Neff Holdings LLC 2014 Management Special Bonus Plan
Neff Holdings entered into a management special bonus plan, effective June 1, 2014, whereby certain service providers (including our named executive officers and certain of our non-employee directors) received single, lump sum cash payments upon the closing of the Second Lien Loan in order to compensate them for the loss in value of their stock options resulting from our distribution of cash to our sponsor. All option holders received such payments on a pro rata basis based on the number of stock options they held. Our named executive officers, Messrs. Hood, Irion and Parks, received payments pursuant to this plan on June 20, 2014 equal to $6,593,000, $3,931,000 and $1,814,000, respectively. Our non-employee directors, Messrs. Continenza and Singer, received payments pursuant to this plan on July 3, 2014 equal to $380,000 and $266,000, respectively. The payments are subject to our clawback within one year following payment to the extent any participant engages in behavior while employed by us which would have justified a termination for cause prior to the payment of the award.
Neff Holdings LLC Amended and Restated Sale Transaction Bonus Plan
Neff Holdings entered into a transaction bonus plan whereby certain service providers (including our named executive officers and certain of our non-employee directors) are eligible to receive cash payments payable upon a sale transaction (defined as a change in control of Neff Holdings or the consummation of a
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public offering by Neff Holdings, any successor or any holding company formed for the purpose of owning an equity interest in Neff Holdings that results in securities of such entity being listed on an SEC-registered national securities exchange (including this offering) that raises at least $200,000,000 that is applied to the payment of liabilities of Neff Holdings and its affiliates or is otherwise distributed to its members), subject to their continued employment or services at the time of consummation of the sale transaction and execution of a release of claims against the company. With respect to our option holders, including the named executive officers and directors, the cash payments are intended to compensate them for loss in value of their stock options resulting from a distribution of cash we previously made to our sponsor in 2013. All option holders will receive such payments on a pro rata basis based on the number of stock options they hold. If a sale transaction or qualified public offering occurs as stated above, the plan will pay out to participants a total of approximately $9.9 million, subject to a minimum enterprise value goal of $900,000 for certain employees other than the named executive officers. Our named executive officers, Messrs. Hood, Irion and Parks, are eligible to receive payments pursuant this plan equal to $2,606,522, $1,554,349 and $717,391, respectively. Our non-employee directors, Messrs. Continenza and Singer, are eligible to receive payments pursuant to this plan equal to $150,333 and $105,233, respectively. The sale transaction bonuses will be payable in a lump sum within 30 days following the closing date of the sale transaction. In connection with this offering, we adopted an amendment to the Neff Holdings LLC Amended and Restated Sale Transaction Bonus Plan whereby the threshold of receipts required to trigger payments was reduced from $200,000,000 to $175,000,000.
Neff Holdings LLC 2014 Incentive Bonus Plan
In connection with this offering, Neff Holdings entered into a cash incentive plan whereby certain service providers (including our named executive officers and certain of our non-employee directors) will have a contingent right to receive cash distribution awards in connection with our sponsor's receipt of a specified level of proceeds in connection with the sale, disposition or transfer of its common units in Neff Holdings. These cash payments are intended to compensate the participants for loss in value of their stock options resulting from the distribution of cash we made to our sponsor in 2013. All option holders will receive such payments on a pro rata basis based on the number of stock options they hold. At such time as our sponsor receives cash proceeds of at least $81,000,000, we will fund an incentive pool of $2,100,000 and at such time as our sponsor receives cash proceeds of at least $108,000,000, we will fund an additional incentive pool of $2,100,000. Our named executive officers, Messrs. Hood, Irion and Parks, will be eligible to receive 28.01%, 16.70% and 7.71% of the incentive pool, respectively, in a single, lump sum payment pursuant to the terms of their individual written award agreements, subject to continued employment through the relevant date at which the incentive pool is established and subject to the execution of a non-revocable release of claims. Our non-employee directors, Messrs. Continenza and Singer, will be eligible to receive 1.62% and 1.13% of the incentive pool, respectively, in a single, lump sum payment pursuant to the terms of their individual written award agreements, subject to continued services through the relevant date at which the incentive pool is established and subject to the execution of a non-revocable release of claims. Proceeds from this offering may count toward the threshold under this cash incentive plan, but only to the extent that Wayzata receives proceeds in connection with its sale, disposition or transfer of its common units in Neff Holdings.
2014 Senior Executive Bonus Plan
We intend to adopt the Neff Corporation 2014 Senior Executive Incentive Bonus Plan (the "Executive Bonus Plan"), to be effective as of the day immediately prior to this offering. The Executive Bonus Plan is intended to provide an incentive for superior work and to motivate covered key executives toward even greater achievement and business results, to tie their goals and interests to those of us and our stockholders and to enable us to attract and retain highly qualified executives. The principal features of the Executive Bonus Plan are summarized below.
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The Executive Bonus Plan is an incentive bonus plan under which certain key executives, including our named executive officers, will be eligible to receive bonus payments. Bonuses will generally be payable under the Executive Bonus Plan upon the attainment of pre-established performance goals. Notwithstanding the foregoing, we may pay bonuses (including, without limitation, discretionary bonuses) to participants under the Executive Bonus Plan based upon such other terms and conditions as our compensation committee may in its sole discretion determine. The payment of a bonus under the Executive Bonus Plan to a participant with respect to a performance period will generally be conditioned on such participant's continued employment on the last day of such performance period, provided that our compensation committee may make exceptions to this requirement in its sole discretion.
The performance goals under the Executive Bonus Plan will relate to one or more financial, operational or other metrics with respect to individual or company performance with respect to us or any of our affiliates, including but not limited to the following possible performance goals: (i) net earnings or losses (either before or after one or more of the following: (A) interest, (B) taxes, (C) depreciation and (D) amortization); (ii) gross or net sales or revenue; (iii) revenue growth or product revenue growth; (iv) net income (either before or after taxes); (v) adjusted net income; (vi) operating earnings or profit (either before or after taxes); (vii) cash flow (including, but not limited to, operating cash flow and free cash flow); (viii) return on assets or net assets; (ix) return on capital (or invested capital) and cost of capital; (x) return on stockholders' equity; (xi) total stockholder return; (xii) return on sales; (xiii) gross or net profit or operating margin; (xiv) costs, reductions in costs and cost control measures; (xv) funds from operations or funds available for distributions; (xvi) expenses; (xvii) working capital; (xviii) earnings or loss per share; (xix) adjusted earnings per share; (xx) price per share of and dividends with respect to common shares or appreciation in and/or maintenance of such price or dividends; (xxi) economic value added models or similar metrics; (xxii) regulatory achievements or compliance (including, without limitation, regulatory body approval for commercialization of a product); (xxiii) implementation or completion of critical projects or processes; (xxiv) sales, unit volume or market share; (xxv) licensing revenue; (xxvi) brand recognition/acceptance, (xxvii) inventory turns or cycle time, (xxviii) strategic initiatives (including, without limitation, with respect to market penetration and spending efficiency, geographic business expansion, manufacturing, commercialization, production and productivity, customer satisfaction and growth, employee satisfaction, recruitment and maintenance of personnel, human resources management, supervision of litigation and other legal matters, information technology, strategic partnerships and transactions (including acquisitions, dispositions, joint ventures, in-licensing and out-licensing of intellectual property, and establishment of relationships with commercial entities with respect to the marketing, distribution and sale of Company products, and factoring transactions, research and development and related activity, financial or other capital raising transactions, operating efficiency, and asset quality); (xxix) financial ratios (including, without limitation, those measuring liquidity, activity, profitability or leverage); and (xxx) lease placement of equipment, any of which may be measured either in absolute terms or as compared to any incremental increase or decrease or as compared to results of a peer group or to market performance indicators or indices. The Plan also permits the plan administrator to provide for objectively determinable adjustments to the applicable performance criteria in setting performance goals for Executive Bonus Plan awards.
The Executive Bonus Plan is administered by our compensation committee. Our compensation committee will select the participants in the Executive Bonus Plan and any performance goals to be utilized with respect to the participants, establish the bonus formulas for each participant's annual bonus, and certify whether any applicable performance goals have been met with respect to a given performance period. The Executive Bonus Plan provides that we may amend or terminate the Executive Bonus Plan at any time in our sole discretion. Any amendments to the Executive Bonus Plan will require stockholder approval only to the extent required by applicable law, rule or regulation. The Executive Bonus Plan will expire on the earliest of:
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The following table sets forth information about the beneficial ownership of our Class A common stock and Class B common stock immediately prior to and after the consummation of this offering and the Organizational Transactions described herein, for:
Unless otherwise noted below, the address for each beneficial owner listed on the table is 3750 N.W. 87th Avenue, Suite 400, Miami, FL 33178. We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the tables below have sole voting and investment power with respect to all Class A common stock that they beneficially own, subject to applicable community property laws.
As described in "Our Organizational Structure" and "Certain Relationships and Related Party TransactionsNeff Holdings LLC Agreement," each common unit (other than common units held by us) is redeemable for one of our Class A common shares, or, at our option, cash equal to the market value of one of our Class A common shares. In addition, at Neff Corporation's election, Neff Corporation may effect a direct exchange of such Class A common stock or such cash for such common units.
As described in "Our Organizational Structure" and "Certain Relationships and Related Party TransactionsTax Receivable Agreement," concurrently with this offering, we will issue to Wayzata one share of Class B common stock for each common unit they own. As a result, the number of shares of Class B common stock listed in the table below generally correlates to the number of common units in Neff Holdings that Wayzata will own immediately prior to and after this offering (but after giving effect to the Organizational Transactions other than this offering).
|
Shares Beneficially Owned Prior to this Offering |
Shares Beneficially Owned After this Offering Assuming the Underwriters' Option is Not Exercised |
Shares Beneficially Owned After This Offering Assuming The Underwriters' Option is Exercised in Full |
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name and Address of Beneficial Owner
|
Shares of Class A Common Stock |
Shares of Class B Common Stock |
% of Combined Voting Power(1) |
Shares of Class A Common Stock |
Shares of Class B Common Stock |
% of Combined Voting Power(1) |
Shares of Class A Common Stock |
Shares of Class B Common Stock |
% of Combined Voting Power(1) |
|||||||||||||||||||
Wayzata(2) |
| 14,951,625 | (3) | 100 | % | | 12,808,768 | 55 | % | | 12,808,768 | 51.5 | % | |||||||||||||||
Graham Hood |
| | | | | | | |||||||||||||||||||||
Mark Irion |
| | | | | | | |||||||||||||||||||||
Westley Parks |
| | | | | | | |||||||||||||||||||||
Robert Singer |
| | | | | | | |||||||||||||||||||||
James Continenza |
| | | | | | | |||||||||||||||||||||
Joseph Deignan |
| | | | | | | |||||||||||||||||||||
Gerard E. Holthaus |
| | | | | | | |||||||||||||||||||||
All executive officers and directors as a group (seven individuals)(4) |
| | | | | | |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Each of the related party transactions described below was negotiated on an arm's length basis. We believe that the terms of such agreements are as favorable as those we could have obtained from parties not related to us.
The following are summaries of certain provisions of our related party agreements and are qualified in their entirety by reference to all of the provisions of such agreements. Because these descriptions are only summaries of the applicable agreements, they do not necessarily contain all of the information that you may find useful. We therefore urge you to review the agreements in their entirety. Copies of the forms of the agreements have been filed as exhibits to the registration statement of which this prospectus is a part, and are available electronically on the website of the SEC at www.sec.gov.
The Organizational Transactions
In connection with the Organizational Transactions, we will engage in certain transactions with certain of our directors, executive officers and other persons and entities which are or will become holders of 5% or more of our voting securities upon the consummation of the Organizational Transactions, including entering into the Tax Receivable Agreement. These transactions are described in "Our Organizational Structure."
Tax Receivable Agreement
As described in "Our Organizational Structure," we intend to use substantially all of the proceeds from this offering to purchase common units of Neff Holdings, in part from Wayzata (to the extent the underwriters exercise their option to purchase additional shares of Class A common stock) and otherwise directly from Neff Holdings. We expect to obtain an increase in our share of the tax basis of the assets of Neff Holdings as a result of these Organizational Transactions, including the use of such proceeds to repay certain indebtedness of Neff Holdings. We may obtain a similar increase in our share of the tax basis of the assets of Neff Holdings in the future, when (as described below under "Neff Holdings LLC AgreementAgreement in Effect Upon Completion of the OfferingCommon Unit Redemption Right") an existing owner receives shares of our Class A common stock or cash at our election in connection with an exercise of such existing owner's right to have common units in Neff Holdings held by such existing owner redeemed by Neff Holdings or, at the election of Neff Corporation, exchanged (which we intend to treat as our direct purchase of common units from an existing owner for U.S. federal income and other applicable tax purposes, regardless of whether such common units are surrendered by an existing owner to Neff Holdings for redemption or sold to us upon the exercise of our election to acquire such common units directly) (such basis increase, together with the basis increases described in the immediately preceding sentence, the "Basis Adjustments"). Moreover, as a result of the application of the principles of Section 704(c) of the Code and the U.S. Treasury regulations issued thereunder, which require that items of income, gain, loss and deduction attributable to property owned by Neff Holdings on the date that we purchase common units directly from Neff Holdings with a portion of the proceeds from this offering must be allocated among the members of Neff Holdings to take into account the difference between the fair market value and the adjusted tax basis of such assets on such date, Neff Holdings will be required to make certain special allocations of its items of loss and deduction to us over time that are in excess of our pro rata share of such items of loss or deduction. Any Basis Adjustment as well as the special allocations described above will have the effect of reducing the amounts that we would otherwise pay in the future to various tax authorities. The Basis Adjustments may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
In connection with the transactions described above, we will enter into a Tax Receivable Agreement with each of our existing owners that will provide for the payment by us to such persons of 85% of the amount of tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, as a
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result of the transactions described above, including increases in the tax basis of the assets of Neff Holdings attributable to payments made under the Tax Receivable Agreement and deductions attributable to imputed interest and other payments of interest pursuant to the Tax Receivable Agreement. Neff Holdings intends to have in effect an election under Section 754 of the Code effective for the taxable year in which we purchase common units from the existing owners with the proceeds of this offering and each taxable year in which a redemption or exchange of Neff Holdings common units for shares of our Class A common stock or cash occurs. These tax benefit payments are not conditioned upon one or more of the existing owners maintaining a continued ownership interest in either Neff Holdings or us. Our existing owners' rights under the Tax Receivable Agreement are assignable to transferees of its common units in Neff Holdings (other than Neff Corporation as transferee pursuant to redemption of common units in Neff Holdings). We expect to benefit from the remaining 15% of the tax benefits, if any, that we may actually realize.
The actual Basis Adjustments, as well as any amounts paid to our existing owners under the Tax Receivable Agreement will vary depending on a number of factors, including:
For purposes of the Tax Receivable Agreement, cash savings in income and franchise tax will be computed by comparing our actual income and franchise tax liability to the amount of such taxes that we would have been required to pay had there been no Basis Adjustments, had there been no tax benefit to us as a result of the special allocations described above and had the Tax Receivable Agreement not been entered into. The Tax Receivable Agreement will generally apply to each of our taxable years, beginning with the first taxable year ending after the consummation of the offering. There is no maximum term for the Tax Receivable Agreement; however, the Tax Receivable Agreement may be terminated by us pursuant to an early termination procedure that requires us to pay the existing owners an agreed upon amount equal to the estimated present value of the remaining payments to be made under the agreement (calculated with certain assumptions).
The payment obligations under the Tax Receivable Agreement are obligations of Neff Corporation and not of Neff Holdings. Although the actual timing and amount of any payments that may be made under the Tax Receivable Agreement will vary, we expect that the payments that we may be required to make to our existing owners could be substantial. Any payments made by us to our existing owners under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have
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otherwise been available to us or to Neff Holdings and, to the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, the unpaid amounts will be deferred and will accrue interest until paid by us. We anticipate funding payments under the Tax Receivable Agreement from cash flow from operations of our subsidiaries, available cash and available borrowings under the Revolving Credit Facility.
The Tax Receivable Agreement provides that if certain mergers, asset sales, other forms of business combination, or other changes of control were to occur, or that if, at any time, we elect an early termination of the Tax Receivable Agreement, then the Tax Receivable Agreement will terminate and our obligations, or our successor's obligations, under the Tax Receivable Agreement would accelerate and become due and payable, based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax Receivable Agreement. We may elect to completely terminate the Tax Receivable Agreement early only with the written approval of a majority of Neff Corporation's "independent directors" (within the meaning of Rule 10A-3 promulgated under the Exchange Act and the corresponding rules of the NYSE). The single Wayzata board member will not be an "independent director" for this purpose and will not have the ability to cause Neff Corporation to elect an early termination of the Tax Receivable Agreement.
Decisions made by us in the course of running our business, such as with respect to mergers, asset sales, other forms of business combinations or other changes in control, may influence the timing and amount of payments that are received by a redeeming existing owner under the Tax Receivable Agreement. For example, the earlier disposition of assets following an exchange or acquisition transaction will generally accelerate payments under the Tax Receivable Agreement and increase the present value of such payments.
As a result of a change in control or our election to terminate the Tax Receivable Agreement early, (i) we could be required to make cash payments to our existing owners that are greater than the specified percentage of the actual benefits we ultimately realize in respect of the tax benefits that are subject to the Tax Receivable Agreement, and (ii) we would be required to make an immediate cash payment equal to the present value of the anticipated future tax benefits that are the subject of the Tax Receivable Agreement, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits. In these situations, our obligations under the Tax Receivable Agreement could have a material adverse effect on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combination, or other changes of control. There can be no assurance that we will be able to finance our obligations under the Tax Receivable Agreement.
Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we determine. We will not be reimbursed for any cash payments previously made to our existing owners pursuant to the Tax Receivable Agreement if any tax benefits initially claimed by us are subsequently challenged by a taxing authority and ultimately disallowed. Instead, any excess cash payments made by us to an existing owner will be netted against any future cash payments that we might otherwise be required to make under the terms of the Tax Receivable Agreement. However, we might not determine that we have effectively made an excess cash payment to our existing owners for a number of years following the initial time of such payment. As a result, it is possible that we could make cash payments under the Tax Receivable Agreement that are substantially greater than our actual cash tax savings. Although we are not currently aware of any potential challenge, if we subsequently determine that any Basis Adjustments or other tax benefits may be subjected to a reasonable challenge by a taxing authority, we may withhold payments to our existing owners under the Tax Receivable Agreement related to such Basis Adjustments or other tax benefits in an interest-bearing escrow account until such a challenge is no longer possible.
If we receive a formal notice or assessment from a taxing authority with respect to any cash savings covered by the Tax Receivable Agreement, we will place any subsequent tax benefit payments that would otherwise be made to the existing owners into an interest-bearing escrow account until there is a final
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determination. We will have full responsibility for, and sole discretion over, all Neff Corporation tax matters, including the filing and amendment of all tax returns and claims for refund and defense of all tax contests, subject to certain participation and approval rights held by the existing owners.
Under the Tax Receivable Agreement, we are required to provide our existing owners with a schedule showing the calculation of payments that are due under the Tax Receivable Agreement with respect to each taxable year with respect to which a payment obligation arises within 30 days after filing our U.S. federal income tax return for such taxable year. This calculation will be based upon the advice of our tax advisors. Payments under the Tax Receivable Agreement will generally be made to our existing owners within three business days after this schedule becomes final pursuant to the procedures set forth in the Tax Receivable Agreement, although interest on such payments will begin to accrue at a rate of LIBOR plus 100 basis points from the due date (without extensions) of such tax return. Any late payments that may be made under the Tax Receivable Agreement will continue to accrue interest at LIBOR plus 500 basis points until such payments are made, generally including any late payments that we may subsequently make because we did not have enough available cash to satisfy our payment obligations at the time at which they originally arose.
Assuming that there are no material changes in the relevant tax law, the underwriters do not exercise their option to purchase additional shares of Class A common stock, Neff Holdings is able to fully depreciate or amortize its assets, we earn sufficient taxable income to realize the full tax benefit of the increased depreciation and amortization of our assets, and the market value of one share of Class A common stock is equal to the assumed initial public offering price per share, we expect that future payments under the Tax Receivable Agreement in respect of our initial purchase of common units of Neff Holdings from Neff Holdings and Wayzata, will aggregate $86.2 million and range from approximately $2.0 million to $18.0 million per year over the next 15 years. A $1.00 increase (decrease) in the assumed initial public offering price of $21.00 per share of Class A common stock (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) the aggregate amount of payments under the Tax Receivable Agreement in respect of our initial purchase of common units of Neff Holdings from Neff Holdings and Wayzata by $1.0 million. Future payments under the Tax Receivable Agreement in respect of subsequent redemptions or exchanges by our existing owners will be in addition to these amounts and are expected to be substantial.
Assuming that the holders of the common units of Neff Holdings sell all of their common units to us on the date of this offering in connection with this initial public offering, there are no material changes in the relevant tax law, Neff Holdings is able to fully depreciate or amortize its assets, we earn sufficient taxable income to realize the full tax benefit of the increased depreciation and amortization of our assets, and the market value of one share of Class A common stock is equal to the initial public offering price per share, future payments under the Tax Receivable Agreement in respect of such purchases could aggregate approximately $410.0 million and range from approximately $15.0 million to $55.0 million per year over the next 15 years. A $1.00 increase (decrease) in the assumed initial public offering price of $21.00 per share of Class A common stock (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) the aggregate amount of future payments under the Tax Receivable Agreement in respect of such purchases by $6.7 million.
The foregoing numbers are merely estimates, and the actual payments and timing of such payments could differ materially depending on a number of factors. As discussed above, actual amounts of payments under the Tax Receivable Agreement and the timing of such payments will vary and will be determined based on a number of factors, including the timing of future redemptions or exchanges of common units in Neff Holdings, the price of Class A common stock at the time of each redemption or exchange, the extent to which such redemptions or exchanges are taxable, the amount and timing of the taxable income we generate in the future and the tax rate then applicable and the timing and amount of any subsequent asset dispositions. Thus, it is likely that future transactions or events could increase or decrease the actual tax
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benefits realized and the corresponding payments under the Tax Receivable Agreement as compared to the estimates set forth above.
Neff Holdings LLC Agreement
Agreement in Effect Before Completion of this Offering
The existing owners of Neff Holdings are parties to an Amended and Restated Limited Liability Company Agreement of Neff Holdings LLC, dated as of October 1, 2010 and amended as of October 20, 2010, which governs the business operations of Neff Holdings and defines the relative rights and privileges associated with the existing Class A units and Class B units of Neff Holdings. We refer to this agreement as the "Existing LLC Agreement." The day-to-day business operations of Neff Holdings are overseen and implemented by officers of Neff Holdings, subject to limitations imposed by the board of managers. Under the Existing LLC Agreement, Neff Holdings is governed by a four-member board of managers, who qualify as "managers" for purposes of the Delaware limited liability company statute. Holders of more than 50% of the outstanding Class A units are entitled to elect the managers from time to time; provided that the Chief Executive Officer shall at all times serve as a manager. Each member of the board of managers has one vote on all matters submitted to the board, and board actions require a vote of the majority of managers. Each existing member's rights under the Existing LLC Agreement continue until the effective time of the new Neff Holdings operating agreement to be adopted in connection with this offering, as described below, at which time the existing members will continue as members that hold common units in Neff Holdings with the respective rights thereunder.
Agreement in Effect Upon Completion of this Offering
In connection with the completion of this offering, we and our existing owners will enter into Neff Holdings' second amended and restated limited liability company agreement, which we refer to as the "Neff Holdings LLC Agreement."
Appointment as Manager. Under the Neff Holdings LLC Agreement, we will become a member and the sole manager of Neff Holdings. As the sole manager, we will be able to control all of the day-to-day business affairs and decision-making of Neff Holdings without the approval of any other member. As such, we, through our officers and directors, will be responsible for all operational and administrative decisions of Neff Holdings and the day-to-day management of Neff Holdings' business. Pursuant to the terms of the Neff Holdings LLC Agreement, we cannot, under any circumstances, be removed as the sole manager of Neff Holdings except by our election.
Compensation. We will not be entitled to compensation for our services as manager. We will be entitled to reimbursement by Neff Holdings for fees and expenses incurred on behalf of Neff Holdings, including all expenses associated with this offering and maintaining our corporate existence.
Distributions. The Neff Holdings LLC Agreement will require "tax distributions" to be made by Neff Holdings to its members, as that term is defined in the agreement. Tax distributions will be made as and when members are required to make estimated payments or file tax returns, which we expect will be approximately on a quarterly basis, to each member of Neff Holdings, including us, based on such member's allocable share of the taxable income of Neff Holdings and an assumed tax rate that will be determined by us. For this purpose, the taxable income of Neff Holdings, and Neff Corporation's allocable share of such taxable income, shall be determined without regard to any tax basis adjustments that result from our deemed or actual purchase of an equity interest in Neff Holdings from our existing owners or the use of the proceeds from this offering to repay certain indebtedness of Neff Holdings (as described above under "Tax Receivable Agreement"). The assumed tax rate that we expect to use for purposes of determining tax distributions from Neff Holdings to its members will approximate our reasonable estimate of the highest combined federal, state, and local tax rate that may potentially apply to any one of Neff
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Holdings' members, regardless of the actual final tax liability of any such member. Tax distributions will also be made only to the extent all distributions from Neff Holdings for the relevant period were otherwise insufficient to enable each member to cover its tax liabilities as calculated in the manner described above. The Neff Holdings LLC Agreement will also allow for distributions to be made by Neff Holdings to its members on a pro rata basis out of "distributable cash," as that term is defined in the agreement. We expect Neff Holdings may make distributions out of distributable cash periodically to the extent permitted by our credit facilities and necessary to enable us to cover our operating expenses and other obligations, including our tax liability and obligations under the Tax Receivable Agreement, as well as to make dividend payments, if any, to the holders of our Class A common stock.
Transfer Restrictions. The Neff Holdings LLC Agreement generally does not permit transfers of common units by members, subject to limited exceptions. Any transferee of common units must assume, by operation of law or written agreement, all of the obligations of a transferring member with respect to the transferred units, even if the transferee is not admitted as a member of Neff Holdings.
Recapitalization. The Neff Holdings LLC Agreement recapitalizes the units currently held by the existing members of Neff Holdings, as well as units underlying certain options currently outstanding, into a new single class of common units of Neff Holdings. The Neff Holdings LLC Agreement will also reflect a split of common units such that one common unit can be acquired with the net proceeds received in the initial offering from the sale of one share of our Class A common stock, after the deduction of underwriting discounts and commissions.
Common Unit Redemption Right. The Neff Holdings LLC Agreement provides a redemption right to the existing members and the holders of options over common units in Neff Holdings which entitles them to have their common units redeemed by Neff Holdings, at the election of each such person, for, at our option, newly-issued shares of our Class A common stock on a one-for-one basis or a cash payment equal to a volume weighted average market price of one share of Class A common stock for each common unit redeemed (subject to customary adjustments, including for stock splits, stock dividends and reclassifications). If we decide to make a cash payment, the member has the option to rescind its redemption request within a specified time period. Upon the exercise of the redemption right, the redeeming member will surrender common units to Neff Holdings for cancellation. The Neff Holdings LLC Agreement requires that we contribute cash or shares of our Class A common stock to Neff Holdings in exchange for an amount of newly issued common units in Neff Holdings to us equal to the number of common units redeemed by the member. Neff Holdings will then distribute the cash or shares of our Class A common stock to the redeeming member to complete the redemption. At our election, we may effect a direct exchange of cash or our Class A common stock for such common units in lieu of such a redemption. Neither Neff Corporation nor Neff Holdings can compel any member to tender their common units for redemption by Neff Holdings or to directly exchange such common units with Neff Corporation. However, once a member tenders its common units for redemption, Neff Corporation, in its sole discretion, will determine at such time whether to contribute cash or shares to Neff Holdings to complete the redemption or to effect a direct exchange with such redeeming member. Whether by redemption or exchange, we are obligated to ensure that at all times the number of common units in Neff Holdings that we own equals the number of our outstanding shares of Class A common stock. To the extent Neff Corporation, in its discretion, elects to contribute shares of Class A common stock to Neff Holdings to complete a redemption, Neff Holdings will issue to Neff Corporation in respect of such contribution an equal number of common units of Neff Holdings, which transaction will maintain the one-to-one ratio. To the extent Neff Corporation, it its discretion, elects to effect a direct exchange with the redeeming member to complete a redemption, Neff Corporation will issue to such redeeming member a number of shares of Class A common stock equal to the number of common units of Neff Holdings delivered by such redeeming member to Neff Corporation in such exchange, which transaction will maintain the one-to-one ratio.
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Maintenance of One-to-One Ratio between Shares of Class A Common Stock and Common Units. The Neff Holdings LLC Agreement requires Neff Holdings to take all actions with respect to its common units, including reclassifications, distributions, divisions or recapitalizations, to maintain at all times a one-to-one ratio between the number of common units owned by us and the number of shares of our Class A common stock outstanding. This ratio requirement disregards (i) shares of our Class A common stock under unvested options issued by us, (ii) treasury stock and (iii) preferred stock or other debt or equity securities (including warrants, options or rights) issued by us that are convertible into or exercisable or exchangeable for shares of Class A common stock, except to the extent we have contributed the net proceeds from such other securities, including any exercise or purchase price payable upon conversion, exercise or exchange thereof, to the equity capital of Neff Holdings. In addition, this Class A common stock ratio requirement disregards all common units at any time held by any other person, including our existing members and the holders of options over common units. If we issue, transfer or deliver from treasury stock or repurchase shares of Class A common stock in a transaction not contemplated by the Neff Holdings LLC Agreement, we as manager have the authority to take all actions such that, after giving effect to all such issuances, transfers, deliveries or repurchases, the number of outstanding common units we own equals, on a one-for-one basis, the number of outstanding shares of Class A common stock. If we issue, transfer or deliver from treasury stock or repurchase or redeem any of our preferred stock in a transaction not contemplated by the Neff Holdings LLC Agreement, we as manager have the authority to take all actions such that, after giving effect to all such issuances, transfers, deliveries repurchases or redemptions, we hold (in the case of any issuance, transfer or delivery) or cease to hold (in the case of any repurchase or redemption) equity interests in Neff Holdings which (in our good faith determination) are in the aggregate substantially equivalent to our preferred stock so issued, transferred, delivered, repurchased or redeemed. Neff Holdings is prohibited from undertaking any subdivision (by any split of units, distribution of units, reclassification, recapitalization or similar event) or combination (by reverse split of units, reclassification, recapitalization or similar event) of the common units that is not accompanied by an identical subdivision or combination of our Class A common stock to maintain at all times a one-to-one ratio between the number of common units owned by us and the number of outstanding shares of our Class A common stock, subject to exceptions.
Issuance of Common Units Upon Exercise of Options or Issuance of Other Equity Compensation. Upon the exercise of options issued by us (as opposed to options issued by Neff Holdings), or the issuance of other types of equity compensation by us (such as the issuance of restricted or non-restricted stock, payment of bonuses in stock or settlement of stock appreciation rights in stock), we will have the right to acquire from Neff Holdings a number of common units equal to the number of our shares of Class A common stock being issued in connection with the exercise of such options or issuance of other types of equity compensation. When we issue shares of Class A common stock in settlement of stock options granted to persons that are not officers or employees of Neff Holdings or its subsidiaries, we will make, or be deemed to make, a capital contribution in Neff Holdings equal to the aggregate value of such shares of Class A common stock and Neff Holdings will issue to us a number of common units equal to the number of shares we issued. When we issue shares of Class A common stock in settlement of stock options granted to persons that are officers or employees of Neff Holdings or its subsidiaries, then we will be deemed to have sold directly to the person exercising such award a portion of the value of each share of Class A common stock equal to the exercise price per share, and we will be deemed to have sold directly to Neff Holdings (or the applicable subsidiary of Neff Holdings) the difference between the exercise price and market price per share for each such share of Class A common stock. In cases where we grant other types of equity compensation to employees of Neff Holdings or its subsidiaries, on each applicable vesting date we will be deemed to have sold to Neff Holdings (or such subsidiary) the number of vested shares at a price equal to the market price per share, Neff Holdings (or such subsidiary) will deliver the shares to the applicable person, and we will be deemed to have made a capital contribution in Neff Holdings equal to the purchase price for such shares in exchange for an equal number of common units of Neff Holdings.
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Dissolution. The Neff Holdings LLC Agreement will provide that the unanimous consent of all members holding voting units will be required to voluntarily dissolve Neff Holdings. In addition to a voluntary dissolution, Neff Holdings will be dissolved upon a change of control transaction under certain circumstances, as well as upon the entry of a decree of judicial dissolution or other circumstances in accordance with Delaware law. Upon a dissolution event, the proceeds of a liquidation will be distributed in the following order: (i) first, to pay the expenses of winding up Neff Holdings; (ii) second, to pay debts and liabilities owed to creditors of Neff Holdings, other than members; (iii) third, to pay debts and liabilities owed to members; and (iv) fourth, to the members pro-rata in accordance with their respective percentage ownership interests in Neff Holdings (as determined based on the number of common units held by a member relative to the aggregate number of all outstanding common units).
Confidentiality. Each member will agree to maintain the confidentiality of Neff Holdings' confidential information. This obligation excludes information independently obtained or developed by the members, information that is in the public domain or otherwise disclosed to a member, in either such case not in violation of a confidentiality obligation or disclosures required by law or judicial process or approved by our chief executive officer.
Indemnification. The Neff Holdings LLC Agreement provides for indemnification of the manager, members and officers of Neff Holdings and their respective subsidiaries or affiliates.
Registration Rights Agreement
We intend to enter into a Registration Rights Agreement with our existing owners in connection with this offering. The Registration Rights Agreement will provide our existing owners certain registration rights whereby, at any time following our initial public offering and the expiration of any related lock-up period, they can require us to register under the Securities Act shares of Class A common stock issuable to them, at our election, upon redemption or exchange of their common units in Neff Holdings (including common units issuable upon exercise of options issued by Neff Holdings). The Registration Rights Agreement will also provide for piggyback registration rights for all stockholders that are parties to the agreement.
Other Compensation Programs
Neff Holdings has entered into certain compensation plans to provide payments to certain of its service providers (including its named executive officers and certain of our non-employee directors) as described above under "Executive CompensationOther Compensation Programs."
Director and Officer Indemnification and Insurance
We have entered into indemnification agreements with certain of our directors and executive officers, and purchased directors' and officers' liability insurance. See "Description of Capital StockLimitations on Liability and Indemnification of Officers and Directors."
Our Policy Regarding Related Party Transactions
Our board of directors recognizes the fact that transactions with related persons present a heightened risk of conflicts of interests and/or improper valuation (or the perception thereof). Prior to the closing of this offering, our board of directors will adopt a written policy on transactions with related persons that is in conformity with the requirements for issuers having publicly-held common stock that is listed on the NYSE. Under the new policy:
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composed solely of independent directors who are disinterested or by the disinterested members of the board of directors; and
In connection with the review and approval or ratification of a related person transaction:
In addition, the related person transaction policy provides that the committee or disinterested directors, as applicable, in connection with any approval or ratification of a related person transaction involving a non-employee director should consider whether such transaction would compromise the director's status as an "independent," "outside," or "non-employee" director, as applicable, under the rules and regulations of the SEC, the NYSE and the Code.
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General
At or prior to the consummation of this offering, we will file an amended and restated certificate of incorporation, or our "certificate," and we will adopt our amended and restated by-laws, or our "by-laws." Our certificate will authorize capital stock consisting of:
We are selling 10,476,190 shares of Class A common stock in this offering (12,047,618 shares if the underwriters exercise in full their option to purchase additional shares of our Class A common stock). All shares of our Class A common stock outstanding upon consummation of this offering will be fully paid and non-assessable.
The following summary describes the material provisions of our capital stock. We urge you to read our certificate and our by-laws, which are included as exhibits to the registration statement of which this prospectus forms a part.
Certain provisions of our certificate and our by-laws summarized below may be deemed to have an anti-takeover effect and may delay or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares of common stock.
Class A Common Stock
Holders of shares of our Class A common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. The holders of our Class A common stock do not have cumulative voting rights in the election of directors.
Holders of shares of our Class A common stock are entitled to receive dividends when and if declared by our board of directors out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock.
Upon our dissolution or liquidation or the sale of all or substantially all of our assets, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of shares of our Class A common stock will be entitled to receive pro rata our remaining assets available for distribution.
Holders of shares of our Class A common stock do not have preemptive, subscription, redemption or conversion rights. There will be no redemption or sinking fund provisions applicable to the Class A common stock.
Class B Common Stock
Each holder of Class B common stock shall be entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. The holders of our Class B common stock do not have cumulative voting rights in the election of directors.
Holders of shares of our Class B common stock will vote together with holders of our Class A common stock as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law.
Holders of our Class B common stock do not have any right to receive dividends or to receive a distribution upon a dissolution or liquidation or the sale of all or substantially all of our assets.
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Additionally, holders of shares of our Class B common stock do not have preemptive, subscription, redemption or conversion rights. There will be no redemption or sinking fund provisions applicable to the Class B common stock.
Upon the consummation of this offering, Wayzata will own 100% of our outstanding Class B common stock.
Preferred Stock
Upon the closing of this offering and the effectiveness of our certificate, the total of our authorized shares of preferred stock will be 10,000,000 shares. Upon the closing of this offering, we will have no shares of preferred stock outstanding.
Under the terms of our certificate that will become effective upon the closing of this offering, our board of directors is authorized to direct us to issue shares of preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.
The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from seeking to acquire, a majority of our outstanding voting stock. Additionally, the issuance of preferred stock may adversely affect the holders of our Class A common stock by restricting dividends on the Class A common stock, diluting the voting power of the Class A common stock or subordinating the liquidation rights of the Class A common stock. As a result of these or other factors, the issuance of preferred stock could have an adverse impact on the market price of our Class A common stock.
Anti-Takeover Provisions
Our certificate of incorporation and by-laws, as they will be in effect upon completion of this offering, will contain provisions that may delay, defer or discourage another party from acquiring control of us. We expect that these provisions, which are summarized below, will discourage coercive takeover practices or inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors, which we believe may result in an improvement of the terms of any such acquisition in favor of our stockholders. However, they also give our board of directors the power to discourage acquisitions that some stockholders may favor.
Section 203 of the Delaware General Corporation Law. We are subject to Section 203 of the Delaware General Corporation Law. Subject to certain exceptions, Section 203 prevents a publicly held Delaware corporation from engaging in a "business combination" with any "interested stockholder" for three years following the date that the person became an interested stockholder, unless the interested stockholder attained such status with the approval of our board of directors or unless the business combination is approved in a prescribed manner. A "business combination" includes, among other things, a merger or consolidation involving us and the "interested stockholder" and the sale of more than 10% of our assets. In general, an "interested stockholder" is any entity or person beneficially owning 15% or more of our outstanding voting stock and any entity or person affiliated with or controlling or controlled by such entity or person.
Classified Board of Directors. Our certificate will divide our board of directors into three classes with staggered three-year terms. In addition, our certificate and our by-laws will provide that directors may be removed only for cause. Under our certificate and by-laws, any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled only by the affirmative vote of a majority of our directors then in office, even though less than a quorum of the board
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of directors. The classification of our board of directors and the limitations on the ability of our stockholders to remove directors and fill vacancies could make it more difficult for a third party to acquire, or discourage a third party from seeking to acquire, control of us.
Authorized but Unissued Shares. The authorized but unissued shares of our common stock and our preferred stock are available for future issuance without stockholder approval, subject to any limitations imposed by the listing standards of the NYSE. These additional shares may be used for a variety of corporate finance transactions, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved common stock and preferred stock could make more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Stockholder Action by Written Consent. Our certificate and our by-laws will provide that any action required or permitted to be taken by our stockholders at an annual meeting or special meeting of stockholders may only be taken if it is properly brought before such meeting and may be taken by written consent in lieu of a meeting only if the action to be effected by such written consent and the taking of such action by such written consent have been previously approved by the board of directors.
Special Meetings of Stockholders. Our by-laws also will provide that, except as otherwise required by law, special meetings of the stockholders may only be called by our board of directors.
Advance Notice Requirements for Stockholder Proposals and Director Nominations. In addition, our by-laws will establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of stockholders, including proposed nominations of candidates for election to our board of directors. In order for any matter to be "properly brought" before a meeting, a stockholder will have to comply with advance notice and duration of ownership requirements and provide us with certain information. Stockholders at an annual meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of our board of directors or by a qualified stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has delivered timely written notice in proper form to our secretary of the stockholder's intention to bring such business before the meeting. These provisions could have the effect of delaying stockholder actions that are favored by the holders of a majority of our outstanding voting securities until the next stockholder meeting.
Amendment of Certificate of Incorporation or By-laws. The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or by-laws, unless a corporation's certificate of incorporation or by-laws, as the case may be, requires a greater percentage. Upon completion of this offering, our by-laws may be amended or repealed by a majority vote of our board of directors or by the affirmative vote of the holders of at least 662/3% of the votes which all our stockholders would be eligible to cast in an election of directors. In addition, the affirmative vote of the holders of at least 662/3% of the votes which all our stockholders would be eligible to cast in an election of directors will be required to amend or repeal or to adopt any provisions inconsistent with any of the provisions of our certificate described in the prior three paragraphs.
Limitations on Liability and Indemnification of Officers and Directors
Our amended and restated certificate of incorporation and by-laws provide indemnification for our directors and officers to the fullest extent permitted by the Delaware General Corporation Law. Prior to the completion of this offering, we intend to enter into indemnification agreements with each of our directors that may, in some cases, be broader than the specific indemnification provisions contained under Delaware law. In addition, as permitted by Delaware law, our amended and restated certificate of incorporation includes provisions that eliminate the personal liability of our directors for monetary damages resulting from breaches of certain fiduciary duties as a director. The effect of this provision is to restrict our rights and the rights of our stockholders in derivative suits to recover monetary damages
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against a director for breach of fiduciary duties as a director, except that a director will be personally liable for:
These provisions may be held not to be enforceable for violations of the federal securities laws of the United States.
Corporate Opportunity Doctrine
Delaware law permits corporations to adopt provisions renouncing any interest or expectancy in certain opportunities that are presented to the corporation or its officers, directors or stockholders. Our amended and restated certificate of incorporation will, to the maximum extent permitted from time to time by Delaware law, renounce any interest or expectancy that we have in, or right to be offered an opportunity to participate in, specified business opportunities that are from time to time presented to certain of our officers, directors or stockholders or their respective affiliates, other than those officers, directors, stockholders or affiliates who are our or our subsidiaries' employees. Our amended and restated certificate of incorporation will provide that, to the fullest extent permitted by law, none of Wayzata or any director who is not employed by us or his or her affiliates will have any duty to refrain from (1) engaging in a corporate opportunity in the same or similar lines of business in which we or our affiliates now engage or propose to engage or (2) otherwise competing with us or our affiliates. In addition, to the fullest extent permitted by law, in the event that Wayzata or any non-employee director acquires knowledge of a potential transaction or other business opportunity which may be a corporate opportunity for itself or himself or its or his affiliates or for us or our affiliates, such person will have no duty to communicate or offer such transaction or business opportunity to us or any of our affiliates and they may take any such opportunity for themselves or offer it to another person or entity. Our amended and restated certificate of incorporation will not renounce our interest in any business opportunity that is expressly offered to a non-employee director solely in his or her capacity as a director or officer of Neff Corporation. To the fullest extent permitted by law, no business opportunity will be deemed to be a potential corporate opportunity for us unless we would be permitted to undertake the opportunity under our amended and restated certificate of incorporation, we have sufficient financial resources to undertake the opportunity and the opportunity would be in line with our business.
Dissenters' Rights of Appraisal and Payment
Under the Delaware General Corporation Law, with certain exceptions, our stockholders will have appraisal rights in connection with a merger or consolidation of Neff Corporation. Pursuant to the Delaware General Corporation Law, stockholders who properly request and perfect appraisal rights in connection with such merger or consolidation will have the right to receive payment of the fair value of their shares as determined by the Delaware Court of Chancery.
Stockholders' Derivative Actions
Under the Delaware General Corporation Law, any of our stockholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the stockholder bringing the action is a holder of our shares at the time of the transaction to which the action relates or such stockholder's stock thereafter devolved by operation of law.
Transfer Agent and Registrar
The transfer agent and registrar for our Class A common stock is Computershare Trust Company, N.A.
Trading Symbol and Market
We will apply to list our Class A common stock on the NYSE under the symbol "NEFF."
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SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of our Class A common stock, including shares issued upon the exercise of outstanding options or warrants, in the public market following the offering, the market price of our Class A common stock could decline. These sales also might make it more difficult for us to sell equity or equity related securities in the future at a time and price that we deem appropriate.
Upon completion of the offering, we will have outstanding an aggregate of 10,476,190 shares of our Class A common stock, assuming no exercise of the underwriters' option to purchase additional shares and no exercise of outstanding options. Of these shares, all of the shares sold in the offering will be freely tradable without restriction or further registration under the Securities Act, unless the shares are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act.
In addition, each common unit held by our existing owners will be redeemable, at the election of each existing owner, for, at Neff Corporation's option, newly-issued shares of Class A common stock on a one-for-one basis or a cash payment equal to the market price of one share of Class A common stock (subject to customary adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the Neff Holdings LLC Agreement; provided that, at Neff Corporation's election, Neff Corporation may effect a direct exchange of such Class A common stock or such cash for such common units. Upon consummation of this offering, our existing owners will hold 12,808,768 common units, all of which will be exchangeable for shares of our Class A common stock. The shares of Class A common stock we issue upon such exchanges would be "restricted securities" as defined in Rule 144 unless we register such issuances. However, we will enter into a Registration Rights Agreement with our existing owners that will require us to register under the Securities Act these shares of Class A common stock. See "Certain Relationships and Related Party TransactionsRegistration Rights Agreement."
Rule 144
In general, under Rule 144 as in effect on the date of this prospectus, beginning 90 days after the completion of this offering, a person (or persons whose shares are required to be aggregated) who is an affiliate and who has beneficially owned our shares for at least six months is entitled to sell in any three-month period a number of shares that does not exceed the greater of:
Sales by our affiliates under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. An "affiliate" is a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with an issuer.
Under Rule 144, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the 90 days preceding a sale, and who has beneficially owned the shares of Class A common stock proposed to be sold for at least six months (including the holding period of any prior owner other than an affiliate), would be entitled to sell those shares subject only to availability of current public information about us, and after beneficially owning such shares for at least 12 months (including the holding period of any prior owner other than an affiliate), would be entitled to sell an unlimited number of such shares without restriction. To the extent that our affiliates sell their shares, other than pursuant to Rule 144 or a registration statement, the purchaser's holding period for the purpose of effecting a sale under Rule 144 commences on the date of transfer from the affiliate.
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Lock-Up Agreements
We and our officers and directors and existing stockholders have agreed that, without the prior written consent of Morgan Stanley & Co. LLC and Jefferies LLC on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of Class A common stock or any securities convertible into or exercisable or exchangeable for shares of Class A common stock; (ii) file any registration statement with the SEC relating to the offering of any shares of Class A common stock or any securities convertible into or exercisable or exchangeable for Class A common stock; or (iii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of Class A common stock. Morgan Stanley & Co. LLC and Jefferies LLC, in their sole discretion, may release the Class A common stock and other securities subject to the lock-up agreements described above in whole or in part at any time with or without notice. See "Underwriters (Conflicts of Interest)."
The restrictions in the immediately preceding paragraph do not apply to certain transfers including, but not limited to, transfers of shares of our Class A common stock or securities convertible into or exchangeable for shares of our Class A common stock (i) acquired in open market transactions after the completion of this offering, subject to certain conditions, (ii) to satisfy tax withholding requirements, subject to certain conditions, (iii) pursuant to our equity incentive plans and (iv) in certain other transactions not involving a disposition for value.
Equity Awards
In general, under Rule 701 of the Securities Act as currently in effect, any of our employees, consultants or advisors who purchases shares of our Class A common stock from us in connection with a compensatory stock or option plan or other written agreement is eligible to resell those shares 90 days after the effective date of the offering in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144.
Following the offering, we intend to file a registration statement on Form S-8 under the Securities Act covering approximately 1,500,000 shares of Class A common stock issued or issuable upon the exercise of stock options, subject to outstanding options or reserved for issuance under our employee and director stock benefit plans. Accordingly, shares registered under the registration statement will, subject to Rule 144 provisions applicable to affiliates, be available for sale in the open market, except to the extent that the shares are subject to vesting restrictions or the contractual restrictions described above.
Registration Rights
See "Certain Relationships and Related Party TransactionsRegistration Rights Agreement."
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The Revolving Credit Facility
This summary is qualified in its entirety by reference to the agreement which is filed as an exhibit to the registration statement, of which this prospectus forms a part.
General
On October 1, 2010, certain of our subsidiaries including Neff LLC and Neff Holdings LLC entered into a senior secured credit agreement with Bank of America, N.A. as agent, swing line lender and letter of credit issuer, and the other financial institutions party thereto. The Revolving Credit Facility was amended and restated on November 20, 2013, and further amended on June 9, 2014 as part of the Refinancing. The Revolving Credit Facility matures on November 20, 2018.
The Revolving Credit Facility provides for revolving loans of up to an aggregate of $425 million, including a $42.5 million sub-limit for swing-line loans and a $30 million sub-limit for the issuance of standby or commercial letters of credit, subject to certain availability conditions. The amount available for borrowings under the Revolving Credit Facility is calculated according to a formula based primarily on the value of our rental fleet and equipment and, to a lesser extent, our accounts receivable and parts inventory. As of September 30, 2014, borrowings under the Revolving Credit Facility totaled $317.0 million, including $4.7 million in outstanding letters of credit, and we had availability of $103.3 million based on our borrowing base as of such date, subject to certain borrowing conditions. As of September 30, 2014, on a pro forma basis after giving effect to this offering and the application of net proceeds therefrom, we would have outstanding borrowings under our Revolving Credit Facility of $277.0 million and availability of $143.3 million, net of approximately $4.7 million in outstanding letters of credit. However, the financial covenants in the Revolving Credit Facility would have prohibited us from borrowing in excess of $60.8 million as of September 30, 2014, on an actual basis, and $100.8 million on a pro forma basis after giving effect to this offering and the application of net proceeds therefrom. All borrowings under the Revolving Credit Facility are subject to the satisfaction of usual and customary conditions, including accuracy of representations and warranties and absence of a default. The Revolving Credit Facility is secured by first-priority liens upon substantially all of our assets, subject to customary exceptions and exclusions.
Security
Neff Holdings and Neff LLC guarantee the Revolving Credit Facility. The Revolving Credit Facility is secured by first-priority liens on substantially all of the assets of Neff Rental LLC and the guarantors, subject to customary exceptions and exclusions.
Interest and Fees
Borrowings under the Revolving Credit Facility bear interest, at our option, at either a LIBOR rate or base rate, in each case plus an applicable margin. LIBOR loans bear interest at the LIBOR rate plus 250 basis points and base rate loans bear interest at the sum of (a) 150 basis points plus (b) the greatest of (i) the prime rate, (ii) the federal funds rate plus 50 basis points and (iii) LIBOR plus 100 basis points. The applicable margin on borrowings under the Revolving Credit Facility is at variable rates based on average availability and ranging from 2.00% to 2.50% for LIBOR borrowings, stepping down 25 basis points for the quarterly period following delivery of financial statements reflecting a total leverage ratio of less than 2.75 to 1.00.
The Revolving Credit Facility requires that we pay quarterly in arrears an annual commitment fee for each lender's unused commitment under the Revolving Credit Facility. The Revolving Credit Facility provides for the payment to the lenders of an unused line fee of 0.50% if less than 33% of the daily average
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unused portion under the Revolving Credit Facility is utilized, 0.375% if less than 66% but at least 33% is utilized, and 0.25% if 66% or more is utilized. The unused line fee is payable on the daily average unused portion of the commitments under the Revolving Credit Facility (whether or not then available).
Prepayments
Voluntary prepayments of amounts outstanding under the Revolving Credit Facility, in whole or in part, are permitted at any time, so long as we give notice as required by the Revolving Credit Facility. However, if prepayment is made with respect to a LIBOR-based loan and the prepayment is made on a date other than an interest payment date, we must pay customary breakage costs.
Certain Covenants
The Revolving Credit Facility contains financial covenants, applicable at any time excess availability is less than the greater of $35.0 million or 10% of the aggregate commitments of all lenders, which require us to maintain (i) a consolidated leverage ratio of not more than 5.95 to 1.00 for each fiscal quarter ended during the period from June 9, 2014 through and including June 30, 2014, stepping down to 5.75 to 1.00 for each fiscal quarter ended during the period from July 1, 2014 through and including December 31, 2014, stepping down to 5.50 to 1.00 for each fiscal quarter ended during the period from January 1, 2015 through and including June 30, 2015, stepping down to 5.25 to 1.00 for each fiscal quarter ended during the period from July 1, 2015 through and including September 30, 2015, stepping down to 5.00 to 1.00 for each fiscal quarter ended during the period from October 1, 2015 through and including December 31, 2015, stepping down to 4.75 to 1.00 for each fiscal quarter ended during the period from January 1, 2016 through and including June 30, 2016, stepping down to 4.50 to 1.00 for each fiscal quarter ended during the period from September 30, 2016 and thereafter and (ii) a fixed charge coverage ratio of not less than 1.00 to 1.00, in each case until such time as excess availability exceeds the threshold described above for a period of at least 30 days. As of September 30, 2014, we were in compliance with the financial covenants in the Revolving Credit Facility.
Additionally, the Revolving Credit Facility imposes a number of customary incurrence-based restrictive covenants applicable to each credit party, including restrictions on the ability to incur additional indebtedness, create liens, make investments and declare or pay dividends.
Events of Default
The Revolving Credit Facility contains customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenants defaults, cross-defaults to certain other indebtedness in excess of $5.0 million, certain events of bankruptcy and insolvency, judgment defaults in excess of $10.0 million, failure of any security document supporting the Revolving Credit Facility to be in full force and effect and a change of control.
Organizational Transaction Amendments
We have entered into an amendment to our Revolving Credit Facility conditioned on the consummation of this offering to, among other things, reflect the changes in our structure as a result of the Organizational Transactions. We intend to repay approximately $40.0 million of our borrowings under the Revolving Credit Facility with the net proceeds of this offering. See "Use of Proceeds."
The Second Lien Loan Facility
This summary is qualified in its entirety by reference to the agreement which is filed as an exhibit to the registration statement, of which this prospectus forms a part.
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General
On June 9, 2014, Neff Rental LLC, Neff LLC and Neff Holdings entered into a second lien credit agreement with Credit Suisse AG, as administrative agent and collateral agent, and various lenders party thereto. Neff Corporation is not party to the second lien credit agreement. On the closing date of the second lien credit agreement, Neff Rental LLC borrowed $575.0 million of second lien term loans thereunder. The proceeds provided by these Second Lien Loans were used to (i) redeem the Senior Secured Notes in full plus redemption premiums and accrued and unpaid interest thereon, (ii) make a $354.4 million distribution to the members of Neff Holdings and make payments to certain members of management and independent members of the board of directors and (iii) pay fees and expenses related to the foregoing. The maturity date of the Second Lien Loan is June 9, 2021.
The second lien credit agreement provides for uncommitted incremental term loans not to exceed in an aggregate principal amount $75.0 million plus additional amounts that may be incurred subject to compliance with a total leverage ratio of 5.25:1.00.
Security
Neff Holdings and Neff LLC guarantee the Second Lien Loan. The Second Lien Loan is secured by second-priority liens on substantially all of the assets of Neff Rental LLC and the guarantors, subject to customary exceptions and exclusions.
Interest
The Second Lien Loan bears interest, at our option, at either a LIBOR rate or base rate, in each case plus an applicable margin. LIBOR loans bear interest at the LIBOR rate plus 625 basis points and base rate loans bear interest at the sum of (a) 525 basis points plus (b) the greatest of (i) the prime rate, (ii) the federal funds rate plus 50 basis points and (iii) LIBOR plus 100 basis points. The LIBOR rate margin is subject to a "floor" of 100 basis points. We generally elect the LIBOR rate, and given LIBOR currently is less than 1.00%, our effective interest rate under the Second Lien Loan as of September 30, 2014 is 7.25% per annum.
Prepayments
Voluntary prepayments of the Second Lien Loan, in whole or in part, are permitted at any time, so long as we give notice as required by the documentation governing the Second Lien Loan. Voluntary prepayments on or before June 9, 2015 must be accompanied by a prepayment premium of 2.0% and voluntary prepayments after June 9, 2015 but before June 9, 2016 must be accompanied by a prepayment premium of 1.0%, in each case of the principal amount prepaid. If prepayment is made with respect to a LIBOR-based Second Lien Loan and the prepayment is made on a date other than an interest payment date, we must pay customary breakage costs.
We must make mandatory prepayments of principal on the Second Lien Loan if our total leverage ratio for any fiscal year, commencing with the fiscal year ending December 15, 2015, exceeds 3.00 to 1.00. These prepayment provisions require us to prepay an amount equal to either 25% of our excess cash flow (if our total leverage ratio is equal to or less than 4.00 to 1.00) or 50% of our excess cash flow (if our total leverage ratio is greater than 4.00 to 1.00). Second Lien Loans may be optionally prepaid by Neff Rental LLC at any time.
The documentation governing the Second Lien Loan requires Neff Rental LLC to repay Second Lien Loans with (i) 100% of proceeds of any incurrence of indebtedness not permitted by the second lien credit agreement, (ii) 100% of proceeds of asset sales, subject to a reinvestment right, and (iii) 50% of excess cash flow at the end of the applicable fiscal year, with such percentage decreasing as Neff Rental LLC's total leverage ratio decreases, in each case subject to customary exceptions and exclusions.
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Certain Covenants
The credit agreement for the Second Lien Loan contains customary incurrence-based restrictive covenants applicable to each credit party, including restrictions on the ability to incur additional indebtedness, create liens, make investments and declare or pay dividends.
Events of Default
The documentation governing the Second Lien Loan contains customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenants defaults, certain events of bankruptcy and insolvency, judgment defaults in excess of $30.0 million, failure of any security document supporting the Second Lien Loan to be in full force and effect and a change of control.
Organizational Transaction Amendments
We have entered into an amendment to our Second Lien Loan conditioned on the consummation of this offering to, among other things, reflect the changes in our structure as a result of the Organizational Transactions. We intend to prepay approximately $105.4 million of the principal amount of the Second Lien Loan with the net proceeds of this offering and pay approximately $2.2 million in prepayment premiums in connection with that prepayment. See "Use of Proceeds."
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS TO
NON-U.S. HOLDERS OF OUR CLASS A COMMON STOCK
The following discussion is a summary of the material U.S. federal income tax consequences to Non-U.S. Holders (as defined below) of the purchase, ownership and disposition of our Class A common stock issued pursuant to this offering, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service (the "IRS"), in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a Non-U.S. Holder of our Class A common stock. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the purchase, ownership and disposition of our Class A common stock.
This discussion is limited to Non-U.S. Holders that purchase our Class A common stock issued pursuant to this offering and that hold our Class A common stock as a "capital asset" within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a Non-U.S. Holder's particular circumstances, including the impact of the Medicare contribution tax on net investment income. In addition, it does not address consequences relevant to Non-U.S. Holders subject to special rules, including, without limitation:
If an entity treated as a partnership for U.S. federal income tax purposes holds our Class A common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our Class A common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
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THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR CLASS A COMMON STOCK ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
Definition of a Non-U.S. Holder
For purposes of this discussion, a "Non-U.S. Holder" is any beneficial owner of our Class A common stock that is neither a "U.S. person" nor an entity treated as a partnership for U.S. federal income tax purposes. A U.S. person is any person that, for U.S. federal income tax purposes, is or is treated as any of the following:
Distributions
Distributions of cash or property on our Class A common stock will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and first be applied against and reduce a Non-U.S. Holder's adjusted tax basis in its Class A common stock, but not below zero. Any excess will be treated as capital gain and will be treated as described below under "Sale or Other Taxable Disposition."
Subject to the discussion below on effectively connected income, dividends paid to a Non-U.S. Holder of our Class A common stock will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends (or such lower rate specified by an applicable income tax treaty, provided the Non-U.S. Holder furnishes a valid IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) certifying qualification for the lower treaty rate). A Non-U.S. Holder that does not timely furnish the required documentation, but that qualifies for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.
If dividends paid to a Non-U.S. Holder are effectively connected with the Non-U.S. Holder's conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such dividends are attributable), the Non-U.S. Holder will be exempt from the U.S. federal withholding tax described above. To claim the exemption, the Non-U.S. Holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that the dividends are effectively connected with the Non-U.S. Holder's conduct of a trade or business within the United States.
Any such effectively connected dividends will be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such
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effectively connected dividends, as adjusted for certain items. Non-U.S. Holders should consult their tax advisors regarding any applicable tax treaties that may provide for different rules.
Sale or Other Taxable Disposition
Subject to the discussion below under "Information Reporting and Backup Withholding" and "Additional Withholding Tax on Payments Made to Foreign Accounts," a Non-U.S. Holder will generally not be subject to U.S. federal income tax on any gain realized upon the sale or other taxable disposition of our Class A common stock unless:
Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.
Gain described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of the Non-U.S. Holder (even though the individual is not considered a resident of the United States), provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses.
With respect to the third bullet point above, we believe we currently are not, and do not anticipate becoming, a USRPHC. Because the determination of whether we are a USRPHC depends, however, on the fair market value of our USRPIs relative to the fair market value of our non-U.S. real property interests and our other business assets, there can be no assurance we currently are not a USRPHC or will not become one in the future. Even if we are or were to become a USRPHC, gain arising from the sale or other taxable disposition by a Non-U.S. Holder of our Class A common stock will not be subject to U.S. federal income tax if our Class A common stock is "regularly traded," as defined by applicable Treasury Regulations, on an established securities market, and such Non-U.S. Holder owned, actually or constructively, 5% or less of our Class A common stock throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition or the Non-U.S. Holder's holding period.
Non-U.S. Holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide for different rules.
Information Reporting and Backup Withholding
Payments of dividends on our Class A common stock will generally not be subject to backup withholding, provided the applicable withholding agent does not have actual knowledge or reason to know the holder is a United States person and the holder either certifies its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS in connection with any dividends on our Class A common stock paid to the Non-U.S. Holder, regardless of whether any tax was actually withheld. In addition, proceeds of the sale or other taxable disposition of our Class A common stock within the United
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States or conducted through certain U.S.-related financial intermediaries generally will not be subject to backup withholding or information reporting, if the applicable withholding agent receives the certification described above and does not have actual knowledge or reason to know that such holder is a United States person, or the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. Holder's U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Additional Withholding Tax on Payments Made to Foreign Accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such Sections commonly referred to as the Foreign Account Tax Compliance Act, or "FATCA") on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on, or gross proceeds from the sale or other disposition of, our Class A common stock, in each case, paid to a "foreign financial institution" or a "non-financial foreign entity" (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, including providing sufficient documentation evidencing its compliance (or deemed compliance) with FATCA, (2) the non-financial foreign entity either certifies it does not have any "substantial United States owners" (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain "specified United States persons" or "United States-owned foreign entities" (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Alternatively, foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.
Under the applicable Treasury Regulations, withholding under FATCA generally applies to payments of dividends on our Class A common stock and will apply to payments of gross proceeds from the sale or other disposition of such stock on or after January 1, 2017. If a dividend payment is both subject to withholding under FATCA and subject to the withholding tax discussed above under "Distributions," the withholding under FATCA may be credited against and therefore reduce such other withholding tax.
Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our Class A common stock.
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UNDERWRITERS (CONFLICTS OF INTEREST)
Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. LLC and Jefferies LLC are acting as joint book-running managers of the offering and as representatives, have severally agreed to purchase, and we have agreed to sell to them, severally the number of shares indicated below:
Name
|
Number of Shares | |||
---|---|---|---|---|
Morgan Stanley & Co. LLC |
||||
Jefferies LLC |
||||
Piper Jaffray & Co. |
||||
Merrill Lynch, Pierce, Fenner & Smith |
||||
Wells Fargo Securities, LLC |
||||
| | | | |
Total |
10,476,190 | |||
| | | | |
| | | | |
The underwriters and the representatives are collectively referred to as the "underwriters" and the "representatives," respectively. The underwriters are offering the shares of Class A common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of Class A common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of Class A common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters' option to purchase additional shares described below.
The underwriters initially propose to offer part of the shares of Class A common stock directly to the public at the offering price listed on the cover page of this prospectus and part to certain dealers. After the initial public offering of the shares of Class A common stock, the offering price and other selling terms may from time to time be varied by the representatives.
We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of Class A common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of Class A common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of Class A common stock as the number listed next to the underwriter's name in the preceding table bears to the total number of shares of Class A common stock listed next to the names of all underwriters in the preceding table.
The following table shows the public offering price, underwriting discounts and commissions before expenses to us. The information assumes either no exercise or full exercise by the underwriters of their option to purchase additional shares.
|
Per Share | Without Option | With Option | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Public offering price |
$ | $ | $ | |||||||
Underwriting discounts and commissions |
$ | $ | $ | |||||||
Proceeds, before expenses, to us |
$ | $ | $ |
The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $5.3 million. We have agreed to reimburse the underwriters for certain expenses in an amount up to $30,000.
145
The underwriters have informed us that they do not intend to make sales to discretionary accounts.
We will apply to list our Class A common stock on the NYSE under the trading symbol "NEFF".
We and our officers and directors and existing stockholders have agreed that, without the prior written consent of Morgan Stanley & Co. LLC and Jefferies LLC on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus (the "restricted period"):
whether any such transaction described above is to be settled by delivery of Class A common stock or such other securities, in cash or otherwise. In addition, we and each such person agrees that, subject to certain exceptions, without the prior written consent of Morgan Stanley & Co. LLC and Jefferies LLC on behalf of the underwriters, we or such other person will not, during the restricted period, make any demand for, or exercise any right with respect to, the registration of any shares of Class A common stock or any security convertible into or exercisable or exchangeable for Class A common stock.
The restrictions in the immediately preceding paragraph do not apply to certain transfers including, but not limited to, transfers of shares of our Class A common stock or securities convertible into or exchangeable for shares of our Class A common stock (i) acquired in open market transactions after the completion of this offering, subject to certain conditions, (ii) to satisfy tax withholding requirements, subject to certain conditions, (iii) pursuant to our equity incentive plans and (iv) in certain other transactions not involving a disposition for value.
Morgan Stanley & Co. LLC and Jefferies LLC, in their sole discretion, may release the Class A common stock and other securities subject to the lock-up agreements described above in whole or in part at any time with or without notice.
In order to facilitate the offering of the Class A common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Class A common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the option to purchase additional shares. The underwriters can close out a covered short sale by exercising their option to purchase additional shares or by purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the option to purchase additional shares. The underwriters may also sell shares in excess of the option to purchase additional shares, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the Class A common stock in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, shares of Class A common stock in the open market so stabilize the price of the Class A common stock. These activities may raise or maintain the market price of the Class A common stock above independent market levels or prevent or retard a decline in the market
146
price of the Class A common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time.
We and the underwriters have agreed to indemnity each other against certain liabilities, including liabilities under the Securities Act.
A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of shares of Class A common stock to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations.
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us or our affiliates, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in such securities and instruments. Merrill Lynch, Pierce, Fenner and Smith Incorporated served as lead arranger and book-runner and its affiliate serves as agent under the Revolving Credit Facility. An affiliate of Jefferies LLC served as joint bookrunner, joint lead arranger and syndication agent under the documentation governing the Second Lien Loan. Affiliates of Wells Fargo Securities, LLC serve as co-collateral agent and syndication agent under the Revolving Credit Facility. In addition, certain affiliates of the underwriters, including affiliates of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC under the Revolving Credit Facility and Morgan Stanley & Co. LLC and Wells Fargo Securities, LLC under the Second Lien Loan, hold a portion of the indebtedness being partially repaid with the proceeds of this offering. See "Use of Proceeds."
Pricing of this Offering
Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price was determined between us and the representatives. Among the factors considered in determining the initial public offering price were our future prospectus and those of our industry in general, our revenues, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-revenues ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to ours.
Conflicts of Interest
An affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated will receive more than 5% of the net proceeds of this offering in connection with the repayment of the Revolving Credit Facility. See "Use of Proceeds." Accordingly, this offering is being made in compliance with the requirements of FINRA Rule 5121. This rule requires, among other things, that a "qualified independent underwriter" has participated in the preparation of, and has exercised the usual standards of "due diligence" with respect to, the registration statement. Morgan Stanley & Co. LLC has agreed to act as qualified independent
147
underwriter for this offering and to undertake the legal responsibilities and liabilities of an underwriter under the Securities Act. Morgan Stanley & Co. LLC will not receive any additional fees for serving as qualified independent underwriter in connection with this offering. We have agreed to indemnify Morgan Stanley & Co. LLC against liabilities incurred in connection with acting as qualified independent underwriter, including liabilities under the Securities Act. Pursuant to FINRA Rule 5121, Merrill Lynch, Pierce, Fenner & Smith Incorporated will not confirm sales of the Class A common stock to any account over which it exercises discretionary authority without the prior written approval of the customer.
Selling Restrictions
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a "Relevant Member State"), from and including the date on which the European Union Prospectus Directive (the "EU Prospectus Directive") was implemented in that Relevant Member State (the "Relevant Implementation Date") an offer of securities described in this prospectus may not be made to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the EU Prospectus Directive, except that, with effect from and including the Relevant Implementation Date, an offer of securities described in this prospectus may be made to the public in that Relevant Member State at any time:
For the purposes of this provision, the expression an "offer of securities to the public" in relation to any securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the EU Prospectus Directive in that Member State. The expression "EU Prospectus Directive" means Directive 2003/71/EC (and any amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State, and the expression "2010 PD Amending Directive" means Directive 2010/73/EU.
United Kingdom
This document is only being distributed to, and is only directed at, (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling with Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). The securities are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
148
Notice to Prospective Investors in Switzerland
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange ("SIX") or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, the Company, the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes ("CISA"). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
Notice to Prospective Investors in the Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority ("DFSA"). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
Notice to Prospective Investors in Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission ("ASIC"), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the "Corporations Act"), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the shares may only be made to persons (the "Exempt Investors") who are "sophisticated investors" (within the meaning of section 708(8) of the Corporations Act), "professional investors" (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.
The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.
149
This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Notice to Prospective Investors in Hong Kong
The shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to "professional investors" as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a "prospectus" as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Notice to Prospective Investors in Japan
The shares have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, "Japanese Person" shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA"), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
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securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
151
The validity of the Class A common stock offered hereby is being passed upon for us by Latham & Watkins LLP, New York, New York. The validity of the shares of Class A common stock offered hereby will be passed upon for the underwriters by Simpson Thacher & Bartlett LLP, New York, New York.
The balance sheet of Neff Corporation as of August 31, 2014, included in this prospectus, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein. Such balance sheet has been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Neff Holdings LLC and subsidiaries as of December 31, 2012 and 2013, and for each of the two years in the period ended December 31, 2013, included in this prospectus, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein. Such consolidated financial statements have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 under the Securities Act with the SEC to register with the SEC the shares of our Class A common stock being offered in this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed with it. For further information about us and our Class A common stock, reference is made to the registration statement and the exhibits and schedules filed with it. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement.
When we complete this offering, we will also be required to file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy this information at the SEC's Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. Our filings, including the registration statement, will also be available to you on the Internet website maintained by the SEC at www.sec.gov.
We also maintain an Internet website at www.neffrental.com. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration statement of which it forms a part.
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F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors of
Neff Corporation
We have audited the accompanying balance sheet of Neff Corporation (the "Company") as of August 31, 2014. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material respects, the financial position of Neff Corporation as of August 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
/s/
Deloitte & Touche LLP
Certified Public Accountants
Miami,
Florida
September 3, 2014
F-2
NEFF CORPORATION
BALANCE SHEET
|
August 31, 2014 | |||
---|---|---|---|---|
ASSETS |
||||
Total Assets |
$ |
|
||
| | | | |
| | | | |
LIABILITIES AND STOCKHOLDER'S EQUITY |
||||
Common Stock, $0.01 par value100 shares authorized |
| |||
Common Stock subscription rights receivable |
(100 | ) | ||
Additional paid-in capital |
100 | |||
| | | | |
Total liabilities and stockholder's equity |
$ | | ||
| | | | |
| | | | |
The accompanying notes are an integral part of this balance sheet.
F-3
NEFF CORPORATION
NOTES TO BALANCE SHEET
NOTE 1ORGANIZATION
Neff Corporation (the "Corporation") was formed as a Delaware corporation on August 18, 2014. The Corporation's fiscal year end is December 31. The Corporation was formed for the purpose of completing a public offering and related transactions in order to carry on the business of Neff Holdings LLC. The Corporation will be the sole managing member of Neff Holdings LLC and will operate and control all of the businesses and affairs of Neff Holdings LLC and, through Neff Holdings LLC and its subsidiaries, continue to conduct the business now conducted by these subsidiaries.
NOTE 2BASIS OF PRESENTATION
The balance sheet has been prepared in accordance with accounting principles generally accepted in the United States of America. Separate Statements of Operations, Stockholder's Equity and Cash Flows have not been presented as there have been no activities by this entity.
NOTE 3STOCKHOLDER'S EQUITY
On August 31, 2014, the Corporation recorded a $100 common stock subscription rights receivable from Wayzata Opportunities Fund II, L.P.
F-4
NEFF HOLDINGS LLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
|
December 31, 2013 | September 30, 2014 | |||||
---|---|---|---|---|---|---|---|
ASSETS |
|||||||
Cash and cash equivalents |
$ | 190 | $ | 1,999 | |||
Accounts receivable, net of allowance for doubtful accounts of $2,004 in 2014 and $1,639 in 2013 |
55,598 | 58,962 | |||||
Inventories |
1,709 | 2,377 | |||||
Rental equipment, net |
347,256 | 417,332 | |||||
Property and equipment, net |
25,915 | 31,152 | |||||
Prepaid expenses and other assets |
19,159 | 19,089 | |||||
Goodwill |
58,765 | 58,765 | |||||
Intangible assets, net |
18,110 | 16,979 | |||||
| | | | | | | |
Total assets |
$ | 526,702 | $ | 606,655 | |||
| | | | | | | |
| | | | | | | |
LIABILITIES AND MEMBERS' (DEFICIT) SURPLUS |
|||||||
Liabilities |
|||||||
Accounts payable |
$ | 11,514 | $ | 10,370 | |||
Accrued expenses and other liabilities |
32,906 | 31,196 | |||||
Revolving credit facility |
279,200 | 317,000 | |||||
Second lien loan, net of unamortized discount of $2,805 |
| 572,195 | |||||
Senior secured notes |
200,000 | | |||||
| | | | | | | |
Total liabilities |
523,620 | 930,761 | |||||
| | | | | | | |
Members' (deficit) surplus |
|||||||
Members' deficit |
(5,688 | ) | (334,781 | ) | |||
Accumulated surplus |
8,770 | 10,675 | |||||
| | | | | | | |
Total members' (deficit) surplus |
3,082 | (324,106 | ) | ||||
| | | | | | | |
Total liabilities and members' (deficit) surplus |
$ | 526,702 | $ | 606,655 | |||
| | | | | | | |
| | | | | | | |
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
F-5
NEFF HOLDINGS LLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
|
For the Nine Months Ended September 30, 2013 |
For the Nine Months Ended September 30, 2014 |
|||||
---|---|---|---|---|---|---|---|
Revenues |
|||||||
Rental revenues |
$ | 206,910 | $ | 240,362 | |||
Equipment sales |
20,210 | 17,355 | |||||
Parts and service |
9,642 | 10,125 | |||||
| | | | | | | |
Total revenues |
236,762 | 267,842 | |||||
| | | | | | | |
Cost of revenues |
|||||||
Cost of equipment sold |
11,685 | 9,877 | |||||
Depreciation of rental equipment |
52,606 | 54,831 | |||||
Cost of rental revenues |
54,943 | 59,669 | |||||
Cost of parts and service |
5,808 | 6,158 | |||||
| | | | | | | |
Total cost of revenues |
125,042 | 130,535 | |||||
| | | | | | | |
Gross profit |
111,720 | 137,307 | |||||
| | | | | | | |
Other operating expenses |
|||||||
Selling, general and administrative expenses |
58,540 | 61,453 | |||||
Other depreciation and amortization |
6,826 | 7,149 | |||||
Transaction bonus |
| 24,506 | |||||
| | | | | | | |
Total other operating expenses |
65,366 | 93,108 | |||||
| | | | | | | |
Income from operations |
46,354 | 44,199 | |||||
| | | | | | | |
Other expenses |
|||||||
Interest expense |
18,257 | 28,313 | |||||
Loss on extinguishment of debt |
| 15,896 | |||||
Amortization of debt issue costs |
1,217 | 2,695 | |||||
| | | | | | | |
Total other expenses |
19,474 | 46,904 | |||||
| | | | | | | |
Income (loss) before income taxes |
26,880 | (2,705 | ) | ||||
(Provision for) benefit from income taxes |
(352 | ) | 4,610 | ||||
| | | | | | | |
Net income |
$ | 26,528 | $ | 1,905 | |||
| | | | | | | |
| | | | | | | |
Net income per unit |
|||||||
Basic |
$ | 2.88 | $ | 0.21 | |||
Diluted |
$ | 2.77 | $ | 0.19 | |||
Weighted average units used in income per unit |
|||||||
Basic |
9,200 | 9,200 | |||||
Diluted |
9,587 | 9,781 |
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)(Note 1)
Loss before income taxes |
$ | (2,705 | ) | ||||
Pro forma benefit from income taxes (39% assumed statutory tax rate) |
1,055 | ||||||
| | | | | | | |
Pro forma net loss |
$ | (1,650 | ) | ||||
| | | | | | | |
Pro forma net loss per unit: |
|||||||
Basic and diluted(1) |
$ | (0.08 | ) | ||||
| | | | | | | |
| | | | | | | |
Weighted average shares outstanding: |
|||||||
Basic and diluted(1) |
19,676 |
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
F-6
NEFF HOLDINGS LLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
For the Nine Months Ended September 30, 2013 |
For the Nine Months Ended September 30, 2014 |
|||||
---|---|---|---|---|---|---|---|
Cash Flows from Operating Activities |
|||||||
Net income |
$ | 26,528 | $ | 1,905 | |||
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||||
Depreciation |
58,139 | 60,849 | |||||
Amortization of debt issue costs |
1,217 | 2,695 | |||||
Amortization of intangible assets |
1,293 | 1,131 | |||||
Amortization of original issue discount on second lien loan |
| 70 | |||||
Gain on sale of equipment |
(8,525 | ) | (7,478 | ) | |||
Provision for bad debt |
1,319 | 1,929 | |||||
Equity-based compensation expense |
918 | 792 | |||||
Loss on extinguishment of debt |
| 15,896 | |||||
Changes in operating assets and liabilities: |
|||||||
Accounts receivable |
(3,609 | ) | (5,293 | ) | |||
Inventories, prepaid expenses and other assets |
(1,008 | ) | (2,904 | ) | |||
Accounts payable |
647 | (856 | ) | ||||
Accrued expenses and other liabilities |
9,533 | (380 | ) | ||||
| | | | | | | |
Net cash provided by operating activities |
86,452 | 68,356 | |||||
| | | | | | | |
Cash Flows from Investing Activities |
|||||||
Purchases of rental equipment |
(124,743 | ) | (135,930 | ) | |||
Proceeds from sale of equipment |
20,210 | 17,355 | |||||
Purchases of property and equipment |
(11,214 | ) | (11,729 | ) | |||
Interest rate swap payments |
(2,484 | ) | | ||||
| | | | | | | |
Net cash used in investing activities |
(118,231 | ) | (130,304 | ) | |||
| | | | | | | |
Cash Flows from Financing Activities |
|||||||
Borrowings under revolving credit facility |
102,510 | 502,739 | |||||
Repayments under revolving credit facility |
(71,131 | ) | (464,939 | ) | |||
Proceeds from second lien loan, net of original issue discount |
| 572,125 | |||||
Distribution to members |
| (329,885 | ) | ||||
Repayment of senior secured notes |
| (200,000 | ) | ||||
Payment of call premiums |
| (7,218 | ) | ||||
Debt issue costs |
| (9,065 | ) | ||||
| | | | | | | |
Net cash provided by financing activities |
31,379 | 63,757 | |||||
| | | | | | | |
Net increase (decrease) in cash and cash equivalents |
(400 | ) | 1,809 | ||||
Cash and cash equivalents, beginning of period |
586 | 190 | |||||
| | | | | | | |
Cash and cash equivalents, end of period |
$ | 186 | $ | 1,999 | |||
| | | | | | | |
| | | | | | | |
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
F-7
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1BASIS OF PRESENTATION
Neff Holdings LLC, a Delaware limited liability company ("Neff Holdings LLC"), is wholly-owned by certain affiliates of Wayzata Investment Partners LLC. Neff Holdings LLC operates as a holding company of its wholly-owned direct and indirect subsidiaries, Neff LLC ("Neff LLC"), Neff Rental LLC ("Neff Rental LLC") and Neff Rental Finance Corp. ("Neff Rental Finance Corp.", and together with Neff Rental LLC, Neff LLC and Neff Holdings LLC, the "Company")(Neff Rental Finance Corp. was dissolved on July 18, 2014, see Note 4). The Company owns and operates equipment rental locations throughout the eastern, southern and western regions of the United States. The Company also sells used equipment, parts and merchandise and provides ongoing repair and maintenance services.
The unaudited condensed consolidated balance sheet as of December 31, 2013 is derived from the Company's audited financial statements. The unaudited condensed consolidated financial statements as of September 30, 2014 and for the nine months ended September 30, 2014 and 2013 in the Company's opinion reflect all adjustments which are necessary for a fair presentation of its financial position as of the dates thereof, and its results of operations and cash flows for the periods presented, in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial reporting. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2013. The results of operations for the interim period are not necessarily indicative of the results which may be reported for the year ending December 31, 2014.
The Company has evaluated subsequent events through the date these financial statements were available to be issued on November 10, 2014.
All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP 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 and assumptions.
Equity-Based Compensation
During the nine months ended September 30, 2014 and 2013, equity-based compensation expense relating to the Company's equity-based compensation awards was $0.8 million and $0.9 million, respectively. During the nine months ended September 30, 2014 and 2013, no equity-based awards were granted, forfeited or exercised.
Goodwill and Intangible Assets
Goodwill and trademark and tradenames are reviewed at least annually for impairment. Acquired intangible assets with finite useful lives (customer list) are amortized over their useful lives. The Company expenses costs to renew or extend the term of a recognized intangible asset.
F-8
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1BASIS OF PRESENTATION (Continued)
Comprehensive Income (Loss)
The Company had no items of other comprehensive income (loss) in any of the periods presented.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), which provides guidance on recognizing revenue. The guidance includes steps an entity should apply to achieve the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual and interim reporting periods beginning after December 15, 2016. Early adoption is not permitted. The Company expects to adopt ASU 2014-09 when effective, and the impact on the Company's financial statements is not currently estimable.
Pro Forma Statements of Operations (unaudited)
Pro forma income taxes
Neff Corporation will be subject to federal, state and local income tax upon completion of its initial public offering.
The pro forma income tax provision presents the Company's results from operations as if it were subject to federal, state and local income tax. However, only a portion of the Company's units will be purchased in connection with the initial public offering of Neff Corporation, therefore only a portion of the Company's earnings will be taxed at Neff Corporation's statutory corporate income tax rate of 39.0%. The Company anticipates that the actual consolidated effective tax rate of Neff Corporation will be lower than 39.0% and will be dependent upon the number of units purchased in connection with the initial public offering of Neff Corporation.
Earnings per unit
The unaudited pro forma earnings per unit, basic and diluted, gives effect to the number of units whose proceeds would be necessary to pay the distributions paid in excess of earnings within one year from the initial public offering ("IPO") of the Class A common stock of Neff Corporation.
F-9
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1BASIS OF PRESENTATION (Continued)
Basic weighted average units outstanding:
Incremental units(1) |
10,476 | |||
Basis weighted average units outstanding |
9,200 | |||
| | | | |
Total pro forma units for purposes of calculating pro forma basic net loss per unit |
19,676 | |||
| | | | |
| | | | |
2013 Distribution |
$ | 77,971 | ||
June 2014 Distribution |
313,853 | |||
| | | | |
Total Distributions |
$ | 391,824 | ||
IPO offering price |
$ | 21.00 | ||
| | | | |
Incremental units |
18,658 | |||
Incremental units used in the pro forma earnings per unit calculation(a) |
10,476 |
NOTE 2REFINANCING
On June 9, 2014, Neff Rental LLC entered into a second lien credit agreement (the "Second Lien Credit Agreement") as borrower. Under the terms of the Second Lien Credit Agreement, Neff Rental LLC borrowed $575.0 million of second lien term loans (the "Second Lien Loan").
The Company used the net proceeds from the Second Lien Loan to redeem the outstanding Senior Secured Notes (Note 4), to pay a $329.9 million cash distribution to the members of Neff Holdings LLC (the "June 2014 Distribution"), to pay incentive bonuses earned in connection with consummation of the refinancing to management and certain members of the Company's board of managers (the "Transaction Payments") and to pay fees and expenses. As a result of the repayment of the Senior Secured Notes, the Company recorded a loss on debt extinguishment of $15.9 million (including $8.7 million of unamortized debt issue costs and $7.2 million for call premiums).
F-10
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2REFINANCING (Continued)
The sources and uses of the refinancing are as follows (in thousands):
Sources | Uses | ||||||||
---|---|---|---|---|---|---|---|---|---|
Second Lien Loan |
$ | 575,000 | Redeem Senior Secured Notes |
$ | 200,000 | ||||
|
Call premium on Senior Secured Notes |
7,218 | |||||||
|
Accrued interest on Senior Secured Notes |
1,283 | |||||||
|
Revolving Credit Facility debt issue costs and accrued interest |
1,675 | |||||||
|
Second Lien Loan debt issue costs |
7,914 | |||||||
|
Second Lien Loan original issue discount |
2,875 | |||||||
|
Transaction Payments |
24,150 | |||||||
|
Distribution to members |
329,885 | |||||||
| | | | | | | | | |
Total sources |
$ | 575,000 | Total uses |
$ | 575,000 | ||||
| | | | | | | | | |
| | | | | | | | | |
NOTE 3INTANGIBLE ASSETS
The carrying amount and accumulated amortization of intangible assets as of September 30, 2014 and December 31, 2013, consisted of the following (in thousands, except as noted):
|
|
September 30, 2014 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Average Useful Life (in years) |
Gross Carrying Amount |
Accumulated Amortization |
Net Book Value |
|||||||||
Indefinite life: |
|||||||||||||
Trademarks and tradenames |
N/A | $ | 10,854 | $ | | $ | 10,854 | ||||||
Finite life: |
|||||||||||||
Customer list |
12 | 13,987 | (7,862 | ) | 6,125 | ||||||||
| | | | | | | | | | | | | |
Total intangible assets |
$ | 24,841 | $ | (7,862 | ) | $ | 16,979 | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
|
December 31, 2013 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Average Useful Life (in years) |
Gross Carrying Amount |
Accumulated Amortization |
Net Book Value |
|||||||||
Indefinite life: |
|||||||||||||
Trademarks and tradenames |
N/A | $ | 10,854 | $ | | $ | 10,854 | ||||||
Finite life: |
|||||||||||||
Customer list |
12 | 13,987 | (6,731 | ) | 7,256 | ||||||||
| | | | | | | | | | | | | |
Total intangible assets |
$ | 24,841 | $ | (6,731 | ) | $ | 18,110 | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
During the nine months ended September 30, 2014 and 2013, amortization expense related to the customer list was $1.1 million and $1.3 million, respectively.
F-11
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3INTANGIBLE ASSETS (Continued)
The customer list is amortized on an accelerated basis, based on estimated cash flows over the useful life of the customer list. Accumulated amortization and expected future annual amortization expense are as follows (in thousands):
Accumulated amortization at September 30, 2014 |
$ | 7,862 | ||
Estimated amortization expense |
||||
Remainder of 2014 |
379 | |||
2015 |
1,286 | |||
2016 |
1,070 | |||
2017 |
877 | |||
2018 |
719 | |||
2019 through 2022 |
1,794 | |||
| | | | |
Total |
$ | 13,987 | ||
| | | | |
| | | | |
NOTE 4DEBT
Debt consisted of the following as of September 30, 2014 and December 31, 2013 (in thousands, except percent data):
|
December 31, 2013 | September 30, 2014 | |||||
---|---|---|---|---|---|---|---|
Revolving Credit Facility with interest ranging from the lender's prime rate plus up to 1.5% to LIBOR plus up to 2.5% (2.8% at September 30, 2014) |
$ | 279,200 | $ | 317,000 | |||
Second Lien Loan with interest of LIBOR plus 6.3%, with 1.0% LIBOR floor, net of unamortized discount of $2,805 (7.3% at September 30, 2014) |
| 572,195 | |||||
Senior Secured Notes |
200,000 | | |||||
| | | | | | | |
Total indebtedness |
$ | 479,200 | $ | 889,195 | |||
| | | | | | | |
| | | | | | | |
On October 1, 2010, Neff Rental LLC and Neff LLC entered into its senior secured revolving credit facility (the "Revolving Credit Facility") as co-borrowers. The obligations under the Revolving Credit Facility are guaranteed by Neff Holdings LLC. The Revolving Credit Facility is secured by a first priority security interest in substantially all of the Company's assets. Interest on any base rate loans under the Revolving Credit Facility is due quarterly and interest on any LIBOR rate loans under the Revolving Credit Facility is due at three month intervals or, if shorter, at the end of the selected LIBOR period. Availability under the Revolving Credit Facility is subject to a borrowing base formula consisting of eligible accounts receivable and eligible rental fleet.
In May 2011, Neff Rental LLC and Neff Rental Finance Corp., as co-issuers, completed a private offering of $200.0 million aggregate principal amount of 9.625% Senior Secured Notes (the "Senior Secured Notes"). Neff Rental Finance Corp. was formed in April 2011 for the sole purpose of co-issuing the Senior Secured Notes and had been capitalized with an amount of cash required to satisfy minimum statutory requirements. The terms of the Senior Secured Notes were governed by an indenture. The
F-12
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4DEBT (Continued)
obligations under the Senior Secured Notes were guaranteed by Neff Holdings LLC and Neff LLC and were secured by a second priority security interest in substantially all of the Company's assets. Interest on the Senior Secured Notes was payable in cash semi-annually in arrears on May 15 and November 15 of each year. The Senior Secured Notes maturity date was May 15, 2016. The Senior Secured Notes were repaid in full on June 9, 2014 (Note 2). Following the repayment of the Senior Secured Notes, Neff Rental Finance Corp. was dissolved on July 18, 2014.
On March 12, 2012, the Revolving Credit Facility was amended (the "March 2012 Amendment"). The March 2012 Amendment increased total borrowing capacity to $200.0 million, provided for a mechanism whereby the Company could request (but the lenders under the Revolving Credit Facility have no obligation to provide) up to $100.0 million of incremental revolving loan commitments under the Revolving Credit Facility, reduced applicable margins applicable to loans and other credit extensions, extended the maturity to the earlier of March 12, 2016 and ninety days prior to the maturity date of the Senior Secured Notes and modified the excess availability requirements relating to cash dominion and the implementation of certain financial covenants.
On October 25, 2012, the Revolving Credit Facility was amended (the "October 2012 Amendment"). The October 2012 Amendment increased total maximum borrowing capacity from $200.0 million to $225.0 million.
On November 20, 2013, the Revolving Credit Facility was amended and restated (the "2013 Amendment and Restatement"). Among other things, the 2013 Amendment and Restatement increased total maximum borrowing capacity from $225.0 million to $375.0 million, provided for a mechanism whereby the Company could request up to $25.0 million of incremental revolving loan commitments under the Revolving Credit Facility, permitted the payment of a $110.0 million cash distribution to the members of Neff Holdings LLC (the "2013 Distribution"), extended the maturity to the earlier of November 20, 2018 and ninety days prior to the maturity date of the Senior Secured Notes and modified the excess availability requirements relating to cash dominion and the implementation of certain financial covenants and covenants relating to appraisals and field audits. Following the repayment of the Senior Secured Notes, the maturity date of the Revolving Credit Facility is November 20, 2018.
The obligations under the Second Lien Credit Agreement are guaranteed by Neff Holdings LLC and Neff LLC and are secured by a second priority security interest in substantially all of the Company's assets. The Second Lien Loan included a $2.9 million original issue discount that will be amortized as interest expense over the term of the Second Lien Loan. The Second Lien Loan has a maturity date of June 9, 2021.
On June 9, 2014, in connection with entering into the Second Lien Credit Agreement and repayment of the Senior Secured Notes, the Revolving Credit Facility was further amended (the "June 2014 Amendment"). Among other things, the June 2014 Amendment increased total maximum borrowing capacity from $375.0 million to $425.0 million, permitted the payment of the June 2014 Distribution, permitted the payment of the Transaction Payments, permitted the repayment of the Senior Secured Notes and modified the consolidated total leverage ratio covenant. As of September 30, 2014, total availability under the Revolving Credit Facility was $103.3 million.
The Company paid approximately $7.9 million in June 2014 of debt issue costs related to the Second Lien Loan, which are amortized over the term of the Second Lien Loan utilizing the effective interest method. The Company paid approximately $1.2 million in June 2014 of debt issue costs related to the June
F-13
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4DEBT (Continued)
2014 Amendment, which are amortized over the term of the Revolving Credit Facility. Accumulated amortization at September 30, 2014 for debt issue costs was $2.9 million and $0.2 million for the Revolving Credit Facility and Second Lien Loan, respectively.
The Revolving Credit Facility and Senior Lien Credit Agreement contain various affirmative, negative and financial reporting covenants. The covenants, among other things, place restrictions on the Company's ability to acquire and sell assets, incur additional indebtedness and prepay other indebtedness other than the Revolving Credit Facility. The Company is subject to certain financial covenants under its Revolving Credit Facility if availability declines below $42.5 million. The Company was in compliance with all financial covenants under the Revolving Credit Facility and the Second Lien Credit Agreement as of September 30, 2014.
The Company had $4.5 million in outstanding letters of credit at September 30, 2014 and December 31, 2013, that were primarily associated with its insurance coverage.
NOTE 5DERIVATIVE FINANCIAL INSTRUMENTS
On October 1, 2010, the Company recorded interest rate swaps ("Interest Rate Swaps") on its balance sheet as a liability at a fair value of $16.9 million. The Interest Rate Swaps were not accounted for as hedges and changes in fair value were included directly in the statement of operations. The Company reduced the accrued swap liability by the amount of the semi-annual net settlement as settlements were made. Under the terms of the Interest Rate Swaps, a semiannual net settlement was made on January 4 and July 4 each year for the difference between the fixed rate of 5.621% and the variable rate based upon the nine month LIBOR rate on the notional amount of the Interest Rate Swaps. On January 4, 2013, the Company made the final payment of $2.5 million and the agreement for the Interest Rate Swaps expired. The Company did not record a gain or loss on interest rate swaps for the nine months ended September 30, 2014 or 2013.
The Company's hedging transactions are authorized and executed pursuant to its regularly reviewed policies and procedures, which prohibit the use of derivative financial instruments for trading or speculative purposes.
NOTE 6INCOME TAXES
Neff Holdings LLC is a limited liability company that is treated as a partnership for federal and state income tax purposes. The Company is not subject to income taxes for federal and state purposes. Rather, taxable income or loss is included in the respective federal and state income tax returns of the Company's members.
On October 1, 2010, the Company purchased substantially all of the assets of Neff Holdings Corp. and certain of its affiliates (collectively, the "Predecessor") in connection with the Predecessor's bankruptcy cases under chapter 11 of title 11 of the United States Code.
During the third quarter of 2014, as a result of the expiration of statute of limitations, the Company reversed $3.2 million and $1.7 million in uncertain tax positions and interest and penalties, respectively. At September 30, 2014 and December 31, 2013, the amount of uncertain tax positions was approximately $1.6 million and $4.8 million, respectively. The uncertain tax positions relate solely to tax positions taken by the Predecessor prior to the acquisition by the Company, and are recorded in accrued expenses and other liabilities. The Company's practice is to recognize interest and penalties on uncertain tax positions in
F-14
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6INCOME TAXES (Continued)
income tax expense. In addition, the Company has accrued interest and penalties of $0.9 million and $2.3 million as of September 30, 2014 and December 31, 2013, respectively, which is also recorded in accrued expenses and other liabilities.
NOTE 7SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
For the Nine Months Ended September 30, 2013 |
For the Nine Months Ended September 30, 2014 |
|||||
---|---|---|---|---|---|---|---|
|
(in thousands) |
||||||
Supplemental disclosure of cash flow information: |
|||||||
Cash paid for interest |
$ | 13,569 | $ | 27,790 | |||
Non-cash investing activities: |
|||||||
Purchases of rental equipment included in accounts payable and other accrued liabilities at period end |
$ | 18,354 | $ | 7,764 |
NOTE 8FAIR VALUE DISCLOSURES
The carrying amounts for accounts receivable, accounts payable and accrued expenses and other liabilities approximate fair value due to their immediate to short-term maturity. The fair value of the Revolving Credit Facility approximates its carrying value as of September 30, 2014 and December 31, 2013, as the variable interest rate approximates market rates. The fair value of the Second Lien Loan approximates its carrying value as of September 30, 2014, as the variable interest rate approximates market rates.
The FASB has established a framework for measuring fair value and requires that assets and liabilities measured at fair value be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs that are not corroborated by market data
The Company used the following methods to measure the fair value of certain assets and liabilities:
Senior Secured Notes. The fair value of the Senior Secured Notes was calculated based on information from third party financial institutions supported by minimal market activity, and may not be representative of the prices that would be derived from a more active market. The Senior Secured Notes were classified as Level 2.
The following table reflects the carrying amount and fair value of the Senior Secured Notes as of September 30, 2014 and December 31, 2013 (in thousands):
|
December 31, 2013 | September 30, 2014 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
|||||||||
Senior Secured Notes |
$ | 200,000 | $ | 212,376 | $ | | $ | |
The Company made the final scheduled semi-annual net payment for the Interest Rate Swaps on January 4, 2013 and as a result, the Interest Rate Swaps were not measured as of September 30, 2014 or December 31, 2013.
F-15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Managers and Members of
Neff Holdings LLC
We have audited the accompanying consolidated balance sheets of Neff Holdings LLC and subsidiaries (the "Company") as of December 31, 2012 and 2013, and the related consolidated statements of operations, members' (deficit) surplus, and cash flows for the years then ended. These 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.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Neff Holdings LLC and subsidiaries as of December 31, 2012 and 2013 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/
Deloitte & Touche LLP
Certified Public Accountants
Miami,
Florida
September 3, 2014
F-16
NEFF HOLDINGS LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
December 31, 2012 | December 31, 2013 | |||||
---|---|---|---|---|---|---|---|
ASSETS |
|||||||
Cash and cash equivalents |
$ | 586 | $ | 190 | |||
Accounts receivable, net of allowance for doubtful accounts of $1,639 in 2013 and $1,472 in 2012 |
49,845 | 55,598 | |||||
Inventories |
1,666 | 1,709 | |||||
Rental equipment, net |
315,880 | 347,256 | |||||
Property and equipment, net |
21,827 | 25,915 | |||||
Prepaid expenses and other assets |
10,653 | 19,159 | |||||
Goodwill |
58,765 | 58,765 | |||||
Intangible assets, net |
19,837 | 18,110 | |||||
| | | | | | | |
Total assets |
$ | 479,059 | $ | 526,702 | |||
| | | | | | | |
| | | | | | | |
LIABILITIES AND MEMBERS' SURPLUS |
|||||||
Liabilities |
|||||||
Accounts payable |
$ | 28,442 | $ | 11,514 | |||
Accrued expenses and other liabilities |
34,147 | 32,906 | |||||
Interest rate swaps |
2,484 | | |||||
Revolving credit facility |
142,621 | 279,200 | |||||
Senior secured notes |
200,000 | 200,000 | |||||
| | | | | | | |
Total liabilities |
407,694 | 523,620 | |||||
| | | | | | | |
Commitments and contingencies (Note 12) |
|||||||
Members' surplus |
|||||||
Members' surplus (deficit) |
103,088 | (5,688 | ) | ||||
Accumulated (deficit) surplus |
(31,723 | ) | 8,770 | ||||
| | | | | | | |
Total members' surplus |
71,365 | 3,082 | |||||
| | | | | | | |
Total liabilities and members' surplus |
$ | 479,059 | $ | 526,702 | |||
| | | | | | | |
| | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-17
NEFF HOLDINGS LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
|
For the Year Ended December 31, 2012 |
For the Year Ended December 31, 2013 |
|||||
---|---|---|---|---|---|---|---|
Revenues |
|||||||
Rental revenues |
$ | 234,609 | $ | 281,038 | |||
Equipment sales |
44,828 | 33,487 | |||||
Parts and service |
11,540 | 12,682 | |||||
| | | | | | | |
Total revenues |
290,977 | 327,207 | |||||
| | | | | | | |
Cost of revenues |
|||||||
Cost of equipment sold |
25,528 | 19,204 | |||||
Depreciation of rental equipment |
66,017 | 70,768 | |||||
Cost of rental revenues |
69,337 | 74,482 | |||||
Cost of parts and service |
6,982 | 7,677 | |||||
| | | | | | | |
Total cost of revenues |
167,864 | 172,131 | |||||
| | | | | | | |
Gross profit |
123,113 | 155,076 | |||||
| | | | | | | |
Other operating expenses |
|||||||
Selling, general and administrative expenses |
71,621 | 78,617 | |||||
Other depreciation and amortization |
9,041 | 8,968 | |||||
| | | | | | | |
Total other operating expenses |
80,662 | 87,585 | |||||
| | | | | | | |
Income from operations |
42,451 | 67,491 | |||||
| | | | | | | |
Other expenses |
|||||||
Interest expense |
23,221 | 24,598 | |||||
Loss on interest rate swaps |
102 | | |||||
Amortization of debt issue costs |
1,461 | 1,929 | |||||
| | | | | | | |
Total other expenses |
24,784 | 26,527 | |||||
| | | | | | | |
Income before income taxes |
17,667 | 40,964 | |||||
Provision for income taxes |
(159 | ) | (471 | ) | |||
| | | | | | | |
Net income |
$ | 17,508 | $ | 40,493 | |||
| | | | | | | |
| | | | | | | |
Net income per unit |
|||||||
Basic |
$ | 1.90 | $ | 4.40 | |||
Diluted |
$ | 1.83 | $ | 4.14 | |||
Weighted average units used in income per unit |
|||||||
Basic |
9,200 | 9,200 | |||||
Diluted |
9,587 | 9,781 |
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)(Note 1)
Income before income taxes |
$ | 40,964 | |||||
Pro forma provision for income taxes (39% assumed statutory tax rate) |
(15,976 | ) | |||||
| | | | | | | |
Pro forma net income |
$ | 24,988 | |||||
| | | | | | | |
| | | | | | | |
Pro forma net income per unit |
|||||||
Basic |
$ | 1.27 | |||||
| | | | | | | |
| | | | | | | |
Diluted |
$ | 1.23 | |||||
| | | | | | | |
| | | | | | | |
Weighted average shares outstanding: |
|||||||
Basic |
19,676 | ||||||
| | | | | | | |
| | | | | | | |
Diluted |
20,257 | ||||||
| | | | | | | |
| | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-18
NEFF HOLDINGS LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' (DEFICIT) SURPLUS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
(in thousands)
|
Member Units |
Members' Surplus (Deficit) |
Accumulated (Deficit) Surplus |
Total | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
BALANCEDecember 31, 2011 |
9,200 | $ | 101,610 | $ | (49,231 | ) | $ | 52,379 | |||||
Equitybased compensation expense |
| 1,478 | | 1,478 | |||||||||
Net income |
| | 17,508 | 17,508 | |||||||||
| | | | | | | | | | | | | |
BALANCEDecember 31, 2012 |
9,200 | 103,088 | (31,723 | ) | 71,365 | ||||||||
Return of capital to members (Note 7) |
| (110,000 | ) | | (110,000 | ) | |||||||
Equitybased compensation expense |
| 1,224 | | 1,224 | |||||||||
Net income |
| | 40,493 | 40,493 | |||||||||
| | | | | | | | | | | | | |
BALANCEDecember 31, 2013 |
9,200 | $ | (5,688 | ) | $ | 8,770 | $ | 3,082 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-19
NEFF HOLDINGS LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
For the Year Ended December 31, 2012 |
For the Year Ended December 31, 2013 |
|||||
---|---|---|---|---|---|---|---|
Cash Flows from Operating Activities |
|||||||
Net income |
$ | 17,508 | $ | 40,493 | |||
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||||
Depreciation |
73,050 | 78,009 | |||||
Amortization of debt issue costs |
1,461 | 1,929 | |||||
Amortization of intangible assets |
2,008 | 1,727 | |||||
Gain on sale of equipment |
(19,300 | ) | (14,283 | ) | |||
Provision for bad debt |
1,975 | 2,278 | |||||
Equity-based compensation expense |
1,478 | 1,224 | |||||
Loss on interest rate swaps |
102 | | |||||
Changes in operating assets and liabilities: |
|||||||
Accounts receivable |
(13,544 | ) | (8,031 | ) | |||
Inventories, prepaid expenses and other assets |
(2,041 | ) | (425 | ) | |||
Accounts payable |
1,029 | 1,009 | |||||
Accrued expenses and other liabilities |
4,605 | 4,480 | |||||
| | | | | | | |
Net cash provided by operating activities |
68,331 | 108,410 | |||||
| | | | | | | |
Cash Flows from Investing Activities |
|||||||
Purchases of rental equipment |
(159,192 | ) | (144,483 | ) | |||
Proceeds from sale of equipment |
44,828 | 33,487 | |||||
Purchases of property and equipment |
(11,556 | ) | (11,852 | ) | |||
Interest rate swap payments |
(5,102 | ) | (2,484 | ) | |||
| | | | | | | |
Net cash used in investing activities |
(131,022 | ) | (125,332 | ) | |||
| | | | | | | |
Cash Flows from Financing Activities |
|||||||
Repayments under revolving credit facility |
(86,540 | ) | (105,867 | ) | |||
Borrowings under revolving credit facility |
150,461 | 242,446 | |||||
Return of capital to members |
| (110,000 | ) | ||||
Debt issue costs |
(806 | ) | (10,053 | ) | |||
| | | | | | | |
Net cash provided by financing activities |
63,115 | 16,526 | |||||
| | | | | | | |
Net increase (decrease) in cash and cash equivalents |
424 | (396 | ) | ||||
Cash and cash equivalents, beginning of year |
162 | 586 | |||||
| | | | | | | |
Cash and cash equivalents, end of year |
$ | 586 | $ | 190 | |||
| | | | | | | |
| | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-20
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1BASIS OF PRESENTATION
Neff Holdings LLC, a Delaware limited liability company ("Neff Holdings LLC"), is wholly-owned by certain affiliates of Wayzata Investment Partners LLC ("Wayzata"). Neff Holdings LLC operates as a holding company of its wholly-owned direct and indirect subsidiaries, Neff LLC ("Neff LLC"), Neff Rental LLC ("Neff Rental LLC") and Neff Rental Finance Corp. ("Neff Rental Finance Corp." and together with Neff Rental LLC, Neff LLC and Neff Holdings LLC, the "Company"). The Company owns and operates equipment rental locations throughout the eastern, southern and western regions of the United States. The Company also sells used equipment, parts and merchandise and provides ongoing repair and maintenance services.
The Company has evaluated subsequent events through the date these financial statements were available to be issued on September 3, 2014.
All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") 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. The Company considers critical accounting policies to be those that require more significant judgments and estimates in the preparation of the consolidated financial statements including those related to depreciation, bad debts, income taxes, self-insurance reserves, goodwill and intangible assets, derivative financial instruments and contingencies. Management relies on historical experience and other assumptions, believed to be reasonable under the circumstances, in making its judgments and estimates. Actual results could differ from those judgments and estimates.
Recognition of Revenue
The Company recognizes revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the price is fixed or determinable and (4) collectibility is probable.
Rental revenues in the consolidated statements of operations include revenues earned on equipment rentals and related revenues such as the fees the Company charges for the pickup and delivery of equipment, damage waivers and other surcharges. Revenues earned on equipment rentals are recognized as earned over the contract period which may be daily, weekly or monthly. Revenues earned on pick-up and delivery fees, damage waivers and other surcharges, are recognized at the time the services are provided.
Revenues from the sale of equipment and parts are recognized at the time of delivery to, or pick-up by the customer and when all obligations under the sales contract have been fulfilled. Service revenues are recognized at the time the services are provided.
Sales taxes collected are not included in reported sales.
F-21
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1BASIS OF PRESENTATION (Continued)
Delivery Costs
Depreciation of delivery vehicles is included in other operating expenses in the consolidated statements of operations and amounted to approximately $5.7 million and $5.9 million for the years ended December 31, 2013 and 2012, respectively. All other delivery related costs are included in cost of revenues.
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 supplies, are stated at the lower of cost or market, with cost determined on the first-in, first-out basis.
Comprehensive Income (Loss)
The Company had no items of other comprehensive income (loss) in any of the periods presented.
Property and Equipment
Property and equipment is initially recorded at original cost and is stated net of accumulated depreciation. 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. Leasehold improvements are amortized using the straight-line method over their useful lives or the life of the lease, whichever is shorter.
The Company assigns the following estimated useful lives to these categories:
Category
|
|
|
---|---|---|
Buildings |
30 years | |
Office equipment |
2-8 years | |
Service equipment and vehicles |
2-8 years | |
Shop equipment |
7 years |
Rental Equipment
Rental equipment is initially recorded at original cost and is stated net of accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful life of the related equipment (generally two to eight years with estimated 10-20% residual values).
The Company routinely reviews the assumptions utilized in computing rates of depreciation of its rental equipment. Changes to the assumptions (such as the length of service lives and/or the amount of residual values) are made when, in the opinion of management, such changes are necessary to more appropriately allocate asset costs to operations over the service life of the assets. Management utilizes, among other factors, historical experience and industry comparisons in determining the propriety of any such changes. The Company may be required to change these estimates based on changes in its industry,
F-22
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1BASIS OF PRESENTATION (Continued)
end markets or other circumstances. If these estimates change in the future, the Company may be required to recognize increased or decreased depreciation expense for these assets.
Valuation of Long-lived Assets
Long-lived assets and intangibles with finite useful lives (customer list) are evaluated for impairment if events or circumstances suggest that assets may be impaired. An assessment of recoverability is performed prior to any write-down of assets based on the undiscounted cash flows of the assets. An impairment charge is recorded on those assets considered impaired for which the estimated fair value is below the carrying amount.
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 utilizing the effective interest method (see Note 7).
Allowance for Doubtful Accounts
Allowances for doubtful accounts are based on estimated losses related to accounts receivable balances. The establishment of allowances requires the use of judgments and assumptions regarding estimated losses on accounts receivable balances.
Insurance
The Company is insured against general liability claims, workers' compensation claims and automobile liability claims up to specified limits per claim and in the aggregate, subject to deductibles per occurrence of up to $0.3 million. Insured losses within these deductible amounts are accrued based upon the aggregate liability for reported claims incurred as well as an estimated liability for claims incurred but not reported. These liabilities are not discounted and are classified in accrued expenses and other liabilities. The Company is self-insured for group medical and dental claims. The Company has accrued a liability net of expected insurance recoveries for unpaid claims, including incurred but not reported claims, totaling $2.9 million, for insurance as of December 31, 2013 and 2012. The Company had $4.5 million in outstanding letters of credit at December 31, 2013 that were associated with its insurance coverage.
Income Taxes
Neff Holdings LLC is a limited liability company that is treated as a partnership for federal and state income tax purposes (see Note 11). Accordingly, income taxes are the responsibility of the members.
Goodwill and Intangible Assets
Goodwill and trademarks and tradenames are reviewed at least annually (October 1 annual test date) for impairment. Acquired intangible assets with finite useful lives (customer list) are amortized over their useful lives (see Note 5). The Company expenses costs to renew or extend the term of a recognized intangible asset.
F-23
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1BASIS OF PRESENTATION (Continued)
Fair Value of Financial Instruments
The fair market value of financial instruments held by the Company is 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 of such assets or liabilities.
The carrying value of accounts receivable, accounts payable and accrued liabilities approximate fair market value due to the short term maturities of these instruments unless otherwise disclosed in these consolidated financial statements (see Note 14).
Advertising
Advertising costs are expensed as incurred. Advertising expense totaled approximately $0.5 million for the years ended December 31, 2013 and 2012.
Segment Reporting
The Company's operations consist of the rental and sale of equipment, and parts and services in one operating segment and one reportable segment. The Company's chief operating decision maker is its Board of Managers. The Board of Managers is comprised of six individuals. Five of the individuals on the Board of Managers are elected by members of Neff Holdings LLC who hold more than a majority of the issued and outstanding Class A Units and the remaining manager is the Company's Chief Executive Officer. The Board makes and approves key strategic resource allocation decisions and reviews the performance of the Company. The Company operates in the United States and had minimal international sales for each of the periods presented.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, which provides guidance on recognizing revenue. The guidance includes steps an entity should apply to achieve the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual and interim reporting periods beginning after December 15, 2016. Early adoption is not permitted. The Company expects to adopt ASU 2014-09 when effective, and the impact on the Company's financial statements is not currently estimable.
Pro Forma Statements of Operations (unaudited)
Pro forma income taxes
Neff Corporation will be subject to federal, state and local income tax upon completion of its initial public offering.
The pro forma income tax provision presents the Company's results from operations as if it were subject to federal, state and local income tax. However, only a portion of the Company's units will be purchased in connection with the initial public offering of Neff Corporation, therefore only a portion of the Company's earnings will be taxed at Neff Corporation's statutory corporate income tax rate of 39.0%. The Company anticipates that the actual consolidated effective tax rate of Neff Corporation will be lower
F-24
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1BASIS OF PRESENTATION (Continued)
than 39.0% and will be dependent upon the number of units purchased in connection with the initial public offering of Neff Corporation.
Earnings per unit
The unaudited pro forma earnings per unit, basic and diluted, gives effect to the number of units whose proceeds would be necessary to pay the distributions paid in excess of earnings within one year from the initial public offering ("IPO") of the Class A common stock of Neff Corporation.
Basic weighted average units outstanding:
Incremental units(1) |
10,476 | |||
Basis weighted average units outstanding |
9,200 | |||
| | | | |
Total pro forma units for purposes of calculating pro forma basic net loss per unit |
19,676 | |||
| | | | |
| | | | |
Diluted weighted average units outstanding:
|
|
|||
---|---|---|---|---|
Incremental units(1) |
10,476 | |||
Diluted weighted average units outstanding(2) |
9,781 | |||
| | | | |
Total pro forma diluted units for purposes of calculating pro forma diluted net loss per unit |
20,257 | |||
| | | | |
| | | | |
2013 Distribution |
$ | 77,971 | ||
June 2014 Distribution |
313,853 | |||
| | | | |
Total Distributions |
$ | 391,824 | ||
IPO offering price |
$ | 21.00 | ||
| | | | |
Incremental units |
18,658 | |||
Incremental units used in the pro forma earnings per unit calculation(a) |
10,476 |
NOTE 2ACCOUNTS RECEIVABLE
The majority of the Company's customers are engaged in construction and industrial business throughout the eastern, southern and western regions of the United States. The Company extends credit to its customers and evaluates collectibility of accounts receivable based upon an evaluation of the customers' financial condition and credit history. For receivables from certain types of construction projects, the Company's policy is to secure its accounts receivable by obtaining liens on the customer's projects and issuing notices of the liens to the projects' owners and general contractors. All other receivables are generally unsecured.
F-25
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2ACCOUNTS RECEIVABLE (Continued)
The following table summarizes activity for allowance for doubtful accounts (in thousands):
|
For the Year Ended December 31, 2012 |
For the Year Ended December 31, 2013 |
|||||
---|---|---|---|---|---|---|---|
Beginning balance |
$ | 1,925 | $ | 1,472 | |||
Provision for bad debt |
1,975 | 2,278 | |||||
Charge offs |
(2,428 | ) | (2,111 | ) | |||
| | | | | | | |
Ending balance |
$ | 1,472 | $ | 1,639 | |||
| | | | | | | |
| | | | | | | |
NOTE 3RENTAL EQUIPMENT
Rental equipment consisted of the following as of December 31, 2013 and 2012 (in thousands):
|
December 31, 2012 |
December 31, 2013 |
|||||
---|---|---|---|---|---|---|---|
Rental equipment |
$ | 439,907 | $ | 514,520 | |||
Less accumulated depreciation |
(124,027 | ) | (167,264 | ) | |||
| | | | | | | |
Rental equipment, net |
$ | 315,880 | $ | 347,256 | |||
| | | | | | | |
| | | | | | | |
NOTE 4PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of December 31, 2013 and 2012 (in thousands):
|
December 31, 2012 |
December 31, 2013 |
|||||
---|---|---|---|---|---|---|---|
Land |
$ | 25 | $ | 25 | |||
Buildings |
55 | 55 | |||||
Leasehold improvements |
1,624 | 2,480 | |||||
Office equipment |
1,836 | 2,483 | |||||
Service equipment and vehicles |
32,967 | 40,589 | |||||
Shop equipment |
1,506 | 1,984 | |||||
| | | | | | | |
|
38,013 | 47,616 | |||||
Less: accumulated depreciation |
(16,186 | ) | (21,701 | ) | |||
| | | | | | | |
Property and equipment, net |
$ | 21,827 | $ | 25,915 | |||
| | | | | | | |
| | | | | | | |
Depreciation expense for property and equipment was $7.2 million and $7.0 million for the years ended December 31, 2013 and 2012, respectively.
NOTE 5INTANGIBLE ASSETS
The Company's trademarks and tradenames are intangible assets with indefinite useful lives. The Company tests its trademarks and tradenames for impairment annually or as of an interim date if circumstances suggest that assets may be impaired. As part of its annual impairment testing of intangible assets, the Company may perform a qualitative or quantitative assessment. If a quantitative test is
F-26
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5INTANGIBLE ASSETS (Continued)
performed, the fair value of the trademarks and tradenames is measured using the royalty savings method which includes inputs such as revenue, a royalty rate and a discount rate, to reflect the savings realized by owning the trademarks and tradenames, and thus not having to pay a royalty fee to a third party. The Company tested its trademarks and tradenames as of October 1, 2013, and determined that its trademarks and tradenames were not impaired.
The carrying amount and accumulated amortization of intangible assets as of December 31, 2013 and 2012, consisted of the following (in thousands, except as noted):
|
|
December 31, 2013 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Average Useful Life (in years) |
Gross Carrying Amount |
Accumulated Amortization |
Net Book Value |
|||||||||
Indefinite life: |
|||||||||||||
Trademarks and tradenames |
N/A | $ | 10,854 | $ | | $ | 10,854 | ||||||
Finite life: |
|||||||||||||
Customer list |
12 | 13,987 | (6,731 | ) | 7,256 | ||||||||
| | | | | | | | | | | | | |
Total intangible assets |
$ | 24,841 | $ | (6,731 | ) | $ | 18,110 | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
|
December 31, 2012 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Average Useful Life (in years) |
Gross Carrying Amount |
Accumulated Amortization |
Net Book Value |
|||||||||
Indefinite life: |
|||||||||||||
Trademarks and tradenames |
N/A | $ | 10,854 | $ | | $ | 10,854 | ||||||
Finite life: |
|||||||||||||
Customer list |
12 | 13,987 | (5,004 | ) | 8,983 | ||||||||
| | | | | | | | | | | | | |
Total intangible assets |
$ | 24,841 | $ | (5,004 | ) | $ | 19,837 | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The customer list is amortized on an accelerated basis, based on estimated cash flows over the useful life of the customer list. Accumulated amortization and expected future annual amortization expense are as follows (in thousands):
Accumulated amortization at December 31, 2013 |
$ | 6,731 | ||
Estimated amortization expense |
||||
2014 |
1,510 | |||
2015 |
1,286 | |||
2016 |
1,070 | |||
2017 |
877 | |||
2018 |
719 | |||
2019 through 2022 |
1,794 | |||
| | | | |
Total |
$ | 13,987 | ||
| | | | |
| | | | |
Amortization expense related to the customer list was $1.7 million and $2.0 million for the years ended December 31, 2013 and 2012, respectively.
F-27
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6GOODWILL
Goodwill represents the excess of cost over the fair value of identifiable net assets of businesses acquired. Goodwill is not amortized, but instead is tested for impairment annually or, if necessary, more frequently if events indicate a decline in fair value below its carrying value. As part of its annual impairment testing of goodwill, the Company may perform a qualitative or quantitative assessment. Should the qualitative assessment indicate that the two-step impairment test must be performed, the Company must first determine whether the fair value of the reporting unit exceeds the carrying value. If the fair value of the goodwill is less than the implied value, the Company is required to write-off the excess goodwill as an operating expense.
The Company uses an equally weighted combination of the income and market approaches when performing its two-step impairment test of goodwill. The Company assigns an equal weight to the respective methods as they are both acceptable valuation approaches in determining the fair value of a business.
The income approach establishes fair value by methods which discount or capitalize earnings and/or cash flow by a discount or capitalization rate that reflects market rate of return expectations, market conditions and the risk of the relative investment. The Company uses a discounted cash flow method when applying the income approach. The market approach establishes fair value by comparing the Company to publicly traded companies or by analyzing actual transactions of similar businesses.
The Company tested its goodwill as of October 1, 2013, and determined that its goodwill was not impaired. There were no changes in the carrying amount of goodwill for the years ended December 31, 2013 and 2012.
NOTE 7DEBT
Debt consisted of the following as of December 31, 2013 and 2012 (in thousands, except percent data):
|
December 31, 2012 |
December 31, 2013 |
|||||
---|---|---|---|---|---|---|---|
Revolving Credit Facility with interest ranging from the lender's prime rate plus up to 1.5% to LIBOR plus up to 2.5% (2.8% at December 31, 2013) |
$ | 142,621 | $ | 279,200 | |||
Senior Secured Notes |
200,000 | 200,000 | |||||
| | | | | | | |
Total indebtedness |
$ | 342,621 | $ | 479,200 | |||
| | | | | | | |
| | | | | | | |
On October 1, 2010, Neff Rental LLC and Neff LLC entered into its senior secured revolving credit facility (the "Revolving Credit Facility") as co-borrowers. The obligations under the Revolving Credit Facility are guaranteed by Neff Holdings LLC. The Revolving Credit Facility is secured by a first priority security interest in substantially all of the Company's assets. Interest on any base rate loans under the Revolving Credit Facility is due quarterly and interest on any LIBOR rate loans under the Revolving Credit Facility is due at three month intervals or, if shorter, at the end of the selected LIBOR period. Availability under the Revolving Credit Facility is subject to a borrowing base formula consisting of eligible accounts receivable and eligible rental fleet.
F-28
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7DEBT (Continued)
In May 2011, Neff Rental LLC and Neff Rental Finance Corp., as co-issuers (the "Co-Issuers"), completed a private offering of $200.0 million aggregate principal amount of 9.625% Senior Secured Notes (the "Senior Secured Notes"). Neff Rental Finance Corp. was formed in April 2011 for the sole purpose of co-issuing the Senior Secured Notes and has been capitalized with an amount of cash required to satisfy minimum statutory requirements. Except with respect to such amount of cash, Neff Rental Finance Corp. does not have any assets, operations or revenues. The terms of the Senior Secured Notes are governed by an indenture (the "Indenture"). The obligations under the Senior Secured Notes are guaranteed by Neff Holdings LLC and Neff LLC (the "Guarantors") and are secured by a second priority security interest in substantially all of the Company's assets. Interest on the Senior Secured Notes is payable in cash semi-annually in arrears on May 15 and November 15 of each year. The Senior Secured Notes mature on May 15, 2016.
On March 12, 2012, the Revolving Credit Facility was amended (the "March 2012 Amendment"). The March 2012 Amendment increased total borrowing capacity to $200.0 million, provided for a mechanism whereby the Company could request (but the lenders under the Revolving Credit Facility have no obligation to provide) up to $100.0 million of incremental revolving loan commitments under the Revolving Credit Facility, reduced applicable margins applicable to loans and other credit extensions, extended the maturity to the earlier of March 12, 2016 and ninety days prior to the maturity date of the Senior Secured Notes (to the extent any Senior Secured Notes remain outstanding on such date) and modified the excess availability requirements relating to cash dominion and the implementation of certain financial covenants.
On October 25, 2012, the Revolving Credit Facility was amended (the "October 2012 Amendment"). The October 2012 Amendment increased total maximum borrowing capacity from $200.0 million to $225.0 million.
On November 20, 2013, the Revolving Credit Facility was amended and restated (the "2013 Amendment and Restatement"). Among other things, the 2013 Amendment and Restatement increased total maximum borrowing capacity from $225.0 million to $375.0 million, provided for a mechanism whereby the Company could request (but the lenders under the Revolving Credit Facility have no obligation to provide) up to $25.0 million of incremental revolving loan commitments under the Revolving Credit Facility, permitted the payment of a $110.0 million cash distribution to the members of Neff Holdings LLC (the "2013 Distribution"), extended the maturity to the earlier of November 20, 2018 and ninety days prior to the maturity date of the Senior Secured Notes (to the extent any Senior Secured Notes remain outstanding on such date) and modified the excess availability requirements relating to cash dominion and the implementation of certain financial covenants and covenants relating to appraisals and field audits. As of December 31, 2013, total availability under the Revolving Credit Facility was $91.1 million.
In connection with the 2013 Amendment and Restatement, the Indenture and the intercreditor agreement that relates to the Senior Secured Notes (the "Intercreditor Agreement") were amended (together with the 2013 Amendment and Restatement, the "2013 Amendments"). The amendment to the Indenture, among other things, amended (i) the debt incurrence covenant contained in the Indenture to allow for first-priority lien credit facilities of up to the greater of $400 million and the Borrowing Base (as defined in the Indenture), (ii) the restricted payments covenant contained in the Indenture to permit the payment of the 2013 Distribution, and (iii) certain definitions contained in the Indenture. The amendment to the Intercreditor Agreement amended certain provisions in the Intercreditor Agreement so that the liens on collateral securing the first-priority lien credit facilities referred to above will be senior in all
F-29
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7DEBT (Continued)
respects and prior to any lien on collateral securing the obligations under the Indenture, on the terms set forth in the Intercreditor Agreement.
The Company paid approximately $10.1 million in 2013 of debt issue costs related to the 2013 Amendments ($2.4 million and $7.7 million related to the Revolving Credit Facility and Senior Secured Notes, respectively), which are amortized over the terms of the Revolving Credit Facility and Senior Secured Notes utilizing the effective interest method. Accumulated amortization at December 31, 2013 for debt issue costs was $2.0 million and $2.7 million for the Revolving Credit Facility and Senior Secured Notes, respectively. Accumulated amortization at December 31, 2012 for debt issue costs was $1.3 million and $1.4 million for the Revolving Credit Facility and Senior Secured Notes, respectively.
The Revolving Credit Facility and Senior Secured Notes contain various affirmative, negative and financial reporting covenants. The covenants, among other things, place restrictions on the Company's ability to acquire and sell assets, incur additional indebtedness and prepay other indebtedness other than the Revolving Credit Facility. The Company is subject to certain financial covenants under its Revolving Credit Facility if availability declines below $46.9 million. The Company was in compliance with all financial covenants under the Revolving Credit Facility and the Senior Secured Notes as of December 31, 2013.
NOTE 8EQUITYBASED COMPENSATION
Neff Holdings LLC adopted the Neff Holdings LLC Management Equity Plan on October 1, 2010 (the "2010 Equity Plan"). Under the 2010 Equity Plan, Neff Holdings LLC may grant options or other equity based awards to acquire Neff Holdings LLC class B limited voting membership units to employees (including executive officers) and non-employee directors of the Company.
On October 12, 2010, under the 2010 Equity Plan, Neff Holdings LLC granted options to certain employees of the Company to acquire an aggregate of 800,000 class B limited voting membership units (the "2010 Employee Options"). The 2010 Employee Options will vest as follows: 62.5% will vest over time (the "Service Options") and the remaining 37.5% will vest in equal installments upon the achievement of certain earnings-based targets (the "Performance Options"). Each employee's Service Options will vest in equal installments on each of the first four anniversaries of the grant date beginning with October 12, 2011. The vesting of the Performance Options is subject to periodic or cumulative achievement of certain earnings-based targets over four periods beginning with the period October 1, 2010 through December 31, 2011 and then over the next three calendar years. If any of the Performance Options do not vest over the vesting period, then any unvested Performance Options terminate. The 2010 Employee Options had an exercise price of $23.86 per share (see Option Amendment below in this Note 8), which price was not less than the fair market value of a class B limited voting membership unit on the date of the grant. As of December 31, 2013 and 2012, 565,094 and 375,844 of the 2010 Employee Options had vested, respectively.
On November 11, 2010, under the 2010 Equity Plan, Neff Holdings LLC granted options to acquire 21,374 class B limited voting membership units to two members of the Board of Managers (the "2010 Director Options," together with the 2010 Employee Options, the "2010 Options"). The 2010 Director Options will vest over time (25% of each 2010 Director Option will vest in equal installments on each of the first four anniversaries of November 11, 2010). The 2010 Director Options had an exercise price of $23.86 per share (see Option Amendment below in this Note 8), which price was not less than the fair market value of a class B limited voting membership unit on the date of the grant. As of December 31, 2013 and 2012, 16,031 and 10,687 of the 2010 Director Options had vested, respectively. As of December 31, 2013 and 2012, there were 221,626 class B limited voting membership units available for future grants of equity awards under the 2010 Equity Plan.
F-30
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8EQUITYBASED COMPENSATION (Continued)
Upon a change in control of Neff Holdings LLC, all of the then outstanding 2010 Options would fully vest and become exercisable. The fair value of the 2010 Options at grant date was estimated using the Black-Scholes multiple option model. The following weighted average assumptions were used to value the 2010 Options: an expected term of 5 years, a risk free rate of 1.17%, volatility of 50% and no expected dividends. The estimated weighted average fair value per option granted in 2010 was $6.07. The risk free rate for periods within the contracted life of the options was based on the yield on U.S. Treasury securities to extrapolate a forward yield curve. As Neff Holdings LLC's membership units are privately held and there has been no history of exercises and forfeitures, volatility was based on the average volatilities of public entities and expected life was based on management estimates considering maximum contractual terms and vesting periods at grant date.
In 2011, the Company made a $120.0 million cash distribution to the members of Neff Holdings LLC as a return of capital (the "2011 Distribution"). On June 1, 2011, in connection with the 2011 Distribution, Neff Holdings LLC amended all of the 2010 Options (the "Option Amendment"). The Option Amendment, among other things, reduced the exercise price of the 2010 Options from $23.86 to $10.82 and modified the Performance Option component of the 2010 Employee Options by increasing the earnings-based targets over the remaining vesting period of the 2010 Employee Options. The Company accounted for the Option Amendment as a modification. The incremental compensation cost that resulted from the Option Amendment amounted to $1.0 million and is being recognized over the remaining vesting period of the 2010 Options.
Equity-based compensation expense relating to the Company's equity-based compensation awards was $1.2 million and $1.5 million for the years ended December 31, 2013 and 2012, respectively.
The weighted average exercise price and the weighted average remaining contractual life of the options under the 2010 Equity Plan as of December 31, 2013 was $10.82 and 7 years, respectively. As of December 31, 2013 and 2012, Neff Holdings LLC had 778,374 class B limited voting membership unit options outstanding that were granted to employees and non-employee directors of the Company.
The total compensation cost related to 2010 Employee Options not yet recognized as of December 31, 2013 totaled approximately $0.8 million; that cost is expected to be recognized over a period of 1 year for both the Service Options and the Performance Options. The total compensation cost related to 2010 Director Options not yet recognized as of December 31, 2013 totaled approximately $39.1 thousand; that cost is expected to be recognized over a period of 1 year. For the years ended December 31, 2013 and 2012, there were no grants, exercises or forfeitures of options.
NOTE 9RETIREMENT PLAN
The Company has a 401(k) plan for its employees (the "401(k) Plan"). Participating employees may contribute to the 401(k) Plan through salary deductions. Neff Rental LLC is the sponsor of the 401(k) Plan. The Company made $1.0 million and $0.8 million in matching contributions to the 401(k) Plan for the years ended December 31, 2013 and 2012, respectively.
NOTE 10DERIVATIVE FINANCIAL INSTRUMENTS
On October 1, 2010, as part of the Acquisition (Note 11), the Company recorded interest rate swaps ("Interest Rate Swaps") on its balance sheet as a liability at a fair value of $16.9 million. The Interest Rate Swaps were not accounted for as hedges and changes in fair value were included directly in the statement of operations. The Company reduced the accrued swap liability by the amount of the semi-annual net settlement as settlements were made. Under the terms of the Interest Rate Swaps, a semiannual net
F-31
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
settlement was made on January 4 and July 4 each year for the difference between the fixed rate of 5.621% and the variable rate based upon the six month LIBOR rate on the notional amount of the Interest Rate Swaps. During 2012, the Company made semi-annual payments of $2.7 million and $2.4 million in January 2012 and July 2012, respectively. The Interest Rate Swaps had a notional amount of $100.0 million through January 4, 2013. On January 4, 2013, the Company made the final payment of $2.5 million and the agreement for the Interest Rate Swaps expired.
The Company's hedging transactions are authorized and executed pursuant to its regularly reviewed policies and procedures, which prohibit the use of derivative financial instruments for trading or speculative purposes.
The $0.1 million loss on interest rate swaps for the year ended December 31, 2012 was related to the change in the fair value of the Interest Rate Swaps. The Company did not record a gain or loss on interest rate swaps for the year ended December 31, 2013.
The fair value of the Interest Rate Swaps as of December 31, 2012 was $2.5 million.
The following tables provide details regarding the Company's derivative financial instruments (in thousands):
|
For the Year Ended December 31, 2012 | For the Year Ended December 31, 2013 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Loss Reclassified from Accumulated Other Comprehensive Loss to Earnings |
Loss Recognized in Earnings(a) |
Loss Reclassified from Accumulated Other Comprehensive Loss to Earnings |
Loss Recognized in Earnings |
|||||||||
Interest Rate Swaps |
$ | | $ | (102 | ) | $ | | $ | |
|
December 31, 2012 | December 31, 2013 | |||||
---|---|---|---|---|---|---|---|
|
Fair Value of Derivative Liability(b) |
Fair Value of Derivative Liability |
|||||
Interest Rate Swaps (Note 14) |
$ | 2,484 | $ | |
NOTE 11INCOME TAXES
Neff Holdings LLC is a limited liability company that is treated as a partnership for federal and state income tax purposes. The Company is not subject to income taxes for federal and state purposes. Rather, taxable income or loss is included in the respective federal and state income tax returns of the Company's members. Tax years 2010 through 2012 are open to examination by federal and state taxing authorities.
In June 2012, the Company received notice from the Internal Revenue Service ("IRS") that the IRS would be auditing the 2010 federal tax return (the "IRS Predecessor Audit") of Neff Holdings Corp. On October 1, 2010, the Company purchased substantially all of the assets of Neff Holdings Corp. and certain of its affiliates (collectively, the "Predecessor") in connection with the Predecessor's bankruptcy cases under chapter 11 of title 11 of the United States Code (the "Acquisition"). The IRS Predecessor Audit began in July 2012 and in August 2013 the Company received notice from the IRS that the IRS had completed the IRS Predecessor Audit and had made no changes to the tax return. In November 2012, the Company received notice from the IRS that the IRS would be auditing the Company's 2010 federal tax
F-32
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11INCOME TAXES (Continued)
return (the "IRS Company Audit"). The IRS Company Audit began in December 2012 and in December 2013 the Company received notice from the IRS that the IRS had completed the IRS Company Audit and had made no changes to the tax return.
In connection with the Acquisition uncertain tax liabilities were assumed by the Company and are recorded in accrued expenses as of December 31, 2013 and 2012. At December 31, 2013 and 2012, the amount of uncertain tax positions recorded in accrued expenses was approximately $4.8 million and $4.9 million, respectively. No other income tax liabilities or assets are included in the balance sheets as of December 31, 2013 or December 31, 2012.
The Company's practice is to recognize interest and penalties on uncertain tax positions in income tax expense. The Company recognized $0.5 million and $0.4 million for interest and penalties during the years ended December 31, 2013 and 2012, respectively. The Company has accrued interest and penalties of $2.3 million and $1.7 million as of December 31, 2013 and 2012, respectively. The Company expects to reverse $4.4 million in uncertain tax positions and $2.1 million in interest and penalties during the year ending December 31, 2014.
A reconciliation of the beginning and ending amounts of uncertain tax positions is as follows (in thousands):
Ending balanceDecember 31, 2011 |
$ | 5,071 | ||
Additions based on tax positions related to the current year |
| |||
Additions for tax positions of prior years |
| |||
Reductions for tax positions of prior years |
| |||
Reductions as a result of lapse of applicable statute of limitations |
(195 | ) | ||
| | | | |
Ending balanceDecember 31, 2012 |
4,876 | |||
Additions based on tax positions related to the current year |
| |||
Additions for tax positions of prior years |
| |||
Reductions for tax positions of prior years |
| |||
Reductions as a result of lapse of applicable statute of limitations |
(126 | ) | ||
| | | | |
Ending balanceDecember 31, 2013 |
$ | 4,750 | ||
| | | | |
| | | | |
NOTE 12RELATED-PARTY TRANSACTIONS AND OTHER COMMITMENTS
Related Party Transactions
For the years ended December 31, 2013 and 2012, the Company had no material related party transactions.
Operating Leases
The Company leases real estate, rental equipment and other equipment under operating leases. Certain real estate leases require the Company to pay maintenance, insurance, taxes and certain other expenses in addition to the stated rental amounts. For leases with step rent provisions, under which the rental payments increase incrementally over the life of the lease, the Company recognizes the total minimum lease payments on a straight-line basis over the lease term. As of December 31, 2013, future
F-33
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12RELATED-PARTY TRANSACTIONS AND OTHER COMMITMENTS (Continued)
minimum rental payments under non-cancelable operating lease arrangements are as follows for the years ending December 31 (in thousands):
2014 |
$ | 6,246 | ||
2015 |
4,992 | |||
2016 |
3,341 | |||
2017 |
2,936 | |||
2018 |
1,864 | |||
Thereafter |
2,072 | |||
| | | | |
|
$ | 21,451 | ||
| | | | |
| | | | |
Rental expense under operating lease arrangements amounted to approximately $6.9 million and $6.6 million years ended December 31, 2013 and 2012, respectively.
Litigation Matters
The Company is party to legal proceedings and potential claims arising in the ordinary course of business. The Company's management does not believe that these matters will have a material effect on the Company's financial position, results of operations, or cash flows.
NOTE 13SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
For the Year Ended December 31, 2012 |
For the Year Ended December 31, 2013 |
|||||
---|---|---|---|---|---|---|---|
|
(in thousands) |
||||||
Supplemental Disclosures of Cash Flow Information |
|||||||
Cash paid for interest |
$ | 23,138 | $ | 24,676 | |||
Non-cash investing activities: |
|||||||
Purchases of rental equipment included in accounts payable and other accrued liabilities at year end |
$ | 33,039 | $ | 9,381 | |||
Non-cash financing activities: |
|||||||
Accrued Revolving Credit Facility debt issue costs |
$ | | $ | 182 |
NOTE 14FAIR VALUE DISCLOSURES
The carrying amounts for accounts receivable, accounts payable and accrued expenses and other liabilities approximate fair value due to their immediate to short-term maturity. The fair value of the Revolving Credit Facility approximates its carrying value as of December 31, 2013, as variable interest rates approximate market rates.
The Company used the following methods to measure the fair value of certain assets and liabilities:
Interest Rate Swaps. The Interest Rate Swaps were valued utilizing pricing models taking into account inputs such as interest rates and notional amounts (see Note 10).
Senior Secured Notes. The fair value of the Senior Secured Notes was calculated based on information from third party financial institutions supported by minimal market activity, and may not be representative of the prices that would be derived from a more active market.
F-34
NEFF HOLDINGS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14FAIR VALUE DISCLOSURES (Continued)
The following table reflects the carrying amount and fair value of the Senior Secured Notes as of December 31, 2013 and 2012 (in thousands):
|
December 31, 2012 | December 31, 2013 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
|||||||||
Senior Secured Notes |
$ | 200,000 | $ | 208,100 | $ | 200,000 | $ | 212,376 |
The FASB has established a framework for measuring fair value and requires that assets and liabilities measured at fair value be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs that are not corroborated by market data
The Company made the final scheduled semi-annual net payment for the Interest Rate Swaps on January 4, 2013 and as a result, the Interest Rate Swaps were not measured as of December 31, 2013.
The following table provides fair value measurement information of the Interest Rate Swaps measured on a recurring basis as of December 31, 2012 (in thousands):
|
Fair Value Measurements Using: | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Quoted Prices in Active Markets (Level 1) |
Observable Inputs (Level 2) |
Unobservable Inputs (Level 3) |
|||||||
Interest Rate Swaps |
$ | | $ | 2,484 | $ | |
There were no transfers into or out of Level 1, 2 or 3 during the years ended December 31, 2013 and 2012.
NOTE 15SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
A summary of the quarterly operating results during 2013 and 2012 is as follows (in thousands):
|
2013 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
1st | 2nd | 3rd | 4th | |||||||||
Revenues |
$ | 70,077 | $ | 80,290 | $ | 86,395 | $ | 90,445 | |||||
Gross Profit |
29,964 | 39,313 | 42,443 | 43,356 | |||||||||
Income from operations |
8,810 | 17,459 | 20,085 | 21,137 | |||||||||
| | | | | | | | | | | | | |
Net income |
$ | 2,314 | $ | 10,716 | $ | 13,498 | $ | 13,965 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
2012 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
1st | 2nd | 3rd | 4th | |||||||||
Revenues |
$ | 60,786 | $ | 70,685 | $ | 76,448 | $ | 83,058 | |||||
Gross Profit |
22,518 | 29,729 | 34,583 | 36,283 | |||||||||
Income from operations |
3,717 | 9,877 | 14,170 | 14,687 | |||||||||
| | | | | | | | | | | | | |
Net (loss) income |
$ | (2,508 | ) | $ | 3,668 | $ | 7,803 | $ | 8,545 | ||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
F-35
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses to be paid by Neff Corporation, other than underwriting discounts and commissions, upon the completion of this offering. All amounts shown are estimates except for the SEC registration fee, the Financial Industry Regulatory Authority ("FINRA") filing fee and the NYSE listing fee.
|
Amount to be Paid |
|||
---|---|---|---|---|
SEC registration fee |
$ | 30,799 | ||
FINRA filing fee |
40,257 | |||
NYSE listing fee |
* | |||
Printing and engraving expenses |
* | |||
Legal fees and expenses |
* | |||
Accounting fees and expenses |
* | |||
Transfer agent and registrar fees |
* | |||
Miscellaneous expenses |
* | |||
| | | | |
Total |
$ | * | ||
| | | | |
| | | | |
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a corporation's board of directors to grant, and authorizes a court to award, indemnity to officers, directors, and other corporate agents.
Upon completion of this offering, as permitted by Section 102(b)(7) of the Delaware General Corporation Law, Neff Corporation's amended and restated certificate of incorporation will include provisions that eliminate the personal liability of its directors and officers for monetary damages for breach of their fiduciary duty as directors and officers.
In addition, as permitted by Section 145 of the Delaware General Corporation Law, the amended and restated certificate of incorporation and amended and restated by-laws of Neff Corporation will provide that:
II-1
authorized by Neff Corporation's board of directors or brought to enforce a right to indemnification.
Neff Corporation's policy is to enter into separate indemnification agreements with each of its directors and officers that provide the maximum indemnity allowed to directors and executive officers by Section 145 of the Delaware General Corporation Law and also to provide for certain additional procedural protections. Neff Corporation also maintains directors and officers insurance to insure such persons against certain liabilities.
These indemnification provisions and the indemnification agreements entered into between Neff Corporation and its officers and directors may be sufficiently broad to permit indemnification of Neff Corporation's officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act.
The underwriting agreement to be filed as Exhibit 1.1 to this registration statement will provide for indemnification by the underwriters of Neff Corporation and Neff Holdings LLC and its officers and directors for certain liabilities arising under the Securities Act and otherwise.
Item 15. Recent Sales of Unregistered Securities.
On August 31, 2014, Neff Corporation agreed to issue 100 shares of common stock, par value $0.01 per share, to Wayzata in exchange for $100. The issuance was exempt from registration under Section 4(a)(2) of the Securities Act, as a transaction by an issuer not involving any public offering.
Item 16. Exhibits and Financial Statement Schedules.
We have filed the exhibits listed on the accompanying Exhibit Index of this Registration Statement.
All financial statement schedules are omitted because the information called for is not required or is shown either in the consolidated financial statements or in the notes thereto.
The undersigned Neff Corporation hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of Neff Corporation pursuant to the foregoing provisions, or otherwise, Neff Corporation has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Neff Corporation of expenses incurred or paid by a director, officer, or controlling person of Neff Corporation in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with
II-2
the securities being registered, Neff Corporation 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 Securities Act and will be governed by the final adjudication of such issue.
The undersigned Neff Corporation hereby undertakes that:
(1) 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 Neff Corporation 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.
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-3
Pursuant to the requirements of the Securities Act of 1933, as amended, Neff Corporation has duly caused this registration statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in Miami, Florida on the 10th day of November, 2014.
NEFF CORPORATION | ||||
By: |
/s/ MARK IRION Mark Irion Chief Financial Officer |
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.
Signature
|
Title
|
Date
|
||
---|---|---|---|---|
/s/ GRAHAM HOOD Graham Hood |
President, Chief Operating Officer and Director (Principal Executive Officer) | November 10, 2014 | ||
/s/ MARK IRION Mark Irion |
Chief Financial Officer (Principal Accounting and Financial Officer) |
November 10, 2014 |
||
/s/ ROBERT SINGER Robert Singer |
Director |
November 10, 2014 |
||
/s/ JAMES CONTINENZA James Continenza |
Director |
November 10, 2014 |
||
/s/ JOSEPH DEIGNAN Joseph Deignan |
Director |
November 10, 2014 |
||
/s/ GERARD E. HOLTHAUS Gerard E. Holthaus |
Director |
November 10, 2014 |
II-4
Exhibit Number |
Description | ||
---|---|---|---|
1.1 | Form of Underwriting Agreement | ||
3.1 | Form of Amended and Restated Certificate of Incorporation of Neff Corporation, to be in effect upon the completion of this offering | ||
3.2 | Form of Amended and Restated By-laws of Neff Corporation, to be in effect upon the completion of this offering | ||
4.1 | * | Form of Class A common stock certificate of Neff Corporation | |
5.1 | Opinion of Latham & Watkins LLP | ||
10.1 | Form of Tax Receivable Agreement | ||
10.2 | Form of Registration Rights Agreement | ||
10.3 | | LLC Agreement of Neff Holdings LLC, as currently in effect | |
10.4 | Form of Second Amended and Restated Limited Liability Company Agreement of Neff Holdings LLC | ||
10.5 | | Second Lien Credit Agreement, dated as of June 9, 2014, among Neff Holdings, LLC, Neff LLC, Neff Rental LLC, the Lenders Party thereto, Credit Suisse AG as Administrative Agent and Collateral Agent, Credit Suisse Securities (USA) LLC, as Joint Bookrunner and Joint Lead Arranger, and Jefferies Finance LLC, as Joint Bookrunner, Joint Lead Arranger and Syndication Agent | |
10.6 | Amendment No. 1, dated as of October 14, 2014, to the Second Lien Credit Agreement, dated as of June 9, 2014, among Neff Holdings, LLC, Neff LLC, Neff Rental LLC, the Lenders Party thereto, Credit Suisse AG as Administrative Agent and Collateral Agent, Credit Suisse Securities (USA) LLC, as Joint Bookrunner and Joint Lead Arranger, and Jefferies Finance LLC, as Joint Bookrunner, Joint Lead Arranger and Syndication Agent | ||
10.7 | | Amended and Restated Senior Secured Credit Agreement, dated as of October 1, 2010 and as amended and restated as of November 20, 2013, among Neff LLC, Neff Holdings LLC, the other Credit Parties party thereto, the Lenders party thereto from time to time, Bank of America, N.A., as Agent, Swing Line Lender and L/C Issuer, Bank of America, N.A. and Wells Fargo Capital Finance, LLC as Co-Collateral Agents, Wells Fargo Capital Finance, LLC as Syndication Agent and Regions Bank as Documentation Agent and Merrill Lynch, Pierce, Fenner and Smith Incorporated as Lead Arranger and Bookrunner | |
10.8 | | Amendment No. 1, dated as of June 9, 2014, to the Amended and Restated Senior Secured Credit Agreement, dated as of October 1, 2010 and as amended and restated as of November 20, 2013, among Neff LLC, Neff Holdings LLC, the other Credit Parties party thereto, the Lenders party thereto from time to time, Bank of America, N.A., as Agent, Swing Line Lender and L/C Issuer, Bank of America, N.A. and Wells Fargo Capital Finance, LLC as Co-Collateral Agents, Wells Fargo Capital Finance, LLC as Syndication Agent and Regions Bank as Documentation Agent and Merrill Lynch, Pierce, Fenner and Smith Incorporated as Lead Arranger and Bookrunner | |
Exhibit Number |
Description | ||
---|---|---|---|
10.9 | Amendment No. 2, dated as of October 14, 2014, to the Amended and Restated Senior Secured Credit Agreement, dated as of October 1, 2010 and as amended and restated as of November 20, 2013, among Neff LLC, Neff Holdings LLC, the other Credit Parties party thereto, the Lenders party thereto from time to time, Bank of America, N.A., as Agent, Swing Line Lender and L/C Issuer, Bank of America, N.A. and Wells Fargo Capital Finance, LLC as Co-Collateral Agents, Wells Fargo Capital Finance, LLC as Syndication Agent and Regions Bank as Documentation Agent and Merrill Lynch, Pierce, Fenner and Smith Incorporated as Lead Arranger and Bookrunner | ||
10.10 | | Form of Neff Corporation 2014 Incentive Award Plan | |
10.11 | | Form of Neff Corporation 2014 Senior Executive Incentive Bonus Plan | |
10.12 | | Form of Neff Holdings LLC 2014 Management Special Bonus Plan | |
10.13 | | Form of Neff Holdings LLC Amended and Restated Sale Transaction Bonus Plan | |
10.14 | First Amendment to Neff Holdings LLC Amended and Restated Sale Transaction Bonus Plan | ||
10.15 | Form of Neff Holdings LLC 2014 Incentive Bonus Plan | ||
10.16 | | Neff Holdings LLC Management Equity Plan, dated as of October 1, 2010 | |
10.17 | Form of Neff Corporation Executive Officer Stock Ownership Policy | ||
10.18 | Form of Amended and Restated Neff Holdings LLC Management Equity Plan | ||
10.19 | | Employment Agreement by and between Graham Hood and Neff Corp., dated as of March 2007, and as amended September 30, 2010 and May 10, 2013 | |
10.20 | | Employment Agreement by and between Mark Irion and Neff Corp., dated as of March 1, 2000, and as amended January 31, 2005, July 8, 2005, May 31, 2007, September 30, 2010 and June 1, 2011 | |
10.21 | | Employment Letter between Westley Parks and Neff Rental LLC, dated as of November 29, 2011 | |
10.22 | Form of Indemnification Agreement | ||
21.1 | | List of subsidiaries of Neff Corporation | |
23.1 | Consent of Deloitte & Touche LLP as to Neff Corporation | ||
23.2 | Consent of Deloitte & Touche LLP as to Neff Holdings LLC | ||
23.3 | Consent of Latham & Watkins LLP (included in Exhibit 5.1) | ||
24.1 | | Power of Attorney (included in the signature page to this registration statement) |
Exhibit 1.1
[ ] Shares
NEFF CORPORATION
CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE
UNDERWRITING AGREEMENT
[ ], 2014
Morgan Stanley & Co. LLC
Jefferies LLC
As representatives of the several Underwriters
named in Schedule I hereto
c/o Morgan Stanley & Co. LLC
1585 Broadway
New York, New York 10036
Jefferies LLC
520 Madison Avenue, 12th Floor
New York, New York 10022
Ladies and Gentlemen:
Neff Corporation, a Delaware corporation (the Company), proposes to issue and sell to the several Underwriters named in Schedule I hereto (the Underwriters), for whom you are acting as representatives (the Representatives), an aggregate of [ ] shares of Class A common stock, $0.01 par value per share, of the Company (the Firm Shares).
The Company also proposes to issue and sell to the several Underwriters not more than an additional [ ] shares of Class A common stock, $0.01 par value per share (the Additional Shares), if and to the extent that you, as Representatives of the Underwriters, shall have determined to exercise, on behalf of the Underwriters, the right to purchase such shares of Class A common stock granted to the Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the Shares. The shares of Class A common stock, par value $0.01 per share, of the Company to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the Common Stock.
In connection with the offering contemplated by this Agreement, the Organizational Transactions (as such term is defined in the Registration Statement and the Time of Sale Prospectus (each as defined below) under the caption Prospectus SummaryThe Organizational Transactions) were or will be effected, pursuant to which the Company will become the sole managing member of Neff Holdings LLC, a Delaware limited liability company (Holdings).
The Company has filed with the Securities and Exchange Commission (the Commission) a registration statement, including a prospectus, relating to the Shares. The registration statement as amended at the time it became effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended (the
Securities Act), is hereinafter referred to as the Registration Statement; the prospectus in the form first used to confirm sales of Shares (or in the form first made available to the Underwriters by the Company to meet requests of purchasers pursuant to Rule 173 under the Securities Act) is hereinafter referred to as the Prospectus. If the Company has filed an abbreviated registration statement to register additional shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the Rule 462 Registration Statement), then any reference herein to the term Registration Statement shall be deemed to include such Rule 462 Registration Statement.
For purposes of this Agreement, free writing prospectus has the meaning set forth in Rule 405 under the Securities Act, Time of Sale Prospectus means the preliminary prospectus identified in Schedule II hereto together with the documents, pricing information and the free writing prospectuses, if any, each as set forth in Schedule II hereto, and broadly available road show means a bona fide electronic road show as defined in Rule 433(h)(5) under the Securities Act that has been made available without restriction to any person. As used herein, the terms Registration Statement, preliminary prospectus, Time of Sale Prospectus and Prospectus shall include the documents, if any, incorporated by reference therein as of the date hereof.
1. Representations and Warranties of the Company and Holdings. The Company and Holdings, jointly and severally, represent and warrant to and agree with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or, to the Companys or Holdings knowledge, threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did not contain and, as amended or supplemented, if applicable, will not contain, as of the date of such amendment or supplement, any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Registration Statement and the Prospectus comply and, as amended or supplemented, if applicable, will comply in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder, (iii) the Time of Sale Prospectus does not, and at the time of each sale of the Shares in connection with the offering when the Prospectus is not yet available to prospective purchasers and at the Closing Date (as defined in Section 4), the Time of Sale Prospectus, as then amended or supplemented by the Company, if applicable, will not, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, (iv) each broadly available road show, if any, when considered together with the Time of Sale Prospectus, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and (v) the Prospectus, as of its date, does not contain and, as amended or supplemented, if applicable, will not contain as of the date of such amendment or supplement or as of the Closing Date any untrue statement of
a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in the Registration Statement, the Time of Sale Prospectus or the Prospectus based upon information relating to any Underwriter furnished to the Company in writing by any Underwriter through you expressly for use therein.
(c) The Company is not an ineligible issuer in connection with the offering pursuant to Rules 164, 405 and 433 under the Securities Act. Any free writing prospectus that the Company is required to file pursuant to Rule 433(d) under the Securities Act has been, or will be, filed with the Commission in accordance with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder. Each free writing prospectus that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act or that was prepared by or behalf of or used or referred to by the Company complies or will comply in all material respects with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder. Except for the free writing prospectuses, if any, identified in Schedule II hereto, and electronic road shows, if any, each furnished to you before first use, the Company has not prepared, used or referred to, and will not, without your prior consent, prepare, use or refer to, any free writing prospectus.
(d) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Time of Sale Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not, singly or in the aggregate, reasonably be expected to have a material adverse effect on the Company, Holdings and its subsidiaries (collectively, the Neff Parties), taken as a whole.
(e) Holdings and each of its subsidiaries have been duly formed or incorporated, as applicable, are validly existing and in good standing under the laws of the jurisdiction of formation or incorporation, as applicable, have the corporate or other power and authority to own their property and to conduct their business as described in the Time of Sale Prospectus and are duly qualified to transact business and are in good standing in each jurisdiction in which the conduct of their business or their ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not, singly or in the aggregate, reasonably be expected to have a material adverse effect on the Neff Parties, taken as a whole.
(f) This Agreement has been duly authorized, executed and delivered by the Company and Holdings.
(g) As of September 30, 2014, Holdings had an authorized capitalization as set forth in the Time of Sale Prospectus and, after giving effect to the Organizational Transactions and the issuance of the Firm Shares and the use of the net proceeds
therefrom as described in the Time of Sale Prospectus, the Company would have an authorized capitalization as set forth under the pro forma column of the capitalization table in the section of the Time of Sale Prospectus entitled Capitalization; following the filing of the Companys amended and restated certificate of incorporation with the State of Delaware Secretary of State, all of the issued shares of capital stock of the Company prior to the issuance of the Shares will have been duly and validly authorized and, when issued and delivered against payment of the consideration (as authorized by the board of directors of the Company), will be validly issued, fully paid and non-assessable and will conform, as of the Closing Date, in all material respects to the description of capital stock contained in the Time of Sale Prospectus and the Prospectus; and, upon the effectiveness of the amended and restated limited liability company agreement of Holdings and after giving effect to the Organizational Transactions, all of the issued equity interests of Holdings and its subsidiaries will have been duly authorized and issued and, except as described in the Time of Sale Prospectus or as would not reasonably be expected to result in a material adverse effect, all of the issued equity interests of each subsidiary of Holdings are owned directly or indirectly by Holdings, free and clear of all liens, encumbrances, equities or claims.
(h) The Shares have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued, fully paid and non-assessable; and the issuance of such Shares will not be subject to any preemptive or similar rights.
(i) The execution and delivery by the Company and Holdings of, and the performance by the Company and Holdings of their obligations under, this Agreement and the Transaction Documents (as defined below) to which they are a party will not (i) contravene any provision of applicable law, (ii) violate the terms of the amended and restated certificate of incorporation or by-laws of the Company or the certificate of formation or amended and restated limited liability company agreement of Holdings, (iii) conflict with or result in a breach of any agreement or other instrument binding upon the Neff Parties or (iv) result in a violation of any judgment, order or decree of any governmental body, agency or court having jurisdiction over any of the Neff Parties, except in the case of clauses (i), (iii) and (iv), such as would not reasonably be expected to have a material adverse effect on the Neff Parties, taken as a whole; and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required to be obtained for the performance by the Company or Holdings of their obligations under this Agreement and the Transaction Documents, except (A) such as may have previously been obtained or (B) such as may be required by the securities or Blue Sky laws of the various states or foreign jurisdictions or the rules and regulations of the Financial Industry Regulatory Authority, Inc. (FINRA) in connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the financial condition, earnings, business or operations of the Neff Parties, taken as a whole, from that set forth in the Time of Sale Prospectus.
(k) There are no legal or governmental proceedings pending or, to the Companys or Holdings knowledge, threatened to which any of the Neff Parties is a party or to which any of the properties of any of the Neff Parties is subject (i) other than proceedings disclosed in the Time of Sale Prospectus and proceedings that would not, singly or in the aggregate, reasonably be expected to have a material adverse effect on the Neff Parties, taken as a whole, or on the power or ability of the Company or Holdings to perform their respective obligations under this Agreement and the Transaction Documents or to consummate the transactions contemplated by the Time of Sale Prospectus or (ii) that are required to be described in the Registration Statement or the Prospectus and are not so described; and there are no statutes, regulations, contracts or other documents to which the Neff Parties are subject or by which the Neff Parties are bound that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required.
(l) Each preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder.
(m) Neither the Company nor Holdings is, and after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus will be, required to register as an investment company as such term is defined in the Investment Company Act of 1940, as amended.
(n) Each of the Neff Parties (i) is in compliance with all, and have not violated any applicable foreign, federal, state and local laws, rules, regulations and other legally enforceable requirements relating to the protection of human health and safety, the environment, natural resources, or hazardous or toxic substances or wastes, pollutants or contaminants (Environmental Laws), (ii) has received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) is in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate reasonably be expected to have a material adverse effect on the Neff Parties, taken as a whole.
(o) (1) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for cleanup, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties), and none of the Neff Parties has received any notice of any actual or potential costs or liabilities under or relating to any Environmental Laws, including for the investigation or remediation of any disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants, which would, in each of the above cases, singly or in the aggregate, reasonably be expected to have a material adverse effect
on the Neff Parties, taken as a whole, and (2) except as described in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus, there are no proceedings that are pending, or that are known to be contemplated by governmental entities, against any of the Neff Parties under any Environmental Laws in which a governmental entity is also a party, other than such proceedings regarding which it is reasonably believed no monetary sanctions of $100,000 or more will be imposed.
(p) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement except as have been described in the Time of Sale Prospectus.
(q) None of the Neff Parties or their respective controlled affiliates, or any director or officer, or, to the Companys or Holdings knowledge, any employee, agent or representative of the Neff Parties or their respective controlled affiliates acting on behalf of the Neff Parties or their respective controlled affiliates, has taken or will take any action in furtherance of an offer, payment, promise to pay, or authorization or approval of the payment or giving of money, property, gifts or anything else of value, directly or indirectly, to any government official (including any officer or employee of a government or government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office) to illegally influence official action or secure an improper advantage; and the Neff Parties and their respective controlled affiliates have conducted their businesses in compliance with applicable anti-corruption laws and have instituted and are maintaining and will continue to maintain policies and procedures designed to promote and achieve compliance with such laws.
(r) The operations of the Neff Parties are and have been conducted at all times in compliance in all material respects with all applicable financial recordkeeping and reporting requirements, including those of the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), and the applicable anti-money laundering statutes of jurisdictions where the Neff Parties conduct business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the Anti-Money Laundering Laws), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving any of the Neff Parties with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company or Holdings, threatened.
(s) (i) None of the Neff Parties, or any director or officer thereof, or, to the Companys or Holdings knowledge, any employee, agent, controlled affiliate or representative of any of the Neff Parties, is an individual or entity (Person) that is, or is owned or controlled by a Person that is:
(A) the subject of any sanctions administered or enforced by the U.S. Department of Treasurys Office of Foreign Assets Control (OFAC), the United Nations Security Council (UNSC), the European Union (EU), Her Majestys Treasury (HMT), or other relevant sanctions authority (collectively, Sanctions), nor
(B) located, organized or resident in a country or territory that is the subject of Sanctions (including, without limitation, Cuba, Iran, North Korea, Sudan and Syria).
(ii) The Company will not, directly or indirectly, use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person:
(A) to fund or facilitate any activities or business of or with any Person or in any country or territory that, at the time of such funding or facilitation, is the subject of Sanctions; or
(B) in any other manner that will result in a violation of Sanctions by any Person (including any Person participating in the offering, whether as underwriter, advisor, investor or otherwise).
(iii) For the past five years, the Company has not knowingly engaged in, is not now knowingly engaged in, and will not knowingly engage in, any dealings or transactions with any Person, or in any country or territory, that at the time of the dealing or transaction is or was the subject of Sanctions.
(t) Subsequent to the respective dates as of which information is given in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus, (i) the Neff Parties, taken as a whole, have not incurred any material liability or obligation, direct or contingent, nor entered into any material transaction; (ii) neither the Company nor Holdings has purchased any of their outstanding capital stock other than from employees or other service providers in connection with the termination of their service, nor declared, paid or otherwise made any dividend or distribution of any kind on capital stock other than ordinary and customary dividends; and (iii) there has not been any material change in the capital stock, short-term debt or long-term debt of the Neff Parties, taken as a whole, except in the case of each of clauses (i) (iii), as described or contemplated in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus, respectively.
(u) The Neff Parties have good and marketable title to all real property and good and marketable title to all personal property (other than intellectual property, which is covered by Section 1(w)) owned by them which is material to the business of the Neff Parties, in each case free and clear of all liens, encumbrances and defects except such as are described in the Time of Sale Prospectus or such as do not materially diminish the value of such property and do not materially interfere with the use made and proposed to
be made of such property by the Neff Parties, taken as a whole; and any real property and buildings held under lease by the Neff Parties are held by them under valid, subsisting and, to the Companys or Holdings knowledge, enforceable leases with such exceptions as are not material and do not materially interfere with the use made and proposed to be made of such property and buildings by the Neff Parties, taken as a whole, in each case except as described in the Time of Sale Prospectus.
(v) The Neff Parties, taken as a whole, own, possess or have the valid right to use, or can acquire on commercially reasonable terms, all patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names currently employed by them in connection with the business now operated by them, except where the failure to own, possess or acquire any of the foregoing, singly or in the aggregate, would not reasonably be expected to have a material adverse effect on the Neff Parties, taken as a whole, and none of the Neff Parties have received any notice of infringement of or conflict with asserted rights of others with respect to any of the foregoing which would, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, reasonably be expected to have a material adverse effect on the Neff Parties, taken as a whole.
(w) Except as would not, singly or in the aggregate, reasonably be expected to have a material adverse effect, no labor dispute with the employees of any of the Neff Parties exists, or, to the knowledge of the Company or Holdings, is imminent.
(x) The Neff Parties, taken as a whole, are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are, in the Companys reasonable judgment, prudent and customary in the businesses in which they are currently engaged; none of the Neff Parties has been refused any insurance coverage sought or applied for; and none of the Neff Parties has any reason to believe that it (taken together with the other Neff Parties) will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not, singly or in the aggregate, reasonably be expected to have a material adverse effect on the Neff Parties, taken as a whole, except as described in the Time of Sale Prospectus.
(y) The Neff Parties possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, except where the failure to possess any such certificate, authorization or permit would not, singly or in the aggregate, reasonably be expected to have a material adverse effect on the Neff Parties, taken as a whole, and none of the Neff Parties has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which would, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, reasonably be expected to have a material adverse effect on the Neff Parties, taken as a whole, except as described in the Time of Sale Prospectus.
(z) The Company maintains a system of internal accounting controls over financial reporting sufficient to provide reasonable assurance that (i) transactions are executed in accordance with managements general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles as applied in the United States and to maintain asset accountability; (iii) access to assets is permitted only in accordance with managements general or specific authorization; and (iv) the amounts reflected on the Companys balance sheet for assets are compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as described in the Time of Sale Prospectus, since the date of the latest audited financial statements included in the Time of Sale Prospectus, there has been (i) no material weakness in the Companys internal control over financial reporting (whether or not remediated) identified by the Company and (ii) no change in the Companys internal control over financial reporting has occurred that has materially adversely affected, or is reasonably likely to materially and adversely affect, the Companys internal control over financial reporting.
(aa) The Company has established and maintains disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act); the Companys disclosure controls and procedures are reasonably designed to ensure that all information (both financial and non-financial) required to be disclosed by the Company in the reports that it will file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and regulations under the Exchange Act, and that all such information is accumulated and communicated to the Companys management as appropriate to allow timely decisions regarding required disclosure and to make the certifications of the Chief Executive Officer and Chief Financial Officer of the Company required under the Exchange Act with respect to such reports; provided that this subsection does not require that the Company comply with Section 404 of the Sarbanes-Oxley Act as of an earlier date than it would otherwise be required to so comply.
(bb) Except as described in the Time of Sale Prospectus, the Company and Holdings have not sold, issued or distributed any shares of Common Stock during the six-month period preceding the date hereof, including any sales pursuant to Rule 144A under, or Regulation D or S of, the Securities Act, other than shares issued pursuant to employee benefit plans, qualified stock option plans or other employee compensation plans or pursuant to outstanding options, rights or warrants.
(cc) The Neff Parties have timely filed all federal, state, local and foreign tax returns required to be filed through the date of this Agreement or have requested valid extensions thereof and have paid all taxes required to be paid thereon (except for cases in which the failure to file such tax return or pay such taxes would not, singly or in the aggregate, reasonably be expected to have a material adverse effect, or, except as currently being contested in good faith and for which reserves required by U.S. GAAP have been created in the financial statements of Holdings), and no tax deficiency has been determined adversely to any of the Neff Parties which has had a material adverse effect, nor do any of the Neff Parties have any notice or knowledge of any tax deficiency
which would reasonably be expected to be determined adversely to any of the Neff Parties and which would reasonably be expected to have a material adverse effect.
(dd) From the time of initial submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is an emerging growth company, as defined in Section 2(a) of the Securities Act (an Emerging Growth Company). Testing-the-Waters Communication means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.
(ee) The Company (i) has not alone engaged in any Testing-the-Waters Communication and (ii) has not authorized anyone other than Morgan Stanley & Co. LLC (Morgan Stanley) to engage in Testing-the-Waters Communications. [The Company reconfirms that Morgan Stanley has been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications other than those listed on Schedule III hereto.] Written Testing-the-Waters Communication means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act.
(ff) As of the time of each sale of the Shares in connection with the offering when the Prospectus is not yet available to prospective purchasers, none of (A) the Time of Sale Prospectus and (B) any free writing prospectus, when considered together with the Time of Sale Prospectus, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(gg) The Company has taken all necessary actions to ensure that it is in compliance in all material respects with all provisions of the Sarbanes-Oxley Act of 2002, as amended (the Sarbanes-Oxley Act) that are in effect and with which the Company is required to comply (including Section 402 related to loans). As of the date of the initial filing of the registration statement referred to in Section 1(a) hereof, there were no outstanding personal loans made, directly or indirectly, by the Company to any director or executive officer of the Company.
(hh) The consolidated historical financial statements and schedules of Holdings and its consolidated subsidiaries included in the Time of Sale Prospectus, the Prospectus and the Registration Statement present fairly in all material respects the financial condition, results of operations and cash flows of Holdings and its subsidiaries as of the dates and for the periods indicated, comply as to form with the applicable accounting requirements of the Securities Act and have been prepared in conformity with U.S. GAAP (as in effect from time to time) applied on a consistent basis throughout the periods involved (except as otherwise noted therein); the historical financial statements and schedules of the Company included in the Time of Sale Prospectus, the Prospectus
and the Registration Statement present fairly in all material respects the financial condition of the Company as of the date indicated, comply as to form in all material respects with the applicable accounting requirements of the Securities Act and have been prepared in conformity with U.S. GAAP applied on a consistent basis (except as otherwise noted therein); the pro forma financial statements and data included in the Time of Sale Prospectus, the Prospectus and the Registration Statement include assumptions that provide a reasonable basis for presenting the significant effects directly attributable to the transactions and events described therein, the related pro forma adjustments give appropriate effect to those assumptions, and the pro forma adjustments reflect the proper application of those adjustments to the historical financial statement amounts in the pro forma financial statements and data included in the Time of Sale Prospectus, the Prospectus and the Registration Statement, in each case, in all material respects; and the pro forma financial statements and data included in the Time of Sale Prospectus, the Prospectus and the Registration Statement comply as to form in all material respects with the applicable accounting requirements of Regulation S-X under the Securities Act and the pro forma adjustments have been properly applied to the historical amounts in the compilation of those statements.
(ii) Deloitte & Touche LLP, who has certified certain financial statements of the Neff Parties, is an independent registered public accounting firm with respect to the Neff Parties within applicable rules and regulations adopted by Commission and the Public Company Accounting Oversight Board (United States).
(jj) Nothing has come to the attention of the Company that has caused it to reasonably believe that the industry-related and market-related data included in the Time of Sale Prospectus and the Prospectus is not based on or derived from sources that are reliable and accurate in all material respects.
(kk) Except as would not, singly or in the aggregate, have a material adverse effect on the Neff Parties (i) each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (ERISA), for which the Company or any member of its Controlled Group (defined as any organization which is a member of a controlled group of corporations within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended (the Code)) would have any liability (each, a Plan) has been maintained in compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including but not limited to ERISA and the Code; and (ii) no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any Plan excluding transactions effected pursuant to a statutory or administrative exemption. For each Plan that is subject to the funding rules of Section 430 of the Code or Section 303 of ERISA (each, a Pension Plan), except as would not, singly or in the aggregate, have a material adverse effect on the Neff Parties, (i) no failure to satisfy the minimum funding standard under Section 430 of the Code or Section 302 of ERISA, whether or not waived, has occurred or is reasonably expected to occur; (ii) the fair market value of the assets of each Pension Plan exceeds the present value of all benefits accrued under such Pension Plan (determined based on those assumptions used to fund such Pension Plan); (iii) no reportable event (within the meaning of Section 4043(c) of ERISA) has
occurred or is reasonably expected to occur; and (iv) neither the Company nor any member of the Controlled Group has incurred, nor reasonably expects to incur, any liability under Title IV of ERISA (other than contributions to Pension Plans or premiums to the PBGC, in the ordinary course and without default) in respect of a Pension Plan or a multiemployer plan, within the meaning of Section 4001(a)(3) of ERISA.
(ll) Each of (i) the second amended and restated limited liability company agreement of Holdings (the Holdings LLC Agreement) and (ii) the Tax Receivable Agreement among Holdings, Wayzata Opportunities Fund II, L.P., Wayzata Opportunities Fund Offshore II, L.P. (collectively, Wayzata) and the other parties thereto (the Tax Receivable Agreement) and the Registration Rights Agreement among Neff Corporation, Wayzata and the other parties thereto (the Registration Rights Agreement and, together with the Holdings LLC Agreement and the Tax Receivables Agreement, the Transaction Documents), has been duly authorized, and will be duly executed and delivered on or prior to the Closing Date, by each Neff Party party thereto and constitutes or will constitute a valid and legally binding agreement of each such Neff Party, enforceable against it in accordance with its terms, except in the case of each such Transaction Document, as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors rights generally or by equitable principles relating to enforceability. Each such Transaction Document conforms in all material respects to the description thereof contained in the Time of Sale Prospectus and the Registration Statement.
(mm) The Shares have been approved for listing, subject to notice of issuance, on The New York Stock Exchange.
(nn) The statements set forth in the Time of Sale Prospectus, the Prospectus and the Registration Statement under the caption Description of Capital Stock, insofar as they purport to constitute a summary of the terms of the Shares, under the caption Certain Relationships and Related party TransactionsTax Receivable Agreement, insofar as they purport to constitute a summary of the terms of the Tax Receivable Agreement, and under the caption Material U.S. Federal Income Tax Considerations for Non-U.S. Holders of Class A Common Stock, insofar as they purport to summarize the provisions of the laws and documents referred to therein, are accurate summaries in all material respects.
(oo) The Company has not taken and will not take, directly or indirectly, any action designed to or that would reasonably be expected to cause or result in any stabilization or manipulation of the price of the Shares to facilitate the sale or resale of the Shares.
2. Agreements to Sell and Purchase. The Company hereby agrees to sell to the several Underwriters, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from the Company the respective number of Firm Shares set forth in Schedule I hereto opposite its name at $[ ] a share (the Purchase Price).
On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to sell to the Underwriters the Additional Shares, and the Underwriters shall have the right to purchase, severally and not jointly, up to [ ] Additional Shares at the Purchase Price, provided, however, that the amount paid by the Underwriters for any Additional Shares shall be reduced by an amount per share equal to any dividends declared by the Company and payable on the Firm Shares but not payable on such Additional Shares. You may exercise this right on behalf of the Underwriters in whole or from time to time in part by giving written notice to the Company not later than 30 days after the date of this Agreement. Any exercise notice shall specify the number of Additional Shares to be purchased by the Underwriters and the date on which such shares are to be purchased. Each purchase date must be at least two business days after the written notice is given (unless otherwise agreed) and may not be earlier than the closing date for the Firm Shares nor later than ten business days after the date of such notice. Additional Shares may be purchased as provided in Section 4 hereof solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. On each day, if any, that Additional Shares are to be purchased (an Option Closing Date), each Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments to eliminate fractional shares as you may determine) that bears the same proportion to the total number of Additional Shares to be purchased on such Option Closing Date as the number of Firm Shares set forth in Schedule I hereto opposite the name of such Underwriter bears to the total number of Firm Shares.
3. Terms of Public Offering. The Company is advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable. The Company is further advised by you that the Shares are to be offered to the public initially at $[ ] a share (the Public Offering Price) and to certain dealers selected by you at a price that represents a concession not in excess of $[ ] a share under the Public Offering Price, and that any Underwriter may allow, and such dealers may reallow, a concession, not in excess of $[ ] a share, to any Underwriter or to certain other dealers.
4. Payment and Delivery. Payment for the Firm Shares shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Firm Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on [ ], 2014, or at such other time on the same or such other date, not later than [ ], 2014, as shall be mutually agreed in writing by you and the Company. The time and date of such payment are hereinafter referred to as the Closing Date.
Payment for any Additional Shares shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Additional Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on the date specified in the corresponding notice described in Section 2 or at such other time on the same or on such other date, in any event not later than [ ], 2014, as shall be designated in writing by you.
The Firm Shares and Additional Shares shall be registered in such names and in such denominations as you shall request in writing not later than one full business day prior to the Closing Date or the applicable Option Closing Date, as the case may be. The Firm Shares and Additional Shares shall be delivered to you on the Closing Date or an Option Closing Date, as the case may be, for the respective accounts of the several Underwriters. The Purchase Price payable by the Underwriters shall be reduced by (i) any transfer taxes paid by, or on behalf of, the Underwriters in connection with the transfer of the Shares to the Underwriters and (ii) any withholding required by law.
5. Conditions to the Underwriters Obligations. The obligations of the Company to sell the Shares to the Underwriters and the several obligations of the Underwriters to purchase and pay for the Shares on the Closing Date are subject to the condition that the Registration Statement shall have become effective not later than [ ] (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any of the securities of the Company or any of its subsidiaries by any nationally recognized statistical rating organization, as such term is defined in Section 3(a)(62) of the Exchange Act; and
(ii) there shall not have occurred any material adverse change, or any development involving a prospective change, in the financial condition, earnings, business or operations of the Neff Parties, taken as a whole, from that set forth in the Time of Sale Prospectus that, in your judgment, is material and adverse and that makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Time of Sale Prospectus.
(b) The Underwriters shall have received on the Closing Date a certificate, dated the Closing Date and signed by an executive officer of the Company and Holdings, to the effect set forth in Section 5(a)(i) above and to the effect that the representations and warranties of the Company and Holdings contained in this Agreement are true and correct as of the Closing Date and that each of the Company and Holdings has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely upon his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an opinion and negative assurance letter of Latham & Watkins LLP, outside counsel for the Company, dated the Closing Date, substantially in the form of Exhibit C hereto.
(d) The Underwriters shall have received on the Closing Date an opinion and negative assurance letter of Simpson Thacher & Bartlett LLP, counsel for the Underwriters, dated the Closing Date, in form and substance reasonably satisfactory to you.
With respect to Section 5(c) and (d) above, Latham & Watkins LLP and Simpson Thacher & Bartlett LLP may state that their opinions and beliefs are based upon their participation in the preparation of the Registration Statement, the Time of Sale Prospectus and the Prospectus and any amendments or supplements thereto and review and discussion of the contents thereof, but are without independent check or verification, except as specified.
(e) The Underwriters shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance reasonably satisfactory to the Underwriters, from Deloitte & Touche LLP, independent public accountants, containing statements and information of the type ordinarily included in accountants comfort letters to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the Time of Sale Prospectus and the Prospectus; provided that the letter delivered on the Closing Date shall use a cut-off date not earlier than the date hereof.
(f) The lock-up agreements, each substantially in the form of Exhibit A hereto, between you and the shareholders, officers and directors of the Company listed in Schedule IV hereto relating to sales and certain other dispositions of shares of Common Stock or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date.
(g) The Underwriters shall have received, on each of the date hereof and the Closing Date, a certificate of the Companys chief financial officer with respect to certain financial data contained in the Time of Sale Prospectus and the Prospectus, in form and substance reasonably satisfactory to you.
(h) Prior to or substantially concurrent with the issuance of the Firm Shares and payment therefor in accordance with this Agreement, the Organizational Transactions shall have been consummated in a manner consistent in all material respects with the descriptions thereof in the Time of Sale Prospectus, the Prospectus and the Registration Statement.
(i) The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the delivery to you on the applicable Option Closing Date of the following:
(i) a certificate, dated the Option Closing Date and signed by an executive officer of the Company and Holdings, confirming that the certificate
delivered on the Closing Date pursuant to Section 5(b) hereof remains true and correct as of such Option Closing Date;
(ii) an opinion and negative assurance letter of Latham & Watkins LLP, outside counsel for the Company, dated the Option Closing Date, relating to the Additional Shares to be purchased on such Option Closing Date and otherwise substantially to the same effect as the opinion required by Section 5(c) hereof;
(iii) an opinion of Simpson Thacher & Bartlett LLP, counsel for the Underwriters, dated the Option Closing Date, relating to the Additional Shares to be purchased on such Option Closing Date and otherwise substantially to the same effect as the opinion required by Section 5(d) hereof;
(iv) a letter dated the Option Closing Date, in form and substance reasonably satisfactory to the Underwriters, from Deloitte & Touche LLP, independent public accountants, substantially in the same form and substance as the letter furnished to the Underwriters pursuant to Section 5(e) hereof; provided that the letter delivered on the Option Closing Date shall use a cut-off date not earlier than three business days prior to such Option Closing Date; and
(v) such other documents as you may reasonably request with respect to the good standing of the Company and Holdings, the due authorization and issuance of the Additional Shares to be sold on such Option Closing Date and other matters related to the issuance of such Additional Shares.
6. Covenants of the Company. The Company covenants with each Underwriter as follows:
(a) To furnish to you, without charge, a signed copy of the Registration Statement (including exhibits thereto) and for delivery to each other Underwriter a conformed copy of the Registration Statement (without exhibits thereto) and to furnish to you in New York City, without charge, prior to 10:00 a.m. New York City time on the business day next succeeding the date of this Agreement and during the period mentioned in Section 6(e) or 6(f) below, as many copies of the Time of Sale Prospectus, the Prospectus and any supplements and amendments thereto or to the Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration Statement, the Time of Sale Prospectus or the Prospectus, to furnish to you a copy of each such proposed amendment or supplement and not to file any such proposed amendment or supplement to which you reasonably object, and to file with the Commission within the applicable period specified in Rule 424(b) under the Securities Act any prospectus required to be filed pursuant to such Rule.
(c) To furnish to you a copy of each proposed free writing prospectus to be prepared by or on behalf of, used by, or referred to by the Company and not to use or refer to any proposed free writing prospectus to which you reasonably object.
(d) Not to take any action that would result in an Underwriter or the Company being required to file with the Commission pursuant to Rule 433(d) under the Securities Act a free writing prospectus prepared by or on behalf of the Underwriter that the Underwriter otherwise would not have been required to file thereunder.
(e) If the Time of Sale Prospectus is being used to solicit offers to buy the Shares at a time when the Prospectus is not yet available to prospective purchasers and any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Time of Sale Prospectus in order to make the statements therein, in the light of the circumstances, not misleading, or if any event shall occur or condition exist as a result of which the Time of Sale Prospectus conflicts with the information contained in the Registration Statement then on file, or if, in the reasonable opinion of counsel for the Underwriters, it is necessary to amend or supplement the Time of Sale Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to any dealer upon request, either amendments or supplements to the Time of Sale Prospectus so that the statements in the Time of Sale Prospectus as so amended or supplemented will not, in the light of the circumstances when the Time of Sale Prospectus is delivered to a prospective purchaser, be misleading or so that the Time of Sale Prospectus, as amended or supplemented, will no longer conflict with the Registration Statement, or so that the Time of Sale Prospectus, as amended or supplemented, will comply with applicable law.
(f) If, during such period after the first date of the public offering of the Shares as in the reasonable opinion of counsel for the Underwriters the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is delivered to a purchaser, not misleading, or if, in the reasonable opinion of counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to the dealers (whose names and addresses you will furnish to the Company) to which Shares may have been sold by you on behalf of the Underwriters and to any other dealers upon request, either amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with applicable law.
(g) To endeavor to qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request; provided that the Company shall not be required to (i) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction if it is not otherwise so required or (ii) subject itself to taxation in any such jurisdiction if it is not otherwise so subject.
(h) To make generally available to the Companys security holders and to you as soon as practicable an earnings statement covering a period of at least 12 months beginning with the first fiscal quarter of the Company occurring after the date of this Agreement which shall satisfy the provisions of Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder.
(i) The Company will promptly notify Morgan Stanley if the Company ceases to be an Emerging Growth Company at any time prior to the later of (a) completion of the distribution of the Shares within the meaning of the Securities Act and (b) completion of the Restricted Period referred to in Section 2.
(j) If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify Morgan Stanley and will promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.
The Company also hereby agrees that, without the prior written consent of the Representatives on behalf of the Underwriters, it will not, during the period ending 180 days after the date of the Prospectus (the Restricted Period), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock, including shares beneficially owned (as such term is used in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or any other securities so owned convertible into or exercisable or exchangeable for Common Stock or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise or (3) file any registration statement with the Commission relating to the offering of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock.
The restrictions contained in the preceding paragraph shall not apply to (a) the Shares to be sold hereunder, (b) the issuance by the Company of shares of Common Stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof described in the Time of Sale Prospectus, (c) the grant of options to purchase or the issuance of shares of Common Stock by the Company to employees, officers, directors, advisors or consultants of the Neff Parties pursuant to employee benefit plans in effect on the date hereof and described in the Time of Sale Prospectus or pursuant to an employee stock purchase plan described in the Time of Sale Prospectus, (d) the filing of one or more registration statements on Form S-8 with the Commission with respect to shares of Common Stock issued or issuable under any equity compensation plan in effect on the date hereof, (e) the establishment of a trading plan
pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Common Stock, provided that (i) such plan does not provide for the transfer of Common Stock during the Restricted Period and (ii) no public announcement or filing under the Exchange Act is required or voluntarily made by or on behalf of the Company regarding the establishment of such plan, (f) the Organizational Transactions and (g) the issuance by the Company of shares pursuant to a redemption or exchange of Holdings common units pursuant to the Holdings LLC Agreement.
If the Representatives, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up letter described in Section 5(f) hereof for an officer or director of the Company and provide the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit B hereto through a major news service at least two business days before the effective date of the release or waiver.
7. Expenses. Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, the Company agrees to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Companys counsel and the Companys accountants in connection with the registration and delivery of the Shares under the Securities Act and all other fees or expenses incurred by the Company in connection with the preparation and filing of the Registration Statement, any preliminary prospectus, the Time of Sale Prospectus, the Prospectus, any free writing prospectus prepared by or on behalf of, used by, or referred to by the Company and amendments and supplements to any of the foregoing, including all printing costs associated therewith, and the mailing and delivering of copies thereof to the Underwriters and dealers, in the quantities hereinabove specified, (ii) all costs and expenses related to the transfer and delivery of the Shares by the Company to the Underwriters, including any transfer or other taxes payable thereon, (iii) the reasonable and documented cost of printing or producing any Blue Sky memorandum in connection with the offer and sale of the Shares under state securities laws and all expenses in connection with the qualification of the Shares for offer and sale under state securities laws as provided in Section 6(g) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky memorandum, (iv) all filing fees and the reasonable and documented fees and disbursements of counsel to the Underwriters incurred in connection with the review and qualification of the offering of the Shares by FINRA (provided that the amount payable by the Company to the counsel to the Underwriters pursuant to subsections (iii) and (iv) shall not exceed $30,000), (v) all fees and expenses in connection with the preparation and filing of the registration statement on Form 8-A relating to the Common Stock and all costs and expenses incident to listing the Shares on The New York Stock Exchange, (vi) the cost of printing certificates representing the Shares, (vii) the costs and charges of any transfer agent, registrar or depositary, (viii) the costs and expenses of the Company relating to investor presentations on any road show undertaken in connection with the marketing of the offering of the Shares, including, without limitation, expenses associated with the preparation or dissemination of any electronic road show, expenses
associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and 50% of the cost of any aircraft chartered in connection with the road show; provided that 50% of the cost of any aircraft chartered in connection with the road show shall be paid by the Underwriters, (ix) the document production charges and expenses associated with printing this Agreement and (x) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. It is understood, however, that except as provided in this Section, Section 9 entitled Indemnity and Contribution and the last paragraph of Section 10 below, the Underwriters will pay all of their costs and expenses, including fees and disbursements of their counsel, stock transfer taxes payable on resale of any of the Shares by them and any advertising expenses connected with any offers they may make.
8. Covenants of the Underwriters. Each Underwriter severally covenants with the Company not to (i) take any action that would result in the Company being required to file with the Commission under Rule 433(d) a free writing prospectus prepared by or on behalf of such Underwriter that otherwise would not be required to be filed by the Company thereunder, but for the action of the Underwriter and (ii) engage in any Testing-the-Waters Communication without the prior written consent of the Company.
9. Indemnity and Contribution. (a) The Company and Holdings, jointly and severally, agree to indemnify and hold harmless each Underwriter, each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and each affiliate of any Underwriter within the meaning of Rule 405 under the Securities Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus, the Time of Sale Prospectus or any amendment or supplement thereto, any issuer free writing prospectus as defined in Rule 433(h) under the Securities Act, any Company information that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act, any road show as defined in Rule 433(h) under the Securities Act (a road show), or the Prospectus or any amendment or supplement thereto or any Written Testing-the-Waters Communication, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Underwriter furnished to the Company in writing by any Underwriter through you expressly for use therein.
The Company and Holdings also, jointly and severally, agree to indemnify and hold harmless Morgan Stanley & Co. LLC, each person, if any, who controls Morgan
Stanley & Co. LLC within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and each affiliate of Morgan Stanley & Co. LLC within the meaning of Rule 405 under the Securities Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) incurred as a result of Morgan Stanley & Co. LLCs participation as a qualified independent underwriter within the meaning of FINRA Rule 5121 in connection with the offering of the Shares.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, Holdings, the directors of the Company, the officers of the Company who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus, the Time of Sale Prospectus or any amendment or supplement thereto, any issuer free writing prospectus as defined in Rule 433(h) under the Securities Act, any Company information that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act, any road show or the Prospectus or any amendment or supplement thereto, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information relating to any Underwriter furnished to the Company in writing by any Underwriter through you expressly for use in the Registration Statement, any preliminary prospectus, the Time of Sale Prospectus or any amendment or supplement thereto, any issuer free writing prospectus, road show or the Prospectus or any amendment or supplement thereto, or any Written Testing-the-Waters Communication.
(c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 9(a) or 9(b), such person (the indemnified party) shall promptly notify the person against whom such indemnity may be sought (the indemnifying party) in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the reasonably incurred and documented fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for (i) the fees and expenses of more than one separate firm (in addition to any local counsel) for all Underwriters and all persons, if any, who control any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act or who are affiliates of any Underwriter within the meaning of Rule 405 under the Securities Act and (ii) the fees and expenses of more than one separate firm (in addition to any local counsel) for Holdings, the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company or Holdings within the meaning of either such Section, and that all such fees and expenses shall be reimbursed as they are incurred; provided, however, that if indemnity may be sought pursuant to the second paragraph of Section 9(a) above in respect of such proceeding, then in addition to such separate firm of the Underwriters, their affiliates and such control persons of the Underwriters the indemnifying party shall be liable for the fees and expenses of not more than one separate firm (in addition to any local counsel) for Morgan Stanley & Co. LLC in its capacity as a qualified independent underwriter, its affiliates, directors, officers and all persons, if any, who control Morgan Stanley & Co. LLC within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act. In the case of any such separate firm for the Underwriters and such control persons and affiliates of any Underwriters, such firm shall be designated in writing by the Representatives. In the case of any such separate firm for the Company or Holdings, and such directors, officers and control persons of the Company or Holdings, such firm shall be designated in writing by the Company. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or would have been a party and indemnity would have been sought hereunder by such indemnified party, unless such settlement (x) includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding and (y) does not contain any statement as to or any admission of fault, culpability, or failure to act by or on behalf of any indemnified party.
(d) To the extent the indemnification provided for in Section 9(a) or 9(b) is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party or parties on the other hand from the offering of the Shares or (ii) if the allocation provided by clause 9(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 9(d)(i) above but also the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received by the Company and Holdings on the one hand and the Underwriters or Morgan Stanley & Co. LLC in its capacity as a qualified independent underwriter, as the case may be, on the other hand in connection with the offering of the Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Shares (before deducting expenses) received by the Company and the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, or the fee to be received by Morgan Stanley & Co. LLC in its capacity as a qualified independent underwriter, as the case may be, bear to the aggregate Public Offering Price of the Shares. The relative fault of the Company and Holdings on the one hand and the Underwriters or Morgan Stanley & Co. LLC in its capacity as a qualified independent underwriter, as the case may be, on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and Holdings or by the Underwriters or Morgan Stanley & Co. LLC in its capacity as a qualified independent underwriter, as the case may be, and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Underwriters respective obligations to contribute pursuant to this Section 9 are several in proportion to the respective number of Shares they have purchased hereunder, and not joint.
(e) The Company, Holdings and the Underwriters agree that it would not be just or equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in Section 9(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in Section 9(d) shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 9, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 9 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this Section 9 and the representations, warranties and other statements of the Company and Holdings contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter, any person controlling any Underwriter or any affiliate of any Underwriter, Holdings, or the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Shares.
10. Termination. The Underwriters may terminate this Agreement by notice given by you to the Company, if after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on, or by, as the case may be, any of The New York Stock Exchange, the NYSE MKT or The NASDAQ Global Market, (ii) trading of any securities of the Company or Holdings shall have been suspended on any exchange or in any over-the-counter market, (iii) a material disruption in securities settlement, payment or clearance services in the United States shall have occurred, (iv) any moratorium on commercial banking activities shall have been declared by Federal or New York State authorities or (v) there shall have occurred any outbreak or escalation of hostilities, or any change in financial markets or any calamity or crisis that, in your judgment, is material and adverse and which, singly or together with any other event specified in this clause (v), makes it, in your judgment, impracticable or inadvisable to proceed with the offer, sale or delivery of the Shares on the terms and in the manner contemplated in the Time of Sale Prospectus or the Prospectus.
11. Effectiveness; Defaulting Underwriters. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or an Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares that it has or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Firm Shares set forth opposite their respective names in Schedule I bears to the aggregate number of Firm Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as you may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 11 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased on such date, and arrangements satisfactory to you and the Company for the purchase of such Firm Shares are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement, in the Time of Sale Prospectus, in the Prospectus or in any other documents or arrangements may be effected. If, on an Option Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Additional Shares to be purchased on such Option Closing Date, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase the Additional Shares to be sold on such Option Closing Date or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase in the absence of such default. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Company or Holdings to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company or Holdings shall be unable to perform its obligations under this Agreement, the Company and Holdings will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out of pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder (it being understood that the Company and Holdings will have no obligation to reimburse the Underwriters for any such expenses in the event of any termination by the Underwriters pursuant to clauses (i), (iii), (iv) or (v) of Section 10).
12. Entire Agreement. (a) This Agreement, together with any contemporaneous written agreements and any prior written agreements (to the extent not superseded by this Agreement) that relate to the offering of the Shares, represents the entire agreement between the Company and Holdings, on the one hand, and the Underwriters, on the other, with respect to the preparation of any preliminary prospectus, the Time of Sale Prospectus, the Prospectus, the conduct of the offering, and the purchase and sale of the Shares.
(b) Each of the Company and Holdings acknowledges that in connection with the offering of the Shares: (i) the Underwriters have acted at arms length, are not agents of, and owe no fiduciary duties to, the Company or any other person, (ii) the Underwriters owe the Company and Holdings only those duties and obligations set forth in this Agreement and prior written agreements (to the extent not superseded by this Agreement), if any, and (iii) the Underwriters may have interests that differ from those of the Company and Holdings. Each of the Company and Holdings waives to the full extent permitted by applicable law any claims it may have against the Underwriters arising from an alleged breach of fiduciary duty in connection with the offering of the Shares.
13. Counterparts. This Agreement may be signed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
14. Applicable Law. This Agreement and any matters related to this Agreement shall be governed by and construed in accordance with the internal laws of the State of New York.
15. Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of this Agreement.
16. Notices. All communications hereunder shall be in writing and effective only upon receipt and if to the Underwriters shall be delivered, mailed or sent to you in care of Morgan Stanley, 1585 Broadway, New York, New York 10036, Attention: Equity Syndicate Desk, with a copy to the Legal Department and Jefferies LLC, 520 Madison Avenue, 12th Floor, New York, New York 10022, Attention: General Counsel; if to the Company or Holdings shall be delivered, mailed or sent to 3750 N.W. 87th Avenue, Suite 400, Miami, Florida 33178, Attention: [Chief Financial Officer].
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Accepted as of the date hereof
Morgan Stanley & Co. LLC
Jefferies LLC
Acting on behalf of themselves and the several Underwriters
named in Schedule I hereto
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SCHEDULE I
Underwriter |
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Morgan Stanley & Co. LLC |
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Jefferies LLC |
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Piper Jaffray & Co. |
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Merrill Lynch, Pierce, Fenner & Smith |
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SCHEDULE II
Time of Sale Prospectus
1. Preliminary Prospectus issued [ ], 2014
2. [all free writing prospectuses filed by the Company under Rule 433(d) of the Securities Act]
3. The Public Offering Price and the number of Firm Shares
SCHEDULE IV
Persons/Entities Subject to Lock-Up Agreements
Wayzata Opportunities Fund II, L.P.
Wayzata Opportunities Fund Offshore II, L.P.
Graham Hood
Mark Irion
Westley Parks
Keno Cox
Robert Singer
James Continenza
Joseph Deignan
Gerard E. Holthaus
EXHIBIT A
[FORM OF LOCK-UP LETTER]
November , 2014
Morgan Stanley & Co. LLC
Jefferies LLC
As representatives of the several Underwriters
named in Schedule I to the Underwriting Agreement
referred to below
c/o Morgan Stanley & Co. LLC
1585 Broadway
New York, NY 10036
Jefferies LLC
520 Madison Avenue, 12th Floor
New York, New York 10022
Ladies and Gentlemen:
The undersigned understands that Morgan Stanley & Co. LLC and Jefferies LLC, as representatives (the Representatives) of the several Underwriters (as defined below) propose to enter into an Underwriting Agreement (the Underwriting Agreement) with Neff Corporation, a Delaware corporation (the Company) and Neff Holdings LLC, a Delaware limited liability company (Holdings), providing for the public offering (the Public Offering) by the several Underwriters, including the Representatives (the Underwriters), of shares (the Shares) of the Class A common stock, $0.01 par value per share, of the Company (the Common Stock). Capitalized terms used but not defined herein shall have the meanings given to them in the Companys registration statement on Form S-1 relating to the Shares (as such registration statement and the information contained therein may be amended or supplemented from time to time (including by way of free writing prospectus) on or prior to the time of execution of the Underwriting Agreement, the Registration Statement) .
To induce the Underwriters that may participate in the Public Offering to continue their efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of the Representatives on behalf of the Underwriters, it will not, during the period commencing on the date hereof and ending 180 days after the date of the final prospectus (the Restricted Period) relating to the Public Offering (the Prospectus), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock beneficially owned (as such term is used in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the Exchange Act)), by the undersigned or any
other securities so owned convertible into or exercisable or exchangeable for Common Stock or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (a) transactions relating to shares of Common Stock or other securities acquired in open market transactions after the completion of the Public Offering, provided that no filing under Section 16(a) of the Exchange Act shall be required or shall be voluntarily made during the Restricted Period in connection with subsequent sales of Common Stock or other securities acquired in such open market transactions, (b) the vesting of restricted equity awards or the exercise of equity options granted at any time pursuant to any of the equity incentive plans of the Company or Neff Holdings LLC (Holdings) that are described in the Registration Statement; provided that the applicable restrictions of this letter agreement shall apply to any securities received upon exercise of any such options, (c) forfeiting Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock to the Company to satisfy tax withholding requirements in connection with any equity compensation plan, employee benefit plan, employee agreement or other arrangement described in the Registration Statement, provided that any related filing under Section 16(a) of the Exchange Act required to be made during the Restricted Period shall indicate that such filing is being made in connection with a disposition to the Company to satisfy tax withholding requirements, (d) transfers of shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock as a bona fide gift, or by will or intestate succession to a trust whose beneficiaries consist exclusively of one or more of the undersigned and/or the spouse of the undersigned, an immediate family member of the undersigned or an immediate family member of the undersigneds spouse, (e) transfers to the undersigneds affiliates or to any investment fund or other entity controlled or managed by the undersigned, (f) if the undersigned is a corporation, partnership, limited liability company or other business entity, transfers of shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (A) to another corporation, partnership, limited liability company or other business entity that controls, is controlled by or is under common control with the undersigned or (B) as part of a disposition, transfer or distribution by the undersigned to its members, limited partners or equity holders, (g) if the undersigned is a trust, transfers of shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock to a trustor or beneficiary of the trust; provided that, in the case of any transfer or distribution pursuant to clauses (d), (e), (f) or (g), (A) each donee or distributee shall sign and deliver a lock-up letter substantially in the form of this letter, (B) any such transfer or distribution shall not involve a disposition for value and (C) any filing under Section 16(a) of the Exchange Act that is required to be made during the Restricted Period as a result of such transfer shall include a statement that such transfer did not involve a disposition for value, (h) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Common Stock, provided that (A) such plan does not provide for the transfer of Common Stock during the Restricted Period and (B) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by or on behalf of the
undersigned or the Company regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of Common Stock may be made under such plan during the Restricted Period, (i) transfers of shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock that occurs pursuant to an order of a court or government agency, including a qualified domestic order; provided that the undersigned shall use its reasonable best efforts to cause the transferee to sign and deliver a lock-up letter substantially in the form of this letter for the balance of the Restricted Period, and provided further, that any filing under Section 16(a) of the Exchange Act that is required to be made during the Restricted Period as a result of such transfer will (unless prohibited by law) include a statement that such transfer has occurred pursuant to an order of a court or government agency and (j) transfers of Holdings common units to the Company or Holdings, in each case pursuant to a redemption or exchange of Holdings common units in accordance with Holdings limited liability company operating agreement, in each case that is settled in Common Stock; provided that the applicable restrictions of this letter agreement shall apply to any securities received upon such redemption or exchange. In addition, the undersigned agrees that, without the prior written consent of the Representatives on behalf of the Underwriters, it will not, during the Restricted Period, make any demand for or exercise any right with respect to, the registration of any shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock; provided that the undersigned may make a demand under any registration rights agreement with the Company in effect on the date hereof and described in the Registration Statement for, and exercise its rights under any such registration rights agreement with respect to, the registration after the expiration of the Restricted Period of shares of Common Stock that does not require the filing of a registration statement or any public announcement or activity regarding the registration during the Restricted Period (and no such public announcement or activity shall be voluntarily made or taken during the Restricted Period). The undersigned also agrees and consents to the entry of stop transfer instructions with the Companys transfer agent and registrar against the transfer of the undersigneds shares of Common Stock except in compliance with the foregoing restrictions.
If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing provisions shall be equally applicable to any issuer-directed Shares the undersigned may purchase in the offering, if applicable.
For avoidance of doubt, this letter agreement does not prohibit or restrict any of the Organizational Transactions.
If the undersigned is an officer or director of the Company, (i) the Representatives agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of Common Stock, the Representatives will notify the Company of the impending release or waiver, and (ii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by the Representatives hereunder to any such officer or director shall only be effective two
business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.
The undersigned understands that the Company, Holdings and the Underwriters are relying upon this agreement in proceeding toward consummation of the Public Offering. The undersigned further understands that this agreement is irrevocable and shall be binding upon the undersigneds heirs, legal representatives, successors and assigns.
Notwithstanding anything herein to the contrary, if (i) the closing of the Public Offering has not occurred prior to December 31, 2014, (ii) the Company files an application to withdraw, and the Commission consents to the withdrawal of, the registration statement related to the Public Offering, (iii) the Underwriting Agreement (other than the provisions thereof which survive termination) is terminated prior to payment for and delivery of the Common Stock to be sold thereunder or (iv) any Representative notifies the Company, or the Company notifies any Representative, in writing, prior to the execution of the Underwriting Agreement, that it has determined not to proceed with the Public Offering, this agreement shall be of no further force or effect as of such time.
Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation among the Company, Holdings and the Underwriters.
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EXHIBIT B
FORM OF WAIVER OF LOCK-UP
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[Name and Address of
Officer or Director
Requesting Waiver]
Dear Mr./Ms. [Name]:
This letter is being delivered to you in connection with the offering by Neff Corporation (the Company) of [ ] shares of Class A common stock, $0.01 par value per share (the Common Stock), of the Company and the lock-up letter dated [ ], 2014 (the Lock-up Letter), executed by you in connection with such offering, and your request for a [waiver] [release] dated , 20 , with respect to shares of Common Stock (the Shares).
Morgan Stanley & Co. LLC and Jefferies LLC hereby agree to [waive][release] the transfer restrictions set forth in the Lock-up Letter, but only with respect to the Shares, effective , 20 ; provided, however, that such [waiver][release] is conditioned on the Company announcing the impending [waiver][release] by press release through a major news service at least two business days before effectiveness of such [waiver][release]. This letter will serve as notice to the Company of the impending [waiver][release].
Except as expressly [waived][released] hereby, the Lock-up Letter shall remain in full force and effect.
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Morgan Stanley & Co. LLC |
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Jefferies LLC |
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Acting severally on behalf of itself and the several Underwriters named in Schedule I to the Underwriting Agreement | |
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cc: Company
FORM OF PRESS RELEASE
Neff Corporation
[Date]
Neff Corporation (the Company) announced today that Morgan Stanley & Co. LLC and Jefferies LLC, the lead book-running managers in the Companys recent public sale of [ ] shares of Class A common stock, par value $0.01 per share (the Common Stock), is [waiving][releasing] a lock-up restriction with respect to shares of the Companys Common Stock held by [certain officers or directors][an officer or director] of the Company. The [waiver][release] will take effect on , 20 , and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the U.S. Securities Act of 1933, as amended.
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NEFF CORPORATION
Neff Corporation, a corporation organized and existing under the laws of the State of Delaware (the Corporation) hereby certifies as follows:
1. The name of the Corporation is Neff Corporation. The original Certificate of Incorporation of the Corporation was filed with the Office of the Secretary of State of the State of Delaware on August 18, 2014. The name under which the Corporation was originally incorporated was Neff Corporation.
2. This Amended and Restated Certificate of Incorporation of the Corporation was duly adopted by the stockholders of the Corporation in accordance with the provisions of Sections 242, 245 and 228 of the General Corporation Law of the State of Delaware.
3. Immediately prior to the effective time of this Amended and Restated Certificate of Incorporation, the Corporation has authorized 100 shares of common stock, par value $0.01 per share, and has issued 100 shares, which were fully paid and which are outstanding.
4. The text of the Certificate of Incorporation of the Corporation, is hereby amended and restated to read in full as follows:
ARTICLE 1.
The name of the corporation is Neff Corporation (the Corporation).
ARTICLE 2.
The address of the Corporations registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, 19801. The name of its registered agent at such address is The Corporation Trust Company.
ARTICLE 3.
The nature of the business of the Corporation and the objects or purposes to be transacted, promoted or carried on by it are as follows: To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the DGCL).
ARTICLE 4.
A. The total number of shares of all classes of stock that the Corporation is authorized to issue is One Hundred Twenty-Five million (125,000,000), consisting of:
One Hundred million (100,000,000) shares of Class A common stock, with a par value of $0.01 per share (the Class A Common Stock);
Fifteen million (15,000,000) shares of Class B common stock, with a par value of $0.01 per share (the Class B Common Stock and, together with the Class A Common Stock, the Common Stock); and
Ten million (10,000,000) shares of preferred stock, with a par value per share that may be established by the Board of Directors with respect to any series thereof in the applicable Preferred Stock Designation (the Preferred Stock).
Immediately prior to the effective time of this Amended and Restated Certificate of Incorporation, a total of (a) one hundred (100) shares of a single class of common stock of the Corporation, par value $0.01 per share (the Retired Common Stock), were authorized and 100 shares of such common stock were issued, outstanding and fully paid, and (b) no shares of preferred stock of the Corporation were authorized, issued or outstanding. Upon the effective time of this Amended and Restated Certificate of Incorporation, each issued and outstanding share of Retired Common Stock of the Corporation shall, automatically and without any action on the part of the respective holders thereof, be cancelled in exchange for, and as part of the consideration for the Corporations issuance of, shares of Class B Common Stock delivered to the respective holders thereof (in such aggregate number as determined by the Board of Directors, with each holder of Retired Common Stock receiving a number of shares of Class B Common Stock that represents its respective proportionate ownership of the Retired Common Stock).
B. The Board of Directors of the Corporation (the Board of Directors) is authorized, subject to any limitations prescribed by law, to provide for the issuance of shares of Preferred Stock in one or more series, and by filing a certificate pursuant to the applicable law of the State of Delaware (such certificate being hereinafter referred to as a Preferred Stock Designation), to establish from time to time the number of shares to be included in each such series, and to fix the par value thereof and to fix the powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including, without limitation, the authority to fix or alter the dividend rights, dividend rates, conversion rights, exchange rights, voting rights, rights and terms of redemption (including sinking and purchase fund provisions), the redemption price or prices, the dissolution preferences and the rights in respect to any distribution of assets of any wholly unissued series of Preferred Stock and the number of shares constituting any such series, and the designation thereof, or any of them and to increase or decrease the number of shares of any series so created, subsequent to the issue of that series but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. There shall be no limitation or restriction on any variation between any of the different series of Preferred Stock as to the designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof; and the several series of Preferred Stock may vary in any and all respects as fixed and determined by the resolution or resolutions of the Board of Directors or by a committee of the Board of Directors, providing for the issuance of the various series of Preferred Stock.
C. The number of authorized shares of any of the Class A Common Stock, Class B Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all of the outstanding shares of stock of the Corporation entitled to vote thereon, without a separate vote of any holders of the Class A Common Stock, Class B Common Stock or Preferred Stock, or of any series thereof, unless a separate vote of any such holders is required pursuant to the terms of any Preferred Stock Designation, irrespective of the provisions of Section 242(b)(2) of the DGCL.
D. Except as otherwise required by law,
1. Each share of Class A Common Stock shall entitle the record holder thereof to one vote on all matters on which stockholders generally are entitled to vote.
2. Each share of Class B Common Stock shall entitle the record holder thereof to one vote on all matters on which stockholders generally are entitled to vote.
3. Except as otherwise required in this Amended and Restated Certificate of Incorporation or by applicable law, the holders of Common Stock shall vote together as a single class on all matters (or, if any holders of Preferred Stock are entitled to vote together with the holders of Common Stock, as a single class with such holders of Preferred Stock).
4. Except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Amended and Restated Certificate of Incorporation or to a Preferred Stock Designation that alters or changes the powers, preferences, rights or other terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other series of Preferred Stock, to vote thereon as a separate class pursuant to this Amended and Restated Certificate of Incorporation or a Preferred Stock Designation or pursuant to the DGCL as currently in effect or as the same may hereafter be amended.
E. As of the effective time of this Amended and Restated Certificate of Incorporation, the outstanding shares of Class B Common Stock (after giving effect to the stock split and conversion set forth in Article 4.A) are registered in the name of the Existing Owners (as defined below) as the record holders thereof, and the aggregate number of shares of Class B Common Stock registered in the name of each such Existing Owner at the effective time of this Amended and Restated Certificate of Incorporation is equal to the aggregate number of Common Units (as defined below) held of record by such Existing Owner under the LLC Agreement (as defined below). From and after the effective time of this Amended and Restated Certificate of Incorporation, additional shares of Class B Common Stock may be issued only to the Existing Owners, their respective successors and assigns as well as their respective transferees permitted in accordance with Article 4.H (including all subsequent successors, assigns and permitted
transferees) (the Existing Owners together with such persons, collectively, Permitted Class B Owners) in accordance with Article 6. As used in this Amended and Restated Certificate of Incorporation (i) Existing Owner means each of Wayzata Opportunities Fund II, L.P., a Delaware limited partnership, and Wayzata Opportunities Fund Offshore II, L.P., a Cayman Islands limited partnership, (ii) Common Unit means a membership interest in Neff Holdings LLC, a Delaware limited liability company, or any successor entities thereto (the LLC), authorized and issued under its Second Amended and Restated Limited Liability Company Agreement, dated as of [·], 2014, as such agreement may be further amended, restated, amended and restated, supplemented or otherwise modified from time to time (the LLC Agreement), and constituting a Common Unit as defined in the LLC Agreement as in effect as of the effective time of this Amended and Restated Certificate of Incorporation.
F. Subject to applicable law and the rights, if any, of the holders of any outstanding series of Preferred Stock or any class or series of stock having a preference over or the right to participate with the Class A Common Stock with respect to the payment of dividends, dividends may be declared and paid on the Class A Common Stock out of the assets of the Corporation that are by law available therefor, at such times and in such amounts as the Board of Directors in its discretion shall determine. Dividends shall not be declared or paid on the Class B Common Stock.
G. Subject to applicable law and the rights, if any, of the holders of any class or series of capital stock of the Corporation, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation and of the preferential and other amounts, if any, to which the holders of Preferred Stock shall be entitled, the holders of all outstanding shares of Class A Common Stock shall be entitled to receive the remaining assets of the Corporation available for distribution ratably in proportion to the number of shares held by each such stockholder. The holders of shares of Class B Common Stock, as such, shall not be entitled to receive any assets of the Corporation in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation. A consolidation, reorganization or merger of the Corporation with any other person or persons, or a sale of all or substantially all of the assets of the Corporation, shall not be considered to be a dissolution, liquidation or winding up of the Corporation within the meaning of this Article 4.G.
H. Transfer of Class B Common Stock:
1. A holder of Class B Common Stock may surrender shares of Class B Common Stock to the Corporation for no consideration at any time. Following the surrender of any shares of Class B Common Stock to the Corporation, the Corporation will take all actions necessary to retire such shares and such shares shall not be re-issued by the Corporation.
2. A holder of Class B Common Stock may transfer shares of Class B Common Stock to any transferee (other than the Corporation) only if, and only to the extent permitted by the LLC Agreement, such holder also simultaneously transfers an equal number of such holders Common Units (as such numbers may be adjusted to reflect equitably any stock split,
subdivision, combination or similar change with respect to the Class B Common Stock or Common Units) to such transferee in compliance with the LLC Agreement. The transfer restrictions described in this Article 4.H.2 are referred to as the Restrictions.
3. Any purported transfer of shares of Class B Common Stock in violation of the Restrictions shall be null and void. If, notwithstanding the Restrictions, a person shall, voluntarily or involuntarily, purportedly become or attempt to become, the purported owner (Purported Owner) of shares of Class B Common Stock in violation of the Restrictions, then the Purported Owner shall not obtain any rights in and to such shares of Class B Common Stock (the Restricted Shares), and the purported transfer of the Restricted Shares to the Purported Owner shall not be recognized by the Corporations transfer agent (the Transfer Agent).
4. Upon a determination by the Board of Directors that a person has attempted or may attempt to transfer or to acquire Restricted Shares in violation of the Restrictions, the Board of Directors may take such action as it deems advisable to refuse to give effect to such transfer or acquisition on the books and records of the Corporation, including without limitation to cause the Transfer Agent to record the Purported Owners transferor as the record owner of the Restricted Shares, and to institute proceedings to enjoin or rescind any such transfer or acquisition.
5. The Board of Directors may, to the extent permitted by law, from time to time establish, modify, amend or rescind, by bylaw or otherwise, regulations and procedures not inconsistent with the provisions of this Article 4.H for determining whether any transfer or acquisition of shares of Class B Common Stock would violate the Restrictions and for the orderly application, administration and implementation of the provisions of this Article 4.H. Any such procedures and regulations shall be kept on file with the Secretary of the Corporation and with its Transfer Agent and shall be made available for inspection by any prospective transferee and, upon written request, shall be mailed to holders of shares of Class B Common Stock.
6. The Board of Directors shall have all powers necessary to implement the Restrictions, including without limitation the power to prohibit the transfer of any shares of Class B Common Stock in violation thereof.
I. To the extent that any Permitted Class B Owner exercises its right pursuant to the LLC Agreement to have its Common Units redeemed by the LLC in accordance with the LLC Agreement, then simultaneous with the payment of, at the Corporations election, cash or Class A Common Stock consideration to such Permitted Class B Owner by the LLC (in the case of a redemption) or the Corporation (in the case of an election by the Corporation pursuant to the LLC Agreement to effect a direct exchange with such Permitted Class B Owner), the Corporation shall cancel for no consideration a number of shares of Class B Common Stock
registered in the name of the redeeming or exchanging Permitted Class B Owner equal to the number of Common Units held by such Permitted Class B Owner that are redeemed or exchanged in such redemption or exchange transaction. Notwithstanding the Restrictions, (i) in the event that any outstanding share of Class B Common Stock shall cease to be held by a registered holder of Common Units, such share of Class B Common Stock shall automatically and without further action on the part of the Corporation or any holder of Class B Common Stock be cancelled for no consideration, and the Corporation will take all actions necessary to retire such share and such share shall not be re-issued by the Corporation, (ii) in the event that any registered holder of the Class B Common Stock no longer holds an interest in the Common Units, the shares of Class B Common Stock registered in the name of such holder shall automatically and without further action on the part of the Corporation or any holder of Class B Common Stock be cancelled for no consideration, and the Corporation will take all actions necessary to retire such shares and such shares shall not be re-issued by the Corporation and (iii) in the event that no Permitted Class B Owner owns any Common Units that are redeemable pursuant to the LLC Agreement, then all shares of Class B Common Stock will be cancelled for no consideration, and the Corporation will take all actions necessary to retire such shares and such shares shall not be re-issued by the Corporation.
J. All certificates or book entries representing shares of Class B Common Stock, as the case may be, shall bear a legend substantially in the following form (or in such other form as the Board of Directors may determine):
THE SECURITIES REPRESENTED BY THIS [CERTIFICATE][BOOK ENTRY] ARE SUBJECT TO THE RESTRICTIONS (INCLUDING RESTRICTIONS ON TRANSFER) SET FORTH IN THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE CORPORATION AND SHALL BE PROVIDED FREE OF CHARGE TO ANY STOCKHOLDER MAKING A REQUEST THEREFOR).
K. The Class B Common Stock may be issued and transferred in fractions of a share which shall entitle the holder to exercise voting rights and to have the benefit of all other rights of holders of Class B Common Stock. Subject to the Restrictions, holders of shares of Class B Common Stock shall be entitled to transfer fractions thereof and the Corporation shall, and shall cause the Transfer Agent to, facilitate any such transfers, including by issuing certificates or making book entries representing any such fractional shares. For all purposes of this Amended and Restated Certificate of Incorporation (including, without limitation, Article 4.D, Article 4.G, Article 4.H, Article 4.I, this Article 4.K, Article 6.D and Article 6.E hereof), all references to the Class B Common Stock or any share thereof (whether in the singular or plural) shall be deemed to include references to any fraction of a share of Class B Common Stock.
ARTICLE 5.
The Corporation shall at all times reserve and keep available out of its authorized but unissued shares or other securities the number of shares or securities required pursuant to the LLC Agreement; provided that nothing contained herein shall be construed to preclude the Corporation from satisfying its obligations in respect of any such exchange by delivery of shares of Class A Common Stock which are held in the treasury of the Corporation. The Corporation
covenants that all shares of Class A Common Stock issued upon any such exchange will, upon issuance, be validly issued, fully paid and non-assessable.
ARTICLE 6.
A. The Corporation shall undertake all actions, including, without limitation, a reclassification, dividend, division or recapitalization, with respect to the shares of Class A Common Stock necessary to maintain at all times a one-to-one ratio between the number of Common Units owned by the Corporation and the number of outstanding shares of Class A Common Stock, disregarding, for purposes of maintaining the one-to-one ratio, (i) shares of Class A Common Stock issued pursuant to the Neff Corporation 2014 Incentive Award Plan, and any other stock incentive plan adopted by the Corporation from time to time, that have not vested thereunder, (ii) treasury stock, or (iii) Preferred Stock or other debt or equity securities (including without limitation warrants, options and rights) issued by the Corporation that are convertible or exercisable or exchangeable for Class A Common Stock.
B. The Corporation shall undertake all actions, including, without limitation, a reclassification, dividend, division or recapitalization, with respect to the shares of Class B Common Stock necessary to maintain at all times a one-to-one ratio between the number of Common Units owned by all Permitted Class B Owners and the number of outstanding shares of Class B Common Stock owned by all Permitted Class B Owners.
C. The Corporation shall not undertake or authorize (i) any subdivision (by any stock split, stock dividend, reclassification, recapitalization or similar event) or combination (by reverse stock split, reclassification, recapitalization or similar event) of the Class A Common Stock that is not accompanied by an identical subdivision or combination of the Common Units to maintain at all times a one-to-one ratio between the number of Common Units owned by the Corporation and the number of outstanding shares of Class A Common Stock; or (ii) any subdivision (by any stock split, stock dividend, reclassification, recapitalization or similar event) or combination (by reverse stock split, reclassification, recapitalization or similar event) of the Class B Common Stock that is not accompanied by an identical subdivision or combination of the Common Units to maintain at all times a one-to-one ratio between the number of Common Units owned by the Permitted Class B Owners and the number of outstanding shares of Class B Common Stock, unless, in the case of clause (i) or (ii) of this Article 6.C, such action is necessary to maintain at all times both a one-to-one ratio between the number of Common Units owned by the Corporation and the number of outstanding shares of Class A Common Stock and a one-to-one ratio between the number of Common Units owned by the Permitted Class B Owners and the number of outstanding shares of Class B Common Stock.
D. The Corporation shall not issue, transfer or deliver from treasury stock or repurchase shares of Class A Common Stock unless in connection with any such issuance, transfer, delivery or repurchase the Corporation takes or authorizes all requisite action such that, after giving effect to all such issuances, transfers, deliveries or repurchases, the number of Common Units owned by the Corporation will equal on a one-for-one basis the number of outstanding shares of Class A Common Stock, disregarding, for purposes of maintaining the one-to-one ratio, (i) shares of Class A Common Stock issued pursuant to the Neff Corporation 2014 Incentive Award Plan, and any other stock incentive plan adopted by the Corporation from time
to time, that have not vested thereunder, (ii) treasury stock or (iii) Preferred Stock or other debt or equity securities (including without limitation warrants, options and rights) issued by the Corporation that are convertible or exercisable or exchangeable for Class A Common Stock (except to the extent the net proceeds from such other securities, including without limitation any exercise or purchase price payable upon conversion, exercise or exchange thereof, has been contributed by the Corporation to the equity capital of the Company). The Corporation shall not issue, transfer or deliver from treasury stock or repurchase or redeem shares of Preferred Stock unless in connection with any such issuance, transfer, delivery, repurchase or redemption the Corporation takes all requisite action such that, after giving effect to all such issuances, transfers, repurchases or redemptions, the Corporation holds (in the case of any issuance, transfer or delivery) or ceases to hold (in the case of any repurchase or redemption) equity interests in the LLC which (in the good faith determination by the Board of Directors) are in the aggregate substantially equivalent in all respects to the outstanding Preferred Stock so issued, transferred, delivered, repurchased or redeemed.
E. The Corporation shall not consolidate, merge, combine or consummate any other transaction (other than an action or transaction for which an adjustment is provided in one of the preceding paragraphs of this Article 6 or in Article 4) in which shares of Class A Common Stock are exchanged for or converted into other stock or securities, or the right to receive cash and/or any other property, unless in connection with any such consolidation, merger, combination or other transaction each Common Unit shall be entitled to be exchanged for or converted into (without duplication of any corresponding share of Class A common stock which the Corporation may elect to issue upon a redemption of such Common Unit by the holder thereof) the same kind and amount of stock or securities, cash and/or any other property, as the case may be, into which or for which each share of Class A Common Stock is exchanged or converted, in each case to maintain at all times a one-to-one ratio between (x) the stock or securities, or rights to receive cash and/or any other property issuable in such transaction in exchange for or conversion of one share of Class A common stock and (y) the stock or securities, or rights to receive cash and/or any other property issuable in such transaction in exchange for or conversion of one Common Unit. The foregoing provisions of this Article 6.E shall not apply to any action or transaction (including any consolidation, merger or combination) approved by the holders of a majority of the voting power of the Class A Common Stock and Class B Common Stock, each voting as a separate class.
ARTICLE 7.
A. The Board of Directors is expressly authorized to adopt, amend and repeal the bylaws of the Corporation (the Bylaws).
ARTICLE 8.
A. Elections of the directors comprising the Board of Directors (each such director, in such capacity, a Director) need not be by written ballot unless the Bylaws shall so provide.
B. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the number of directors which shall constitute the Board of Directors shall be fixed exclusively by resolutions adopted by a majority of the
Whole Board. For purposes of this Amended and Restated Certificate of Incorporation, the term Whole Board shall mean the total number of authorized directors for the Board of Directors whether or not there exist any vacancies in previously authorized directorships.
C. Except as otherwise required by law and subject to the rights of the holders of any series of Preferred Stock then outstanding, unless the Board of Directors otherwise determines, newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from the death, resignation, retirement, disqualification, removal from office or other cause shall be filled only by a majority vote of the Directors then in office and entitled to vote thereon, though less than a quorum, or by a sole remaining Director entitled to vote thereon, and not by the stockholders. Any Director so chosen shall hold office until the next election of the class for which such Director shall have been chosen and until his successor shall be elected and qualified.
D. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any Director, or the entire Board of Directors, may be removed from office, but only for cause, at a meeting called for that purpose.
E. The Board of Directors shall be divided into three classes, as nearly equal in numbers as possible, designated Class I, Class II and Class III. Upon the effectiveness of this Amended and Restated Certificate of Incorporation including this Article 8.E, each Director then in office shall be designated as a Class I Director, a Class II Director or a Class III Director. The initial Class I Directors shall serve for a term expiring at the first annual meeting of stockholders of the Corporation following the effective time of this Amended and Restated Certificate of Incorporation; the initial Class II Directors shall serve for a term expiring at the second annual meeting of stockholders following the effective time of this Amended and Restated Certificate of Incorporation; and the initial Class III Directors shall serve for a term expiring at the third annual meeting of stockholders following the effective time of this Amended and Restated Certificate of Incorporation. At each annual meeting of stockholders beginning with the first annual meeting of stockholders following the effective time of this Amended and Restated Certificate of Incorporation, the successors of the class of Directors whose term expires at that meeting shall be elected to hold office for a term expiring at the third annual meeting of stockholders to be held following their election, with each Director in each such class to hold office until his or her successor is duly elected and qualified. The Board of Directors is authorized to assign Directors already in office at the effectiveness of this Amended and Restated Certificate of Incorporation to Class I, Class II and Class III. The provisions of this Article 8.E are subject to the rights of the holders of any class or series of Preferred Stock to elect directors.
F. Advance notice of stockholder nominations for election of Directors and other business to be brought by stockholders before a meeting of stockholders shall be given in the manner provided by the Bylaws.
ARTICLE 9.
Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken upon the vote of stockholders at an annual or special meeting duly noticed and called in accordance with the DGCL, as amended from time to time, and may be
taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, are signed by the holders of outstanding shares of the relevant class(es) or series of stock of the Corporation representing not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of stock of the Corporation then issued and outstanding (other than treasury stock) entitled to vote thereon were present and voted and delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded; provided, however, that, subject to the rights of any series of Preferred Stock, no action by stockholders may be taken by written consent in lieu of a meeting of stockholders unless such written consent and the taking of the action specified therein have been previously approved by the affirmative vote of Directors constituting a majority of the Whole Board. Special meetings of the stockholders may be called only by a resolution adopted by the affirmative vote of Directors constituting a majority of the Whole Board.
ARTICLE 10.
The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation; provided that any amendment to Article 9 shall be effective only upon the affirmative vote of the holders of Common Stock and Preferred Stock then outstanding representing 662/3% or more of the votes eligible to be cast in an election of Directors.
If any provision or provisions of this Amended and Restated Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Amended and Restated Certificate of Incorporation (including, without limitation, each portion of any sentence of this Amended and Restated Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby.
ARTICLE 11.
The Corporation is authorized to indemnify, and to advance expenses to, each current, former or prospective Director, officer, employee or agent of the Corporation to the fullest extent permitted by Section 145 of the DGCL. To the fullest extent permitted by the laws of the State of Delaware, no Director shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. No amendment to, or modification or repeal of, this Article 11 shall adversely affect any right or protection of a Director or of any officer, employee or agent of the Corporation existing hereunder with respect to any act or omission occurring prior to such amendment, modification or repeal.
ARTICLE 12.
To the fullest extent permitted by the laws of the State of Delaware, (a) the Corporation hereby renounces all interest and expectancy that it otherwise would be entitled to have in, and all rights to be offered an opportunity to participate in, any business opportunity that from time to time may be presented to (i) the Board of Directors or any Director, (ii) any stockholder, officer or agent of the Corporation, or (iii) any affiliate of any person or entity identified in the preceding clause (i) or (ii), but in each case excluding any such person in its capacity as an employee of the Corporation or its subsidiaries; (b) no Permitted Class B Owner and no Director that is not an employee of the Corporation or its subsidiaries will have any duty to refrain from (i) engaging in a corporate opportunity in the same or similar lines of business in which the Corporation or its subsidiaries from time to time is engaged or proposes to engage or (ii) otherwise competing, directly or indirectly, with the Corporation or any of its subsidiaries; and (c) if any Permitted Class B Owner or any Director that is not an employee of the Corporation or its subsidiaries acquires knowledge of a potential transaction or other business opportunity which may be a corporate opportunity both for such Permitted Class B Owner or such Director or any of their respective affiliates, on the one hand, and for the Corporation or its subsidiaries, on the other hand, such Permitted Class B Owner or Director shall have no duty to communicate or offer such transaction or business opportunity to the Corporation or its subsidiaries and such Permitted Class B Owner or Director may take any and all such transactions or opportunities for itself or offer such transactions or opportunities to any other person or entity. The preceding sentence of this Article 12 shall not apply to any potential transaction or business opportunity that is expressly offered to a Director, who is not an employee of the Corporation or its subsidiaries, solely in his or her capacity as a Director.
To the fullest extent permitted by the laws of the State of Delaware, no potential transaction or business opportunity may be deemed to be a potential corporate opportunity of the Corporation or its subsidiaries unless (a) the Corporation and its subsidiaries would be permitted to undertake such transaction or opportunity in accordance with this Amended and Restated Certificate of Incorporation, (b) the Corporation and its subsidiaries at such time have sufficient financial resources to undertake such transaction or opportunity and (c) such transaction or opportunity would be in the same or similar line of business in which the Corporation and its subsidiaries are then engaged or a line of business that is reasonably related to, or a reasonable extension of, such line of business.
No Permitted Class B Owner and no Director will be liable to the Corporation or its subsidiaries or stockholders for breach of any duty (contractual or otherwise) by reason of any activities or omissions of the types referred to in this Article 12, except to the extent such actions or omissions are in breach of this Agreement.
ARTICLE 13.
Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (the Court of Chancery) shall be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any Director, officer or other employee of the Corporation to
the Corporation or the Corporations stockholders, (iii) any action asserting a claim against the Corporation, any Director or the Corporations officers or employees arising pursuant to any provision of the DGCL or the Corporations Amended and Restated Certificate of Incorporation or Bylaws, or (iv) any action asserting a claim against the Corporation, any Director or the Corporations officers or employees governed by the internal affairs doctrine, except, as to each of clauses (i) through (iv) above, for any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten (10) days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction.
ARTICLE 14.
The Corporation expressly elects to be governed by Section 203 of the DGCL.
ARTICLE 15.
The effective time of this Amended and Restated Certificate of Incorporation shall be the date and time that this Amended and Restated Certificate of Incorporation is filed with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation, which has been duly adopted in accordance with Sections 242 and 245 of the DGCL, to be signed by [·], its [·], on this [·] day of [·], 2014.
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NEFF CORPORATION | |
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By: |
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Name: | |
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Title: |
Exhibit 3.2
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AMENDED AND RESTATED BYLAWS
OF
NEFF CORPORATION
Dated as of [·], 2014
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CONTENTS
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Page | |
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Article I. Meetings of Stockholders |
1 | ||
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Section 1.01 |
Place of Meetings |
1 | |
Section 1.02 |
Annual Meetings |
1 | |
Section 1.03 |
Special Meetings |
1 | |
Section 1.04 |
Notice of Meetings |
1 | |
Section 1.05 |
Adjournments |
1 | |
Section 1.06 |
Quorum |
2 | |
Section 1.07 |
Organization |
2 | |
Section 1.08 |
Voting; Proxies |
2 | |
Section 1.09 |
Fixing Date for Determination of Stockholders of Record |
3 | |
Section 1.10 |
List of Stockholders Entitled to Vote |
4 | |
Section 1.11 |
Action by Written Consent of Stockholders |
4 | |
Section 1.12 |
Inspectors of Election |
4 | |
Section 1.13 |
Conduct of Meetings |
5 | |
Section 1.14 |
Notice of Stockholder Business and Nominations |
5 | |
Section 1.15 |
Submission of Questionnaire, Representation and Agreement |
9 | |
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Article II. Board of Directors |
10 | ||
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Section 2.01 |
Number; Qualifications |
10 | |
Section 2.02 |
Election; Resignation; Vacancies |
10 | |
Section 2.03 |
Regular Meetings |
11 | |
Section 2.04 |
Special Meetings |
11 | |
Section 2.05 |
Telephonic Meetings Permitted |
11 | |
Section 2.06 |
Quorum; Vote Required for Action |
11 | |
Section 2.07 |
Organization |
11 | |
Section 2.08 |
Action by Unanimous Consent of Directors |
11 | |
Section 2.09 |
Compensation of Directors |
11 | |
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Article III. Committees |
12 | ||
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Section 3.01 |
Committees |
12 | |
Section 3.02 |
Committee Rules |
12 | |
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Article IV. Officers |
12 | ||
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Section 4.01 |
Officers |
12 | |
Section 4.02 |
Removal, Resignation and Vacancies |
12 | |
Section 4.03 |
Chairperson |
13 | |
Section 4.04 |
Chief Executive Officer |
13 | |
Section 4.05 |
Chief Financial Officer |
13 | |
Section 4.06 |
President |
13 | |
Section 4.07 |
Vice Presidents |
13 | |
Section 4.08 |
Treasurer |
14 |
Section 4.09 |
Controller |
14 |
Section 4.10 |
Secretary |
14 |
Section 4.11 |
Appointing Attorneys and Agents; Voting Securities of Other Entities |
14 |
Section 4.12 |
Additional Matters |
15 |
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Article V. Stock |
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15 |
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Section 5.01 |
Certificates |
15 |
Section 5.02 |
Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates |
16 |
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Article VI. Indemnification and Advancement of Expenses |
16 | |
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Section 6.01 |
Right to Indemnification |
16 |
Section 6.02 |
Advancement of Expenses |
16 |
Section 6.03 |
Claims |
16 |
Section 6.04 |
Non-exclusivity of Rights |
17 |
Section 6.05 |
Other Sources |
17 |
Section 6.06 |
Amendment or Repeal |
17 |
Section 6.07 |
Other Indemnification and Advancement of Expenses |
17 |
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Article VII. Miscellaneous |
17 | |
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Section 7.01 |
Fiscal Year |
17 |
Section 7.02 |
Seal |
17 |
Section 7.03 |
Manner of Notice |
17 |
Section 7.04 |
Waiver of Notice of Meetings of Stockholders, Directors and Committees |
18 |
Section 7.05 |
Form of Records |
18 |
Section 7.06 |
Amendment of Bylaws |
18 |
ARTICLE I.
MEETINGS OF STOCKHOLDERS
Section 1.01 Place of Meetings. Meetings of Stockholders of Neff Corporation, a Delaware corporation (the Corporation; and such Stockholders, the Stockholders), may be held at any place, within or without the State of Delaware, as may be designated by the board of directors of the Corporation (the Board of Directors). In the absence of such designation, meetings of Stockholders shall be held at the principal executive office of the Corporation. The Board of Directors may, in its sole discretion, determine that a meeting of Stockholders shall not be held at any place, but may instead be held solely by means of remote communication authorized by and in accordance with Section 211(a)(2) of the General Corporation Law of the State of Delaware.
Section 1.02 Annual Meetings. If required by applicable law, an annual meeting of Stockholders shall be held for the election of directors at such date and time as may be designated by resolution of the Board of Directors from time to time. Any other proper business may be transacted at the annual meeting. The Corporation may postpone, reschedule or cancel any annual meeting of Stockholders previously scheduled by the Board of Directors.
Section 1.03 Special Meetings. Special meetings of Stockholders for any purpose or purposes may be called only in the manner provided in the Amended and Restated Certificate of Incorporation of the Corporation dated as of [·], 2014 (as the same may be further amended, restated, amended and restated or otherwise modified from time to time, the Certificate of Incorporation). Special meetings validly called in accordance with Article 9 of the Certificate of Incorporation may be held at such date and time as specified in the applicable notice. Business transacted at any special meeting of Stockholders shall be limited to the purposes stated in the notice. The Corporation may postpone, reschedule or cancel any special meeting of Stockholders previously scheduled by the Board of Directors.
Section 1.04 Notice of Meetings. Whenever Stockholders are required or permitted to take any action at a meeting, a notice of the meeting shall be given that shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which Stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the Stockholders entitled to vote at the meeting (if such date is different from the record date for Stockholders entitled to notice of the meeting) and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the Certificate of Incorporation or these amended and restated bylaws adopted by the Stockholders as of [·], 2014 (as the same may be further amended, restated, amended and restated or otherwise modified from time to time, these Bylaws), the notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each Stockholder entitled to vote at the meeting as of the record date for determining the Stockholders entitled to notice of the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the Stockholder at such Stockholders address as it appears on the records of the Corporation.
Section 1.05 Adjournments. Any meeting of Stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, if any, and notice need
not be given of any such adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, a notice of the adjourned meeting shall be given to each Stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for determination of Stockholders entitled to vote is fixed for the adjourned meeting, the Board of Directors shall fix the record date for determining Stockholders entitled to notice of such adjourned meeting as provided in Section 1.09(a) of these Bylaws, and shall give notice of the adjourned meeting to each Stockholder of record as of the record date so fixed for notice of such adjourned meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the Stockholder at such Stockholders address as it appears on the records of the Corporation.
Section 1.06 Quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, at each meeting of Stockholders the presence or participation in person or by proxy of the holders of a majority in voting power of the outstanding shares of capital stock of the Corporation (Stock) entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. In the absence of a quorum, the Stockholders so present may, by a majority in voting power thereof, adjourn the meeting from time to time in the manner provided in Section 1.05 of these Bylaws until a quorum shall attend or participate. Shares of Stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation or any subsidiary of the Corporation to vote shares of Stock held by it in a fiduciary capacity.
Section 1.07 Organization. Meetings of Stockholders shall be presided over by the Chairperson, or in his or her absence by any Vice Chairperson, if any, or in his or her absence by the Chief Executive Officer, or in his or her absence by the President or by a chairperson designated by the Board of Directors, or in the absence of such designation by a chairperson chosen at the meeting by vote of a majority of the Stockholders entitled to vote at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.
Section 1.08 Voting; Proxies. Except as otherwise provided by or pursuant to the provisions of the Certificate of Incorporation, each Stockholder entitled to vote at any meeting of Stockholders shall be entitled to one vote for each share of Stock held by such Stockholder which has voting power upon the matter in question. Each Stockholder entitled to vote at a meeting of Stockholders or express consent to corporate action in writing without a meeting (if permitted by the Certificate of Incorporation) may authorize another person or persons to act for such Stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A Stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering to the Secretary a revocation of the proxy or a new proxy bearing a later date. Voting at meetings of Stockholders need not be by written ballot. Unless otherwise provided in the Certificate of Incorporation, at all meetings of
Stockholders for the election of directors at which a quorum is present a plurality of the votes cast shall be sufficient to elect directors. All other elections and questions presented to the Stockholders at a meeting at which a quorum is present shall, unless otherwise provided by the Certificate of Incorporation, these Bylaws, the rules or regulations of any stock exchange applicable to the Corporation, or applicable law or pursuant to any regulation applicable to the Corporation or its securities, be decided by the affirmative vote of the holders of a majority in voting power of the shares of Stock which are present in person or by proxy and entitled to vote thereon.
Section 1.09 Fixing Date for Determination of Stockholders of Record.
(a) In order that the Corporation may determine the Stockholders entitled to notice of any meeting of Stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If the Board of Directors so fixes a date, such date shall also be the record date for determining the Stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board of Directors, the record date for determining Stockholders entitled to notice of or to vote at a meeting of Stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of Stockholders of record entitled to notice of or to vote at a meeting of Stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for determination of Stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for Stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of Stockholders entitled to vote in accordance herewith at the adjourned meeting.
(b) In order that the Corporation may determine the Stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of Stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall not be more than sixty (60) days prior to such action. If no such record date is fixed, the record date for determining Stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
(c) Unless otherwise restricted by the Certificate of Incorporation, in order that the Corporation may determine the Stockholders entitled to express consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date for determining Stockholders entitled to express consent to corporate action in writing without a
meeting is fixed by the Board of Directors, (i) when no prior action of the Board of Directors is required by law or the Certificate of Incorporation, the record date for such purpose shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in accordance with applicable law, and (ii) if prior action by the Board of Directors is required by law or the Certificate of Incorporation, the record date for such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
Section 1.10 List of Stockholders Entitled to Vote. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of Stockholders, a complete list of the Stockholders entitled to vote at the meeting (provided, however, if the record date for determining the Stockholders entitled to vote is less than ten (10) days before the date of the meeting, the list shall reflect the Stockholders entitled to vote as of a date that is no more than 10 days before the meeting date), arranged in alphabetical order, and showing the address of each Stockholder and the number of shares registered in the name of each Stockholder as of the record date (or such other date). Such list shall be open to the examination of any Stockholder, for any purpose germane to the meeting at least ten (10) days prior to the meeting (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of meeting or (ii) during ordinary business hours at the principal place of business of the Corporation. If the meeting is to be held at a place, then a list of Stockholders entitled to vote at the meeting shall be produced and kept at the time and place of the meeting during the whole time thereof and may be examined by any Stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any Stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the Stockholders entitled to examine the list of Stockholders required by this Section 1.10 or to vote in person or by proxy at any meeting of Stockholders.
Section 1.11 Action by Written Consent of Stockholders. Except as provided by, and in accordance with, the Certificate of Incorporation, no action that is required or permitted to be taken by the Stockholders at any annual or special meeting of Stockholders may be effected by written consent of Stockholders in lieu of a meeting of Stockholders.
Section 1.12 Inspectors of Election. The Corporation may, and shall if required by law, in advance of any meeting of Stockholders, appoint one or more inspectors of election, who may be employees of the Corporation, to act at the meeting or any adjournment thereof and to make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. In the event that no inspector so appointed or designated is able to act at a meeting of Stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed or designated shall (i) ascertain the number of shares of Stock outstanding and the voting power of each such share, (ii) determine the shares of Stock represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots,
(iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares of Stock represented at the meeting and such inspectors count of all votes and ballots. Such certification and report shall specify such other information as may be required by law. In determining the validity and counting of proxies and ballots cast at any meeting of Stockholders, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for an office at an election may serve as an inspector at such election.
Section 1.13 Conduct of Meetings. The date and time of the opening and the closing of the polls for each matter upon which the Stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of Stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the person presiding over any meeting of Stockholders shall have the right and authority to convene and (for any or no reason) to recess and/or adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding person, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the presiding person of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to Stockholders entitled to vote at the meeting, their duly authorized and constituted proxies or such other persons as the presiding person of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. The presiding person at any meeting of Stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such presiding person should so determine, such presiding person shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board of Directors or the person presiding over the meeting, meetings of Stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
Section 1.14 Notice of Stockholder Business and Nominations.
(a) Annual Meetings of Stockholders.
(i) Nominations of persons for election to the Board of Directors and the proposal of other business to be considered by the Stockholders may be made at an annual meeting of Stockholders only (A) pursuant to the Corporations notice of meeting (or any supplement thereto), (B) by or at the direction of the Board of Directors or the nominating and corporate governance committee thereof or (C) by any Stockholder who was a Stockholder of record at the time the notice provided for in this Section 1.14 is delivered to the Secretary, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 1.14.
(ii) For any nominations or other business to be properly brought before an annual meeting by a Stockholder pursuant to Section 1.14(a)(i)(C) of these Bylaws, the Stockholder must have given timely notice thereof in writing to the Secretary and any such proposed business (other than the nominations of persons for election to the Board of Directors) must constitute a proper matter for Stockholder action. To be timely, a Stockholders notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day, nor earlier than the close of business on the one hundred twentieth (120th) day, prior to the first anniversary of the preceding years annual meeting (provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than seventy (70) days after such anniversary date, notice by the Stockholder must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Corporation). In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a Stockholders notice as described above. To be in proper form, such Stockholders notice must:
(A) as to each person whom the Stockholder proposes to nominate for election as a director of the Corporation, set forth (I) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to and in accordance with Section 14(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and the rules and regulations promulgated thereunder, and (II) such persons written consent to being named in the proxy statement as a nominee and to serving as a director of the Corporation if elected;
(B) with respect to each nominee for election or reelection to the Board of Directors, include the completed and signed questionnaire, representation and agreement required by Section 1.15 of these Bylaws;
(C) as to any other business that the Stockholder proposes to bring before the meeting, set forth a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend these Bylaws, the language of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such Stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and
(D) as to the Stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, set forth (I) the name and address of such Stockholder, as they appear on the Corporations
books, and of such beneficial owner, (II) the class or series and number of shares of Stock which are owned beneficially and of record by such Stockholder and such beneficial owner, (III) a description of any agreement, arrangement or understanding with respect to the nomination or proposal between or among such Stockholder and/or such beneficial owner, any of their respective affiliates or associates, and any others acting in concert with any of the foregoing, including, in the case of a nomination, the nominee, (IV) a description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the Stockholders notice by, or on behalf of, such Stockholder and such beneficial owners, whether or not such instrument or right shall be subject to settlement in underlying shares of Stock, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such Stockholder or such beneficial owner, with respect to securities of the Corporation, (V) a representation that the Stockholder is a holder of record of Stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination, (VI) a representation whether the Stockholder or the beneficial owner, if any, intends or is part of a group which intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of outstanding Stock required to approve or adopt the proposal or elect the nominee and/or (y) otherwise to solicit proxies or votes from Stockholders in support of such proposal or nomination, and (VII) any other information relating to such Stockholder and beneficial owner, if any, required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in an election contest pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder.
The foregoing notice requirements of this Section 1.14(a) shall be deemed satisfied by a Stockholder with respect to business other than a nomination for election as a director of the Corporation if the Stockholder has notified the Corporation of his, her or its intention to present a proposal at an annual meeting in compliance with applicable rules and regulations promulgated under the Exchange Act and such Stockholders proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting. The Corporation may require any proposed nominee for election as a director of the Corporation to furnish such other information as the Corporation may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation.
(iii) Notwithstanding anything in the second sentence of Section 1.14(a)(ii) of these Bylaws to the contrary, in the event that the number of directors to be elected to the Board of Directors at the annual meeting is increased effective after the time period for
which nominations would otherwise be due under Section 1.14(a)(ii) of these Bylaws and there is no public announcement by the Corporation naming the nominees for the additional directorships at least one hundred (100) days prior to the first anniversary of the preceding years annual meeting, a Stockholders notice required by this Section 1.14 shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation.
(b) Special Meetings of Stockholders. Except to the extent required by law, special meetings of Stockholders may be called only in accordance with Article 9 of the Certificate of Incorporation. Only such business shall be conducted at a special meeting of Stockholders as shall have been brought before the meeting pursuant to the Corporations notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of Stockholders at which directors are to be elected pursuant to the Corporations notice of meeting (1) by or at the direction of the Board of Directors or the nominating and corporate governance committee thereof or (2) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any Stockholder who is a Stockholder of record at the time the notice provided for in this Section 1.14 is delivered to the Secretary, who is entitled to vote at the meeting and upon such election and who complies with the notice procedures set forth in this Section 1.14. In the event the Corporation calls a special meeting of Stockholders for the purpose of electing one or more directors to the Board of Directors, any such Stockholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such position(s) as specified in the Corporations notice of meeting, if the Stockholders notice required by Section 1.14(a)(ii) of these Bylaws (including the completed and signed questionnaire, representation and agreement required by Section 1.15 of these Bylaws and any other information, documents, affidavits, or certifications required by the Corporation) shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the one hundred twentieth (120th) day prior to such special meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such special meeting or the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a Stockholders notice as described above.
(c) General.
(i) Except as otherwise expressly provided in any applicable rule or regulation promulgated under the Exchange Act, only such persons who are nominated in accordance with the procedures set forth in this Section 1.14 shall be eligible to be elected at an annual or special meeting of Stockholders to serve as directors and only such business shall be conducted at a meeting of Stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.14. Except as otherwise provided by law, the chairperson of the meeting shall have the power and duty (A) to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in this Section 1.14 (including whether the Stockholder or beneficial owner, if any, on whose behalf the nomination or proposal is made or solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies or votes in support of such Stockholders nominee or proposal in compliance with such Stockholders representation as required by Section 1.14(a)(ii)(D)(VI) of these Bylaws) and (B) if any proposed nomination or business was not made or proposed in compliance with this Section 1.14, to declare that such nomination shall be disregarded or that such proposed business shall not be transacted. Notwithstanding the foregoing provisions of this Section 1.14, unless otherwise required by law, if the Stockholder (or a qualified representative of the Stockholder) does not appear at the annual or special meeting of Stockholders to present a nomination or proposed business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 1.14, to be considered a qualified representative of the Stockholder, a person must be a duly authorized officer, manager or partner of such Stockholder or must be authorized by a writing executed by such Stockholder or an electronic transmission delivered by such Stockholder to act for such Stockholder as proxy at the meeting of Stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of Stockholders.
(ii) For purposes of this Section 1.14, public announcement shall include disclosure in a press release reported by the Dow Jones News Service, Associated Press or other national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder.
(iii) Notwithstanding the foregoing provisions of this Section 1.14, a Stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder with respect to the matters set forth in this Section 1.14; provided, however, that any references in these Bylaws to the Exchange Act or the rules and regulations promulgated thereunder are not intended to and shall not limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to this Section 1.14 (including clause (a)(i)(C) hereof and clause (b) hereof), and compliance with clauses (a)(i)(C) and (b) of this Section 1.14 shall be the exclusive means for a Stockholder to make nominations or submit other business (other than, as provided in the penultimate sentence of clause (a)(ii) hereof, business other than nominations brought properly under and in compliance with Rule 14a-8 promulgated under the Exchange Act, as may be amended from time to time). Nothing in this Section 1.14 shall be deemed to affect any rights (x) of Stockholders to request inclusion of proposals or nominations in the Corporations proxy statement pursuant to applicable rules and regulations promulgated under the Exchange Act or (y) of the holders of any series of preferred Stock of the Corporation (Preferred Stock) to elect directors pursuant to any applicable provisions of the Certificate of Incorporation.
Section 1.15 Submission of Questionnaire, Representation and Agreement. To be eligible to be a nominee for election or reelection as a director of the Corporation, the candidate
for nomination must have previously delivered (in accordance with the time periods prescribed for delivery of notice under Section 1.14 of these Bylaws), to the Secretary at the principal executive offices of the Corporation, (a) a completed written questionnaire (in a form provided by the Corporation) with respect to the background, qualifications, stock ownership and independence of such proposed nominee and (b) a written representation and agreement (in form provided by the Corporation) that such candidate for nomination (i) is not and, if elected as a director during his or her term of office, will not become a party to (A) any agreement, arrangement or understanding with, and has not given and will not give any commitment or assurance to, any person or entity as to how such proposed nominee, if elected as a director of the Corporation, will act or vote on any issue or question (a Voting Commitment) or (B) any Voting Commitment that could limit or interfere with such proposed nominees ability to comply, if elected as a director of the Corporation, with such proposed nominees fiduciary duties under applicable law, (ii) is not, and will not become a party to, any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation or reimbursement for service as a director and (iii) if elected as a director of the Corporation, will comply with all applicable corporate governance, conflict of interest, confidentiality, stock ownership and trading and other policies and guidelines of the Corporation applicable to directors and in effect during such persons term in office as a director of the Corporation (and, if requested by any candidate for nomination, the Secretary shall provide to such candidate for nomination all such policies and guidelines then in effect).
ARTICLE II.
BOARD OF DIRECTORS
Section 2.01 Number; Qualifications. Subject to the Certificate of Incorporation, the total number of directors constituting the entire Board of Directors shall be fixed from time to time solely by resolution adopted by a majority of the Whole Board. For purposes of these Bylaws the term Whole Board shall mean the total number of authorized directors for the Board of Directors whether or not there exist any vacancies in previously authorized directorships. Directors need not be Stockholders.
Section 2.02 Election; Resignation; Vacancies. The Board of Directors shall be divided into three classes, as nearly equal in number as possible, designated Class I, Class II and Class III. Commencing with the first annual meeting of Stockholders following the original effectiveness of Article 8.E of the Certificate of Incorporation, directors of each class the term of which shall then expire shall be elected to hold office for a three-year term and until the election and qualification of their respective successors in office. Any director may resign at any time upon notice to the Corporation. Except as otherwise required by law and subject to the rights of the holders of any series of Preferred Stock then outstanding, unless the Board of Directors otherwise determines, newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from the death, resignation, retirement, disqualification, removal from office or other cause shall be filled only by a majority vote of the directors then in office and entitled to vote thereon, though less than a quorum, or by a sole remaining director entitled to vote thereon, and not by the Stockholders. Any director so chosen shall hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified.
Section 2.03 Regular Meetings. Regular meetings of the Board of Directors may be held at such places, if any, within or without the State of Delaware and at such times as the Board of Directors may from time to time determine.
Section 2.04 Special Meetings. Special meetings of the Board of Directors may be held at any time or place, if any, within or without the State of Delaware whenever called by the Chairperson, a Vice Chairperson, the Chief Executive Officer, the Secretary, or by any two members of the Board of Directors. Notice of a special meeting of the Board of Directors shall be given by the person or persons calling the meeting at least twenty-four hours before the special meeting.
Section 2.05 Telephonic Meetings Permitted. Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting thereof by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 2.05 shall constitute presence in person at such meeting.
Section 2.06 Quorum; Vote Required for Action. At all meetings of the Board of Directors the directors entitled to cast a majority of the votes of the Whole Board shall constitute a quorum for the transaction of business; provided that, solely for the purposes of filling vacancies pursuant to Section 2.02 of these Bylaws, a meeting of the Board of Directors may be held if a majority of the directors then in office participate in such meeting. Except in cases in which the Certificate of Incorporation, these Bylaws or applicable law otherwise provides, a majority of the votes entitled to be cast by the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.
Section 2.07 Organization. Meetings of the Board of Directors shall be presided over by the Chairperson, or in his or her absence by any Vice Chairperson, if any, or in his or her absence by the Chief Executive Officer, or in his or her absence the Chief Executive Officer, or in his or her absence by the President or by a chairperson chosen at the meeting by the affirmative vote of a majority of the directors present at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.
Section 2.08 Action by Unanimous Consent of Directors. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmissions are filed with the minutes of proceedings of the Board of Directors or such committee in accordance with applicable law.
Section 2.09 Compensation of Directors. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary or other compensation as a director. No such
payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Any director of the Corporation may decline any or all such compensation payable to such director in his or her discretion.
ARTICLE III.
COMMITTEES
Section 3.01 Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of a member of any committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it.
Section 3.02 Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these Bylaws.
ARTICLE IV.
OFFICERS
Section 4.01 Officers. The officers of the Corporation shall consist of a chairperson of the Board of Directors (the Chairperson), a chief executive officer (the Chief Executive Officer), a chief financial officer (the Chief Financial Officer), a president (the President), one or more vice presidents (each, a Vice President), a Secretary (the Secretary), a treasurer (the Treasurer), a controller (the Controller) and such other officers as the Board of Directors may from time to time determine, each of whom shall be appointed by the Board of Directors, each to have such authority, functions or duties as set forth in these Bylaws or as determined by the Board of Directors. Each officer shall be chosen by the Board of Directors and shall hold office for such term as may be prescribed by the Board of Directors and until such persons successor shall have been duly chosen and qualified, or until such persons earlier death, disqualification, resignation or removal. The Board of Directors, in its discretion, from time to time may determine not to appoint one or more of the officers identified in the first sentence of this Section 4.01 or to leave such officer position vacant.
Section 4.02 Removal, Resignation and Vacancies. Any officer of the Corporation may be removed, with or without cause, by the Board of Directors, without prejudice to the rights, if any, of such officer under any contract to which it is a party. Any officer may resign at any time
upon written or electronic notice to the Corporation, without prejudice to the rights, if any, of the Corporation under any contract to which such officer is a party. If any vacancy occurs in any office of the Corporation, the Board of Directors may appoint a successor to fill such vacancy for the remainder of the unexpired term and until a successor shall have been duly chosen and qualified.
Section 4.03 Chairperson. The Chairperson shall be deemed an officer of the Corporation, subject to the control of the Board of Directors, and shall report directly to the Board of Directors. The Board of Directors may, in its sole discretion, from time to time appoint one or more vice chairpersons (each, a Vice Chairperson) each of whom shall be deemed an officer of the Corporation, subject to the control of the Board of Directors, and shall report directly to the Chairperson.
Section 4.04 Chief Executive Officer. The Chief Executive Officer shall have general supervision and direction of the business and affairs of the Corporation, shall be responsible for corporate policy and strategy, and shall report directly to the Chairperson. Unless otherwise provided in these Bylaws, all other officers of the Corporation shall report directly to the Chief Executive Officer or as otherwise determined by the Chief Executive Officer. The Chief Executive Officer shall, if present and in the absence of the Chairperson or any Vice Chairperson, preside at meetings of the Stockholders and of the Board of Directors.
Section 4.05 Chief Financial Officer. The Chief Financial Officer shall exercise all the powers and perform the duties of the office of the chief financial officer and in general have overall supervision of the financial operations of the Corporation. The Chief Financial Officer shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as such officer may agree with the Chief Executive Officer or as the Board of Directors may from time to time determine.
Section 4.06 President. The President shall be the chief operating officer of the Corporation, with general responsibility for the management and control of the operations of the Corporation. The President shall have the power to affix the signature of the Corporation to all contracts that have been authorized by the Board of Directors or the Chief Executive Officer. The President shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as such officer may agree with the Chief Executive Officer or as the Board of Directors may from time to time determine.
Section 4.07 Vice Presidents. The Vice President shall have such powers and duties as shall be prescribed by his or her superior officer or the Chief Executive Officer. A Vice President shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as such officer may agree with the Chief Executive Officer or as the Board of Directors may from time to time determine. In accordance with Sections 4.01 and 4.12 of these Bylaws, the Board of Directors, the Chief Executive Officer and/or the Chief Financial Officer may, in his, her or their discretion, from time to time appoint one or more executive vice presidents of the Corporation (each, an Executive Vice President) and/or assistant vice presidents of the Corporation (each, an Assistant Vice President).
Section 4.08 Treasurer. The Treasurer shall supervise and be responsible for all the funds and securities of the Corporation, the deposit of all moneys and other valuables to the credit of the Corporation in depositories of the Corporation, borrowings and compliance with the provisions of all indentures, agreements and instruments governing such borrowings to which the Corporation is a party, the disbursement of funds of the Corporation and the investment of its funds, and in general shall perform all of the duties incident to the office of the Treasurer. The Treasurer shall report to the Chief Financial Officer and, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as such officer may agree with the Chief Executive Officer, the Chief Financial Officer or as the Board of Directors may from time to time determine. In accordance with Sections 4.01 and 4.12 of these Bylaws, the Board of Directors, the Chief Executive Officer and/or the Chief Financial Officer may, in his, her or their discretion, from time to time appoint one or more assistant treasurers of the Corporation (each, an Assistant Treasurer).
Section 4.09 Controller. The Controller shall be the chief accounting officer of the Corporation. The Controller shall report to the Chief Financial Officer and, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as such officer may agree with the Chief Executive Officer or the Chief Financial Officer or as the Board of Directors may from time to time determine.
Section 4.10 Secretary. The powers and duties of the Secretary are: (i) to act as Secretary at all meetings of the Board of Directors, of the committees of the Board of Directors and of the Stockholders and to record the proceedings of such meetings in a book or books to be kept for that purpose; (ii) to see that all notices required to be given by the Corporation are duly given and served; (iii) to act as custodian of the seal of the Corporation and affix the seal or cause it to be affixed to all certificates of Stock and to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized in accordance with the provisions of these Bylaws; (iv) to have charge of the books, records and papers of the Corporation and see that the reports, statements and other documents required by law to be kept and filed are properly kept and filed; and (v) to perform all of the duties incident to the office of Secretary. The Secretary shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as such officer may agree with the Chief Executive Officer or as the Board of Directors may from time to time determine. In accordance with Sections 4.01 and 4.12 of these Bylaws, the Board of Directors, the Chief Executive Officer and/or the Chief Financial Officer may, in his, her or their discretion, from time to time appoint one or more assistant secretaries of the Corporation (each, an Assistant Secretary).
Section 4.11 Appointing Attorneys and Agents; Voting Securities of Other Entities. Unless otherwise provided by resolution adopted by the Board of Directors, the Chairperson, any Vice Chairperson, the Chief Executive Officer, the Chief Financial Officer or the President may from time to time appoint an attorney or attorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation, to (a) cast the votes which the Corporation may be entitled to cast as the holder of stock or other securities in any other corporation or other entity, any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation or other entity, or to consent in writing, in the name of the Corporation as such holder, to any action by such other corporation or other entity, and may instruct the person or persons so appointed as to the manner of casting such votes
or giving such consents, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal or otherwise, all such written proxies or other instruments as he or she may deem necessary or proper and (b) exercise the rights of the Corporation in its capacity as a general partner of a partnership or in its capacity as a managing member of a limited liability company as to which the Corporation, in such capacity, is entitled to exercise pursuant to the applicable partnership agreement or limited liability company operating agreement, including without limitation to take or refrain from taking any action, or to consent in writing, in each case in the name of the Corporation as such general partner or managing member, to any action by such partnership or limited liability company, and may instruct the person or persons so appointed as to the manner of taking such actions or giving such consents, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal or otherwise, all such written proxies or other instruments as he or she may deem necessary or proper. Unless otherwise provided by resolution adopted by the Board of Directors, any of the rights set forth in this Section 4.11 which may be delegated to an attorney or agent may also be exercised directly by the Chairperson, a Vice Chairperson, the Chief Executive Officer, the Chief Financial Officer or the President.
Section 4.12 Additional Matters. The Chief Executive Officer, the Chief Financial Officer and the President shall have the authority to designate employees of the Corporation to have the title of Executive Vice President, Vice President, Assistant Vice President, Assistant Treasurer or Assistant Secretary. Any employee so designated shall have the powers and duties determined by the officer making such designation. A person designated as an Executive Vice President, Vice President, Assistant Vice President, Assistant Treasurer or Assistant Secretary shall not be deemed to be an officer of the Corporation unless the Board of Directors has adopted a resolution approving such person in such capacity as an officer of the Corporation (including by means of direct appointment by the Board of Directors pursuant to Section 4.01 of these Bylaws).
ARTICLE V.
STOCK
Section 5.01 Certificates. The shares of Stock shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of Stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Every holder of Stock represented by certificates shall be entitled to have a certificate signed by or in the name of the Corporation by (a) any one officer of the Corporation who is the Chairperson, a Vice Chairperson, the Chief Executive Officer, the President or a Vice President, and (b) by any one officer of the Corporation who is the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Assistant Secretary, with such signatories certifying the number of shares of the applicable class or series of Stock owned by such holder in the Corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue.
Section 5.02 Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The Corporation may issue a new certificate for shares of Stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owners legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
ARTICLE VI.
INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
Section 6.01 Right to Indemnification. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law (including as it presently exists or may hereafter be amended), any person (a Covered Person) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (any such action, suit or proceeding, a proceeding), by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, limited liability company, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys fees) reasonably incurred by such Covered Person. Notwithstanding the preceding sentence, except as otherwise provided in Section 6.03 of these Bylaws, the Corporation shall be required to indemnify a Covered Person in connection with a proceeding (or part thereof) commenced by such Covered Person only if the commencement of such proceeding (or part thereof) by the Covered Person was authorized in the specific case by the Board of Directors.
Section 6.02 Advancement of Expenses. The Corporation shall to the fullest extent not prohibited by applicable law pay the expenses (including attorneys fees) incurred by a Covered Person in defending any proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Covered Person to repay all amounts advanced if it should be ultimately determined that the Covered Person is not entitled to be indemnified under this Article VI or otherwise.
Section 6.03 Claims. If a claim for indemnification under this Article VI (following the final disposition of such proceeding) is not paid in full within sixty (60) days after the Corporation has received a claim therefor by the Covered Person, or if a claim for any advancement of expenses under this Article VI is not paid in full within thirty (30) days after the Corporation has received a statement or statements requesting such amounts to be advanced, the Covered Person shall thereupon (but not before) be entitled to file suit to recover the unpaid amount of such claim. If successful in whole or in part, the Covered Person shall be entitled to be paid the expense of prosecuting such claim to the fullest extent permitted by law. In any such action, the Corporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancement of expenses under applicable law.
Section 6.04 Non-exclusivity of Rights. The rights conferred on any Covered Person by this Article VI shall not be exclusive of any other rights which such Covered Person may have or hereafter acquires under any statute, provision of the Certificate of Incorporation, these Bylaws, agreement, vote of Stockholders or disinterested directors or otherwise.
Section 6.05 Other Sources. The Corporations obligation, if any, to indemnify or to advance expenses to any Covered Person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such Covered Person may collect as indemnification or advancement of expenses from such other corporation, partnership, limited liability company, joint venture, trust, enterprise or non-profit enterprise.
Section 6.06 Amendment or Repeal. Any right to indemnification or to advancement of expenses of any Covered Person arising hereunder shall not be eliminated or impaired by an amendment to or repeal of these Bylaws after the occurrence of the act or omission that is the subject of the proceeding for which indemnification or advancement of expenses is sought.
Section 6.07 Other Indemnification and Advancement of Expenses. This Article VI shall not limit the right of the Corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Covered Persons when and as authorized by appropriate corporate action.
ARTICLE VII.
MISCELLANEOUS
Section 7.01 Fiscal Year. The fiscal year of the Corporation shall be determined by resolution of the Board of Directors.
Section 7.02 Seal. The corporate seal shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors.
Section 7.03 Manner of Notice. Except as otherwise provided herein or permitted by applicable law, notices to directors and Stockholders shall be in writing and delivered personally or mailed to the directors or Stockholders at their addresses appearing on the books of the Corporation. Without limiting the manner by which notice otherwise may be given effectively to Stockholders, and except as prohibited by applicable law, any notice to Stockholders given by the Corporation under any provision of applicable law, the Certificate of Incorporation, or these Bylaws shall be effective if given by a single written notice to Stockholders who share an address if consented to by the Stockholders at that address to whom such notice is given. Any such consent shall be revocable by the Stockholder by written notice to the Corporation. Any Stockholder who fails to object in writing to the Corporation, within sixty (60) days of having been given written notice by the Corporation of its intention to send the single notice permitted under this Section 7.03, shall be deemed to have consented to receiving such single written notice. Notice to directors may be given in person, by mail or by e-mail, telephone, telecopier or other means of electronic transmission.
Section 7.04 Waiver of Notice of Meetings of Stockholders, Directors and Committees. Any waiver of notice, given by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Stockholders, Board of Directors, or members of a committee of the Board of Directors need be specified in a waiver of notice.
Section 7.05 Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or by means of, or be in the form of, any information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time.
Section 7.06 Amendment of Bylaws. These Bylaws may be altered, amended or repealed, and new bylaws made, only by the affirmative vote of (a) a majority of the Board of Directors or (b) Stockholders representing at least 662/3% of the votes eligible to be cast in an election of directors of the Corporation.
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Exhibit 5.1
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53rd at Third | |
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885 Third Avenue | |
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New York, New York 10022-4834 | |
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Tel: +1.212.906.1200 Fax: +1.212.751.4864 | |
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www.lw.com | |
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Boston |
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November 10, 2014 |
Brussels |
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Chicago |
Orange County |
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Paris |
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Dubai |
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Düsseldorf |
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Frankfurt |
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Neff Corporation |
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Washington, D.C. |
Re: Registration Statement No. 333-198559;
Class A common stock, par value $0.01 per share
Ladies and Gentlemen:
We have acted as special counsel to Neff Corporation, a Delaware corporation (the Company), in connection with the proposed issuance of up to 12,047,618 shares of common stock, $0.01 par value per share (the Shares). The Shares are included in a registration statement on Form S-1 under the Securities Act of 1933, as amended (the Act), initially filed with the Securities and Exchange Commission (the Commission) on September 3, 2014 (Registration No. 333-198559, as amended, the Registration Statement). The term Shares shall include any additional shares of common stock registered by the Company pursuant to Rule 462(b) under the Act in connection with the offering contemplated by the Registration Statement. This opinion is being furnished in connection with the requirements of Item 601(b)(5) of Regulation S-K under the Act, and no opinion is expressed herein as to any matter pertaining to the contents of the Registration Statement or related prospectus contained therein (the Prospectus), other than as expressly stated herein with respect to the issue of the Shares.
As such counsel, we have examined such matters of fact and questions of law as we have considered appropriate for purposes of this letter. With your consent, we have relied upon certificates and other assurances of officers of the Company and others as to factual matters without having independently verified such factual matters. We are opining herein as to General Corporation Law of the State of Delaware, and we express no opinion with respect to any other laws.
Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof, upon the proper filing of the amended and restated certificate of incorporation of the Company, substantially in the form most recently filed as an exhibit to the Registration Statement, with the Secretary of State of the State of Delaware and when the Shares shall have been duly registered on the books of the transfer agent and registrar therefor in the name or on
behalf of the purchasers, and have been issued by the Company against payment therefor (not less than par value) in the circumstances contemplated by the form of underwriting agreement most recently filed as an exhibit to the Registration Statement, the issue and sale of the Shares will have been duly authorized by all necessary corporate action of the Company, and the Shares will be validly issued, fully paid and non-assessable. In rendering the foregoing opinion, we have assumed that the Company will comply with all applicable notice requirements regarding uncertificated shares provided in the General Corporation Law of the State of Delaware.
This opinion is for your benefit in connection with the Registration Statement and may be relied upon by you and by persons entitled to rely upon it pursuant to the applicable provisions of the Act. We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm in the Prospectus under the heading Legal Matters. We further consent to the incorporation by reference of this letter and consent into any post-effective amendment to the Registration Statement filed pursuant to Rule 462(b) with respect to the Shares. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission thereunder.
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Very truly yours, |
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/s/ Latham & Watkins LLP |
Exhibit 10.1
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TAX RECEIVABLE AGREEMENT
by and among
NEFF CORPORATION
WAYZATA OPPORTUNITIES FUND II, L.P.
WAYZATA OPPORTUNITIES FUND OFFSHORE II, L.P.
the several LLC OPTION HOLDERS (as defined herein)
MANAGEMENT REPRESENTATIVE (as defined herein)
OTHER MEMBERS OF NEFF HOLDINGS LLC
FROM TIME TO TIME PARTY HERETO
Dated as of [·], 2014
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CONTENTS
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Page |
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Article I. DEFINITIONS |
2 | |
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Section 1.1 |
Definitions |
2 |
Section 1.2 |
Rules of Construction |
10 |
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Article II. DETERMINATION OF REALIZED TAX BENEFIT |
11 | |
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Section 2.1 |
Basis Adjustments; Neff Holdings 754 Election |
11 |
Section 2.2 |
Basis and Reverse 704(c) Schedules |
12 |
Section 2.3 |
Tax Benefit Schedules |
13 |
Section 2.4 |
Procedures; Amendments |
14 |
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Article III. TAX BENEFIT PAYMENTS |
15 | |
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Section 3.1 |
Timing and Amount of Tax Benefit Payments |
15 |
Section 3.2 |
No Duplicative Payments |
18 |
Section 3.3 |
Pro-Ration of Payments as Between the Members |
18 |
Section 3.4 |
Optional Estimated Payment Procedure |
19 |
Section 3.5 |
Changes; Reserves; Suspension of Payments |
20 |
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Article IV. TERMINATION |
21 | |
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Section 4.1 |
Early Termination of Agreement; Breach of Agreement |
21 |
Section 4.2 |
Early Termination Notice |
23 |
Section 4.3 |
Payment Upon Early Termination |
24 |
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Article V. SUBORDINATION AND LATE PAYMENTS |
24 | |
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Section 5.1 |
Subordination |
24 |
Section 5.2 |
Late Payments by the Corporation |
24 |
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Article VI. TAX MATTERS; CONSISTENCY; COOPERATION |
25 | |
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Section 6.1 |
Participation in the Corporations and Neff Holdings Tax Matters |
25 |
Section 6.2 |
Consistency |
25 |
Section 6.3 |
Cooperation |
25 |
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Article VII. MISCELLANEOUS |
26 | |
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Section 7.1 |
Notices |
26 |
Section 7.2 |
Counterparts |
27 |
Section 7.3 |
Entire Agreement; No Third Party Beneficiaries |
27 |
Section 7.4 |
Governing Law |
27 |
Section 7.5 |
Severability |
27 |
Section 7.6 |
LLC Option Holders as Members; Assignments; Amendments; Successors; No Waiver |
28 |
Section 7.7 |
Titles and Subtitles |
29 |
Section 7.8 |
Resolution of Disputes |
29 |
Section 7.9 |
Reconciliation |
30 |
Section 7.10 |
Withholding |
31 |
Section 7.11 |
Admission of the Corporation into a Consolidated Group; Transfers of Corporate Assets |
31 |
Section 7.12 |
Confidentiality |
31 |
Section 7.13 |
Change in Law |
32 |
Section 7.14 |
Interest Rate Limitation |
32 |
Section 7.15 |
Independent Nature of Rights and Obligations |
33 |
Section 7.17 |
Management Representative |
33 |
Exhibits
Exhibit A - Form of Joinder Agreement
TAX RECEIVABLE AGREEMENT
This TAX RECEIVABLE AGREEMENT (this Agreement), dated as of [·], 2014, is hereby entered into by and among Neff Corporation, a Delaware corporation (the Corporation), Neff Holdings LLC, a Delaware limited liability company (Neff Holdings), each of the Members from time to time party hereto, the LLC Option Holders and the Management Representative. Capitalized terms used but not otherwise defined herein have the respective meanings set forth in Section 1.01.
RECITALS
WHEREAS, Neff Holdings is treated as a partnership for U.S. federal income tax purposes;
WHEREAS, each of the members of Neff Holdings other than the Corporation (such members, together with each other Person who becomes party hereto by satisfying the Joinder Requirement, the Members) owns (or, in the case of such other Persons, will own) common limited liability company interests in Neff Holdings (the Units);
WHEREAS, the Corporation is the managing member of Neff Holdings, and is the registered owner and will be the registered owner of Units;
WHEREAS, on the date hereof and exclusive of the Over-Allotment Option (as defined below), the Corporation issued [·] shares of its Class A common stock, par value $0.01 per share (the Class A Common Stock) to certain purchasers in an initial public offering of its Class A Common Stock (the IPO) in exchange for net proceeds of approximately $[·] million, after deducting underwriting discounts and commissions but before offering expenses;
WHEREAS, on the date hereof, the Corporation used $[·] million of the net proceeds from the IPO to acquire newly-issued Units directly from Neff Holdings (the Base Offering Capital Contribution), which proceeds will be used to repay or prepay certain indebtedness of Neff Holdings and to pay the fees and expenses from the IPO;
WHEREAS, on the date hereof, the Corporation used $[·] million of the net proceeds from the IPO to purchase Units of Neff Holdings directly from Wayzata at a price equal to the price per share in the IPO, less underwriting discounts and commissions (a Sale);
WHEREAS, on and after the date hereof, the Corporation may issue additional Class A Common Stock in connection with the IPO as a result of the exercise by the underwriters of their over-allotment option (the Over-Allotment Option) and, if the Over-Allotment Option is in fact exercised in whole or in part, any additional net proceeds will be used by the Corporation to acquire additional newly-issued Units directly from Neff Holdings (the Over-Allotment Capital Contribution and, together with the Base Offering Capital Contribution, the Corporations Capital Contribution, which proceeds will be used to repay or prepay certain indebtedness of Neff Holdings and to pay the fees and expenses from the IPO;
WHEREAS, on and after the date hereof, pursuant to Article XI of the LLC Agreement, each Member has the right, in its sole discretion, from time to time to require Neff Holdings to redeem (a Redemption) all or a portion of such Members Units for cash or Class A Common Stock; provided that, at the election of the Corporation in its sole discretion, the Corporation may effect a direct exchange (a Direct Exchange) of such cash or shares of Class A Common Stock for such Units;
WHEREAS, certain members of management of Neff Holdings and certain non-executive members of its board of managers (the LLC Option Holders) have existing options to acquire Units, which options may be exercised from time to time by the holder thereof in accordance with the terms thereof, whereupon such Person will be admitted as a member of Neff Holdings and will automatically become a Member hereunder with all the rights, privileges and responsibilities of a Member hereunder (for the avoidance of doubt, without any requirement to execute a Joinder);
WHEREAS, Neff Holdings and any direct or indirect subsidiary (owned through a chain of pass-through entities) of Neff Holdings that is treated as a partnership for U.S. federal income tax purposes (together with Neff Holdings and any direct or indirect subsidiary (owned through a chain of pass-through entities) of Neff Holdings that is treated as a disregarded entity for U.S. federal income tax purposes, the Neff Holdings Group) will have in effect an election under Section 754 of the Code (as defined herein) for the Taxable Year (as defined herein) in which any Exchange (as defined below) occurs, which election will result in an adjustment to the Corporations share of the tax basis of the assets owned by the Neff Holdings Group as of the date of the Exchange, with a consequent result on the taxable income subsequently derived therefrom; and
WHEREAS, the parties to this Agreement desire to provide for certain payments and make certain arrangements with respect to any tax benefits to be derived by the Corporation as the result of Exchanges and the receipt of payments under this Agreement, as contemplated by the LLC Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, the terms set forth in this Article I shall have the following meanings (such meanings to be equally applicable to both (i) the singular and plural and (ii) the active and passive forms of the terms defined).
Actual Interest Amount is defined in Section 3.1(b)(vii) of this Agreement.
Advisory Firm means an accounting firm that is nationally recognized as being expert in Covered Tax matters and not an Affiliate of the Corporation, selected by the Corporation.
Advisory Firm Letter means a letter, that has been prepared by the Advisory Firm used by the Corporation in connection with the performance of its obligations under this Agreement, which states that the relevant Schedules, notices or other information to be provided by the Corporation to the Members, along with all supporting schedules and work papers, were prepared in a manner that is consistent with the terms of this Agreement and, to the extent not expressly provided in this Agreement, on a reasonable basis in light of the facts and law in existence on the date such Schedules, notices or other information were delivered by the Corporation to the Members.
Affiliate means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person.
Agreed Rate means LIBOR plus 100 basis points.
Agreement is defined in the preamble.
Amended Schedule is defined in Section 2.4(b) of this Agreement.
Attributable is defined in Section 3.1(b)(i) of this Agreement.
Audit Committee means the audit committee of the Board.
Basis Adjustment means the increase or decrease to the tax basis of, or the Corporations share of, the tax basis of the Reference Assets (i) under Section 734(b), 743(b) and 754 of the Code and, in each case, the comparable sections of U.S. state and local tax law (in situations where, following an Exchange, Neff Holdings remains in existence as an entity for tax purposes) and (ii) under Sections 732 and 1012 of the Code and, in each case, the comparable sections of U.S. state and local tax law (in situations where, as a result of one or more Exchanges, Neff Holdings becomes an entity that is disregarded as separate from its owner for tax purposes), in each case, as a result of any Exchange and any payments made under this Agreement. Notwithstanding any other provision of this Agreement, the amount of any Basis Adjustment resulting from an Exchange of one or more Units shall be determined without regard to any Pre-Exchange Transfer of such Units and as if any such Pre-Exchange Transfer had not occurred.
Basis Schedule is defined in Section 2.2 of this Agreement.
Beneficial Owner means, with respect to any security, a Person who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares: (i) voting power, which includes the power to vote, or to direct the voting of, with respect to such security and/or (ii) investment power, which includes the power to dispose of, or to direct the disposition of, such security.
Board means the Board of Directors of the Corporation.
Book-Tax Disparity means, with respect to any Reference Asset, as of the date of the applicable Corporations Capital Contribution, the difference between the Book Value (as
defined in the LLC Agreement) of such Reference Asset and the adjusted basis thereof for U.S. federal income tax purposes as of such date.
Business Day means any day excluding Saturday, Sunday and any day that is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in New York are closed.
Change Notice is defined in Section 3.5(a) of this Agreement.
Change of Control means the occurrence of any of the following events:
(1) (A) any person or group (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, or any successor provisions thereto (the Exchange Act) but excluding any employee benefit plan of such person and its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan, and excluding the Permitted Investors) shall become the beneficial owner (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of voting stock of the Corporation entitling such person or group to cast more than thirty-five percent (35%) of the votes eligible to be cast in an election of directors of the Corporation and (B) the Permitted Investors shall own outstanding voting stock of the Corporation having a lesser percentage of the votes eligible to be cast in such an election of the Corporation at such time than the person or group in the foregoing clause (A);
(2) the Corporation ceases to be the sole managing member of Neff Holdings;
(3) the Corporation or any of its Subsidiaries acquires, by merger, consolidation or otherwise, assets with a gross fair market value, and/or equity interests in an entity with a gross enterprise value, in excess of 50% of the gross enterprise value of the Corporation on the date hereof; provided that for this purpose, the gross enterprise value of the Corporation on the date hereof shall be the fair market value of the outstanding shares of stock of the Corporation (based on the price per share in the IPO) plus the amount of the Corporations liabilities as of the date of the IPO; or
(4) a change of control or similar defined term in any agreement governing indebtedness of Neff Holdings or any of its Subsidiaries with aggregate principal amount or aggregate commitments outstanding in excess of $25,000,000.
Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the Class A Common Stock and Class B Common Stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in and voting control over, and own substantially all of the shares of, an entity which owns all or substantially all of the assets of the Corporation immediately following such transaction or series of transactions.
Code means the U.S. Internal Revenue Code of 1986, as amended, and applicable Treasury Regulations promulgated thereunder.
Control means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
Corporation is defined in the preamble to this Agreement.
Corporations Capital Contribution is defined in the recitals to this Agreement.
Covered Taxes means any and all U.S. federal, state, local and foreign taxes, assessments or similar charges that are based on or measure with respect to net income or profits and any interest related thereto.
Cumulative Net Realized Tax Benefit is defined in Section 3.1(b)(iii) of this Agreement.
Default Rate means LIBOR plus 500 basis points.
Default Rate Interest is defined in Section 3.1(b)(ix) of this Agreement.
Determination shall have the meaning ascribed to such term in Section 1313(a) of the Code or similar provision of U.S. state tax law, as applicable, or any other event (including the execution of IRS Form 870-AD) that finally and conclusively establishes the amount of any liability for tax.
Direct Exchange is defined in the recitals to this agreement.
Dispute is defined in Section 7.8(a) of this Agreement.
Early Termination Effective Date means the date of an Early Termination Notice for purposes of determining the Early Termination Payment.
Early Termination Notice is defined in Section 4.2 of this Agreement.
Early Termination Payment is defined in Section 4.3(b) of this Agreement.
Early Termination Rate means the lesser of (i) 6.50% per annum, compounded annually, and (ii) the Agreed Rate.
Early Termination Reference Date is defined in Section 4.2 of this Agreement.
Early Termination Schedule is defined in Section 4.2 of this Agreement.
Estimated Tax Benefit Payment is defined in Section 3.4 of this Agreement.
Exchange means any Sale, Direct Exchange, Redemption or Section 734(b) Distribution.
Exchange Date means the date of any Exchange.
Expert is defined in Section 7.9 of this Agreement.
Extension Rate Interest is defined in Section 3.1(b)(viii) of this Agreement.
Final Payment Date means any date on which a payment is required to be made pursuant to this Agreement. For the avoidance of doubt, the Final Payment Date in respect of a Tax Benefit Payment is determined pursuant to Section 3.1(a) of this Agreement.
GAAP means generally accepted accounting principles in the United States, as in effect from time to time; provided, however, that if the Corporation notifies the Members that the Corporation requests an amendment to any provision hereof to eliminate the effect of any change in GAAP or in the application thereof occurring after the date of this Agreement (including through the adoption of International Financial Reporting Standards and applicable accounting requirements set by the International Accounting Standards Board or any successor thereto, IFRS) on the operation of such provision (or if the Members notify the Corporation that they request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof (including through the adoption of IFRS), then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.
Hypothetical Tax Liability means, with respect to any Taxable Year, the hypothetical liability of the Corporation that would arise in respect of Covered Taxes, using the same methods, elections, conventions and similar practices used on the actual relevant Tax Returns of the Corporation but (i) calculating depreciation, amortization, or other similar deductions, or otherwise calculating any items of income, gain, or loss, using the Non-Adjusted Tax Basis as reflected on the Basis Schedule, including amendments thereto for the Taxable Year, (ii) disregarding the requirement under Treasury Regulation Sections 1.704-1(b)(2)(iv)(f)(4) and 1.704-1(b)(4)(i) to make Reverse 704(c) Allocations and (iii) excluding any deduction attributable to Imputed Interest or Actual Interest Amounts for the Taxable Year. For the avoidance of doubt, the Hypothetical Tax Liability shall be determined without taking into account the carryover or carryback of any tax item (or portions thereof) that is attributable to any of the items described in the previous sentence.
Imputed Interest is defined in Section 3.1(b)(vi) of this Agreement.
Independent Directors means the members of the Board who are independent under the standards set forth in Rule 10A-3 promulgated under the Exchange Act and the corresponding rules of the applicable exchange on which the Class A Common Stock is traded or quoted.
IPO is defined in the recitals to this Agreement
IRS means the U.S. Internal Revenue Service.
Joinder means a joinder to this Agreement, in form and substance substantially similar to Exhibit A to this Agreement.
Joinder Requirement is defined in Section 7.6(b) of this Agreement.
LIBOR means during any period, a rate per annum equal to (i) the ICE LIBOR rate for a period of one year (ICE LIBOR), as published on the applicable Bloomberg screen page (or such other commercially available source providing quotations of ICE LIBOR as may be designated by the Corporation from time to time) at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such period, for dollar deposits (for delivery on the first day of such period) with a term equivalent to such period.
LLC Agreement means that certain Second Amended and Restated Limited Liability Company Agreement of Neff Holdings LLC, dated as of the date hereof, as such agreement may be further amended, restated, supplemented and/or otherwise modified from time to time.
LLC Option Holder is defined in the recitals to this Agreement.
Management Representative is defined in Section 7.17 of this Agreement.
Market Value shall mean the Common Unit Redemption Price, as defined in the LLC Agreement, determined as of an Early Termination Date.
Members is defined in the recitals to this Agreement.
Neff Holdings is defined in the recitals to this Agreement.
Net Tax Benefit is defined in Section 3.1(b)(ii) of this Agreement.
Non-Adjusted Tax Basis means, with respect to any Reference Asset at any time, the tax basis that such asset would have had at such time if no Basis Adjustments had been made.
Objection Notice is defined in Section 2.4(a)(i) of this Agreement.
Over-Allotment Option is defined in the recitals to this Agreement.
Parties means the parties named on the signature pages to this agreement and each additional party that satisfies the Joinder Requirement, in each case with their respective successors and assigns.
Person means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity.
Permitted Investors shall mean private investment funds managed by Wayzata Investment Partners, LLC and its Affiliates (excluding any portfolio company).
Pre-Exchange Transfer means any transfer of one or more Units (including upon the death of a Member or upon the issuance of Units resulting from the exercise of an option to acquire such Units) (i) that occurs after the IPO but prior to an Exchange of such Units and (ii) to which Section 743(b) of the Code applies.
Realized Tax Benefit is defined in Section 3.1(b)(iv) of this Agreement.
Realized Tax Detriment is defined in Section 3.1(b)(v) of this Agreement.
Reconciliation Dispute is defined in Section 7.9 of this Agreement.
Reconciliation Procedures is defined in Section 2.4(a) of this Agreement.
Redemption has the meaning in the recitals to this Agreement.
Reference Asset means any tangible or intangible asset of Neff Holdings or any of its successors or assigns, and whether held directly by Neff Holdings or indirectly by Neff Holdings through any entity in which Neff Holdings now holds or may subsequently hold an ownership interest (but only if such entity is treated as a partnership or disregarded entity for purposes of the applicable tax), at the time of an Exchange. A Reference Asset also includes any asset the tax basis of which is determined, in whole or in part, by reference to the tax basis of an asset that is described in the preceding sentence, including substituted basis property within the meaning of Section 7701(a)(42) of the Code.
Reserve Notice is defined in Section 3.5(b).
Reverse 704(c) Allocations means, in accordance with Treasury Regulation Sections 1.704-1(b)(2)(iv)(f)(4) and 1.704-1(b)(4)(i), allocations of items of taxable income, gain, loss and deduction to take into account any Book-Tax Disparity of any Reference Asset on the date of the applicable Corporations Capital Contribution in the same manner as under Section 704(c) of the Code using the traditional method as described in Treasury Regulation Section 1.704-3(b).
Reverse 704(c) Schedule is defined in Section 2.2 of this Agreement
Sale is defined in the recitals to this Agreement.
Schedule means any of the following: (i) a Basis Schedule, (ii) Reverse 704(c) Schedule, (iii) a Tax Benefit Schedule, or (iv) the Early Termination Schedule, and, in each case, any amendments thereto.
Section 734(b) Distribution means any actual or deemed distribution to any Member by Neff Holdings to which Section 734(b)(1) of the Code (or any similar sections of U.S. state and local tax law) applies.
Senior Obligations is defined in Section 5.1 of this Agreement.
Subsidiary means, with respect to any Person and as of the date of any determination, any other Person as to which such Person, owns, directly or indirectly, or otherwise controls,
more than 50% of the voting power or other similar interests, or the sole general partner interest, or managing member or similar interest, of such Person.
Subsidiary Stock means any stock or other equity interest in any subsidiary entity of the Corporation that is treated as a corporation for U.S. federal income tax purposes.
Tax Benefit Payment is defined in Section 3.1(b) of this Agreement.
Tax Benefit Schedule is defined in Section 2.3(a) of this Agreement.
Tax Return means any return, declaration, report or similar statement required to be filed with respect to taxes (including any attached schedules), including, without limitation, any information return, claim for refund, amended return and declaration of estimated tax.
Taxable Year means a taxable year of the Corporation as defined in Section 441(b) of the Code or comparable section of U.S. state or local tax law, as applicable (and, therefore, for the avoidance of doubt, may include a period of less than 12 months for which a Tax Return is made), ending on or after the closing date of the IPO.
Taxing Authority shall mean any national, federal, state, county, municipal, or local government, or any subdivision, agency, commission or authority thereof, or any quasi-governmental body, or any other authority of any kind, exercising regulatory or other authority in relation to tax matters.
Termination Objection Notice is defined in Section 4.2 of this Agreement.
Treasury Regulations means the final, temporary, and (to the extent they can be relied upon) proposed regulations under the Code, as promulgated from time to time (including corresponding provisions and succeeding provisions) as in effect for the relevant taxable period.
True-Up is defined in Section 3.4 of this Agreement.
U.S. means the United States of America.
Units is defined in the recitals to this Agreement.
Valuation Assumptions shall mean, as of an Early Termination Effective Date, the assumptions that:
(1) in each Taxable Year ending on or after such Early Termination Effective Date, the Corporation will have taxable income sufficient to fully use the deductions arising from the Basis Adjustments, the Reverse 704(c) Allocations and the Imputed Interest during such Taxable Year or future Taxable Years (including, for the avoidance of doubt, Basis Adjustments and Imputed Interest that would result from future Tax Benefit Payments that would be paid in accordance with the Valuation Assumptions) in which such deductions would become available;
(2) the U.S. federal income tax rates and U.S. state income tax rates that will be in effect for each such Taxable Year will be those specified for each such Taxable Year by the Code and other law as in effect on the Early Termination Effective Date, except to the extent any change to such tax rates for such Taxable Year have already been enacted into law;
(3) all taxable income of the Corporation will be subject to the maximum applicable tax rates for each Covered Tax throughout the relevant period;
(4) any loss carryovers or carrybacks generated by any Basis Adjustment, Reverse 704(c) Allocations or Imputed Interest (including such Basis Adjustment and Imputed Interest generated as a result of payments under this Agreement) and available as of the date of the Early Termination Schedule will be used by the Corporation on a pro rata basis from the date of the Early Termination Schedule through the scheduled expiration date of such loss carryovers or carrybacks;
(5) any non-amortizable assets (other than Subsidiary Stock) will be disposed of on the earlier of (i) the fifteenth anniversary of the applicable Basis Adjustment and (ii) the Early Termination Effective Date;
(6) any Subsidiary Stock will be deemed never to be disposed of;
(7) if, on the Early Termination Effective Date, (i) any Member has Units that have not been Exchanged, then such Units shall be deemed to be Exchanged for the Market Value of the shares of Class A Common Stock that would be received by such Member if such Units had been Exchanged on the Early Termination Effective Date, and such Member shall be deemed to receive the amount of cash such Member would have been entitled to pursuant to Section 4.3(a) had such Units actually been Exchanged on the Early Termination Effective Date and (ii) any LLC Option Holder has options that have not been exercised in exchange for Units, then such options shall be deemed to have been exercised in accordance with the terms thereof and such Units deemed to be received in connection with such exercise shall be deemed to be Exchanged for the Market Value of the shares of Class A Common Stock that would be received by such LLC Option Holder if such Units had been Exchanged on the Early Termination Effective Date, and such LLC Option Holder shall be deemed to receive the amount of cash such LLC Option Holder would have been entitled to pursuant to Section 4.3(a) had such options actually been exercised and such Units actually been Exchanged on the Early Termination Effective Date; and
(8) any payment obligations pursuant to this Agreement will be satisfied on the date that any Tax Return to which such payment obligation relates is required to be filed excluding any extensions.
Wayzata means Wayzata Opportunities Fund II, L.P. and Wayzata Opportunities Fund Offshore II, L.P.
Section 1.2 Rules of Construction. Unless otherwise specified herein:
(a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.
(b) For purposes of interpretation of this Agreement:
(i) The words herein, hereto, hereof and hereunder and words of similar import when used in any Loan Document shall refer to such Loan Document as a whole and not to any particular provision thereof.
(ii) References in this Agreement to a Schedule, Article, Section, clause or sub-clause refer to the appropriate Schedule to, or Article, Section, clause or subclause in, this Agreement.
(iii) References in this Agreement to dollars or $ refer to the lawful currency of the United States of America.
(iv) The term including is by way of example and not limitation.
(v) The term documents includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form.
(c) In the computation of periods of time from a specified date to a later specified date, the word from means from and including; the words to and until each mean to but excluding; and the word through means to and including.
(d) Section headings herein are included for convenience of reference only and shall not affect the interpretation of this Agreement.
(e) Unless otherwise expressly provided herein, (a) references to organization documents (including the LLC Agreement), agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are permitted hereby; and (b) references to any law (including the Code and the Treasury Regulations) shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Law.
ARTICLE II.
DETERMINATION OF REALIZED TAX BENEFIT
Section 2.1 Basis Adjustments; Neff Holdings 754 Election; Reverse 704(c) Allocations.
(a) Basis Adjustments.
(i) The Parties acknowledge and agree that (A) each Sale and each Direct Exchange shall give rise to Basis Adjustments and (B) each Redemption using cash or Class A
Common Stock contributed to Neff Holdings by the Corporation shall be treated as a direct purchase of Units by the Corporation from the applicable Member pursuant to Section 707(a)(2)(B) of the Code that will give rise to Basis Adjustments. In connection with any Sale, Direct Exchange or Redemption, the Parties acknowledge and agree that pursuant to applicable law the Corporations share of the basis in the Reference Assets shall be increased by the excess, if any, of (A) the sum of (x) the Market Value of Class A Common Stock or the cash transferred to a Member pursuant to an Exchange as payment for the Units, (y) the amount of payments made pursuant to this Agreement with respect to such Exchange and (z) the amount of liabilities allocated to the Units acquired pursuant to the Exchange, over (B) the Corporations proportionate share of the basis of the Referenced Assets immediately after the Exchange attributable to the Units exchanged, determined as if each member of the Neff Holdings Group remains in existence as an entity for tax purposes and no member of the Neff Holdings Group made the election provided by Section 754 of the Code.
(ii) The Parties acknowledge and agree that the Corporations Capital Contribution and the use of such proceeds to repay and prepay certain indebtedness of Neff Holdings may give rise to a Section 734(b) Distribution to Wayzata that will give rise to Basis Adjustments. In connection with any Section 734(b) Distribution, the Parties acknowledge and agree that pursuant to applicable law, Neff Holdings basis in the Reference Assets shall be increased by (A) the amount of any gain recognized pursuant to Section 731(a)(1) of the Code by the Member or Members to whom the Section 734(b) Distribution was made or deemed made and (B) in the case of distributed property to which Section 732(a)(2) or (b) of the Code applies, the excess, if any, of (x) Neff Holdings adjusted basis in property distributed to the relevant Member (as adjusted by Section 732(d) of the Code, if applicable) immediately prior to the distribution over (y) the adjusted basis of such property in the hands of such Member as determined under Section 732 of the Code.
For the avoidance of doubt, payments made under this Agreement shall not be treated as resulting in a Basis Adjustment to the extent such payments are treated as Imputed Interest or are Actual Interest Amounts.
(b) Neff Holdings Section 754 Election. In its capacity as the sole managing member of Neff Holdings, the Corporation will ensure that, on and after the date hereof and continuing throughout the term of this Agreement, Neff Holdings and each of its direct and indirect Subsidiaries that is treated as a partnership for U.S. federal income tax purposes will have in effect an election under Section 754 of the Code (and under any similar provisions of applicable U.S. state or local law).
(c) Reverse 704(c) Allocations. The Parties acknowledge and agree that as a result of the Reverse 704(c) Allocations, the Corporations share of amortization and depreciation deductions for U.S. federal income tax purposes (and applicable state and local income tax purposes) as a Member of Neff Holdings will be increased from that which would have been allocated to the Corporation without regard to the requirement under Treasury Regulation Sections 1.704-1(b)(2)(iv)(f)(4) and 1.704-1(b)(4)(i) to make Reverse 704(c) Allocations.
Section 2.2 Basis and Reverse 704(c) Schedules. Within thirty (30) calendar days after the filing of the U.S. federal income Tax Return of the Corporation for each relevant
Taxable Year, the Corporation shall deliver to Wayzata and the Management Representative, as applicable, (i) a schedule (the Basis Schedule) that shows, in reasonable detail as necessary in order to understand the calculations performed under this Agreement: (a) the Non-Adjusted Tax Basis of the Reference Assets as of each applicable Exchange Date; (b) the Basis Adjustments with respect to the Reference Assets as a result of the relevant Exchanges effected in such Taxable Year, calculated (I) in the aggregate (including Exchanges attributable to all Members) and (II) solely with respect to Exchanges by each Member; (c) the period (or periods) over which the Reference Assets are amortizable and/or depreciable; and (d) the period (or periods) over which each Basis Adjustment is amortizable and/or depreciable and (ii) a schedule (the Reverse 704(c) Schedule) that shows, in reasonable detail as necessary in order to understand the calculations performed under this Agreement, (x) allocations of Neff Holdings items of income, gain, loss and depreciation without regard to any requirement to make Reverse 704(c) Allocations, (y) the Reverse Section 704(c) Allocations and (z) the period (or periods) over which the Reference Assets are amortizable and/or depreciable. The Basis Schedule and Reverse 704(c) Schedule will become final and binding on the Parties pursuant to the procedures set forth in Section 2.4(a) and may be amended by the Parties pursuant to the procedures set forth in Section 2.4(b).
Section 2.3 Tax Benefit Schedules.
(a) Tax Benefit Schedule. Within thirty (30) calendar days after the filing of the U.S. federal income Tax Return of the Corporation for any Taxable Year in which there is a Realized Tax Benefit or Realized Tax Detriment, the Corporation shall provide to Wayzata and the Management Representative, as applicable, a schedule showing, in reasonable detail, the calculation of the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year (a Tax Benefit Schedule). The Tax Benefit Schedule will become final and binding on the Parties pursuant to the procedures set forth in Section 2.4(a), and may be amended by the Parties pursuant to the procedures set forth in Section 2.4(b).
(b) Applicable Principles. Subject to the provisions of this Agreement, the Realized Tax Benefit or Realized Tax Detriment for each Taxable Year is intended to measure the decrease or increase in the actual liability of the Corporation for Covered Taxes for such Taxable Year attributable to the Basis Adjustments, Reverse 704(c) Allocations, Imputed Interest, and Actual Interest Amounts, as determined using a with and without methodology described in Section 2.4(a). Carryovers or carrybacks of any Tax item attributable to any Basis Adjustment, Reverse 704(c) Allocations, Imputed Interest, or Actual Interest Amounts shall be considered to be subject to the rules of the Code and the Treasury Regulations or the appropriate provisions of U.S. state and local tax law, as applicable, governing the use, limitation and expiration of carryovers or carrybacks of the relevant type. If a carryover or carryback of any Tax item includes a portion that is attributable to a Basis Adjustment, Reverse 704(c) Allocations, Imputed Interest, or Actual Interest Amounts (a TRA Portion) and another portion that is not (a Non-TRA Portion), such portions shall be considered to be used in accordance with the with and without methodology so that: (i) the amount of any Non-TRA Portion is deemed utilized first, followed by the amount of any TRA Portion (with the TRA Portion being applied on a proportionate basis consistent with the provisions of Section 3.3(a)); and (ii) in the case of a carryback of a Non-TRA Portion, such carryback shall not affect the original with and without
calculation made in the prior Taxable Year. The Parties agree that (i) all Tax Benefit Payments attributable to a Sale, Direct Exchange or Redemption will (A) be treated as subsequent upward purchase price adjustments that give rise to further Basis Adjustments for the Corporation and (B) have the effect of creating additional Basis Adjustments for the Corporation in the year of payment, and (ii) as a result, such additional Basis Adjustments will be incorporated into the current Taxable Year continuing until any incremental current Taxable Year benefits equal an immaterial amount.
Section 2.4 Procedures; Amendments.
(a) Procedures. Each time the Corporation delivers an applicable Schedule to Wayzata and the Management Representative, as applicable under this Agreement, including any Amended Schedule delivered pursuant to Section 2.4(b), but excluding any Early Termination Schedule or amended Early Termination Schedule delivered pursuant to the procedures set forth in Section 4.2, the Corporation shall also: (x) deliver supporting schedules and work papers, as determined by the Corporation or as reasonably requested by Wayzata and the Management Representative, as applicable, that provide a reasonable level of detail regarding the data and calculations that were relevant for purposes of preparing the Schedule; (y) deliver an Advisory Firm Letter supporting such Schedule; and (z) allow Wayzata and the Management Representative, as applicable, and their advisors to have reasonable access to the appropriate representatives, as determined by the Corporation or as reasonably requested by Wayzata and the Management Representative, as applicable, at the Corporation and the Advisory Firm in connection with a review of such Schedule. Without limiting the generality of the preceding sentence, the Corporation shall ensure that any Tax Benefit Schedule that is delivered to Wayzata and the Management Representative, as applicable, along with any supporting schedules and work papers, provides a reasonably detailed presentation of the calculation of the actual liability of the Corporation for Covered Taxes (the with calculation) and the Hypothetical Tax Liability of the Corporation (the without calculation), and identifies any material assumptions or operating procedures or principles that were used for purposes of such calculations. An applicable Schedule or amendment thereto shall become final and binding on the Parties thirty (30) calendar days from the date on which Wayzata and the Management Representative, as applicable, first received the applicable Schedule or amendment thereto unless:
(i) Wayzata or the Management Representative, as applicable, within thirty (30) calendar days after receiving the applicable Schedule or amendment thereto, provides the Corporation with (A) written notice of a material objection to such Schedule that is made in good faith and that sets forth in reasonable detail Wayzatas and or the Management Representatives, as applicable, material objection (an Objection Notice) and (B) a letter from an Advisory Firm (that is different from the Advisory Firm that was used by the Corporation to prepare the Schedule at issue) in support of such Objection Notice; or
(ii) each of Wayzata and the Management Representative, as applicable, provides a written waiver of its right to deliver an Objection Notice within the time period described in clause (i) above, in which case such Schedule or amendment thereto
becomes binding on the date the waiver from each of Wayzata and the Management Representative, as applicable, is received by the Corporation.
In the event that Wayzata or the Management Representative, as applicable, timely delivers an Objection Notice pursuant to clause (i) above, and if the Parties, for any reason, are unable to successfully resolve the issues raised in the Objection Notice within thirty (30) calendar days after receipt by the Corporation of the Objection Notice, the Corporation and Wayzata or the Management Representative, as applicable, shall employ the reconciliation procedures as described in Section 7.9 of this Agreement (the Reconciliation Procedures). For the avoidance of doubt, and notwithstanding anything to the contrary herein, the expense of preparing and obtaining the letter from an Advisory Firm referenced in clause (i) above shall be borne solely by Wayzata or the Management Representative, as applicable, and the Corporation shall have no liability with respect to such letter or any of the expenses associated with its preparation and delivery.
(b) Amended Schedule. The applicable Schedule for any Taxable Year may be amended from time to time by the Corporation: (i) in connection with a Determination affecting such Schedule; (ii) to correct inaccuracies in the Schedule identified as a result of the receipt of additional factual information relating to a Taxable Year after the date the Schedule was originally provided to Wayzata and the Management Representative, as applicable; (iii) to comply with an Experts determination under the Reconciliation Procedures applicable to this Agreement; (iv) to reflect a change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to a carryback or carryforward of a loss or other Tax item to such Taxable Year; (v) to reflect a change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to an amended Tax Return filed for such Taxable Year; or (vi) to adjust a Basis Schedule to take into account any Tax Benefit Payments made pursuant to this Agreement (any such Schedule, an Amended Schedule).
ARTICLE III.
TAX BENEFIT PAYMENTS
Section 3.1 Timing and Amount of Tax Benefit Payments.
(a) Timing of Payments. Except as provided in Sections 3.4 and 3.5, and subject to Sections 3.2 and 3.3, within three (3) Business Days following the date on which each Tax Benefit Schedule that is required to be delivered by the Corporation to Wayzata and the Management Representative, as applicable, pursuant to Section 2.3(a) of this Agreement becomes final in accordance with Section 2.4(a) of this Agreement, the Corporation shall pay to each relevant Member the Tax Benefit Payment as determined pursuant to Section 3.1(b). Each such Tax Benefit Payment shall be made by wire transfer of immediately available funds to the bank account previously designated by such Members or as otherwise agreed by the Corporation and such Members. For the avoidance of doubt, the Members shall not be required under any circumstances to return any portion of any Tax Benefit Payment previously paid by the Corporation to the Members (including any portion of any Estimated Tax Benefit Payment or any Early Termination Payment).
(b) Amount of Payments. For purposes of this Agreement, a Tax Benefit Payment with respect to any Member means an amount, not less than zero, equal to the sum of: (i) the Net Tax Benefit that is Attributable to such Member (including Imputed Interest calculated in respect of such amount); and (ii) the Actual Interest Amount.
(i) Attributable. A Net Tax Benefit is Attributable to a Member to the extent that it is derived from any Basis Adjustment, Imputed Interest, or Actual Interest Amount that is attributable to an Exchange undertaken by or with respect to such Member or is attributable to a Reverse Section 704(c) Allocation that otherwise would have been allocated to such Member if Neff Holdings was not required to make such Reverse Section 704(c) Allocation.
(ii) Net Tax Benefit. The Net Tax Benefit for a Taxable Year equals the amount of the excess, if any, of (x) 85% of the Cumulative Net Realized Tax Benefit as of the end of such Taxable Year over (y) the aggregate amount of all Tax Benefit Payments previously made to such Member under this Section 3.1. For the avoidance of doubt, if the Cumulative Net Realized Tax Benefit as of the end of any Taxable Year is less than the aggregate amount of all Tax Benefit Payments previously made to a Member, such Member shall not be required to return any portion of any Tax Benefit Payment previously made by the Corporation to such Member.
(iii) Cumulative Net Realized Tax Benefit. The Cumulative Net Realized Tax Benefit for a Taxable Year equals the cumulative amount of Realized Tax Benefits for all Taxable Years of the Corporation, up to and including such Taxable Year, net of the cumulative amount of Realized Tax Detriments for the same period. The Realized Tax Benefit and Realized Tax Detriment for each Taxable Year shall be determined based on the most recent Tax Benefit Schedule or Amended Schedule, if any, in existence at the time of such determination.
(iv) Realized Tax Benefit. The Realized Tax Benefit for a Taxable Year equals the excess, if any, of the Hypothetical Tax Liability over the actual liability of the Corporation for Covered Taxes. If all or a portion of the actual liability for such Covered Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Benefit unless and until there has been a Determination.
(v) Realized Tax Detriment. The Realized Tax Detriment for a Taxable Year equals the excess, if any, of the actual liability of the Corporation for Covered Taxes over the Hypothetical Tax Liability for such Taxable Year. If all or a portion of the actual liability for such Covered Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Detriment unless and until there has been a Determination.
(vi) Imputed Interest. The principles of Sections 1272, 1274, or 483 of the Code, as applicable, and the principles of any similar provision of U.S. state and local law, will apply to cause a portion of any Net Tax Benefit payable by the Corporation to a Member under this Agreement to be treated as imputed interest (Imputed Interest). For
the avoidance of doubt, the deduction for the amount of Imputed Interest as determined with respect to any Net Tax Benefit payable by the Corporation to a Member shall be excluded in determining the Hypothetical Tax Liability of the Corporation for purposes of calculating Realized Tax Benefits and Realized Tax Detriments pursuant to this Agreement.
(vii) Actual Interest Amount. The Actual Interest Amount calculated in respect of the Net Tax Benefit for a Taxable Year will equal the amount of any Extension Rate Interest. For the avoidance of doubt, any deduction for any Actual Interest Amount as determined with respect to any Net Tax Benefit payable by the Corporation to a Member shall be excluded in determining the Hypothetical Tax Liability of the Corporation for purposes of calculating Realized Tax Benefits and Realized Tax Detriments pursuant to this Agreement.
(viii) Extension Rate Interest. Subject to Section 3.4, the amount of Extension Rate Interest calculated in respect of the Net Tax Benefit (including previously accrued Imputed Interest) for a Taxable Year will equal interest calculated at the Agreed Rate from the due date (without extensions) for filing the U.S. federal income Tax Return of the Corporation for such Taxable Year until the date on which the Corporation makes a timely Tax Benefit Payment to the Member on or before the Final Payment Date as determined pursuant to Section 3.1(a).
(ix) Default Rate Interest. In the event that the Corporation does not make timely payment of all or any portion of a Tax Benefit Payment to a Member on or before the Final Payment Date as determined pursuant to Section 3.1(a), the amount of Default Rate Interest calculated in respect of the Net Tax Benefit (including previously accrued Imputed Interest and Extension Rate Interest) for a Taxable Year will equal interest calculated at the Default Rate from the Final Payment Date for a Tax Benefit Payment as determined pursuant to Section 3.1(a) until the date on which the Corporation makes such Tax Benefit Payment to such Member. For the avoidance of doubt, the amount of any Default Rate Interest as determined with respect to any Net Tax Benefit payable by the Corporation to a Member shall be included in the Hypothetical Tax Liability of the Corporation for purposes of calculating Realized Tax Benefits and Realized Tax Detriments pursuant to this Agreement.
(x) The Corporation and the Members hereby acknowledge and agree that, as of the date of this Agreement and as of the date of any future Exchange that may be subject to this Agreement, the aggregate value of the Tax Benefit Payments cannot be reasonably ascertained for U.S. federal income or other applicable tax purposes.
(c) Interest. The provisions of Section 3.1(b) are intended to operate so that interest will effectively accrue in respect of the Net Tax Benefit for any Taxable Year as follows:
(i) first, at the applicable rate used to determine the amount of Imputed Interest under the Code (from the relevant Exchange Date or date on which the relevant Tax Benefit Payment was made until the due date (without extensions) for filing the U.S. federal income Tax Return of the Corporation for such Taxable Year);
(ii) second, at the Agreed Rate in respect of any Extension Rate Interest (from the due date (without extensions) for filing the U.S. federal income Tax Return of the Corporation for such Taxable Year until the Final Payment Date for a Tax Benefit Payment as determined pursuant to Section 3.1(a)); and
(iii) third, at the Default Rate in respect of any Default Rate Interest (from the Final Payment Date for a Tax Benefit Payment as determined pursuant to Section 3.1(a) until the date on which the Corporation makes the relevant Tax Benefit Payment to a Member).
Section 3.2 No Duplicative Payments. It is intended that the provisions of this Agreement will not result in the duplicative payment of any amount (including interest) that may be required under this Agreement, and the provisions of this Agreement shall be consistently interpreted and applied in accordance with that intent. For purposes of this Agreement, and also for the avoidance of doubt, no Tax Benefit Payment shall be required to be calculated or made in respect of any estimated tax payments, including, without limitation, any estimated U.S. federal income tax payments.
Section 3.3 Pro-Ration of Payments as Between the Members.
(a) Insufficient Taxable Income. Notwithstanding anything in Section 3.1(b) to the contrary, if the aggregate potential Covered Tax benefit of the Corporation as calculated with respect to the Basis Adjustments, Reverse Section 704(c) Allocations, Imputed Interest, and Actual Interest Amounts is limited in a particular Taxable Year because the Corporation does not have sufficient actual taxable income, then the available Covered Tax benefit for the Corporation shall be allocated among the Members in proportion to the respective Tax Benefit Payment that would have been payable if the Corporation had in fact had sufficient taxable income so that there had been no such limitation. As an illustration of the intended operation of this Section 3.3(a), if the Corporation had $200 of aggregate potential Covered Tax benefits with respect to the Basis Adjustments, Reverse Section 704(c) Allocations, Imputed Interest, and Actual Interest Amounts in a particular Taxable Year (with $50 of such Covered Tax benefits being attributable to Member 1 and $150 of such Covered Tax benefits being attributable to Member 2), such that Member 1 would have potentially been entitled to a Tax Benefit Payment of $42.50 and Member 2 would have been entitled to a Tax Benefit Payment of $127.50 if the Corporation had $200 of taxable income, and if at the same time the Corporation only had $100 of actual taxable income in such Taxable Year, then $25 of the aggregate $100 actual Covered Tax benefit for the Corporation for such Taxable Year would be allocated to Member 1 and $75 of the aggregate $100 actual Covered Tax benefit for the Corporation would be allocated to Member 2, such that Member 1 would receive a Tax Benefit Payment of $21.25 and Member 2 would receive a Tax Benefit Payment of $63.75.
(b) Late Payments. If for any reason the Corporation is not able to timely and fully satisfy its payment obligations under this Agreement in respect of a particular Taxable Year, then Default Rate Interest will begin to accrue pursuant to Section 5.2 and the Corporation and other Parties agree that (i) the Corporation shall pay the Tax Benefit Payments due in respect of such Taxable Year to each Member pro rata, without favoring one obligation over the other, and (ii)
no Tax Benefit Payment shall be made in respect of any Taxable Year until all Tax Benefit Payments to all Members in respect of all prior Taxable Years have been made in full.
Section 3.4 Optional Estimated Payment Procedure. As long as the Corporation is current in respect of its payment obligations owed to each Member pursuant to this Agreement and there are no delinquent Tax Benefit Payments (including interest thereon) outstanding in respect of prior Taxable Years for any Member, the Corporation may, at any time on or after the due date (without extensions) for filing the U.S. federal income Tax Return of the Corporation for a Taxable Year and at the Corporations option, in its sole discretion, make one or more estimated payments to the Members in respect of any anticipated amounts to be owed with respect to a Taxable Year to the Members pursuant to Section 3.1 of this Agreement (any such estimated payments referred to as an Estimated Tax Benefit Payment); provided that any Estimated Tax Benefit Payment made to a Member pursuant to this Section 3.4 is matched by a proportionately equal Estimated Tax Benefit Payment to all other Members then entitled to a Tax Benefit Payment. Any Estimated Tax Benefit Payment made under this Section 3.4 shall be paid by the Corporation to the Members and applied against the final amount of any expected Tax Benefit Payment to be made pursuant to Section 3.1. The payment of an Estimated Tax Benefit Payment by the Corporation to the Members pursuant to this Section 3.4 shall also terminate the obligation of the Corporation to make payment of any Extension Rate Interest that might have otherwise accrued with respect to the proportionate amount of the Tax Benefit Payment that is being paid in advance of the applicable Tax Benefit Schedule being finalized pursuant to Section 2.4. Upon the making of any Estimated Tax Benefit Payment pursuant to this Section 3.4, the amount of such Estimated Tax Benefit Payment shall first be applied to any estimated Extension Rate Interest, then to Imputed Interest, and then applied to the remaining residual amount of the Tax Benefit Payment to be made pursuant to Section 3.1. In determining the final amount of any Tax Benefit Payment to be made pursuant to Section 3.1, and for purposes of finalizing the Tax Benefit Schedule pursuant to Section 2.4, the amount of any Estimated Tax Benefit Payments that may have been made with respect to the Taxable Year shall be increased, if the finally determined Tax Benefit Payment for a Taxable Year exceeds the Estimated Tax Benefit Payments made for such Taxable Year, with such increase being paid by the Corporation to the Members along with an appropriate amount of Extension Rate Interest in respect of the amount of such increase (a True-Up). If the Estimated Tax Benefit Payment for a Taxable Year exceeds the finally determined Tax Benefit Payment for such Taxable Year, such excess, along with an appropriate amount of Extension Rate Interest in respect of such excess (being charged by the Corporation to the Member), shall be applied to reduce the amount of any subsequent future Tax Benefit Payments (including Estimated Tax Benefit Payments, if any) to be paid by the Corporation to such Member. As of the date on which any Estimated Tax Benefit Payments are made, and as of the date on which any True-Up is made, all such payments shall be made in the same manner and subject to the same terms and conditions as otherwise contemplated by Section 3.1 and all other applicable terms of this Agreement. For the avoidance of doubt, as is the case with Tax Benefit Payments made by the Corporation to the Members pursuant to Section 3.1, the amount of any Estimated Tax Benefit Payments made pursuant to this Section 3.4 that are attributable to a Sale, Direct Exchange or Redemption shall also be treated, in part, as subsequent upward purchase price adjustments that give rise to Basis Adjustments in the Taxable Year of payment and as of the date on which such payments are made (to the extent of the
estimated Net Tax Benefit associated with such Estimated Tax Benefit Payment, less any Imputed Interest, and exclusive of any Extension Rate Interest).
Section 3.5 Changes; Reserves; Suspension of Payments.
(a) Receipt of Change Notice. If any Party, or any Affiliate or Subsidiary of any Party, receives a 30-day letter, a final audit report, a statutory notice of deficiency, or similar written notice from any Taxing Authority relating to the amount of the Net Tax Benefit calculated for purposes of this Agreement, or relating to any other material tax matter that is relevant to the terms of this Agreement and the calculation of the Tax Benefit Payments that may be payable by the Corporation to the Members (a Change Notice), prompt written notification and a copy of the relevant Change Notice shall be delivered by the Party, or its Affiliate or Subsidiary, that received such Change Notice to each other Party.
(b) Receipt of Reserve Notice. Prior to the delivery of any Tax Benefit Schedule or other Schedule by the Corporation to Wayzata and the Management Representative, as applicable, pursuant to Section 2.4, the auditors for the Corporation shall consult with the management of the Corporation and, if necessary, the Advisory Firm or other legal or accounting advisors to the Corporation regarding the substantive tax issues and related conclusions that underlie the calculations related to the determination of the Tax Benefit Payments required under this Agreement. If, following such consultation, the auditors for the Corporation reasonably determine that a tax reserve or contingent liability must be established by the Corporation or Neff Holdings for financial accounting purposes (as determined in accordance with GAAP) in relation to any past or future tax position that affects the amount of any past or future Tax Benefit Payments that have been made or that may be made under this Agreement, then the management of the Corporation shall notify the Audit Committee of such determination (a Reserve Notice).
(c) Suspension of Payments. From and after the date on which a Change Notice or a Reserve Notice is received, any Tax Benefit Payments required to be made under this Agreement will, to the extent determined reasonably necessary by the Audit Committee after considering the potential tax implications of the Change Notice or the Reserve Notice, be paid by the Corporation to a national bank mutually agreeable to the Parties to act as escrow agent to hold such funds in escrow pursuant to an escrow agreement until a Determination is received (in the case of a Change Notice) or the relevant reserve is released or contingent liability is eliminated (in the case of a Reserve Notice). For purposes of the preceding sentence, and in particular for purposes of the Audit Committees determination of the amount to be placed in escrow pending a Determination (in the case of a Change Notice) or the release of a reserve or the elimination of a contingent liability (in the Case of a Reserve Notice), the Audit Committee: (i) will suspend all future Tax Benefit Payments required under this Agreement until the amount of such suspended Tax Benefit Payments at least equals 85% of the amount of the asserted deficiency in tax owed (in the case of a Change Notice) or 85% of the amount of the reserve or contingent liability (in the case of a Reserve Notice); and (ii) upon the suspension of Tax Benefit Payments in the minimum amount contemplated by the preceding clause (i), may continue to suspend all or a portion of any future Tax Benefit Payments required under this Agreement. For the avoidance of doubt, the date on which the Corporation pays any such Tax Benefit Payments to the escrow
agent shall be considered the date on which such Tax Benefit Payments are paid to the Members, including for purposes of determining the Actual Interest Amount and Default Rate Interest.
(d) Release of Escrowed Funds. As of the date on which a reserve is released or contingent liability is eliminated (in the case of a Reserve Notice), and provided that no Change Notice has previously been issued and is still outstanding in relation to the same tax position that was the subject of the Reserve Notice, the relevant escrowed funds (along with any net interest earned on such funds, and less the out-of-pocket expenses incurred by the Corporation or Neff Holdings in administering the escrow) shall be distributed to the relevant Members. If a Determination is received (in the case of a Change Notice), and if such Determination results in no adjustment in any Tax Benefit Payments under this Agreement, and provided that no Reserve Notice has previously been issued and is still outstanding in relation to the same tax position that was the subject of the Change Notice, then the relevant escrowed funds (along with any net interest earned on such funds, and less the out-of-pocket expenses incurred by the Corporation or Neff Holdings in administering the escrow) shall be distributed to the relevant Members. If a Determination is received (in the case of a Change Notice), and if such Determination results in an adjustment in any Tax Benefit Payments under this Agreement, and provided that no Reserve Notice has previously been issued and is still outstanding in relation to the same tax position that was the subject of the Change Notice, then the relevant escrowed funds (along with any net interest earned on such funds) shall be distributed as follows: (i) first, to the Corporation or Neff Holdings in an amount equal to the out-of-pocket expenses incurred by the Corporation or Neff Holdings in administering the escrow and in contesting the Determination; and (ii) second, to the relevant Parties (which, for the avoidance of doubt and depending on the nature of the adjustments, may include the Corporation, Neff Holdings, or the relevant Members, or some combination thereof) in accordance with the relevant Amended Schedule prepared pursuant to Section 2.4 of this Agreement.
ARTICLE IV.
TERMINATION
Section 4.1 Early Termination of Agreement; Breach of Agreement.
(a) Corporations Early Termination Right. With the written approval of a majority of the Independent Directors, the Corporation may completely terminate this Agreement, as and to the extent provided herein, with respect to all amounts payable to the Members (for the avoidance of doubt, including the LLC Option Holders, who shall each be treated as a Member for this purpose) pursuant to this Agreement by paying to the Members the Early Termination Payment; provided that Early Termination Payments may be made pursuant to this Section 4.1(a) only if made to all Members that are entitled to such a payment simultaneously, and provided further, that the Corporation may withdraw any notice to execute its termination rights under this Section 4.1(a) prior to the time at which any Early Termination Payment has been paid. Upon the Corporation payment of the Early Termination Payment, the Corporation shall not have any further payment obligations under this Agreement, other than with respect to any: (i) prior Tax Benefit Payments that are due and payable under this Agreement but that still remain unpaid as of the date of the Early Termination Notice; and (ii) current Tax Benefit Payment due for the Taxable Year ending on or including the date of the Early Termination Notice (except to the extent that the amount described in clause (ii) is included in the calculation of the Early
Termination Payment). If an Exchange subsequently occurs with respect to Units for which the Corporation has exercised its termination rights under this Section 4.1(a), the Corporation shall have no obligations under this Agreement with respect to such Exchange.
(b) Acceleration Upon Change of Control. In the event of a Change of Control, all obligations hereunder shall be accelerated and such obligations shall be calculated pursuant to this Article IV as if an Early Termination Notice had been delivered on the closing date of the Change of Control and utilizing the Valuation Assumptions by substituting the phrase the closing date of a Change of Control in each place where the phrase Early Termination Effective Date appears. Such obligations shall include, but not be limited to, (1) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the closing date of the Change of Control, (2) any Tax Benefit Payments agreed to by the Corporation and the Members as due and payable but unpaid as of the Early Termination Notice and (3) any Tax Benefit Payments due for any Taxable Year ending prior to, with or including the closing date of a Change of Control (except to the extent that any amounts described in clauses (2) or (3) are included in the Early Termination Payment). For the avoidance of doubt, Sections 4.2 and 4.3 shall apply to a Change of Control, mutadis mutandi.
(c) Acceleration Upon Breach of Agreement. In the event that the Corporation materially breaches any of its material obligations under this Agreement, whether as a result of failure to make any payment when due, failure to honor any other material obligation required hereunder, or by operation of law as a result of the rejection of this Agreement in a case commenced under the Bankruptcy Code or otherwise, then all obligations hereunder shall be accelerated and become immediately due and payable upon notice of acceleration from such Member (provided that in the case of any proceeding under the Bankruptcy Code or other insolvency statute, such acceleration shall be automatic without any such notice), and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date of such notice of acceleration (or, in the case of any proceeding under the Bankruptcy Code or other insolvency statute, on the date of such breach) and shall include, but not be limited to: (i) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the date of such acceleration; (ii) any prior Tax Benefit Payments that are due and payable under this Agreement but that still remain unpaid as of the date of such acceleration; and (iii) any current Tax Benefit Payment due for the Taxable Year ending with or including the date of such acceleration. Notwithstanding the foregoing, in the event that the Corporation breaches this Agreement and such breach is not a material breach of a material obligation, a Member shall still be entitled to enforce all of its rights otherwise available under this Agreement, including potentially seeking an acceleration of amounts payable under this Agreement. For purposes of this Section 4.1(c), and subject to the following sentence, the Parties agree that the failure to make any payment due pursuant to this Agreement within thirty (30) days of the relevant Final Payment Date shall be deemed to be a material breach of a material obligation under this Agreement for all purposes of this Agreement, and that it will not be considered to be a material breach of a material obligation under this Agreement to make a payment due pursuant to this Agreement within thirty (30) days of the relevant Final Payment Date. For the avoidance of doubt, a suspension of payments pursuant to Section 3.5 will not be considered to be a failure to make a payment due pursuant to this Agreement. Notwithstanding anything in this Agreement to the contrary, it shall not be a material breach of a material obligation of this Agreement if the
Corporation fails to make any Tax Benefit Payment within thirty (30) days of the relevant Final Payment Date to the extent that the Corporation has insufficient funds, or cannot take commercially reasonable actions to obtain sufficient funds, to make such payment; provided that the interest provisions of Section 5.2 shall apply to such late payment (unless the Corporation does not have sufficient funds to make such payment as a result of limitations imposed by any Senior Obligations, in which case Section 5.2 shall apply, but the Default Rate shall be replaced by the Agreed Rate).
Section 4.2 Early Termination Notice. If the Corporation chooses to exercise its right of early termination under Section 4.1 above, the Corporation shall deliver to Wayzata and the Management Representative a notice of the Corporations decision to exercise such right (an Early Termination Notice) and a schedule (the Early Termination Schedule) showing in reasonable detail the calculation of the Early Termination Payment. The Corporation shall also (x) deliver supporting schedules and work papers, as determined by the Corporation or as reasonably requested by Wayzata or the Management Representative, that provide a reasonable level of detail regarding the data and calculations that were relevant for purposes of preparing the Early Termination Schedule; (y) deliver an Advisory Firm Letter supporting such Early Termination Schedule; and (z) allow Wayzata and the Management Representative and their advisors to have reasonable access to the appropriate representatives, as determined by the Corporation or as reasonably requested by Wayzata or the Management Representative, at the Corporation and the Advisory Firm in connection with a review of such Early Termination Schedule. The Early Termination Schedule shall become final and binding on each Party thirty (30) calendar days from the first date on which Wayzata and the Management Representative received such Early Termination Schedule unless:
(i) Wayzata or the Management Representative within thirty (30) calendar days after receiving the Early Termination Schedule, provides the Corporation with (A) notice of a material objection to such Early Termination Schedule made in good faith and setting forth in reasonable detail Wayzatas or the Management Representatives, as applicable, material objection (a Termination Objection Notice) and (B) a letter from an Advisory Firm (that is different from the Advisory Firm that was used by the Corporation to prepare the Early Termination Schedule) in support of such Termination Objection Notice; or
(ii) each of Wayzata and the Management Representative provides a written waiver of such right of a Termination Objection Notice within the period described in clause (i) above, in which case such Early Termination Schedule becomes binding on the date the waiver from Wayzata and the Management Representative is received by the Corporation.
In the event that Wayzata or the Management Representative timely delivers a Termination Objection Notice pursuant to clause (i) above, and if the Parties, for any reason, are unable to successfully resolve the issues raised in the Termination Objection Notice within thirty (30) calendar days after receipt by the Corporation of the Termination Objection Notice, the Corporation and Wayzata or the Management Representative, as applicable, shall employ the Reconciliation Procedures. For the avoidance of doubt, and notwithstanding anything to the contrary herein, the expense of preparing and obtaining the letter from an Advisory Firm
referenced in clause (i) above shall be borne solely by Wayzata or the Management Representative, as applicable, and the Corporation shall have no liability with respect to such letter or any of the expenses associated with its preparation and delivery. The date on which the Early Termination Schedule becomes final in accordance with this Section 4.2 shall be the Early Termination Reference Date.
Section 4.3 Payment Upon Early Termination.
(a) Timing of Payment. Within three (3) Business Days after the Early Termination Reference Date, the Corporation shall pay to each Member an amount equal to the Early Termination Payment for such Member. Such Early Termination Payment shall be made by the Corporation by wire transfer of immediately available funds to a bank account or accounts designated by the Members or as otherwise agreed by the Corporation and the Members.
(b) Amount of Payment. The Early Termination Payment payable to a Member pursuant to Section 4.3(a) shall equal the present value, discounted at the Early Termination Rate as determined as of the Early Termination Reference Date, of all Tax Benefit Payments that would be required to be paid by the Corporation to such Member, whether payable with respect to Units that were Exchanged prior to the Early Termination Effective Date or on or after the Early Termination Effective Date (for the avoidance of doubt, including Units that any LLC Option Holder would be entitled to receive upon exercise of such LLC Option Holders option to purchase such Units), beginning from the Early Termination Effective Date and using the Valuation Assumptions.
ARTICLE V.
SUBORDINATION AND LATE PAYMENTS
Section 5.1 Subordination. Notwithstanding any other provision of this Agreement to the contrary, any Tax Benefit Payment or Early Termination Payment required to be made by the Corporation to the Members under this Agreement shall rank subordinate and junior in right of payment to any principal, interest, or other amounts due and payable in respect of any obligations owed in respect of secured indebtedness for borrowed money of the Corporation and its Subsidiaries (Senior Obligations) and shall rank pari passu in right of payment with all current or future unsecured obligations of the Corporation that are not Senior Obligations. To the extent that any payment under this Agreement is not permitted to be made at the time payment is due as a result of this Section 5.1 and the terms of the agreements governing Senior Obligations, such payment obligation nevertheless shall accrue for the benefit of the Members and the Corporation shall make such payments at the first opportunity that such payments are permitted to be made in accordance with the terms of the Senior Obligations.
Section 5.2 Late Payments by the Corporation. Except as otherwise provided in this Agreement, the amount of all or any portion of any Tax Benefit Payment or Early Termination Payment not made to the Members when due under the terms of this Agreement, whether as a result of Section 5.1 and the terms of the Senior Obligations or otherwise, shall be payable together with any interest thereon, computed at the Default Rate and commencing from the Final Payment Date on which such Tax Benefit Payment or Early Termination Payment was first due and payable to the date of actual payment.
ARTICLE VI.
TAX MATTERS; CONSISTENCY; COOPERATION
Section 6.1 Participation in the Corporations and Neff Holdings Tax Matters. Except as otherwise provided herein, and except as provided in Article IX of the LLC Agreement, the Corporation shall have full responsibility for, and sole discretion over, all tax matters concerning the Corporation and Neff Holdings, including without limitation the preparation, filing or amending of any Tax Return and defending, contesting or settling any issue pertaining to taxes. Notwithstanding the foregoing, the Corporation shall notify Wayzata and the Management Representative of, and keep them reasonably informed with respect to, the portion of any tax audit of the Corporation or Neff Holdings, or any of Neff Holdings Subsidiaries, the outcome of which is reasonably expected to materially affect the Tax Benefit Payments payable to such Members under this Agreement, and Wayzata and the Management Representative, as applicable, shall have the right to participate in and to monitor at their own expense (but, for the avoidance of doubt, not to control) any such portion of any such Tax audit.
Section 6.2 Consistency. Except as otherwise required by law, all calculations and determinations made hereunder, including, without limitation, any Basis Adjustments, Reverse Section 704(c) Allocations, the Schedules, and the determination of any Realized Tax Benefits or Realized Tax Detriments, shall be made in accordance with the elections, methodologies or positions taken by the Corporation and Neff Holdings on their respective Tax Returns. Each Member shall prepare its Tax Returns in a manner that is consistent with the terms of this Agreement, and any related calculations or determinations that are made hereunder, including, without limitation, the terms of Section 2.1 of this Agreement and the Schedules provided to the Members under this Agreement. In the event that an Advisory Firm is replaced with another Advisory Firm acceptable to the Audit Committee, such replacement Advisory Firm shall perform its services under this Agreement using procedures and methodologies consistent with the previous Advisory Firm, unless otherwise required by law or unless the Corporation and all of the Members agree to the use of other procedures and methodologies.
Section 6.3 Cooperation.
(a) Each Member and LLC Option Holder shall (i) furnish to the Corporation in a timely manner such information, documents and other materials as the Corporation may reasonably request for purposes of making any determination or computation necessary or appropriate under this Agreement, preparing any Tax Return or contesting or defending any audit, examination or controversy with any Taxing Authority, (ii) make itself available to the Corporation and its representatives to provide explanations of documents and materials and such other information as the Corporation or its representatives may reasonably request in connection with any of the matters described in clause (i) above, and (iii) reasonably cooperate in connection with any such matter.
(b) The Corporation shall reimburse the Members and LLC Option Holders for any reasonable and documented out-of-pocket costs and expenses incurred pursuant to Section 6.3(a).
ARTICLE VII.
MISCELLANEOUS
Section 7.1 Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by courier service, by fax, by electronic mail (delivery receipt requested) or by certified or registered mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be as specified in a notice given in accordance with this Section 7.1). All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the Party to receive such notice:
If to the Corporation, to:
Neff Corporation
3750 N.W. 87th Avenue, Suite 400
Miami, Florida 33178
Attn: Chief Financial Officer
Facsimile: (305) 513-4156
E-mail: mirion@neffcorp.com
with a copy (which shall not constitute notice to the Corporation) to:
Latham & Watkins LLP
885 Third Avenue
New York, New York 10022
Attn: David Raab, Esq.
Facsimile: (212) 751-4684
E-mail: david.raab@lw.com
If to Wayzata:
c/o Wayzata Investment Partners
701 East Lake Street, Suite 300
Wayzata, Minnesota 55391
Attn: Ray Wallander
Facsimile: (952) 345-8901
E-mail: rwallander@wayzpartners.com
with a copy (which shall not constitute notice to Wayzata) to:
[TBD]
Attn:
Facsimile:
E-mail:
If to any LLC Option Holder (whether in its capacity as an LLC Option Holder or Member hereunder):
[address]
Attn:
Facsimile:
E-mail:
with a copy (which shall not constitute notice the LLC Option Holders) to:
[TBD]
Attn:
Facsimile:
E-mail:
Any Party may change its address, fax number or e-mail address by giving each of the other Parties written notice thereof in the manner set forth above.
Section 7.2 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties, it being understood that all Parties need not sign the same counterpart. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.
Section 7.3 Entire Agreement; No Third Party Beneficiaries. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the Parties with respect to the subject matter hereof. This Agreement shall be binding upon and inure solely to the benefit of each Party hereto and their respective successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
Section 7.4 Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware, without regard to the conflicts of laws principles thereof that would mandate the application of the laws of another jurisdiction.
Section 7.5 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable
manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.
Section 7.6 LLC Option Holders as Members; Assignments; Amendments; Successors; No Waiver.
(a) In the case of each LLC Option Holder, upon the first exercise by such LLC Option Holder of options to acquire Units of Neff Holdings and the admission of such LLC Option Holder as a member of Neff Holdings in accordance with the LLC Agreement, such LLC Option Holder will automatically become a Member hereunder with all the rights, privileges and responsibilities of a Member hereunder (for the avoidance of doubt, without any requirement to execute a Joinder).
(b) Assignment. Neither any Member nor any LLC Option Holder may assign, sell, pledge, or otherwise alienate or transfer any interest in this Agreement, including the right to receive any Tax Benefit Payments under this Agreement, to any Person without the prior written consent of the Corporation, which consent shall not be unreasonably withheld, conditioned, or delayed, and without such Person executing and delivering a Joinder agreeing to succeed to the applicable portion of such Members or such LLC Option Holders interest in this Agreement and to become a Party for all purposes of this Agreement (the Joinder Requirement); provided, however, that to the extent any Member sells, exchanges, distributes, or otherwise transfers Units to any Person (other than the Corporation or Neff Holdings) in accordance with the terms of the LLC Agreement, the Members shall have the option to assign to the transferee of such Units its rights under this Agreement with respect to such transferred Units, provided that such transferee has satisfied the Joinder Requirement. For the avoidance of doubt, if a Member transfers Units in accordance with the terms of the LLC Agreement but does not assign to the transferee of such Units its rights under this Agreement with respect to such transferred Units, such Member shall continue to be entitled to receive the Tax Benefit Payments arising in respect of a subsequent Exchange of such Units. The Corporation may not assign any of its rights or obligations under this Agreement to any Person without the prior written consent of each of the Members and LLC Option Holders (and any purported assignment without such consent shall be null and void).
(c) Amendments. No provision of this Agreement may be amended unless such amendment is approved in writing by each of the Parties; provided that amendment of the definition of Change of Control will also require the written approval of a majority of the Independent Directors. No provision of this Agreement may be waived unless such waiver is in writing and signed by the Party against whom the waiver is to be effective.
(d) Successors. All of the terms and provisions of this Agreement shall be binding upon, and shall inure to the benefit of and be enforceable by, the Parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives. The Corporation shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place.
(e) Waiver. No failure by any Party to insist upon the strict performance of any covenant, duty, agreement, or condition of this Agreement, or to exercise any right or remedy consequent upon a breach thereof, shall constitute a waiver of any such breach or any other covenant, duty, agreement, or condition.
Section 7.7 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.
Section 7.8 Resolution of Disputes.
(a) Except for Reconciliation Disputes subject to Section 7.9, any and all disputes which cannot be settled amicably, including any ancillary claims of any Party, arising out of, relating to or in connection with the validity, negotiation, execution, interpretation, performance or non-performance of this Agreement (including the validity, scope and enforceability of this arbitration provision) (each a Dispute) shall be finally resolved by arbitration in accordance with the International Institute for Conflict Prevention and Resolution Rules for Non-Administered Arbitration by a panel of three arbitrators, of which the Corporation shall designate one arbitrator and the Members party to such Dispute shall designate one arbitrator in accordance with the screened appointment procedure provided in Resolution Rule 5.4. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq., and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of the arbitration shall be Miami, Florida.
(b) Notwithstanding the provisions of paragraph (a), any Party may bring an action or special proceeding in any court of competent jurisdiction for the purpose of compelling another Party to arbitrate, seeking temporary or preliminary relief in aid of an arbitration hereunder, and/or enforcing an arbitration award and, for the purposes of this paragraph (b), each Party (i) expressly consents to the application of paragraph (c) of this Section 7.8 to any such action or proceeding, and (ii) agrees that proof shall not be required that monetary damages for breach of the provisions of this Agreement would be difficult to calculate and that remedies at law would be inadequate. For the avoidance of doubt, this Section 7.8 shall not apply to Reconciliation Disputes to be settled in accordance with the procedures set forth in Section 7.9.
(c) Each Party hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Chancery Court of the State of Delaware or, if such Court declines jurisdiction, the courts of the State of Delaware sitting in Wilmington, Delaware, and of the U.S. District Court for the District of Delaware sitting in Wilmington, Delaware, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or for recognition or enforcement of any judgment, and each of the Parties hereto irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Delaware State court or, to the fullest extent permitted by applicable law, in such U.S. District Court. Each Party agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.
(d) Each Party irrevocably and unconditionally waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in Section 7.8(c). Each Party irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of any such suit, action or proceeding in any such court.
(e) Each Party irrevocably consents to service of process by means of notice in the manner provided for in Section 7.1. Nothing in this Agreement shall affect the right of any Party to serve process in any other manner permitted by law.
(f) WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).
(g) Any dispute as to whether a dispute is a Reconciliation Dispute within the meaning of Section 7.9, or a Dispute within the meaning of this Section 7.8, shall be decided and resolved as a Dispute subject to the procedures set forth in this Section 7.8.
Section 7.9 Reconciliation. In the event that the Corporation and any Member are unable to resolve a disagreement with respect to a Schedule (other than an Early Termination Schedule) prepared in accordance with the procedures set forth in Section 2.4, or with respect to an Early Termination Schedule prepared in accordance with the procedures set forth in Section 4.2, within the relevant time period designated in this Agreement (a Reconciliation Dispute), the Reconciliation Dispute shall be submitted for determination to a nationally recognized expert (the Expert) in the particular area of disagreement mutually acceptable to both Parties. The Expert shall be a partner or principal in a nationally recognized accounting firm, and unless the Corporation and such Member agree otherwise, the Expert shall not, and the firm that employs the Expert shall not, have any material relationship with the Corporation or such Member or other actual or potential conflict of interest. If the Parties are unable to agree on an Expert within fifteen (15) calendar days of receipt by the respondent(s) of written notice of a Reconciliation Dispute, the selection of an Expert shall be treated as a Dispute subject to Section 7.8 and an arbitration panel shall pick an Expert from a nationally recognized accounting firm that does not have any material relationship with the Corporation or such Member or other actual or potential conflict of interest. The Expert shall resolve any matter relating to the Basis Schedule or an amendment thereto, Reverse 704(c) Schedule or an amendment thereto or the Early Termination Schedule or an amendment thereto within thirty (30) calendar days and shall resolve any matter relating to a Tax Benefit Schedule or an amendment thereto within fifteen (15) calendar days or as soon thereafter as is reasonably practicable, in each case after the matter has been submitted to the Expert for resolution. Notwithstanding the preceding sentence, if the matter is not resolved before any payment that is the subject of a disagreement would be due (in the absence of such disagreement) or any Tax Return reflecting the subject of a disagreement is due, the undisputed amount shall be paid on the date prescribed by this Agreement and such Tax Return may be filed as prepared by the Corporation, subject to adjustment or amendment upon resolution. The costs and expenses relating to the engagement of such Expert or amending any Tax Return shall be
borne by the Corporation except as provided in the next sentence. The Corporation and the Members shall bear their own costs and expenses of such proceeding, unless (i) the Expert adopts the Members position, in which case the Corporation shall reimburse the Member for any reasonable and documented out-of-pocket costs and expenses in such proceeding, or (ii) the Expert adopts the Corporations position, in which case the Member shall reimburse the Corporation for any reasonable and documented out-of-pocket costs and expenses in such proceeding. The Expert shall finally determine any Reconciliation Dispute and the determinations of the Expert pursuant to this Section 7.9 shall be binding on the Corporation and the Members and may be entered and enforced in any court having competent jurisdiction.
Section 7.10 Withholding. The Corporation shall be entitled to deduct and withhold from any payment that is payable to any Member or LLC Option Holder pursuant to this Agreement such amounts as the Corporation is required to deduct and withhold with respect to the making of such payment under the Code or any provision of U.S. state, local or foreign tax law. To the extent that amounts are so withheld and paid over to the appropriate Taxing Authority by the Corporation, such withheld amounts shall be treated for all purposes of this Agreement as having been paid by the Corporation to the relevant Member or LLC Option Holder. Each Member and each LLC Option Holder shall promptly provide the Corporation with any applicable tax forms and certifications reasonably requested by the Corporation in connection with determining whether any such deductions and withholdings are required under the Code or any provision of U.S. state, local or foreign tax law.
Section 7.11 Admission of the Corporation into a Consolidated Group; Transfers of Corporate Assets.
(a) If the Corporation is or becomes a member of an affiliated or consolidated group of corporations that files a consolidated income Tax Return pursuant to Section 1501 or other applicable Sections of the Code governing affiliated or consolidated groups, or any corresponding provisions of U.S. state or local law, then: (i) the provisions of this Agreement shall be applied with respect to the group as a whole; and (ii) Tax Benefit Payments, Early Termination Payments, and other applicable items hereunder shall be computed with reference to the consolidated taxable income of the group as a whole.
(b) If any entity that is obligated to make a Tax Benefit Payment or Early Termination Payment hereunder transfers one or more assets to a corporation (or a Person classified as a corporation for U.S. income tax purposes) with which such entity does not file a consolidated Tax Return pursuant to Section 1501 of the Code, such entity, for purposes of calculating the amount of any Tax Benefit Payment or Early Termination Payment due hereunder, shall be treated as having disposed of such asset in a fully taxable transaction on the date of such contribution. The consideration deemed to be received by such entity shall be equal to the fair market value of the contributed asset. For purposes of this Section 7.11, a transfer of a partnership interest shall be treated as a transfer of the transferring partners share of each of the assets and liabilities of that partnership.
Section 7.12 Confidentiality. Each Member or LLC Option Holder and its assignees acknowledges and agrees that the information of the Corporation is confidential and, except in the course of performing any duties as necessary for the Corporation and its Affiliates, as
required by law or legal process or to enforce the terms of this Agreement, such Person shall keep and retain in the strictest confidence and not disclose to any Person any confidential matters, acquired pursuant to this Agreement, of the Corporation and its Affiliates and successors, learned by any Member or LLC Option Holder heretofore or hereafter. This Section 7.12 shall not apply to (i) any information that has been made publicly available by the Corporation or any of its Affiliates, becomes public knowledge (except as a result of an act of any Member or LLC Option Holder in violation of this Agreement) or is generally known to the business community, (ii) the disclosure of information to the extent necessary for a Member or LLC Option Holder to prosecute or defend claims arising under or relating to this Agreement, and (iii) the disclosure of information to the extent necessary for a Member or LLC Option Holder to prepare and file its Tax Returns, to respond to any inquiries regarding the same from any Taxing Authority or to prosecute or defend any action, proceeding or audit by any Taxing Authority with respect to such Tax Returns. Notwithstanding anything to the contrary herein, the Members, LLC Option Holders and each of their assignees (and each employee, representative or other agent of the Members or LLC Option Holders or their assignees, as applicable) may disclose at their discretion to any and all Persons, without limitation of any kind, the tax treatment and tax structure of the Corporation, the Members, the LLC Option Holders and any of their transactions, and all materials of any kind (including tax opinions or other tax analyses) that are provided to the Members or LLC Option Holders relating to such Tax treatment and Tax structure. If a Member, LLC Option Holder or an assignee commits a breach, or threatens to commit a breach, of any of the provisions of this Section 7.12, the Corporation shall have the right and remedy to have the provisions of this Section 7.12 specifically enforced by injunctive relief or otherwise by any court of competent jurisdiction without the need to post any bond or other security, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to the Corporation or any of its Subsidiaries and that money damages alone shall not provide an adequate remedy to such Persons. Such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available at law or in equity.
Section 7.13 Change in Law. Notwithstanding anything herein to the contrary, if, in connection with an actual or proposed change in law, a Member reasonably believes that the existence of this Agreement could cause income (other than income arising from receipt of a payment under this Agreement) recognized by such Member (or direct or indirect equity holders in such Member) in connection with any Exchange to be treated as ordinary income rather than capital gain (or otherwise taxed at ordinary income rates) for U.S. federal income tax purposes or would have other material adverse tax consequences to such Member or any direct or indirect owner of such Member, then at the written election of such Member in its sole discretion (in an instrument signed by such Member and delivered to the Corporation) and to the extent specified therein by such Member, this Agreement shall cease to have further effect and shall not apply to an Exchange occurring after a date specified by such Member, or may be amended by in a manner reasonably determined by such Member, provided that such amendment shall not result in an increase in any payments owed by the Corporation under this Agreement at any time as compared to the amounts and times of payments that would have been due in the absence of such amendment.
Section 7.14 Interest Rate Limitation. Notwithstanding anything to the contrary contained herein, the interest paid or agreed to be paid hereunder with respect to amounts due to
any Member hereunder shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the Maximum Rate). If any Member shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the Tax Benefit Payment, Estimated Tax Benefit Payment or Early Termination Payment, as applicable (but in each case exclusive of any component thereof comprising interest) or, if it exceeds such unpaid non-interest amount, refunded to the Corporation. In determining whether the interest contracted for, charged, or received by any Member exceeds the Maximum Rate, such Member may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the payment obligations owed by the Corporation to such Member hereunder. Notwithstanding the foregoing, it is the intention of the Lenders and the Borrower to conform strictly to any applicable usury laws.
Section 7.15 Independent Nature of Rights and Obligations. The rights and obligations of the each Member and LLC Option Holder hereunder are several and not joint with the rights and obligations of any other Person. A Member or an LLC Option Holder shall not be responsible in any way for the performance of the obligations of any other Person hereunder, nor shall a Member or an LLC Option Holder have the right to enforce the rights or obligations of any other Person hereunder (other than the Corporation). The obligations of a Member or an LLC Option Holder hereunder are solely for the benefit of, and shall be enforceable solely by, the Corporation. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Member or LLC Option Holder pursuant hereto or thereto, shall be deemed to constitute the Members and/or LLC Option Holders acting as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Members and/or LLC Option Holders are in any way acting in concert or as a group with respect to such rights or obligations or the transactions contemplated hereby, and the Corporation acknowledges that the Members and LLC Option Holders are not acting in concert or as a group and will not assert any such claim with respect to such rights or obligations or the transactions contemplated hereby.
Section 7.16 LLC Agreement. This Agreement shall be treated as part of the LLC Agreement as described in Section 761(c) of the Code and Sections 1.704-1(b)(2)(ii)(h) and 1.761-1(c) of the Treasury Regulations.
Section 7.17 Management Representative. By executing this Agreement, each of the LLC Option Holders, whether in their capacity as LLC Option Holders or Members hereunder, shall be deemed to have irrevocably constituted and appointed [ ] (in the capacity described in this Section 7.17 and each successor as provided below, the Management Representative) as his, her or its agent and attorney in fact with full power of substitution to act from and after the date hereof and to do any and all things and execute any and all documents on behalf of such LLC Option Holders, whether in their capacity as LLC Option Holders or Members hereunder, which may be necessary, convenient or appropriate to facilitate any matters under this Agreement, including but not limited to: (i) execution of the documents and certificates required pursuant to this Agreement; (ii) receipt and forwarding of notices and communications pursuant to this Agreement; (iv) administration of the provisions of this Agreement; (v) giving or agreeing to, on behalf of such LLC Option
Holders, any and all consents, waivers, amendments or modifications deemed by the Management Representative, in its sole and absolute discretion, to be necessary or appropriate under this Agreement and the execution or delivery of any documents that may be necessary or appropriate in connection therewith; (vi) amending this Agreement or any of the instruments to be delivered to the Corporation pursuant to this Agreement; (vii) taking actions Management Representative is expressly authorized to take pursuant to the other provisions of this Agreement; (viii) negotiating and compromising, on behalf of such LLC Option Holders, any dispute that may arise under, and exercising or refraining from exercising any remedies available under, this Agreement or any other agreement contemplated hereby and executing, on behalf of the LLC Option Holders, any settlement agreement, release or other document with respect to such dispute or remedy; and (ix) engaging attorneys, accountants, agents or consultants on behalf of the LLC Option Holders in connection with this Agreement or any other agreement contemplated hereby and paying any fees related thereto. If the Management Representative appointed on the date hereof is unable or unwilling to continue to serve as the Management Representative, then [ ] shall serve as the Management Representative. If [ ] is unable or unwilling to so serve, then the LLC Option Holders or former LLC Option Holders, as applicable, holding a majority of the common units underlying the LLC Options outstanding on the date hereof, shall elect a new Management Representative.
[Signature Page Follows This Page]
IN WITNESS WHEREOF, the undersigned have executed or caused to be executed on their behalf this Agreement as of the date first written above.
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NEFF CORPORATION | |
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WAYZATA OPPORTUNITIES FUND II, L.P. | |
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WOF II GP, L.P., its General Partner |
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WOF II GP, LLC, its General Partner |
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WAYZATA OPPORTUNITIES FUND OFFSHORE, L.P. | |
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Wayzata Offshore II, LP, its General Partner |
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NEFF HOLDINGS LLC | |
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[Signature Page to Tax Receivable Agreement]
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MANAGEMENT REPRESENTATIVE: | |
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LLC OPTION HOLDERS | |
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James Continenza |
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Robert Singer |
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Graham Hood |
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Mark Irion |
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Wes Parks |
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Henry Lawson |
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John Anderson |
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Brad Nowell |
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Steven Settelmayer |
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Paula Papamarcos |
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Steve Michaels |
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Tom Sutherland |
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Tammy Parham |
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Jim Horn |
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Exhibit A
FORM OF JOINDER AGREEMENT
This JOINDER AGREEMENT, dated as of , 20 (this Joinder), is delivered pursuant to that certain Tax Receivable Agreement, dated as of [·], 2014 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the Tax Receivable Agreement) by and among Neff Corporation, a Delaware corporation (the Corporation), Neff Holdings LLC, a Delaware limited liability company (Neff Holdings), and each of the Members from time to time party thereto. Capitalized terms used but not otherwise defined herein have the respective meanings set forth in the Tax Receivable Agreement.
1. Joinder to the Tax Receivable Agreement. The undersigned hereby represents and warrants to the Corporation that, as of the date hereof, the undersigned is a member of Neff Holdings, and that it acquired [ ] Units in Neff Holdings upon assignment from a Member.
2. Joinder to the Tax Receivable Agreement. Upon the execution of this Joinder by the undersigned and delivery hereof to the Corporation, the undersigned hereby is and hereafter will be a Member under the Tax Receivable Agreement and a Party thereto, with all the rights, privileges and responsibilities of a Member thereunder. The undersigned hereby agrees that it shall comply with and be fully bound by the terms of the Tax Receivable Agreement as if it had been a signatory thereto as of the date thereof.
3. Incorporation by Reference. All terms and conditions of the Tax Receivable Agreement are hereby incorporated by reference in this Joinder as if set forth herein in full.
4. Address. All notices under the Tax Receivable Agreement to the undersigned shall be direct to:
[Name]
[Address]
[City, State, Zip Code]
Attn:
Facsimile:
E-mail:
IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Joinder as of the day and year first above written.
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Acknowledged and agreed
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NEFF CORPORATION |
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Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this Agreement) is made as of [·], 2014 by and among Neff Corporation, a Delaware corporation (the Corporation), Wayzata Opportunities Fund II, L.P., a Delaware limited partnership (Wayzata), and Wayzata Opportunities Fund Offshore II, L.P., a Cayman Islands limited partnership (Wayzata Offshore and, together with Wayzata, the Wayzata Funds), and each other Person identified on the Schedule of Investors attached hereto as of the date hereof under the caption LLC Option Holders (such other Persons, collectively, the LLC Option Holders).
RECITALS
WHEREAS, the Corporation is contemplating an offer and sale of its shares of Class A common stock, par value $0.01 per share (the Class A Common Stock and such shares, the Shares), to the public in an underwritten initial public offering (the IPO);
WHEREAS, the Corporation desires to use a portion of the net proceeds from the IPO to purchase Common Units (as defined below) of Neff Holdings LLC, a Delaware limited liability company (the Company), and the Company desires to issue its Common Units to the Corporation in exchange for such portion of the net proceeds from the IPO;
WHEREAS, immediately prior to the consummation of the issuance of Common Units by the Company to the Corporation, the Wayzata Funds are the sole members of the Company;
WHEREAS, immediately prior to or simultaneous with the purchase by the Corporation of the Common Units, the Corporation, the Company and the Wayzata Funds will enter into that certain Second Amended and Restated Limited Liability Company Agreement of the Company (such agreement, as it may be amended, restated, amended and restated, supplemented or otherwise modified form time to time, the LLC Agreement);
WHEREAS, upon the Effective Time (as defined below) the Corporation will become the sole managing member of the Company, and the Wayzata Funds will become non-managing members of the Company but otherwise retain their units in the Company (which under the LLC Agreement are converted from Class A Common Units to Common Units and subjected to a split) and, in consideration of the Corporation acquiring the Common Units and becoming the managing member of the Company, among other things, the Company has provided the Wayzata Funds and the LLC Option Holders with a redemption right pursuant to which the Wayzata Funds and such LLC Option Holders may be able, at the Corporations option, to redeem or exchange their Common Units for Shares on the terms set forth in the LLC Agreement; and
WHEREAS, in connection with the IPO and the transactions described above, the Corporation has agreed to grant to the Holders (as defined below) certain rights with respect to the registration of the Registrable Securities (as defined below) on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:
Section 1. Definitions. Unless otherwise set forth below or elsewhere in this Agreement, other capitalized terms contained herein have the meanings set forth in the LLC Agreement. For purposes of this Agreement, the following terms shall have the meanings specified in this Section 1:
Acquired Common has the meaning set forth in Section 9.
Additional Investor has the meaning set forth in Section 9, and shall be deemed to include each such Persons Affiliates, immediate family members, heirs, successors and assigns who may succeed to such Person as a Holder hereunder.
Affiliate of any Person means any other Person controlled by, controlling or under common control with such Person; provided that the Corporation and its Subsidiaries shall not be deemed to be Affiliates of any Holder. As used in this definition, control (including, with its correlative meanings, controlling, controlled by and under common control with) shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities, by contract or otherwise).
Agreement has the meaning set forth in the preamble.
Automatic Shelf Registration Statement has the meaning set forth in Section 2(a).
Business Day means any day of the year on which national banking institutions in New York are open to the public for conducting business and are not required or authorized to close.
Capital Stock means (i) with respect to any Person that is a corporation, any and all shares, interests or equivalents in capital stock of such corporation (whether voting or nonvoting and whether common or preferred), (ii) with respect to any Person that is not a corporation, individual or governmental entity, any and all partnership, membership, limited liability company or other equity interests of such Person that confer on the holder thereof the right to receive a share of the profits and losses of, or the distribution of assets of the issuing Person, and (iii) any and all warrants, rights (including conversion and exchange rights) and options to purchase any security described in the clause (i) or (ii) above.
Class A Common Stock has the meaning set forth in the recitals.
Class B Common Stock means the Corporations Class B common stock, par value $0.01 per share.
Common Units means the Common Units of the Company as defined in the LLC Agreement.
Company has the meaning set forth in the recitals.
Corporation has the meaning set forth in the preamble.
Demand Registrations has the meaning set forth in Section 2(a).
End of Suspension Notice has the meaning set forth in Section 2(f)(ii).
Effective Time means the time that the LLC Agreement becomes effective in accordance with its terms.
Exchange Act means the U.S. Securities Exchange Act of 1934, as amended from time to time, or any successor federal law then in force, together with all rules and regulations promulgated thereunder.
FINRA means the Financial Industry Regulatory Authority.
Follow-On Holdback Period has the meaning set forth in Section 4(a)(ii).
Free Writing Prospectus means a free-writing prospectus, as defined in Rule 405.
Holdback Extension has the meaning set forth in Section 4(a)(iii).
Holdback Period has the meaning set forth in Section 4(a)(i).
Holder means any Person who is the registered holder of Registrable Securities.
Indemnified Parties has the meaning set forth in Section 7(a).
IPO has the meaning set forth in the recitals.
Joinder has the meaning set forth in Section 9.
LLC Agreement has the meaning set forth in the recitals.
LLC Option Holders has the meaning set forth in the preamble, and shall be deemed to include their respective Affiliates, immediate family members, heirs, successors and assigns who may succeed to such Person as a Holder hereunder.
Long-Form Registrations has the meaning set forth in Section 2(a).
Majority Holders means Holders representing a majority of the Registrable Securities then outstanding.
MNPI means material non-public information within the meaning of Regulation FD promulgated under the Exchange Act.
Person means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.
Piggyback Registrations has the meaning set forth in Section 3(a).
Public Offering means any sale or distribution to the public of Capital Stock of the Corporation pursuant to an offering registered under the Securities Act, whether by the Corporation, by Holders and/or by any other holders of the Corporations Capital Stock.
Registrable Securities means (i) any Class A Common Stock issued by the Corporation in a Share Settlement in connection with (x) the redemption by the Company of Common Units owned by any Wayzata Fund or any LLC Option Holder or (y) at the election of the Corporation, in a direct exchange for Common Units owned by any Wayzata Fund or any LLC Option Holder, in each case in accordance with the terms of the LLC Agreement, (ii) any Class A Common Stock from time to time issuable by the Corporation, at its election, in a Share Settlement in connection with (x) the redemption by the Company of Common Units underlying any LLC Option granted by the Company to any LLC Option Holder upon exercise thereof or (y) at the election of the Corporation, in a direct exchange for Common Units underlying any LLC Option granted by the Company to any Option Holder upon exercise thereof, in each case accordance with the terms of the LLC Agreement, (iii) any common Capital Stock of the Corporation or of any Subsidiary of the Corporation issued or issuable with respect to the securities referred to in clause (i) or (ii) above by way of dividend, distribution, split or combination of securities, or any recapitalization, merger, consolidation or other reorganization, and (iv) any other Shares owned by Persons that are the registered holders of securities described in clauses (i), (ii) or (iii) above. As to any particular Registrable Securities owned by any Person, such securities shall cease to be Registrable Securities on the date such securities have been (a) sold or distributed pursuant to a Public Offering, (b) sold in compliance with Rule 144 following the consummation of the IPO, (c) repurchased by the Corporation or a Subsidiary of the Corporation or (d) in the case of any particular LLC Options, terminated in accordance with their terms. For purposes of this Agreement, a Person shall be deemed to be a Holder, and the Registrable Securities shall be deemed to be in existence, whenever such Person has the right to acquire, directly or indirectly, such Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected, and such Person shall be entitled to exercise the rights of a holder of Registrable Securities hereunder; provided a holder of Registrable Securities may only request that Registrable Securities in the form of Capital Stock of the Corporation that is registered or to be registered as a class under Section 12 of the Exchange Act be registered pursuant to this Agreement. For the avoidance of doubt, while Common Units and/or shares of Class B Common Stock may constitute Registrable Securities, under no circumstances shall the Corporation be obligated to register Common Units or shares of Class B Common Stock, and only Shares issuable upon redemption or exchange of such Common Units and/or Class B Common Stock will be registered. Notwithstanding the foregoing, with the consent of the Corporation and the Majority Holders, any Registrable Securities held by any Person (other than the Wayzata Funds) that may be sold under Rule 144(b)(1)(i) without limitation under any other of the requirements of Rule 144 shall not be deemed to be Registrable Securities upon notice from the Corporation to such Person and the Corporation shall, at such Persons request, remove the legend provided for in Section 12.
Registration Expenses has the meaning set forth in Section 6(a).
Rule 144, Rule 158, Rule 405, Rule 415 and Rule 462 mean, in each case, such rule promulgated under the Securities Act (or any successor provision) by the Securities and
Exchange Commission, as the same shall be amended from time to time, or any successor rule then in force.
Sale Transaction has the meaning set forth in Section 4(a)(i).
Schedule of Investors means the schedule attached to this Agreement entitled Schedule of Investors, which shall reflect each Holder from time to time party to this Agreement.
Securities has the meaning set forth in Section 4(a)(i).
Securities Act means the U.S. Securities Act of 1933, as amended from time to time, or any successor federal law then in force, together with all rules and regulations promulgated thereunder.
Share Settlement means Share Settlement as defined in the LLC Agreement.
Shares has the meaning set forth in the recitals.
Shelf Offering has the meaning set forth in Section 2(d)(ii).
Shelf Offering Notice has the meaning set forth in Section 2(d)(ii).
Shelf Offering Request has the meaning set forth in Section 2(d)(ii).
Shelf Registration has the meaning set forth in Section 2(a).
Shelf Registrable Securities has the meaning set forth in Section 2(d)(ii).
Shelf Registration Statement has the meaning set forth in Section 2(d)(i).
Short-Form Registrations has the meaning set forth in Section 2(a).
Subsidiary means, with respect to the Corporation, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of Capital Stock of such Person entitled (without regard to the occurrence of any contingency) to vote in the election of directors is at the time owned or controlled, directly or indirectly, by the Corporation, or (ii) if a limited liability company, partnership, association or other business entity, either (x) a majority of the Capital Stock of such Person entitled (without regard to the occurrence of any contingency) to vote in the election of managers, general partners or other oversight board vested with the authority to direct management of such Person is at the time owned or controlled, directly or indirectly, by the Corporation or (y) the Corporation or one of its Subsidiaries is the sole manager or general partner of such Person.
Suspension Event has the meaning set forth in Section 2(f)(ii).
Suspension Notice has the meaning set forth in Section 2(f)(ii).
Suspension Period has the meaning set forth in Section 2(f)(i).
Underwritten Takedown has the meaning set forth in Section 2(d)(ii).
Violation has the meaning set forth in Section 7(a).
Wayzata has the meaning set forth in the preamble, and shall be construed to include its Affiliates that may succeed to such Person as a Holder hereunder.
Wayzata Funds has the meaning set forth in the preamble.
Wayzata Offshore has the meaning set forth in the preamble, and shall be construed to include its Affiliates that may succeed to such Person as a Holder hereunder.
WKSI means a well-known seasoned issuer as defined under Rule 405.
Section 2. Demand Registrations.
(a) Requests for Registration. Subject to the terms and conditions of this Agreement, the Majority Holders may request registration under the Securities Act of all or any portion of their Registrable Securities on Form S-1 or any similar long-form registration (Long-Form Registrations), and the Majority Holders may request registration under the Securities Act of all or any portion of their Registrable Securities on Form S-3 or any similar short-form registration (Short-Form Registrations) if available. All registrations requested pursuant to this Section 2(a) are referred to herein as Demand Registrations. The Majority Holders making a Demand Registration may request that the registration be made pursuant to Rule 415 under the Securities Act (a Shelf Registration) and, if the Corporation is a WKSI at the time any request for a Demand Registration is submitted to the Corporation, that such Shelf Registration be an automatic shelf registration statement (as defined in Rule 405 under the Securities Act) (an Automatic Shelf Registration Statement). Except to the extent that Section 2(d) applies, within ten days after the filing of the registration statement relating to the Demand Registration, the Corporation shall give written notice of the Demand Registration to all other Holders and, subject to the terms of Section 2(e), shall include in such Demand Registration (and in all related registrations and qualifications under state blue sky laws and in any related underwriting) all Registrable Securities with respect to which the Corporation has received written requests for inclusion therein within 15 days after the receipt of the Corporations notice; provided that, with the consent of Holders representing at least a majority of the Registrable Securities requesting such registration, the Corporation may provide notice of the Demand Registration to all other Holders prior to the non-confidential filing of the registration statement with respect to the Demand Registration. Each Holder agrees that (1) such notice constitutes MNPI and that it will not engage in any transaction in any securities of the Corporation until such notice and the information contained therein ceases to constitute MNPI and (2) such Holder shall treat as confidential the receipt of the notice of Demand Registration and shall not disclose or use the information contained in such notice of Demand Registration without the prior written consent of the Corporation until such time as the information contained therein is or becomes available to the public generally, other than as a result of disclosure by the Holder in breach of the terms of this Agreement.
(b) Long-Form Registrations. Holders shall be entitled to request an unlimited number of Long-Form Registrations in which the Corporation shall pay all Registration Expenses, regardless of whether any registration statement is filed or any such Demand Registration is consummated. All Long-Form Registrations shall be underwritten registrations unless otherwise approved by Holders representing a majority of the Registrable Securities requesting registration.
(c) Short-Form Registrations. In addition to the Long-Form Registrations described in Section 2(b), Holders shall be entitled to request an unlimited number of Short-Form Registrations in which the Corporation shall pay all Registration Expenses, regardless of whether any registration statement is filed or any such Demand Registration is consummated. Demand Registrations shall be Short-Form Registrations whenever the Corporation is permitted to use any applicable short form and if the managing underwriters (if any) agree to the use of a Short-Form Registration. After the Corporation has become subject to the reporting requirements of the Exchange Act, the Corporation shall use its reasonable best efforts to make Short-Form Registrations available for the sale of Registrable Securities.
(d) Shelf Registrations.
(i) Subject to the availability of required financial information, as promptly as practicable after the Corporation receives written notice of a request for a Shelf Registration, the Corporation shall file with the Securities and Exchange Commission a registration statement under the Securities Act for the Shelf Registration (a Shelf Registration Statement). The Corporation shall use its reasonable best efforts to cause any Shelf Registration Statement to be declared effective under the Securities Act as soon as practicable after the initial filing of such Shelf Registration Statement, and once effective, the Corporation shall cause such Shelf Registration Statement to remain continuously effective for such time period as is specified in the request by the Holders, but for no time period longer than the period ending on the earliest of (A) the third anniversary of the initial effective date of such Shelf Registration Statement, (B) the date on which all Registrable Securities covered by such Shelf Registration Statement have been sold pursuant to the Shelf Registration, and (C) the date as of which there are no longer any Registrable Securities covered by such Shelf Registration Statement in existence. Without limiting the generality of the foregoing, the Corporation shall use its reasonable best efforts to prepare a Shelf Registration Statement with respect to all of the Registrable Securities owned by or issuable to the Wayzata Funds and/or the LLC Option Holders in accordance with the terms of the LLC Agreement (or, with respect to the Wayzata Funds or any LLC Option Holder, such lower number of Registrable Securities specified in writing by such Holder with respect to the Registrable Securities owned by or issuable to such Holder) to enable and to cause such Shelf Registration Statement to be filed and maintained with the Securities and Exchange Commission as soon as practicable after the later to occur of (i) the expiration of the Holdback Period and (ii) the Corporation becoming eligible to file a Shelf Registration Statement for a Short-Form Registration; provided that any of the Wayzata Funds and any of the LLC Option Holders may, in each case with respect to itself, instruct the Corporation in writing not to include in such Shelf Registration Statement the Registrable Securities owned by or issuable to such Wayzata Fund or such LLC Option Holder. In order for any of the Wayzata Funds
or any LLC Option Holder to be named as a selling securityholder in such Shelf Registration Statement, the Company may require such Holder to deliver all information about such Holder that is required to be included in such Shelf Registration Statement in accordance with applicable law, including Item 507 of Regulation S-K promulgated under the Securities Act, as amended from time to time, or any similar successor rule thereto. Notwithstanding anything to the contrary in Section 2(d)(ii), any Holder that is named as a selling securityholder in such Shelf Registration Statement may make a secondary resale under such Shelf Registration Statement without the consent of the Holders representing a majority of the Registrable Securities or any other Holder if such resale does not require a supplement to the Shelf Registration Statement.
(ii) In the event that a Shelf Registration Statement is effective, Holders representing a majority of the Registrable Securities covered by such Shelf Registration Statement shall have the right at any time or from time to time to elect to sell pursuant to an offering (including an underwritten offering (an Underwritten Takedown)) Registrable Securities available for sale pursuant to such registration statement (Shelf Registrable Securities), so long as the Shelf Registration Statement remains in effect, and the Corporation shall pay all Registration Expenses in connection therewith. Holders representing a majority of the Registrable Securities covered by such Shelf Registration Statement shall make such election by delivering to the Corporation a written request (a Shelf Offering Request) for such offering specifying the number of Shelf Registrable Securities that such Holders desire to sell pursuant to such offering (the Shelf Offering). As promptly as practicable, but no later than two Business Days after receipt of a Shelf Offering Request, the Corporation shall give written notice (the Shelf Offering Notice) of such Shelf Offering Request to all other holders of Shelf Registrable Securities. The Corporation, subject to Sections 2(e) and 8 hereof, shall include in such Shelf Offering the Shelf Registrable Securities of any other Holder that shall have made a written request to the Corporation for inclusion in such Shelf Offering (which request shall specify the maximum number of Shelf Registrable Securities intended to be sold by such Holder) within seven days after the receipt of the Shelf Offering Notice. The Corporation shall, as expeditiously as possible (and in any event within 20 days after the receipt of a Shelf Offering Request, unless a longer period is agreed to by the Holders representing a majority of the Registrable Securities that made the Shelf Offering Request), use its reasonable best efforts to facilitate such Shelf Offering. Each Holder agrees that (1) such notice constitutes MNPI and that it will not engage in any transaction in any securities of the Corporation until such notice and the information contained therein ceases to constitute MNPI and (2) such Holder shall treat as confidential the receipt of the Shelf Offering Notice and shall not disclose or use the information contained in such Shelf Offering Notice without the prior written consent of the Corporation until such time as the information contained therein is or becomes available to the public generally, other than as a result of disclosure by the Holder in breach of the terms of this Agreement.
(iii) Notwithstanding the foregoing, if the Majority Holders wish to engage in an underwritten block trade off of a Shelf Registration Statement (either through filing an Automatic Shelf Registration Statement or through a take-down from an existing Shelf Registration Statement), then notwithstanding the foregoing time periods, such Holders
only need to notify the Corporation of the block trade Shelf Offering two Business Days prior to the day such offering is to commence (unless a longer period is agreed to by Holders representing a majority of the Registrable Securities wishing to engage in the underwritten block trade) and the Corporation shall promptly notify other Holders and such other Holders must elect whether or not to participate by the next Business Day (i.e., one Business Day prior to the day such offering is to commence) (unless a longer period is agreed to by Holders representing a majority of the Registrable Securities wishing to engage in the underwritten block trade) and the Corporation shall as expeditiously as possible use its reasonable best efforts to facilitate such offering (which may close as early as three Business Days after the date it commences); provided that Holders representing a majority of the Registrable Securities wishing to engage in the underwritten block trade shall use commercially reasonable efforts to work with the Corporation and the underwriters prior to making such request in order to facilitate preparation of the registration statement, prospectus and other offering documentation related to the underwritten block trade.
(iv) The Corporation shall, at the request of Holders representing a majority of the Registrable Securities covered by a Shelf Registration Statement, file any prospectus supplement or, if the applicable Shelf Registration Statement is an Automatic Shelf Registration Statement, any post-effective amendments and otherwise take any action necessary to include therein all disclosure and language deemed necessary or advisable by such Holders to effect such Shelf Offering.
(e) Priority on Demand Registrations and Shelf Offerings. The Corporation shall not include in any Demand Registration or Shelf Offering any securities that are not Registrable Securities without the prior written consent of Holders representing a majority of the Registrable Securities included in such registration or offering. If a Demand Registration or a Shelf Offering is an underwritten offering and the managing underwriters advise the Corporation in writing that in their opinion the number of Registrable Securities and, if permitted hereunder, other securities requested to be included in such offering exceeds the number of Registrable Securities and other securities, if any, that can be sold therein without adversely affecting the marketability, proposed offering price, timing or method of distribution of the offering, the Corporation shall include in such registration or offering, as applicable, prior to the inclusion of any securities which are not Registrable Securities the number of Registrable Securities requested by Holders to be included that, in the opinion of such underwriters, can be sold, without any such adverse effect, pro rata among the respective Holders thereof on the basis of the amount of Registrable Securities owned by each such Holder. Alternatively, if the number of Registrable Securities which can be included on a Shelf Registration Statement is otherwise limited by Instruction I.B.6 to Form S-3 (or any successor provision thereto), the Corporation shall include in such registration or offering prior to the inclusion of any securities which are not Registrable Securities the number of Registrable Securities requested to be included which can be included on such Shelf Registration Statement in accordance with the requirements of Form S-3, pro rata among the respective Holders thereof on the basis of the amount of Registrable Securities owned by each such Holder.
(f) Restrictions on Demand Registration and Shelf Offerings.
(i) The Corporation shall not be obligated to effect any Demand Registration within 90 days after the effective date of a previous Demand Registration or a previous registration in which Registrable Securities were included pursuant to Section 3 and in which there was no reduction in the number of Registrable Securities requested to be included. The Corporation may, with the consent of Holders representing a majority of the Registrable Securities, postpone, for up to 60 days from the date of the request, the filing or the effectiveness of a registration statement for a Demand Registration or suspend the use of a prospectus that is part of a Shelf Registration Statement for up to 60 days from the date of the Suspension Notice (as defined below) and therefore suspend sales of the Shelf Registrable Securities (such period, the Suspension Period) by providing written notice to the Holders if (A) the Corporations board of directors determines in its reasonable good faith judgment that the offer or sale of Registrable Securities would reasonably be expected to have a material adverse effect on any proposal or plan by the Corporation or any Subsidiary to engage in any material acquisition of assets or stock (other than in the ordinary course of business) or any material merger, consolidation, tender offer, recapitalization, reorganization or other transaction involving the Corporation or any Subsidiary, (B) upon advice of counsel, the sale of Registrable Securities pursuant to the registration statement would require disclosure of MNPI not otherwise required to be disclosed under applicable law, and (C) either (x) the Corporation has a bona fide business purpose for preserving the confidentiality of such transaction or (y) disclosure of such MNPI would have a material adverse effect on the Corporation or the Corporations ability to consummate such transaction; provided that in such event, the Holders shall be entitled to withdraw such request for a Demand Registration or underwritten Shelf Offering and the Corporation shall pay all Registration Expenses in connection with such Demand Registration or Shelf Offering. The Corporation may delay a Demand Registration hereunder only once in any twelve-month period, except with the consent of Majority Holders. The Corporation also may extend the Suspension Period for an additional consecutive 60 days with the consent of the Majority Holders, which consent shall not be unreasonably withheld.
(ii) In the case of an event that causes the Corporation to suspend the use of a Shelf Registration Statement as set forth in paragraph (f)(i) above or pursuant to applicable subsections of Section 5(a)(vi) (a Suspension Event), the Corporation shall give a notice to the Holders of Registrable Securities registered pursuant to such Shelf Registration Statement (a Suspension Notice) to suspend sales of the Registrable Securities and such notice shall state generally the basis for the notice and that such suspension shall continue only for so long as the Suspension Event or its effect is continuing. If the basis of such suspension is nondisclosure of MNPI, the Corporation shall not be required to disclose the subject matter of such MNPI to Holders. A Holder shall not effect any sales of the Registrable Securities pursuant to such Shelf Registration Statement (or such filings) at any time after it has received a Suspension Notice from the Corporation and prior to receipt of an End of Suspension Notice (as defined below). Each Holder agrees that (1) such notice constitutes MNPI and that it will not engage in any transaction in any securities of the Corporation until such notice and the information contained therein ceases to constitute MNPI and (2) such Holder shall treat as confidential the receipt of the Suspension Notice and shall not disclose or use the information contained in such Suspension Notice without the prior written consent of the
Corporation until such time as the information contained therein is or becomes available to the public generally, other than as a result of disclosure by the Holder in breach of the terms of this Agreement. Holders may recommence effecting sales of the Registrable Securities pursuant to the Shelf Registration Statement (or such filings) following further written notice to such effect (an End of Suspension Notice) from the Corporation, which End of Suspension Notice shall be given by the Corporation to the Holders and their counsel, if any, promptly following the conclusion of any Suspension Event.
(iii) Notwithstanding any provision herein to the contrary, if the Corporation gives a Suspension Notice with respect to any Shelf Registration Statement pursuant to this Section 2(f), the Corporation agrees that it shall (A) extend the period of time during which such Shelf Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from the date of receipt by the Holders of the Suspension Notice to and including the date of receipt by the Holders of the End of Suspension Notice, and (B) provide copies of any supplemented or amended prospectus necessary to resume sales, with respect to each Suspension Event; provided that such period of time shall not be extended beyond the date that there are no longer Registrable Securities covered by such Shelf Registration Statement.
(g) Selection of Underwriters. Holders representing a majority of the Registrable Securities included in any Demand Registration shall have the right to select the investment banker(s) and manager(s) to administer the offering (including assignment of titles), subject to the Corporations approval not be unreasonably withheld, conditioned or delayed. If any Shelf Offering is an Underwritten Offering, the Holders representing a majority of the Registrable Securities participating in such Underwritten Offering shall have the right to select the investment banker(s) and manager(s) to administer the offering relating to such Shelf Offering (including assignment of titles), subject to the Corporations approval not be unreasonably withheld, conditioned or delayed.
(h) Other Registration Rights. The Corporation represents and warrants that it is not a party to, or otherwise subject to, any other agreement granting registration rights to any other Person with respect to any securities of the Corporation. Except as provided in this Agreement, the Corporation shall not grant to any Persons the right to request the Corporation or any Subsidiary to register any Capital Stock of the Corporation or of any Subsidiary, or any securities convertible or exchangeable into or exercisable for such securities, without the prior written consent of the Majority Holders.
Section 3. Piggyback Registrations.
(a) Right to Piggyback. Following the IPO, whenever the Corporation proposes to register any of its securities under the Securities Act (other than (i) pursuant to a Demand Registration, (ii) in connection with registrations on Form S-4 or S-8 promulgated by the Securities and Exchange Commission or any successor or similar forms or (iii) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities) and the registration form to be used may be used for the registration of Registrable Securities (a Piggyback Registration), the Corporation shall give prompt written notice (in any event within
three Business Days after its receipt of notice of any exercise of demand registration rights other than under this Agreement) to all Holders of its intention to effect such Piggyback Registration and, subject to the terms of Section 3(c) and Section 3(d), shall include in such Piggyback Registration (and in all related registrations or qualifications under blue sky laws and in any related underwriting) all Registrable Securities with respect to which the Corporation has received written requests for inclusion therein within 20 days after delivery of the Corporations notice.
(b) Piggyback Expenses. The Registration Expenses of the Holders shall be paid by the Corporation in all Piggyback Registrations, whether or not any such registration became effective.
(c) Priority on Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of the Corporation, and the managing underwriters advise the Corporation in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability, proposed offering price, timing or method of distribution of the offering, the Corporation shall include in such registration (i) first, the securities the Corporation proposes to sell, (ii) second, the Registrable Securities requested to be included in such registration which, in the opinion of the underwriters, can be sold without any such adverse effect, pro rata among the Holders on the basis of the number of Registrable Securities owned by each such Holder, and (iii) third, other securities requested to be included in such registration which, in the opinion of the underwriters, can be sold without any such adverse effect.
(d) Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Corporations securities (other than the Holders), and the managing underwriters advise the Corporation in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability, proposed offering price, timing or method of distribution of the offering, the Corporation shall include in such registration (i) first, the securities requested to be included therein by the initial holders requesting such registration which, in the opinion of the underwriters, can be sold without any such adverse effect, (ii) second, the Registrable Securities of Holders requested to be included in such registration which, in the opinion of the underwriters, can be sold without any such adverse effect, pro rata among the such Holders on the basis of the number of Registrable Securities owned by each such Holder and (iii) third, other securities requested to be included in such registration which, in the opinion of the underwriters, can be sold without any such adverse effect.
(e) Selection of Underwriters. If any Piggyback Registration is an underwritten offering, the selection of investment banker(s) and manager(s) for the offering shall be at the election of the Corporation (in the case of a primary registration) or at the election of the holders of other Corporation securities requesting such registration (in the case of a secondary registration); provided that Holders representing a majority of the Registrable Securities included in such Piggyback Registration may request that one or more investment banker(s) or manager(s) be included in such offering (such request not to be binding on the Corporation or such other initiating holders of Corporation securities).
(f) Right to Terminate Registration. The Corporation shall have the right to terminate or withdraw any registration initiated by it under this Section 3 whether or not any Holder has elected to include securities in such registration. The Registration Expenses of such withdrawn registration shall be borne by the Corporation in accordance with Section 6.
Section 4. Holdback Agreements.
(a) Holders of Registrable Securities. If requested by the Corporation, each Holder participating in an underwritten Public Offering shall enter into customary lock-up agreements with the managing underwriter(s) of such Public Offering. In the absence of any such lock-up agreement, each Holder agrees as follows:
(i) in connection with the IPO, such Holder shall not (A) offer, sell, pledge, contract to sell or grant any option to purchase, or otherwise transfer or dispose of (including sales pursuant to Rule 144), directly or indirectly, any shares of Capital Stock of the Corporation (including Capital Stock of the Corporation that may be deemed to be owned beneficially by such Holder in accordance with the rules and regulations of the Securities and Exchange Commission) (collectively, Securities), (B) enter into a transaction which would have the same effect as described in clause (A) above, (C) enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of any Securities, whether such transaction is to be settled by delivery of such Securities, in cash or otherwise (each of (A), (B) and (C) above, a Sale Transaction), or (D) publicly disclose the intention to enter into any Sale Transaction, commencing on the earlier of the date on which the Corporation gives notice to the Holders that a preliminary prospectus has been circulated for the IPO or the pricing of such offering and continuing to the date that is 180 days following the date of the final prospectus for the IPO (the Holdback Period), unless the underwriters managing the IPO otherwise agree in writing; provided, however, that if the Holdback Period is shortened or terminated early for any Holder that together with its Affiliates holds two percent (2%) or more of the outstanding Registrable Securities, the Holdback period for each other Holder also shall be shortened or terminated to the same extent;
(ii) in connection with all underwritten Public Offerings (including the IPO), such Holder shall not effect any Sale Transaction commencing on the earlier of the date on which the Corporation gives notice to the Holders of the circulation of a preliminary or final prospectus for such Public Offering or the pricing of such offering and continuing to the date that is 90 days following the date of the final prospectus for such Public Offering (a Follow-On Holdback Period), unless, if an underwritten Public Offering, the underwriters managing the Public Offering otherwise agree in writing;
(iii) in the event that (A) the Corporation issues an earnings release or discloses other material information or a material event relating to the Corporation and its Subsidiaries occurs during the last 17 days of the Holdback Period or any Follow-On Holdback Period (as applicable) or (B) prior to the expiration of the Holdback Period or any Follow-On Holdback Period (as applicable), the Corporation announces that it will release earnings results during the 16-day period beginning upon the expiration of such period, then to the extent necessary for a managing or co-managing underwriter of a
registered offering hereunder to comply with FINRA Rule 2711(f)(4), if agreed to by the Holders representing a majority of the Registrable Securities included in such Underwritten Offering, the Holdback Period or the Follow-On Holdback Period (as applicable) shall be extended until 18 days after the earnings release or disclosure of other material information or the occurrence of the material event, as the case may be (a Holdback Extension); and
(iv) The foregoing clauses (i) through (iii) shall not apply to (A) the sale of Capital Stock pursuant to the terms of the underwriting agreement entered into in connection with such underwritten Public Offering, or (B) transactions relating to shares of Capital Stock or other securities acquired in open market transactions after the completion of the Public Offering, provided that no filing under Section 16(a) of the Exchange Act shall be required or shall be voluntarily made in connection with transfers or dispositions of such shares of Capital Stock or other securities acquired in such open market transactions (other than a filing on Form 5 made after the expiration of the Holdback Period), or (C) transfers of Capital Stock or any security convertible into Capital Stock to the spouse, domestic partner, parent, sibling, child or grandchild (each an immediate family member) of such holder or to a trust formed for the benefit of such holder or of an immediate family member of the undersigned, or (D) transfers of Capital Stock or any security convertible into Capital Stock as a bona fide gift, or (E) distributions of shares of Capital Stock or any security convertible into Capital Stock to limited partners, members, stockholders or affiliates of the undersigned or to any investment fund or other entity controlled or managed by, or under common control or management with, such holder, or (F) as a distribution by a trust to its beneficiaries, provided that in the case of any transfer or distribution pursuant to clause (C), (D), (E) or (F), (1) each donee or distributee shall sign and deliver a lock-up agreement substantially in the form of the lock-up agreement entered into by such holder and (2) no such transfer or distribution in (C), (D), (E) or (F) shall be permitted if it shall require a filing under Section 16(a) or Section 13(d) of the Exchange Act, reporting a reduction in beneficial ownership of shares of Capital Stock, and no such filing under Section 16(a) or Section 13(d) of the Exchange Act shall be voluntarily made during the Holdback Period, or (G) the receipt by the undersigned from the Corporation of Capital Stock upon a vesting event of Capital Stock or rights to acquire Capital stock pursuant to the Corporations equity incentive plans or the exercise by such holder of options to purchase Capital Stock issued pursuant to the Corporations equity incentive plans (including, in each case, by way of net exercise, but for the avoidance of doubt, excluding all manners of exercise that would involve a sale of any securities relating to such options, whether to cover the applicable aggregate exercise price, withholding tax obligations or otherwise), provided that (1) any securities received upon such vesting event or exercise will also be subject to the terms of such holders lock-up agreement and (2) no such vesting event or exercise shall be permitted if it shall require a filing under Section 16(a) or Section 13(d) of the Exchange Act, reporting a reduction in beneficial ownership of shares of Capital Stock, and no such filing under Section 16(a) or Section 13(d) of the Exchange Act shall be voluntarily made during the Holdback Period in connection with such vesting event or exercise, or (H) transfers of Capital Stock or any securities convertible into or exercisable or exchangeable for Capital Stock to the Corporation, pursuant to agreements under which the Corporation has the option to repurchase such shares or securities or a right of
first refusal with respect to transfers of such shares or securities, provided that unless such transfers are pursuant to the Corporations option to repurchase in the event such holder is terminated or resigns as an employee of the Corporation, no transfer shall be permitted if it shall require a filing under Section 16(a) or Section 13(d) of the Exchange Act, reporting a reduction in beneficial ownership of shares of Capital Stock, and no such filing under Section 16(a) or Section 13(d) of the Exchange Act shall be voluntarily made during the Holdback Period in connection with such transfer (other than a filing on Form 5 pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Capital Stock, provided that (1) such plan does not provide for the transfer of Capital Stock during the Holdback Period and (2) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by or on behalf of such holder or the Corporation regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of Capital Stock may be made under such plan during the Holdback Period.
The Corporation may impose stop-transfer instructions with respect to the shares of Capital Stock (or other securities) subject to the restrictions set forth in this Section 4(a) until the end of such period, including any Holdback Extension.
(b) The Corporation. The Corporation (i) shall not file any registration statement for a Public Offering or cause any such registration statement to become effective, or effect any public sale or distribution of its equity securities, or any securities, options or rights convertible into or exchangeable or exercisable for such securities (including Class B Common Stock and Common Units) during any Holdback Period or Follow-On Holdback Period (as extended during any Holdback Extension), and (ii) shall use its reasonable best efforts to cause (A) each holder of at least one percent (1%) (on a fully-diluted basis) of its Class A Common Stock, or any securities convertible into or exchangeable or exercisable for Class A Common Stock (including Class B Common Stock and Common Units), purchased from the Corporation or the Company, as applicable, at any time after the date of this Agreement (other than in a Public Offering) and (B) each of its directors and executive officers to agree not to effect any Sale Transaction during any Holdback Period or Follow-On Holdback Period (as extended during any Holdback Extension), except as part of such underwritten registration, if otherwise permitted, unless the underwriters managing the Public Offering otherwise agree in writing.
(c) Exceptions. The foregoing holdback agreements in Section 4(a) and (b) shall not apply to a registration in connection with an employee benefit plan or in connection with any registration on form S-4 or similar form in connection with any type of acquisition transaction or exchange offer.
Section 5. Registration Procedures.
(a) Whenever the Holders have requested that any Registrable Securities be registered pursuant to this Agreement or have initiated a Shelf Offering, (i) such Holders shall, if applicable, cause such Registrable Securities to be exchanged into Shares in accordance with the terms of the LLC Agreement prior to sale of such Registrable Securities and (ii), the Corporation shall use its reasonable best efforts to effect the registration and the sale of such Registrable
Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Corporation shall as expeditiously as possible:
(i) in accordance with the Securities Act and all applicable rules and regulations promulgated thereunder, prepare and file with the Securities and Exchange Commission a registration statement, and all amendments and supplements thereto and related prospectuses, with respect to such Registrable Securities and use its reasonable best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Corporation shall furnish to the counsel selected by the Holders representing a majority of the Registrable Securities covered by such registration statement copies of all such documents proposed to be filed, which documents shall be subject to the review and comment of such counsel);
(ii) notify each holder of Registrable Securities of (A) the issuance by the Securities and Exchange Commission of any stop order suspending the effectiveness of any registration statement or the initiation of any proceedings for that purpose, (B) the receipt by the Corporation or its counsel of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (C) the effectiveness of each registration statement filed hereunder;
(iii) prepare and file with the Securities and Exchange Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period ending when all of the securities covered by such registration statement have been disposed of in accordance with the intended methods of distribution by the sellers thereof set forth in such registration statement (but in any event not before the expiration of any longer period required under the Securities Act or, if such registration statement relates to an underwritten Public Offering, such longer period as in the opinion of counsel for the underwriters a prospectus is required by law to be delivered in connection with sale of Registrable Securities by an underwriter or dealer) and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement;
(iv) furnish to each seller of Registrable Securities thereunder such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus), each Free Writing Prospectus and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller;
(v) use its reasonable best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such seller (provided that the Corporation shall not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph, (B) consent to general service of process in any such jurisdiction or (C) subject itself to taxation in any such jurisdiction);
(vi) notify each seller of such Registrable Securities (A) promptly after it receives notice thereof, of the date and time when such registration statement and each post-effective amendment thereto has become effective or a prospectus or supplement to any prospectus relating to a registration statement has been filed and when any registration or qualification has become effective under a state securities or blue sky law or any exemption thereunder has been obtained, (B) promptly after receipt thereof, of any request by the Securities and Exchange Commission for the amendment or supplementing of such registration statement or prospectus or for additional information and (C) at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, subject to Section 2(f), at the request of any such seller, the Corporation shall prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading;
(vii) use reasonable best efforts to cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Corporation are then listed and, if not so listed, to be listed on a securities exchange and, without limiting the generality of the foregoing, to arrange for at least two market markers to register as such with respect to such Registrable Securities with FINRA;
(viii) use reasonable best efforts to provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement;
(ix) enter into and perform such customary agreements (including underwriting agreements in customary form) and take all such other actions as the Holders representing a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including, without limitation, effecting a stock split, combination of shares, recapitalization or reorganization);
(x) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate and business documents and properties of the Corporation as shall be necessary to enable them to exercise their due diligence responsibility, and cause the Corporations officers, directors, employees, agents, representatives and independent accountants to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement;
(xi) take all reasonable actions to ensure that any Free-Writing Prospectus utilized in connection with any Demand Registration or Piggyback Registration hereunder complies in all material respects with the Securities Act, is filed in accordance with the Securities Act to the extent required thereby, is retained in accordance with the Securities Act to the extent required thereby and, when taken together with the related prospectus, shall not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;
(xii) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Securities and Exchange Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first day of the Corporations first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158;
(xiii) to the extent that a Holder, in its sole and exclusive judgment, might be deemed to be an underwriter of any Registrable Securities or a controlling person of the Corporation, permit such Holder to participate in the preparation of such registration or comparable statement and allow such Holder to provide language for insertion therein, in form and substance satisfactory to the Corporation, which in the reasonable judgment of such Holder and its counsel should be included;
(xiv) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or the issuance of any order suspending or preventing the use of any related prospectus or suspending the qualification of any Class A Common Stock included in such registration statement for sale in any jurisdiction use reasonable best efforts promptly to obtain the withdrawal of such order;
(xv) use its reasonable best efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the sellers thereof to consummate the disposition of such Registrable Securities;
(xvi) cooperate with the Holders of Registrable Securities covered by the registration statement and the managing underwriter or agent, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing securities to be sold under the registration statement and enable such securities to be in such denominations and registered in such names as the managing underwriter, or agent, if any, or such Holders may request;
(xvii) cooperate with each Holder of Registrable Securities covered by the registration statement and each underwriter or agent participating in the disposition of
such Registrable Securities and their respective counsel in connection with any filings required to be made with FINRA;
(xviii) use its reasonable best efforts to make available the executive officers of the Corporation to participate with the Holders of Registrable Securities covered by the registration statement and any underwriters in any road shows or other selling efforts that may be reasonably requested by the Holders in connection with the methods of distribution for the Registrable Securities;
(xix) in the case of any underwritten Public Offering, use its reasonable best efforts to obtain one or more cold comfort letters from the Corporations independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters as the Holders representing a majority of the Registrable Securities being sold reasonably request;
(xx) in the case of any underwritten Public Offering, use its reasonable best efforts to provide a legal opinion of the Corporations outside counsel, dated the effective date of such registration statement and the date of the closing under the underwriting agreement, the registration statement, each amendment and supplement thereto, the prospectus included therein (including the preliminary prospectus) and such other documents relating thereto in customary form and covering such matters of the type customarily covered by legal opinions of such nature, which opinion shall be addressed to the underwriters and the Holders of such Registrable Securities being sold;
(xxi) if the Corporation files an Automatic Shelf Registration Statement covering any Registrable Securities, use its reasonable best efforts to remain a WKSI (and not become an ineligible issuer (as defined in Rule 405 under the Securities Act)) during the period during which such Automatic Shelf Registration Statement is required to remain effective;
(xxii) if the Corporation does not pay the filing fee covering the Registrable Securities at the time an Automatic Shelf Registration Statement is filed, pay such fee at such time or times as the Registrable Securities are to be sold; and
(xxiii) if the Automatic Shelf Registration Statement has been outstanding for at least three (3) years, at the end of the third year, file a new Automatic Shelf Registration Statement covering the Registrable Securities, and, if at any time when the Corporation is required to re-evaluate its WKSI status the Corporation determines that it is not a WKSI, use its reasonable best efforts to refile the Shelf Registration Statement on Form S-3 and, if such form is not available, Form S-1 and keep such registration statement effective during the period during which such registration statement is required to be kept effective.
(b) Any officer of the Corporation who is a Holder agrees that if and for so long as he or she is employed by the Corporation or any Subsidiary thereof, he or she shall participate fully in the sale process in a manner customary and reasonable for persons in like positions and consistent with his or her other duties with the Corporation and in accordance with applicable
law, including the preparation of the registration statement and the preparation and presentation of any road shows.
(c) The Corporation may require each Holder requesting, or electing to participate in, any registration to furnish the Corporation such information regarding such Holder and the distribution of such Registrable Securities as the Corporation may from time to time reasonably request in writing.
(d) If the Wayzata Funds or any of their respective Affiliates seek to effectuate an in-kind distribution of all or part of their respective Registrable Securities to their respective direct or indirect equityholders, the Corporation shall, subject to any applicable lock-ups, work with the foregoing persons to facilitate such in-kind distribution in the manner reasonably requested.
Section 6. Registration Expenses.
(a) The Corporations Obligation. All expenses incident to the Corporations performance of or compliance with this Agreement (including, without limitation, all registration, qualification and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, fees and disbursements of custodians, and fees and disbursements of counsel for the Corporation and all independent certified public accountants, underwriters (excluding underwriting discounts and commissions) and other Persons retained by the Corporation) (all such expenses being herein called Registration Expenses), shall be borne as provided in this Agreement, except that the Corporation shall, in any event, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which similar securities issued by the Corporation are then listed. Each Person that sells securities pursuant to a Demand Registration or Piggyback Registration hereunder shall bear and pay all underwriting discounts and commissions applicable to the securities sold for such Persons account.
(b) Counsel Fees and Disbursements. In connection with each Demand Registration, each Piggyback Registration and each Shelf Offering that is an underwritten Public Offering, the Corporation shall reimburse the Holders of Registrable Securities included in such registration for the reasonable fees and disbursements of one counsel chosen by the Holders representing a majority of the Registrable Securities included in such registration or participating in such Shelf Offering and disbursements of each additional counsel retained by any Holder for the purpose of rendering a legal opinion on behalf of such Holder in connection with any underwritten Demand Registration, Piggyback Registration or Shelf Offering.
Section 7. Indemnification and Contribution.
(a) By the Corporation. The Corporation shall indemnify and hold harmless, to the extent permitted by law, each Holder, such Holders officers, directors, managers, employees, agents and representatives, and each Person who controls such Holder (within the meaning of the Securities Act) (the Indemnified Parties) against all losses, claims, actions, damages,
liabilities and expenses (including with respect to actions or proceedings, whether commenced or threatened, and including reasonable attorney fees and expenses) caused by, resulting from, arising out of, based upon or related to any of the following statements, omissions or violations (each a Violation) by the Corporation: (i) any untrue or alleged untrue statement of material fact contained in (A) any registration statement, prospectus, preliminary prospectus or Free-Writing Prospectus, or any amendment thereof or supplement thereto or (B) any application or other document or communication (in this Section 7, collectively called an application) executed by or on behalf of the Corporation or based upon written information furnished by or on behalf of the Corporation filed in any jurisdiction in order to qualify any securities covered by such registration under the securities laws thereof, (ii) any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) any violation or alleged violation by the Corporation of the Securities Act or any other similar federal or state securities laws or any rule or regulation promulgated thereunder applicable to the Corporation and relating to action or inaction required of the Corporation in connection with any such registration, qualification or compliance. In addition, the Corporation will reimburse such Indemnified Party for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such losses. Notwithstanding the foregoing, the Corporation shall not be liable in any such case to the extent that any such losses result from, arise out of, are based upon, or relate to an untrue statement or alleged untrue statement, or omission or alleged omission, made in such registration statement, any such prospectus, preliminary prospectus or Free-Writing Prospectus or any amendment or supplement thereto, or in any application, in reliance upon, and in conformity with, written information prepared and furnished in writing to the Corporation by such Indemnified Party expressly for use therein or by such Indemnified Partys failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Corporation has furnished such Indemnified Party with a sufficient number of copies of the same. In connection with an underwritten offering, the Corporation shall indemnify such underwriters, their officers and directors, and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Indemnified Parties.
(b) By Each Holder. In connection with any registration statement in which a Holder is participating, each such Holder shall furnish to the Corporation in writing such information and affidavits as the Corporation reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, shall indemnify the Corporation, its officers, directors, managers, employees, agents and representatives, and each Person who controls the Corporation (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such Holder; provided that the obligation to indemnify shall be individual, not joint and several, for each Holder and shall be limited to the net amount of proceeds received by such Holder from the sale of Registrable Securities pursuant to such registration statement.
(c) Claim Procedure. Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall impair any Persons right to indemnification hereunder only to the extent such failure has prejudiced the indemnifying party) and (ii) unless in such indemnified partys reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld, conditioned or delayed). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. In such instance, the conflicted indemnified parties shall have a right to retain one separate counsel, chosen by the Holders representing a majority of the Registrable Securities included in the registration if such Holders are indemnified parties, at the expense of the indemnifying party.
(d) Contribution. If the indemnification provided for in this Section 7 is held by a court of competent jurisdiction to be unavailable to, or is insufficient to hold harmless, an indemnified party or is otherwise unenforceable with respect to any loss, claim, damage, liability or action referred to herein, then the indemnifying party shall contribute to the amounts paid or payable by such indemnified party as a result of such loss, claim, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other hand in connection with the statements or omissions which resulted in such loss, claim, damage, liability or action as well as any other relevant equitable considerations; provided that the maximum amount of liability in respect of such contribution shall be limited, in the case of each seller of Registrable Securities, to an amount equal to the net proceeds actually received by such seller from the sale of Registrable Securities effected pursuant to such registration. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just or equitable if the contribution pursuant to this Section 7(d) were to be determined by pro rata allocation or by any other method of allocation that does not take into account such equitable considerations. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to herein shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending against any action or claim which is the subject hereof. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(t) of the Securities Act) shall be entitled to contribution from any Person who is not guilty of such fraudulent misrepresentation.
(e) Release. No indemnifying party shall, except with the consent of the indemnified party, consent to the entry of any judgment or enter into any settlement that does not include as
an unconditional term thereof giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. Notwithstanding anything to the contrary in this Section 7, an indemnifying party shall not be liable for any amounts paid in settlement of any loss, claim, damage, liability, or action if such settlement is effected without the consent of the indemnifying party, such consent not to be unreasonably withheld, conditioned or delayed.
(f) Non-exclusive Remedy; Survival. The indemnification and contribution provided for under this Agreement shall be in addition to any other rights to indemnification or contribution that any indemnified party may have pursuant to law or contract and shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and shall survive the transfer of Registrable Securities and the termination or expiration of this Agreement. Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
Section 8. Underwritten Registrations.
(a) Participation. No Person may participate in any Public Offering hereunder which is underwritten unless such Person (i) agrees to sell such Persons securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements (including, without limitation, pursuant to any over-allotment or green shoe option requested by the underwriters; provided that no Holder shall be required to sell more than the number of Registrable Securities such Holder has requested to include) and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. Each Holder shall execute and deliver such other agreements as may be reasonably requested by the Corporation and the lead managing underwriter(s) that are consistent with such Holders obligations under Section 4, Section 5 and this Section 8(a) or that are necessary to give further effect thereto. To the extent that any such agreement is entered into pursuant to, and consistent with, Section 4 and this Section 8(a), the respective rights and obligations created under such agreement shall supersede the respective rights and obligations of the Holders, the Corporation and the underwriters created pursuant to this Section 8(a).
(b) Price and Underwriting Discounts. In the case of an underwritten Demand Registration or Underwritten Takedown requested by Holders pursuant to this Agreement, the price, underwriting discount and other financial terms of the related underwriting agreement for the Registrable Securities shall be determined by the Holders representing a majority of the Registrable Securities included in such underwritten offering.
(c) Suspended Distributions. Each Person that is participating in any registration under this Agreement, upon receipt of any notice from the Corporation of the happening of any event of the kind described in Section 5(a)(vi)(B) or (C), shall immediately discontinue the disposition of its Registrable Securities pursuant to the registration statement until such Persons receipt of the copies of a supplemented or amended prospectus as contemplated by Section
5(a)(vi). In the event the Corporation has given any such notice, the applicable time period set forth in Section 5(a)(iii) during which a Registration Statement is to remain effective shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to this Section 8(c) to and including the date when each seller of Registrable Securities covered by such registration statement shall have received the copies of the supplemented or amended prospectus contemplated by Section 5(a)(vi).
Section 9. Additional Parties; Joinder. Subject to the prior written consent of the Majority Holders, the Corporation may require any Person who acquires Class A Common Stock or rights to acquire Class A Common Stock from the Corporation after the date hereof (including without limitation any Person who acquires Common Units or any LLC Options) to become a party to this Agreement (each such Person, an Additional Investor) and to succeed to all of the rights and obligations of a Holder under this Agreement by obtaining an executed joinder to this Agreement from such Additional Investor in the form of Exhibit A attached hereto (a Joinder). Upon the execution and delivery of a Joinder by such Additional Investor, the Class A Common Stock of the Corporation acquired by such Additional Investor or issuable upon redemption or exchange of Common Units acquired by such Additional Investor (the Acquired Common) shall be Registrable Securities to the extent provided herein, such Additional Investor shall be a Holder under this Agreement with respect to the Acquired Common, and the Corporation shall add such Additional Investors name and address to the Schedule of Investors and circulate such information to the parties to this Agreement.
Section 10. Current Public Information. At all times after the Corporation has filed a registration statement with the Securities and Exchange Commission pursuant to the requirements of either the Securities Act or the Exchange Act, the Corporation shall file all reports required to be filed by it under the Securities Act and the Exchange Act and shall take such further action as any Holder may reasonably request, all to the extent required to enable such Holders to sell Registrable Securities pursuant to Rule 144. Upon request, the Corporation shall deliver to any Holder a written statement as to whether it has complied with such requirements.
Section 11. Subsidiary Public Offering. If, after an initial Public Offering of the Capital Stock of one of its Subsidiaries (including the Company), the Corporation distributes securities of such Subsidiary to its equityholders, then the rights and obligations of the Corporation pursuant to this Agreement shall apply, mutatis mutandis, to such Subsidiary, and the Corporation shall cause such Subsidiary to comply with such Subsidiarys obligations under this Agreement.
Section 12. Transfer of Registrable Securities.
(a) Restrictions on Transfers. Notwithstanding anything to the contrary contained herein, except in the case of (i) a transfer to the Corporation, (ii) a transfer by any Wayzata Fund or any of its Affiliates to its respective equityholders, (iii) a Public Offering, (iv) a sale pursuant to Rule 144 after the completion of the IPO or (v) a transfer in connection with a sale of the Corporation, prior to transferring any Registrable Securities to any Person (including, without limitation, by operation of law), the transferring Holder shall cause the prospective transferee to execute and deliver to the Corporation a Joinder agreeing to be bound by the terms of this
Agreement. Any transfer or attempted transfer of any Registrable Securities in violation of any provision of this Agreement shall be void, and the Corporation shall not record such transfer on its books or treat any purported transferee of such Registrable Securities as the owner thereof for any purpose.
(b) Legend. Each certificate evidencing any Registrable Securities and each certificate issued in exchange for or upon the transfer of any Registrable Securities (unless such Registrable Securities would no longer be Registrable Securities after such transfer) shall be stamped or otherwise imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER PROVISIONS SET FORTH IN A REGISTRATION RIGHTS AGREEMENT DATED AS OF [·], 2014, BY AND AMONG THE ISSUER OF SUCH SECURITIES (THE CORPORATION) AND CERTAIN OF THE CORPORATIONS STOCKHOLDERS, AS AMENDED FROM TIME TO TIME. A COPY OF SUCH REGISTRATION RIGHTS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE CORPORATION TO THE HOLDER HEREOF UPON WRITTEN REQUEST.
The Corporation shall imprint such legend on certificates evidencing Registrable Securities outstanding prior to the date hereof, and shall cause the Company to imprint such legend on certificates, if any, evidencing Common Units exchangeable for Registrable Securities outstanding prior to the date hereof. The legend set forth above shall be removed from the certificates evidencing any securities that have ceased to be Registrable Securities.
Section 13. MNPI Provisions.
(a) Each Holder acknowledges that (i) the provisions of this Agreement that require communications by the Corporation or other Holders to such Holder may result in such Holder and its Representatives acquiring MNPI (which may include, solely by way of illustration, the fact that an offering of the Corporations securities is pending or the number of Corporation securities or the identity of the selling Holders), and (ii) there is no limitation on the duration of time that such Holder and its Representatives may be in possession of MNPI and no requirement that the Company or other Holders make any public disclosure to cause such information to cease to be MNPI; provided that the Corporation will use commercially reasonable efforts to promptly notify each Holder if any proposed Registration or offering for which a notice has been delivered pursuant to this Agreement has been terminated or aborted.
(b) Each Holder agrees that it will maintain the confidentiality of such MNPI and, to the extent such Holder is not a natural person, such confidential treatment shall be in accordance with procedures adopted by it in good faith to protect confidential information of third parties delivered to such Holder (Policies); provided that a holder may deliver or disclose MNPI to (i) its directors, officers, employees, agents, attorneys, affiliates and financial and other advisors (collectively, the Representatives), but solely to the extent such disclosure reasonably relates to its evaluation of exercise of its rights under this Agreement and the sale of any Registrable Securities in connection with the subject of the notice, (ii) any federal or state regulatory authority having jurisdiction over such Holder, (iii) any Person if necessary to effect compliance
with any law, rule, regulation or order applicable to such Holder, (iv) in response to any subpoena or other legal process, or (v) in connection with any litigation to which such Holder is a party; provided further, that in the case of clause (i), the recipients of such MNPI are subject to the Policies or agree to hold confidential the MNPI in a manner substantially consistent with the terms of Section 13 and that in the case of clauses (ii) through (v), such disclosure is required by law and you promptly notify the Corporation of such disclosure to the extent such Holder is legally permitted to give such notice.
(c) Each Holder, by its execution of a counterpart to this agreement or of a Joinder, hereby (i) acknowledges that it is aware that the U.S. securities laws prohibit any person who has MNPI about a company from purchasing or selling, directly or indirectly, securities of such company (including entering into hedge transactions involving such securities), or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities, and (ii) agrees that it will not use or permit any third party to use, and that it will use its reasonable best efforts to assure that none of its representatives will use or permit any third party to use, any MNPI the Corporation provides in contravention of the U.S. securities laws and you will cease trading in the Companys securities while in possession of material non-public information.
(d) Each Holder shall have the right, at any time and from time to time, to elect to not receive any notice that the Corporation or any other Holders otherwise are required to deliver pursuant to this Agreement by delivering to the Corporation a written statement signed by such Holder that it does not want to receive any notices hereunder (an Opt-Out Request); in which case and notwithstanding anything to the contrary in this Agreement the Corporation and other Holders shall not be required to, and shall not, deliver any notice or other information required to be provided to Holders hereunder to the extent that the Corporation or such other Holders reasonably expect would result in a Holder acquiring MNPI. An Opt-Out Request may state a date on which it expires or, if no such date is specified, shall remain in effect indefinitely. A Holder who previously has given the Corporation an Opt-Out Request may revoke such request at any time, and there shall be no limit on the ability of a Holder to issue and revoke subsequent Opt-Out Requests; provided that each Holder shall use commercially reasonable efforts to minimize the administrative burden on the Corporation arising in connection with any such Opt-Out Requests.
Section 14. General Provisions.
(a) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may be amended, modified or waived only with the prior written consent of the Corporation and the Majority Holders; provided that no such amendment, modification or waiver that would materially and adversely affect a Holder (for clarity, including without limitation any LLC Option Holder) in a manner materially different than any other Holder (provided that the accession by Additional Investors to this Agreement pursuant to Section 9 shall not be deemed to adversely affect any Holder), shall be effective against such Holder without the consent of such Holder that is materially and adversely affected thereby. The failure or delay of any Person to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such Person thereafter to enforce each and every provision of this Agreement in accordance with its terms. A waiver or
consent to or of any breach or default by any Person in the performance by that Person of his, her or its obligations under this Agreement shall not be deemed to be a consent or waiver to or of any other breach or default in the performance by that Person of the same or any other obligations of that Person under this Agreement.
(b) Remedies. The parties to this Agreement shall be entitled to enforce their rights under this Agreement specifically (without posting a bond or other security), to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that a breach of this Agreement would cause irreparable harm and money damages would not be an adequate remedy for any such breach and that, in addition to any other rights and remedies existing hereunder, any party shall be entitled to specific performance and/or other injunctive relief from any court of law or equity of competent jurisdiction (without posting any bond or other security) in order to enforce or prevent violation of the provisions of this Agreement.
(c) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited, invalid, illegal or unenforceable in any respect under any applicable law or regulation in any jurisdiction, such prohibition, invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement in such jurisdiction or in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such prohibited, invalid, illegal or unenforceable provision had never been contained herein.
(d) Entire Agreement. Except as otherwise provided herein, this Agreement contains the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties hereto, written or oral, which may have related to the subject matter hereof in any way.
(e) Successors and Assigns. This Agreement shall bind and inure to the benefit and be enforceable by the Corporation and its successors and assigns and the Holders and their respective successors and assigns (whether so expressed or not). In addition, whether or not any express assignment has been made, the provisions of this Agreement which are for the benefit Holders are also for the benefit of, and enforceable by, any subsequent or successor Holder.
(f) Notices. Any notice, demand or other communication to be given under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given (i) when delivered personally to the recipient, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient but; if not, then on the next Business Day, (iii) one Business Day after it is sent to the recipient by reputable overnight courier service (charges prepaid) or (iv) three Business Days after it is mailed to the recipient by first class mail, return receipt requested. Such notices, demands and other communications shall be sent to the Corporation at the address specified below and to any Holder or to any other party subject to this Agreement at such address as indicated on the Schedule of Investors (or in the case of any LLC Option Holder, at the address of such Person on file with the Company), or at such address or to the attention of such other Person as the recipient party has specified by prior
written notice to the sending party. Any party may change such partys address for receipt of notice by providing prior written notice of the change to the sending party as provided herein. The Corporations address is:
Neff Corporation
3750 N.W. 87th Avenue, Suite 400
Miami, Florida 33178
Attn: Chief Financial Officer
Facsimile: (305) 513-4156
With a copy to:
Latham & Watkins LLP
885 Third Avenue
New York, New York 10022
Attn: Dennis D. Lamont, Esq.
Facsimile: (212) 751-4864
or to such other address or to the attention of such other Person as the recipient party has specified by prior written notice to the sending party.
(g) Business Days. If any time period for giving notice or taking action hereunder expires on a day that is not a Business Day, the time period shall automatically be extended to the business day immediately following Business Day.
(h) Governing Law. The corporate law of the State of Delaware shall govern all issues and questions concerning the relative rights of the Corporation and its stockholders. All other issues and questions concerning the construction, validity, interpretation and enforcement of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.
(i) MUTUAL WAIVER OF JURY TRIAL. AS A SPECIFICALLY BARGAINED FOR INDUCEMENT FOR EACH OF THE PARTIES HERETO TO ENTER INTO THIS AGREEMENT (AFTER HAVING THE OPPORTUNITY TO CONSULT WITH COUNSEL), EACH PARTY HERETO EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO OR ARISING IN ANY WAY FROM THIS AGREEMENT OR THE MATTERS CONTEMPLATED HEREBY.
(j) CONSENT TO JURISDICTION AND SERVICE OF PROCESS. EACH OF THE PARTIES IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE CITY AND COUNTY OF NEW YORK BOROUGH OF MANHATTAN, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF THIS AGREEMENT, ANY RELATED AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY. EACH OF THE PARTIES HERETO FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR
DOCUMENT BY U.S. REGISTERED MAIL TO SUCH PARTYS RESPECTIVE ADDRESS SET FORTH ABOVE SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY ACTION, SUIT OR PROCEEDING WITH RESPECT TO ANY MATTERS TO WHICH IT HAS SUBMITTED TO JURISDICTION IN THIS PARAGRAPH. EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS AGREEMENT, ANY RELATED DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE, AND HEREBY AND THEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(k) No Recourse. Notwithstanding anything to the contrary in this Agreement, the Corporation and each Holder agrees and acknowledges that no recourse under this Agreement or any documents or instruments delivered in connection with this Agreement, shall be had against any current or future director, officer, employee, general or limited partner or member of any Holder or of any Affiliate or assignee thereof, whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any statute, regulation or other applicable law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on or otherwise be incurred by any current or future officer, agent or employee of any Holder or any current or future member of any Holder or any current or future director, officer, employee, partner or member of any Holder or of any Affiliate or assignee thereof, as such for any obligation of any Holder under this Agreement or any documents or instruments delivered in connection with this Agreement for any claim based on, in respect of or by reason of such obligations or their creation.
(l) Descriptive Headings; Interpretation. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. The use of the word including in this Agreement shall be by way of example rather than by limitation.
(m) No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party.
(n) Counterparts. This Agreement may be executed in multiple counterparts, any one of which need not contain the signature of more than one party, but all such counterparts taken together shall constitute one and the same agreement.
(o) Electronic Delivery. This Agreement, the agreements referred to herein, and each other agreement or instrument entered into in connection herewith or therewith or contemplated hereby or thereby, and any amendments hereto or thereto, to the extent executed and delivered by means of a photographic, photostatic, facsimile or similar reproduction of such signed writing using a facsimile machine or electronic mail shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party
hereto or to any such agreement or instrument, each other party hereto or thereto shall re-execute original forms thereof and deliver them to all other parties. No party hereto or to any such agreement or instrument shall raise the use of a facsimile machine or electronic mail to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine or electronic mail as a defense to the formation or enforceability of a contract and each such party forever waives any such defense.
(p) Further Assurances. In connection with this Agreement and the transactions contemplated hereby, each Holder shall execute and deliver any additional documents and instruments and perform any additional acts that may be necessary or appropriate to effectuate and perform the provisions of this Agreement and the transactions contemplated hereby.
(q) No Inconsistent Agreements. The Corporation shall not hereafter enter into any agreement with respect to its securities which is inconsistent with or violates the rights granted to the Holders in this Agreement.
* * * * *
IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.
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WAYZATA OPPORTUNITIES FUND II, L.P. | |||
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WAYZATA OPPORTUNITIES FUND OFFSHORE II, L.P. | |||
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Wayzata Offshore II, LLC, its General Partner | ||
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[Signature Page to Registration Rights Agreement] | ||||
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James Continenza |
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Robert Singer |
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Graham Hood |
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Mark Irion |
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Wes Parks |
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Henry Lawson |
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John Anderson |
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Brad Nowell |
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[Signature Page to Registration Rights Agreement] |
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Steven Settelmayer |
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Paula Papamarcos |
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Steve Michaels |
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Tom Sutherland |
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Tammy Parham |
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Jim Horn |
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Bryant Becton |
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Bobby Corner |
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[Signature Page to Registration Rights Agreement]
SCHEDULE OF INVESTORS
Wayzata Funds
Wayzata Opportunities Fund II, L.P.
c/o Wayzata Investment Partners LLC
701 East Lake Street, Suite 300
Wayzata, Minnesota 55391
Attn: Ray Wallander
Fax: (952) 345-8901
Wayzata Opportunities Fund Offshore II, L.P.
c/o Wayzata Investment Partners LLC
701 East Lake Street, Suite 300
Wayzata, Minnesota 55391
Attn: Ray Wallander
Fax: (952) 345-8901
LLC Option Holders
James Continenza
Robert Singer
Graham Hood
Mark Irion
Wes Parks
Henry Lawson
John Anderson
Brad Nowell
Steven Settelmayer
Paula Papamarcos
Steve Michaels
Tom Sutherland
Tammy Parham
Jim Horn
Bryant Becton
Bobby Corner
* * *
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT JOINDER
The undersigned is executing and delivering this Joinder pursuant to the Registration Rights Agreement dated as of [·], 2014 (as the same may hereafter be amended, the Registration Rights Agreement), among Neff Corporation, a Delaware corporation (the Corporation), and the other person named as parties therein.
By executing and delivering this Joinder to the Corporation, and upon acceptance hereof by the Corporation upon the execution of a counterpart hereof, the undersigned hereby agrees to become a party to, to be bound by, and to comply with the provisions of the Registration Rights Agreement as a Holder of Registrable Securities in the same manner as if the undersigned were an original signatory to the Registration Rights Agreement, and the undersigneds shares of Class A Common Stock shall be included as Registrable Securities under the Registration Rights Agreement to the extent provided therein. The Corporation is directed to add the address below the undersigneds signature on this Joinder to the Schedule of Investors attached to the Registration Rights Agreement.
Accordingly, the undersigned has executed and delivered this Joinder as of the day of , 20 .
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Agreed and Accepted as of
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Neff Corporation
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Exhibit 10.4
NEFF HOLDINGS LLC
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of [·], 2014
THE COMPANY INTERESTS REPRESENTED BY THIS SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY OTHER APPLICABLE SECURITIES LAWS. SUCH COMPANY INTERESTS MAY NOT BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF AT ANY TIME WITHOUT EFFECTIVE REGISTRATION UNDER SUCH ACT AND LAWS OR EXEMPTION THEREFROM, AND COMPLIANCE WITH THE OTHER SUBSTANTIAL RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN.
TABLE OF CONTENTS
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Article I. DEFINITIONS |
2 | |
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Article II. ORGANIZATIONAL MATTERS |
13 | |
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Section 2.01 |
Formation of Company |
13 |
Section 2.02 |
Second Amended and Restated Limited Liability Company Agreement |
13 |
Section 2.03 |
Name |
14 |
Section 2.04 |
Purpose |
14 |
Section 2.05 |
Principal Office; Registered Office |
14 |
Section 2.06 |
Term |
14 |
Section 2.07 |
No State-Law Partnership |
14 |
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Article III. MEMBERS; UNITS; CAPITALIZATION |
14 | |
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Section 3.01 |
Members |
14 |
Section 3.02 |
Units |
15 |
Section 3.03 |
Recapitalization and Split; the Corporations Capital Contribution; the Corporations Purchase of Common Units; Redemptions |
16 |
Section 3.04 |
Authorization and Issuance of Additional Units |
16 |
Section 3.05 |
Repurchase or Redemption of shares of Class A Common Stock |
17 |
Section 3.06 |
Certificates Representing Units; Lost, Stolen or Destroyed Certificates; Registration and Transfer of Units |
17 |
Section 3.07 |
Negative Capital Accounts |
18 |
Section 3.08 |
No Withdrawal |
18 |
Section 3.09 |
Loans From Members |
18 |
Section 3.10 |
LLC Option Exercises |
18 |
Section 3.11 |
Corporate Stock Option Plans |
19 |
Section 3.12 |
Dividend Reinvestment Plan, Cash Option Purchase Plan, Stock Incentive Plan or Other Plan |
21 |
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Article IV. DISTRIBUTIONS |
21 | |
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Section 4.01 |
Distributions |
21 |
Section 4.02 |
Restricted Distributions |
23 |
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Article V. CAPITAL ACCOUNTS; ALLOCATIONS; TAX MATTERS |
23 | |
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Section 5.01 |
Capital Accounts |
23 |
Section 5.02 |
Allocations |
24 |
Section 5.03 |
Regulatory Allocations |
24 |
Section 5.04 |
Final Allocations |
26 |
Section 5.05 |
Tax Allocations |
26 |
Section 5.06 |
Indemnification and Reimbursement for Payments on Behalf of a Member |
26 |
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Article VI. MANAGEMENT |
27 | |
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Section 6.01 |
Authority of Manager |
27 |
Section 6.02 |
Actions of the Manager |
28 |
Section 6.03 |
Resignation |
28 |
Section 6.04 |
Removal |
28 |
Section 6.05 |
Vacancies |
28 |
Section 6.06 |
Transactions Between Company and Manager |
28 |
Section 6.07 |
Reimbursement for Expenses |
28 |
Section 6.08 |
Delegation of Authority |
29 |
Section 6.09 |
Limitation of Liability of Manager |
29 |
Section 6.10 |
Investment Company Act |
30 |
Section 6.11 |
Outside Activities of the Manager |
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Article VII. RIGHTS AND OBLIGATIONS OF MEMBERS |
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Section 7.01 |
Limitation of Liability and Duties of Members |
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Section 7.02 |
Lack of Authority |
32 |
Section 7.03 |
No Right of Partition |
32 |
Section 7.04 |
Indemnification |
32 |
Section 7.05 |
Members Right to Act |
33 |
Section 7.06 |
Inspection Rights |
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Article VIII. BOOKS, RECORDS, ACCOUNTING AND REPORTS, AFFIRMATIVE COVENANTS |
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Section 8.01 |
Records and Accounting |
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Section 8.02 |
Fiscal Year |
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Section 8.03 |
Reports |
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Article IX. TAX MATTERS |
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Section 9.01 |
Preparation of Tax Returns |
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Section 9.02 |
Tax Elections |
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Section 9.03 |
Tax Controversies |
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Article X. RESTRICTIONS ON TRANSFER OF UNITS; PREEMPTIVE RIGHTS |
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Section 10.01 |
Transfers by Members |
36 |
Section 10.02 |
Permitted Transfers |
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Section 10.03 |
Restricted Units Legend |
36 |
Section 10.04 |
Transfer |
37 |
Section 10.05 |
Assignees Rights |
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Section 10.06 |
Assignors Rights and Obligations |
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Section 10.07 |
Overriding Provisions |
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Article XI. REDEMPTION AND EXCHANGE RIGHTS |
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Section 11.01 |
Redemption Right of a Member and LLC Optionee |
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Section 11.02 |
Election and Contribution of the Corporation |
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Section 11.03 |
Exchange Right of the Corporation |
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Section 11.04 |
Reservation of shares of Class A Common Stock; Listing; Certificate of the Corporation |
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Section 11.05 |
Effect of Exercise of Redemption or Exchange Right |
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Section 11.06 |
Tax Treatment |
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Article XII. ADMISSION OF MEMBERS |
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Section 12.01 |
Substituted Members |
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Section 12.02 |
Additional Members |
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Article XIII. WITHDRAWAL AND RESIGNATION; TERMINATION OF RIGHTS |
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Section 13.01 |
Withdrawal and Resignation of Members |
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Section 13.02 |
Termination of Rights of LLC Optionees |
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Article XIV. DISSOLUTION AND LIQUIDATION |
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Section 14.01 |
Dissolution |
44 |
Section 14.02 |
Liquidation and Termination |
45 |
Section 14.03 |
Deferment; Distribution in Kind |
45 |
Section 14.04 |
Cancellation of Certificate |
46 |
Section 14.05 |
Reasonable Time for Winding Up |
46 |
Section 14.06 |
Return of Capital |
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Article XV. VALUATION |
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Section 15.01 |
Determination |
46 |
Section 15.02 |
Dispute Resolution |
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Article XVI. GENERAL PROVISIONS |
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Section 16.01 |
Power of Attorney |
47 |
Section 16.02 |
Confidentiality |
47 |
Section 16.03 |
Amendments |
48 |
Section 16.04 |
Title to Company Assets |
48 |
Section 16.05 |
Addresses and Notices |
48 |
Section 16.06 |
Binding Effect; Intended Beneficiaries |
49 |
Section 16.07 |
Creditors |
49 |
Section 16.08 |
Waiver |
49 |
Section 16.09 |
Counterparts |
49 |
Section 16.10 |
Applicable Law |
50 |
Section 16.11 |
Severability |
50 |
Section 16.12 |
Further Action |
50 |
Section 16.13 |
Delivery by Electronic Transmission |
50 |
Section 16.14 |
Right of Offset |
50 |
Section 16.15 |
Effectiveness |
50 |
Section 16.16 |
Entire Agreement |
50 |
Section 16.17 |
Remedies |
51 |
Section 16.18 |
Descriptive Headings; Interpretation |
51 |
Schedules
Schedule 1 |
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Schedule of Members |
Schedule 2 |
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Schedule of LLC Optionees |
Exhibits
Exhibit A |
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Form of Joinder Agreement |
NEFF HOLDINGS LLC
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
This SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this Agreement), dated as of [·], 2014, is entered into by and among Neff Holdings LLC, a Delaware limited liability company (the Company), and its Members (as defined herein).
WHEREAS, the Company initially was formed as a limited liability company with the name Reorganized Neff, L.L.C., pursuant to and in accordance with the Delaware Act (as defined herein) by the filing of the Certificate (as defined herein) with the Secretary of State of the State of Delaware pursuant to Section 18-201 of the Delaware Act on May 12, 2010;
WHEREAS, the Company entered into a Limited Liability Company Agreement of the Company, dated as of September 22, 2010 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time to but excluding October 1, 2010, together with all schedules, exhibits and annexes thereto, the Initial LLC Agreement), with the members of the Company party thereto;
WHEREAS, the Company entered into an Amended and Restated Limited Liability Company Agreement, dated as of October 1, 2010 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time to but excluding the date hereof, together with all schedules, exhibits and annexes thereto, the First A&R LLC Agreement), with Wayzata Opportunities Fund II, L.P., a Delaware limited partnership (Wayzata), and Wayzata Opportunities Fund Offshore II, L.P., a Cayman Islands limited partnership (Wayzata Offshore), as members (collectively, the Original Members) holding Class A Units (as defined Section 5.1 of the First A&R LLC Agreement, the Original Class A Units) of the Company;
WHEREAS, prior to the date hereof the Company has granted certain options (the Original LLC Options) under the Original Management Equity Plan (as defined herein) to those members of the Companys management and independent, non-executive members of the board of directors of the Company identified on Schedule 2 hereto (collectively, the Original LLC Optionees), pursuant to which each Original LLC Optionee is entitled to purchase that number of Class B Units (as defined in Section 5.1 of the First A&R LLC Agreement, the Original Class B Units) of the Company set forth opposite such Persons name on Schedule 2 hereto under the column labeled Original LLC Options at an exercise price of $10.82 per Original Class B Unit;
WHEREAS, the Company, the Original Members and the Original LLC Optionees desire to have Neff Corporation, a Delaware corporation (the Corporation), effect an initial public offering (the IPO) of shares of its Class A common stock, par value $0.01 (the Class A Common Stock), and in connection therewith, to amend and restate the First A&R LLC
Agreement to reflect (a) a recapitalization of the Company and the associated split in the number of Units (as defined herein) then outstanding (the Recapitalization), (b) the addition of the Corporation as a Member in the Company and its designation as sole Manager (as defined herein) of the Company, and (c) the rights and obligations of the Members (as defined herein) of the Company which are enumerated and agreed upon in the terms of this Agreement effective as of the Effective Time (as defined herein), pursuant to which the First A&R LLC Agreement shall be superseded entirely by this Agreement;
WHEREAS, in connection with the Recapitalization, (a) the Original Class A Units of each Original Member will be converted into Common Units (as defined herein) and (b) the Original Class B Units underlying the Original LLC Options will be converted into Common Units underlying the LLC Options (as defined herein);
WHEREAS, exclusive of the Over-Allotment Option (as defined below), the Corporation will sell shares of its Class A Common Stock to public investors in the IPO and will use a portion of the net proceeds received from the IPO (the IPO Primary Net Proceeds) to purchase newly issued Common Units from the Company pursuant to the IPO Common Unit Purchase Agreement (as defined herein) and will use a portion of the net proceeds received from the IPO (the IPO Secondary Net Proceeds) to purchase existing Common Units from the Original Members pursuant to the IPO Common Unit Purchase Agreement; and
WHEREAS, the Corporation may issue additional shares of Class A Common Stock in connection with the IPO as a result of the exercise by the underwriters of their over-allotment option (the Over-Allotment Option) and, if the Over-Allotment Option is in fact exercised in whole or in part, any additional net proceeds (the Over-Allotment Option Net Proceeds) shall be used by the Corporation to purchase additional newly issued Common Units from the Company pursuant to the IPO Common Unit Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Members, intending to be legally bound, hereby agree as follows:
ARTICLE I.
DEFINITIONS
The following definitions shall be applied to the terms used in this Agreement for all purposes, unless otherwise clearly indicated to the contrary.
ABL Credit Agreement means that certain Amended and Restated Senior Secured Credit Agreement, dated as of October 1, 2010 (as amended and restated as of November 20, 2013), by and among the Company, as holdings, Neff LLC, as parent borrower, the subsidiaries of Neff LLC from time to time signatory thereto, as additional credit parties, the several lenders from time to time party thereto, and Bank of America, N.A., as administrative agent and collateral agent for the lenders, as swing line lender and as the issuing bank for letters of credit, including all exhibits, schedules and attachments thereto, as such ABL Credit Agreement is in effect as of the date hereof and as the same may be amended, restated, amended and restated,
supplemented or otherwise modified from time to time and including any one or more refinancings or replacements thereof, in whole or in part, with any other debt facility or debt obligation.
Additional Member has the meaning set forth in Section 12.02.
Adjusted Capital Account Deficit means with respect to the Capital Account of any Member as of the end of any Taxable Year, the amount by which the balance in such Capital Account is less than zero. For this purpose, such Members Capital Account balance shall be:
(a) reduced for any items described in Treasury Regulation Section 1.704- 1(b)(2)(ii)(d)(4), (5), and (6); and
(b) increased for any amount such Member is obligated to contribute or is treated as being obligated to contribute to the Company pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (relating to partner liabilities to a partnership) or 1.704-2(g)(1) and 1.704-2(i) (relating to minimum gain).
Admission Date has the meaning set forth in Section 10.06.
Affiliate (and, with a correlative meaning, Affiliated) means, with respect to a specified Person, each other Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified. As used in this definition and the definition of Majority Member, control (including with correlative meanings, controlled by and under common control with) means possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of voting securities or by contract or other agreement).
Agreement has the meaning set forth in the preamble to this Agreement.
Appraisers has the meaning set forth in Section 15.02.
Assignee means a Person to whom a Company Interest has been transferred but who has not become a Member pursuant to Article XII.
Assumed Tax Liability means, with respect to a Member, an amount equal to the Distribution Tax Rate multiplied by the estimated or actual taxable income of the Company, as determined for federal income tax purposes, allocated to such Member pursuant to Section 5.05 for the period to which the Assumed Tax Liability relates, less prior losses of the Company, as determined for federal income tax purposes, allocated to such Member pursuant to Section 5.05 to the extent not previously taken into account in determining the Assumed Tax Liability of such Member, as determined by the Manager; provided that, in the case of the Corporation, such Assumed Tax Liability (i) shall be computed without regard to any increases to the tax basis of the Companys property pursuant to Section 743(b) of the Code and (ii) shall in no event be less than an amount that will enable the Corporation to meet its tax obligations, including its obligations pursuant to the Tax Receivable Agreement.
Base Rate means, on any date, a variable rate per annum equal to the rate of interest most recently published by The Wall Street Journal as the prime rate at large U.S. money center banks.
Black-Out Period means any black-out or similar period under the Corporations policies covering trading in the Corporations securities to which the applicable Redeeming Member is subject, which period restricts the ability of such Redeeming Member to immediately resell shares of Class A Common Stock to be delivered to such Redeeming Member in connection with a Share Settlement.
Book Value means, with respect to any Company property, the Companys adjusted basis for U.S. federal income tax purposes, adjusted from time to time to reflect the adjustments required or permitted by Treasury Regulation Section 1.704-1(b)(2)(iv)(d)-(g).
Business Day means any day other than a Saturday or a Sunday or a day on which banks located in New York City, New York generally are authorized or required by Law to close.
Capital Account means the capital account maintained for a Member in accordance with Section 5.01.
Capital Contribution means, with respect to any Member, the amount of any cash, cash equivalents, promissory obligations or the Fair Market Value of other property that such Member contributes (or is deemed to contribute) to the Company pursuant to Article III hereof.
Cash Settlement means immediately available funds in U.S. dollars in an amount equal to the Redeemed Units Equivalent.
Certificate means the Companys Certificate of Formation as filed with the Secretary of State of Delaware.
Change of Control Transaction means (a) a sale of all or substantially all of the Companys assets determined on a consolidated basis, (b) a sale of a majority of the Companys outstanding Units (other than (i) to the Corporation or (ii) in connection with a Redemption or Exchange in accordance with Article XI) or (c) a sale of a majority of the outstanding voting securities of any Material Subsidiary of the Company; in any such case, whether by merger, recapitalization, consolidation, reorganization, combination or otherwise; provided, however, that none of (x) a transaction solely for the purpose of changing the jurisdiction of domicile of the Company, (y) a transaction solely for the purpose of changing the form of entity of the Company or (z) a sale of a majority of the outstanding shares of Class A Common Stock (whether by merger, recapitalization, consolidation, reorganization, combination or otherwise), shall constitute a Change of Control Transaction.
Class A Common Stock has the meaning set forth in the recitals to this Agreement.
Class B Common Stock means the Class B Common Stock, par value $0.01 per share, of the Corporation.
Code means the United States Internal Revenue Code of 1986, as amended.
Common Unit means a Unit representing a fractional part of the Company Interests of the Members and having the rights and obligations specified with respect to the Common Units in this Agreement.
Common Unit Redemption Price means the arithmetic average of the volume weighted average prices for a share of Class A Common Stock on the principal U.S. securities exchange or automated or electronic quotation system on which the Class A Common Stock trades, as reported by Bloomberg, L.P., or its successor, for each of the five (5) consecutive full Trading Days ending on and including the last full Trading Day immediately prior to the Redemption Date, subject to appropriate and equitable adjustment for any stock splits, reverse splits, stock dividends or similar events affecting the Class A Common Stock. If the Class A Common Stock no longer trades on a securities exchange or automated or electronic quotation system, then a majority of the Independent Directors shall determine the Common Unit Redemption Price in good faith.
Common Unitholder means a Member who is the registered holder of Common Units.
Company has the meaning set forth in the preamble to this Agreement.
Company Interest means the interest of a Member in Profits, Losses and Distributions.
Contribution Notice has the meaning set forth in Section 11.01(b).
Corporate Board means the Board of Directors of the Corporation.
Corporate Omnibus Incentive Plan means the Neff Corporation 2014 Omnibus Incentive Plan, as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time.
Corporation has the meaning set forth in the recitals to this Agreement, together with its successors and assigns.
Credit Agreements means, collectively, the ABL Credit Agreement and the Second Lien Credit Agreement.
Delaware Act means the Delaware Limited Liability Company Act, 6 Del.L. § 18-101, et seq., as it may be amended from time to time, and any successor thereto.
Distributable Cash shall mean, as of any relevant date on which a determination is being made by the Manager regarding a potential distribution pursuant to Section 4.01(a), the amount of cash that could be distributed by the Company for such purposes in accordance with the Credit Agreements (and without otherwise violating any applicable provisions of the Credit Agreements).
Distribution (and, with a correlative meaning, Distribute) means each distribution made by the Company to a Member with respect to such Members Units, whether in cash,
property or securities of the Company and whether by liquidating distribution or otherwise; provided, however, that none of the following shall be a Distribution: (a) any recapitalization that does not result in the distribution of cash or property to Members or any exchange of securities of the Company, and any subdivision (by Unit split or otherwise) or any combination (by reverse Unit split or otherwise) of any outstanding Units or (b) any other payment made by the Company to a Member that is not properly treated as a distribution for purposes of Sections 731, 732, or 733 or other applicable provisions of the Code.
Distribution Tax Rate shall mean a rate equal to the highest effective marginal combined federal, state and local income tax rate for a Fiscal Year applicable to corporate or individual taxpayers resident in New York City, New York, taking in to account the character of the relevant tax items (e.g., ordinary or capital) and the deductibility of state and local income taxes for federal income tax purposes, as determined in the reasonable discretion of the Manager.
Effective Time has the meaning set forth in Section 16.15.
Equity Plan means any stock or equity purchase plan, restricted stock or equity plan or other similar equity compensation plan now or hereafter adopted by the Company or the Corporation.
Equity Securities means (a) Units or other equity interests in the Company or any Subsidiary of the Company (including other classes or groups thereof having such relative rights, powers and duties as may from time to time be established by the Manager pursuant to the provisions of this Agreement, including rights, powers and/or duties senior to existing classes and groups of Units and other equity interests in the Company or any Subsidiary of the Company), (b) obligations, evidences of indebtedness or other securities or interests convertible or exchangeable into Units or other equity interests in the Company or any Subsidiary of the Company, and (c) warrants, options or other rights to purchase or otherwise acquire Units or other equity interests in the Company or any Subsidiary of the Company.
Event of Withdrawal means the expulsion, bankruptcy or dissolution of a Member or the occurrence of any other event that terminates the continued membership of a Member in the Company. Event of Withdrawal shall not include an event that (a) terminates the existence of a Member for income tax purposes (including, without limitation, (i) a change in entity classification of a Member under Treasury Regulations Section 301.7701-3, (ii) termination of a partnership pursuant to Code Section 708(b)(1)(B), (iii) a sale of assets by, or liquidation of, a Member pursuant to an election under Code Section 338, or (iv) merger, severance, or allocation within a trust or among sub-trusts of a trust that is a Member) but that (b) does not terminate the existence of such Member under applicable state law (or, in the case of a trust that is a Member, does not terminate the trusteeship of the fiduciaries under such trust with respect to all the Company Interests of such trust that is a Member).
Fair Market Value means, with respect to any asset, its fair market value determined according to Article XV.
First A&R LLC Agreement has the meaning set forth in the recitals to this Agreement.
Fiscal Period means any interim accounting period within a Taxable Year established by the Manager and which is permitted or required by Section 706 of the Code.
Fiscal Year means the Companys annual accounting period established pursuant to Section 8.02.
Governmental Entity means (a) the United States of America, (b) any other sovereign nation, (c) any state, province, district, territory or other political subdivision of (a) or (b) of this definition, including any county, municipal or other local subdivision of the foregoing, or (d) any entity exercising executive, legislative, judicial, regulatory or administrative functions of government on behalf of (a), (b) or (c) of this definition.
Indemnified Person has the meaning set forth in Section 7.04(a).
Independent Directors means the members of the Corporate Board who are independent under the standards set forth in Rule 10A-3 promulgated under the U.S. Securities Exchange Act of 1933, as amended, and the corresponding rules of the applicable exchange on which the Class A Common Stock is traded or quoted.
Initial LLC Agreement has the meaning set forth in the recitals to this Agreement.
Investment Company Act means the U.S. Investment Company Act of 1940, as amended from time to time.
IPO has the meaning set forth in the recitals to this Agreement.
IPO Closing Date means the closing date of the IPO, which for the avoidance of doubt means the date on which all IPO net proceeds required to be delivered pursuant to the Underwriting Agreement have been delivered to the Corporation in respect of its sale of Class A Common Stock excluding any proceeds from the Over-Allotment Option which may be delivered at a subsequent date following exercise of such option.
IPO Common Unit Purchase has the meaning set forth in Section 3.03(b).
IPO Common Unit Purchase Agreement means that certain Common Unit Purchase Agreement, dated as of the date hereof, by and among the Corporation, the Company and the Original Members.
IPO Primary Net Proceeds has the meaning set forth in the recitals to this Agreement.
IPO Secondary Net Proceeds has the meaning set forth in the recitals to this Agreement.
Joinder means a joinder to this Agreement, in form and substance substantially similar to Exhibit A to this Agreement.
Law means all laws, statutes, ordinances, rules and regulations of the United States, any foreign country and each state, commonwealth, city, county, municipality, regulatory body, agency or other political subdivision thereof.
LLC Employee means an employee of, or other service provider to, the Company or any Subsidiary, in each case acting in such capacity.
LLC Option Exercise means the exercise, whether in whole or in part, of an LLC Option by the applicable LLC Optionee in accordance with the provisions of the applicable LLC Option and the Original Management Equity Plan, including the payment by such LLC Optionee to the Company of the exercise price in respect thereof (whether in cash or in kind through a cashless exercise).
LLC Optionees means each of the Persons named on Schedule 2 attached hereto with respect to the number of shares of Common Units underlying the LLC Options set forth opposite the name of such Person under the column labeled LLC Options therein, as long as the LLC Option of such Person remains effective in accordance with its terms and only to the extent of the remaining number of Common Units with respect to which such Person has not then exercised its purchase right under such LLC Option.
LLC Options means the Original LLC Options granted under the Original Management Equity Plan, in each case as amended in connection with the Recapitalization, and which after giving effect to the Recapitalization give each LLC Optionee the right to purchase, subject to the terms and conditions set forth therein, the number of Common Units set forth opposite such LLC Optionees name on Schedule 2 hereto at an exercise price of $6.66 per Common Unit. For the avoidance of doubt, no additional LLC Options will be issued on and after the date of this Agreement.
Losses means items of Company loss or deduction determined according to Section 5.01(b).
Majority Members means the Members holding a majority of the Voting Units then outstanding; provided that, if as of any date of determination, a majority of the Voting Units are then held by the Manager or any Affiliates controlled by the Manager, then Majority Members shall mean the Manager together with Members (other than the Manager and its controlled Affiliates) holding a majority of the Voting Units (excluding Voting Units held by the Manager) then outstanding.
Manager has the meaning set forth in Section 6.01.
Market Price means, with respect to a share of Class A Common Stock as of a specified date, the last sale price per share of Class A Common Stock, regular way, or if no such sale took place on such day, the average of the closing bid and asked prices per share of Class A Common Stock, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the Stock Exchange or, if the Class A Common Stock is not listed or admitted to trading on the Stock Exchange, as reported on the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Class A Common Stock is listed
or admitted to trading or, if the Class A Common Stock is not listed or admitted to trading on any national securities exchange, the last quoted price, or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or, if such system is no longer in use, the principal other automated quotation system that may then be in use or, if the Class A Common Stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Class A Common Stock selected by the Corporate Board or, in the event that no trading price is available for the shares of Class A Common Stock, the fair market value of a share of Class A Common Stock, as determined in good faith by the Corporate Board.
Material Subsidiary means any direct or indirect Subsidiary of the Company that, as of any date of determination, represents more than (a) 50% of the consolidated net tangible assets of the Company or (b) 50% of the consolidated net income of the Company before interest, taxes, depreciation and amortization (calculated in a manner substantially consistent with the definition of Consolidated Net Income and/or EBITDA or similar definition(s) appearing therein in the Credit Agreements, including such additional adjustments that are permitted to be made to such measure as described in Adjusted EBITDA or similar definition appearing in the Credit Agreements).
Member means, as of any date of determination, (a) each of the members named on the Schedule of Members and (b) any Person admitted to the Company as a Substituted Member or Additional Member in accordance with Article XII, but in each case only so long as such Person is shown on the Companys books and records as the owner of one or more Units. For the avoidance of doubt, an LLC Optionee shall not constitute a Member hereunder except to the extent that, as of such date of determination, such Person is shown on the Companys books and records as an owner of one or more Units.
Minimum Gain means partnership minimum gain determined pursuant to Treasury Regulation Section 1.704-2(d).
Net Loss means, with respect to a Fiscal Year, the excess if any, of Losses for such Fiscal Year over Profits for such Fiscal Year (excluding Profits and Losses specially allocated pursuant to Section 5.03 and Section 5.04).
Net Profit means, with respect to a Fiscal Year, the excess if any, of Profits for such Fiscal Year over Losses for such Fiscal Year (excluding Profits and Losses specially allocated pursuant to Section 5.03 and Section 5.04).
Officer has the meaning set forth in Section 6.01(b).
Optionee means a Person to whom a stock option is granted under any Stock Option Plan.
Original Award Agreement means an Award Agreement as defined in the First A&R LLC Agreement, as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time, including in connection with the Recapitalization.
Original Class A Units has the meaning set forth in the recitals to this Agreement.
Original Class B Units has the meaning set forth in the recitals to this Agreement.
Original LLC Optionees has the meaning set forth in the recitals to this Agreement.
Original LLC Options has the meaning set forth in the recitals to this Agreement.
Original Management Equity Plan means the Management Equity Plan as defined in the First A&R LLC Agreement, as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time, including in connection with the Recapitalization.
Original Members has the meaning set forth in the recitals to this Agreement.
Other Agreements has the meaning set forth in Section 10.04.
Over-Allotment Option has the meaning set forth in the recitals to this Agreement.
Over-Allotment Option Net Proceeds has the meaning set forth in the recitals to this Agreement.
Percentage Interest means, as among an individual class of Units and with respect to a Member at a particular time, such Members percentage interest in the Company determined by dividing such Members Units of such class by the total Units of all Members of such class at such time. The Percentage Interest of each member shall be calculated to the 9th decimal place.
Permitted Transfer has the meaning set forth in Section 10.02.
Person means an individual or any corporation, partnership, limited liability company, trust, unincorporated organization, association, joint venture or any other organization or entity, whether or not a legal entity.
Pro rata, pro rata portion, according to their interests, ratably, proportionately, proportional, in proportion to, based on the number of Units held, based upon the percentage of Units held, based upon the number of Units outstanding, and other terms with similar meanings, when used in the context of a number of Units of the Company relative to other Units, means as amongst an individual class of Units, pro rata based upon the number of such Units within such class of Units.
Profits means items of Company income and gain determined according to Section 5.01(b).
Recapitalization has the meaning set forth in the recitals to this Agreement.
Redeemed Units has the meaning set forth in Section 11.01(a).
Redeemed Units Equivalent means the product of (a) the Share Settlement, times (b) the Common Unit Redemption Price.
Redeeming Member has the meaning set forth in Section 11.01(a).
Redemption has the meaning set forth in Section 11.01(a).
Redemption Date has the meaning set forth in Section 11.01(a).
Redemption Notice has the meaning set forth in Section 11.01(a).
Redemption Right has the meaning set forth in Section 11.01(a).
Registration Rights Agreement means that certain Registration Rights Agreement, dated as of the date hereof, by and among the Corporation, the Original Members and the Original LLC Optionees.
Retraction Notice has the meaning set forth in Section 11.01(b).
Schedule of Members has the meaning set forth in Section 3.01(b).
SEC means the U.S. Securities and Exchange Commission, including any governmental body or agency succeeding to the functions thereof.
Second Lien Credit Agreement means that certain Second Lien Credit Agreement, dated as of June 9, 2014, by and among the Company, as holdings, Neff LLC, as parent, Neff Rental LLC, as borrower, the several lenders from time to time party thereto, and Credit Suisse AG, as administrative agent and collateral agent for the lenders, including all exhibits, schedules and attachments thereto, as such Second Lien Credit Agreement is in effect as of the date hereof and as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time and including any one or more refinancings or replacements thereof, in whole or in part, with any other debt facility or debt obligation.
Securities Act means the U.S. Securities Act of 1933, as amended, and applicable rules and regulations thereunder, and any successor to such statute, rules or regulations. Any reference herein to a specific section, rule or regulation of the Securities Act shall be deemed to include any corresponding provisions of future Law.
Share Settlement means a number of shares of Class A Common Stock equal to the number of Redeemed Units.
Stock Exchange means the New York Stock Exchange.
Stock Option Plan means any stock option plan now or hereafter adopted by the Company or by the Corporation, including without limitation the Corporate Omnibus Incentive Plan.
Subsidiary means, with respect to any Person, any corporation, limited liability company, partnership, association or business entity of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (b) if a limited liability company, partnership, association or other business entity (other than a corporation), a majority of the voting interests thereof are at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, references to a Subsidiary of the Company shall be given effect only at such times that the Company has one or more Subsidiaries, and, unless otherwise indicated, the term Subsidiary refers to a Subsidiary of the Company.
Substituted Member means a Person that is admitted as a Member to the Company pursuant to Section 12.01.
Tax Distribution Date has the meaning set forth in Section 4.01(b)(i).
Tax Distributions has the meaning set forth in Section 4.01(b)(i).
Tax Matters Partner has the meaning set forth in Section 9.03.
Tax Receivable Agreement means that certain Tax Receivable Agreement, dated as the date hereof, by and among the Corporation, on the one hand, and the Original Members, on the other hand (together with any joinder thereto from time to time executed by any LLC Optionee and/or by any successor or assign to any party to such agreement).
Taxable Year means the Companys accounting period for U.S. federal income tax purposes determined pursuant to Section 9.02.
Trading Day means a day on which the Stock Exchange or such other principal United States securities exchange on which the Class A Common Stock is listed or admitted to trading is open for the transaction of business (unless such trading shall have been suspended for the entire day).
Transfer (and, with a correlative meaning, Transferring) means any sale, transfer, assignment, pledge, encumbrance or other disposition of (whether directly or indirectly, whether with or without consideration and whether voluntarily or involuntarily or by operation of Law) (a) any interest (legal or beneficial) in any Equity Securities or (b) any equity or other interest (legal or beneficial) in any Member if substantially all of the assets of such Member consist solely of Units.
Treasury Regulations means the income tax regulations promulgated under the Code and any corresponding provisions of succeeding regulations.
Underwriting Agreement means the Underwriting Agreement, dated as of [·], 2014, by and among the Corporation, the Company, Morgan Stanley & Co. LLC and Jefferies LLC.
Unit means a Company Interest of a Member or a permitted Assignee in the Company representing a fractional part of the Company Interests of all Members and Assignees as may be established by the Manager from time to time in accordance with Section 3.02; provided, however, that any class or group of Units issued shall have the relative rights, powers and duties
set forth in this Agreement, and the Company Interest represented by such class or group of Units shall be determined in accordance with such relative rights, powers and duties.
Unitholder means a Common Unitholder and any Member who is the registered holder of any other class of Units, if any.
Unvested Corporate Shares means shares of Class A Common Stock issued pursuant to the Corporate Omnibus Incentive Plan that are not Vested Corporate Shares.
Value means (a) for any Stock Option Plan, the Market Price for the trading day immediately preceding the date of exercise of a stock option under such Stock Option Plan and (b) for any Equity Plan other than a Stock Option Plan, the Market Price for the trading day immediately preceding the Vesting Date.
Vested Corporate Shares means the shares of Class A Common Stock issued pursuant to a Stock Option Plan adopted by the Corporation that are vested pursuant to the terms thereof or pursuant to any award or similar agreement relating thereto.
Vesting Date has the meaning set forth in Section 3.11(c)(ii).
Voting Units means (a) the Common Units and (b) any other Units other than Units that by their express terms do not entitle the record holder thereof to vote on any matter presented to the Members generally under this Agreement for approval.
Wayzata has the meaning set forth in the recitals to this Agreement.
Wayzata Offshore has the meaning set forth in the recitals to this Agreement.
ARTICLE II.
ORGANIZATIONAL MATTERS
Section 2.01 Formation of Company. The Company was formed on May 12, 2010 pursuant to the provisions of the Delaware Act.
Section 2.02 Second Amended and Restated Limited Liability Company Agreement. The Members hereby execute this Agreement for the purpose of establishing the affairs of the Company and the conduct of its business in accordance with the provisions of the Delaware Act. The Members hereby agree that during the term of the Company set forth in Section 2.06 the rights and obligations of the Members with respect to the Company will be determined in accordance with the terms and conditions of this Agreement and the Delaware Act. On any matter upon which this Agreement is silent, the Delaware Act shall control. No provision of this Agreement shall be in violation of the Delaware Act and to the extent any provision of this Agreement is in violation of the Delaware Act, such provision shall be void and of no effect to the extent of such violation without affecting the validity of the other provisions of this Agreement; provided, however, that where the Delaware Act provides that a provision of the Delaware Act shall apply unless otherwise provided in a limited liability company agreement or words of similar effect, the provisions of this Agreement shall in each instance control;
provided further, that notwithstanding the foregoing, Section 18-210 of the Delaware Act shall not apply or be incorporated into this Agreement.
Section 2.03 Name. The name of the Company shall be Neff Holdings LLC. The Manager in its sole discretion may change the name of the Company at any time and from time to time. Notification of any such change shall be given to all of the Members and, to the extent practicable, to all of the holders of any Equity Securities then outstanding. The Companys business may be conducted under its name and/or any other name or names deemed advisable by the Manager.
Section 2.04 Purpose. The primary business and purpose of the Company shall be to engage in such activities as are permitted under the Delaware Act and determined from time to time by the Manager in accordance with the terms and conditions of this Agreement.
Section 2.05 Principal Office; Registered Office. The principal office of the Company shall be at 3750 N.W. 87th Avenue, Suite 400, Miami, Florida 33178, or such other place as the Manager may from time to time designate. The address of the registered office of the Company in the State of Delaware shall be c/o The Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, County of New Castle, 19801, and the registered agent for service of process on the Company in the State of Delaware at such registered office shall be The Corporation Trust Company. The Manager may from time to time change the Companys registered agent and registered office in the State of Delaware.
Section 2.06 Term. The term of the Company commenced upon the filing of the Certificate in accordance with the Delaware Act and shall continue in existence until termination and dissolution of the Company in accordance with the provisions of Article XIV.
Section 2.07 No State-Law Partnership. The Members intend that the Company not be a partnership (including, without limitation, a limited partnership) or joint venture, and that no Member be a partner or joint venturer of any other Member by virtue of this Agreement, for any purposes other than as set forth in the last sentence of this Section 2.07, and neither this Agreement nor any other document entered into by the Company or any Member relating to the subject matter hereof shall be construed to suggest otherwise. The Members intend that the Company shall be treated as a partnership for U.S. federal and, if applicable, state or local income tax purposes, and that each Member and the Company shall file all tax returns and shall otherwise take all tax and financial reporting positions in a manner consistent with such treatment.
ARTICLE III.
MEMBERS; UNITS; CAPITALIZATION
Section 3.01 Members.
(a) Each of the Original Members previously was admitted as a Member to the Company pursuant to the First A&R LLC Agreement and shall remain a Member of the Company upon the Effective Time. At the Effective Time and concurrently with the IPO Common Unit Purchase, the Corporation shall be admitted to the Company as a Member. In accordance with Sections 3.10(a) and 12.02, from time to time on or after the date of this
Agreement, upon each LLC Option Exercise the applicable LLC Optionee shall be admitted to the Company as an Additional Member.
(b) The Company shall maintain a schedule setting forth: (i) the name and address of each Member; (ii) the aggregate number of outstanding Units and the number and class of Units held by each Member; (iii) the aggregate amount of cash Capital Contributions that has been made by the Members with respect to their Units; and (iv) the Fair Market Value of any property other than cash contributed by the Members with respect to their Units (including, if applicable, a description and the amount of any liability assumed by the Company or to which contributed property is subject) (such schedule, the Schedule of Members). The applicable Schedule of Members in effect as of the Effective Time is set forth as Schedule 1 to this Agreement. The Schedule of Members shall be the definitive record of ownership of each Unit of the Company and all relevant information with respect to each Member. The Company shall be entitled to recognize the exclusive right of a Person registered on its records as the owner of Units for all purposes and shall not be bound to recognize any equitable or other claim to or interest in Units on the part of any other Person, whether or not it shall have express or other notice thereof, except as otherwise provided by the Delaware Act.
(c) No Member shall be required by this Agreement or, except as approved by the Manager pursuant to Section 6.01 and in accordance with the other provisions of this Agreement, permitted to loan any money or property to the Company or borrow any money or property from the Company. No member shall be required by this Agreement to (x) make a Capital Contribution in respect of Units (other than upon the acquisition thereof) to the Company after the date hereof, except to the extent as may from time to time be required by the Delaware Act or (y) personally guarantee the obligations of the Company or of any other Member.
Section 3.02 Units. Interests in the Company shall be represented by Units, or such other securities of the Company, in each case as the Manager may establish in its discretion in accordance with the terms and subject to the restrictions hereof. Immediately after the Effective Time, the Units will be comprised of a single class of Common Units (with an aggregate of One Hundred Ten million (110,000,000) Common Units being initially authorized for issuance by the Company, subject to such modifications as may be required pursuant to Section 3.04). To the extent required pursuant to Section 3.04(a), the Manager may create one or more classes or series of Common Units or preferred Units solely to the extent they are in the aggregate substantially equivalent to a class of common stock of the Corporation or class or series of preferred stock of the Corporation; provided that as long as there are any Members of the Company (other than the Corporation) or any LLC Optionees with respect to outstanding LLC Options, then no such new class or series of Units may deprive such Members or LLC Optionees of, or dilute or reduce, the pro rata share of all Company Interests they would have received or to which they would have been entitled (including on a pro forma basis for the exercise of LLC Options) if such new class or series of Units had not been created except to the extent (and solely to the extent) the Company actually receives cash in an aggregate amount, or other property with a Fair Market Value in an aggregate amount, equal to the pro rata share allocated to such new class or series of Units and the number thereof issued by the Company.
Section 3.03 Recapitalization and Split; the Corporations Capital Contribution; the Corporations Purchase of Common Units; Redemptions.
(a) Recapitalization and Split. In connection with the Recapitalization, immediately upon the Effective Time, the aggregate number of 9,200,000 Original Class A Units that were issued and outstanding and held by the Original Members prior to the execution and effectiveness of this Agreement are hereby converted into an aggregate of 14,951,625 Common Units. The number of Common Units received by each Original Member reflect a 1.6251776625:1 split of each Unit evidencing a common Company Interest previously held by each Original Member as reflected on Schedule A to, and in other applicable provisions of, the First A&R LLC Agreement. In connection with the Recapitalization, immediately upon the Effective Time, the aggregate number of 778,374 Original Class B Units that were underlying option grants to the Original LLC Optionees prior to the execution and effectiveness of this Agreement are hereby converted into an aggregate of 1,264,995 Common Units. The number of Common Units underlying each grant to an Original LLC Optionee will reflect a 1.6251776625:1 split of each Unit evidencing a common Company Interest previously underlying the grant to such Original LLC Optionee and reflected in the applicable grant documentation under the Original Management Equity Plan and the applicable Original Award Agreement. No fractional Common Units will be issued as a result of the Unit splits contemplated by this Section 3.03.
(b) The Corporations Common Unit Purchase. Following the Recapitalization, immediately upon the Effective Time, the Corporation will contribute the IPO Primary Net Proceeds to the Company in exchange for 8,333,333 newly issued Common Units pursuant to the IPO Common Unit Purchase Agreement (the IPO Common Unit Purchase). The IPO Common Unit Purchase shall be reflected on the Schedule of Members. In addition, to the extent the underwriters in the IPO exercise the Over-Allotment Option in whole or in part, (i) pursuant to the IPO Common Unit Purchase Agreement, the Corporation will contribute the Over-Allotment Option Net Proceeds to the Company in exchange for a number of newly issued Common Units equal to the number of shares of Class A Common Stock issued by the Corporation in such exercise of the Over-Allotment Option, and (ii) such issuance of additional Common Units shall be reflected on the Schedule of Members.
Section 3.04 Authorization and Issuance of Additional Units.
(a) The Company shall undertake all actions, including, without limitation, a reclassification, distribution, division or recapitalization, with respect to the Common Units, to maintain at all times a one-to-one ratio between the number of Common Units owned by the Corporation and the number of outstanding shares of Class A Common Stock, disregarding, for purposes of maintaining the one-to-one ratio, (i) Unvested Corporate Shares, (ii) treasury stock or (iii) preferred stock or other debt or equity securities (including without limitation warrants, options or rights) issued by the Corporation that are convertible into or exercisable or exchangeable for Class A Common Stock (except to the extent the net proceeds from such other securities, including any exercise or purchase price payable upon conversion, exercise or exchange thereof, has been contributed by the Corporation to the equity capital of the Company). In the event the Corporation issues, transfers or delivers from treasury stock or repurchases Class A Common Stock in a transaction not contemplated in this Agreement, the Manager shall take all
actions such that, after giving effect to all such issuances, transfers, deliveries or repurchases, the number of outstanding Common Units owned by the Corporation will equal on a one-for-one basis the number of outstanding shares of Class A Common Stock. In the event the Corporation issues, transfers or delivers from treasury stock or repurchases or redeems the Corporations preferred stock in a transaction not contemplated in this Agreement, the Manager shall take all actions such that, after giving effect to all such issuances, transfers, deliveries repurchases or redemptions, the Corporation holds (in the case of any issuance, transfer or delivery) or ceases to hold (in the case of any repurchase or redemption) equity interests in the Company which (in the good faith determination by the Manager) are in the aggregate substantially equivalent to the outstanding preferred stock of the Corporation so issued, transferred, delivered, repurchased or redeemed. The Company shall not undertake any subdivision (by any Common Unit split, Common Unit distribution, reclassification, recapitalization or similar event) or combination (by reverse Common Unit split, reclassification, recapitalization or similar event) of the Common Units that is not accompanied by an identical subdivision or combination of Class A Common Stock to maintain at all times a one-to-one ratio between the number of Common Units owned by the Corporation and the number of outstanding shares of Class A Common Stock, unless such action is necessary to maintain at all times a one-to-one ratio between the number of Common Units owned by the Corporation and the number of outstanding shares of Class A Common Stock as contemplated by the first sentence of this Section 3.04(a) without the requirement of any consent or acknowledgement of any other Member.
(b) The Company shall only be permitted to issue additional Units or other Equity Securities in the Company to the Persons and on the terms and conditions provided for in Section 3.02, this Section 3.04, Section 3.10, Section 3.11 and Section 3.12. Subject to the foregoing, the Manager may cause the Company to issue additional Common Units authorized under this Agreement at such times and upon such terms as the Manager shall determine and the Manager shall amend this Agreement as necessary in connection with the issuance of additional Common Units and admission of additional Members under this Section 3.04.
Section 3.05 Repurchase or Redemption of shares of Class A Common Stock. If, at any time, any shares of Class A Common Stock are repurchased or redeemed (whether by exercise of a put or call, automatically or by means of another arrangement) by the Corporation for cash, then the Manager shall cause the Company, immediately prior to such repurchase or redemption of Class A Common Stock, to redeem a corresponding number of Common Units held by the Corporation, at an aggregate redemption price equal to the aggregate purchase or redemption price of the shares of Class A Common Stock being repurchased or redeemed by the Corporation (plus any expenses related thereto) and upon such other terms as are the same for the shares of Class A Common Stock being repurchased or redeemed by the Corporation.
Section 3.06 Certificates Representing Units; Lost, Stolen or Destroyed Certificates; Registration and Transfer of Units.
(a) Units shall not be certificated unless otherwise determined by the Manager. If the Manager determines that one or more Units shall be certificated, each such certificate shall be signed by or in the name of the Company, by the Chief Executive Officer and any other officer designated by the Manager, representing the number of Units held by such holder. Such certificate shall be in such form (and shall contain such legends) as the Manager may determine.
Any or all of such signatures on any certificate representing one or more Units may be a facsimile, engraved or printed, to the extent permitted by applicable Law. The Manager agrees that it shall not elect to treat any Unit as a security within the meaning of Article 8 of the Uniform Commercial Code unless thereafter all Units then outstanding are represented by one or more certificates.
(b) If Units are certificated, the Manager may direct that a new certificate representing one or more Units be issued in place of any certificate theretofore issued by the Company alleged to have been lost, stolen or destroyed, upon delivery to the Manager of an affidavit of the owner or owners of such certificate, setting forth such allegation. The Manager may require the owner of such lost, stolen or destroyed certificate, or such owners legal representative, to give the Company a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate.
(c) Upon surrender to the Company or the transfer agent of the Company, if any, of a certificate for one or more Units, duly endorsed or accompanied by appropriate evidence of succession, assignment or authority to transfer, in compliance with the provisions hereof, the Company shall issue a new certificate representing one or more Units to the Person entitled thereto, cancel the old certificate and record the transaction upon its books. Subject to the provisions of this Agreement, the Manager may prescribe such additional rules and regulations as it may deem appropriate relating to the issue, Transfer and registration of Units.
Section 3.07 Negative Capital Accounts. No Member shall be required to pay to any other Member or the Company any deficit or negative balance which may exist from time to time in such Members Capital Account (including upon and after dissolution of the Company).
Section 3.08 No Withdrawal. No Person shall be entitled to withdraw any part of such Persons Capital Contribution or Capital Account or to receive any Distribution from the Company, except as expressly provided in this Agreement.
Section 3.09 Loans From Members. Loans by Members to the Company shall not be considered Capital Contributions. Subject to the provisions of Section 3.01(c), the amount of any such advances shall be a debt of the Company to such Member and shall be payable or collectible in accordance with the terms and conditions upon which such advances are made.
Section 3.10 LLC Option Exercises. If at any time or from time to time, in connection with any LLC Option, the LLC Optionee exercises its LLC Option in whole or in part:
(a) If such LLC Optionee is not a Member as of the date of such exercise, such LLC Optionee shall execute and deliver to the Manager a Joinder to this Agreement whereby such LLC Optionee shall agree to become a Member under this Agreement, entitled to all of the rights and privileges and subject to all of the agreements and responsibilities of a Member hereunder from and after the date of such Joinder.
(b) Notwithstanding the foregoing, if the LLC Optionee, in its capacity as a prospective Member hereunder as a result of such LLC Option exercise, intends to
simultaneously exercise its Redemption Rights with respect to all (but not less than all) of the Common Units to be received as by such LLC Optionee as a result of such exercise, then:
(i) the actions described in subsection (a) of this Section 3.10 shall be deemed to have occurred (including that such LLC Optionee shall be deemed to have become a Member for the period of time between such exercise and such Redemption) without requiring the actual execution of a Joinder or the actual issuance and delivery to the LLC Optionee of the applicable number of Common Units; and
(ii) such LLC Optionee may proceed to exercise all of the rights of a Member with respect to a Redemption under Article XI hereof of up to the number of Common Units that such LLC Optionee is entitled to receive (and deemed to have received) as a result of such exercise.
(c) Anti-dilution adjustments. For all purposes of this Section 3.10, the number of Common Units (or in connection with simultaneous Redemption, the number of shares of Class A Common Stock in lieu of Common Units) shall be determined after giving effect to all anti-dilution or similar adjustments that are applicable, as of the date of exercise, to the LLC Option being exercised the Original Management Equity Plan or applicable Original Award Agreement.
Section 3.11 Corporate Stock Option Plans.
(a) Options Granted to Persons other than LLC Employees. If at any time or from time to time, in connection with any Stock Option Plan, a stock option granted over shares of Class A Common Stock to a Person other than an LLC Employee is duly exercised:
(i) The Corporation shall, as soon as practicable after such exercise, make a Capital Contribution to the Company in an amount equal to the exercise price paid to the Corporation by such exercising Person in connection with the exercise of such stock option.
(ii) Notwithstanding the amount of the Capital Contribution actually made pursuant to Section 3.11(a)(i), the Corporation shall be deemed to have contributed to the Company as a Capital Contribution, in lieu of the Capital Contribution actually made and in consideration of additional Common Units, an amount equal to the Value of a share of Class A Common Stock as of the date of such exercise multiplied by the number of shares of Class A Common Stock then being issued by the Corporation in connection with the exercise of such stock option.
(iii) The Corporation shall receive in exchange for such Capital Contributions (as deemed made under 3.11(a)(ii)), a corresponding number of Units of a class correlative to the class of Equity Securities for which such stock options were granted.
(b) Options Granted to LLC Employees. If at any time or from time to time, in connection with any Stock Option Plan, a stock option granted over shares of Class A Common Stock to an LLC Employee is duly exercised:
(i) The Corporation shall sell to the Optionee, and the Optionee shall purchase from the Corporation, for a cash price per share equal to the Value of a share of Class A Common Stock at the time of the exercise, the number of shares of Class A Common Stock equal to the quotient of (x) the exercise price payable by the Optionee in connection with the exercise of such stock option divided by (y) the Value of a share of Class A Common Stock at the time of such exercise.
(ii) The Corporation shall sell to the Company (or if the Optionee is an employee of, or other service provider to, a Subsidiary, the Corporation shall sell to such Subsidiary), and the Company (or such Subsidiary, as applicable) shall purchase from the Corporation, a number of shares of Class A Common Stock equal to the excess of (x) the number of shares of Class A Common Stock as to which such stock option is being exercised over (y) the number of shares of Class A Common Stock sold pursuant to Section 3.11(b)(i) hereof. The purchase price per share of Class A Common Stock for such sale of shares of Class A Common Stock to the Company (or such Subsidiary) shall be the Value of a share of Class A Common Stock as of the date of exercise of such stock option.
(iii) The Company shall transfer to the Optionee (or if the Optionee is an employee of, or other service provider to, a Subsidiary, the Subsidiary shall transfer to the Optionee) at no additional cost to such LLC Employee and as additional compensation to such LLC Employee, the number of shares of Class A Common Stock described in Section 3.11(b)(ii).
(iv) The Corporation shall, as soon as practicable after such exercise, make a Capital Contribution to the Company in an amount equal to all proceeds received (from whatever source, but excluding any payment in respect of payroll taxes or other withholdings) by the Corporation in connection with the exercise of such stock option. The Corporation shall receive for such Capital Contribution, a number Units equal to the number of shares of Class A Common Stock for which such option was exercised.
(c) Restricted Stock Granted to LLC Employees. If at any time or from time to time, in connection with any Equity Plan (other than a Stock Option Plan), any shares of Class A Common Stock are issued to an LLC Employee (including any shares of Class A Common Stock that are subject to forfeiture in the event such LLC Employee terminates his employment by the Company or any Subsidiary) in consideration for services performed for the Company or any Subsidiary:
(i) The Corporation shall issue such number of shares of Class A Common Stock as are to be issued to the LLC Employee in accordance with the Equity Plan;
(ii) On the date (such date, the Vesting Date) that the Value of such shares is includible in taxable income of the LLC Employee, the following events will be deemed to have occurred: (a) the Corporation shall be deemed to have sold such shares of Class A Common Stock to the Company (or if the LLC Employee is an employee of, or other service provider to, a Subsidiary, to such Subsidiary) for a purchase price equal to the Value of such shares of Class A Common Stock, (b) the Company (or such
Subsidiary) shall be deemed to have delivered such shares of Class A Common Stock to the LLC Employee, (c) the Corporation shall be deemed to have contributed the purchase price for such shares of Class A Common Stock to the Company as a Capital Contribution, and (d) in the case where the LLC Employee is an employee of a Subsidiary, the Company shall be deemed to have contributed such amount to the capital of the Subsidiary; and
(iii) The Company shall issue to the Corporation on the Vesting Date a number of Units equal to the number of shares of Class A Common Stock issued under Section 3.11(c)(i) in consideration for a Capital Contribution in cash in an amount equal to the product of (x) the number of such newly issued Units multiplied by (y) the Value of a share of Class A Common Stock.
(d) Future Stock Incentive Plans. Nothing in this Agreement shall be construed or applied to preclude or restrain the Corporation from adopting, modifying or terminating stock incentive plans for the benefit of employees, directors or other business associates of the Corporation, the Company or any of their respective Affiliates. The Members acknowledge and agree that, in the event that any such plan is adopted, modified or terminated by the Corporation, amendments to this Section 3.11 may become necessary or advisable and that any approval or consent to any such amendments requested by the Corporation shall be deemed granted by the Manager without the requirement of any further consent or acknowledgement of any other Member.
(e) Anti-dilution adjustments. For all purposes of this Section 3.11, the number of shares of Class A Common Stock and the corresponding number of Common Units shall be determined after giving effect to all anti-dilution or similar adjustments that are applicable, as of the date of exercise or vesting, to the option, warrant, restricted stock or other equity interest that is being exercised or becomes vested under the applicable Stock Option Plan or other Equity Plan and applicable award or grant documentation.
Section 3.12 Dividend Reinvestment Plan, Cash Option Purchase Plan, Stock Incentive Plan or Other Plan. Except as may otherwise be provided in this Article III, all amounts received or deemed received by the Corporation in respect of any dividend reinvestment plan, cash option purchase plan, stock incentive or other stock or subscription plan or agreement, either (a) shall be utilized by the Corporation to effect open market purchases of shares of Class A Common Stock, or (b) if the Corporation elects instead to issue new shares of Class A Common Stock with respect to such amounts, shall be contributed by the Corporation to the Company in exchange for additional Units. Upon such contribution, the Company will issue to the Corporation a number of Units equal to the number of new shares of Class A Common Stock so issued.
ARTICLE IV.
DISTRIBUTIONS
Section 4.01 Distributions.
(a) Distributable Cash; Other Distributions. To the extent permitted by applicable Law and hereunder, Distributions to Members may be declared by the Manager out of
Distributable Cash or other funds or property legally available therefor in such amounts and on such terms (including the payment dates of such Distributions) as the Manager shall determine using such record date as the Manager may designate; such Distributions shall be made to the Members as of the close of business on such record date on a pro rata basis in accordance with each Members Percentage Interest as of the close of business on such record date; provided, however, that the Manager shall have the obligation to make Distributions as set forth in Sections 4.01(b) and 14.02; and provided further that, notwithstanding any other provision herein to the contrary, no Distributions shall be made to any Member to the extent such Distribution would render the Company insolvent. For purposes of the foregoing sentence, insolvency means the inability of the Company to meet its payment obligations when due. Promptly following the designation of a record date and the declaration of a Distribution pursuant to this Section 4.01(a), the Manager shall give notice to each Member of the record date, the amount and the terms of the Distribution and the payment date thereof. In furtherance of the foregoing, it is intended that the Manager shall, to the extent permitted by applicable Law and hereunder, have the right in its sole discretion to make Distributions to the Members pursuant to this Section 4.01(a) in such amounts as shall enable the Corporation to pay dividends or to meet its obligations, including its obligations pursuant to the Tax Receivable Agreement (to the extent such obligations are not otherwise able to be satisfied as a result of Tax Distributions required to be made pursuant to Section 4.01(b)).
(b) Tax Distributions.
(i) Subject to Section 4.02, on or about each date (a Tax Distribution Date) that is ten (10) Business Days prior to (i) each date on which estimated U.S. federal income tax payments are required to be made by calendar year individual taxpayers (or, if earlier, the date on which estimated U.S. federal income tax payments are required for the Corporation) and (ii) each due date for the U.S. federal income tax return of an individual calendar year taxpayer (without regard to extensions) (or, if earlier, the due date for the U.S. federal income tax return of the Corporation, as determined without regard to extensions), the Company shall be required to make a Distribution to each Member of cash in an amount equal to the excess of such Members Assumed Tax Liability, if any, for such taxable period over the Distributions previously made to such Member pursuant to this Section 4.01(b) with respect to such taxable period (the Tax Distributions).
(ii) To the extent a Member otherwise would be entitled to receive less than its Percentage Interest of the aggregate Tax Distributions to be paid pursuant to this Section 4.01(b) on any given date, the Tax Distributions to such Member shall be increased to ensure that all Distributions made pursuant to this Section 4.01(b) are made pro rata in accordance with Percentage Interests. If, on a Tax Distribution Date, there are insufficient funds on hand to distribute to the Members the full amount of the Tax Distributions to which such Members are otherwise entitled, Distributions pursuant to this Section 4.01(b) shall be made to the Members to the extent of available funds in accordance with their Percentage Interests and the Company shall make future Tax Distributions as soon as funds become available sufficient to pay the remaining portion of the Tax Distributions to which such Members are otherwise entitled.
(iii) In the event of any audit by, or similar event with, a taxing authority that affects the calculation of any Members Assumed Tax Liability for any taxable year, or in the event the Company files an amended tax return, each Members Assumed Tax Liability with respect to such year shall be recalculated by giving effect to such event (for the avoidance of doubt, taking into account interest or penalties). Any shortfall in the amount of Tax Distributions the Members and former Members received for the relevant taxable years based on such recalculated Assumed Tax Liability promptly shall be distributed to such Members and the successors of such former Members, except, for the avoidance of doubt, to the extent Distributions were made to such Members and former Members pursuant to Section 4.01(a) and this Section 4.01(b) in the relevant taxable years sufficient to cover such shortfall.
(iv) Notwithstanding the foregoing, Distributions pursuant to this Section 4.01(b), if any, shall be made to a Member only to the extent all previous Distributions to such Member pursuant to Section 4.01(a) during the Fiscal Year are less than the Distributions such Member otherwise would have been entitled to receive during such Fiscal Year pursuant to this Section 4.01(b).
Section 4.02 Restricted Distributions. Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not make any Distribution to any Member on account of any Company Interest if such Distribution would violate any applicable Law or the terms of the Credit Agreements.
ARTICLE V.
CAPITAL ACCOUNTS; ALLOCATIONS; TAX MATTERS
Section 5.01 Capital Accounts.
(a) The Company shall maintain a separate Capital Account for each Member according to the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). For this purpose, the Company may (in the discretion of the Manager), upon the occurrence of the events specified in Treasury Regulation Section 1.704-1(b)(2)(iv)(f), increase or decrease the Capital Accounts in accordance with the rules of such Treasury Regulation and Treasury Regulation Section 1.704-1(b)(2)(iv)(g) to reflect a revaluation of Company property. Upon the exercise by any LLC Optionee of its LLC Option, such LLC Optionees initial Capital Account shall be equal to the sum of (i) the exercise price paid by such LLC Optionee to the Company in connection with such exercise and (ii) the amount included in such LLC Optionees compensation income under Code Section 83 as a result of such exercise.
(b) For purposes of computing the amount of any item of Company income, gain, loss or deduction to be allocated pursuant to this Article V and to be reflected in the Capital Accounts of the Members, the determination, recognition and classification of any such item shall be the same as its determination, recognition and classification for U.S. federal income tax purposes (including any method of depreciation, cost recovery or amortization used for this purpose); provided, however, that:
(i) The computation of all items of income, gain, loss and deduction shall include those items described in Code Section 705(a)(l)(B) or Code Section 705(a)(2)(B) and Treasury Regulation Section 1.704-1(b)(2)(iv)(i), without regard to the fact that such items are not includable in gross income or are not deductible for U.S. federal income tax purposes.
(ii) If the Book Value of any Company property is adjusted pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(f), the amount of such adjustment shall be taken into account as gain or loss from the disposition of such property.
(iii) Items of income, gain, loss or deduction attributable to the disposition of Company property having a Book Value that differs from its adjusted basis for tax purposes shall be computed by reference to the Book Value of such property.
(iv) Items of depreciation, amortization and other cost recovery deductions with respect to Company property having a Book Value that differs from its adjusted basis for tax purposes shall be computed by reference to the propertys Book Value in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(g).
(v) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Sections 732(d), 734(b) or 743(b) is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis).
Section 5.02 Allocations. Except as otherwise provided in Section 5.03 and Section 5.04, Net Profits and Net Losses for any Fiscal Year or Fiscal Period shall be allocated among the Capital Accounts of the Members pro rata in accordance with their respective Percentage Interests. For the avoidance of doubt, in accordance with Code Section 706(d)(1), any deductions resulting from the exercise by any LLC Optionee of its LLC Option shall be allocated under a closing of the books method to the Members who were Members of the Company in the Fiscal Period ending on the day immediately prior the day of such exercise.
Section 5.03 Regulatory Allocations.
(a) Losses attributable to partner nonrecourse debt (as defined in Treasury Regulation Section 1.704-2(b)(4)) shall be allocated in the manner required by Treasury Regulation Section 1.704-2(i). If there is a net decrease during a Taxable Year in partner nonrecourse debt minimum gain (as defined in Treasury Regulation Section 1.704-2(i)(3)), Profits for such Taxable Year (and, if necessary, for subsequent Taxable Years) shall be allocated to the Members in the amounts and of such character as determined according to Treasury Regulation Section 1.704-2(i)(4).
(b) Nonrecourse deductions (as determined according to Treasury Regulation Section 1.704-2(b)(1)) for any Taxable Year shall be allocated pro rata among the Members in accordance with their Percentage Interests. Except as otherwise provided in Section 4.03(a), if there is a net decrease in the Minimum Gain during any Taxable Year, each Member shall be
allocated Profits for such Taxable Year (and, if necessary, for subsequent Taxable Years) in the amounts and of such character as determined according to Treasury Regulation Section 1.704-2(f). This Section 5.03(b) is intended to be a minimum gain chargeback provision that complies with the requirements of Treasury Regulation Section 1.704-2(f), and shall be interpreted in a manner consistent therewith.
(c) If any Member that unexpectedly receives an adjustment, allocation or Distribution described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6) has an Adjusted Capital Account Deficit as of the end of any Taxable Year, computed after the application of Sections 5.03(a) and 5.03(b) but before the application of any other provision of this Article V, then Profits for such Taxable Year shall be allocated to such Member in proportion to, and to the extent of, such Adjusted Capital Account Deficit. This Section 5.03(c) is intended to be a qualified income offset provision as described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted in a manner consistent therewith.
(d) If the allocation of Net Losses to a Member as provided in Section 5.02 would create or increase an Adjusted Capital Account Deficit, there shall be allocated to such Member only that amount of Losses as will not create or increase an Adjusted Capital Account Deficit. The Net Losses that would, absent the application of the preceding sentence, otherwise be allocated to such Member shall be allocated to the other Members in accordance with their relative Percentage Interests, subject to this Section 5.03(d).
(e) Profits and Losses described in Section 5.01(b)(v) shall be allocated in a manner consistent with the manner that the adjustments to the Capital Accounts are required to be made pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(j), (k) and (m).
(f) The allocations set forth in Section 5.03(a) through and including Section 5.03(e) (the Regulatory Allocations) are intended to comply with certain requirements of Sections 1.704-1(b) and 1.704-2 of the Treasury Regulations. The Regulatory Allocations may not be consistent with the manner in which the Members intend to allocate Profit and Loss of the Company or make Distributions. Accordingly, notwithstanding the other provisions of this Article V, but subject to the Regulatory Allocations, income, gain, deduction and loss shall be reallocated among the Members so as to eliminate the effect of the Regulatory Allocations and thereby cause the respective Capital Accounts of the Members to be in the amounts (or as close thereto as possible) they would have been if Profit and Loss (and such other items of income, gain, deduction and loss) had been allocated without reference to the Regulatory Allocations. In general, the Members anticipate that this will be accomplished by specially allocating other Profit and Loss (and such other items of income, gain, deduction and loss) among the Members so that the net amount of the Regulatory Allocations and such special allocations to each such Member is zero. In addition, if in any Fiscal Year or Fiscal Period there is a decrease in partnership minimum gain, or in partner nonrecourse debt minimum gain, and application of the minimum gain chargeback requirements set forth in Section 5.03(a) or Section 5.03(b) would cause a distortion in the economic arrangement among the Members, the Members may, if they do not expect that the Company will have sufficient other income to correct such distortion, request the Internal Revenue Service to waive either or both of such minimum gain chargeback requirements. If such request is granted, this Agreement shall be applied in such instance as if it did not contain such minimum gain chargeback requirement.
Section 5.04 Final Allocations. Notwithstanding any contrary provision in this Agreement except Section 5.03, the Manager shall make appropriate adjustments to allocations of Profits and Losses to (or, if necessary, allocate items of gross income, gain, loss or deduction of the Company among) the Members upon the liquidation of the Company (within the meaning of Section 1.704 1(b)(2)(ii)(g) of the Treasury Regulations), the transfer of substantially all the Units (whether by sale or exchange or merger) or sale of all or substantially all the assets of the Company, such that, to the maximum extent possible, the Capital Accounts of the Members are proportionate to their Percentage Interests. In each case, such adjustments or allocations shall occur, to the maximum extent possible, in the Fiscal Year of the event requiring such adjustments or allocations.
Section 5.05 Tax Allocations.
(a) The income, gains, losses, deductions and credits of the Company will be allocated, for federal, state and local income tax purposes, among the Members in accordance with the allocation of such income, gains, losses, deductions and credits among the Members for computing their Capital Accounts; provided that if any such allocation is not permitted by the Code or other applicable Law, the Companys subsequent income, gains, losses, deductions and credits will be allocated among the Members so as to reflect as nearly as possible the allocation set forth herein in computing their Capital Accounts.
(b) Items of Company taxable income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall be allocated among the Members in accordance with Code Section 704(c) so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its Book Value using the traditional method, as described in Treasury Regulations Section 1.704-3(b).
(c) If the Book Value of any Company asset is adjusted pursuant to Section 5.01(b), subsequent allocations of items of taxable income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Book Value in the same manner as under Code Section 704(c) using the traditional method, as described in Treasury Regulations Section 1.704-3(b).
(d) Allocations of tax credits, tax credit recapture, and any items related thereto shall be allocated to the Members pro rata as determined by the Manager taking into account the principles of Treasury Regulation Section 1.704-1(b)(4)(ii).
(e) For purposes of determining a Members pro rata share of the Companys excess nonrecourse liabilities within the meaning of Treasury Regulation Section 1.752-3(a)(3), each Members interest in income and gain shall be in proportion to the Units held by such Member.
(f) Allocations pursuant to this Section 5.05 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Members Capital Account or share of Profits, Losses, Distributions or other Company items pursuant to any provision of this Agreement.
Section 5.06 Indemnification and Reimbursement for Payments on Behalf of a Member. If the Company is obligated to pay any amount to a Governmental Entity (or otherwise
makes a payment to a Governmental Entity) that is specifically attributable to a Member or a Members status as such (including federal withholding taxes, state personal property taxes and state unincorporated business taxes, but excluding payments such as professional association fees and the like made voluntarily by the Company on behalf of any Member based upon such Members status as an employee of the Company), then such Person shall indemnify the Company in full for the entire amount paid (including interest, penalties and related expenses). The Manager may offset Distributions to which a Person is otherwise entitled under this Agreement against such Persons obligation to indemnify the Company under this Section 5.06. A Members obligation to make contributions to the Company under this Section 5.06 shall survive the termination, dissolution, liquidation and winding up of the Company, and for purposes of this Section 5.06, the Company shall be treated as continuing in existence. The Company may pursue and enforce all rights and remedies it may have against each Member under this Section 5.06, including instituting a lawsuit to collect such contribution with interest calculated at a rate per annum equal to the sum of the Base Rate plus 300 basis points (but not in excess of the highest rate per annum permitted by Law).
ARTICLE VI.
MANAGEMENT
Section 6.01 Authority of Manager.
(a) Except for situations in which the approval of any Member(s) is specifically required by this Agreement, (i) all management powers over the business and affairs of the Company shall be exclusively vested in the Corporation, as the sole managing member of the Company (the Corporation, in such capacity, the Manager) and (ii) the Manager shall conduct, direct and exercise full control over all activities of the Company. The Manager shall be the manager of the Company for the purposes of the Delaware Act. Except as otherwise expressly provided for herein and subject to the other provisions of this Agreement, the Members hereby consent to the exercise by the Manager of all such powers and rights conferred on the Members by the Delaware Act with respect to the management and control of the Company. The Corporation may not be removed as a Manager except as provided in Section 6.04. Any Manager that is properly removed pursuant to Section 6.04 shall be replaced in the manner provided in Section 6.05. The Original Members terminate as of the Effective Time the Board previously established in order to conduct the business of the Company pursuant to the First A&R LLC Agreement (as such term was previously defined in the First A&R LLC Agreement).
(b) The day-to-day business and operations of the Company shall be overseen and implemented by officers of the Company (each, an Officer and collectively, the Officers), subject to the limitations imposed by the Manager. An Officer may, but need not, be a Member. Each Officer shall be appointed by the Manager and shall hold office until his or her successor shall be duly designated and shall qualify or until his or her death or until he shall resign or shall have been removed in the manner hereinafter provided. Any one Person may hold more than one office. Subject to the other provisions in this Agreement (including in Section 6.08 below), the salaries or other compensation, if any, of the Officers of the Company shall be fixed from time to time by the Manager. The authority and responsibility of the Officers shall include, but not be limited to, such duties as the Manager may, from time to time, delegate to them and the carrying out of the Companys business and affairs on a day-to-day basis. The existing Officers
of the Company as of the Effective Time shall remain in their respective positions and shall be deemed to have been appointed by the Manager. All Officers shall be, and shall be deemed to be, officers and employees of the Company. An Officer may also perform one or more roles as an officer of the Manager.
(c) The Manager shall have the power and authority to effectuate the sale, lease, transfer, exchange or other disposition of any, all or substantially all of the assets of the Company (including the exercise or grant of any conversion, option, privilege or subscription right or any other right available in connection with any assets at any time held by the Company) or the merger, consolidation, reorganization or other combination of the Company with or into another entity.
Section 6.02 Actions of the Manager. The Manager may act through any Officer or through any other Person or Persons to whom authority and duties have been delegated pursuant to Section 6.08.
Section 6.03 Resignation. The Manager may resign at any time by giving written notice to the Members. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the Members, and the acceptance of the resignation shall not be necessary to make it effective.
Section 6.04 Removal. The Manager may only be removed by the Corporation.
Section 6.05 Vacancies. Vacancies in the position of Manager occurring for any reason shall be filled by the Corporation (or, if the Corporation has ceased to exist without any successor or assign, then by the holders of a majority in interest of the voting capital stock of the Corporation immediately prior to such cessation).
Section 6.06 Transactions Between Company and Manager. The Manager may cause the Company to contract and deal with the Manager, or any Affiliate of the Manager, provided such contracts and dealings are on terms comparable to and competitive with those available to the Company from others dealing at arms length or are approved by the Members and otherwise are permitted by the Credit Agreements. The Members hereby approve the IPO Common Unit Purchase Agreement.
Section 6.07 Reimbursement for Expenses. The Manager shall not be compensated for its services as Manager of the Company except as expressly provided in this Agreement or as otherwise approved by the Members (other than the Manager) holding a majority of the Voting Units (excluding Voting Units held by the Manager) then outstanding. The Members acknowledge and agree that, upon consummation of the IPO, the Managers Class A Common Stock will be publicly traded and therefore the Manager will have access to the public capital markets and that such status and the services performed by the Manager will inure to the benefit of the Company and all Members; therefore, the Manager shall be reimbursed by the Company for any reasonable out-of-pocket expenses incurred on behalf of the Company, including without limitation all fees, expenses and costs associated with the IPO and all fees, expenses and costs of being a public company (including without limitation public reporting obligations, proxy statements, stockholder meetings, stock exchange fees, transfer agent fees, SEC and FINRA
filing fees and offering expenses) and maintaining its corporate existence. In the event that shares of Class A Common Stock are sold to underwriters in the IPO (or in any subsequent public offering) at a price per share that is lower than the price per share for which such shares of Class A Common Stock are sold to the public in the IPO (or in such subsequent public offering, as applicable) after taking into account underwriters discounts or commissions and brokers fees or commissions (such difference, the Discount), the Company shall reimburse the Manager for such Discount by treating such Discount as an additional Capital Contribution made by the Manager to the Company and increasing the Managers Capital Account by the amount of such Discount. To the extent practicable, expenses incurred by the Manager on behalf of or for the benefit of the Company shall be billed directly to and paid by the Company and, if and to the extent any reimbursements to the Manager or any of its Affiliates by the Company pursuant to this Section 6.07 constitute gross income to such Person (as opposed to the repayment of advances made by such Person on behalf of the Company), such amounts shall be treated as guaranteed payments within the meaning of Code Section 707(c) and shall not be treated as distributions for purposes of computing the Members Capital Accounts.
Section 6.08 Delegation of Authority. The Manager (a) may, from time to time, delegate to one or more Persons such authority and duties as the Manager may deem advisable, and (b) may assign titles (including, without limitation, chief executive officer, president, chief executive officer, chief financial officers, chief operating officer, vice president, secretary, assistant secretary, treasurer or assistant treasurer) and delegate certain authority and duties to such Persons as the same may be amended, restated or otherwise modified from time to time. Any number of titles may be held by the same individual. The salaries or other compensation, if any, of such agents of the Company shall be fixed from time to time by the Manager, subject to the other provisions in this Agreement.
Section 6.09 Limitation of Liability of Manager.
(a) Except as otherwise provided herein or in an agreement entered into by such Person and the Company, neither the Manager nor any of the Managers Affiliates shall be liable to the Company or to any Member that is not the Manager for any act or omission performed or omitted by the Manager in its capacity as the sole managing member of the Company pursuant to authority granted to the Manager by this Agreement; provided, however, that, except as otherwise provided herein, such limitation of liability shall not apply to the extent the act or omission was attributable to the Managers gross negligence, willful misconduct or knowing violation of Law or for any present or future breaches of any representations, warranties or covenants by the Manager or its Affiliates contained herein or in the other agreements with the Company. The Manager may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents, and shall not be responsible for any misconduct or negligence on the part of any such agent (so long as such agent was selected in good faith and with reasonable care). The Manager shall be entitled to rely upon the advice of legal counsel, independent public accountants and other experts, including financial advisors, and any act of or failure to act by the Manager in good faith reliance on such advice shall in no event subject the Manager to liability to the Company or any Member that is not the Manager.
(b) Whenever this Agreement or any other agreement contemplated herein provides that the Manager shall act in a manner which is, or provide terms which are, fair and reasonable to the Company or any Member that is not the Manager, the Manager shall determine such appropriate action or provide such terms considering, in each case, the relative interests of each party to such agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable United States generally accepted accounting practices or principles.
(c) Whenever in this Agreement or any other agreement contemplated herein, the Manager is permitted or required to take any action or to make a decision in its sole discretion or discretion, with complete discretion or under a grant of similar authority or latitude, the Manager shall be entitled to consider such interests and factors as it desires, including its own interests, and shall, to the fullest extent permitted by applicable Law, have no duty or obligation to give any consideration to any interest of or factors affecting the Company or other Members.
(d) Whenever in this Agreement the Manager is permitted or required to take any action or to make a decision in its good faith or under another express standard, the Manager shall act under such express standard and, to the extent permitted by applicable Law, shall not be subject to any other or different standards imposed by this Agreement or any other agreement contemplated herein, and, notwithstanding anything contained herein to the contrary, so long as the Manager acts in good faith, the resolution, action or terms so made, taken or provided by the Manager shall not constitute a breach of this Agreement or any other agreement contemplated herein or impose liability upon the Manager or any of the Managers Affiliates.
Section 6.10 Investment Company Act. The Manager shall use its best efforts to ensure that the Company shall not be subject to registration as an investment company pursuant to the Investment Company Act.
Section 6.11 Outside Activities of the Manager. The Manager shall not, directly or indirectly, enter into or conduct any business or operations, other than in connection with (a) the ownership, acquisition and disposition of Common Units, (b) the management of the business and affairs of the Company and its Subsidiaries, (c) the operation of the Manager as a reporting company with a class (or classes) of securities registered under Section 12 of the Exchange Act and listed on a securities exchange, (d) the offering, sale, syndication, private placement or public offering of stock, bonds, securities or other interests, (e) financing or refinancing of any type related to the Company, its Subsidiaries or their assets or activities, and (f) such activities as are incidental to the foregoing; provided, however, that, except as otherwise provided herein, the net proceeds of any financing raised by the Manager pursuant to the preceding clauses (d) and (e) shall be made available to the Company, whether as Capital Contributions, loans or otherwise, as appropriate, and, provided further, that the Manager may, in its sole and absolute discretion, from time to time hold or acquire assets in its own name or otherwise other than through the Company and its Subsidiaries so long as the Manager takes commercially reasonable measures to ensure that the economic benefits and burdens of such assets are otherwise vested in the Company or its Subsidiaries, through assignment, mortgage loan or otherwise or, if it is not commercially reasonable to vest such economic interests in the Company or any of its Subsidiaries, the Members shall negotiate in good faith to amend this Agreement to reflect such activities and the direct ownership of assets by the Manager. Nothing contained herein shall be
deemed to prohibit the Manager from executing any guarantee of indebtedness of the Company or its Subsidiaries.
ARTICLE VII.
RIGHTS AND OBLIGATIONS OF MEMBERS
Section 7.01 Limitation of Liability and Duties of Members.
(a) Except as provided in this Agreement or in the Delaware Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company and no Member (including without limitation, the Manager) shall be obligated personally for any such debts, obligation or liability solely by reason of being a Member or acting as the Manager of the Company. Except as otherwise provided in this Agreement, a Members liability (in its capacity as such) for Company liabilities and Losses shall be limited to the Companys assets. Notwithstanding anything contained herein to the contrary, the failure of the Company to observe any formalities or requirements relating to the exercise of its powers or management of its business and affairs under this Agreement or the Delaware Act shall not be grounds for imposing personal liability on the Members for liabilities of the Company.
(b) In accordance with the Delaware Act and the laws of the State of Delaware, a Member may, under certain circumstances, be required to return amounts previously distributed to such Member. It is the intent of the Members that no Distribution to any Member pursuant to Article IV shall be deemed a return of money or other property paid or distributed in violation of the Delaware Act. The payment of any such money or Distribution of any such property to a Member shall be deemed to be a compromise within the meaning of Section 18-502(b) of the Delaware Act, and, to the fullest extent permitted by Law, any Member receiving any such money or property shall not be required to return any such money or property to the Company or any other Person. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Member is obligated to make any such payment, such obligation shall be the obligation of such Member and not of any other Member.
(c) Notwithstanding any other provision of this Agreement, to the extent that, at law or in equity, any Member (or any Members Affiliate or any manager, managing member, general partner, director, officer, employee, agent, fiduciary or trustee of any Member or of any Affiliate of a Member) has duties (including fiduciary duties) to the Company, to the Manager, to another Member, to any Person who acquires an interest in a Company Interest or to any other Person bound by this Agreement, all such duties (including fiduciary duties) are hereby eliminated, to the fullest extent permitted by law, and replaced with the duties or standards expressly set forth herein, if any. The elimination of duties (including fiduciary duties) to the Company, the Manager, each of the Members, each other Person who acquires an interest in a Company Interest and each other Person bound by this Agreement and replacement thereof with the duties or standards expressly set forth herein, if any, are approved by the Company, the Manager, each of the Members, each other Person who acquires an interest in a Company Interest and each other Person bound by this Agreement.
Section 7.02 Lack of Authority. No Member, other than the Manager or a duly appointed Officer, in each case in its capacity as such, has the authority or power to act for or on behalf of the Company, to do any act that would be binding on the Company or to make any expenditure on behalf of the Company. The Members hereby consent to the exercise by the Manager of the powers conferred on them by Law and this Agreement.
Section 7.03 No Right of Partition. No Member, other than the Manager, shall have the right to seek or obtain partition by court decree or operation of Law of any Company property, or the right to own or use particular or individual assets of the Company.
Section 7.04 Indemnification.
(a) Subject to Section 5.06, the Company hereby agrees to indemnify and hold harmless any Person (each an Indemnified Person) to the fullest extent permitted under the Delaware Act, as the same now exists or may hereafter be amended, substituted or replaced (but, in the case of any such amendment, substitution or replacement only to the extent that such amendment, substitution or replacement permits the Company to provide broader indemnification rights than the Company is providing immediately prior to such amendment), against all expenses, liabilities and losses (including attorneys fees, judgments, fines, excise taxes or penalties) reasonably incurred or suffered by such Person (or one or more of such Persons Affiliates) by reason of the fact that such Person is or was a Member or is or was serving as the Manager, Officer, employee or other agent of the Company or is or was serving at the request of the Company as a manager, officer, director, principal, member, employee or agent of another corporation, partnership, joint venture, limited liability company, trust or other enterprise; provided, however, that no Indemnified Person shall be indemnified for any expenses, liabilities and losses suffered that are attributable to such Indemnified Persons or its Affiliates gross negligence, willful misconduct or knowing violation of Law or for any present or future breaches of any representations, warranties or covenants by such Indemnified Person or its Affiliates contained herein or in the other agreements with the Company. Expenses, including attorneys fees, incurred by any such Indemnified Person in defending a proceeding shall be paid by the Company in advance of the final disposition of such proceeding, including any appeal therefrom, upon receipt of an undertaking by or on behalf of such Indemnified Person to repay such amount if it shall ultimately be determined that such Indemnified Person is not entitled to be indemnified by the Company.
(b) The right to indemnification and the advancement of expenses conferred in this Section 7.04 shall not be exclusive of any other right which any Person may have or hereafter acquire under any statute, agreement, bylaw, action by the Manager or otherwise.
(c) The Company shall maintain directors and officers liability insurance, or substantially equivalent insurance, at its expense, to protect any Indemnified Person (and the investment funds, if any, they represent) against any expense, liability or loss described in Section 7.04(a) whether or not the Company would have the power to indemnify such Indemnified Person against such expense, liability or loss under the provisions of this Section 7.04. The Company shall use its commercially reasonable efforts to purchase and maintain property, casualty and liability insurance in types and at levels customary for companies of similar size engaged in similar lines of business, as determined in good faith by the Manager, and
the Company shall use its commercially reasonable efforts to purchase directors and officers liability insurance (including employment practices coverage) with a carrier and in an amount determined necessary or desirable as determined in good faith by the Manager.
(d) Notwithstanding anything contained herein to the contrary (including in this Section 7.04), any indemnity by the Company relating to the matters covered in this Section 7.04 shall be provided out of and to the extent of Company assets only and no Member (unless such Member otherwise agrees in writing or is found in a final decision by a court of competent jurisdiction to have personal liability on account thereof) shall have personal liability on account thereof or shall be required to make additional Capital Contributions to help satisfy such indemnity of the Company.
(e) If this Section 7.04 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify and hold harmless each Indemnified Person pursuant to this Section 7.04 to the fullest extent permitted by any applicable portion of this Section 7.04 that shall not have been invalidated and to the fullest extent permitted by applicable Law.
Section 7.05 Members Right to Act. For matters that require the approval of the Members, the Members shall act through meetings and written consents as described in paragraphs (a) and (b) below:
(a) Except as otherwise expressly provided by this Agreement, acts by the Members holding a majority of the Units, voting together as a single class, shall be the acts of the Members. Any Member entitled to vote at a meeting of Members or to express consent or dissent to Company action in writing without a meeting may authorize another person or persons to act for it by proxy. An electronic mail, telegram, telex, cablegram or similar transmission by the Member, or a photographic, photostatic, facsimile or similar reproduction of a writing executed by the Member shall (if stated thereon) be treated as a proxy executed in writing for purposes of this Section 7.05(a). No proxy shall be voted or acted upon after eleven months from the date thereof, unless the proxy provides for a longer period. A proxy shall be revocable unless the proxy form conspicuously states that the proxy is irrevocable and that the proxy is coupled with an interest. Should a proxy designate two or more Persons to act as proxies, unless that instrument shall provide to the contrary, a majority of such Persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting or giving consents thereby conferred, or, if only one be present, then such powers may be exercised by that one; or, if an even number attend and a majority do not agree on any particular issue, the Company shall not be required to recognize such proxy with respect to such issue if such proxy does not specify how the votes that are the subject of such proxy are to be voted with respect to such issue.
(b) The actions by the Members permitted hereunder may be taken at a meeting called by the Manager or by the Members holding a majority of the Units entitled to vote on such matter on at least 48 hours prior written notice to the other Members entitled to vote, which notice shall state the purpose or purposes for which such meeting is being called. The actions taken by the Members entitled to vote or consent at any meeting (as opposed to by written consent), however called and noticed, shall be as valid as though taken at a meeting duly held
after regular call and notice if (but not until), either before, at or after the meeting, the Members entitled to vote or consent as to whom it was improperly held signs a written waiver of notice or a consent to the holding of such meeting or an approval of the minutes thereof. The actions by the Members entitled to vote or consent may be taken by vote of the Members entitled to vote or consent at a meeting or by written consent, so long as such consent is signed by Members having not less than the minimum number of Units that would be necessary to authorize or take such action at a meeting at which all Members entitled to vote thereon were present and voted. Prompt notice of the action so taken, which shall state the purpose or purposes for which such consent is required and may be delivered via email, without a meeting shall be given to those Members entitled to vote or consent who have not consented in writing; provided, however, that the failure to give any such notice shall not affect the validity of the action taken by such written consent. Any action taken pursuant to such written consent of the Members shall have the same force and effect as if taken by the Members at a meeting thereof.
Section 7.06 Inspection Rights. The Company shall permit each Member and each of its designated representatives to (i) visit and inspect any of the properties of the Company and its Subsidiaries, all at reasonable times and upon reasonable notice, (ii) examine the corporate and financial records of the Company or any of its Subsidiaries and make copies thereof or extracts therefrom, (iii) consult with the managers, officers, employees and independent accountants of the Company or any of its Subsidiaries concerning the affairs, finances and accounts of the Company or any of its Subsidiaries. The presentation of an executed copy of this Agreement by any Member to the Companys independent accountants shall constitute the Companys permission to its independent accountants to participate in discussions with such Persons and their respective designated representatives.
ARTICLE VIII.
BOOKS, RECORDS, ACCOUNTING AND REPORTS, AFFIRMATIVE COVENANTS
Section 8.01 Records and Accounting. The Company shall keep, or cause to be kept, appropriate books and records with respect to the Companys business, including all books and records necessary to provide any information, lists and copies of documents required to be provided pursuant to Section 8.03 or pursuant to applicable Laws. All matters concerning (a) the determination of the relative amount of allocations and Distributions among the Members pursuant to Articles III and IV and (b) accounting procedures and determinations, and other determinations not specifically and expressly provided for by the terms of this Agreement, shall be determined by the Manager, whose determination shall be final and conclusive as to all of the Members absent manifest clerical error.
Section 8.02 Fiscal Year. The Fiscal Year of the Company shall end on December 31 of each year or such other date as may be established by the Manager.
Section 8.03 Reports. The Company shall deliver or cause to be delivered, within ninety (90) days after the end of each Fiscal Year, to each Person who was a Member at any time during such Fiscal Year, all information reasonably necessary for the preparation of such Persons United States federal and applicable state income tax returns.
ARTICLE IX.
TAX MATTERS
Section 9.01 Preparation of Tax Returns. The Company shall arrange for the preparation and timely filing of all tax returns required to be filed by the Company. On or before March 15, June 15, September 15, and December 15 of each Fiscal Year, the Company shall send to each Person who was a Member at any time during the prior quarter, an estimate of such Members state tax apportionment information and allocations to the Members of taxable income, gains, losses, deductions and credits for the prior quarter, which estimate shall have been reviewed by the Companys outside tax accountants. In addition, no later than the later of (i) March 15 following the end of the prior Fiscal Year, and (ii) five (5) Business Days after the issuance of the final audit report for a Fiscal Year by the Companys auditors, the Company shall send to each Person who was a Member at any time during such Fiscal Year, a statement showing such Members final state tax apportionment information and allocations to the Members of taxable income, gains, losses, deductions and credits for such Fiscal Year and a completed IRS Schedule K-1. Each Member shall notify the other Members upon receipt of any notice of tax examination of the Company by federal, state or local authorities. Subject to the terms and conditions of this Agreement, in its capacity as Tax Matters Partner, the Corporation shall have the authority to prepare the tax returns of the Company using such permissible methods and elections as it determines in its reasonable discretion, including without limitation the use of any permissible method under Section 706 of the Code for purposes of determining the varying Company Interests of its Members.
Section 9.02 Tax Elections. The Taxable Year shall be the Fiscal Year set forth in Section 8.02. The Company shall make an election pursuant to Section 754 of the Code, shall not thereafter revoke such election and shall make a new election pursuant to Section 754 to the extent necessary following any termination of the Company under Section 708 of the Code. Each Member will upon request supply any information reasonably necessary to give proper effect to any such elections.
Section 9.03 Tax Controversies. The Corporation is hereby designated the Tax Matters Partner within the meaning given to such term in Section 6231 of the Code (the Corporation, in such capacity, the Tax Matters Partner) and is authorized and required to represent the Company (at the Companys expense) in connection with all examinations of the Companys affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Company funds for professional services reasonably incurred in connection therewith. Each Member agrees to cooperate with the Company and to do or refrain from doing any or all things reasonably requested by the Company with respect to the conduct of such proceedings. The Tax Matters Partners shall keep all Members fully informed of the progress of any examinations, audits or other proceedings, and all Members shall have the right to participate at their expense in any such examinations, audits or other proceedings. Notwithstanding the foregoing, the Tax Matters Partners shall not settle or otherwise compromise any issue in any such examination, audit or other proceeding without first obtaining approval of the Manager. Nothing herein shall diminish, limit or restrict the rights of any Member under Subchapter C, Chapter 63, Subtitle F of the Code (Code Sections 6221 et seq.).
ARTICLE X.
RESTRICTIONS ON TRANSFER OF UNITS; PREEMPTIVE RIGHTS
Section 10.01 Transfers by Members. No holder of Units may Transfer any interest in any Units, except Transfers (a) pursuant to and in accordance with Section 10.02 or (b) approved in writing by the Manager. Notwithstanding the foregoing, Transfer shall not include an event that terminates the existence of a Member for income tax purposes (including, without limitation, a change in entity classification of a Member under Treasury Regulations Section 301.7701-3, termination of a partnership pursuant to Code Section 708(b)(1)(B), a sale of assets by, or liquidation of, a Member pursuant to an election under Code Section 338, or merger, severance, or allocation within a trust or among sub-trusts of a trust that is a Member), but that does not terminate the existence of such Member under applicable state law (or, in the case of a trust that is a Member, does not terminate the trusteeship of the fiduciaries under such trust with respect to all the Company Interests of such trust that is a Member).
Section 10.02 Permitted Transfers. The restrictions contained in Section 10.01 shall not apply to any Transfer (each, a Permitted Transfer) (i) pursuant to (A) a Change of Control Transaction, (B) a Redemption or Exchange in accordance with Article XI hereof or (C) a Transfer by a member to the Corporation or any of its Subsidiaries (including without limitation pursuant to Article XI hereof), (ii) by any Member to such Members spouse, any lineal ascendants or descendants or trusts or other entities in which such Member or Members spouse, lineal ascendants or descendants hold (and continue to hold while such trusts or other entities hold Units) 50% or more of such entitys beneficial interests, (iii) pursuant to the laws of descent and distribution and (iv) if such Transfer is made by an Original Member, to a partner, shareholder or member of such Original Member; provided, however, that (A) the restrictions contained in this Agreement will continue to apply to Units after any Permitted Transfer of such Units, and (B) in the case of the foregoing clauses (ii), (iii) and (iv), the transferees of the Units so Transferred shall agree in writing to be bound by the provisions of this Agreement and, the transferor will deliver a written notice to the Company and the Members, which notice will disclose in reasonable detail the identity of the proposed transferee. In the case of a Permitted Transfer by any Original Member of Common Units to a transferee in accordance with this Section 10.02, such Original Member (or any subsequent transferee of such Original Member) shall be required to also transfer the fraction of its remaining Class B Common Stock ownership corresponding to the proportion of such Original Members (or subsequent transferees) Common Units that were transferred in the transaction to such transferee. All Permitted Transfers are subject to the additional limitations set forth in Section 10.07(b).
Section 10.03 Restricted Units Legend. The Units have not been registered under the Securities Act and, therefore, in addition to the other restrictions on Transfer contained in this Agreement, cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is then available. To the extent such Units have been certificated, each certificate evidencing Units and each certificate issued in exchange for or upon the Transfer of any Units (if such securities remain Units as defined herein after such Transfer) shall be stamped or otherwise imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON [], 2014, AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE ACT), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER SPECIFIED IN THE SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF NEFF HOLDINGS LLC, AS MAY BE AMENDED AND MODIFIED FROM TIME TO TIME, AND NEFF HOLDINGS LLC RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO ANY TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED BY NEFF HOLDINGS LLC TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
The Company shall imprint such legend on certificates (if any) evidencing Units. The legend set forth above shall be removed from the certificates (if any) evidencing any units which cease to be Units in accordance with the definition thereof.
Section 10.04 Transfer. Prior to Transferring any Units (other than pursuant to a Change of Control Transaction), the Transferring Holder of Units shall cause the prospective Transferee to be bound by this Agreement and any other agreements executed by the holders of Units and relating to such Units in the aggregate (collectively, the Other Agreements), and shall cause the prospective Transferee to execute and deliver to the Company and the other holders of Units counterparts of this Agreement and any applicable Other Agreements. Any Transfer or attempted Transfer of any Units in violation of any provision of this Agreement (including any prohibited indirect Transfers) (a) shall be void, and (b) the Company shall not record such Transfer on its books or treat any purported Transferee of such Units as the owner of such securities for any purpose.
Section 10.05 Assignees Rights.
(a) The Transfer of a Company Interest in accordance with this Agreement shall be effective as of the date of its assignment (assuming compliance with all of the conditions to such Transfer set forth herein), and such Transfer shall be shown on the books and records of the Company. Profits, Losses and other Company items shall be allocated between the transferor and the Assignee according to Code Section 706, using any permissible method as determined in the reasonable discretion of the Manager. Distributions made before the effective date of such Transfer shall be paid to the transferor, and Distributions made after such date shall be paid to the Assignee.
(b) Unless and until an Assignee becomes a Member pursuant to Article XII, the Assignee shall not be entitled to any of the rights granted to a Member hereunder or under applicable Law, other than the rights granted specifically to Assignees pursuant to this Agreement; provided, however, that, without relieving the transferring Member from any such limitations or obligations as more fully described in Section 10.06, such Assignee shall be bound by any limitations and obligations of a Member contained herein that a Member would be bound
on account of the Assignees Company Interest (including the obligation to make Capital Contributions on account of such Company Interest).
Section 10.06 Assignors Rights and Obligations. Any Member who shall Transfer any Company Interest in a manner in accordance with this Agreement shall cease to be a Member with respect to such Units or other interest and shall no longer have any rights or privileges, or, except as set forth in this Section 10.06, duties, liabilities or obligations, of a Member with respect to such Units or other interest (it being understood, however, that the applicable provisions of Sections 6.09 and 7.04 shall continue to inure to such Persons benefit), except that unless and until the Assignee (if not already a Member) is admitted as a Substituted Member in accordance with the provisions of Article XII (the Admission Date), (i) such assigning Member shall retain all of the duties, liabilities and obligations of a Member with respect to such Units or other interest, and (ii) the Manager may, in its sole discretion, reinstate all or any portion of the rights and privileges of such Member with respect to such Units or other interest for any period of time prior to the Admission Date. Nothing contained herein shall relieve any Member who Transfers any Units or other interest in the Company from any liability of such Member to the Company with respect to such Company Interest that may exist on the Admission Date or that is otherwise specified in the Delaware Act and incorporated into this Agreement or for any liability to the Company or any other Person for any materially false statement made by such Member (in its capacity as such) or for any present or future breaches of any representations, warranties or covenants by such Member (in its capacity as such) contained herein or in the other agreements with the Company.
Section 10.07 Overriding Provisions.
(a) Any Transfer in violation of this Article X shall be null and void ab initio, and the provisions of Sections 10.05 and 10.06 shall not apply to any such Transfers. For the avoidance of doubt, any Person to whom a Transfer is made or attempted in violation of this Article X shall not become a Member, shall not be entitled to vote on any matters coming before the Members and shall not have any other rights in or with respect to any rights of a Member of the Company. The approval of any Transfer in any one or more instances shall not limit or waive the requirement for such approval in any other or future instance. The Manager shall promptly amend the Schedule of Members to reflect any Permitted Transfer pursuant to this Article X.
(b) Notwithstanding anything contained herein to the contrary (including, for the avoidance of doubt, the provisions of Section 10.01 and Article XI and Article XII), in no event shall any Member Transfer any Units to the extent such Transfer would:
(i) result in the violation of the Securities Act, or any other applicable federal, state or foreign Laws;
(ii) cause an assignment under the Investment Company Act;
(iii) in the reasonable determination of the Manager, be a violation of or a default (or an event that, with notice or the lapse of time or both, would constitute a default) under, or result in an acceleration of any indebtedness under, any promissory note, mortgage, loan agreement, indenture or similar instrument or agreement to which
the Company or the Manager is a party; provided that (x) the payee or creditor to whom the Company or the Manager owes such obligation is not an affiliate of the Company or the Manager and (y) such indebtedness, individually or in the aggregate, has an aggregate principal amount then outstanding that is greater than $25,000,000;
(iv) cause the Company to lose its status as a partnership for federal income tax purposes and, without limiting the generality of the foregoing, such Transfer was effected on or through an established securities market or a secondary market or the substantial equivalent thereof, as such terms are used in Section 1.7704-1 of the Treasury Regulations;
(v) be a Transfer to a Person who is not legally competent or who has not achieved his or her majority under applicable Law (excluding trusts for the benefit of minors);
(vi) cause the Company to be treated as a publicly traded partnership or to be taxed as a corporation pursuant to Section 7704 of the Code or successor provision of the Code; or
(vii) result in the Company having more than one hundred (100) partners, within the meaning of Treasury Regulations Section 1.7704-1(h)(1) (determined pursuant to the rules of Treasury Regulations Section 1.7704-1(h)(3)).
ARTICLE XI.
REDEMPTION AND EXCHANGE RIGHTS
Section 11.01 Redemption Right of a Member and LLC Optionee.
(a) Each Member (other than the Corporation) and each LLC Optionee (in connection with its exercise of an LLC Option) shall be entitled to cause the Company to redeem (a Redemption) its Common Units (the Redemption Right) at any time following the expiration of the lock-up period under the lock-up agreements, dated as of [], 2014, executed by each Original Member and each Original LLC Optionee. A Member or LLC Optionee desiring to exercise its Redemption Right (the Redeeming Member) shall exercise such right by giving written notice (the Redemption Notice) to the Company with a copy to the Corporation. The Redemption Notice shall specify the number of Common Units (the Redeemed Units) that the Redeeming Member intends to have the Company redeem and a date, not less than seven (7) Business Days nor more than ten (10) Business Days after delivery of such Redemption Notice (unless and to the extent that the Manager in its sole discretion agrees in writing to waive such time periods), on which exercise of the Redemption Right shall be completed (the Redemption Date); provided that the Company, the Corporation and the Redeeming Member may change the number of Redeemed Units and/or the Redemption Date specified in such Redemption Notice to another number and/or date by mutual agreement signed in writing by each of them; provided further that a Redemption Notice may be conditioned on the closing of an underwritten distribution of the shares of Class A Common Stock that may be issued in connection with such proposed Redemption. Unless the Redeeming Member timely has delivered a Retraction Notice as provided in Section 11.01(b) or has revoked or delayed a Redemption as provided in Section
11.01(c), on the Redemption Date (to be effective immediately prior to the close of business on the Redemption Date) (i) only in the case of an LLC Optionee, the Redeeming Member shall have completed its exercised of an LLC Option for a corresponding number of Units subject to the Redemption Notice, (ii) the Redeeming Member shall transfer and surrender the Redeemed Units to the Company, free and clear of all liens and encumbrances (which in the case of an LLC Optionee will be deemed to be delivered by the Company in lieu of delivery of the Units underlying the LLC Option to the LLC Optionee), and (ii) the Company shall (x) cancel the Redeemed Units, (y) transfer to the Redeeming Member the consideration to which the Redeeming Member is entitled under Section 11.01(b), and (z), if the Units are certificated, issue to the Redeeming Member a certificate for a number of Common Units equal to the difference (if any) between the number of Common Units evidenced by the certificate surrendered by the Redeeming Member pursuant to clause (i) of this Section 11.01(a) and the Redeemed Units.
(b) In exercising its Redemption Right, a Redeeming Member shall be entitled to receive the Share Settlement or the Cash Settlement; provided that the Corporation shall have the option as provided in Section 11.02 and subject to Section 11.01(d) to select whether the redemption payment is made by means of a Share Settlement or a Cash Settlement. Within three (3) Business Days of delivery of the Redemption Notice, the Corporation shall give written notice (the Contribution Notice) to the Company (with a copy to the Redeeming Member) of its intended settlement method; provided that if the Corporation does not timely deliver a Contribution Notice, the Corporation shall be deemed to have elected the Share Settlement method. If the Corporation elects the Cash Settlement method, the Redeeming Member may retract its Redemption Notice by giving written notice (the Retraction Notice) to the Company (with a copy to the Corporation) within two (2) Business Days of delivery of the Contribution Notice. The timely delivery of a Retraction Notice shall terminate all of the Redeeming Members, Companys and the Corporation rights and obligations under this Section 11.01 arising from the Redemption Notice.
(c) In the event the Corporation elects a Share Settlement in connection with a Redemption, a Redeeming Member shall be entitled to revoke its Redemption Notice or delay the consummation of a Redemption if any of the following conditions exists: (i) any registration statement pursuant to which the resale of the Class A Common Stock to be registered for such Redeeming Member at or immediately following the consummation of the Redemption shall have ceased to be effective pursuant to any action or inaction by the SEC or no such resale registration statement has yet become effective; (ii) the Corporation shall have failed to cause any related prospectus to be supplemented by any required prospectus supplement necessary to effect such Redemption; (iii) the Corporation shall have exercised its right to defer, delay or suspend the filing or effectiveness of a registration statement and such deferral, delay or suspension shall affect the ability of such Redeeming Member to have its Class A Common Stock registered at or immediately following the consummation of the Redemption; (iv) the Corporation shall have disclosed to such Redeeming Member any material non-public information concerning the Corporation, the receipt of which results in such Redeeming Member being prohibited or restricted from selling Class A Common Stock at or immediately following the Redemption without disclosure of such information (and the Corporation does not permit disclosure); (v) any stop order relating to the registration statement pursuant to which the Class A Common Stock was to be registered by such Redeeming Member at or immediately following the Redemption shall have been issued by the SEC; (vi) there shall have occurred a material
disruption in the securities markets generally or in the market or markets in which the Class A Common Stock is then traded; (vii) there shall be in effect an injunction, a restraining order or a decree of any nature of any Governmental Entity that restrains or prohibits the Redemption; (viii) the Corporation shall have failed to comply in all material respects with its obligations under the Registration Rights Agreement, and such failure shall have affected the ability of such Redeeming Member to consummate the resale of Class A Common Stock to be received upon such redemption pursuant to an effective registration statement; (ix) the Redemption Date would occur three (3) Business Days or less prior to, or during, a Black-Out Period; provided further, that in no event shall the Redeeming Member seeking to revoke its Redemption Notice or delay the consummation of such Redemption and relying on any of the matters contemplated in clauses (i) through (ix) above have controlled or intentionally influenced any facts, circumstances, or Persons in connection therewith (except in the good faith performance of his or her duties as an officer or director of the Corporation) in order to provide such Redeeming Member with a basis for such delay or revocation. If a Redeeming Member delays the consummation of a Redemption pursuant to this Section 11.01(c), the Redemption Date shall occur on the fifth Business Day following the date on which the conditions giving rise to such delay cease to exist (or such earlier day as the Corporation, the Company and such Redeeming Member may agree in writing).
(d) The number of shares of Class A Common Stock or the Redeemed Units Equivalent that a Redeeming Member is entitled to receive under Section 11.01(b) (whether through a Share Settlement or Cash Settlement) shall not be adjusted on account of any Distributions previously made with respect to the Redeemed Units or dividends previously paid with respect to Class A Common Stock; provided, however, that if a Redeeming Member (other than an LLC Optionee) causes the Company to redeem Redeemed Units and the Redemption Date occurs subsequent to the record date for any Distribution with respect to the Redeemed Units but prior to payment of such Distribution, the Redeeming Member shall be entitled to receive such Distribution with respect to the Redeemed Units on the date that it is made notwithstanding that the Redeeming Member transferred and surrendered the Redeemed Units to the Company prior to such date.
(e) In the event of a reclassification or other similar transaction as a result of which the shares of Class A Common Stock are converted into another security, then in exercising it Redemption Right a Redeeming Member shall be entitled to receive the amount of such security that the Redeeming Member would have received if such Redemption Right had been exercised and the Redemption Date had occurred immediately prior to the record date of such reclassification or other similar transaction.
Section 11.02 Election and Contribution of the Corporation. In connection with the exercise of a Redeeming Members Redemption Rights under Section 11.01(a), the Corporation shall contribute to the Company the consideration the Redeeming Member is entitled to receive under Section 11.01(b). The Corporation, at its option, shall determine whether to contribute, pursuant to Section 11.01(b), the Share Settlement or the Cash Settlement. Unless the Redeeming Member has timely delivered a Retraction Notice as provided in Section 11.01(b), or has revoked or delayed a Redemption as provided in Section 11.01(c), on the Redemption Date (to be effective immediately prior to the close of business on the Redemption Date) (i) the Corporation shall make its Capital Contribution to the Company (in the form of the Share
Settlement or the Cash Settlement) required under this Section 11.02, and (ii) the Company shall issue to the Corporation a number of Common Units equal to the number of Redeemed Units surrendered by the Redeeming Member. Notwithstanding any other provisions of this Agreement to the contrary, in the event that the Corporation elects a Cash Settlement, the Corporation shall only be obligated to contribute to the Company an amount in respect of such Cash Settlement equal to the net proceeds (after deduction of any underwriters discounts or commissions and brokers fees or commissions) from the sale by the Corporation of a number of shares of Class A Common Stock equal to the number of Redeemed Units to be redeemed with such Cash Settlement provided that the Corporations Capital Account shall be increased by an amount equal to any Discount relating to such sale of shares of Class A Common Stock in accordance with Section 6.07. The timely delivery of a Retraction Notice shall terminate all of the Companys and the Corporation rights and obligations under this Section 11.02 arising from the Redemption Notice.
Section 11.03 Exchange Right of the Corporation.
(a) Notwithstanding anything to the contrary in this Article XI, the Corporation may, in its sole and absolute discretion, elect to effect on the Redemption Date the exchange of Redeemed Units for the Share Settlement or Cash Settlement, as the case may be, through a direct exchange of such Redeemed Units and such consideration between the Redeeming Member and the Corporation (a Direct Exchange). Upon such Direct Exchange pursuant to this Section 11.03, the Corporation shall acquire the Redeemed Units and shall be treated for all purposes of this Agreement as the owner of such Units.
(b) The Corporation may, at any time prior to a Redemption Date, deliver written notice (an Exchange Election Notice) to the Company and the Redeeming Member setting forth its election to exercise its right to consummate a Direct Exchange; provided that such election does not prejudice the ability of the parties to consummate a Redemption or Direct Exchange on the Redemption Date. An Exchange Election Notice may be revoked by the Corporation at any time; provided that any such revocation does not prejudice the ability of the parties to consummate a Redemption or Direct Exchange on the Redemption Date. The right to consummate a Direct Exchange in all events shall be exercisable for all the Redeemed Units that would have otherwise been subject to a Redemption. Except as otherwise provided by this Section 11.03, a Direct Exchange shall be consummated pursuant to the same timeframe and in the same manner as the relevant Redemption would have been consummated if the Corporation had not delivered an Exchange Election Notice.
Section 11.04 Reservation of shares of Class A Common Stock; Listing; Certificate of the Corporation. At all times the Corporation shall reserve and keep available out of its authorized but unissued Class A Common Stock, solely for the purpose of issuance upon a Redemption or Direct Exchange, such number of shares of Class A Common Stock as shall be issuable upon any such Redemption or Direct Exchange pursuant to Share Settlements; provided that nothing contained herein shall be construed to preclude the Corporation from satisfying its obligations in respect of any such Redemption or Direct Exchange by delivery of purchased Class A Common Stock (which may or may not be held in the treasury of the Corporation) or the delivery of cash pursuant to a Cash Settlement. The Corporation shall deliver Class A Common Stock that has been registered under the Securities Act with respect to any Redemption or Direct
Exchange to the extent a registration statement is effective and available for such shares. The Corporation shall use its commercially reasonable efforts to list the Class A Common Stock required to be delivered upon any such Redemption or Direct Exchange prior to such delivery upon each national securities exchange upon which the outstanding shares of Class A Common Stock are listed at the time of such Redemption or Direct Exchange (it being understood that any such shares may be subject to transfer restrictions under applicable securities Laws). The Corporation covenants that all Class A Common Stock issued upon a Redemption or Direct Exchange will, upon issuance, be validly issued, fully paid and non-assessable. The provisions of this Article XI shall be interpreted and applied in a manner consistent with the corresponding provisions of the Corporations certificate of incorporation.
Section 11.05 Effect of Exercise of Redemption or Exchange Right. This Agreement shall continue notwithstanding the consummation of a Redemption or Direct Exchange and all governance or other rights set forth herein shall be exercised by the remaining Members, LLC Optionees (to the extent of such LLC Optionees rights to exercise LLC Options and the related Redemption Right) and the Redeeming Member (to the extent of such Redeeming Members remaining interest in the Company). No Redemption or Direct Exchange shall relieve such Redeeming Member of any prior breach of this Agreement.
Section 11.06 Tax Treatment. Unless otherwise required by applicable Law, the parties hereto acknowledge and agree a Redemption or a Direct Exchange, as the case may be, shall be treated as a direct exchange between the Corporation and the Redeeming Member for U.S. federal and applicable state and local income tax purposes.
ARTICLE XII.
ADMISSION OF MEMBERS
Section 12.01 Substituted Members. Subject to the provisions of Article X hereof, in connection with the Permitted Transfer of a Company Interest hereunder, the transferee shall become a substituted Member (Substituted Member) on the effective date of such Transfer, which effective date shall not be earlier than the date of compliance with the conditions to such Transfer, and such admission shall be shown on the books and records of the Company.
Section 12.02 Additional Members. Each LLC Optionee upon exercise of an LLC Option (to the extent such LLC Optionee does not simultaneously exercise its Redemption Right with respect thereto under Article XI) and, subject to the provisions of Article X hereof, any other Person may be admitted to the Company as an additional Member (any such LLC Optionee or other Person, an Additional Member) only upon furnishing to the Manager (a) counterparts of this Agreement and any applicable Other Agreements and (b) such other documents or instruments as may be reasonably necessary or appropriate to effect such Persons admission as a Member (including entering into such documents as the Manager may deem appropriate in its sole discretion). Such admission shall become effective on the date on which the Manager determines in its sole discretion that such conditions have been satisfied and when any such admission is shown on the books and records of the Company.
ARTICLE XIII.
WITHDRAWAL AND RESIGNATION; TERMINATION OF RIGHTS
Section 13.01 Withdrawal and Resignation of Members. No Member shall have the power or right to withdraw or otherwise resign as a Member from the Company prior to the dissolution and winding up of the Company pursuant to this Article XIII. Any Member, however, that attempts to withdraw or otherwise resign as a Member from the Company without the prior written consent of the Manager upon or following the dissolution and winding up of the Company pursuant to this Article XIII, but prior to such Member receiving the full amount of Distributions from the Company to which such Member is entitled pursuant to this Article XIII, shall be liable to the Company for all damages (including all lost profits and special, indirect and consequential damages) directly or indirectly caused by the withdrawal or resignation of such Member. Upon a Transfer of all of a Members Units in a Transfer permitted by this Agreement, subject to the provisions of Section 10.06, such Member shall cease to be a Member.
Section 13.02 Termination of Rights of LLC Optionees. With respect to each LLC Optionee, all rights of such Person to exercise a Redemption Right hereunder pursuant to Article XI or to become a Member hereunder pursuant to Article XII, and all other rights afforded such Person hereunder in his or her capacity as an LLC Optionee, shall automatically terminate upon the expiration or other termination (whether as a result of exercise in full, forfeiture, death, disability, termination of employment or otherwise) of all LLC Options awarded by the Company to such Person (except to the extent the Company substantially simultaneously novates or reissues an LLC Option to such Person or his or her heirs), in each case in accordance with such LLC Options terms, and upon such expiration or termination of all LLC Options of such Person, such Person shall cease to be an LLC Optionee hereunder.
ARTICLE XIV.
DISSOLUTION AND LIQUIDATION
Section 14.01 Dissolution. The Company shall not be dissolved by the admission of Additional Members or Substituted Members or the attempted withdrawal or resignation of a Member. The Company shall dissolve, and its affairs shall be wound up, upon:
(a) the unanimous decision of the Members that then hold Voting Units to dissolve the Company;
(b) a Change of Control Transaction that is not approved by the Majority Members;
(c) a dissolution of the Company under Section 18-801(4) of the Delaware Act; or
(d) the entry of a decree of judicial dissolution of the Company under Section 18-802 of the Delaware Act.
Except as otherwise set forth in this Article XIV, the Company is intended to have perpetual existence. An Event of Withdrawal shall not cause a dissolution of the Company and the Company shall continue in existence subject to the terms and conditions of this Agreement.
Section 14.02 Liquidation and Termination. On dissolution of the Company, the Manager shall act as liquidator or may appoint one or more Persons as liquidator. The liquidators shall proceed diligently to wind up the affairs of the Company and make final distributions as provided herein and in the Delaware Act. The costs of liquidation shall be borne as a Company expense. Until final distribution, the liquidators shall continue to operate the Company properties with all of the power and authority of the Manager. The steps to be accomplished by the liquidators are as follows:
(a) as promptly as possible after dissolution and again after final liquidation, the liquidators shall cause a proper accounting to be made by a recognized firm of certified public accountants of the Companys assets, liabilities and operations through the last day of the calendar month in which the dissolution occurs or the final liquidation is completed, as applicable;
(b) the liquidators shall cause the notice described in the Delaware Act to be mailed to each known creditor of and claimant against the Company in the manner described thereunder;
(c) the liquidators shall pay, satisfy or discharge from Company funds, or otherwise make adequate provision for payment and discharge thereof (including, without limitation, the establishment of a cash fund for contingent liabilities in such amount and for such term as the liquidators may reasonably determine): first, all expenses incurred in liquidation; and second, all of the debts, liabilities and obligations of the Company; and
(d) all remaining assets of the Company shall be distributed to the Members in accordance with Article IV by the end of the Taxable Year during which the liquidation of the Company occurs (or, if later, by ninety (90) days after the date of the liquidation). The distribution of cash and/or property to the Members in accordance with the provisions of this Section 14.02 and Section 14.03 below constitutes a complete return to the Members of their Capital Contributions, a complete distribution to the Members of their interest in the Company and all the Companys property and constitutes a compromise to which all Members have consented within the meaning of the Delaware Act. To the extent that a Member returns funds to the Company, it has no claim against any other Member for those funds.
Section 14.03 Deferment; Distribution in Kind. Notwithstanding the provisions of Section 14.02, but subject to the order of priorities set forth therein, if upon dissolution of the Company the liquidators determine that an immediate sale of part or all of the Companys assets would be impractical or would cause undue loss (or would otherwise not be beneficial) to the Members, the liquidators may, in their sole discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy Company liabilities (other than loans to the Company by Members) and reserves. Subject to the order of priorities set forth in Section 14.02, the liquidators may, in their sole discretion, distribute to the Members, in lieu of cash, either (a) all or any portion of such remaining Company assets in-kind in accordance with the provisions of Section 14.02(d), (b) as tenants in common and in accordance with the provisions of Section 14.02(d), undivided interests in all or any portion of such Company assets or (c) a combination of the foregoing. Any such Distributions in kind shall be subject to (x) such conditions relating to the disposition and management of such assets as the liquidators deem reasonable and equitable and (y) the terms and conditions of any agreements governing such assets (or the
operation thereof or the holders thereof) at such time. Any Company assets distributed in kind will first be written up or down to their Fair Market Value, thus creating Profit or Loss (if any), which shall be allocated in accordance with Article V. The liquidators shall determine the Fair Market Value of any property distributed in accordance with the valuation procedures set forth in Article XV.
Section 14.04 Cancellation of Certificate. On completion of the distribution of Company assets as provided herein, the Company is terminated (and the Company shall not be terminated prior to such time), and the Manager (or such other Person or Persons as the Delaware Act may require or permit) shall file a certificate of cancellation with the Secretary of State of Delaware, cancel any other filings made pursuant to this Agreement that are or should be canceled and take such other actions as may be necessary to terminate the Company. The Company shall be deemed to continue in existence for all purposes of this Agreement until it is terminated pursuant to this Section 14.04.
Section 14.05 Reasonable Time for Winding Up. A reasonable time shall be allowed for the orderly winding up of the business and affairs of the Company and the liquidation of its assets pursuant to Sections 14.02 and 14.03 in order to minimize any losses otherwise attendant upon such winding up.
Section 14.06 Return of Capital. The liquidators shall not be personally liable for the return of Capital Contributions or any portion thereof to the Members (it being understood that any such return shall be made solely from Company assets).
ARTICLE XV.
VALUATION
Section 15.01 Determination. Fair Market Value of a specific Company asset will mean the amount which the Company would receive in an all-cash sale of such asset in an arms-length transaction with a willing unaffiliated third party, with neither party having any compulsion to buy or sell, consummated on the day immediately preceding the date on which the event occurred which necessitated the determination of the Fair Market Value (and after giving effect to any transfer taxes payable in connection with such sale), as such amount is determined by the Manager (or, if pursuant to Section 14.02, the liquidators) in its good faith judgment using all factors, information and data it deems to be pertinent.
Section 15.02 Dispute Resolution. If any Member or Members dispute the accuracy of any determination of Fair Market Value in accordance with Section 15.01, and the Manager and such Member(s) are unable to agree on the determination of the Fair Market Value of any asset of the Company, the Manager and such Member(s) shall each select a nationally recognized investment banking firm experienced in valuing securities of closely-held companies such as the Company in the Companys industry (the Appraisers), who shall each determine the Fair Market Value of the asset or the Company (as applicable) in accordance with the provisions of Section 15.01. The Appraisers shall be instructed to give written notice of their determination of the Fair Market Value of the asset or the Company (as applicable) within thirty (30) days of their appointment as Appraisers. If Fair Market Value as determined by an Appraiser is higher than Fair Market Value as determined by the other Appraiser by 10% or more, and the Manager and
such Member(s) do not otherwise agree on a Fair Market Value, the original Appraisers shall designate a third Appraiser meeting the same criteria used to select the original two. If Fair Market Value as determined by an Appraiser is within 10% of the Fair Market Value as determined by the other Appraiser (but not identical), and the Manager and such Member(s) do not otherwise agree on a Fair Market Value, the Manager shall select the Fair Market Value of one of the Appraisers. The fees and expenses of the Appraisers shall be borne by the Company.
ARTICLE XVI.
GENERAL PROVISIONS
Section 16.01 Power of Attorney.
(a) Each Member who is an individual hereby constitutes and appoints the Manager (or the liquidator, if applicable) with full power of substitution, as his or her true and lawful agent and attorney-in-fact, with full power and authority in his, her or its name, place and stead, to:
(i) execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (A) this Agreement, all certificates and other instruments and all amendments thereof which the Manager deems appropriate or necessary to form, qualify, or continue the qualification of, the Company as a limited liability company in the State of Delaware and in all other jurisdictions in which the Company may conduct business or own property; (B) all instruments which the Manager deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (C) all conveyances and other instruments or documents which the Manager deems appropriate or necessary to reflect the dissolution and liquidation of the Company pursuant to the terms of this Agreement, including a certificate of cancellation; and (D) all instruments relating to the admission, withdrawal or substitution of any Member pursuant to Article XII or XIII; and
(ii) sign, execute, swear to and acknowledge all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the reasonable judgment of the Manager, to evidence, confirm or ratify any vote, consent, approval, agreement or other action which is made or given by the Members hereunder.
(b) The foregoing power of attorney is irrevocable and coupled with an interest, and shall survive the death, disability, incapacity, dissolution, bankruptcy, insolvency or termination of any Member who is an individual and the transfer of all or any portion of his, her or its Company Interest and shall extend to such Members heirs, successors, assigns and personal representatives.
Section 16.02 Confidentiality. The Manager and each of the Members agree to hold the Companys Confidential Information in confidence and may not use such information except in furtherance of the business of the Company or as otherwise authorized separately in writing by the Manager. Confidential Information as used herein includes, but is not limited to, ideas, financial product structuring, business strategies, innovations and materials, all aspects of the Companys business plan, proposed operation and products, corporate structure, financial and
organizational information, analyses, proposed partners, software code and system and product designs, employees and their identities, equity ownership, the methods and means by which the Company plans to conduct its business, all trade secrets, trademarks, tradenames and all intellectual property associated with the Companys business. With respect to the Manager and each Member, Confidential Information does not include information or material that: (a) is rightfully in the possession of the Manager or each Member at the time of disclosure by the Company; (b) before or after it has been disclosed to the Manager or each Member by the Company, becomes part of public knowledge, not as a result of any action or inaction of the Manager or such Member, respectively, in violation of this Agreement; (c) is approved for release by written authorization of the CEO of the Company or of the Corporation; (d) is disclosed to the Manager or such Member or their representatives by a third party not, to the knowledge of the Manager or such Member, respectively, in violation of any obligation of confidentiality owed to the Company with respect to such information; or (e) is or becomes independently developed by the Manager or such Member or their respective representatives without use or reference to the Confidential Information.
Section 16.03 Amendments. This Agreement and the Certificate may be amended or modified upon the consent of the Majority Members. Notwithstanding the foregoing, (i) no amendment or modification to any of the terms and conditions of this Agreement or the Certificate which terms and conditions expressly require the approval or action of certain Persons may be made without obtaining the consent of the requisite number or specified percentage of such Persons who are entitled to approve or take action on such matter, (ii) no amendment or modification to or waiver of any of the terms of the terms and conditions of this Agreement or the Certificate which would materially and adversely affect a holder of Units in a manner materially different than any other holder of Units of the same class or series (other than amendments, modifications and waivers (y) necessary to implement the provisions of Article XII or (y) relate to the rights and responsibilities of the Manager in its capacity as such under this Agreement) shall be effective against such disparately affected holder of Units without the prior written consent of such holder of Units (for all purposes of this clause (ii), a holder of Units shall be deemed to include any LLC Optionee) and (iii) no amendment or modification to or waiver of any of Section 3.01(a), Section 3.01(c), Section 3.02, Section 3.03(a), Section 3.10, Article XI, Section 12.02, Section 13.02 , this Section 16.03 or Section 16.06 that would be materially adverse to any LLC Optionee shall be effective against such adversely affected LLC Optionee without the prior written consent of such LLC Optionee.
Section 16.04 Title to Company Assets. Company assets shall be deemed to be owned by the Company as an entity, and no Member, individually or collectively, shall have any ownership interest in such Company assets or any portion thereof. The Company shall hold title to all of its property in the name of the Company and not in the name of any Member. All Company assets shall be recorded as the property of the Company on its books and records, irrespective of the name in which legal title to such Company assets is held. The Companys credit and assets shall be used solely for the benefit of the Company, and no asset of the Company shall be transferred or encumbered for, or in payment of, any individual obligation of any Member.
Section 16.05 Addresses and Notices. Any notice provided for in this Agreement will be in writing and will be either personally delivered, or received by certified mail, return receipt
requested, or sent by reputable overnight courier service (charges prepaid) to the Company at the address set forth below and to any other recipient and to any Member at such address as indicated by the Companys records, or at such address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Notices will be deemed to have been given hereunder when delivered personally or sent by telecopier (provided confirmation of transmission is received), three (3) days after deposit in the U.S. mail and one (1) day after deposit with a reputable overnight courier service. The Companys address is:
to the Company:
Neff Holdings LLC
3750 N.W. 87th Avenue, Suite 400
Miami, Florida 33178
Attn: Mark Irion, Chief Financial Officer
Facsimile: (305) 773-2291
E-mail: mirion@neffcorp.com
with a copy (which copy shall not constitute notice) to:
Latham & Watkins LLP
885 Third Avenue
New York, New York 10022
Attn: Dennis D. Lamont
Facsimile: (212) 751-4864
E-mail: dennis.lamont@lw.com
Section 16.06 Binding Effect; Intended Beneficiaries. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns. Section 3.01(a), Section 3.02, Section 3.03(a), Section 3.10, Article XI, Section 12.02 and Section 13.02 hereof shall inure to the benefit of the LLC Optionees who are intended to be third-party beneficiaries thereof and which Articles and Sections shall be enforceable by each LLC Optionee and its successors and assigns.
Section 16.07 Creditors. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditors of the Company or any of its Affiliates, and no creditor who makes a loan to the Company or any of its Affiliates may have or acquire (except pursuant to the terms of a separate agreement executed by the Company in favor of such creditor) at any time as a result of making the loan any direct or indirect interest in Company Profits, Losses, Distributions, capital or property other than as a secured creditor.
Section 16.08 Waiver. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute a waiver of any such breach or any other covenant, duty, agreement or condition.
Section 16.09 Counterparts. This Agreement may be executed in separate counterparts, each of which will be an original and all of which together shall constitute one and the same agreement binding on all the parties hereto.
Section 16.10 Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. Any dispute relating hereto shall be heard in the state or federal courts of the State of Delaware, and the parties agree to jurisdiction and venue therein.
Section 16.11 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable Law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
Section 16.12 Further Action. The parties shall execute and deliver all documents, provide all information and take or refrain from taking such actions as may be necessary or appropriate to achieve the purposes of this Agreement.
Section 16.13 Delivery by Electronic Transmission. This Agreement and any signed agreement or instrument entered into in connection with this Agreement or contemplated hereby, and any amendments hereto or thereto, to the extent signed and delivered by means of an electronic transmission, including by a facsimile machine or via email, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such agreement or instrument, each other party hereto or thereto shall re-execute original forms thereof and deliver them to all other parties. No party hereto or to any such agreement or instrument shall raise the use of electronic transmission by a facsimile machine or via email to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through such electronic transmission as a defense to the formation of a contract and each such party forever waives any such defense.
Section 16.14 Right of Offset. Whenever the Company is to pay any sum (other than pursuant to Article IV) to any Member, any amounts that such Member owes to the Company which are not the subject of a good faith dispute may be deducted from that sum before payment. For the avoidance of doubt, the distribution of Units to the Corporation shall not be subject to this Section 16.14.
Section 16.15 Effectiveness. This Agreement shall be effective immediately prior to the time at which the IPO closes on the IPO Closing Date (the Effective Time). The First A&R LLC Agreement shall govern the rights and obligations of the Company and the other parties to this Agreement in their capacity as Unitholders prior to the Effective Time.
Section 16.16 Entire Agreement. This Agreement, those documents expressly referred to herein (including the Registration Rights Agreement and the Tax Receivable Agreement), any indemnity agreements entered into in connection with the First A&R LLC Agreement with any member of the board of managers at that time and other documents of even date herewith
embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. For the avoidance of doubt, the First A&R LLC Agreement is superseded by this Agreement as of the Effective Time and shall be of no further force and effect thereafter.
Section 16.17 Remedies. Each Member shall have all rights and remedies set forth in this Agreement and all rights and remedies which such Person has been granted at any time under any other agreement or contract and all of the rights which such Person has under any Law. Any Person having any rights under any provision of this Agreement or any other agreements contemplated hereby shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by Law.
Section 16.18 Descriptive Headings; Interpretation. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a substantive part of this Agreement. Whenever required by the context, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. The use of the word including in this Agreement shall be by way of example rather than by limitation. Reference to any agreement, document or instrument means such agreement, document or instrument as amended or otherwise modified from time to time in accordance with the terms thereof, and if applicable hereof. Without limiting the generality of the immediately preceding sentence, no amendment or other modification to any agreement, document or instrument that requires the consent of any Person pursuant to the terms of this Agreement or any other agreement will be given effect hereunder unless such Person has consented in writing to such amendment or modification. Wherever required by the context, references to a Fiscal Year shall refer to a portion thereof. The use of the words or, either and any shall not be exclusive. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Wherever a conflict exists between this Agreement and any other agreement, this Agreement shall control but solely to the extent of such conflict.
IN WITNESS WHEREOF, the undersigned have executed or caused to be executed on their behalf this Agreement as of the date first written above.
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COMPANY: |
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NEFF HOLDINGS LLC | |
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By: NEFF CORPORATION, its Managing Member | |
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By: |
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Name: |
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Title: |
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MEMBERS: |
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WAYZATA OPPORTUNITIES FUND II, L.P. | |
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By: |
WOF II GP, LP, its General Partner |
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By: |
WOF II GP, LLC, its General Partner |
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By: |
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Name: |
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Title: |
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WAYZATA OPPORTUNITIES FUND OFFSHORE II, L.P. | |
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By: |
Wayzata Offshore II, LLC, its General Partner |
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By: |
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Name: |
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Title: |
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NEFF CORPORATION | |
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By: |
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SCHEDULE 1*
SCHEDULE OF MEMBERS
Member |
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Common Units |
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Percentage Interest |
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Wayzata Opportunities Fund II, L.P. |
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12,494,948 |
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53.661027122 |
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Wayzata Opportunities Fund Offshore II, L.P. |
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313,820 |
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1.347737498 |
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Neff Corporation |
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10,476,190 |
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44.991235380 |
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Total |
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23,284,958 |
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100.000000000 |
% |
* This Schedule of Members reflects the Recapitalization and shall be updated from time to time to reflect any adjustment with respect to any subdivision (by Unit split or otherwise) or any combination (by reverse Unit split or otherwise) of any outstanding Common Units, or to reflect any additional issuances of Common Units pursuant to this Agreement.
** Reflects the Recapitalization and the IPO Secondary Net Proceeds to acquire Common Units from the Original Members. As a result of the conversion and split set forth in Section 3.03(a), initially Wayzata Opportunities Fund II, L.P. held 14,585,304 Common Units, and the number opposite its name in the table above reflects the amount retained after the sale of 2,090,356 Common Units to Neff Corporation. As a result of the conversion and split set forth in Section 3.03(a), initially Wayzata Opportunities Fund Offshore II, L.P. held 366,321 Common Units, and the number opposite its name in the table above reflects the amount retained after the sale of 52,501 Common Units to Neff Corporation.
*** Reflects the purchase of 8,333,333 Common Units from the Company and an aggregate of 2,142,857 Common Units from the Original Members with the IPO Primary Net Proceeds. If, when and to the extent the Over-Allotment Option is exercised, this amount will be adjusted to also reflect the purchase of additional Common Units from the company with the Over-Allotment Option Net Proceeds.
SCHEDULE 2*
SCHEDULE OF LLC OPTIONEES
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Original LLC Options |
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LLC Options** |
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LLC Optionees |
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Performance |
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Service |
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Total |
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Performance |
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Service |
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Total |
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James Continenza |
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12,573 |
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12,573 |
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20,433 |
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20,433 |
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Robert Singer |
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8,801 |
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8,801 |
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14,303 |
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14,303 |
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Graham Hood |
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81,750 |
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136,250 |
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218,000 |
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132,858 |
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221,430 |
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354,288 |
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Mark Irion |
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48,750 |
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81,250 |
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130,000 |
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79,227 |
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132,045 |
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211,272 |
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Wes Parks |
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22,500 |
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37,500 |
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60,000 |
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36,566 |
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60,944 |
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97,510 |
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Henry Lawson |
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22,500 |
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37,500 |
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60,000 |
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36,566 |
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60,944 |
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97,510 |
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John Anderson |
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22,500 |
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37,500 |
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60,000 |
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36,566 |
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60,944 |
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97,510 |
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Brad Nowell |
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13,875 |
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23,125 |
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37,000 |
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22,549 |
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37,582 |
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60,131 |
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Steven Settelmayer |
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13,875 |
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23,125 |
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37,000 |
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22,549 |
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37,582 |
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60,131 |
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Paula Papamarcos |
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11,625 |
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19,375 |
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31,000 |
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18,892 |
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31,487 |
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50,380 |
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Steve Michaels |
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13,875 |
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23,125 |
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37,000 |
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22,549 |
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37,582 |
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60,131 |
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Tom Sutherland |
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11,625 |
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19,375 |
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31,000 |
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18,892 |
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31,487 |
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50,380 |
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Tammy Parham |
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5,250 |
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8,750 |
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14,000 |
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8,532 |
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14,220 |
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22,752 |
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Jim Horn |
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5,250 |
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8,750 |
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14,000 |
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8,532 |
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14,220 |
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22,752 |
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Bryant Becton |
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5,250 |
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8,750 |
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14,000 |
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8,532 |
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14,220 |
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22,752 |
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Bobby Corner |
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5,250 |
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8,750 |
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14,000 |
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8,532 |
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14,220 |
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22,752 |
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Total |
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283,875 |
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494,499 |
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778,374 |
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461,342 |
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803,643 |
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1,264,987 |
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* This Schedule of LLC Optionees shall be updated from time to time to reflect any adjustment with respect to any subdivision (by Unit split or otherwise) or any combination (by reverse Unit split or otherwise) of any outstanding Common Units, or to reflect any additional issuances of Common Units pursuant to this Agreement.
** This column reflects the Recapitalization.
Exhibit A
FORM OF JOINDER AGREEMENT
This JOINDER AGREEMENT, dated as of , 20 (this Joinder), is delivered pursuant to that certain Second Amended and Restated Limited Liability Company Agreement, dated as of [·], 2014 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the LLC Agreement) by and among Neff Holdings LLC, a Delaware limited liability company (the Company), Neff Corporation, a Delaware corporation and the managing member of the Company (the Manager), and each of the Members from time to time party thereto. Capitalized terms used but not otherwise defined herein have the respective meanings set forth in the LLC Agreement.
1. Joinder to the LLC Agreement. Upon the execution of this Joinder by the undersigned and delivery hereof to the Company, and acceptance hereof by the Company (subject to Articles X and XII of the LLC Agreement) upon the execution of a counterpart hereof by the Manager on behalf of the Company, the undersigned hereby is and hereafter will be a Member under the LLC Agreement and a party thereto, with all the rights, privileges and responsibilities of a Member thereunder. The undersigned hereby agrees that it shall comply with and be fully bound by the terms of the LLC Agreement as if it had been a signatory thereto as of the date thereof.
2. Incorporation by Reference. All terms and conditions of the LLC Agreement are hereby incorporated by reference in this Joinder as if set forth herein in full.
3. Address. All notices under the LLC Agreement to the undersigned shall be direct to:
[Name]
[Address]
[City, State, Zip Code]
Attn:
Facsimile:
E-mail:
IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Joinder as of the day and year first above written.
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[NAME OF NEW MEMBER] | |
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Acknowledged and agreed
as of the date first set forth above:
NEFF HOLDINGS LLC |
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By: NEFF CORPORATION, its Managing Member |
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By: |
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Exhibit 10.6
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EXECUTION VERSION #86469808v2 AMENDMENT NO. 1 TO SECOND LIEN CREDIT AGREEMENT This AMENDMENT NO. 1, dated as of October 14, 2014 (this Amendment), is entered into by and among Neff LLC, a Delaware limited liability company (Parent), Neff Holdings LLC, a Delaware limited liability company (Holdings), Neff Rental LLC, a Delaware limited liability company (the Borrower), Credit Suisse, AG, as administrative agent (in such capacity, Administrative Agent), and each of the financial institutions on the signature pages hereto in its capacity as a Lender under the Credit Agreement (as defined below), and amends that certain Second Lien Credit Agreement, dated as of June 9, 2014 (as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time prior to the date hereof, the Credit Agreement), by and among Parent, Borrower, Holdings, the Administrative Agent, the Lenders from time to time party thereto and the other parties thereto. PRELIMINARY STATEMENTS (1) WHEREAS, Parent, Borrower, Holdings, the Administrative Agent and the Lenders have entered into the Credit Agreement; (2) WHEREAS, Parent, Borrower, Holdings, the Administrative Agent and certain Lenders wish to amend the Credit Agreement as set forth in Section 2 below and provide the confirmations set forth in Section 5 below; (3) WHEREAS, pursuant to Section 9.08 of the Credit Agreement Borrower may, with the consent of the Administrative Agent and the Required Lenders, amend the Credit Agreement as set forth in Section 2 below; and (4) WHEREAS, the Required Lenders are willing to consent to the amendments set forth in Section 2 below and provide the confirmations set forth in Section 5(b) below. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Defined Terms; References. Unless otherwise specifically defined herein, each capitalized term used herein that is not otherwise defined shall have the respective meaning assigned to such term in the Credit Agreement. Each reference contained in any Loan Document to hereof, hereunder, herein and hereby and each other similar reference and each reference contained in any Loan Document to this Agreement and each other similar reference, and each reference contained in any Loan Document to any other Loan Document or thereunder, thereof or other similar reference to such other Loan Document, shall, in each case after the Amendment No. 1 Operative Date (as defined in Section 4 of this Amendment), refer to such Loan Document or such other Loan Document as amended by this Amendment. Section 2. Amendments. With effect from the Amendment No. 1 Operative Date: (a) Section 6.01(j) of the Credit Agreement shall be and hereby is amended by deleting the text of such Section in its entirety and inserting in lieu thereof text as follows: |
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2 #86469808v2 unsecured Indebtedness in an aggregate principal amount not to exceed $50,000,000 at any one time outstanding so long as no cash interest or amortization payments are made on, or required with respect to, such Indebtedness and such Indebtedness has a final maturity date at least six months after the Latest Maturity Date;. (b) Section 6.04(a) of the Credit Agreement shall be and hereby is amended as follows: (i) By deleting the text appearing in clause (iii) thereof in its entirety and inserting in lieu thereof the following: so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom, (A) Parent may make a Restricted Payment to Holdings to allow Holdings to, and Holdings may (and Holdings may make Restricted Payments to any Qualifying IPO Issuer to allow such Qualifying IPO Issuer to), purchase, redeem or otherwise acquire or retire for value Equity Interests of Holdings, Parent or the Borrower (or such Qualifying IPO Issuer) deemed to occur upon the exercise of stock options, warrants, rights to acquire Equity Interests or other convertible securities to the extent such Equity Interests represent a portion of the exercise or exchange price thereof and (B) Parent may make a Restricted Payment to Holdings to allow Holdings to, and Holdings may (and Holdings may make Restricted Payments to any Qualifying IPO Issuer to allow such Qualifying IPO Issuer to), purchase, redeem or otherwise acquire or retire for value Equity Interests of Holdings, Parent or the Borrower (or such Qualifying IPO Issuer) made in lieu of withholding taxes in connection with any exercise or exchange of stock options, warrants or other similar rights;. (ii) (A) By deleting and at the end of clause (vi) thereof, (B) by deleting the period at the end of clause (vii) thereof and inserting in lieu thereof the text and Permitted Tax Receivable Payments; and and (C) adding a new clause (viii) at the end of such Section as follows: (viii) to the extent the Holdings LLC Agreement requires, (I) to reimburse Neff Corporation for expenses incurred on behalf or directly for the benefit of Holdings and its Subsidiaries, including without limitation expenses incurred in connection with the Neff Corporation Qualifying IPO, (II) if any member of Holdings exercises its right to have its units in Holdings redeemed in accordance with the Holdings LLC Agreement, Holdings may make Restricted Payments in connection with such redemption in the form of any cash or Stock contributed to Holdings by Neff Corporation for such purpose, and (III) in accordance with the Holdings LLC Agreement, Holdings shall be permitted to (A) undertake all actions, including, without limitation, a reclassification, distribution, division or recapitalization, with respect to its common units, to maintain |
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3 #86469808v2 at all times a one-to-one ratio between the number of common units owned by Neff Corporation and the number of outstanding shares of Class A common stock of Neff Corporation (disregarding, for purposes of maintaining the one-to-one ratio, such Stock of Neff Corporation as provided in the Holdings LLC Agreement); provided that, in the case of any action pursuant to this clause (viii)(III)(A) involving a distribution or other transfer by Holdings of cash or assets (other than Equity Interests of Holdings), such distribution or other transfer is then permitted pursuant one or more other clauses of this proviso to Section 6.04(a), and (B) issue, transfer or deliver from treasury stock any units of Holdings to Neff Corporation.. (c) Section 6.11(b) of the Credit Agreement shall be and hereby is amended by adding a proviso at the end thereof as follows: provided that Holdings shall be permitted to amend and restate its limited liability company operating agreement on or before the closing date of the Neff Corporation Qualifying IPO substantially in the form attached as Exhibit B to Amendment No. 1;. (d) Section 6.11(c) of the Credit Agreement shall be and hereby is amended by adding a new proviso at the end thereof as follows: provided that the Loan Parties shall be permitted to enter into that certain Revolving Credit Facility Amendment No. 2 on or before the closing date of the Neff Corporation Qualifying IPO substantially in the form attached as Exhibit A to Amendment No. 1;. (e) Section 6.16 of the Credit Agreement shall be and hereby is amended by (i) deleting and at the end of clause (i) thereof, (ii) deleting the period at the end of clause (j) thereof and inserting in lieu thereof ; and, and (iii) adding a new clause (k) to the end thereof as follows: (k) (A) in connection with a Neff Corporation Qualifying IPO, the entry into the Holdings LLC Agreement, the Tax Receivable Agreement, the IPO Common Unit Purchase Agreement and the Amended Neff Holdings LLC Management Equity Plan, and (B) transactions arising from the performance of such agreements (including pursuant to any amendment to such agreements or documentation replacing such agreements to the extent that such amendment or agreement is permitted hereunder and is not more disadvantageous to the applicable Loan Party or the Lenders in any material respect than the original agreement).. (f) Section 6.19 of the Credit Agreement shall be and hereby is amended by deleting clause (i) thereof in its entirety and inserting in lieu thereof the following: (i) With respect to Holdings, engage in any business activities or have any assets or liabilities other than its ownership of the Equity Interests of Parent and |
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4 #86469808v2 activities and liabilities incidental thereto, including its liabilities pursuant to the Guarantee and Collateral Agreement and the Pledge Agreement; provided Holdings may (1) incur Indebtedness and Liens and make Restricted Payments to the extent permitted by the other Sections of this Article 6, (2) enter into and perform its obligations under the Neff Holdings LLC 2014 Bonus Plans and the Amended Neff Holdings LLC Management Equity Plan, (3) enter into and perform of its obligations under the Holdings LLC Agreement, the Tax Receivable Agreement and the IPO Common Unit Purchase Agreement and (4) any activities reasonably related thereto; provided, further that Holdings will not create, incur, assume or permit to exist any Lien (other than (1) Liens created under the Loan Documents and (2) Liens of a type described in clause (c), (d), (g), (j)(i), (j)(ii), (j)(vi), (j)(vii), (j)(viii), (k) (it being understood that such Lien will be terminated substantially concurrently with the consummation of the Transactions) and (u) of Section 6.02) on any Equity Interests issued by Parent, and. (g) Section 5.04 of the Credit Agreement shall be and hereby is amended by inserting two new paragraphs immediately following clause (n) of such Section as follows: Notwithstanding anything to the contrary set forth in this Section 5.04 or in any other provision of this Agreement that refers to this Section 5.04 or any clause hereof, the obligations of Holdings, Parent and Borrower set forth in clauses (a) and (b) of this Section 5.04 may be satisfied by furnishing the applicable financial information required by such clause with respect to Neff Corporation and its Subsidiaries on a consolidated basis in lieu of furnishing the applicable financial information required by such clause with respect to Holdings and its Subsidiaries on a consolidated basis; provided, that to the extent such financial information relates to Neff Corporation and its Subsidiaries, such information is accompanied by consolidating information that explains in reasonable detail the differences between the information relating to such Neff Corporation and its Subsidiaries (other than Holdings and its Subsidiaries), on the one hand, and the information relating to Holdings and its Subsidiaries on a consolidated basis, on the other hand. Documents required to be delivered pursuant to Section 5.04(a), (b) or (g) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which Holdings, Parent or Borrower posts such documents, or provides a link thereto on Holdings, Parents or Borrowers website on the Internet at www.neffcorp.com; (ii) on which Neff Corporation electronically files such documents with the U.S. Securities and Exchange Commission and they become publicly available on www.sec.gov/edgar/searchedgar/companysearch.html (or any successor website maintained by such agency); or (iii) on which such documents are posted on Holdings, Parents or Borrowers behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a |
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5 #86469808v2 commercial, third-party website or whether sponsored by the Administrative Agent); provided that (i) Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender that requests Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (ii) any such posting shall only be deemed delivered when Borrower shall notify the Administrative Agent (by facsimile or electronic mail) of the posting of any such documents and provide to the Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance Borrower shall be required to provide paper copies of the Compliance Certificates required by Section 5.04(d) to the Administrative Agent. Except for such Compliance Certificates, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents. (h) Section 1.01 of the Credit Agreement shall be and hereby is amended by: (i) Deleting the definition of Change of Control appearing therein in its entirety and inserting in lieu thereof the following: Change of Control shall mean the occurrence of any of the following events: (a) at any time prior to the consummation of a Qualifying IPO, the Permitted Investors cease to beneficially own (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), or to have the power to vote or direct the voting of, Voting Stock of Holdings representing more than fifty percent (50%) of the voting power of the total outstanding Voting Stock of Holdings; (b) at any time as of or after the consummation of a Qualifying IPO, (i) any person or group (within the meaning of Sections 13(d) and 14(d) of the Exchange Act, but excluding any employee benefit plan of such person and its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan, and excluding the Permitted Investors) shall become the beneficial owner (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of Voting Stock of the Qualifying IPO Issuer entitling such person or group to cast more than thirty-five percent (35%) of the votes eligible to be cast in an election of directors, managing members or general partners, as applicable, of the Qualifying IPO Issuer and (ii) the Permitted Investors shall own outstanding Voting Stock of the Qualifying IPO Issuer having a lesser percentage of the votes eligible to be cast in such an election of the Qualifying IPO Issuer at such time than the person or group in the foregoing clause (i); |
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6 #86469808v2 (c) Holdings ceases to own and control, directly or indirectly, all of the voting rights associated with all of the outstanding Equity Interests of Parent and Borrower; or (d) a Change of Control shall occur under and as defined in the Revolving Credit Facility Documentation.. (ii) Deleting the definition of Continuing Director appearing therein in its entirety. (iii) Deleting the definition of Qualifying IPO Issuer appearing therein in its entirety and inserting in lieu thereof the following: Qualifying IPO Issuer means Holdings or a corporation or other legal entity which either (a) owns, directly or indirectly, 100% of the outstanding Stock of Holdings or (b) is the sole managing member of Holdings. For the avoidance of doubt, upon consummation of the Neff Corporation Qualifying IPO, Neff Corporation shall be a Qualifying IPO Issuer.. (iv) Amending the definition of Consolidated EBITDA appearing therein by (A) deleting and appearing at the end of clause (a)(xiii) thereof and inserting in lieu thereof , and (B) inserting two new clauses immediately after the end of clause (a)(xiv) thereof and immediately before the words and minus following the end of clause (a)(xiv), as follows: , (xv) fees, expenses and other amounts payable by any Loan Party in connection with its performance, or payable or reimbursable to Neff Corporation in connection with its performance, of its obligations under the Tax Receivable Agreement and the IPO Common Unit Purchase Agreement and (xvi) any fees, costs, expenses or charges related to, or arising in connection with, the Neff Corporation Qualifying IPO, Amendment No. 1 or Revolving Credit Facility Amendment No. 2 (including, without limitation, (A) payment of consent fees to lenders, (B) payment of prepayment premium and breakage costs to lenders, (C) any incentive bonuses and other compensation, if any, paid or payable to employees and/or members of the board of directors of any of the Loan Parties in connection with the Neff Corporation Qualifying IPO or under any Neff Holdings LLC 2014 Bonus Plans, (D) filing fees and exchange listing fees, (E) roadshow expenses, printer costs and other offering expenses and (F) underwriter discounts and commissions),. (v) By deleting the definition of Permitted Tax Distributions appearing therein in its entirety and inserting in lieu thereof the following: Permitted Tax Distributions shall mean: |
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7 #86469808v2 (1) for so long as for U.S. federal income tax purposes Parent is taxed as a partnership or disregarded entity and is not wholly owned (directly or indirectly) by a corporate parent, (A) with respect to any taxable year ending after the Closing Date, cash distributions to fund the assumed income tax liabilities of the direct or indirect equity owners of Parent (including estimated tax liabilities) in respect of the income of Parent for such taxable year, in an aggregate amount equal to the excess of (a) the product of (x) the net taxable income of Parent (treating Parent as a taxable entity, and calculated (i) by including in such net taxable income Parents distributive share of all tax items attributable to Parent and any Subsidiary of Parent taxed as a partnership or disregarded entity for U.S. federal income tax purposes, and (ii) without regard to any adjustments pursuant to Section 734 of the Code that arises on or after the Qualifying IPO or any adjustments pursuant to Section 743 of the Code) for the taxable year in question, reduced by any cumulative net taxable loss with respect to any prior taxable year ending after the Closing Date to the extent such prior net taxable loss (I) is of a character (ordinary or capital) that would permit such loss to be deducted against the income of the taxable year in question and (II) was not previously taken into account in determining the assumed income tax liabilities for any prior taxable year and (y) the highest combined marginal federal and applicable state and/or local income tax rate (taking into account the deductibility of state and local income taxes for U.S. federal income tax purposes and the character of the taxable income in question (i.e., long term capital gain, qualified dividend income, etc.)) applicable to an individual United States citizen or corporation (whichever is higher) residing in New York, New York for the taxable year in question (or portion thereof), over (b) in the case of any taxable year beginning prior to the Closing Date, the aggregate amount of assumed estimated tax payments that should have been made under Section 6654 of the Code prior to the Closing Date (based on the assumption that all of the owners are individual or corporate residents of New York, New York (which results in a higher applicable combined marginal federal and applicable state and/or local income tax rate), calculated in a manner consistent with the calculation in clause (y) above); provided that, for the avoidance of doubt, in the event of any tax audit adjustment or other tax assessment or the filing of an amended tax return that results in additional taxable income of Parent (treating Parent as a taxable entity), the Permitted Tax Distributions with respect to such taxable year ending on or after the Closing Date shall be recalculated by giving effect to such adjustment, assessment or amended tax return (for the avoidance of doubt, taking into account interest and penalties), in a manner consistent with the calculation in clause (B) below) and (B) with respect to any taxable year ending prior to the Closing Date, cash distributions to pay the assumed income tax liabilities of the direct or indirect equity owners of Parent in respect of the income of Parent for such taxable year, in an aggregate amount equal to the sum of (i) the product of (I) any additional taxable income of Parent (calculated in a |
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8 #86469808v2 manner consistent with the calculation in clause (A) above) for such taxable year resulting from a tax audit adjustment or other tax assessment or the filing of an amended tax return made after the Closing Date and (II) the highest combined marginal federal and applicable state and/or local income tax rate (taking into account the deductibility of state and local income taxes for U.S. federal income tax purposes and the character of the taxable income in question (i.e., long term capital gain, qualified dividend income, etc.)) applicable to an individual United States citizen or corporation (whichever is higher) residing in New York, New York for the taxable year in question plus (ii) interest and penalties relating to such tax audit adjustment, assessment or amended tax return, (2) with respect to any taxable period for which Parent or any of its Subsidiaries is a member of a consolidated, combined or similar income, franchise or other state and/or local tax group of which Holdings or its direct or indirect parent is the common parent (a Tax Group), or for which Parent is a partnership or disregarded entity that is wholly owned (directly or indirectly) by a corporate parent (a Corporate Parent), cash distributions to pay the portion of the Tax Groups or Corporate Parents actual cash income, franchise or other state and/or local tax liability attributable to Parent and/or its Subsidiaries, in an amount not to exceed the income, franchise or other state and/or local tax liability that would have been payable by Parent and/or such Subsidiaries if such entities had always been taxable on a stand-alone basis (reduced by any such income, franchise or other state and/or local taxes paid or to be paid directly by Parent or its Subsidiaries), and (3) cash distributions to pay any taxes of Holdings not described in clause (1) or (2) above, provided that the aggregate payments pursuant to this clause (3) shall not exceed $250,000 per calendar year.. (vi) By deleting the definition of Voting Stock appearing therein in its entirety and inserting in lieu thereof the following: Voting Stock shall mean, with respect to any Person, any class or classes of Stock of such Person that entitles the holders thereof to vote in the election of directors, managing members or general partners, as the case may be, of such Person. (i) Section 1.01 of the Credit Agreement shall be and hereby is amended by inserting the following definitions in appropriate alphabetical order: Amended Neff Holdings LLC Management Equity Plan means the Amended Neff Holdings LLC Management Equity Plan as in effect on the Amendment No. 1 Operative Date substantially in the form attached to Amendment No. 1 as Exhibit E as further amended from time to time in any manner that the Borrower reasonably determines is not adverse to the interests of the Administrative Agent or the Lenders. |
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9 #86469808v2 Amendment No. 1 means that certain Amendment No. 1 to Second Lien Credit Agreement, dated as of the Amendment No. 1 Effective Date, among the Administrative Agent, the Lenders party thereto, Holdings, Parent and the Borrower. Amendment No. 1 Effective Date means October 14, 2014. Amendment No. 1 Operative Date has the meaning set forth in Amendment No. 1. Holdings LLC Agreement means the Second Amended and Restated Limited Liability Company Agreement as in effect on the Amendment No. 1 Operative Date substantially in the form attached to Amendment No. 1 as Exhibit B as further amended from time to time in any manner that the Borrower reasonably determines is not adverse to the interests of the Administrative Agent or the Lenders. IPO Common Unit Purchase Agreement means the IPO Common Unit Purchase Agreement as in effect on the Amendment No. 1 Operative Date substantially in the form attached to Amendment No. 1 as Exhibit C as amended from time to time in any manner that the Borrower reasonably determines is not adverse to the interests of the Administrative Agent or the Lenders. Neff Corporation means Neff Corporation, a Delaware corporation formed at the direction of Wayzata for the purposes of effecting a Qualifying IPO, together with its successors and assigns. Neff Corporation Qualifying IPO means a Qualifying IPO of Neff Corporation in connection with which (a) Holdings amends and restates its limited liability operating agreement substantially in the form of Exhibit B to Amendment No. 1, (b) Neff Corporation applies all or a portion of the net proceeds from such Qualifying IPO to purchase common units of Holdings, and (c) Neff Corporation becomes the sole managing member of Holdings. Neff Holdings LLC 2014 Bonus Plans means each of (a) the Neff Holdings LLC 2014 Management Special Bonus Plan, effective June 1, 2014, (b) the Neff Holdings LLC Amended and Restated Sale Transaction Bonus Plan, effective as of June 1, 2014 and as the same was further amended on or prior to the Amendment No. 1 Operative Date in connection with the Neff Corporation Qualifying IPO, and (c) the Neff Holdings LLC Incentive Bonus Plan, as in effect on or prior to the Amendment No. 1 Operative Date. Permitted Tax Receivable Payment means the aggregate amount of any accelerated lump sum amounts payable pursuant to the Tax Receivable Agreement by reason of any early termination of the Tax Receivable Agreement as a result of or in connection with the occurrence of a Change of Control that has been waived by the Required Lenders. |
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10 #86469808v2 Revolving Credit Facility Amendment No. 2 means that certain Amendment No. 2 to Amended and Restated Credit Agreement, to be dated and effective prior to or simultaneous with the Neff Corporation Qualifying IPO, by and among Holdings, Parent, the Borrower, the Revolving Agent and the Revolving Lenders that are party thereto, which amends the Revolving Credit Facility. Revolving Lenders means each of the Lenders as defined in the Revolving Credit Facility. Tax Receivable Agreement means the Tax Receivable Agreement as in effect on the Amendment No. 1 Operative Date substantially in the form attached to Amendment No. 1 as Exhibit D as amended from time to time in any manner that the Borrower reasonably determines is not adverse to the interests of the Administrative Agent or the Lenders. Section 3. Representations. Holdings, Parent, Borrower and each other Loan Party represents and warrants that immediately prior to and after giving effect to the effectiveness of this Amendment (i) the representations and warranties set forth in Article 3 of the Credit Agreement or any other Loan Document will be true and correct in all material respects (except to the extent any such representation or warranty is qualified by materially, Material Adverse Effect or a similar term, in which case such representation and warranty shall be true and correct in all respects) on and as of the Amendment No. 1 Effective Date and the Amendment No. 1 Operative Date, except in each case to the extent that such representations and warranties expressly relate to an earlier date, in which case they shall be true and correct in all material respects (except to the extent any such representation or warranty is qualified by materially, Material Adverse Effect or a similar term, in which case such representation and warranty shall be true and correct in all respects) as of such earlier date and (ii) no Default or Event of Default shall have occurred and be continuing under the Credit Agreement on the Amendment No. 1 Effective Date or on the Amendment No. 1 Operative Date. Section 4. Conditions to Effectiveness; Operation of Amendments and Confirmations. (a) This Amendment No. 1 shall become effective on the date (the Amendment No. 1 Effective Date) when, and only when, each of the following conditions shall have been satisfied to the reasonable satisfaction of the Administrative Agent (or waived by the Administrative Agent in its sole discretion): (i) Execution of Counterparts. The Administrative Agent shall have received from Holdings, Parent, Borrower, each other Loan Party and the Required Lenders under the Credit Agreement an original counterpart of this Amendment signed by such party or a facsimile or electronic (i.e., .pdf or .tif) copy of such signed original counterpart. (ii) Officers Certificate. Borrower shall have delivered to the Administrative Agent duly executed copies of a certificate of an authorized officer of Borrower, dated the Amendment No. 1 Effective Date, certifying on behalf of Borrower that (i) as of the Amendment No. 1 Effective Date and after giving |
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11 #86469808v2 effect to this Amendment, the representations and warranties in this Amendment and the Credit Agreement are accurate, true and correct in all material respects and (ii) no Default or Event of Default has occurred or is continuing. (iii) Expenses. The Administrative Agent shall have received all reasonable and documented fees and invoiced out-of-pocket expenses (including reasonable and documented expenses of counsel) due and payable by Holdings, Parent or Borrower under Section 9.05(a) of the Credit Agreement or otherwise on or prior to the Amendment No. 1 Effective Date to the extent an invoice has been submitted to the Borrower therefor. (b) Notwithstanding the fact that this Amendment No. 1 has become effective on the Amendment No. 1 Effective Date, the amendments set forth in Section 2 and consents set forth in Section 5(b) shall become operative only on the date on or prior to April 30, 2015 (the Amendment No. 1 Operative Date) when, and only when, each of the following conditions shall have been satisfied to the reasonable satisfaction of the Administrative Agent (or waived by the Administrative Agent in its sole discretion) and once operative, the provisions in Section 2 and Section 5(b) shall then be deemed to have occurred substantially simultaneous with the events contemplated therein and in Section 5(b): (i) Officers Certificate. Borrower shall have delivered to the Administrative Agent duly executed copies of a certificate of an authorized officer of Borrower, dated the Amendment No. 1 Operative Date, certifying on behalf of Borrower that (i) as of the Amendment No. 1 Operative Date and after giving effect to this Amendment, the representations and warranties in this Amendment and the Credit Agreement are accurate, true and correct in all material respects, (ii) no Default or Event of Default has occurred or is continuing and (iii) the Neff Corporation Qualifying IPO has closed or will close substantially simultaneous with the operation of the amendments set forth in Section 2 of this Amendment. (ii) Prepayment of Indebtedness. On the Amendment No. 1 Operative Date (after giving effect to this Amendment and the operation of the amendments and consents herein), (i) substantially simultaneous with the consummation of the Neff Corporation Qualifying IPO, the Borrower shall have repaid or prepaid Indebtedness in an aggregate principal amount not less than the greater of (x) $75,000,000 and (y) the aggregate net proceeds of the Neff Corporation Qualifying IPO (excluding any exercise of the over-allotment option) received by Holdings (and not otherwise applied, substantially concurrently with the consummation of the Neff Corporation Qualifying IPO, to redeem the Stock of Holdings from the Permitted Investors in lieu of the direct purchase of such Stock by Neff Corporation), net of premium, interest, breakage costs, consent fees, other fees and expenses incurred in connection with the repayment of such Indebtedness or in connection with this Amendment or the Revolving Credit Facility Amendment No. 2; provided that, (x) in the case of any revolving |
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12 #86469808v2 Indebtedness, commitments in respect thereof need not be terminated, and (y) not less than $50,000,000 of such repayment or prepayment, as applicable, shall be applied to prepay Loans (together with amounts required by the Credit Agreement to be paid upon such prepayment) and (ii) Borrower shall have delivered a certificate to the Administrative Agent setting forth the following (which calculation shall be reasonably acceptable to the Administrative Agent): the sum of (a) the aggregate principal amount of the Loans prepaid with a portion of the net proceeds of from a Qualifying IPO received by the Loan Parties, plus (b) a 2.00% prepayment premium on the principal amount of Loans repaid pursuant to the foregoing clause (a), plus (c) accrued and unpaid interest in respect of the principal amount of Loans repaid pursuant to the foregoing clause (a), plus (d) solely to the extent ascertainable as of the date of pricing of the Neff Corporation Qualifying IPO, customary LIBOR breakage fees payable to the Lenders in respect of the principal amount of Loans repaid pursuant to the foregoing clause (a), plus (e) consent fees payable to the Lenders, plus (f) solely to the extent ascertainable as of the date of pricing the Neff Corporation Qualifying IPO, expenses payable to counsel to the Administrative Agent in connection with this Amendment No. 1. (iii) Amendment Fee. The Borrower shall have paid to each Lender consenting to this Amendment prior to 3:00 p.m. (New York City time) on October 10, 2014, a nonrefundable cash fee (the Amendment Fee) in U.S. dollars equal to five basis points of the Loans held by such Lender as of the Amendment No. 1 Effective Date. Such payment of the Amendment Fee shall be made to the Administrative Agent for further distribution of the Lenders entitled thereto. (iv) Expenses. The Administrative Agent shall have received all reasonable and documented fees and invoiced out-of-pocket expenses (including reasonable and documented expenses of counsel) due and payable by Holdings, Parent or Borrower under Section 9.05(a) of the Credit Agreement or otherwise on or prior to the Amendment No. 1 Operative Date to the extent an invoice has been submitted to the Borrower therefor. For the avoidance of doubt, the operation of Section 2 and Section 5(b) are contingent upon the closing of the Neff Corporation Qualifying IPO and the satisfaction of the other conditions precedent set forth in this Section 4(b), and this Amendment shall lapse and have no effect if the Neff Corporation Qualifying IPO has not occurred and the other conditions set forth in this Section 4(b) have not been satisfied on or before April 30, 2015. Section 5. Confirmation of Loan Documents; Lender Consents. (a) The Loan Parties hereby confirm that the Collateral Documents and the obligations of such parties under the Loan Documents continue in full force and effect and shall not be affected by this Amendment, except as expressly provided herein. Each of the Loan Parties hereby further ratifies and reaffirms the validity and enforceability of |
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13 #86469808v2 all of the Liens and security interests heretofore granted, pursuant to and in connection with the Collateral Documents, to the Administrative Agent, as collateral security for the Obligations under the Loan Documents in accordance with their respective terms, and acknowledges that all of such Liens and security interests, and all Collateral heretofore pledged as security for such Obligations, continue to be and remain collateral for such obligations from and after the date hereof. (b) Notwithstanding anything set forth in the Credit Agreement, subject to the conditions set forth in Section 4 of this Amendment, each of the Lenders hereby consents to: (i) the entry by the Loan Parties into the Revolving Credit Facility Amendment No. 2 substantially in the form attached hereto as Exhibit A; (ii) the amendment and restatement of the Holdings limited liability company operating agreement substantially in the form attached hereto as Exhibit B; (iii) the entry by Holdings into the IPO Common Unit Purchase Agreement substantially in the form attached hereto as Exhibit C; (iv) the entry by Holdings into the Tax Receivable Agreement substantially in the form attached hereto as Exhibit D; (v) the entry by Holdings into the Amended Neff Holdings LLC Management Equity Plan substantially in the form attached hereto as Exhibit E; and (vi) all transactions directly related to the foregoing clauses (i) through (v). (c) Upon the Amendment No. 1 Effective Date this Amendment shall constitute a Loan Document. The execution, delivery, and performance of this Amendment shall not operate, except as expressly set forth herein, as a waiver of, consent to, or a modification or amendment of, any right, power, or remedy of Administrative Agent or any Lender under the Credit Agreement or any other Loan Document. Except for the amendments to the Credit Agreement and the consents expressly set forth herein, the Credit Agreement and the other Loan Documents shall remain unchanged and in full force and effect. The amendments and consents set forth herein shall, except to the extent they become operative on the Amendment No. 1 Operative Date, (i) neither excuse future non-compliance with the Loan Documents nor operate as a waiver of any Default or Event of Default, (ii) not operate as a consent to any matter under the Loan Documents except as expressly set forth herein and (iii) not be construed as an indication that the Lenders will agree to any other amendments or give any other consents or waivers with respect to the Credit Agreement or the other Loan Documents that may be requested by the Loan Parties; it being understood that the agreement of any other amendments or giving of any other consents or waivers |
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14 #86469808v2 which may hereafter be requested by the Loan Parties remains in the sole and absolute discretion of Administrative Agent and the Lenders. Section 6. Certain Consequences Of Effectiveness. On and after the Amendment No. 1 Operative Date, the rights and obligations of the parties to the Credit Agreement and each other Loan Document shall be governed by the Credit Agreement as amended hereby; provided that the provisions of Section 2 and Section 5(b) of this Amendment shall not become operative (and this Amendment shall lapse and have no effect) unless and until the Neff Corporation Qualifying IPO and the other conditions precedent set forth in Section 4(b) hereof have occurred on or before April 30, 2015. To the extent that this Amendment has become effective and the provisions hereof have become operative, the Credit Agreement and the other Loan Documents, as specifically amended hereby, are, and shall continue to be, in full force and effect and are hereby ratified and confirmed in all respects. Section 7. Severability. In the event any one or more of the provisions contained in this Amendment should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. Section 8. Governing Law; Jurisdiction; Service of Process. (a) THIS AMENDMENT AND ANY CLAIM, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. (b) BORROWER AND EACH LOAN PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT IT WILL NOT COMMENCE ANY ACTION, LITIGATION OR PROCEEDING OF ANY KIND OR DESCRIPTION, WHETHER IN LAW OR EQUITY, WHETHER IN CONTRACT OR IN TORT OR OTHERWISE, AGAINST ANY AGENT, ANY LENDER, OR ANY RELATED PARTY OF THE FOREGOING IN ANY WAY RELATING TO THIS AMENDMENT OR THE TRANSACTIONS RELATING HERETO, IN ANY FORUM OTHER THAN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY IN THE BOROUGH OF MANHATTAN, AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, AND EACH OF THE PARTIES HERETO IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS AND AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION, LITIGATION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY APPLICABLE LAW, SUCH FEDERAL COURT. NOTHING IN THIS AMENDMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT OR ANY LENDER MAY |
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15 #86469808v2 OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THE CREDIT AGREEMENT OR THE OTHER LOAN DOCUMENTS AGAINST HOLDINGS, PARENT, THE BORROWER OR THEIR RESPECTIVE PROPERTIES IN THE COURTS OF ANY JURISDICTION. (c) HOLDINGS, PARENT AND THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT IN ANY NEW YORK STATE OR FEDERAL COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT. (d) EACH PARTY TO THIS AMENDMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 9.01 OF THE CREDIT AGREEMENT. NOTHING IN THIS AMENDMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AMENDMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. Section 9. Waiver of Jury Trial. BORROWER, EACH LOAN PARTY, ADMINISTRATIVE AGENT, EACH LENDER AND EACH OTHER PARTY HERETO HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AMENDMENT OR ANY OF THE OTHER LOAN DOCUMENTS. BORROWER, EACH LOAN PARTY, ADMINISTRATIVE AGENT, EACH LENDER AND EACH OTHER PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AMENDMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9. Section 10. Counterparts. This Amendment may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed signature page to this Amendment by facsimile transmission or in electronic (i.e., pdf or tif) format shall be as effective as delivery of a manually signed counterpart of this Amendment. Section 11. Certain Tax Matters. For purposes of determining withholding Taxes imposed under the Foreign Account Tax Compliance Act (FATCA), from and after the Amendment No. 1 Effective Date, the Borrower and the Administrative Agent shall treat (and the Lenders hereby authorize the Administrative Agent to treat) the Loans as not qualifying as a "grandfathered obligation" within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i). |
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. NEFF LLC, as Parent and a Loan Party By: Name: Mark Irion Title: Chief Financial Officer NEFF HOLDINGS LLC, as Holdings and a Loan Party By: Name: Mark Irion Title: Chief Financial Officer NEFF RENTAL LLC, as Borrower and a Loan Party By: Name: Mark Irion Title: Chief Financial Officer [Signature Page Amendment No. 1 to Second Lien Credit Agreement] |
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as Administrative Agent By: Name: MIKHAIL FAYBUSOVICH Title: AUTHORIZED SIGNATORY By: Name: Remy Riester Title: Authorized Signatory [Signature Page Amendment No. 1 to Second Lien Credit Agreement] |
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#86469808v2 EXHIBIT A FORM OF REVOLVING CREDIT FACILITY AMENDMENT NO. 2 [see attached] |
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EXECUTION VERSION AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT This AMENDMENT NO. 2, dated as of October 14, 2014 (this Amendment), is entered into by and among Neff LLC, a Delaware limited liability company (Parent Borrower), Neff Holdings LLC, a Delaware limited liability company (Holdings), Neff Rental LLC, a Delaware limited liability company, Bank of America, N.A., as administrative agent (in such capacity, Agent), and each of the financial institutions on the signature pages hereto in its capacity as a Lender under the Credit Agreement (as defined below), and amends that certain Amended and Restated Senior Secured Credit Agreement, dated as of October 1, 2010 and as amended and restated as of November 20, 2013 (as amended by that Amendment No. 1 to Amended and Restated Credit Agreement, dated as of June 9, 2014, and as the same may be further amended, restated, amended and restated, supplemented or otherwise modified from time to time prior to the date hereof, the Credit Agreement), by and among Parent Borrower, Holdings, the other Credit Parties party thereto, the Agent, the Lenders from time to time party thereto and the other parties thereto. Capitalized terms used and not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. PRELIMINARY STATEMENTS (1) WHEREAS, Parent Borrower, the other Credit Parties, the Agent and the Lenders have entered into the Credit Agreement; (2) WHEREAS, Parent Borrower, the other Credit Parties, the Agent and certain Lenders wish to amend the Credit Agreement as set forth in Section 2 below and provide the confirmations set forth in Section 5 below; (3) WHEREAS, pursuant to Section 9.2 of the Credit Agreement Parent Borrower may, with the consent of the Agent and the Requisite Lenders, amend the Credit Agreement as set forth in Section 2 below; and (4) WHEREAS, the Requisite Lenders are willing to consent to the amendments set forth in Section 2 below and provide the confirmations set forth in Section 5(b) below. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Defined Terms; References. Unless otherwise specifically defined herein, each capitalized term used herein that is not otherwise defined shall have the respective meaning assigned to such term in the Credit Agreement. Each reference contained in any Loan Document to hereof, hereunder, herein and hereby and each other similar reference and each reference contained in any Loan Document to this Agreement and each other similar reference, and each reference contained in any Loan Document to any other Loan Document or thereunder, thereof or other similar reference to such other Loan Document, shall, in each case after the Amendment No. 2 Operative Date (as defined in Section 4 of this Amendment), refer to such Loan Document or such other Loan Document as amended by this Amendment. Section 2. Amendments. With effect from the Amendment No. 2 Operative Date: |
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2 (a) Section 1.5(c)(iii) of the Credit Agreement shall be and hereby is amended by deleting the text of such Section in its entirety and inserting in lieu thereof [Reserved]. (b) Section 2.9(c)(ii) of the Credit Agreement shall be and hereby is amended by deleting the proviso at the end thereof and inserting in lieu thereof: provided, however, that after delivery by Agent of a control notice or similar notice as set forth in this clause (ii), (A) if the applicable Event of Default causing such delivery has been cured or (B) if such control notice or similar notice was delivered as a result of the Excess Availability thresholds set forth in this clause (ii), if Excess Availability is greater than or equal to the greater of (I) 12.5% of the aggregate Revolving Loan Commitments then in effect and (II) $35.0 million for a period of thirty (30) consecutive days (a Cash Dominion Reversal Event), then in the case of clause (A) or (B) Agent shall within one (1) Business Day thereof rescind such control notice or similar notice and instruct the applicable depositary institution, securities intermediary or commodities intermediary that all amounts on deposit in or credited to the applicable accounts shall cease to be transferred to the Concentration Account and shall be immediately available to the applicable Credit Party. (c) Section 3.1(j) of the Credit Agreement shall be and hereby is amended by deleting the text of such Section in its entirety and inserting in lieu thereof text as follows: unsecured Indebtedness in an aggregate principal amount not to exceed $50,000,000 at any one time outstanding so long as no cash interest or amortization payments are made on, or required with respect to, such Indebtedness and such Indebtedness has a final maturity date at least six months after the Commitment Termination Date;. (d) Section 3.5 of the Credit Agreement shall be and hereby is amended as follows: (i) By inserting immediately before the semicolon at the end of clause (a) thereof the text and Permitted Tax Receivable Payments. (ii) By deleting the text appearing in clause (e) thereof in its entirety and inserting in lieu thereof the following: Parent Borrower may make Restricted Payments to Holdings, and Holdings may make Restricted Payments to any Qualifying IPO Issuer, in the minimum amount necessary to enable Holdings or such Qualifying IPO Issuer to make repurchases of Stock deemed to occur upon the exercise of stock options if such Stock represents a portion of the exercise price thereof or the minimum amount of taxes due upon such exercises;. |
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3 (iii) (A) By deleting and at the end of clause (i) thereof, (B) replacing the period at the end of clause (j) thereof with ; and, and (C) adding a new clause (k) at the end of such Section as follows: (k) to the extent the Holdings LLC Agreement requires, (i) to reimburse Neff Corporation for expenses incurred on behalf or directly for the benefit of Holdings and its Subsidiaries, including without limitation expenses incurred in connection with the Neff Corporation Qualifying IPO, (ii) if any member of Holdings exercises its right to have its units in Holdings redeemed in accordance with the Holdings LLC Agreement, Holdings may make Restricted Payments in connection with such redemption in the form of any cash or Stock contributed to Holdings by Neff Corporation for such purpose, and (iii) in accordance with the Holdings LLC Agreement, Holdings shall be permitted to (A) undertake all actions, including, without limitation, a reclassification, distribution, division or recapitalization, with respect to its common units, to maintain at all times a one-to-one ratio between the number of common units owned by Neff Corporation and the number of outstanding shares of Class A common stock of Neff Corporation (disregarding, for purposes of maintaining the one-to-one ratio, such Stock of Neff Corporation as provided in the Holdings LLC Agreement); provided that, in the case of any action pursuant to this clause (k)(iii)(A) involving a distribution or other transfer by Holdings of cash or assets (other than Stock of Holdings), such distribution or other transfer is then permitted pursuant one or more other clauses of this Section 3.5, and (B) issue, transfer or deliver from treasury stock any units of Holdings to Neff Corporation.. (e) Section 3.6(a) of the Credit Agreement shall be and hereby is amended by adding a proviso at the end thereof as follows: provided that Holdings shall be permitted to amend and restate its limited liability company operating agreement on or before the closing date of the Neff Corporation Qualifying IPO substantially in the form attached as Exhibit B to Amendment No. 2;. (f) Section 3.8(b) of the Credit Agreement shall be and hereby is amended by deleting the text appearing in clause (i) thereof in its entirety and inserting in lieu thereof the following: (i) (x) reasonable fees and compensation paid to, and indemnity provided on behalf of, officers, directors, managers, members, employees or consultants of Holdings, Parent Borrower or any of its Subsidiaries as determined in good faith by Parent Borrowers Board of Directors or senior management, (y) incentive bonuses and other compensation, if any, paid to employees and/or members of the Board of Directors of any of the Credit Parties in connection with the 2014 Loan Transactions and (z) incentive bonuses and other compensation, if any, paid to employees and/or members of the Board of Directors of any of the Credit Parties |
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4 in connection with the Neff Corporation Qualifying IPO or under any Neff Holdings LLC 2014 Bonus Plan;. (g) Section 3.8(b) of the Credit Agreement shall be and hereby is amended by (i) deleting and at the end of clause (v) thereof, (ii) deleting the period at the end of clause (vi) thereof and inserting in lieu thereof ; and, and (iii) adding a new clause (vii) to the end thereof as follows: (vii) (A) in connection with a Neff Corporation Qualifying IPO, the entry into the Holdings LLC Agreement, the Tax Receivable Agreement, the IPO Common Unit Purchase Agreement and the Amended Neff Holdings LLC Management Equity Plan, and (B) Affiliate Transactions arising from the performance of such agreements (including pursuant to any amendment to such Contractual Obligations or documentation replacing such Contractual Obligations to the extent that such amendment or agreement is permitted hereunder and is not more disadvantageous to the applicable Credit Party or the Lenders in any material respect than the original Contractual Obligation).. (h) Section 3.9(a) of the Credit Agreement shall be and hereby is amended by deleting such clause in its entirety and inserting in lieu thereof the following: (a) Holdings shall not engage in any business or activity other than (i) being a guarantor with respect to the Obligations under the Loan Documents and performing its Obligations thereunder and a guarantor with respect to the obligations under the Second Lien Loans and any Parity Lien Debt and performing its obligations thereunder and the security and other documents executed in connection therewith, (ii) holding shares of the Stock of Parent Borrower, (iii) paying taxes, (iv) preparing reports to Governmental Authorities and to the holders of its Stock, (v) holding meetings of its Board of Directors and/or the holders of its Stock, preparing company records and other company activities required to maintain its separate company structure, (vi) entry into and performance of its obligations under the Neff Holdings LLC 2014 Bonus Plans and Amended Neff Holdings Management Equity Plan, (vii) entry into and performance of its obligations under the Holdings LLC Agreement, the Tax Receivable Agreement and the IPO Common Unit Purchase Agreement and (viii) any activities reasonably related thereto.. (i) Section 3.18 of the Credit Agreement shall be and hereby is amended by (i) deleting or at the end of clause (a) in the first sentence thereof and replacing it with ,, (ii) adding or at the end of clause (b)(y)(2) in the first sentence thereof and (iii) adding a new clause (c) to the end of the first sentence thereof as follows: (c) such Indebtedness is prepaid (including any consent fees and/or prepayment premiums payable in connection therewith) with the proceeds from a Neff Corporation Qualifying IPO or, thereafter, with the net proceeds from any other public offering of common equity securities by Neff Corporation (including in each case any green shoe or over-allotment option in connection therewith) that are applied by Neff Corporation to purchase common units of Holdings |
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5 (provided that payment of interest, customary breakage fees, and reimbursement of expenses of the Second Lien Agent in connection with such prepayment may be paid out of other funds of the Credit Parties). (j) Section 4.1 of the Credit Agreement shall be and hereby is amended by deleting the first full paragraph following clause (n) of such Section in its entirety and inserting in lieu thereof the following: Notwithstanding anything to the contrary set forth in this Section 4.1 or in any other provision of this Agreement that refers to this Section 4.1 or any clause hereof, the obligations of the Parent Borrower set forth in clauses (a), (b) and (c) of this Section 4.1 may be satisfied by furnishing the applicable financial information required by such clause with respect to Neff Corporation and its Subsidiaries on a consolidated basis in lieu of furnishing the applicable financial information required by such clause with respect to Parent Borrower and its Subsidiaries on a consolidated basis; provided, that to the extent such financial information relates to Neff Corporation and its Subsidiaries, such information is accompanied by consolidating information that explains in reasonable detail the differences between the information relating to such Neff Corporation and its Subsidiaries (other than Holdings and its Subsidiaries), on the one hand, and the information relating to Holdings and its Subsidiaries on a consolidated basis, on the other hand. Documents required to be delivered pursuant to Section 4.1(a), (b), (c) or (h) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which Parent Borrower posts such documents, or provides a link thereto on Parent Borrowers website on the Internet at the website address listed in Section 9.3; (ii) on which Neff Corporation electronically files such documents with the U.S. Securities and Exchange Commission and they become publicly available on www.sec.gov/edgar/searchedgar/companysearch.html (or any successor website maintained by such agency); or (iii) on which such documents are posted on Parent Borrowers behalf on an Internet or intranet website, if any, to which each Lender and the Agent have access (whether a commercial, third-party website or whether sponsored by the Agent); provided that (i) Parent Borrower shall deliver paper copies of such documents to the Agent or any Lender that requests Parent Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Agent or such Lender and (ii) any such posting shall only be deemed delivered when Parent Borrower shall notify the Agent (by facsimile or electronic mail) of the posting of any such documents and provide to the Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance Parent Borrower shall be required to provide paper copies of the Compliance and Pricing Certificates required by Section 4.1(m) to the Agent. Except for such Compliance and Pricing Certificates, the Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by Parent Borrower with any such |
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6 request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents. (k) Section 5.4(b)(iv) of the Credit Agreement shall be and hereby is amended by deleting such Section in its entirety and inserting in lieu thereof the following: (iv) each Credit Party is, and at the time of delivery of the Pledged Stock (as defined in the Security Agreement) to Agent will be, the sole holder of record and, other than Wayzata (or, after the Neff Corporation Qualifying IPO, Neff Corporation), the sole beneficial owner of such pledged Collateral pledged by each Credit Party free and clear of any Lien thereon or affecting the title thereto, except for any Lien created by this Agreement or any of the Collateral Documents in favor of the Agent for the benefit of the Agent and Lenders and the Permitted Encumbrances;. (l) Annex A to the Credit Agreement shall be and hereby is amended by: (i) Deleting the definition of Change of Control appearing therein in its entirety and inserting in lieu thereof the following: Change of Control means any event, transaction or occurrence as a result of which: (a) at any time prior to the consummation of a Qualifying IPO, the Permitted Holders cease to beneficially own (within the meaning of Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934) and control all of the voting rights associated with ownership of more than fifty percent (50%) of the outstanding Stock of Holdings having ordinary voting power on a fully diluted basis; or (b) at any time as of or after the consummation of a Qualifying IPO, (A) any person or group (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person and its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan, and excluding the Permitted Holders) shall become the beneficial owner (within the meaning of Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934), directly or indirectly, of outstanding Voting Stock of the Qualifying IPO Issuer entitling such person or group to cast more than thirty-five percent (35%) of the votes eligible to be cast in an election of directors, managing members or general partners, as applicable, of the Qualifying IPO Issuer and (B) the Permitted Holders shall own outstanding Voting Stock of the Qualifying IPO Issuer having a lesser percentage of the votes eligible to be cast in such an |
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7 election of the Qualifying IPO Issuer at such time than the person or group in the foregoing clause (A); or (c) Holdings ceases to own and control all of the voting rights associated with all of the outstanding Stock of Parent Borrower.. (ii) Deleting the definition of Continuing Director appearing therein in its entirety. (iii) Deleting the definition of Qualifying IPO Issuer appearing therein in its entirety and inserting in lieu thereof the following: Qualifying IPO Issuer means Holdings or a corporation or other legal entity which either (a) owns, directly or indirectly, 100% of the outstanding Stock of Holdings or (b) is the sole managing member of Holdings. For the avoidance of doubt, upon consummation of the Neff Corporation Qualifying IPO, Neff Corporation shall be a Qualifying IPO Issuer.. (iv) Deleting clause (a)(xvi) of the definition of Consolidated EBITDA appearing therein in its entirety and inserting in lieu thereof the following: (xvi) fees, expenses and other amounts payable by any Credit Party in connection with its performance, or payable or reimbursable to Neff Corporation in connection with its performance, of its obligations under the Tax Receivable Agreement and the IPO Common Unit Purchase Agreement,. (v) Further amending the definition of Consolidated EBITDA by (i) deleting and at the end of clause (a)(xvii) thereof and replacing it with ,, (ii) adding and at the end of clause (a)(xviii) thereof and (iii) adding a new clause (a)(xix) as follows: (xix) any fees, costs, expenses or charges related to, or arising in connection with, the Neff Corporation Qualifying IPO, Amendment No. 2 or Second Lien Amendment No. 1 (including, without limitation, (A) payment of consent fees to lenders, (B) payment of prepayment premium and breakage costs to lenders, (C) any incentive bonuses and other compensation, if any, paid or payable to employees and/or members of the Board of Directors of any of the Credit Parties in connection with the Neff Corporation Qualifying IPO or under any Neff Holdings LLC 2014 Bonus Plan, (D) filing fees and exchange listing fees, (E) roadshow expenses, printer costs and other offering expenses and (F) underwriter discounts and commissions). |
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8 (vi) Deleting clause (b)(iv) of the definition of Fixed Charge Coverage Ratio appearing therein in its entirety and inserting in lieu thereof the following: (iv) Restricted Payments paid by Holdings and its Subsidiaries after the Restatement Effective Date pursuant to Sections 3.5(a), (e), (f), (i) and (k)(i) (with respect to (k)(i), solely to the extent that such Restricted Payment is related to an expense of Neff Corporation that is an expense item that, if such payment were made by the Parent Borrower or its Subsidiaries and deducted in the calculation of Consolidated Net Income, such payment would be added back in the calculation of Consolidated EBITDA.. (vii) Deleting the definition of Stock appearing therein in its entirety and inserting in lieu thereof the following: Stock means all shares, options, warrants, general or limited partnership interests, membership interests or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock, common units, preferred units, units or any other equity security (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934).. (viii) Deleting the definition of Tax Distributions appearing therein in its entirety and inserting in lieu thereof the following: Tax Distributions means: (1) for so long as for U.S. federal income tax purposes, Parent Borrower is taxed as a partnership or disregarded entity and is not wholly owned (directly or indirectly) by a corporate parent, (A) with respect to any taxable year ending after the Closing Date, cash distributions to fund the assumed income tax liabilities of the direct or indirect equity owners of Parent Borrower (including estimated tax liabilities) in respect of the income of Parent Borrower for such taxable year, in an aggregate amount equal to the excess of (a) the product of (x) the net taxable income of Parent Borrower (treating Parent Borrower as a taxable entity, and calculated (i) by including in such net taxable income Parent Borrowers distributive share of all tax items attributable to Parent Borrower and any Subsidiary of Parent Borrower taxed as a partnership or disregarded entity for U.S. federal income tax purposes, and (ii) without regard to any adjustments pursuant to Section 734 of the Code that arises on or after the Qualifying IPO or any adjustments pursuant to Section 743 of the Code) for the taxable year in question, reduced by any cumulative net taxable loss with respect to any prior taxable year ending after the Closing Date to the extent such prior net taxable loss (I) is of a character (ordinary or |
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9 capital) that would permit such loss to be deducted against the income of the taxable year in question and (II) was not previously taken into account in determining the assumed income tax liabilities for any prior taxable year, and (y) the highest combined marginal federal and applicable state and/or local income tax rate (taking into account the deductibility of state and local income taxes for U.S. federal income tax purposes and the character of the taxable income in question (i.e., long term capital gain, qualified dividend income, etc.)) applicable to an individual United States citizen or corporation (whichever is higher) residing in New York, New York for the taxable year in question (or portion thereof), over (b) in the case of any taxable year beginning prior to the Closing Date, the aggregate amount of assumed estimated tax payments that should have been made under Section 6654 of the Code prior to the Closing Date (based on the assumption that all of the owners are individual or corporate residents of New York, New York (which results in a higher applicable combined marginal federal and applicable state and/or local income tax rate), calculated in a manner consistent with the calculation in clause (y) above); provided that, for the avoidance of doubt, in the event of any tax audit adjustment or other tax assessment or the filing of an amended tax return that results in additional taxable income of Parent Borrower (treating Parent Borrower as a taxable entity), the Tax Distributions with respect to such taxable year ending on or after the Closing Date shall be recalculated by giving effect to such adjustment, assessment or amended tax return (for the avoidance of doubt, taking into account interest and penalties), in a manner consistent with the calculation in clause (B) below) and (B) with respect to any taxable year ending prior to the Closing Date, cash distributions to pay the assumed income tax liabilities of the direct or indirect equity owners of Parent Borrower in respect of the income of Parent Borrower for such taxable year, in an aggregate amount equal to the sum of (i) the product of (I) any additional taxable income of Parent Borrower (calculated in a manner consistent with the calculation in clause (A) above) for such taxable year resulting from a tax audit adjustment or other tax assessment or the filing of an amended tax return made after the Closing Date and (II) the highest combined marginal federal and applicable state and/or local income tax rate (taking into account the deductibility of state and local income taxes for U.S. federal income tax purposes and the character of the taxable income in question (i.e., long term capital gain, qualified dividend income, etc.)) applicable to an individual United States citizen or corporation (whichever is higher) residing in New York, New York for the taxable year in question plus (ii) interest and penalties relating to such tax audit adjustment, assessment or amended tax return, (2) with respect to any taxable period for which Parent Borrower or any of its Subsidiaries is a member of a consolidated, combined or similar income, franchise or other state and/or local tax group of which Holdings or its direct or indirect parent is the common parent (a Tax Group), or for which Parent Borrower is a partnership or |
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10 disregarded entity that is wholly owned (directly or indirectly) by a corporate parent (a Corporate Parent), cash distributions to pay the portion of the Tax Groups or Corporate Parents actual cash income, franchise or other state and/or local tax liability attributable to Parent Borrower and/or its Subsidiaries, in an amount not to exceed the income, franchise or other state and/or local tax liability that would have been payable by Parent Borrower and/or such Subsidiaries if such entities had always been taxable on a stand-alone basis (reduced by any such income, franchise or other state and/or local taxes paid or to be paid directly by Parent Borrower or its Subsidiaries), and (3) cash distributions to pay any taxes of Holdings not described in clause (1) or (2) above, provided that the aggregate payments pursuant to this clause (3) shall not exceed $250,000 per calendar year.. (m) Annex A to the Credit Agreement shall be and hereby is amended by inserting the following definitions in appropriate alphabetical order: Amended Neff Holdings LLC Management Equity Plan means the Amended Neff Holdings LLC Management Equity Plan as in effect on the Amendment No. 2 Operative Date substantially in the form attached to Amendment No. 2 as Exhibit E as further amended from time to time in any manner that the Borrower reasonably determines is not adverse to the interests of the Agent or the Lenders. Amendment No. 2 means that certain Amendment No. 2 to Amended and Restated Credit Agreement, dated as of the Amendment No. 2 Effective Date, among the Agent, the Lenders party thereto, Holdings and Borrowers. Amendment No. 2 Effective Date means October 14, 2014. Amendment No. 2 Operative Date has the meaning set forth in Amendment No. 2. Holdings LLC Agreement means the Second Amended and Restated Limited Liability Company Agreement as in effect on the Amendment No. 2 Operative Date substantially in the form attached to Amendment No. 2 as Exhibit B as further amended from time to time in any manner that the Borrower reasonably determines is not adverse to the interests of the Agent or the Lenders. IPO Common Unit Purchase Agreement means the IPO Common Unit Purchase Agreement as in effect on the Amendment No. 2 Operative Date substantially in the form attached to Amendment No. 2 as Exhibit C as amended from time to time in any manner that the Borrower reasonably determines is not adverse to the interests of the Agent or the Lenders. Neff Corporation means Neff Corporation, a Delaware corporation formed at the direction of Wayzata for the purposes of effecting a Qualifying IPO, together with its successors and assigns. |
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11 Neff Corporation Qualifying IPO means a Qualifying IPO of Neff Corporation in connection with which (a) Holdings amends and restates its limited liability operating agreement substantially in the form of Exhibit B to Amendment No. 2, (b) Neff Corporation applies all or a portion of the net proceeds from such Qualifying IPO to purchase common units of Holdings, and (c) Neff Corporation becomes the sole managing member of Holdings. Neff Holdings LLC 2014 Bonus Plans means each of (a) the Neff Holdings LLC 2014 Management Special Bonus Plan, effective June 1, 2014, (b) the Neff Holdings LLC Amended and Restated Sale Transaction Bonus Plan, effective as of June 1, 2014 and as the same was further amended on or prior to the Amendment No. 2 Operative Date in connection with the Neff Corporation Qualifying IPO, and (c) the Neff Holdings LLC Incentive Bonus Plan, as in effect on or prior to the Amendment No. 2 Operative Date. Permitted Tax Receivable Payment means the aggregate amount of any accelerated lump sum amounts payable pursuant to the Tax Receivable Agreement by reason of any early termination of the Tax Receivable Agreement as a result of or in connection with the occurrence of a Change of Control that has been waived by the Requisite Lenders. Second Lien Agent means Credit Suisse AG, in its capacity as administrative and collateral agent under the Second Lien Credit Agreement, together with its successors and assigns. Second Lien Amendment No. 1 means that certain Amendment No. 1 to Second Lien Credit Agreement, to be dated and effective prior to or simultaneous with the Neff Corporation Qualifying IPO, by and among Parent Borrower, Holdings, the other Credit Parties that are party thereto, the Second Lien Agent and the Second Lien Lenders that are party thereto, which amends the Second Lien Credit Agreement. Second Lien Lenders means each of the Lenders as defined in the Second Lien Credit Agreement. Second Lien Loan Repayment Amount means the sum of (a) the aggregate principal amount of the Second Lien Loans prepaid with a portion of the net proceeds of from a Qualifying IPO received by the Credit Parties, plus (b) a 2.00% prepayment premium on the principal amount of Second Lien Loans repaid pursuant to the foregoing clause (a), plus (c) accrued and unpaid interest in respect of the principal amount of Second Lien Loans repaid pursuant to the foregoing clause (a), plus (d) solely to the extent ascertainable as of the date of pricing of the Neff Corporation Qualifying IPO, customary LIBOR breakage fees payable to the Second Lien Lenders in respect of the principal amount of Second Lien Loans repaid pursuant to the foregoing clause (a), plus (e) consent fees payable to the Second Lien Lenders, plus (f) solely to the extent ascertainable as of the date of pricing the Neff Corporation Qualifying IPO, expenses payable to |
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12 counsel to the Second Lien Agent in connection with the amendment to the Second Lien Credit Agreement. Tax Receivable Agreement means the Tax Receivable Agreement as in effect on the Amendment No. 2 Operative Date substantially in the form attached to Amendment No. 2 as Exhibit D as amended from time to time in any manner that the Borrower reasonably determines is not adverse to the interests of the Agent or the Lenders. Voting Stock means, with respect to any Person, any class or classes of Stock of such Person that entitles the holders thereof to vote in the election of directors, managing members or general partners, as the case may be, of such Person. Section 3. Representations. Holdings, Parent Borrower and each other Credit Party represents and warrants that immediately prior to and after giving effect to the effectiveness of this Amendment (i) the representations and warranties set forth in Section 5 of the Credit Agreement or any other Loan Document will be true and correct in all material respects (except to the extent any such representation or warranty is qualified by materially, Material Adverse Effect or a similar term, in which case such representation and warranty shall be true and correct in all respects) on and as of the Amendment No. 2 Effective Date and the Amendment No. 2 Operative Date, except in each case to the extent that such representations and warranties expressly relate to an earlier date, in which case they shall be true and correct in all material respects (except to the extent any such representation or warranty is qualified by materially, Material Adverse Effect or a similar term, in which case such representation and warranty shall be true and correct in all respects) as of such earlier date and (ii) no Default or Event of Default shall have occurred and be continuing under the Credit Agreement on the Amendment No. 2 Effective Date or on the Amendment No. 2 Operative Date. Section 4. Conditions to Effectiveness; Operation of Amendments and Confirmations. (a) This Amendment No. 2 shall become effective on the date (the Amendment No. 2 Effective Date) when, and only when, each of the following conditions shall have been satisfied to the reasonable satisfaction of the Administrative Agent (or waived by the Administrative Agent in its sole discretion): (i) Execution of Counterparts. The Agent shall have received from Holdings, Parent Borrower, each other Credit Party and the Requisite Lenders under the Credit Agreement an original counterpart of this Amendment signed by such party or a facsimile or electronic (i.e., .pdf or .tif) copy of such signed original counterpart. (ii) Officers Certificate. Parent Borrower shall have delivered to the Agent duly executed copies of a certificate of an authorized officer of Parent Borrower, dated the Amendment No. 2 Effective Date, certifying on behalf of Parent Borrower that as of the Amendment No. 2 Effective Date and after giving effect to this Amendment (i) the representations and warranties in this Amendment and the Credit Agreement are accurate, true and correct in all |
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13 material respects and (ii) no Default or Event of Default has occurred or is continuing. (iii) Expenses. The Agent shall have received all reasonable and documented fees and invoiced out-of-pocket expenses (including reasonable and documented expenses of counsel) due and payable by Holdings or Parent Borrower under Section 1.3(e) of the Credit Agreement or otherwise on or prior to the Amendment No. 2 Effective Date to the extent an invoice has been submitted to the Parent Borrower therefor. (b) Notwithstanding the fact that this Amendment No. 2 has become effective on the Amendment No. 2 Effective Date, the amendments set forth in Section 2 and consents set forth in Section 5(b) shall become operative only on the date on or prior to April 30, 2015 (the Amendment No. 2 Operative Date) when, and only when, each of the following conditions shall have been satisfied to the reasonable satisfaction of the Administrative Agent (or waived by the Administrative Agent in its sole discretion) and once operative, the provisions in Section 2 and Section 5(b) shall then be deemed to have occurred substantially simultaneous with the events contemplated therein and in Section 5(b): (i) Officers Certificate. Parent Borrower shall have delivered to the Agent duly executed copies of a certificate of an authorized officer of Parent Borrower, dated the Amendment No. 2 Operative Date, certifying on behalf of Parent Borrower that as of the Amendment No. 2 Operative Date and after giving effect to this Amendment (i) the representations and warranties in this Amendment and the Credit Agreement are accurate, true and correct in all material respects, (ii) no Default or Event of Default has occurred or is continuing and (iii) the Neff Corporation Qualifying IPO has closed or will close substantially simultaneous with the operation of the amendments set forth in Section 2 of this Amendment. (ii) Minimum Availability. On the Amendment No. 2 Operative Date (after giving effect to this Amendment and the operation of the amendments and consents herein), (i) Borrowers shall have Excess Availability of at least $150,000,000, calculated on a pro forma basis after giving effect to the consummation of the Neff Corporation Qualifying IPO and the application of a portion of the net proceeds therefrom to repay Loans and to prepay Second Lien Loans and (ii) Parent Borrower shall have delivered a certificate to the Agent setting forth the Second Lien Loan Repayment Amount (as defined in the Credit Agreement as amended hereby) and setting forth the calculation thereof (which calculation shall be reasonably acceptable to the Agent). (iii) Amendment Fee. The Parent Borrower shall have paid to each Lender consenting to this Amendment prior to Noon (New York City time) on October 8, 2014, a nonrefundable cash fee (the Amendment Fee) in U.S. dollars equal to five basis points of the Revolving Loan Commitments held by such Lender as of the Amendment No. 2 Effective Date. Such payment of the |
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14 Amendment Fee shall be made to the Agent for further distribution of the Lenders entitled thereto. (iv) Expenses. The Agent shall have received all reasonable and documented fees and invoiced out-of-pocket expenses (including reasonable and documented expenses of counsel) due and payable by Holdings or Parent Borrower under Section 1.3(e) of the Credit Agreement or otherwise on or prior to the Amendment No. 2 Operative Date to the extent an invoice has been submitted to the Parent Borrower therefor. For the avoidance of doubt, the operation of Section 2 and Section 5(b) are contingent upon the closing of the Neff Corporation Qualifying IPO and the satisfaction of the other conditions precedent set forth in this Section 4(b), and this Amendment shall lapse and have no effect if the Neff Corporation Qualifying IPO has not occurred and the other conditions set forth in this Section 4(b) have not been satisfied on or before April 30, 2015. Section 5. Confirmation of Loan Documents; Lender Consents. (a) The Credit Parties hereby confirm that the Collateral Documents and the obligations of such parties under the Loan Documents continue in full force and effect and shall not be affected by this Amendment, except as expressly provided herein. Each of the Credit Parties hereby further ratifies and reaffirms the validity and enforceability of all of the Liens and security interests heretofore granted, pursuant to and in connection with the Collateral Documents, to the Agent, as collateral security for the Obligations under the Loan Documents in accordance with their respective terms, and acknowledges that all of such Liens and security interests, and all Collateral heretofore pledged as security for such Obligations, continue to be and remain collateral for such obligations from and after the date hereof. (b) Notwithstanding anything set forth in the Credit Agreement, subject to the conditions set forth in Section 4 of this Amendment, each of the Lenders hereby consents to: (i) the prepayment by the Credit Parties of the Second Lien Loans with a portion of the net proceeds of from the Neff Corporation Qualifying IPO received by the Credit Parties; (ii) the payment by the Credit Parties to the Second Lien Lenders of a 2.00% prepayment premium on the principal amount of Second Lien Loans repaid pursuant to the foregoing clause (a) with a portion of the net proceeds of from Neff Corporation Qualifying IPO received by the Credit Parties; (iii) the payment by the Credit Parties of accrued and unpaid interest in respect of the principal amount of Second Lien Loans repaid pursuant to the foregoing clause (a), whether out of the proceeds from Neff Corporation Qualifying IPO received by the Credit Parties or otherwise; |
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15 (iv) the payment by the Credit Parties of customary LIBOR breakage fees payable to the Second Lien Lenders in respect of the principal amount of Second Lien Loans repaid pursuant to the foregoing clause (a), whether out of the proceeds from Neff Corporation Qualifying IPO received by the Credit Parties or otherwise; (v) the payment by the Credit Parties of consent fees payable to the Second Lien Lenders not to exceed $287,500 in the aggregate out of the proceeds from Neff Corporation Qualifying IPO received by the Credit Parties; (vi) the payment by the Credit Parties of expenses payable to counsel to the Second Lien Agent in connection with the amendment to the Second Lien Credit Agreement whether out of the proceeds from Neff Corporation Qualifying IPO received by the Credit Parties or otherwise; (vii) the entry by the Credit Parties into the Second Lien Amendment No. 1 substantially in the form attached hereto as Exhibit A; (viii) the amendment and restatement of the Holdings limited liability company operating agreement substantially in the form attached hereto as Exhibit B; (ix) the entry by Holdings into the IPO Common Unit Purchase Agreement substantially in the form attached hereto as Exhibit C; (x) the entry by Holdings into the Tax Receivable Agreement substantially in the form attached hereto as Exhibit D; (xi) the entry by Holdings into the Amended Neff Holdings LLC Management Equity Plan substantially in the form attached hereto as Exhibit E; and (xii) all transactions directly related to the foregoing clauses (i) through (xi). (c) Upon the Amendment No. 2 Effective Date this Amendment shall constitute a Loan Document. The execution, delivery, and performance of this Amendment shall not operate, except as expressly set forth herein, as a waiver of, consent to, or a modification or amendment of, any right, power, or remedy of Agent or any Lender under the Credit Agreement or any other Loan Document. Except for the amendments to the Credit Agreement and the consents expressly set forth herein, the Credit Agreement and the other Loan Documents shall remain unchanged and in full force and effect. The amendments and consents set forth herein shall, except to the extent they become operative on the Amendment No. 2 Operative Date, (i) neither excuse future non-compliance with the Loan Documents nor operate as a waiver of any Default or Event of Default, (ii) not operate as a consent to any matter under the Loan Documents except as expressly set forth herein and (iii) not be construed as an indication that the Lenders will agree to any other amendments or give any other consents or waivers with respect to the Credit Agreement or the other Loan Documents |
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16 that may be requested by the Credit Parties; it being understood that the agreement of any other amendments or giving of any other consents or waivers which may hereafter be requested by the Credit Parties remains in the sole and absolute discretion of Agent and the Lenders. Section 6. Certain Consequences Of Effectiveness. On and after the Amendment No. 2 Operative Date, the rights and obligations of the parties to the Credit Agreement and each other Loan Document shall be governed by the Credit Agreement as amended hereby; provided that the provisions of Section 2 and Section 5(b) of this Amendment shall not become operative (and this Amendment shall lapse and have no effect) unless and until the Neff Corporation Qualifying IPO and the other conditions precedent set forth in Section 4(b) hereof have occurred on or before April 30, 2015. To the extent that this Amendment has become effective and the provisions hereof have become operative, the Credit Agreement and the other Loan Documents, as specifically amended hereby, are, and shall continue to be, in full force and effect and are hereby ratified and confirmed in all respects. Section 7. Severability. Any provision of this Amendment held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. Section 8. Governing Law; Jurisdiction; Service of Process. THIS AMENDMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. PARENT BORROWER AND EACH CREDIT PARTY HEREBY CONSENT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN NEW YORK COUNTY, STATE OF NEW YORK AND IRREVOCABLY AGREE THAT, SUBJECT TO AGENTS ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AMENDMENT SHALL BE LITIGATED IN SUCH COURTS. PARENT BORROWER AND EACH CREDIT PARTY EXPRESSLY SUBMIT AND CONSENT TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVE ANY DEFENSE OF FORUM NON CONVENIENS. PARENT BORROWER AND EACH CREDIT PARTY HEREBY WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREE THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON PARENT BORROWER AND SUCH CREDIT PARTIES BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO PARENT BORROWER, AT THE ADDRESS SET FORTH IN SECTION 9.3 OF THE CREDIT AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED. Section 9. Waiver of Jury Trial. PARENT BORROWER, EACH CREDIT PARTY, AGENT, EACH LENDER AND EACH OTHER PARTY HERETO HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AMENDMENT. PARENT BORROWER, EACH CREDIT PARTY, AGENT, EACH LENDER AND EACH OTHER PARTY HERETO ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THIS WAIVER IN |
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17 ENTERING INTO THIS AMENDMENT AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. Section 10. Counterparts. This Amendment may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery by facsimile or email of an executed counterpart of a signature page to this Amendment shall be effective as delivery of an original executed counterpart of this Amendment. Section 11. Certain Tax Matters. For purposes of determining withholding Taxes imposed under the Foreign Account Tax Compliance Act (FATCA), from and after the Amendment No. 2 Effective Date, the Borrower and the Administrative Agent shall treat (and the Lenders hereby authorize the Administrative Agent to treat) the Loans as not qualifying as a "grandfathered obligation" within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i). |
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[Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. NEFF LLC, as Parent Borrower By: Name: Mark Irion Title: Chief Financial Officer NEFF HOLDINGS LLC, as Holdings and a Credit Party By: Name: Mark Irion Title: Chief Financial Officer NEFF RENTAL LLC, as a Borrower By: Name: Mark Irion Title: Chief Financial Officer |
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[Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] BANK OF AMERICA, N.A., as Agent and as a Lender: By: Name: Title: |
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[Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] CIT FINANCE LLC, as a Lender: By: Name: Title: |
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[Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as a Lender: By: Name: Title: By: Name: Title: |
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[Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] JFIN BUSINESS CREDIT FUND I LLC, as a Lender: By: Name: Title: |
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[Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] NYCB Specialty Finance Company, LLC, a wholly-owned subsidiary of New York Community Bank, as a Lender: By: Name: Title: |
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[Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] PNC BANK, NATIONAL ASSOCIATION, as a Lender: By: Name: Title: |
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[Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] RBS CITIZENS BUSINESS CAPITAL, a division of RBS Asset Finance, Inc., as a Lender: By: Name: Title: |
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[Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] REGIONS BANK, as a Lender: By: Name: Title: |
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[Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] SUNTRUST BANK, as a Lender: By: Name: Title: |
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[Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] WELLS FARGO CAPITAL FINANCE, LLC, as a Lender: By: Name: Title: |
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EXHIBIT A FORM OF SECOND LIEN AMENDMENT NO. 1 [see attached] |
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EXHIBIT B FORM OF HOLDINGS LLC AGREEMENT [see attached] |
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EXHIBIT C FORM OF IPO COMMON UNIT PURCHASE AGREEMENT [see attached] |
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EXHIBIT D FORM OF TAX RECEIVABLE AGREEMENT [see attached] |
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EXHIBIT E FORM OF AMENDED NEFF HOLDINGS LLC MANAGEMENT EQUITY PLAN [see attached] |
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#86469808v2 EXHIBIT B FORM OF HOLDINGS LLC AGREEMENT [see attached] |
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DRAFT 10-14-2014#86439994v1 Posting Version NEFF HOLDINGS LLC SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT Dated as of [.], 2014 THE COMPANY INTERESTS REPRESENTED BY THIS SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY OTHER APPLICABLE SECURITIES LAWS. SUCH COMPANY INTERESTS MAY NOT BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF AT ANY TIME WITHOUT EFFECTIVE REGISTRATION UNDER SUCH ACT AND LAWS OR EXEMPTION THEREFROM, AND COMPLIANCE WITH THE OTHER SUBSTANTIAL RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN. |
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DRAFT 10-14-2014#86439994v1 TABLE OF CONTENTS Page Article I. DEFINITIONS 2 Article II. ORGANIZATIONAL MATTERS 13 Section 2.01 Formation of Company 13 Section 2.02 Second Amended and Restated Limited Liability Company Agreement 13 Section 2.03 Name 13 Section 2.04 Purpose 14 Section 2.05 Principal Office; Registered Office 14 Section 2.06 Term 14 Section 2.07 No State-Law Partnership 14 Article III. MEMBERS; UNITS; CAPITALIZATION 14 Section 3.01 Members 14 Section 3.02 Units 15 Section 3.03 Recapitalization and Split; the Corporations Capital Contribution; the Corporations Purchase of Common Units; Redemptions 15 Section 3.04 Authorization and Issuance of Additional Units 16 Section 3.05 Repurchase or Redemption of shares of Class A Common Stock 17 Section 3.06 Certificates Representing Units; Lost, Stolen or Destroyed Certificates; Registration and Transfer of Units 17 Section 3.07 Negative Capital Accounts 18 Section 3.08 No Withdrawal 18 Section 3.09 Loans From Members 18 Section 3.10 LLC Option Exercises 18 Section 3.11 Corporate Stock Option Plans 18 Section 3.12 Dividend Reinvestment Plan, Cash Option Purchase Plan, Stock Incentive Plan or Other Plan 21 Article IV. DISTRIBUTIONS 21 Section 4.01 Distributions 21 Section 4.02 Restricted Distributions 22 Article V. CAPITAL ACCOUNTS; ALLOCATIONS; TAX MATTERS 23 Section 5.01 Capital Accounts 23 Section 5.02 Allocations 24 Section 5.03 Regulatory Allocations 24 Section 5.04 Final Allocations 25 Section 5.05 Tax Allocations 25 |
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iii DRAFT 10-14-2014#86439994v1 Section 5.06 Indemnification and Reimbursement for Payments on Behalf of a Member 26 Article VI. MANAGEMENT 26 Section 6.01 Authority of Manager 26 Section 6.02 Actions of the Manager 27 Section 6.03 Resignation 27 Section 6.04 Removal 27 Section 6.05 Vacancies 28 Section 6.06 Transactions Between Company and Manager 28 Section 6.07 Reimbursement for Expenses 28 Section 6.08 Delegation of Authority 28 Section 6.09 Limitation of Liability of Manager 29 Section 6.10 Investment Company Act 30 Section 6.11 Outside Activities of the Manager 30 Article VII. RIGHTS AND OBLIGATIONS OF MEMBERS 30 Section 7.01 Limitation of Liability and Duties of Members 30 Section 7.02 Lack of Authority 31 Section 7.03 No Right of Partition 31 Section 7.04 Indemnification 31 Section 7.05 Members Right to Act 32 Section 7.06 Inspection Rights 33 Article VIII. BOOKS, RECORDS, ACCOUNTING AND REPORTS, AFFIRMATIVE COVENANTS 34 Section 8.01 Records and Accounting 34 Section 8.02 Fiscal Year 34 Section 8.03 Reports 34 Article IX. TAX MATTERS 34 Section 9.01 Preparation of Tax Returns 34 Section 9.02 Tax Elections 34 Section 9.03 Tax Controversies 35 Article X. RESTRICTIONS ON TRANSFER OF UNITS; PREEMPTIVE RIGHTS 35 Section 10.01 Transfers by Members 35 Section 10.02 Permitted Transfers 35 Section 10.03 Restricted Units Legend 36 Section 10.04 Transfer 36 Section 10.05 Assignees Rights 37 Section 10.06 Assignors Rights and Obligations 37 Section 10.07 Overriding Provisions 37 |
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iv DRAFT 10-14-2014#86439994v1 Article XI. REDEMPTION AND EXCHANGE RIGHTS 38 Section 11.01 Redemption Right of a Member and LLC Optionee 38 Section 11.02 Election and Contribution of the Corporation 41 Section 11.03 Exchange Right of the Corporation 41 Section 11.04 Reservation of shares of Class A Common Stock; Listing; Certificate of the Corporation 42 Section 11.05 Effect of Exercise of Redemption or Exchange Right 42 Section 11.06 Tax Treatment 42 Article XII. ADMISSION OF MEMBERS 42 Section 12.01 Substituted Members 42 Section 12.02 Additional Members 43 Article XIII. WITHDRAWAL AND RESIGNATION; TERMINATION OF RIGHTS 43 Section 13.01 Withdrawal and Resignation of Members 43 Section 13.02 Termination of Rights of LLC Optionees 43 Article XIV. DISSOLUTION AND LIQUIDATION 43 Section 14.01 Dissolution 43 Section 14.02 Liquidation and Termination 44 Section 14.03 Deferment; Distribution in Kind 45 Section 14.04 Cancellation of Certificate 45 Section 14.05 Reasonable Time for Winding Up 45 Section 14.06 Return of Capital 45 Article XV. VALUATION 45 Section 15.01 Determination 45 Section 15.02 Dispute Resolution 46 Article XVI. GENERAL PROVISIONS 46 Section 16.01 Power of Attorney 46 Section 16.02 Confidentiality 47 Section 16.03 Amendments 47 Section 16.04 Title to Company Assets 47 Section 16.05 Addresses and Notices 48 Section 16.06 Binding Effect; Intended Beneficiaries 48 Section 16.07 Creditors 48 Section 16.08 Waiver 49 Section 16.09 Counterparts 49 Section 16.10 Applicable Law 49 Section 16.11 Severability 49 Section 16.12 Further Action 49 |
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v DRAFT 10-14-2014#86439994v1 Section 16.13 Delivery by Electronic Transmission 49 Section 16.14 Right of Offset 49 Section 16.15 Effectiveness 50 Section 16.16 Entire Agreement 50 Section 16.17 Remedies 50 Section 16.18 Descriptive Headings; Interpretation 50 Schedules Schedule 1 Schedule of Members Schedule 2 Schedule of LLC Optionees Exhibits Exhibit A Form of Joinder Agreement |
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DRAFT 10-14-2014#86439994v1 NEFF HOLDINGS LLC SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT This SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this Agreement), dated as of [.], 2014, is entered into by and among Neff Holdings LLC, a Delaware limited liability company (the Company), and its Members (as defined herein). WHEREAS, the Company initially was formed as a limited liability company with the name Reorganized Neff, L.L.C., pursuant to and in accordance with the Delaware Act (as defined herein) by the filing of the Certificate (as defined herein) with the Secretary of State of the State of Delaware pursuant to Section 18-201 of the Delaware Act on May 12, 2010; WHEREAS, the Company entered into a Limited Liability Company Agreement of the Company, dated as of September 22, 2010 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time to but excluding October 1, 2010, together with all schedules, exhibits and annexes thereto, the Initial LLC Agreement), with the members of the Company party thereto; WHEREAS, the Company entered into an Amended and Restated Limited Liability Company Agreement, dated as of October 1, 2010 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time to but excluding the date hereof, together with all schedules, exhibits and annexes thereto, the First A&R LLC Agreement), with Wayzata Opportunities Fund II, L.P., a Delaware limited partnership (Wayzata), and Wayzata Opportunities Fund Offshore II, L.P., a Cayman Islands limited partnership (Wayzata Offshore), as members (collectively, the Original Members) holding Class A Units (as defined Section 5.1 of the First A&R LLC Agreement, the Original Class A Units) of the Company; WHEREAS, prior to the date hereof the Company has granted certain options (the Original LLC Options) under the Original Management Equity Plan (as defined herein) to those members of the Companys management and independent, non-executive members of the board of directors of the Company identified on Schedule 2 hereto (collectively, the Original LLC Optionees), pursuant to which each Original LLC Optionee is entitled to purchase that number of Class B Units (as defined in Section 5.1 of the First A&R LLC Agreement, the Original Class B Units) of the Company set forth opposite such Persons name on Schedule 2 hereto under the column labeled Original LLC Options at an exercise price of $10.82 per Original Class B Unit; WHEREAS, the Company, the Original Members and the Original LLC Optionees desire to have Neff Corporation, a Delaware corporation (the Corporation), effect an initial public offering (the IPO) of shares of its Class A common stock, par value $0.01 (the Class A Common Stock), and in connection therewith, to amend and restate the First A&R LLC |
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2 DRAFT 10-14-2014#86439994v1 Agreement to reflect (a) a recapitalization of the Company and the associated split in the number of Units (as defined herein) then outstanding (the Recapitalization), (b) the addition of the Corporation as a Member in the Company and its designation as sole Manager (as defined herein) of the Company, and (c) the rights and obligations of the Members (as defined herein) of the Company which are enumerated and agreed upon in the terms of this Agreement effective as of the Effective Time (as defined herein), pursuant to which the First A&R LLC Agreement shall be superseded entirely by this Agreement; WHEREAS, in connection with the Recapitalization, (a) the Original Class A Units of each Original Member will be converted into Common Units (as defined herein) and (b) the Original Class B Units underlying the Original LLC Options will be converted into Common Units underlying the LLC Options (as defined herein); WHEREAS, exclusive of the Over-Allotment Option (as defined below), the Corporation will sell shares of its Class A Common Stock to public investors in the IPO and will use the net proceeds received from the IPO (the IPO Net Proceeds) to purchase newly issued Common Units from the Company pursuant to that certain IPO Common Unit Purchase Agreement (as defined herein); and WHEREAS, the Corporation may issue additional shares of Class A Common Stock in connection with the IPO as a result of the exercise by the underwriters of their over-allotment option (the Over-Allotment Option) and, if the Over-Allotment Option is in fact exercised in whole or in part, any additional net proceeds (the Over-Allotment Option Net Proceeds) shall be used by the Corporation to purchase Common Units from the Original Members pursuant to the IPO Common Unit Purchase Agreement;1 NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Members, intending to be legally bound, hereby agree as follows: ARTICLE I. DEFINITIONS The following definitions shall be applied to the terms used in this Agreement for all purposes, unless otherwise clearly indicated to the contrary. ABL Credit Agreement means that certain Amended and Restated Senior Secured Credit Agreement, dated as of October 1, 2010 (as amended and restated as of November 20, 2013), by and among the Company, as holdings, Neff LLC, as parent borrower, the subsidiaries of Neff LLC from time to time signatory thereto, as additional credit parties, the several lenders from time to time party thereto, and Bank of America, N.A., as administrative agent and collateral agent for the lenders, as swing line lender and as the issuing bank for letters of credit, 1 NTD: This draft assumes that all of the IPO Net Proceeds will be used to purchase newly issued Common Units from the Company, and all Over-Allotment Option Net Proceeds will be used to purchase Common Units directly from Wayzata. To be revised to the extent these assumptions change. |
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3 DRAFT 10-14-2014#86439994v1 including all exhibits, schedules and attachments thereto, as such ABL Credit Agreement is in effect as of the date hereof and as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time and including any one or more refinancings or replacements thereof, in whole or in part, with any other debt facility or debt obligation. Additional Member has the meaning set forth in Section 12.02. Adjusted Capital Account Deficit means with respect to the Capital Account of any Member as of the end of any Taxable Year, the amount by which the balance in such Capital Account is less than zero. For this purpose, such Members Capital Account balance shall be: (a) reduced for any items described in Treasury Regulation Section 1.704- 1(b)(2)(ii)(d)(4), (5), and (6); and (b) increased for any amount such Member is obligated to contribute or is treated as being obligated to contribute to the Company pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (relating to partner liabilities to a partnership) or 1.704-2(g)(1) and 1.704-2(i) (relating to minimum gain). Admission Date has the meaning set forth in Section 10.06. Affiliate (and, with a correlative meaning, Affiliated) means, with respect to a specified Person, each other Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified. As used in this definition and the definition of Majority Member, control (including with correlative meanings, controlled by and under common control with) means possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of voting securities or by contract or other agreement). Agreement has the meaning set forth in the preamble to this Agreement. Appraisers has the meaning set forth in Section 15.02. Assignee means a Person to whom a Company Interest has been transferred but who has not become a Member pursuant to Article XII. Assumed Tax Liability means, with respect to a Member, an amount equal to the Distribution Tax Rate multiplied by the estimated or actual taxable income of the Company, as determined for federal income tax purposes, allocated to such Member pursuant to Section 5.05 for the period to which the Assumed Tax Liability relates, less prior losses of the Company, as determined for federal income tax purposes, allocated to such Member pursuant to Section 5.05 to the extent not previously taken into account in determining the Assumed Tax Liability of such Member, as determined by the Manager; provided that, in the case of the Corporation, such Assumed Tax Liability (i) shall be computed without regard to any increases to the tax basis of the Companys property pursuant to Section 743(b) of the Code and (ii) shall in no event be less than an amount that will enable the Corporation to meet its tax obligations, including its obligations pursuant to the Tax Receivable Agreement. |
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4 DRAFT 10-14-2014#86439994v1 Base Rate means, on any date, a variable rate per annum equal to the rate of interest most recently published by The Wall Street Journal as the prime rate at large U.S. money center banks. Black-Out Period means any black-out or similar period under the Corporations policies covering trading in the Corporations securities to which the applicable Redeeming Member is subject, which period restricts the ability of such Redeeming Member to immediately resell shares of Class A Common Stock to be delivered to such Redeeming Member in connection with a Share Settlement. Book Value means, with respect to any Company property, the Companys adjusted basis for U.S. federal income tax purposes, adjusted from time to time to reflect the adjustments required or permitted by Treasury Regulation Section 1.704-1(b)(2)(iv)(d)-(g). Business Day means any day other than a Saturday or a Sunday or a day on which banks located in New York City, New York generally are authorized or required by Law to close. Capital Account means the capital account maintained for a Member in accordance with Section 5.01. Capital Contribution means, with respect to any Member, the amount of any cash, cash equivalents, promissory obligations or the Fair Market Value of other property that such Member contributes (or is deemed to contribute) to the Company pursuant to Article III hereof. Cash Settlement means immediately available funds in U.S. dollars in an amount equal to the Redeemed Units Equivalent. Certificate means the Companys Certificate of Formation as filed with the Secretary of State of Delaware. Change of Control Transaction means (a) a sale of all or substantially all of the Companys assets determined on a consolidated basis, (b) a sale of a majority of the Companys outstanding Units (other than (i) to the Corporation or (ii) in connection with a Redemption or Exchange in accordance with Article XI) or (c) a sale of a majority of the outstanding voting securities of any Material Subsidiary of the Company; in any such case, whether by merger, recapitalization, consolidation, reorganization, combination or otherwise); provided, however, that neither (x) a transaction solely for the purpose of changing the jurisdiction of domicile of the Company, nor (y) a transaction solely for the purpose of changing the form of entity of the Company, shall constitute a Change of Control Transaction. Class A Common Stock has the meaning set forth in the recitals to this Agreement. Class B Common Stock means the Class B Common Stock, par value $0.01 per share, of the Corporation. Code means the United States Internal Revenue Code of 1986, as amended. |
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5 DRAFT 10-14-2014#86439994v1 Common Unit means a Unit representing a fractional part of the Company Interests of the Members and having the rights and obligations specified with respect to the Common Units in this Agreement. Common Unitholder means a Member who is the registered holder of Common Units. Common Unit Redemption Price means the arithmetic average of the volume weighted average prices for a share of Class A Common Stock on the principal U.S. securities exchange or automated or electronic quotation system on which the Class A Common Stock trades, as reported by Bloomberg, L.P., or its successor, for each of the five (5) consecutive full Trading Days ending on and including the last full Trading Day immediately prior to the Redemption Date, subject to appropriate and equitable adjustment for any stock splits, reverse splits, stock dividends or similar events affecting the Class A Common Stock. If the Class A Common Stock no longer trades on a securities exchange or automated or electronic quotation system, then a majority of the Independent Directors shall determine the Common Unit Redemption Price in good faith. Company has the meaning set forth in the preamble to this Agreement. Company Interest means the interest of a Member in Profits, Losses and Distributions. Contribution Notice has the meaning set forth in Section 11.01(b). Corporate Board means the Board of Directors of the Corporation. Corporate Omnibus Incentive Plan means the Neff Corporation 2014 Omnibus Incentive Plan, as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time. Corporation has the meaning set forth in the recitals to this Agreement, together with its successors and assigns. Credit Agreements means, collectively, the ABL Credit Agreement and the Second Lien Credit Agreement. Delaware Act means the Delaware Limited Liability Company Act, 6 Del.L. § 18-101, et seq., as it may be amended from time to time, and any successor thereto. Distributable Cash shall mean, as of any relevant date on which a determination is being made by the Manager regarding a potential distribution pursuant to Section 4.01(a), the amount of cash that could be distributed by the Company for such purposes in accordance with the Credit Agreements (and without otherwise violating any applicable provisions of the Credit Agreements). Distribution (and, with a correlative meaning, Distribute) means each distribution made by the Company to a Member with respect to such Members Units, whether in cash, property or securities of the Company and whether by liquidating distribution or otherwise; provided, however, that none of the following shall be a Distribution: (a) any recapitalization that |
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6 DRAFT 10-14-2014#86439994v1 does not result in the distribution of cash or property to Members or any exchange of securities of the Company, and any subdivision (by Unit split or otherwise) or any combination (by reverse Unit split or otherwise) of any outstanding Units or (b) any other payment made by the Company to a Member that is not properly treated as a distribution for purposes of Sections 731, 732, or 733 or other applicable provisions of the Code. Distribution Tax Rate shall mean a rate equal to the highest effective marginal combined federal, state and local income tax rate for a Fiscal Year applicable to corporate or individual taxpayers resident in New York City, New York, taking in to account the character of the relevant tax items (e.g., ordinary or capital) and the deductibility of state and local income taxes for federal income tax purposes, as determined in the reasonable discretion of the Manager. Effective Time has the meaning set forth in Section 16.15. Equity Plan means any stock or equity purchase plan, restricted stock or equity plan or other similar equity compensation plan now or hereafter adopted by the Company or the Corporation. Equity Securities means (a) Units or other equity interests in the Company or any Subsidiary of the Company (including other classes or groups thereof having such relative rights, powers and duties as may from time to time be established by the Manager pursuant to the provisions of this Agreement, including rights, powers and/or duties senior to existing classes and groups of Units and other equity interests in the Company or any Subsidiary of the Company), (b) obligations, evidences of indebtedness or other securities or interests convertible or exchangeable into Units or other equity interests in the Company or any Subsidiary of the Company, and (c) warrants, options or other rights to purchase or otherwise acquire Units or other equity interests in the Company or any Subsidiary of the Company. Event of Withdrawal means the expulsion, bankruptcy or dissolution of a Member or the occurrence of any other event that terminates the continued membership of a Member in the Company. Event of Withdrawal shall not include an event that (a) terminates the existence of a Member for income tax purposes (including, without limitation, (i) a change in entity classification of a Member under Treasury Regulations Section 301.7701-3, (ii) termination of a partnership pursuant to Code Section 708(b)(1)(B), (iii) a sale of assets by, or liquidation of, a Member pursuant to an election under Code Section 338, or (iv) merger, severance, or allocation within a trust or among sub-trusts of a trust that is a Member) but that (b) does not terminate the existence of such Member under applicable state law (or, in the case of a trust that is a Member, does not terminate the trusteeship of the fiduciaries under such trust with respect to all the Company Interests of such trust that is a Member). Fair Market Value means, with respect to any asset, its fair market value determined according to Article XV. First A&R LLC Agreement has the meaning set forth in the recitals to this Agreement. Fiscal Period means any interim accounting period within a Taxable Year established by the Manager and which is permitted or required by Section 706 of the Code. |
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7 DRAFT 10-14-2014#86439994v1 Fiscal Year means the Companys annual accounting period established pursuant to Section 8.02. Governmental Entity means (a) the United States of America, (b) any other sovereign nation, (c) any state, province, district, territory or other political subdivision of (a) or (b) of this definition, including any county, municipal or other local subdivision of the foregoing, or (d) any entity exercising executive, legislative, judicial, regulatory or administrative functions of government on behalf of (a), (b) or (c) of this definition. Indemnified Person has the meaning set forth in Section 7.04(a). Independent Directors means the members of the Corporate Board who are independent under the standards set forth in Rule 10A-3 promulgated under the U.S. Securities Exchange Act of 1933, as amended, and the corresponding rules of the applicable exchange on which the Class A Common Stock is traded or quoted. Initial LLC Agreement has the meaning set forth in the recitals to this Agreement. Investment Company Act means the U.S. Investment Company Act of 1940, as amended from time to time. IPO has the meaning set forth in the recitals to this Agreement. IPO Closing Date means the closing date of the IPO, which for the avoidance of doubt means the date on which all IPO net proceeds required to be delivered pursuant to the Underwriting Agreement have been delivered to the Corporation in respect of its sale of Class A Common Stock excluding any proceeds from the Over-Allotment Option which may be delivered at a subsequent date following exercise of such option. IPO Common Unit Purchase has the meaning set forth in Section 3.03(c). IPO Common Unit Purchase Agreement means that certain Common Unit Purchase Agreement, dated as of the date hereof, by and among the Corporation, the Company and the Original Members. IPO Net Proceeds has the meaning set forth in the recitals to this Agreement. Joinder means a joinder to this Agreement, in form and substance substantially similar to Exhibit A to this Agreement. Law means all laws, statutes, ordinances, rules and regulations of the United States, any foreign country and each state, commonwealth, city, county, municipality, regulatory body, agency or other political subdivision thereof. LLC Employee means an employee of, or other service provider to, the Company or any Subsidiary, in each case acting in such capacity. |
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8 DRAFT 10-14-2014#86439994v1 LLC Option Exercise means the exercise, whether in whole or in part, of an LLC Option by the applicable LLC Optionee in accordance with the provisions of the applicable LLC Option and the Original Management Equity Plan, including the payment by such LLC Optionee to the Company of the exercise price in respect thereof (whether in cash or in kind through a cashless exercise). LLC Optionees means each of the Persons named on Schedule 2 attached hereto with respect to the number of shares of Common Units underlying the LLC Options set forth opposite the name of such Person under the column labeled LLC Options therein, as long as the LLC Option of such Person remains effective in accordance with its terms and only to the extent of the remaining number of Common Units with respect to which such Person has not then exercised its purchase right under such LLC Option. LLC Options means the Original LLC Options granted under the Original Management Equity Plan, in each case as amended in connection with the Recapitalization, and which after giving effect to the Recapitalization give each LLC Optionee the right to purchase, subject to the terms and conditions set forth therein, the number of Common Units set forth opposite such LLC Optionees name on Schedule 2 hereto at an exercise price of $[.] per Common Unit. For the avoidance of doubt, no additional LLC Options will be issued on and after the date of this Agreement. Losses means items of Company loss or deduction determined according to Section 5.01(b). Majority Members means the Members holding a majority of the Voting Units then outstanding; provided that, if as of any date of determination, a majority of the Voting Units are then held by the Manager or any Affiliates controlled by the Manager, then Majority Members shall mean the Manager together with Members (other than the Manager and its controlled Affiliates) holding a majority of the Voting Units (excluding Voting Units held by the Manager) then outstanding. Material Subsidiary means any direct or indirect Subsidiary of the Company that, as of any date of determination, represents more than (a) 50% of the consolidated net tangible assets of the Company or (b) 50% of the consolidated net income of the Company before interest, taxes, depreciation and amortization (calculated in a manner substantially consistent with the definition of Consolidated Net Income and/or EBITDA or similar definition(s) appearing therein in the Credit Agreements, including such additional adjustments that are permitted to be made to such measure as described in Adjusted EBITDA or similar definition appearing in the Credit Agreements). Manager has the meaning set forth in Section 6.01. Market Price means, with respect to a share of Class A Common Stock as of a specified date, the last sale price per share of Class A Common Stock, regular way, or if no such sale took place on such day, the average of the closing bid and asked prices per share of Class A Common Stock, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the Stock Exchange or, |
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9 DRAFT 10-14-2014#86439994v1 if the Class A Common Stock is not listed or admitted to trading on the Stock Exchange, as reported on the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Class A Common Stock is listed or admitted to trading or, if the Class A Common Stock is not listed or admitted to trading on any national securities exchange, the last quoted price, or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or, if such system is no longer in use, the principal other automated quotation system that may then be in use or, if the Class A Common Stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Class A Common Stock selected by the Corporate Board or, in the event that no trading price is available for the shares of Class A Common Stock, the fair market value of a share of Class A Common Stock, as determined in good faith by the Corporate Board. Member means, as of any date of determination, (a) each of the members named on the Schedule of Members and (b) any Person admitted to the Company as a Substituted Member or Additional Member in accordance with Article XII, but in each case only so long as such Person is shown on the Companys books and records as the owner of one or more Units. For the avoidance of doubt, an LLC Optionee shall not constitute a Member hereunder except to the extent that, as of such date of determination, such Person is shown on the Companys books and records as an owner of one or more Units. Minimum Gain means partnership minimum gain determined pursuant to Treasury Regulation Section 1.704-2(d). Net Loss means, with respect to a Fiscal Year, the excess if any, of Losses for such Fiscal Year over Profits for such Fiscal Year (excluding Profits and Losses specially allocated pursuant to Section 5.03 and Section 5.04). Net Profit means, with respect to a Fiscal Year, the excess if any, of Profits for such Fiscal Year over Losses for such Fiscal Year (excluding Profits and Losses specially allocated pursuant to Section 5.03 and Section 5.04). Officer has the meaning set forth in Section 6.01(b). Optionee means a Person to whom a stock option is granted under any Stock Option Plan. Original Award Agreement means an Award Agreement as defined in the First A&R LLC Agreement, as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time, including in connection with the Recapitalization. Original Class A Units has the meaning set forth in the recitals to this Agreement. Original Class B Units has the meaning set forth in the recitals to this Agreement. Original LLC Optionees has the meaning set forth in the recitals to this Agreement. |
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10 DRAFT 10-14-2014#86439994v1 Original LLC Options has the meaning set forth in the recitals to this Agreement. Original Management Equity Plan means the Management Equity Plan as defined in the First A&R LLC Agreement, as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time, including in connection with the Recapitalization. Original Members has the meaning set forth in the recitals to this Agreement. Other Agreements has the meaning set forth in Section 10.04. Over-Allotment Option has the meaning set forth in the recitals to this Agreement. Over-Allotment Option Net Proceeds has the meaning set forth in the recitals to this Agreement. Over-Allotment Option Redemption has the meaning set forth in the recitals to this Agreement. Percentage Interest means, as among an individual class of Units and with respect to a Member at a particular time, such Members percentage interest in the Company determined by dividing such Members Units of such class by the total Units of all Members of such class at such time. The Percentage Interest of each member shall be calculated to the 9th decimal place. Permitted Transfer has the meaning set forth in Section 10.02. Person means an individual or any corporation, partnership, limited liability company, trust, unincorporated organization, association, joint venture or any other organization or entity, whether or not a legal entity. Profits means items of Company income and gain determined according to Section 5.01(b). Pro rata, pro rata portion, according to their interests, ratably, proportionately, proportional, in proportion to, based on the number of Units held, based upon the percentage of Units held, based upon the number of Units outstanding, and other terms with similar meanings, when used in the context of a number of Units of the Company relative to other Units, means as amongst an individual class of Units, pro rata based upon the number of such Units within such class of Units. Recapitalization has the meaning set forth in the recitals to this Agreement. Redeemed Units has the meaning set forth in Section 11.01(a). Redeemed Units Equivalent means the product of (a) the Share Settlement, times (b) the Common Unit Redemption Price. Redeeming Member has the meaning set forth in Section 11.01(a). |
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11 DRAFT 10-14-2014#86439994v1 Redemption has the meaning set forth in Section 11.01(a). Redemption Date has the meaning set forth in Section 11.01(a). Redemption Notice has the meaning set forth in Section 11.01(a). Redemption Right has the meaning set forth in Section 11.01(a). Registration Rights Agreement means that certain Registration Rights Agreement, dated as of the date hereof, by and among the Corporation, the Original Members and the Original LLC Optionees. Retraction Notice has the meaning set forth in Section 11.01(b). Schedule of Members has the meaning set forth in Section 3.01(b). SEC means the U.S. Securities and Exchange Commission, including any governmental body or agency succeeding to the functions thereof. Second Lien Credit Agreement means that certain Second Lien Credit Agreement, dated as of June 9, 2014, by and among the Company, as holdings, Neff LLC, as parent, Neff Rental LLC, as borrower, the several lenders from time to time party thereto, and Credit Suisse AG, as administrative agent and collateral agent for the lenders, including all exhibits, schedules and attachments thereto, as such Second Lien Credit Agreement is in effect as of the date hereof and as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time and including any one or more refinancings or replacements thereof, in whole or in part, with any other debt facility or debt obligation. Securities Act means the U.S. Securities Act of 1933, as amended, and applicable rules and regulations thereunder, and any successor to such statute, rules or regulations. Any reference herein to a specific section, rule or regulation of the Securities Act shall be deemed to include any corresponding provisions of future Law. Share Settlement means a number of shares of Class A Common Stock equal to the number of Redeemed Units. Stock Exchange means the [New York Stock Exchange / NASDAQ Stock Market]. Stock Option Plan means any stock option plan now or hereafter adopted by the Company or by the Corporation. Subsidiary means, with respect to any Person, any corporation, limited liability company, partnership, association or business entity of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (b) if a limited liability company, partnership, association or other business entity (other than a corporation), a majority of the |
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12 DRAFT 10-14-2014#86439994v1 voting interests thereof are at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, references to a Subsidiary of the Company shall be given effect only at such times that the Company has one or more Subsidiaries, and, unless otherwise indicated, the term Subsidiary refers to a Subsidiary of the Company. Substituted Member means a Person that is admitted as a Member to the Company pursuant to Section 12.01. Tax Distribution Date has the meaning set forth in Section 4.01(b)(i). Tax Distributions has the meaning set forth in Section 4.01(b)(i). Tax Matters Partner has the meaning set forth in Section 9.03. Tax Receivable Agreement means that certain Tax Receivable Agreement, dated as the date hereof, by and among the Corporation, on the one hand, and the Original Members, on the other hand (together with any joinder thereto from time to time executed by any LLC Optionee and/or by any successor or assign to any party to such agreement). Taxable Year means the Companys accounting period for U.S. federal income tax purposes determined pursuant to Section 9.02. Trading Day means a day on which the Stock Exchange or such other principal United States securities exchange on which the Class A Common Stock is listed or admitted to trading is open for the transaction of business (unless such trading shall have been suspended for the entire day). Transfer (and, with a correlative meaning, Transferring) means any sale, transfer, assignment, pledge, encumbrance or other disposition of (whether directly or indirectly, whether with or without consideration and whether voluntarily or involuntarily or by operation of Law) (a) any interest (legal or beneficial) in any Equity Securities or (b) any equity or other interest (legal or beneficial) in any Member if substantially all of the assets of such Member consist solely of Units. Treasury Regulations means the income tax regulations promulgated under the Code and any corresponding provisions of succeeding regulations. Underwriting Agreement means the Underwriting Agreement, dated as of [.], 2014, by and among the Corporation, the Company, Morgan Stanley & Co. LLC and Jefferies LLC. Unit means a Company Interest of a Member or a permitted Assignee in the Company representing a fractional part of the Company Interests of all Members and Assignees as may be established by the Manager from time to time in accordance with Section 3.02; provided, however, that any class or group of Units issued shall have the relative rights, powers and duties set forth in this Agreement, and the Company Interest represented by such class or group of Units shall be determined in accordance with such relative rights, powers and duties. |
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13 DRAFT 10-14-2014#86439994v1 Unitholder means a Common Unitholder and any Member who is the registered holder of any other class of Units, if any. Unvested Corporate Shares means shares of Class A Common Stock issued pursuant to the Corporate Omnibus Incentive Plan that are not Vested Corporate Shares. Value means (a) for any Stock Option Plan, the Market Price for the trading day immediately preceding the date of exercise of a stock option under such Stock Option Plan and (b) for any Equity Plan other than a Stock Option Plan, the Market Price for the trading day immediately preceding the Vesting Date. Vested Corporate Shares has the meaning set forth in Section 3.04(c)(ii). Vesting Date has the meaning set forth in Section 3.11(c)(ii). Voting Units means (a) the Common Units and (b) any other Units other than Units that by their express terms do not entitle the record holder thereof to vote on any matter presented to the Members generally under this Agreement for approval. Wayzata has the meaning set forth in the recitals to this Agreement. Wayzata Offshore has the meaning set forth in the recitals to this Agreement. ARTICLE II. ORGANIZATIONAL MATTERS Section 2.01 Formation of Company. The Company was formed on May 12, 2010 pursuant to the provisions of the Delaware Act. Section 2.02 Second Amended and Restated Limited Liability Company Agreement. The Members hereby execute this Agreement for the purpose of establishing the affairs of the Company and the conduct of its business in accordance with the provisions of the Delaware Act. The Members hereby agree that during the term of the Company set forth in Section 2.06 the rights and obligations of the Members with respect to the Company will be determined in accordance with the terms and conditions of this Agreement and the Delaware Act. On any matter upon which this Agreement is silent, the Delaware Act shall control. No provision of this Agreement shall be in violation of the Delaware Act and to the extent any provision of this Agreement is in violation of the Delaware Act, such provision shall be void and of no effect to the extent of such violation without affecting the validity of the other provisions of this Agreement; provided, however, that where the Delaware Act provides that a provision of the Delaware Act shall apply unless otherwise provided in a limited liability company agreement or words of similar effect, the provisions of this Agreement shall in each instance control; provided further, that notwithstanding the foregoing, Section 18-210 of the Delaware Act shall not apply or be incorporated into this Agreement. Section 2.03 Name. The name of the Company shall be Neff Holdings LLC. The Manager in its sole discretion may change the name of the Company at any time and from time to time. Notification of any such change shall be given to all of the Members and, to the extent |
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14 DRAFT 10-14-2014#86439994v1 practicable, to all of the holders of any Equity Securities then outstanding. The Companys business may be conducted under its name and/or any other name or names deemed advisable by the Manager. Section 2.04 Purpose. The primary business and purpose of the Company shall be to engage in such activities as are permitted under the Delaware Act and determined from time to time by the Manager in accordance with the terms and conditions of this Agreement. Section 2.05 Principal Office; Registered Office. The principal office of the Company shall be at 3750 N.W. 87th Avenue, Suite 400, Miami, Florida 33178, or such other place as the Manager may from time to time designate. The address of the registered office of the Company in the State of Delaware shall be c/o The Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, County of New Castle, 19801, and the registered agent for service of process on the Company in the State of Delaware at such registered office shall be The Corporation Trust Company. The Manager may from time to time change the Companys registered agent and registered office in the State of Delaware. Section 2.06 Term. The term of the Company commenced upon the filing of the Certificate in accordance with the Delaware Act and shall continue in existence until termination and dissolution of the Company in accordance with the provisions of Article XIV. Section 2.07 No State-Law Partnership. The Members intend that the Company not be a partnership (including, without limitation, a limited partnership) or joint venture, and that no Member be a partner or joint venturer of any other Member by virtue of this Agreement, for any purposes other than as set forth in the last sentence of this Section 2.07, and neither this Agreement nor any other document entered into by the Company or any Member relating to the subject matter hereof shall be construed to suggest otherwise. The Members intend that the Company shall be treated as a partnership for U.S. federal and, if applicable, state or local income tax purposes, and that each Member and the Company shall file all tax returns and shall otherwise take all tax and financial reporting positions in a manner consistent with such treatment. ARTICLE III. MEMBERS; UNITS; CAPITALIZATION Section 3.01 Members. (a) Each of the Original Members previously was admitted as a Member to the Company pursuant to the First A&R LLC Agreement and shall remain a Member of the Company upon the Effective Time. At the Effective Time and concurrently with the IPO Common Unit Purchase, the Corporation shall be admitted to the Company as a Member. In accordance with Section 12.02, from time to time on or after the date of this Agreement, upon each LLC Option Exercise the applicable LLC Optionee shall be admitted to the Company as an Additional Member. (b) The Company shall maintain a schedule setting forth: (i) the name and address of each Member; (ii) the aggregate number of outstanding Units and the number and class of Units held by each Member; (iii) the aggregate amount of cash Capital Contributions that have been |
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15 DRAFT 10-14-2014#86439994v1 made by the Members with respect to their Units; and (iv) the Fair Market Value of any property other than cash contributed by the Members with respect to their Units (including, if applicable, a description and the amount of any liability assumed by the Company or to which contributed property is subject) (such schedule, the Schedule of Members). The applicable Schedule of Members in effect as of the Effective Time is set forth as Schedule 1 to this Agreement. The Schedule of Members shall be the definitive record of ownership of each Unit of the Company and all relevant information with respect to each Member. The Company shall be entitled to recognize the exclusive right of a Person registered on its records as the owner of Units for all purposes and shall not be bound to recognize any equitable or other claim to or interest in Units on the part of any other Person, whether or not it shall have express or other notice thereof, except as otherwise provided by the Delaware Act. (c) No Member shall be required or, except as approved by the Manager pursuant to Section 6.01 and in accordance with the other provisions of this Agreement, permitted to loan any money or property to the Company or borrow any money or property from the Company. Section 3.02 Units. Interests in the Company shall be represented by Units, or such other securities of the Company, in each case as the Manager may establish in its discretion in accordance with the terms and subject to the restrictions hereof. Immediately after the Effective Time, the Units will be comprised of a single class of Common Units (with an aggregate of [.] Common Units being authorized for issuance by the Company). To the extent required pursuant to Section 3.04(a), the Manager may create one or more classes or series of Common Units or preferred Units solely to the extent they are in the aggregate substantially equivalent to a class of common stock of the Corporation or class or series of preferred stock of the Corporation; provided that as long as there are any Members of the Company (other than the Corporation) or any LLC Optionees with respect to outstanding LLC Options, then no such new class or series of Units may deprive such Members or LLC Optionees of, or dilute or reduce, the pro rata share of all Company Interests they would have received or to which they would have been entitled (including on a pro forma basis for the exercise of LLC Options) if such new class or series of Units had not been created except to the extent (and solely to the extent) the Company actually receives cash in an aggregate amount, or other property with a Fair Market Value in an aggregate amount, equal to the pro rata share allocated to such new class or series of Units and the number thereof issued by the Company. Section 3.03 Recapitalization and Split; the Corporations Capital Contribution; the Corporations Purchase of Common Units; Redemptions. (a) Recapitalization and Split. In connection with the Recapitalization, immediately upon the Effective Time, the aggregate number of 9,200,000 Original Class A Units that were issued and outstanding and held by the Original Members prior to the execution and effectiveness of this Agreement are hereby converted into an aggregate of [.] Common Units. The number of Common Units received by each Original Member reflect a [__]:1 ([_______________] to one) split of each Unit evidencing a common Company Interest previously held by each Original Member and reflected on Schedule A to, and in other applicable provisions of, the First A&R LLC Agreement. In connection with the Recapitalization, immediately upon the Effective Time, the aggregate number of 778,374 Original Class B Units that were underlying option grants to the Original LLC Optionees prior to the execution and |
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16 DRAFT 10-14-2014#86439994v1 effectiveness of this Agreement are hereby converted into an aggregate of [.] Common Units. The number of Common Units underlying each grant to an Original LLC Optionee will reflect a [__]:1 ([_______________] to one) split of each Unit evidencing a common Company Interest previously underlying the grant to such Original LLC Optionee and reflected in the applicable grant documentation under the Original Management Equity Plan and the applicable Original Award Agreement. (b) The Corporations Common Unit Purchase. Following the Recapitalization, immediately upon the Effective Time, the Corporation will contribute the IPO Net Proceeds to the Company in exchange for [.] Common Units pursuant to the IPO Common Unit Purchase Agreement (the IPO Common Unit Purchase). The IPO Common Unit Purchase shall be reflected on the Schedule of Members. Section 3.04 Authorization and Issuance of Additional Units. (a) The Company shall undertake all actions, including, without limitation, a reclassification, distribution, division or recapitalization, with respect to the Common Units, to maintain at all times a one-to-one ratio between the number of Common Units owned by the Corporation and the number of outstanding shares of Class A Common Stock, disregarding, for purposes of maintaining the one-to-one ratio, (i) Unvested Corporate Shares, (ii) treasury stock or (iii) preferred stock or other debt or equity securities (including without limitation warrants, options or rights) issued by the Corporation that are convertible into or exercisable or exchangeable for Class A Common Stock (except to the extent the net proceeds from such other securities, including any exercise or purchase price payable upon conversion, exercise or exchange thereof, has been contributed by the Corporation to the equity capital of the Company). In the event the Corporation issues, transfers or delivers from treasury stock or repurchases Class A Common Stock in a transaction not contemplated in this Agreement, the Manager shall have the authority to take all actions such that, after giving effect to all such issuances, transfers, delivers or repurchases, the number of outstanding Common Units owned by the Corporation will equal on a one-for-one basis the number of outstanding shares of Class A Common Stock. In the event the Corporation issues, transfers or delivers from treasury stock or repurchases or redeems the Corporations preferred stock in a transaction not contemplated in this Agreement, the Manager shall have the authority to take all actions such that, after giving effect to all such issuances, transfers, deliveries repurchases or redemptions, the Corporation holds (in the case of any issuance, transfer or delivery) or ceases to hold (in the case of any repurchase or redemption) equity interests in the Company which (in the good faith determination by the Manager) are in the aggregate substantially equivalent to the outstanding preferred stock of the Corporation so issued, transferred, delivered, repurchased or redeemed. The Company shall not undertake any subdivision (by any Common Unit split, Common Unit distribution, reclassification, recapitalization or similar event) or combination (by reverse Common Unit split, reclassification, recapitalization or similar event) of the Common Units that is not accompanied by an identical subdivision or combination of Class A Common Stock to maintain at all times a one-to-one ratio between the number of Common Units owned by the Corporation and the number of outstanding shares of Class A Common Stock, unless such action is necessary to maintain at all times a oneto- one ratio between the number of Common Units owned by the Corporation and the number of outstanding shares of Class A Common Stock as contemplated by the first sentence of this Section 3.04(a). |
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17 DRAFT 10-14-2014#86439994v1 (b) The Company shall only be permitted to issue additional Units or other Equity Securities in the Company to the Persons and on the terms and conditions provided for in Section 3.02, this Section 3.04, Section 3.10, Section 3.11 and Section 3.12. Subject to the foregoing, the Manager may cause the Company to issue additional Common Units authorized under this Agreement at such times and upon such terms as the Manager shall determine and the Manager shall amend this Agreement as necessary in connection with the issuance of additional Common Units and admission of additional Members under this Section 3.04. Section 3.05 Repurchase or Redemption of shares of Class A Common Stock. If, at any time, any shares of Class A Common Stock are repurchased or redeemed (whether by exercise of a put or call, automatically or by means of another arrangement) by the Corporation for cash, then the Manager shall cause the Company, immediately prior to such repurchase or redemption of Class A Common Stock, to redeem a corresponding number of Common Units held by the Corporation, at an aggregate redemption price equal to the aggregate purchase or redemption price of the shares of Class A Common Stock being repurchased or redeemed by the Corporation (plus any expenses related thereto) and upon such other terms as are the same for the shares of Class A Common Stock being repurchased or redeemed by the Corporation. Section 3.06 Certificates Representing Units; Lost, Stolen or Destroyed Certificates; Registration and Transfer of Units. (a) Units shall not be certificated unless otherwise determined by the Manager. If the Manager determines that one or more Units shall be certificated, each such certificate shall be signed by or in the name of the Company, by the Chief Executive Officer and any other officer designated by the Manager, representing the number of Units held by such holder. Such certificate shall be in such form (and shall contain such legends) as the Manager may determine. Any or all of such signatures on any certificate representing one or more Units may be a facsimile, engraved or printed, to the extent permitted by applicable Law. The Manager agrees that it shall not elect to treat any Unit as a security within the meaning of Article 8 of the Uniform Commercial Code unless thereafter all Units then outstanding are represented by one or more certificates. (b) If Units are certificated, the Manager may direct that a new certificate representing one or more Units be issued in place of any certificate theretofore issued by the Company alleged to have been lost, stolen or destroyed, upon delivery to the Manager of an affidavit of the owner or owners of such certificate, setting forth such allegation. The Manager may require the owner of such lost, stolen or destroyed certificate, or such owners legal representative, to give the Company a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate. (c) Upon surrender to the Company or the transfer agent of the Company, if any, of a certificate for one or more Units, duly endorsed or accompanied by appropriate evidence of succession, assignment or authority to transfer, in compliance with the provisions hereof, the Company shall issue a new certificate representing one or more Units to the Person entitled thereto, cancel the old certificate and record the transaction upon its books. Subject to the |
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18 DRAFT 10-14-2014#86439994v1 provisions of this Agreement, the Manager may prescribe such additional rules and regulations as it may deem appropriate relating to the issue, Transfer and registration of Units. Section 3.07 Negative Capital Accounts. No Member shall be required to pay to any other Member or the Company any deficit or negative balance which may exist from time to time in such Members Capital Account (including upon and after dissolution of the Company). Section 3.08 No Withdrawal. No Person shall be entitled to withdraw any part of such Persons Capital Contribution or Capital Account or to receive any Distribution from the Company, except as expressly provided in this Agreement. Section 3.09 Loans From Members. Loans by Members to the Company shall not be considered Capital Contributions. Subject to the provisions of Section 3.01(c), the amount of any such advances shall be a debt of the Company to such Member and shall be payable or collectible in accordance with the terms and conditions upon which such advances are made. Section 3.10 LLC Option Exercises. If at any time or from time to time, in connection with any LLC Option, the LLC Optionee exercises its LLC Option in whole or in part: (a) If such LLC Optionee is not a Member as of the date of such exercise, such LLC Optionee shall execute and deliver to the Manager a Joinder to this Agreement whereby such LLC Optionee shall agree to become a Member under this Agreement, entitled to all of the rights and privileges and subject to all of the agreements and responsibilities of a Member hereunder from and after the date of such Joinder. (b) Notwithstanding the foregoing, if the LLC Optionee, in its capacity as a prospective Member hereunder as a result of such LLC Option exercise, intends to simultaneously exercise its Redemption Rights with respect to all (but not less than all) of the Common Units to be received as by such LLC Optionee as a result of such exercise, then: (i) the actions described in subsection (a) of this Section 3.10 shall be deemed to have occurred (including that such LLC Optionee shall be deemed to have become a Member for the period of time between such exercise and such Redemption) without requiring the actual execution of a Joinder or the actual issuance and delivery to the LLC Optionee of the applicable number of Common Units; and (ii) such LLC Optionee may proceed to exercise all of the rights of a Member with respect to a Redemption under Article XI hereof of up to the number of Common Units that such LLC Optionee is entitled to receive (and deemed to have received) as a result of such exercise. (e) Anti-dilution adjustments. For all purposes of this Section 3.10, the number of Common Units (or in connection with simultaneous Redemption, the number of shares of Class A Common Stock in lieu of Common Units) shall be determined after giving effect to all antidilution or similar adjustments that are applicable, as of the date of exercise, to the LLC Option being exercised the Original Management Equity Plan or applicable Original Award Agreement. Section 3.11 Corporate Stock Option Plans. |
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19 DRAFT 10-14-2014#86439994v1 (a) Options Granted to Persons other than LLC Employees. If at any time or from time to time, in connection with any Stock Option Plan, a stock option granted over shares of Class A Common Stock to a Person other than an LLC Employee is duly exercised: (i) The Corporation shall, as soon as practicable after such exercise, make a Capital Contribution to the Company in an amount equal to the exercise price paid to the Corporation by such exercising Person in connection with the exercise of such stock option. (ii) Notwithstanding the amount of the Capital Contribution actually made pursuant to Section 3.11(a)(i), the Corporation shall be deemed to have contributed to the Company as a Capital Contribution, in lieu of the Capital Contribution actually made and in consideration of additional Common Units, an amount equal to the Value of a share of Class A Common Stock as of the date of such exercise multiplied by the number of shares of Class A Common Stock then being issued by the Corporation in connection with the exercise of such stock option. (iii) The Corporation shall receive in exchange for such Capital Contributions (as deemed made under 3.11(a)(ii)), a corresponding number of Units of a class correlative to the class of Equity Securities for which such stock options were granted. (b) Options Granted to LLC Employees. If at any time or from time to time, in connection with any Stock Option Plan, a stock option granted over shares of Class A Common Stock to an LLC Employee is duly exercised: (i) The Corporation shall sell to the Optionee, and the Optionee shall purchase from the Corporation, for a cash price per share equal to the Value of a share of Class A Common Stock at the time of the exercise, the number of shares of Class A Common Stock equal to the quotient of (x) the exercise price payable by the Optionee in connection with the exercise of such stock option divided by (y) the Value of a share of Class A Common Stock at the time of such exercise. (ii) The Corporation shall sell to the Company (or if the Optionee is an employee of, or other service provider to, a Subsidiary, the Corporation shall sell to such Subsidiary), and the Company (or such Subsidiary, as applicable) shall purchase from the Corporation, a number of shares of Class A Common Stock equal to the excess of (x) the number of shares of Class A Common Stock as to which such stock option is being exercised over (y) the number of shares of Class A Common Stock sold pursuant to Section 3.11(b)(i) hereof. The purchase price per share of Class A Common Stock for such sale of shares of Class A Common Stock to the Company (or such Subsidiary) shall be the Value of a share of Class A Common Stock as of the date of exercise of such stock option. (iii) The Company shall transfer to the Optionee (or if the Optionee is an employee of, or other service provider to, a Subsidiary, the Subsidiary shall transfer to the Optionee) at no additional cost to such LLC Employee and as additional |
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20 DRAFT 10-14-2014#86439994v1 compensation to such LLC Employee, the number of shares of Class A Common Stock described in Section 3.11(b)(ii). (iv) The Corporation shall, as soon as practicable after such exercise, make a Capital Contribution to the Company in an amount equal to all proceeds received (from whatever source, but excluding any payment in respect of payroll taxes or other withholdings) by the Corporation in connection with the exercise of such stock option. The Corporation shall receive for such Capital Contribution, a number Units equal to the number of shares of Class A Common Stock for which such option was exercised. (c) Restricted Stock Granted to LLC Employees. If at any time or from time to time, in connection with any Equity Plan (other than a Stock Option Plan), any shares of Class A Common Stock are issued to an LLC Employee (including any shares of Class A Common Stock that are subject to forfeiture in the event such LLC Employee terminates his employment by the Company or any Subsidiary) in consideration for services performed for the Company or any Subsidiary: (i) The Corporation shall issue such number of shares of Class A Common Stock as are to be issued to the LLC Employee in accordance with the Equity Plan; (ii) On the date (such date, the Vesting Date) that the Value of such shares is includible in taxable income of the LLC Employee, the following events will be deemed to have occurred: (a) the Corporation shall be deemed to have sold such shares of Class A Common Stock to the Company (or if the LLC Employee is an employee of, or other service provider to, a Subsidiary, to such Subsidiary) for a purchase price equal to the Value of such shares of Class A Common Stock, (b) the Company (or such Subsidiary) shall be deemed to have delivered such shares of Class A Common Stock to the LLC Employee, (c) the Corporation shall be deemed to have contributed the purchase price for such shares of Class A Common Stock to the Company as a Capital Contribution, and (d) in the case where the LLC Employee is an employee of a Subsidiary, the Company shall be deemed to have contributed such amount to the capital of the Subsidiary; and (iii) The Company shall issue to the Corporation on the Vesting Date a number of Units equal to the number of shares of Class A Common Stock issued under Section 3.11(c)(i) in consideration for a Capital Contribution in cash in an amount equal to the product of (x) the number of such newly issued Units multiplied by (y) the Value of a share of Class A Common Stock. (d) Future Stock Incentive Plans. Nothing in this Agreement shall be construed or applied to preclude or restrain the Corporation from adopting, modifying or terminating stock incentive plans for the benefit of employees, directors or other business associates of the Corporation, the Company or any of their Affiliates. The Members acknowledge and agree that, in the event that any such plan is adopted, modified or terminated by the Corporation, amendments to this Section 3.11 may become necessary or advisable and that any approval or consent to any such amendments requested by the Corporation shall be deemed granted by the Members. |
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21 DRAFT 10-14-2014#86439994v1 (e) Anti-dilution adjustments. For all purposes of this Section 3.11, the number of shares of Class A Common Stock and the corresponding number of Common Units shall be determined after giving effect to all anti-dilution or similar adjustments that are applicable, as of the date of exercise or vesting, to the option, warrant, restricted stock or other equity interest that is being exercised or becomes vested under the applicable Stock Option Plan or other Equity Plan and applicable award or grant documentation. Section 3.12 Dividend Reinvestment Plan, Cash Option Purchase Plan, Stock Incentive Plan or Other Plan. Except as may otherwise be provided in this Article III, all amounts received or deemed received by the Corporation in respect of any dividend reinvestment plan, cash option purchase plan, stock incentive or other stock or subscription plan or agreement, either (a) shall be utilized by the Corporation to effect open market purchases of shares of Class A Common Stock, or (b) if the Corporation elects instead to issue new shares of Class A Common Stock with respect to such amounts, shall be contributed by the Corporation to the Company in exchange for additional Units. Upon such contribution, the Company will issue to the Corporation a number of Units equal to the number of new shares of Class A Common Stock so issued. ARTICLE IV. DISTRIBUTIONS Section 4.01 Distributions. (a) Distributable Cash; Other Distributions. To the extent permitted by applicable Law and hereunder, Distributions to Members may be declared by the Manager out of Distributable Cash or other funds or property legally available therefor in such amounts and on such terms (including the payment dates of such Distributions) as the Manager shall determine using such record date as the Manager may designate; such Distributions shall be made to the Members as of the close of business on such record date on a pro rata basis in accordance with each Members Percentage Interest as of the close of business on such record date; provided, however, that the Manager shall have the obligation to make Distributions as set forth in Sections 4.01(b) and 14.02; and provided further that, notwithstanding any other provision herein to the contrary, no Distributions shall be made to any Member to the extent such Distribution would render the Company insolvent. For purposes of the foregoing sentence, insolvency means the inability of the Company to meet its payment obligations when due. Promptly following the designation of a record date and the declaration of a Distribution pursuant to this Section 4.01(a), the Manager shall give notice to each Member of the record date, the amount and the terms of the Distribution and the payment date thereof. In furtherance of the foregoing, it is intended that the Manager shall, to the extent permitted by applicable Law and hereunder, have the right in its sole discretion to make Distributions to the Members pursuant to this Section 4.01(a) in such amounts as shall enable the Corporation to pay dividends or to meet its obligations, including its obligations pursuant to the Tax Receivable Agreement (to the extent such obligations are not otherwise able to be satisfied as a result of Tax Distributions required to be made pursuant to Section 4.01(b)). (b) Tax Distributions. |
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22 DRAFT 10-14-2014#86439994v1 (i) On or about each date (a Tax Distribution Date) that is [ten (10)] Business Days prior to (i) each date on which estimated U.S. federal income tax payments are required to be made by calendar year individual taxpayers (or, if earlier, the date on which estimated U.S. federal income tax payments are required for the Corporation) and (ii) each due date for the U.S. federal income tax return of an individual calendar year taxpayer (without regard to extensions) (or, if earlier, the due date for the U.S. federal income tax return of the Corporation, as determined without regard to extensions), the Company shall be required to make a Distribution to each Member of cash in an amount equal to the excess of such Members Assumed Tax Liability, if any, for such taxable period over the Distributions previously made to such Member pursuant to this Section 4.01(b) with respect to such taxable period (the Tax Distributions). (ii) To the extent a Member otherwise would be entitled to receive less than its Percentage Interest of the aggregate Tax Distributions to be paid pursuant to this Section 4.01(b) on any given date, the Tax Distributions to such Member shall be increased to ensure that all Distributions made pursuant to this Section 4.01(b) are made pro rata in accordance with Percentage Interests. If, on a Tax Distribution Date, there are insufficient funds on hand to distribute to the Members the full amount of the Tax Distributions to which such Members are otherwise entitled, Distributions pursuant to this Section 4.01(b) shall be made to the Members to the extent of available funds in accordance with their Percentage Interests and the Company shall make future Tax Distributions as soon as funds become available sufficient to pay the remaining portion of the Tax Distributions to which such Members are otherwise entitled. (iii) In the event of any audit by, or similar event with, a taxing authority that affects the calculation of any Members Assumed Tax Liability for any taxable year, or in the event the Company files an amended tax return, each Members Assumed Tax Liability with respect to such year shall be recalculated by giving effect to such event (for the avoidance of doubt, taking into account interest or penalties). Any shortfall in the amount of Tax Distributions the Members and former Members received for the relevant taxable years based on such recalculated Assumed Tax Liability promptly shall be distributed to such Members and the successors of such former Members, except, for the avoidance of doubt, to the extent Distributions were made to such Members and former Members pursuant to Section 4.01(a) and this Section 4.01(b) in the relevant taxable years sufficient to cover such shortfall. (iv) Notwithstanding the foregoing, Distributions pursuant to this Section 4.01(b), if any, shall be made to a Member only to the extent all previous Distributions to such Member pursuant to Section 4.01(a) during the Fiscal Year are less than the Distributions such Member otherwise would have been entitled to receive during such Fiscal Year pursuant to this Section 4.01(b). Section 4.02 Restricted Distributions. Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not make any Distribution to any Member on account of any Company Interest if such Distribution would violate any applicable Law or the terms of the Credit Agreements. |
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23 DRAFT 10-14-2014#86439994v1 ARTICLE V. CAPITAL ACCOUNTS; ALLOCATIONS; TAX MATTERS Section 5.01 Capital Accounts. (a) The Company shall maintain a separate Capital Account for each Member according to the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). For this purpose, the Company may (in the discretion of the Manager), upon the occurrence of the events specified in Treasury Regulation Section 1.704-1(b)(2)(iv)(f), increase or decrease the Capital Accounts in accordance with the rules of such Treasury Regulation and Treasury Regulation Section 1.704- 1(b)(2)(iv)(g) to reflect a revaluation of Company property. Upon the exercise by any LLC Optionee of its LLC Option, such LLC Optionees initial Capital Account shall be equal to the sum of (i) the exercise price paid by such LLC Optionee to the Company in connection with such exercise and (ii) the amount included in such LLC Optionees compensation income under Code Section 83 as a result of such exercise. (b) For purposes of computing the amount of any item of Company income, gain, loss or deduction to be allocated pursuant to this Article V and to be reflected in the Capital Accounts of the Members, the determination, recognition and classification of any such item shall be the same as its determination, recognition and classification for U.S. federal income tax purposes (including any method of depreciation, cost recovery or amortization used for this purpose); provided, however, that: (i) The computation of all items of income, gain, loss and deduction shall include those items described in Code Section 705(a)(l)(B) or Code Section 705(a)(2)(B) and Treasury Regulation Section 1.704-1(b)(2)(iv)(i), without regard to the fact that such items are not includable in gross income or are not deductible for U.S. federal income tax purposes. (ii) If the Book Value of any Company property is adjusted pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(f), the amount of such adjustment shall be taken into account as gain or loss from the disposition of such property. (iii) Items of income, gain, loss or deduction attributable to the disposition of Company property having a Book Value that differs from its adjusted basis for tax purposes shall be computed by reference to the Book Value of such property. (iv) Items of depreciation, amortization and other cost recovery deductions with respect to Company property having a Book Value that differs from its adjusted basis for tax purposes shall be computed by reference to the propertys Book Value in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(g). (v) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Sections 732(d), 734(b) or 743(b) is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis). |
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24 DRAFT 10-14-2014#86439994v1 Section 5.02 Allocations. Except as otherwise provided in Section 5.03 and Section 5.04, Net Profits and Net Losses for any Fiscal Year or Fiscal Period shall be allocated among the Capital Accounts of the Members pro rata in accordance with their respective Percentage Interests. For the avoidance of doubt, in accordance with Code Section 706(d)(1), any deductions resulting from the exercise by any LLC Optionee of its LLC Option shall be allocated under a closing of the books method to the Members who were Members of the Company in the Fiscal Period ending on the day immediately prior the day of such exercise. Section 5.03 Regulatory Allocations. (a) Losses attributable to partner nonrecourse debt (as defined in Treasury Regulation Section 1.704-2(b)(4)) shall be allocated in the manner required by Treasury Regulation Section 1.704-2(i). If there is a net decrease during a Taxable Year in partner nonrecourse debt minimum gain (as defined in Treasury Regulation Section 1.704-2(i)(3)), Profits for such Taxable Year (and, if necessary, for subsequent Taxable Years) shall be allocated to the Members in the amounts and of such character as determined according to Treasury Regulation Section 1.704-2(i)(4). (b) Nonrecourse deductions (as determined according to Treasury Regulation Section 1.704-2(b)(1)) for any Taxable Year shall be allocated pro rata among the Members in accordance with their Percentage Interests. Except as otherwise provided in Section 4.03(a), if there is a net decrease in the Minimum Gain during any Taxable Year, each Member shall be allocated Profits for such Taxable Year (and, if necessary, for subsequent Taxable Years) in the amounts and of such character as determined according to Treasury Regulation Section 1.704- 2(f). This Section 5.03(b) is intended to be a minimum gain chargeback provision that complies with the requirements of Treasury Regulation Section 1.704-2(f), and shall be interpreted in a manner consistent therewith. (c) If any Member that unexpectedly receives an adjustment, allocation or Distribution described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6) has an Adjusted Capital Account Deficit as of the end of any Taxable Year, computed after the application of Sections 5.03(a) and 5.03(b) but before the application of any other provision of this Article V, then Profits for such Taxable Year shall be allocated to such Member in proportion to, and to the extent of, such Adjusted Capital Account Deficit. This Section 5.03(c) is intended to be a qualified income offset provision as described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted in a manner consistent therewith. (d) If the allocation of Net Losses to a Member as provided in Section 5.02 would create or increase an Adjusted Capital Account Deficit, there shall be allocated to such Member only that amount of Losses as will not create or increase an Adjusted Capital Account Deficit. The Net Losses that would, absent the application of the preceding sentence, otherwise be allocated to such Member shall be allocated to the other Members in accordance with their relative Percentage Interests, subject to this Section 5.03(d). (e) Profits and Losses described in Section 5.01(b)(v) shall be allocated in a manner consistent with the manner that the adjustments to the Capital Accounts are required to be made pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(j), (k) and (m). |
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25 DRAFT 10-14-2014#86439994v1 (f) The allocations set forth in Section 5.03(a) through and including Section 5.03(e) (the Regulatory Allocations) are intended to comply with certain requirements of Sections 1.704-1(b) and 1.704-2 of the Treasury Regulations. The Regulatory Allocations may not be consistent with the manner in which the Members intend to allocate Profit and Loss of the Company or make Distributions. Accordingly, notwithstanding the other provisions of this Article V, but subject to the Regulatory Allocations, income, gain, deduction and loss shall be reallocated among the Members so as to eliminate the effect of the Regulatory Allocations and thereby cause the respective Capital Accounts of the Members to be in the amounts (or as close thereto as possible) they would have been if Profit and Loss (and such other items of income, gain, deduction and loss) had been allocated without reference to the Regulatory Allocations. In general, the Members anticipate that this will be accomplished by specially allocating other Profit and Loss (and such other items of income, gain, deduction and loss) among the Members so that the net amount of the Regulatory Allocations and such special allocations to each such Member is zero. In addition, if in any Fiscal Year or Fiscal Period there is a decrease in partnership minimum gain, or in partner nonrecourse debt minimum gain, and application of the minimum gain chargeback requirements set forth in Section 5.03(a) or Section 5.03(b) would cause a distortion in the economic arrangement among the Members, the Members may, if they do not expect that the Company will have sufficient other income to correct such distortion, request the Internal Revenue Service to waive either or both of such minimum gain chargeback requirements. If such request is granted, this Agreement shall be applied in such instance as if it did not contain such minimum gain chargeback requirement. Section 5.04 Final Allocations. Notwithstanding any contrary provision in this Agreement except Section 5.03, the Manager shall make appropriate adjustments to allocations of Profits and Losses to (or, if necessary, allocate items of gross income, gain, loss or deduction of the Company among) the Members upon the liquidation of the Company (within the meaning of Section 1.704 1(b)(2)(ii)(g) of the Treasury Regulations), the transfer of substantially all the Units (whether by sale or exchange or merger) or sale of all or substantially all the assets of the Company, such that, to the maximum extent possible, the Capital Accounts of the Members are proportionate to their Percentage Interests. In each case, such adjustments or allocations shall occur, to the maximum extent possible, in the Fiscal Year of the event requiring such adjustments or allocations. Section 5.05 Tax Allocations. (a) The income, gains, losses, deductions and credits of the Company will be allocated, for federal, state and local income tax purposes, among the Members in accordance with the allocation of such income, gains, losses, deductions and credits among the Members for computing their Capital Accounts; provided that if any such allocation is not permitted by the Code or other applicable Law, the Companys subsequent income, gains, losses, deductions and credits will be allocated among the Members so as to reflect as nearly as possible the allocation set forth herein in computing their Capital Accounts. (b) Items of Company taxable income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall be allocated among the Members in accordance with Code Section 704(c) so as to take account of any variation between the adjusted |
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26 DRAFT 10-14-2014#86439994v1 basis of such property to the Company for federal income tax purposes and its Book Value using the traditional method, as described in Treasury Regulations Section 1.704-3(b). (c) If the Book Value of any Company asset is adjusted pursuant to Section 5.01(b), subsequent allocations of items of taxable income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Book Value in the same manner as under Code Section 704(c) using the traditional method, as described in Treasury Regulations Section 1.704-3(b). (d) Allocations of tax credits, tax credit recapture, and any items related thereto shall be allocated to the Members pro rata as determined by the Manager taking into account the principles of Treasury Regulation Section 1.704-1(b)(4)(ii). (e) For purposes of determining a Members pro rata share of the Companys excess nonrecourse liabilities within the meaning of Treasury Regulation Section 1.752-3(a)(3), each Members interest in income and gain shall be in proportion to the Units held by such Member. (f) Allocations pursuant to this Section 5.05 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Members Capital Account or share of Profits, Losses, Distributions or other Company items pursuant to any provision of this Agreement. Section 5.06 Indemnification and Reimbursement for Payments on Behalf of a Member. If the Company is obligated to pay any amount to a Governmental Entity (or otherwise makes a payment to a Governmental Entity) that is specifically attributable to a Member or a Members status as such (including federal withholding taxes, state personal property taxes and state unincorporated business taxes, but excluding payments such as professional association fees and the like made voluntarily by the Company on behalf of any Member based upon such Members status as an employee of the Company), then such Person shall indemnify the Company in full for the entire amount paid (including interest, penalties and related expenses). The Manager may offset Distributions to which a Person is otherwise entitled under this Agreement against such Persons obligation to indemnify the Company under this Section 5.06. A Members obligation to make contributions to the Company under this Section 5.06 shall survive the termination, dissolution, liquidation and winding up of the Company, and for purposes of this Section 5.06, the Company shall be treated as continuing in existence. The Company may pursue and enforce all rights and remedies it may have against each Member under this Section 5.06, including instituting a lawsuit to collect such contribution with interest calculated at a rate per annum equal to the sum of the Base Rate plus [300] basis points (but not in excess of the highest rate per annum permitted by Law). ARTICLE VI. MANAGEMENT Section 6.01 Authority of Manager. (a) Except for situations in which the approval of any Member(s) is specifically required by this Agreement, (i) all management powers over the business and affairs of the Company shall be exclusively vested in the Corporation, as the sole managing member of the |
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27 DRAFT 10-14-2014#86439994v1 Company (the Corporation, in such capacity, the Manager) and (ii) the Manager shall conduct, direct and exercise full control over all activities of the Company. The Manager shall be the manager of the Company for the purposes of the Delaware Act. Except as otherwise expressly provided for herein and subject to the other provisions of this Agreement, the Members hereby consent to the exercise by the Manager of all such powers and rights conferred on the Members by the Delaware Act with respect to the management and control of the Company. The Corporation may not be removed as a Manager except as provided in Section 6.04. Any Manager that is properly removed pursuant to Section 6.04 shall be replaced in the manner provided in Section 6.05. The Original Members terminate as of the Effective Time the Board previously established in order to conduct the business of the Company pursuant to the First A&R LLC Agreement (as such term was previously defined in the First A&R LLC Agreement). (b) The day-to-day business and operations of the Company shall be overseen and implemented by officers of the Company (each, an Officer and collectively, the Officers), subject to the limitations imposed by the Manager. An Officer may, but need not, be a Member. Each Officer shall be appointed by the Manager and shall hold office until his or her successor shall be duly designated and shall qualify or until his or her death or until he shall resign or shall have been removed in the manner hereinafter provided. Any one Person may hold more than one office. Subject to the other provisions in this Agreement (including in Section 6.08 below), the salaries or other compensation, if any, of the Officers of the Company shall be fixed from time to time by the Manager. The authority and responsibility of the Officers shall include, but not be limited to, such duties as the Manager may, from time to time, delegate to them and the carrying out of the Companys business and affairs on a day-today basis. The existing Officers of the Company as of the Effective Time shall remain in their respective positions and shall be deemed to have been appointed by the Manager. All Officers shall be, and shall be deemed to be, officers and employees of the Company. An Officer may also perform one or more roles as an officer of the Manager. (c) The Manager shall have the power and authority to effectuate the sale, lease, transfer, exchange or other disposition of any, all or substantially all of the assets of the Company (including the exercise or grant of any conversion, option, privilege or subscription right or any other right available in connection with any assets at any time held by the Company) or the merger, consolidation, reorganization or other combination of the Company with or into another entity. Section 6.02 Actions of the Manager. The Manager may act through any Officer or through any other Person or Persons to whom authority and duties have been delegated pursuant to Section 6.08. Section 6.03 Resignation. The Manager may resign at any time by giving written notice to the Members. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the Members, and the acceptance of the resignation shall not be necessary to make it effective. Section 6.04 Removal. The Manager may only be removed by the Corporation. |
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28 DRAFT 10-14-2014#86439994v1 Section 6.05 Vacancies. Vacancies in the position of Manager occurring for any reason shall be filled by the Corporation (or, if the Corporation has ceased to exist without any successor or assign, then by the holders of a majority in interest of the voting capital stock of the Corporation immediately prior to such cessation). Section 6.06 Transactions Between Company and Manager. The Manager may cause the Company to contract and deal with the Manager, or any Affiliate of the Manager, provided such contracts and dealings are on terms comparable to and competitive with those available to the Company from others dealing at arms length or are approved by the Members and otherwise are permitted by the Credit Agreements. The Members hereby approve the IPO Common Unit Purchase Agreement. Section 6.07 Reimbursement for Expenses. The Manager shall not be compensated for its services as Manager of the Company except as expressly provided in this Agreement or as otherwise approved by the Members (other than the Manager) holding a majority of the Voting Units (excluding Voting Units held by the Manager) then outstanding. The Members acknowledge and agree that, upon consummation of the IPO, the Managers Class A Common Stock will be publicly traded and therefore the Manager will have access to the public capital markets and that such status and the services performed by the Manager will inure to the benefit of the Company and all Members; therefore, the Manager shall be reimbursed by the Company for any reasonable out-of-pocket expenses incurred on behalf of the Company, including without limitation all fees, expenses and costs associated with the IPO and all fees, expenses and costs of being a public company (including without limitation public reporting obligations, proxy statements, stockholder meetings, stock exchange fees, transfer agent fees, SEC and FINRA filing fees and offering expenses) and maintaining its corporate existence. In the event that shares of Class A Common Stock are sold to underwriters in the IPO (or in any subsequent public offering) at a price per share that is lower than the price per share for which such shares of Class A Common Stock are sold to the public in the IPO (or in such subsequent public offering) after taking into account underwriters discounts or commissions and brokers fees or commissions (such difference, the Discount), the Company shall reimburse the Manager for such Discount by treating such Discount as an additional Capital Contribution made by the Manager to the Company and increasing the Managers Capital Account by the amount of such Discount. To the extent practicable, expenses incurred by the Manager on behalf of or for the benefit of the Company shall be billed directly to and paid by the Company and, if and to the extent any reimbursements to the Manager or any of its Affiliates by the Company pursuant to this Section 6.07 constitute gross income to such Person (as opposed to the repayment of advances made by such Person on behalf of the Company), such amounts shall be treated as guaranteed payments within the meaning of Code Section 707(c) and shall not be treated as distributions for purposes of computing the Members Capital Accounts. Section 6.08 Delegation of Authority. The Manager (a) may, from time to time, delegate to one or more Persons such authority and duties as the Manager may deem advisable, and (b) may assign titles (including, without limitation, chief executive officer, president, chief executive officer, chief financial officers, chief operating officer, vice president, secretary, assistant secretary, treasurer or assistant treasurer) and delegate certain authority and duties to such Persons as the same may be amended, restated or otherwise modified from time to time. Any number of titles may be held by the same individual. The salaries or other compensation, if |
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29 DRAFT 10-14-2014#86439994v1 any, of such agents of the Company shall be fixed from time to time by the Manager, subject to the other provisions in this Agreement. Section 6.09 Limitation of Liability of Manager. (a) Except as otherwise provided herein or in an agreement entered into by such Person and the Company, neither the Manager nor any of the Managers Affiliates shall be liable to the Company or to any Member that is not the Manager for any act or omission performed or omitted by the Manager in its capacity as the sole managing member of the Company pursuant to authority granted to the Manager by this Agreement; provided, however, that, except as otherwise provided herein, such limitation of liability shall not apply to the extent the act or omission was attributable to the Managers gross negligence, willful misconduct or knowing violation of Law or for any present or future breaches of any representations, warranties or covenants by the Manager or its Affiliates contained herein or in the other agreements with the Company. The Manager may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents, and shall not be responsible for any misconduct or negligence on the part of any such agent (so long as such agent was selected in good faith and with reasonable care). The Manager shall be entitled to rely upon the advice of legal counsel, independent public accountants and other experts, including financial advisors, and any act of or failure to act by the Manager in good faith reliance on such advice shall in no event subject the Manager to liability to the Company or any Member that is not the Manager. (b) Whenever this Agreement or any other agreement contemplated herein provides that the Manager shall act in a manner which is, or provide terms which are, fair and reasonable to the Company or any Member that is not the Manager, the Manager shall determine such appropriate action or provide such terms considering, in each case, the relative interests of each party to such agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable United States generally accepted accounting practices or principles. (c) Whenever in this Agreement or any other agreement contemplated herein, the Manager is permitted or required to take any action or to make a decision in its sole discretion or discretion, with complete discretion or under a grant of similar authority or latitude, the Manager shall be entitled to consider such interests and factors as it desires, including its own interests, and shall, to the fullest extent permitted by applicable Law, have no duty or obligation to give any consideration to any interest of or factors affecting the Company or other Members. (d) Whenever in this Agreement the Manager is permitted or required to take any action or to make a decision in its good faith or under another express standard, the Manager shall act under such express standard and, to the extent permitted by applicable Law, shall not be subject to any other or different standards imposed by this Agreement or any other agreement contemplated herein, and, notwithstanding anything contained herein to the contrary, so long as the Manager acts in good faith, the resolution, action or terms so made, taken or provided by the Manager shall not constitute a breach of this Agreement or any other agreement contemplated herein or impose liability upon the Manager or any of the Managers Affiliates. |
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30 DRAFT 10-14-2014#86439994v1 Section 6.10 Investment Company Act. The Manager shall use its best efforts to ensure that the Company shall not be subject to registration as an investment company pursuant to the Investment Company Act. Section 6.11 Outside Activities of the Manager. The Manager shall not, directly or indirectly, enter into or conduct any business or operations, other than in connection with (a) the ownership, acquisition and disposition of Common Units, (b) the management of the business and affairs of the Company and its Subsidiaries, (c) the operation of the Manager as a reporting company with a class (or classes) of securities registered under Section 12 of the Exchange Act and listed on a securities exchange, (d) the offering, sale, syndication, private placement or public offering of stock, bonds, securities or other interests, (e) financing or refinancing of any type related to the Company, its Subsidiaries or their assets or activities, and (f) such activities as are incidental to the foregoing; provided, however, that, except as otherwise provided herein, the net proceeds of any financing raised by the Manager pursuant to the preceding clauses (d) and (e) shall be made available to the Company, whether as Capital Contributions, loans or otherwise, as appropriate, and, provided further, that the Manager may, in its sole and absolute discretion, from time to time hold or acquire assets in its own name or otherwise other than through the Company and its Subsidiaries so long as the Manager takes commercially reasonable measures to ensure that the economic benefits and burdens of such assets are otherwise vested in the Company or its Subsidiaries, through assignment, mortgage loan or otherwise or, if it is not commercially reasonable to vest such economic interests in the Company or any of its Subsidiaries, the Members shall negotiate in good faith to amend this Agreement to reflect such activities and the direct ownership of assets by the Manager. Nothing contained herein shall be deemed to prohibit the Manager from executing any guarantee of indebtedness of the Company or its Subsidiaries. ARTICLE VII. RIGHTS AND OBLIGATIONS OF MEMBERS Section 7.01 Limitation of Liability and Duties of Members. (a) Except as provided in this Agreement or in the Delaware Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company and no Member (including without limitation, the Manager) shall be obligated personally for any such debts, obligation or liability solely by reason of being a Member or acting as the Manager of the Company. Except as otherwise provided in this Agreement, a Members liability (in its capacity as such) for Company liabilities and Losses shall be limited to the Companys assets. Notwithstanding anything contained herein to the contrary, the failure of the Company to observe any formalities or requirements relating to the exercise of its powers or management of its business and affairs under this Agreement or the Delaware Act shall not be grounds for imposing personal liability on the Members for liabilities of the Company. (b) In accordance with the Delaware Act and the laws of the State of Delaware, a Member may, under certain circumstances, be required to return amounts previously distributed to such Member. It is the intent of the Members that no Distribution to any Member pursuant to Article IV shall be deemed a return of money or other property paid or distributed in violation of |
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31 DRAFT 10-14-2014#86439994v1 the Delaware Act. The payment of any such money or Distribution of any such property to a Member shall be deemed to be a compromise within the meaning of Section 18-502(b) of the Act, and, to the fullest extent permitted by Law, any Member receiving any such money or property shall not be required to return any such money or property to the Company or any other Person. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Member is obligated to make any such payment, such obligation shall be the obligation of such Member and not of any other Member. (c) Notwithstanding any other provision of this Agreement, to the extent that, at law or in equity, any Member (or any Members Affiliate or any manager, managing member, general partner, director, officer, employee, agent, fiduciary or trustee of any Member or of any Affiliate of a Member) has duties (including fiduciary duties) to the Company, to the Manager, to another Member, to any Person who acquires an interest in a Company Interest or to any other Person bound by this Agreement, all such duties (including fiduciary duties) are hereby eliminated, to the fullest extent permitted by law, and replaced with the duties or standards expressly set forth herein, if any. The elimination of duties (including fiduciary duties) to the Company, the Manager, each of the Members, each other Person who acquires an interest in a Company Interest and each other Person bound by this Agreement and replacement thereof with the duties or standards expressly set forth herein, if any, are approved by the Company, the Manager, each of the Members, each other Person who acquires an interest in a Company Interest and each other Person bound by this Agreement. Section 7.02 Lack of Authority. No Member, other than the Manager or a duly appointed Officer, in each case in its capacity as such, has the authority or power to act for or on behalf of the Company, to do any act that would be binding on the Company or to make any expenditure on behalf of the Company. The Members hereby consent to the exercise by the Manager of the powers conferred on them by Law and this Agreement. Section 7.03 No Right of Partition. No Member, other than the Manager, shall have the right to seek or obtain partition by court decree or operation of Law of any Company property, or the right to own or use particular or individual assets of the Company. Section 7.04 Indemnification. (a) Subject to Section 5.06, the Company hereby agrees to indemnify and hold harmless any Person (each an Indemnified Person) to the fullest extent permitted under the Delaware Act, as the same now exists or may hereafter be amended, substituted or replaced (but, in the case of any such amendment, substitution or replacement only to the extent that such amendment, substitution or replacement permits the Company to provide broader indemnification rights than the Company is providing immediately prior to such amendment), against all expenses, liabilities and losses (including attorneys fees, judgments, fines, excise taxes or penalties) reasonably incurred or suffered by such Person (or one or more of such Persons Affiliates) by reason of the fact that such Person is or was a Member or is or was serving as the Manager, Officer, employee or other agent of the Company or is or was serving at the request of the Company as a manager, officer, director, principal, member, employee or agent of another corporation, partnership, joint venture, limited liability company, trust or other enterprise; provided, however, that no Indemnified Person shall be indemnified for any expenses, |
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32 DRAFT 10-14-2014#86439994v1 liabilities and losses suffered that are attributable to such Indemnified Persons or its Affiliates gross negligence, willful misconduct or knowing violation of Law or for any present or future breaches of any representations, warranties or covenants by such Indemnified Person or its Affiliates contained herein or in the other agreements with the Company. Expenses, including attorneys fees, incurred by any such Indemnified Person in defending a proceeding shall be paid by the Company in advance of the final disposition of such proceeding, including any appeal therefrom, upon receipt of an undertaking by or on behalf of such Indemnified Person to repay such amount if it shall ultimately be determined that such Indemnified Person is not entitled to be indemnified by the Company. (b) The right to indemnification and the advancement of expenses conferred in this Section 7.04 shall not be exclusive of any other right which any Person may have or hereafter acquire under any statute, agreement, by-law, action by the Manager or otherwise. (c) The Company shall maintain directors and officers liability insurance, or substantially equivalent insurance, at its expense, to protect any Indemnified Person (and the investment funds, if any, they represent) against any expense, liability or loss described in Section 7.04(a) whether or not the Company would have the power to indemnify such Indemnified Person against such expense, liability or loss under the provisions of this Section 7.04. The Company shall use its commercially reasonable efforts to purchase and maintain property, casualty and liability insurance in types and at levels customary for companies of similar size engaged in similar lines of business, as determined in good faith by the Manager, and the Company shall use its commercially reasonable efforts to purchase directors and officers liability insurance (including employment practices coverage) with a carrier and in an amount determined necessary or desirable as determined in good faith by the Manager. (d) Notwithstanding anything contained herein to the contrary (including in this Section 7.04), any indemnity by the Company relating to the matters covered in this Section 7.04 shall be provided out of and to the extent of Company assets only and no Member (unless such Member otherwise agrees in writing or is found in a final decision by a court of competent jurisdiction to have personal liability on account thereof) shall have personal liability on account thereof or shall be required to make additional Capital Contributions to help satisfy such indemnity of the Company. (e) If this Section 7.04 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify and hold harmless each Indemnified Person pursuant to this Section 7.04 to the fullest extent permitted by any applicable portion of this Section 7.04 that shall not have been invalidated and to the fullest extent permitted by applicable Law. Section 7.05 Members Right to Act. For matters that require the approval of the Members, the Members shall act through meetings and written consents as described in paragraphs (a) and (b) below: (a) Except as otherwise expressly provided by this Agreement, acts by the Members holding a majority of the Units, voting together as a single class, shall be the acts of the Members. Any Member entitled to vote at a meeting of Members or to express consent or |
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33 DRAFT 10-14-2014#86439994v1 dissent to Company action in writing without a meeting may authorize another person or persons to act for it by proxy. An electronic mail, telegram, telex, cablegram or similar transmission by the Member, or a photographic, photostatic, facsimile or similar reproduction of a writing executed by the Member shall (if stated thereon) be treated as a proxy executed in writing for purposes of this Section 7.05(a). No proxy shall be voted or acted upon after eleven months from the date thereof, unless the proxy provides for a longer period. A proxy shall be revocable unless the proxy form conspicuously states that the proxy is irrevocable and that the proxy is coupled with an interest. Should a proxy designate two or more Persons to act as proxies, unless that instrument shall provide to the contrary, a majority of such Persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting or giving consents thereby conferred, or, if only one be present, then such powers may be exercised by that one; or, if an even number attend and a majority do not agree on any particular issue, the Company shall not be required to recognize such proxy with respect to such issue if such proxy does not specify how the votes that are the subject of such proxy are to be voted with respect to such issue. (b) The actions by the Members permitted hereunder may be taken at a meeting called by the Manager or by the Members holding a majority of the Units entitled to vote on such matter on at least [48 hours] prior written notice to the other Members entitled to vote, which notice shall state the purpose or purposes for which such meeting is being called. The actions taken by the Members entitled to vote or consent at any meeting (as opposed to by written consent), however called and noticed, shall be as valid as though taken at a meeting duly held after regular call and notice if (but not until), either before, at or after the meeting, the Members entitled to vote or consent as to whom it was improperly held signs a written waiver of notice or a consent to the holding of such meeting or an approval of the minutes thereof. The actions by the Members entitled to vote or consent may be taken by vote of the Members entitled to vote or consent at a meeting or by written consent, so long as such consent is signed by Members having not less than the minimum number of Units that would be necessary to authorize or take such action at a meeting at which all Members entitled to vote thereon were present and voted. Prompt notice of the action so taken, which shall state the purpose or purposes for which such consent is required and may be delivered via email, without a meeting shall be given to those Members entitled to vote or consent who have not consented in writing; provided, however, that the failure to give any such notice shall not affect the validity of the action taken by such written consent. Any action taken pursuant to such written consent of the Members shall have the same force and effect as if taken by the Members at a meeting thereof. Section 7.06 Inspection Rights. The Company shall permit each Member and each of its designated representatives to (i) visit and inspect any of the properties of the Company and its Subsidiaries, all at reasonable times and upon reasonable notice, (ii) examine the corporate and financial records of the Company or any of its Subsidiaries and make copies thereof or extracts therefrom, (iii) consult with the managers, officers, employees and independent accountants of the Company or any of its Subsidiaries concerning the affairs, finances and accounts of the Company or any of its Subsidiaries. The presentation of an executed copy of this Agreement by any Member to the Companys independent accountants shall constitute the Companys permission to its independent accountants to participate in discussions with such Persons and their respective designated representatives. |
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34 DRAFT 10-14-2014#86439994v1 ARTICLE VIII. BOOKS, RECORDS, ACCOUNTING AND REPORTS, AFFIRMATIVE COVENANTS Section 8.01 Records and Accounting. The Company shall keep, or cause to be kept, appropriate books and records with respect to the Companys business, including all books and records necessary to provide any information, lists and copies of documents required to be provided pursuant to Section 8.03 or pursuant to applicable Laws. All matters concerning (a) the determination of the relative amount of allocations and Distributions among the Members pursuant to Articles III and IV and (b) accounting procedures and determinations, and other determinations not specifically and expressly provided for by the terms of this Agreement, shall be determined by the Manager, whose determination shall be final and conclusive as to all of the Members absent manifest clerical error. Section 8.02 Fiscal Year. The Fiscal Year of the Company shall end on December 31 of each year or such other date as may be established by the Manager. Section 8.03 Reports. The Company shall deliver or cause to be delivered, within 90 days after the end of each Fiscal Year, to each Person who was a Member at any time during such Fiscal Year, all information reasonably necessary for the preparation of such Persons United States federal and applicable state income tax returns. ARTICLE IX. TAX MATTERS Section 9.01 Preparation of Tax Returns. The Company shall arrange for the preparation and timely filing of all tax returns required to be filed by the Company. On or before March 15, June 15, September 15, and December 15 of each Fiscal Year, the Company shall send to each Person who was a Member at any time during the prior quarter, an estimate of such Members state tax apportionment information and allocations to the Members of taxable income, gains, losses, deductions and credits for the prior quarter, which estimate shall have been reviewed by the Companys outside tax accountants. In addition, no later than the later of (i) March 15 following the end of the prior Fiscal Year, and (ii) five (5) Business Days after the issuance of the final audit report for a Fiscal Year by the Companys auditors, the Company shall send to each Person who was a Member at any time during such Fiscal Year, a statement showing such Members final state tax apportionment information and allocations to the Members of taxable income, gains, losses, deductions and credits for such Fiscal Year and a completed IRS Schedule K-1. Each Member shall notify the other Members upon receipt of any notice of tax examination of the Company by federal, state or local authorities. Subject to the terms and conditions of this Agreement, in its capacity as Tax Matters Partner, the Corporation shall have the authority to prepare the tax returns of the Company using such permissible methods and elections as it determines in its reasonable discretion, including without limitation the use of any permissible method under Section 706 of the Code for purposes of determining the varying Company Interests of its Members. Section 9.02 Tax Elections. The Taxable Year shall be the Fiscal Year set forth in Section 8.02. The Company shall make an election pursuant to Section 754 of the Code, shall not thereafter revoke such election and shall make a new election pursuant to Section 754 to the |
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35 DRAFT 10-14-2014#86439994v1 extent necessary following any termination of the Company under Section 708 of the Code. Each Member will upon request supply any information reasonably necessary to give proper effect to any such elections. Section 9.03 Tax Controversies. The Corporation is hereby designated the Tax Matters Partner within the meaning given to such term in Section 6231 of the Code (the Corporation, in such capacity, the Tax Matters Partner) and is authorized and required to represent the Company (at the Companys expense) in connection with all examinations of the Companys affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Company funds for professional services reasonably incurred in connection therewith. Each Member agrees to cooperate with the Company and to do or refrain from doing any or all things reasonably requested by the Company with respect to the conduct of such proceedings. The Tax Matters Partners shall keep all Members fully informed of the progress of any examinations, audits or other proceedings, and all Members shall have the right to participate at their expense in any such examinations, audits or other proceedings. Notwithstanding the foregoing, the Tax Matters Partners shall not settle or otherwise compromise any issue in any such examination, audit or other proceeding without first obtaining approval of the Manager. Nothing herein shall diminish, limit or restrict the rights of any Member under Subchapter C, Chapter 63, Subtitle F of the Code (Code Sections 6221 et seq.). ARTICLE X. RESTRICTIONS ON TRANSFER OF UNITS; PREEMPTIVE RIGHTS Section 10.01 Transfers by Members. No holder of Units may Transfer any interest in any Units, except Transfers (a) pursuant to and in accordance with Section 10.02 or (b) approved in writing by the Manager. Notwithstanding the foregoing, Transfer shall not include an event that terminates the existence of a Member for income tax purposes (including, without limitation, a change in entity classification of a Member under Treasury Regulations Section 301.7701-3, termination of a partnership pursuant to Code Section 708(b)(1)(B), a sale of assets by, or liquidation of, a Member pursuant to an election under Code Section 338, or merger, severance, or allocation within a trust or among sub-trusts of a trust that is a Member), but that does not terminate the existence of such Member under applicable state law (or, in the case of a trust that is a Member, does not terminate the trusteeship of the fiduciaries under such trust with respect to all the Company Interests of such trust that is a Member). Section 10.02 Permitted Transfers. The restrictions contained in Section 10.01 shall not apply to any Transfer (each, a Permitted Transfer) pursuant to (i) a Change of Control Transaction, (ii) a Transfer by any Member to such Members spouse, any lineal ascendants or descendants or trusts or other entities in which such Member or Members spouse, lineal ascendants or descendants hold (and continue to hold while such trusts or other entities hold Units) 50% or more of such entitys beneficial interests, (iii) pursuant to the laws of descent and distribution and (iv) if such Transfer is made by an Original Member, a Transfer to a partner, shareholder or member of such Original Member; provided, however, that (A) the restrictions contained in this Agreement will continue to apply to Units after any Permitted Transfer of such Units, and (B) in the case of the foregoing clauses (ii), (iii) and (iv), the transferees of the Units so Transferred shall agree in writing to be bound by the provisions of this Agreement and, the transferor will deliver a written notice to the Company and the Members, which notice will |
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36 DRAFT 10-14-2014#86439994v1 disclose in reasonable detail the identity of the proposed transferee. In the case of a Permitted Transfer by any Original Member of Common Units to a transferee in accordance with this Section 10.02, such Original Member (or any subsequent transferee of such Original Member) shall be required to also transfer the fraction of its remaining Class B Common Stock ownership corresponding to the proportion of such Original Members (or subsequent transferees) Common Units that were transferred in the transaction to such transferee. All Permitted Transfers are subject to the additional limitations set forth in Section 10.07(b). Section 10.03 Restricted Units Legend. The Units have not been registered under the Securities Act and, therefore, in addition to the other restrictions on Transfer contained in this Agreement, cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is then available. To the extent such Units have been certificated, each certificate evidencing Units and each certificate issued in exchange for or upon the Transfer of any Units (if such securities remain Units as defined herein after such Transfer) shall be stamped or otherwise imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON [.], 2014, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER SPECIFIED IN THE SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF NEFF HOLDINGS LLC, AS MAY BE AMENDED AND MODIFIED FROM TIME TO TIME, AND NEFF HOLDINGS LLC RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO ANY TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED BY NEFF HOLDINGS LLC TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE. The Company shall imprint such legend on certificates (if any) evidencing Units. The legend set forth above shall be removed from the certificates (if any) evidencing any units which cease to be Units in accordance with the definition thereof. Section 10.04 Transfer. Prior to Transferring any Units (other than pursuant to a Change of Control Transaction), the Transferring Holder of Units shall cause the prospective Transferee to be bound by this Agreement and any other agreements executed by the holders of Units and relating to such Units in the aggregate (collectively, the Other Agreements), and shall cause the prospective Transferee to execute and deliver to the Company and the other holders of Units counterparts of this Agreement and any applicable Other Agreements. Any Transfer or attempted Transfer of any Units in violation of any provision of this Agreement (including any prohibited indirect Transfers) (a) shall be void, and (b) the Company shall not record such Transfer on its books or treat any purported Transferee of such Units as the owner of such securities for any purpose. |
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37 DRAFT 10-14-2014#86439994v1 Section 10.05 Assignees Rights. (a) The Transfer of a Company Interest in accordance with this Agreement shall be effective as of the date of its assignment (assuming compliance with all of the conditions to such Transfer set forth herein), and such Transfer shall be shown on the books and records of the Company. Profits, Losses and other Company items shall be allocated between the transferor and the Assignee according to Code Section 706, using any permissible method as determined in the reasonable discretion of the Manager. Distributions made before the effective date of such Transfer shall be paid to the transferor, and Distributions made after such date shall be paid to the Assignee. (b) Unless and until an Assignee becomes a Member pursuant to Article XII, the Assignee shall not be entitled to any of the rights granted to a Member hereunder or under applicable Law, other than the rights granted specifically to Assignees pursuant to this Agreement; provided, however, that, without relieving the transferring Member from any such limitations or obligations as more fully described in Section 10.06, such Assignee shall be bound by any limitations and obligations of a Member contained herein that a Member would be bound on account of the Assignees Company Interest (including the obligation to make Capital Contributions on account of such Company Interest). Section 10.06 Assignors Rights and Obligations. Any Member who shall Transfer any Company Interest in a manner in accordance with this Agreement shall cease to be a Member with respect to such Units or other interest and shall no longer have any rights or privileges, or, except as set forth in this Section 10.06, duties, liabilities or obligations, of a Member with respect to such Units or other interest (it being understood, however, that the applicable provisions of Sections 6.09 and 7.04 shall continue to inure to such Persons benefit), except that unless and until the Assignee (if not already a Member) is admitted as a Substituted Member in accordance with the provisions of Article XII (the Admission Date), (i) such assigning Member shall retain all of the duties, liabilities and obligations of a Member with respect to such Units or other interest, and (ii) the Manager may, in its sole discretion, reinstate all or any portion of the rights and privileges of such Member with respect to such Units or other interest for any period of time prior to the Admission Date. Nothing contained herein shall relieve any Member who Transfers any Units or other interest in the Company from any liability of such Member to the Company with respect to such Company Interest that may exist on the Admission Date or that is otherwise specified in the Delaware Act and incorporated into this Agreement or for any liability to the Company or any other Person for any materially false statement made by such Member (in its capacity as such) or for any present or future breaches of any representations, warranties or covenants by such Member (in its capacity as such) contained herein or in the other agreements with the Company. Section 10.07 Overriding Provisions. (a) Any Transfer in violation of this Article X shall be null and void ab initio, and the provisions of Sections 10.05 and 10.06 shall not apply to any such Transfers. For the avoidance of doubt, any Person to whom a Transfer is made or attempted in violation of this Article X shall not become a Member, shall not be entitled to vote on any matters coming before the Members and shall not have any other rights in or with respect to any rights of a Member of the Company. |
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38 DRAFT 10-14-2014#86439994v1 The approval of any Transfer in any one or more instances shall not limit or waive the requirement for such approval in any other or future instance. The Manager shall promptly amend the Schedule of Members to reflect any Permitted Transfer pursuant to this Article X. (b) Notwithstanding anything contained herein to the contrary (including, for the avoidance of doubt, the provisions of Section 10.01 and Article XI and Article XII), in no event shall any Member Transfer any Units to the extent such Transfer would: (i) result in the violation of the Securities Act, or any other applicable federal, state or foreign Laws; (ii) cause an assignment under the Investment Company Act; (iii) in the reasonable determination of the Manager, be a violation of or a default (or an event that, with notice or the lapse of time or both, would constitute a default) under, or result in an acceleration of any indebtedness under, any promissory note, mortgage, loan agreement, indenture or similar instrument or agreement to which the Company or the Manager is a party; provided that (x) the payee or creditor to whom the Company or the Manager owes such obligation is not an affiliate of the Company or the Manager and (y) such indebtedness, individually or in the aggregate, has an aggregate principal amount then outstanding that is greater than $25,000,000; (iv) cause the Company to lose its status as a partnership for federal income tax purposes and, without limiting the generality of the foregoing, such Transfer was effected on or through an established securities market or a secondary market or the substantial equivalent thereof, as such terms are used in Section 1.7704-1 of the Treasury Regulations; (v) be a Transfer to a Person who is not legally competent or who has not achieved his or her majority under applicable Law (excluding trusts for the benefit of minors); (vi) cause the Company to be treated as a publicly traded partnership or to be taxed as a corporation pursuant to Section 7704 of the Code or successor provision of the Code; or (vii) result in the Company having more than one hundred (100) partners, within the meaning of Treasury Regulations Section 1.7704-1(h)(1) (determined pursuant to the rules of Treasury Regulations Section 1.7704-1(h)(3)). ARTICLE XI. REDEMPTION AND EXCHANGE RIGHTS Section 11.01 Redemption Right of a Member and LLC Optionee. (a) Each Member (other than the Corporation) and each LLC Optionee (in connection with its exercise of an LLC Option) shall be entitled to cause the Company to redeem (a Redemption) its Common Units (the Redemption Right) at any time following the |
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39 DRAFT 10-14-2014#86439994v1 expiration of the lock-up period under the lock-up agreements, dated as of [.], 2014, executed by each Original Member and each Original LLC Optionee. A Member or LLC Optionee desiring to exercise its Redemption Right (the Redeeming Member) shall exercise such right by giving written notice (the Redemption Notice) to the Company with a copy to the Corporation. The Redemption Notice shall specify the number of Common Units (the Redeemed Units) that the Redeeming Member intends to have the Company redeem and a date, not less than seven (7) Business Days nor more than ten (10) Business Days after delivery of the Redemption Notice (unless and to the extent that the Manager in its sole discretion agrees in writing to waive such time periods), on which exercise of the Redemption Right shall be completed (the Redemption Date); provided that the Company, the Corporation and the Redeeming Member may change the number of Redeemed Units and/or the Redemption Date specified in the Redemption Notice to another number and/or date by mutual agreement signed in writing by each of them; provided further that a Redemption Notice may be conditioned on the closing of an underwritten distribution of the shares of Class A Common Stock that may be issued at the election of the Corporation in connection with such proposed Redemption. Unless the Redeeming Member timely has delivered a Retraction Notice as provided in Section 11.01(b) or has revoked or delayed a Redemption as provided in Section 11.01(c), on the Redemption Date (to be effective immediately prior to the close of business on the Redemption Date) (i) only in the case of an LLC Optionee, the Redeeming Member shall have completed its exercised of an LLC Option for a corresponding number of Units subject to the Redemption Notice, (ii) the Redeeming Member shall transfer and surrender the Redeemed Units to the Company, free and clear of all liens and encumbrances (which in the case of an LLC Optionee will be deemed to be delivered by the Company in lieu of delivery of the Units underlying the LLC Option to the LLC Optionee), and (ii) the Company shall (x) cancel the Redeemed Units, (y) transfer to the Redeeming Member the consideration to which the Redeeming Member is entitled under Section 11.01(b), and (z), if the Units are certificated, issue to the Redeeming Member a certificate for a number of Common Units equal to the difference (if any) between the number of Common Units evidenced by the certificate surrendered by the Redeeming Member pursuant to clause (i) of this Section 11.01(a) and the Redeemed Units. (b) In exercising its Redemption Right, a Redeeming Member shall be entitled to receive the Share Settlement or the Cash Settlement; provided that the Corporation shall have the option as provided in Section 11.02 and subject to Section 11.01(d) to select whether the redemption payment is made by means of a Share Settlement or a Cash Settlement. Within three (3) Business Days of delivery of the Redemption Notice, the Corporation shall give written notice (the Contribution Notice) to the Company (with a copy to the Redeeming Member) of its intended settlement method; provided that if the Corporation does not timely deliver a Contribution Notice, the Corporation shall be deemed to have elected the Share Settlement method. If the Corporation elects the Cash Settlement method, the Redeeming Member may retract its Redemption Notice by giving written notice (the Retraction Notice) to the Company (with a copy to the Corporation) within two (2) Business Days of delivery of the Contribution Notice. The timely delivery of a Retraction Notice shall terminate all of the Redeeming Members, Companys and the Corporation rights and obligations under this Section 11.01 arising from the Redemption Notice. (c) In the event the Corporation elects a Share Settlement in connection with a Redemption, a Redeeming Member shall be entitled to revoke its Redemption Notice or delay |
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40 DRAFT 10-14-2014#86439994v1 the consummation of a Redemption if any of the following conditions exists: (i) any registration statement pursuant to which the resale of the Class A Common Stock to be registered for such Redeeming Member at or immediately following the consummation of the Redemption shall have ceased to be effective pursuant to any action or inaction by the SEC or no such resale registration statement has yet become effective; (ii) the Corporation shall have failed to cause any related prospectus to be supplemented by any required prospectus supplement necessary to effect such Redemption; (iii) the Corporation shall have exercised its right to defer, delay or suspend the filing or effectiveness of a registration statement and such deferral, delay or suspension shall affect the ability of such Redeeming Member to have its Class A Common Stock registered at or immediately following the consummation of the Redemption; (iv) the Corporation shall have disclosed to such Redeeming Member any material non-public information concerning the Corporation, the receipt of which results in such Redeeming Member being prohibited or restricted from selling Class A Common Stock at or immediately following the Redemption without disclosure of such information (and the Corporation does not permit disclosure); (v) any stop order relating to the registration statement pursuant to which the Class A Common Stock was to be registered by such Redeeming Member at or immediately following the Redemption shall have been issued by the SEC; (vi) there shall have occurred a material disruption in the securities markets generally or in the market or markets in which the Class A Common Stock is then traded; (vii) there shall be in effect an injunction, a restraining order or a decree of any nature of any Governmental Entity that restrains or prohibits the Redemption; (viii) the Corporation shall have failed to comply in all material respects with its obligations under the Registration Rights Agreement, and such failure shall have affected the ability of such Redeeming Member to consummate the resale of Class A Common Stock to be received upon such redemption pursuant to an effective registration statement; (ix) the Redemption Date would occur [three (3)] Business Days or less prior to, or during, a Black-Out Period; provided further, that in no event shall the Redeeming Member seeking to revoke its Redemption Notice or delay the consummation of such Redemption and relying on any of the matters contemplated in clauses (i) through (ix) above have controlled or intentionally influenced any facts, circumstances, or Persons in connection therewith (except in the good faith performance of his or her duties as an officer or director of the Corporation) in order to provide such Redeeming Member with a basis for such delay or revocation. If a Redeeming Member delays the consummation of a Redemption pursuant to this Section 11.01(c), the Redemption Date shall occur on the fifth Business Day following the date on which the conditions giving rise to such delay cease to exist (or such earlier day as the Corporation, the Company and such Redeeming Member may agree in writing). (d) The number of shares of Class A Common Stock or the Redeemed Units Equivalent that a Redeeming Member is entitled to receive under Section 11.01(b) (whether through a Share Settlement or Cash Settlement) shall not be adjusted on account of any Distributions previously made with respect to the Redeemed Units or dividends previously paid with respect to Class A Common Stock; provided, however, that if a Redeeming Member (other than an LLC Optionee) causes the Company to redeem Redeemed Units and the Redemption Date occurs subsequent to the record date for any Distribution with respect to the Redeemed Units but prior to payment of such Distribution, the Redeeming Member shall be entitled to receive such Distribution with respect to the Redeemed Units on the date that it is made notwithstanding that the Redeeming Member transferred and surrendered the Redeemed Units to the Company prior to such date. |
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41 DRAFT 10-14-2014#86439994v1 (e) In the event of a reclassification or other similar transaction as a result of which the shares of Class A Common Stock are converted into another security, then in exercising it Redemption Right a Redeeming Member shall be entitled to receive the amount of such security that the Redeeming Member would have received if such Redemption Right had been exercised and the Redemption Date had occurred immediately prior to the record date of such reclassification or other similar transaction. Section 11.02 Election and Contribution of the Corporation. In connection with the exercise of a Redeeming Members Redemption Rights under Section 11.01(a), the Corporation shall contribute to the Company the consideration the Redeeming Member is entitled to receive under Section 11.01(b). The Corporation, at its option, shall determine whether to contribute, pursuant to Section 11.01(b), the Share Settlement or the Cash Settlement. Unless the Redeeming Member has timely delivered a Retraction Notice as provided in Section 11.01(b), or has revoked or delayed a Redemption as provided in Section 11.01(c), on the Redemption Date (to be effective immediately prior to the close of business on the Redemption Date) (i) the Corporation shall make its Capital Contribution to the Company (in the form of the Share Settlement or the Cash Settlement) required under this Section 11.02, and (ii) the Company shall issue to the Corporation a number of Common Units equal to the number of Redeemed Units surrendered by the Redeeming Member. Notwithstanding any other provisions of this Agreement to the contrary, in the event that the Corporation elects a Cash Settlement, the Corporation shall only be obligated to contribute to the Company an amount in respect of such Cash Settlement equal to the net proceeds (after deduction of any underwriters discounts or commissions and brokers fees or commissions) from the sale by the Corporation of a number of shares of Class A Common Stock equal to the number of Redeemed Units to be redeemed with such Cash Settlement provided that the Corporations Capital Account shall be increased by an amount equal to any Discount relating to such sale of shares of Class A Common Stock in accordance with Section 6.07. The timely delivery of a Retraction Notice shall terminate all of the Companys and the Corporation rights and obligations under this Section 11.02 arising from the Redemption Notice. Section 11.03 Exchange Right of the Corporation. (a) Notwithstanding anything to the contrary in this Article XI, the Corporation may, in its sole and absolute discretion, elect to effect on the Redemption Date the exchange of Redeemed Units for the Share Settlement or Cash Settlement, as the case may be, through a direct exchange of such Redeemed Units and such consideration between the Redeeming Member and the Corporation (a Direct Exchange). Upon such Direct Exchange pursuant to this Section 11.03, the Corporation shall acquire the Redeemed Units and shall be treated for all purposes of this Agreement as the owner of such Units. (b) The Corporation may, at any time prior to a Redemption Date, deliver written notice (an Exchange Election Notice) to the Company and the Redeeming Member setting forth its election to exercise its right to consummate a Direct Exchange; provided that such election does not prejudice the ability of the parties to consummate a Redemption or Direct Exchange on the Redemption Date. An Exchange Election Notice may be revoked by the Corporation at any time; provided that any such revocation does not prejudice the ability of the parties to consummate a Redemption or Direct Exchange on the Redemption Date. The right to |
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42 DRAFT 10-14-2014#86439994v1 consummate a Direct Exchange in all events shall be exercisable for all the Redeemed Units that would have otherwise been subject to a Redemption. Except as otherwise provided by this Section 11.03, a Direct Exchange shall be consummated pursuant to the same timeframe and in the same manner as the relevant Redemption would have been consummated if the Corporation had not delivered an Exchange Election Notice. Section 11.04 Reservation of shares of Class A Common Stock; Listing; Certificate of the Corporation. At all times the Corporation shall reserve and keep available out of its authorized but unissued Class A Common Stock, solely for the purpose of issuance upon a Redemption or Direct Exchange, such number of shares of Class A Common Stock as shall be issuable upon any such Redemption or Direct Exchange pursuant to Share Settlements; provided that nothing contained herein shall be construed to preclude the Corporation from satisfying its obligations in respect of any such Redemption or Direct Exchange by delivery of purchased Class A Common Stock (which may or may not be held in the treasury of the Corporation) or the delivery of cash pursuant to a Cash Settlement. The Corporation shall deliver Class A Common Stock that has been registered under the Securities Act with respect to any Redemption or Direct Exchange to the extent a registration statement is effective and available for such shares. The Corporation shall use its commercially reasonable efforts to list the Class A Common Stock required to be delivered upon any such Redemption or Direct Exchange prior to such delivery upon each national securities exchange upon which the outstanding shares of Class A Common Stock are listed at the time of such Redemption or Direct Exchange (it being understood that any such shares may be subject to transfer restrictions under applicable securities Laws). The Corporation covenants that all Class A Common Stock issued upon a Redemption or Direct Exchange will, upon issuance, be validly issued, fully paid and non-assessable. The provisions of this Article XI shall be interpreted and applied in a manner consistent with the corresponding provisions of the Corporations certificate of incorporation. Section 11.05 Effect of Exercise of Redemption or Exchange Right. This Agreement shall continue notwithstanding the consummation of a Redemption or Direct Exchange and all governance or other rights set forth herein shall be exercised by the remaining Members, LLC Optionees (to the extent of such LLC Optionees rights to exercise LLC Options and the related Redemption Right) and the Redeeming Member (to the extent of such Redeeming Members remaining interest in the Company). No Redemption or Direct Exchange shall relieve such Redeeming Member of any prior breach of this Agreement. Section 11.06 Tax Treatment. Unless otherwise required by applicable Law, the parties hereto acknowledge and agree a Redemption or a Direct Exchange, as the case may be, shall be treated as a direct exchange between the Corporation and the Redeeming Member for U.S. federal and applicable state and local income tax purposes. ARTICLE XII. ADMISSION OF MEMBERS Section 12.01 Substituted Members. Subject to the provisions of Article X hereof, in connection with the Permitted Transfer of a Company Interest hereunder, the transferee shall become a substituted Member (Substituted Member) on the effective date of such Transfer, |
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43 DRAFT 10-14-2014#86439994v1 which effective date shall not be earlier than the date of compliance with the conditions to such Transfer, and such admission shall be shown on the books and records of the Company. Section 12.02 Additional Members. Each LLC Optionee upon exercise of an LLC Option (to the extent such LLC Optionee does not simultaneously exercise its Redemption Right with respect thereto under Article XI) and, subject to the provisions of Article X hereof, any other Person may be admitted to the Company as an additional Member (any such LLC Optionee or other Person, an Additional Member) only upon furnishing to the Manager (a) counterparts of this Agreement and any applicable Other Agreements and (b) such other documents or instruments as may be reasonably necessary or appropriate to effect such Persons admission as a Member (including entering into such documents as the Manager may deem appropriate in its sole discretion). Such admission shall become effective on the date on which the Manager determines in its sole discretion that such conditions have been satisfied and when any such admission is shown on the books and records of the Company. ARTICLE XIII. WITHDRAWAL AND RESIGNATION; TERMINATION OF RIGHTS Section 13.01 Withdrawal and Resignation of Members. No Member shall have the power or right to withdraw or otherwise resign as a Member from the Company prior to the dissolution and winding up of the Company pursuant to this Article XIII. Any Member, however, that attempts to withdraw or otherwise resign as a Member from the Company without the prior written consent of the Manager upon or following the dissolution and winding up of the Company pursuant to this Article XIII, but prior to such Member receiving the full amount of Distributions from the Company to which such Member is entitled pursuant to this Article XIII, shall be liable to the Company for all damages (including all lost profits and special, indirect and consequential damages) directly or indirectly caused by the withdrawal or resignation of such Member. Upon a Transfer of all of a Members Units in a Transfer permitted by this Agreement, subject to the provisions of Section 10.06, such Member shall cease to be a Member. Section 13.02 Termination of Rights of LLC Optionees. With respect to each LLC Optionee, all rights of such Person to exercise a Redemption Right hereunder pursuant to Article XI or to become a Member hereunder pursuant to Article XII, and all other rights afforded such Person hereunder in his or her capacity as an LLC Optionee, shall automatically terminate upon the expiration or other termination (whether as a result of exercise in full, forfeiture, death, disability, termination of employment or otherwise) of all LLC Options awarded by the Company to such Person (except to the extent the Company substantially simultaneously novates or reissues an LLC Option to such Person or his or her heirs), and upon such expiration or termination such Person shall cease to be an LLC Optionee hereunder. ARTICLE XIV. DISSOLUTION AND LIQUIDATION Section 14.01 Dissolution. The Company shall not be dissolved by the admission of Additional Members or Substituted Members or the attempted withdrawal or resignation of a Member. The Company shall dissolve, and its affairs shall be wound up, upon: |
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44 DRAFT 10-14-2014#86439994v1 (a) the unanimous decision of the Members that then hold Voting Units to dissolve the Company; (b) a Change of Control Transaction that is not approved by the Majority Members; (c) a dissolution of the Company under Section 18-801(4) of the Delaware Act; or (d) the entry of a decree of judicial dissolution of the Company under Section 18-802 of the Delaware Act. Except as otherwise set forth in this Article XIV, the Company is intended to have perpetual existence. An Event of Withdrawal shall not cause a dissolution of the Company and the Company shall continue in existence subject to the terms and conditions of this Agreement. Section 14.02 Liquidation and Termination. On dissolution of the Company, the Manager shall act as liquidator or may appoint one or more Persons as liquidator. The liquidators shall proceed diligently to wind up the affairs of the Company and make final distributions as provided herein and in the Delaware Act. The costs of liquidation shall be borne as a Company expense. Until final distribution, the liquidators shall continue to operate the Company properties with all of the power and authority of the Manager. The steps to be accomplished by the liquidators are as follows: (a) as promptly as possible after dissolution and again after final liquidation, the liquidators shall cause a proper accounting to be made by a recognized firm of certified public accountants of the Companys assets, liabilities and operations through the last day of the calendar month in which the dissolution occurs or the final liquidation is completed, as applicable; (b) the liquidators shall cause the notice described in the Delaware Act to be mailed to each known creditor of and claimant against the Company in the manner described thereunder; (c) the liquidators shall pay, satisfy or discharge from Company funds, or otherwise make adequate provision for payment and discharge thereof (including, without limitation, the establishment of a cash fund for contingent liabilities in such amount and for such term as the liquidators may reasonably determine): first, all expenses incurred in liquidation; and second, all of the debts, liabilities and obligations of the Company; and (d) all remaining assets of the Company shall be distributed to the Members in accordance with Article IV by the end of the Taxable Year during which the liquidation of the Company occurs (or, if later, by 90 days after the date of the liquidation). The distribution of cash and/or property to the Members in accordance with the provisions of this Section 14.02 and Section 14.03 below constitutes a complete return to the Members of their Capital Contributions, a complete distribution to the Members of their interest in the Company and all the Companys property and constitutes a compromise to which all Members have consented within the meaning of the Delaware Act. To the extent that a Member returns funds to the Company, it has no claim against any other Member for those funds. |
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45 DRAFT 10-14-2014#86439994v1 Section 14.03 Deferment; Distribution in Kind. Notwithstanding the provisions of Section 14.02, but subject to the order of priorities set forth therein, if upon dissolution of the Company the liquidators determine that an immediate sale of part or all of the Companys assets would be impractical or would cause undue loss (or would otherwise not be beneficial) to the Members, the liquidators may, in their sole discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy Company liabilities (other than loans to the Company by Members) and reserves. Subject to the order of priorities set forth in Section 14.02, the liquidators may, in their sole discretion, distribute to the Members, in lieu of cash, either (a) all or any portion of such remaining Company assets in-kind in accordance with the provisions of Section 14.02(d), (b) as tenants in common and in accordance with the provisions of Section 14.02(d), undivided interests in all or any portion of such Company assets or (c) a combination of the foregoing. Any such Distributions in kind shall be subject to (a) such conditions relating to the disposition and management of such assets as the liquidators deem reasonable and equitable and (b) the terms and conditions of any agreements governing such assets (or the operation thereof or the holders thereof) at such time. Any Company assets distributed in kind will first be written up or down to their Fair Market Value, thus creating Profit or Loss (if any), which shall be allocated in accordance with Article V. The liquidators shall determine the Fair Market Value of any property distributed in accordance with the valuation procedures set forth in Article XV. Section 14.04 Cancellation of Certificate. On completion of the distribution of Company assets as provided herein, the Company is terminated (and the Company shall not be terminated prior to such time), and the Manager (or such other Person or Persons as the Delaware Act may require or permit) shall file a certificate of cancellation with the Secretary of State of Delaware, cancel any other filings made pursuant to this Agreement that are or should be canceled and take such other actions as may be necessary to terminate the Company. The Company shall be deemed to continue in existence for all purposes of this Agreement until it is terminated pursuant to this Section 14.04. Section 14.05 Reasonable Time for Winding Up. A reasonable time shall be allowed for the orderly winding up of the business and affairs of the Company and the liquidation of its assets pursuant to Sections 14.02 and 14.03 in order to minimize any losses otherwise attendant upon such winding up. Section 14.06 Return of Capital. The liquidators shall not be personally liable for the return of Capital Contributions or any portion thereof to the Members (it being understood that any such return shall be made solely from Company assets). ARTICLE XV. VALUATION Section 15.01 Determination. Fair Market Value of a specific Company asset will mean the amount which the Company would receive in an all-cash sale of such asset in an armslength transaction with a willing unaffiliated third party, with neither party having any compulsion to buy or sell, consummated on the day immediately preceding the date on which the event occurred which necessitated the determination of the Fair Market Value (and after giving effect to any transfer taxes payable in connection with such sale), as such amount is determined |
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46 DRAFT 10-14-2014#86439994v1 by the Manager (or, if pursuant to Section 14.02, the liquidators) in its good faith judgment using all factors, information and data it deems to be pertinent. Section 15.02 Dispute Resolution. If any Member or Members dispute the accuracy of any determination of Fair Market Value in accordance with Section 15.01, and the Manager and such Member(s) are unable to agree on the determination of the Fair Market Value of any asset of the Company, the Manager and such Member(s) shall each select a nationally recognized investment banking firm experienced in valuing securities of closely-held companies such as the Company in the Companys industry (the Appraisers), who shall each determine the Fair Market Value of the asset or the Company (as applicable) in accordance with the provisions of Section 15.01. The Appraisers shall be instructed to give written notice of their determination of the Fair Market Value of the asset or the Company (as applicable) within 30 days of their appointment as Appraisers. If Fair Market Value as determined by an Appraiser is higher than Fair Market Value as determined by the other Appraiser by 10% or more, and the Manager and such Member(s) do not otherwise agree on a Fair Market Value, the original Appraisers shall designate a third Appraiser meeting the same criteria used to select the original two. If Fair Market Value as determined by an Appraiser is within 10% of the Fair Market Value as determined by the other Appraiser (but not identical), and the Manager and such Member(s) do not otherwise agree on a Fair Market Value, the Manager shall select the Fair Market Value of one of the Appraisers. The fees and expenses of the Appraisers shall be borne by the Company. ARTICLE XVI. GENERAL PROVISIONS Section 16.01 Power of Attorney. (a) Each Member who is an individual hereby constitutes and appoints the Manager (or the liquidator, if applicable) with full power of substitution, as his true and lawful agent and attorney-in-fact, with full power and authority in his or its name, place and stead, to: (i) execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (A) this Agreement, all certificates and other instruments and all amendments thereof which the Manager deems appropriate or necessary to form, qualify, or continue the qualification of, the Company as a limited liability company in the State of Delaware and in all other jurisdictions in which the Company may conduct business or own property; (B) all instruments which the Manager deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (C) all conveyances and other instruments or documents which the Manager deems appropriate or necessary to reflect the dissolution and liquidation of the Company pursuant to the terms of this Agreement, including a certificate of cancellation; and (D) all instruments relating to the admission, withdrawal or substitution of any Member pursuant to Article XII or XIII; and (ii) sign, execute, swear to and acknowledge all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the reasonable judgment of the Manager, to evidence, confirm or ratify any vote, consent, approval, agreement or other action which is made or given by the Members hereunder or is |
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47 DRAFT 10-14-2014#86439994v1 consistent with the terms of this Agreement and/or appropriate or necessary (and not inconsistent with the terms of this Agreement), in the reasonable judgment of the Manager, to effectuate the terms of this Agreement. (b) The foregoing power of attorney is irrevocable and coupled with an interest, and shall survive the death, disability, incapacity, dissolution, bankruptcy, insolvency or termination of any Member who is an individual and the transfer of all or any portion of his or its Company Interest and shall extend to such Members heirs, successors, assigns and personal representatives. Section 16.02 Confidentiality. The Manager and each of the Members agree to hold the Companys Confidential Information in confidence and may not use such information except in furtherance of the business of the Company or as otherwise authorized separately in writing by the Manager. Confidential Information as used herein includes, but is not limited to, ideas, financial product structuring, business strategies, innovations and materials, all aspects of the Companys business plan, proposed operation and products, corporate structure, financial and organizational information, analyses, proposed partners, software code and system and product designs, employees and their identities, equity ownership, the methods and means by which the Company plans to conduct its business, all trade secrets, trademarks, tradenames and all intellectual property associated with the Companys business. With respect to the Manager and each Member, Confidential Information does not include information or material that: (a) is rightfully in the possession of the Manager or each Member at the time of disclosure by the Company; (b) before or after it has been disclosed to the Manager or each Member by the Company, becomes part of public knowledge, not as a result of any action or inaction of the Manager or such Member, respectively, in violation of this Agreement; (c) is approved for release by written authorization of the CEO of the Company or of the Corporation; (d) is disclosed to the Manager or such Member or their representatives by a third party not, to the knowledge of the Manager or such Member, respectively, in violation of any obligation of confidentiality owed to the Company with respect to such information; or (e) is or becomes independently developed by the Manager or such Member or their respective representatives without use or reference to the Confidential Information. Section 16.03 Amendments. This Agreement may be amended or modified upon the consent of the Majority Members. Notwithstanding the foregoing, no amendment or modification to any of the terms and conditions of this Agreement which terms and conditions expressly require the approval or action of certain Persons may be made without obtaining the consent of the requisite number or specified percentage of such Persons who are entitled to approve or take action on such matter. In addition, Section 3.01(a), Section 3.02, Section 3.03(a), Section 3.10, Article XI, Section 12.02 and Section 13.02 may not be amended in a manner that is materially adverse to the interests of the LLC Optionees without the prior written consent of the LLC Optionees representing a majority of the aggregate number of Common Units underlying all LLC Options then outstanding. Section 16.04 Title to Company Assets. Company assets shall be deemed to be owned by the Company as an entity, and no Member, individually or collectively, shall have any ownership interest in such Company assets or any portion thereof. The Company shall hold title to all of its property in the name of the Company and not in the name of any Member. All |
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48 DRAFT 10-14-2014#86439994v1 Company assets shall be recorded as the property of the Company on its books and records, irrespective of the name in which legal title to such Company assets is held. The Companys credit and assets shall be used solely for the benefit of the Company, and no asset of the Company shall be transferred or encumbered for, or in payment of, any individual obligation of any Member. Section 16.05 Addresses and Notices. Any notice provided for in this Agreement will be in writing and will be either personally delivered, or received by certified mail, return receipt requested, or sent by reputable overnight courier service (charges prepaid) to the Company at the address set forth below and to any other recipient and to any Member at such address as indicated by the Companys records, or at such address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Notices will be deemed to have been given hereunder when delivered personally or sent by telecopier (provided confirmation of transmission is received), three days after deposit in the U.S. mail and one day after deposit with a reputable overnight courier service. The Companys address is: to the Company: Neff Holdings LLC 3750 N.W. 87th Avenue, Suite 400 Miami, Florida 33178 Attn: Mark Irion, Chief Financial Officer Facsimile: (305) 773-2291 E-mail: mirion@neffcorp.com with a copy (which copy shall not constitute notice) to: Latham & Watkins LLP 885 Third Avenue New York, New York 10022 Attn: Dennis D. Lamont Facsimile: (212) 751-4864 E-mail: dennis.lamont@lw.com Section 16.06 Binding Effect; Intended Beneficiaries. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns. Section 3.01(a), Section 3.02, Section 3.03(a), Section 3.10, Article XI, Section 12.02 and Section 13.02 hereof shall inure to the benefit of the LLC Optionees who are intended to be third-party beneficiaries thereof and which Articles and Sections shall be enforceable by each LLC Optionee and its successors and assigns. Section 16.07 Creditors. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditors of the Company or any of its Affiliates, and no creditor who makes a loan to the Company or any of its Affiliates may have or acquire (except pursuant to the terms of a separate agreement executed by the Company in favor of such creditor) at any time as a result of making the loan any direct or indirect interest in Company Profits, Losses, Distributions, capital or property other than as a secured creditor. |
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49 DRAFT 10-14-2014#86439994v1 Section 16.08 Waiver. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute a waiver of any such breach or any other covenant, duty, agreement or condition. Section 16.09 Counterparts. This Agreement may be executed in separate counterparts, each of which will be an original and all of which together shall constitute one and the same agreement binding on all the parties hereto. Section 16.10 Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. Any dispute relating hereto shall be heard in the state or federal courts of the State of Delaware, and the parties agree to jurisdiction and venue therein. Section 16.11 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable Law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. Section 16.12 Further Action. The parties shall execute and deliver all documents, provide all information and take or refrain from taking such actions as may be necessary or appropriate to achieve the purposes of this Agreement. Section 16.13 Delivery by Electronic Transmission. This Agreement and any signed agreement or instrument entered into in connection with this Agreement or contemplated hereby, and any amendments hereto or thereto, to the extent signed and delivered by means of an electronic transmission, including by a facsimile machine or via email, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such agreement or instrument, each other party hereto or thereto shall re-execute original forms thereof and deliver them to all other parties. No party hereto or to any such agreement or instrument shall raise the use of electronic transmission by a facsimile machine or via email to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through such electronic transmission as a defense to the formation of a contract and each such party forever waives any such defense. Section 16.14 Right of Offset. Whenever the Company is to pay any sum (other than pursuant to Article IV) to any Member, any amounts that such Member owes to the Company which are not the subject of a good faith dispute may be deducted from that sum before payment. For the avoidance of doubt, the distribution of Units to the Corporation shall not be subject to this Section 16.14. |
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50 DRAFT 10-14-2014#86439994v1 Section 16.15 Effectiveness. This Agreement shall be effective immediately prior to the time at which the IPO closes on the IPO Closing Date (the Effective Time). The First A&R LLC Agreement shall govern the rights and obligations of the Company and the other parties to this Agreement in their capacity as Unitholders prior to the Effective Time. Section 16.16 Entire Agreement. This Agreement, those documents expressly referred to herein (including the Registration Rights Agreement and the Tax Receivable Agreement), any indemnity agreements entered into in connection with the First A&R LLC Agreement with any member of the board of managers at that time and other documents of even date herewith embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. For the avoidance of doubt, the First A&R LLC Agreement is superseded by this Agreement as of the Effective Time and shall be of no further force and effect thereafter. Section 16.17 Remedies. Each Member shall have all rights and remedies set forth in this Agreement and all rights and remedies which such Person has been granted at any time under any other agreement or contract and all of the rights which such Person has under any Law. Any Person having any rights under any provision of this Agreement or any other agreements contemplated hereby shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by Law. Section 16.18 Descriptive Headings; Interpretation. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a substantive part of this Agreement. Whenever required by the context, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. The use of the word including in this Agreement shall be by way of example rather than by limitation. Reference to any agreement, document or instrument means such agreement, document or instrument as amended or otherwise modified from time to time in accordance with the terms thereof, and if applicable hereof. Without limiting the generality of the immediately preceding sentence, no amendment or other modification to any agreement, document or instrument that requires the consent of any Person pursuant to the terms of this Agreement or any other agreement will be given effect hereunder unless such Person has consented in writing to such amendment or modification. Wherever required by the context, references to a Fiscal Year shall refer to a portion thereof. The use of the words or, either and any shall not be exclusive. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Wherever a conflict exists between this Agreement and any other agreement, this Agreement shall control but solely to the extent of such conflict. |
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51 DRAFT 10-14-2014#86439994v1 IN WITNESS WHEREOF, the undersigned have executed or caused to be executed on their behalf this Agreement as of the date first written above. COMPANY: NEFF HOLDINGS LLC By: NEFF CORPORATION, its Managing Member By: ________________________________ Name: Title: MEMBERS: WAYZATA OPPORTUNITIES FUND II, L.P. By: WOF II GP, L.P., its General Partner By: WOF II GP, LLC, its General Partner By: ________________________________ Name: Title: WAYZATA OPPORTUNITIES FUND OFFSHORE II, L.P. By: [WOFO II GP, L.P.], its General Partner By: [WOFO II GP, LLC], its General Partner By: ________________________________ Name: Title: NEFF CORPORATION By: ________________________________ Name: Title: |
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DRAFT 10-14-2014#86439994v1 SCHEDULE 1* SCHEDULE OF MEMBERS Member Common Units Percentage Interest Wayzata Opportunities Fund II, L.P. [] ** [] Wayzata Opportunities Fund Offshore II, L.P [] ** [] Neff Corporation [] *** [] Total [] 100.00000 % * This Schedule of Members reflects the Recapitalization and shall be updated from time to time to reflect any adjustment with respect to any subdivision (by Unit split or otherwise) or any combination (by reverse Unit split or otherwise) of any outstanding Common Units, or to reflect any additional issuances of Common Units pursuant to this Agreement. ** Reflects the Recapitalization and the Over-Allotment Option Redemption (if applicable). *** Reflects the contribution of the IPO Net Proceeds and Over-Allotment Option Net Proceeds (if any). |
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DRAFT 10-14-2014#86439994v1 SCHEDULE 2* SCHEDULE OF LLC OPTIONEES Original LLC Options Number of Common Units Underlying LLC Options** Number of Common Units Underlying LLC Optionees Performance Options Service Options Total Options Performance Options Service Options Total Options James Continenza 12,573 12,573 [] [] [] Robert Singer 8,801 8,801 [] [] [] Graham Hood 81,750 136,250 218,000 [] [] [] Mark Irion 48,750 81,250 130,000 [] [] [] Wes Parks 22,500 37,500 60,000 [] [] [] Henry Lawson 22,500 37,500 60,000 [] [] [] John Anderson 22,500 37,500 60,000 [] [] [] Brad Nowell 13,875 23,125 37,000 [] [] [] Steven Settelmayer 13,875 23,125 37,000 [] [] [] Paula Papamarcos 11,625 19,375 31,000 [] [] [] Steve Michaels 13,875 23,125 37,000 [] [] [] Tom Sutherland 11,625 19,375 31,000 [] [] [] Tammy Parham 5,250 8,750 14,000 [] [] [] Jim Horn 5,250 8,750 14,000 [] [] [] Bryant Becton 5,250 8,750 14,000 [] [] [] Bobby Corner 5,250 8,750 14,000 [] [] [] Total 283,875 494,499 778,374 [] [] [] * This Schedule of LLC Optionees shall be updated from time to time to reflect any adjustment with respect to any subdivision (by Unit split or otherwise) or any combination (by reverse Unit split or otherwise) of any outstanding Common Units, or to reflect any additional issuances of Common Units pursuant to this Agreement. ** This column reflects the Recapitalization. |
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DRAFT 10-14-2014#86439994v1 Exhibit A FORM OF JOINDER AGREEMENT This JOINDER AGREEMENT, dated as of _________________, 20___ (this Joinder), is delivered pursuant to that certain Second Amended and Restated Limited Liability Company Agreement, dated as of [.], 2014 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the LLC Agreement) by and among Neff Holdings LLC, a Delaware limited liability company (the Company), Neff Corporation, a Delaware corporation and the managing member of the Company (the Holdings), and each of the Members from time to time party thereto. Capitalized terms used but not otherwise defined herein have the respective meanings set forth in the LLC Agreement. 1. Joinder to the LLC Agreement. Upon the execution of this Joinder by the undersigned and delivery hereof to Holdings, the undersigned hereby is and hereafter will be a Member under the LLC Agreement and a party thereto, with all the rights, privileges and responsibilities of a Member thereunder. The undersigned hereby agrees that it shall comply with and be fully bound by the terms of the LLC Agreement as if it had been a signatory thereto as of the date thereof. 2. Incorporation by Reference. All terms and conditions of the LLC Agreement are hereby incorporated by reference in this Joinder as if set forth herein in full. 3. Address. All notices under the LLC Agreement to the undersigned shall be direct to: [Name] [Address] [City, State, Zip Code] Attn: Facsimile: E-mail: IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Joinder as of the day and year first above written. [NAME OF NEW MEMBER] By: _________________________________ Name: Title: |
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DRAFT 10-14-2014#86439994v1 Acknowledged and agreed as of the date first set forth above: NEFF HOLDINGS LLC By: NEFF CORPORATION, its Managing Member By: ___________________________ Name: Title: |
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#86469808v2 EXHIBIT C FORM OF IPO COMMON UNIT PURCHASE AGREEMENT [see attached] |
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Posting Version DRAFT 10-14-2014#86439997v1 COMMON UNIT PURCHASE AGREEMENT This COMMON UNIT PURCHASE AGREEMENT (this Agreement) is made and entered into as of [.], 2014, by and among Neff Corporation, a Delaware corporation (the Corporation), Neff Holdings LLC, a Delaware limited liability company (the Company), Wayzata Opportunities Fund II, L.P., a Delaware limited partnership (Wayzata), and Wayzata Opportunities Fund Offshore II, L.P., a Cayman Islands limited partnership (Wayzata Offshore and, together with Wayzata, the Wayzata Funds). RECITALS WHEREAS, the Corporation is contemplating an offer and sale of its shares of Class A common stock, par value $0.01 per share (the Class A Common Stock and such shares, the Shares), to the public in an underwritten initial public offering (the IPO) pursuant to the Registration Statement (as defined herein); WHEREAS, the Corporation desires to use a portion of the net proceeds from the IPO to purchase Common Units (as defined below) of the Company, and the Company desires to issue its Common Units to the Corporation in exchange for such portion of the net proceeds from the IPO; WHEREAS, immediately prior to or simultaneous with the purchase by the Corporation of the Common Units and consummation of the other transactions contemplated by this Agreement, the Corporation, the Company and the Wayzata Funds will enter into that certain Second Amended and Restated Limited Liability Company Agreement of the Company in the form substantially set forth as Exhibit A hereto (such agreement, as it may be amended, restated, amended and restated, supplemented or otherwise modified from time to time, the LLC Agreement); WHEREAS, upon the Effective Time (as defined below) the Corporation will become the sole managing member of the Company, and the Wayzata Funds will become non-managing members of the Company but otherwise retain their units in the Company (which under the LLC Agreement are converted from Class A Common Units to Common Units), except as otherwise contemplated herein; and WHEREAS, the parties hereto intend for the Corporations contribution to the Company of the proceeds received from the Corporations IPO in exchange for Common Units to be treated as a contribution of property governed by Section 721(a) of the Internal Revenue Code of 1986, as amended; NOW, THEREFORE, in consideration of the covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Corporation, the Wayzata Funds and the Company agree as follows: |
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2 DRAFT 10-14-2014#86439997v1 AGREEMENT ARTICLE I. DEFINITIONS Section 1.01 Certain Definitions. For purposes of this Agreement, the following terms shall have the meanings specified in this Section 1.01: Common Units means the Common Units of the Company as defined in the LLC Agreement. Company has the meaning set forth in the Preamble. Corporation has the meaning set forth in the Preamble. Effective Time means the Effective Time as defined in the LLC Agreement. Encumbrance means, with respect to any specified asset, any security interest, lien, mortgage, claim, charge, pledge, restriction, option, reservation, equitable interest, deed of trust, right of first refusal, easement, servitude or encumbrance of any nature. Initial Closing means the closing of the transactions contemplated in Sections 2.01, 2.02 and 2.04. Initial Closing Date has the meaning set forth in Section 2.03. Initial Consideration has the meaning set forth in Section 2.02. Initial Units has the meaning set forth in Section 2.01. Initial Proceeds means the net proceeds received by the Corporation in exchange for the issuance and sale of Shares in the IPO. Initial Proceeds will be calculated as the product of (a) the sum of (i) the price per share at which Shares are sold to the public in the IPO minus (ii) the aggregate underwriting discounts and commissions per share in such offering, multiplied by (b) the number of Shares sold to the public in the IPO without giving effect to any exercise of the Over-Allotment Option. For the avoidance of doubt, Initial Proceeds shall not include the Over- Allotment Proceeds. IPO has the meaning set forth in the Recitals. LLC Agreement has the meaning set forth in the Recitals. Managing Underwriters means Morgan Stanley & Co. LLC and Jefferies LLC. Over-Allotment Closing means the closing of the transactions contemplated in Section 3.01, 3.02 and 3.04. Over-Allotment Closing Date has the meaning set forth in Section 3.03. |
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3 DRAFT 10-14-2014#86439997v1 Over-Allotment Option means the Underwriters option to purchase additional Shares from the Corporation in the IPO pursuant to the second paragraph of Section 2 of the Underwriting Agreement. Over-Allotment Proceeds means the net proceeds received by the Corporation in exchange for the issuance and sale of Shares in the IPO but solely as a result of the exercise, in whole or in part, by the Underwriters of the Over-Allotment Option. Over-Allotment Proceeds will be calculated as the product of (a) the sum of (i) the price per share at which Shares are sold to the public in the IPO minus (ii) the aggregate underwriting discounts and commissions per share in such offering, multiplied by (b) the number of Shares sold to the public in the IPO solely to the extent of any exercise of the Over-Allotment Option. For the avoidance of doubt, Over- Allotment Proceeds shall not include the Initial Proceeds. Over-Allotment Units has the meaning set forth in Section 3.01. Prospectus means the final prospectus for the IPO contained in the Registration Statement. Registration Statement means the Corporations registration statement on Form S-1, file no. 333-198559, as filed with the U.S. Securities and Exchange Commission on the date hereof, together with any other registration statement on Form S-1 that the Corporation may file in connection with the IPO in reliance on Rule 462(b) promulgated under the Securities Act. Securities Act means the U.S. Securities Act of 1933, as amended. Shares has the meaning set forth in the Recitals. Transaction Documents mean the transactional and organizational documents entered into contemporaneously with this Agreement by either the Company, the Corporation or the Wayzata Funds, as applicable, in connection with the IPO. Underwriters means each of the financial institutions identified in the Prospectus and in the Underwriting Agreement as an underwriter in the IPO, including without limitation the Managing Underwriters. Underwriting Agreement means that certain Underwriting Agreement, [dated the date hereof], by and among the Corporation and the managing underwriters, on behalf of the several Underwriters, with respect to the sale of Shares in the IPO. Wayzata has the meaning set forth in the Preamble. Wayzata Funds has the meaning set forth in the Preamble. Wayzata Offshore has the meaning set forth in the Preamble. |
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4 DRAFT 10-14-2014#86439997v1 ARTICLE II. INITIAL CLOSING Section 2.01 Company Issuance of Common Units to Corporation. The Company hereby agrees to issue to the Corporation on the Initial Closing Date, and the Corporation hereby agrees to subscribe for, purchase and accept on the Initial Closing Date, free and clear of all Encumbrances, an aggregate number of Common Units equal to the aggregate number of Shares sold (excluding any Shares sold pursuant to the exercise of the Over-Allotment Option) in the IPO (such Common Units collectively, the Initial Units). Section 2.02 Consideration. The consideration for the Initial Units shall be an amount equal to the Initial Proceeds (the Initial Consideration). Section 2.03 Initial Closing. The Initial Closing shall be held at the offices of Latham & Watkins LLP, 885 Third Avenue, New York, NY 10022 at the time and date on which all the conditions set forth in Article VII have been satisfied or waived, or at such later time and date as the Corporation, the Company and the Wayzata Funds shall agree in writing (such time and date, the Initial Closing Date). Section 2.04 Initial Closing Deliverables. (a) The Company shall deliver, or cause to be delivered, the following documents to the Corporation at the Initial Closing: (i) (x) solely to the extent that the Common Units are certificated, a certificate or certificates representing the Initial Units being issued to the Corporation identifying the Corporation as the registered holder thereof or (y) if the Common Units are not certificated, evidence reasonably satisfactory to the Corporation that the Corporation has been registered as the holder of the Initial Units in the books and records of the Company (which evidence may be satisfied by the Schedule of Members attached to the LLC Agreement at the Effective Time, as modified to give effect to the Initial Closing); and (ii) all other customary documents, instruments or certificates as shall be reasonably requested by the Corporation and as shall be consistent with the terms of this Agreement; and (b) The Corporation shall deliver, or cause to be delivered, the following to the Company at the Initial Closing: (i) the Initial Consideration by wire transfer of immediately available funds to the following bank account of the Company: Bank [.] Bank Address [.] ABA Routing No. [.] Account No. [.] Beneficiary Name: Neff Holdings LLC |
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5 DRAFT 10-14-2014#86439997v1 (ii) all other customary documents, instruments or certificates as shall be reasonably requested by the Company and as shall be consistent with the terms of this Agreement and which will not require any representations or warranties other than those set forth in Article IV. Section 2.05 Closing Costs; Transfer Taxes and Fees. The Company shall be solely responsible for the documentary and transfer taxes and any sales or other similar taxes, if any, imposed on the issuance and sale of the Initial Units by the Company to the Corporation under this Agreement, as well as any deficiency, interest or penalty asserted with respect thereto. ARTICLE III. OVER-ALLOTMENT CLOSING Section 3.01 Corporation Purchase of Additional Common Units from the Wayzata Funds. Solely to the extent that the Underwriters exercise the Over-Allotment Option, the Wayzata Funds hereby agree, severally and not jointly, to sell to the Corporation on the Over- Allotment Closing Date, and the Corporation hereby agrees to purchase and accept from the Wayzata Funds on the Over-Allotment Closing Date, free and clear of all Encumbrances, an aggregate number of Common Units equal to the aggregate number of Shares sold to the Underwriters solely pursuant to the exercise, in whole or in part, by the Underwriters of the Over-Allotment Option in the IPO (such Common Units collectively, the Over-Allotment Units). The Corporation and the Wayzata Funds hereby acknowledge and agree that the obligation of the Wayzata Funds to issue any Over-Allotment Units in connection with the Over- Allotment Option are contingent upon the Underwriters exercise of their Over-Allotment Option. If the Underwriters exercise their Over-Allotment Option in whole or in part, the Corporation will, contemporaneously with the sale of Shares by the Corporation to the Underwriters pursuant to the Over-Allotment Option, purchase an aggregate number of Over- Allotment Units from the Wayzata Funds equal to the aggregate number of Shares purchased by the Underwriters from the Corporation pursuant to the exercise of the Over-Allotment Option. The sale of such Over-Allotment Units by the Wayzata Funds shall be made pro rata between them, except for such adjustments as the Wayzata Funds may mutually agree between them in order to avoid any fractional interest in Common Units. Section 3.02 Consideration. The consideration for the Over-Allotment Units shall be an amount equal to the Over-Allotment Proceeds (the Over-Allotment Consideration). The Corporation shall pay the Over-Allotment Consideration to the Wayzata Funds ratably in the same proportion as the Wayzata Funds are selling to the Corporation the Over-Allotment Units. Section 3.03 Over-Allotment Closing. The Over-Allotment Closing shall be held at the offices of Latham & Watkins LLP, 885 Third Avenue, New York, NY 10022 at the time and date on which all the conditions set forth in Article VII have been satisfied or waived, or at such later time and date as the Corporation and the Wayzata Funds shall agree in writing (such time and date, the Over-Allotment Closing Date). Section 3.04 Over-Allotment Closing Deliverables. |
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6 DRAFT 10-14-2014#86439997v1 (a) Each Wayzata Fund shall deliver, or cause to be delivered, the following documents to the Corporation at the Over-Allotment Closing: (i) solely to the extent that the Common Units are certificated, the certificate or certificates representing the Over-Allotment Units being sold to the Corporation (provided that, to the extent a certificate represents more than the exact number of Common Units to be delivered to the Corporation hereunder, then in lieu of the obligation to deliver such certificate(s) to the Corporation the applicable Wayzata Fund may surrender such certificate(s) to the Company for exchange into one or more certificates evidencing (x) the Common Units to be delivered to the Corporation pursuant to this Agreement, which shall be registered in the name of the Corporation and (y) the remaining Common Units to be retained by such Wayzata Fund); and (ii) all other customary documents, instruments or certificates as shall be reasonably requested by the Corporation and as shall be consistent with the terms of this Agreement and which will not require any representations or warranties other than those set forth in Article VI. (b) The Corporation shall deliver, or cause to be delivered, the following to the Wayzata Funds at the Over-Allotment Closing: (i) a letter executed by the Managing Underwriters on behalf of the several Underwriters evidencing the exercise of the Over-Allotment Option by the Underwriters in a form reasonably satisfactory to the Company, which clearly states the total number of Shares with respect to which the Over-Allotment Option has been exercised; (ii) the Over-Allotment Consideration by wire transfer of immediately available funds to the following bank account of the Wayzata Funds: For the Over-Allotment Consideration payable to Wayzata: Bank [.] Bank Address [.] ABA Routing No. [.] Account No. [.] Beneficiary Name: Wayzata Opportunities Fund II, L.P. For the Over-Allotment Consideration payable to Wayzata Offshore: Bank [.] Bank Address [.] ABA Routing No. [.] Account No. [.] Beneficiary Name: Wayzata Opportunities Fund Offshore II, L.P. (iii) all other customary documents, instruments or certificates as shall be reasonably requested by the Company and as shall be consistent with the terms of this Agreement; and |
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7 DRAFT 10-14-2014#86439997v1 (c) The Company shall deliver, or cause to be delivered, the following documents to the Corporation at the Over-Allotment Closing: (i) (x) solely to the extent that the Common Units are certificated, a certificate or certificates representing the Initial Units being issued to the Corporation identifying the Corporation as the registered holder thereof or (y) if the Common Units are not certificated, evidence reasonably satisfactory to the Corporation that the Corporation has been registered as the holder of the Initial Units in the books and records of the Company (which evidence may be satisfied by the Schedule of Members attached to the LLC Agreement at the Effective Time, as modified to give effect to the Over- Allotment Closing); (ii) a duly authorized certificate in accordance with Treasury Regulation Section 1.1445-11T, certifying that fifty percent (50%) or more of the value of the gross assets of the Company does not consist of U.S. real property interests or that ninety percent (90%) or more of the value of the gross assets of the Company does not consist of U.S. real property interests plus cash or cash equivalents; and (iii) all other customary documents, instruments or certificates as shall be reasonably requested by the Corporation and as shall be consistent with the terms of this Agreement. Section 3.05 Closing Costs; Transfer Taxes and Fees. The Company shall be solely responsible for the documentary and transfer taxes and any sales or other similar taxes, if any, imposed on the sale and transfer by the Wayzata Funds of the Over-Allotment Units to the Corporation under this Agreement, as well as any deficiency, interest or penalty asserted with respect thereto. ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY As of the date of this Agreement and as of each of the Initial Closing Date and, if applicable, the Over-Allotment Closing Date, the Company represents and warrants to the Corporation and the Wayzata Funds as follows: Section 4.01 Organization; Good Standing; Qualification. The Company is a limited liability company, duly organized and validly existing under the laws of the State of Delaware. The Company has the requisite power and authority to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. The Company is in good standing and qualified to do business in the State of Delaware and in each other jurisdiction where the failure to so qualify would have a material adverse effect on its business or financial condition or its ability to enter into this Agreement or to consummate the transactions contemplated hereby. Section 4.02 Authorization. The execution, delivery and performance of this Agreement and the issuance by the Company of the Initial Units have been duly authorized by the Company. This Agreement constitutes the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as may be |
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8 DRAFT 10-14-2014#86439997v1 limited by (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors rights generally and (ii) the effect of rules of law governing the availability of equitable remedies. Section 4.03 Consents. Except as has been obtained or will be obtained prior to the Initial Closing and, if applicable, the Over-Allotment Closing, no consent, approval or authorization of, or designation, declaration or filing with, any governmental authority or other third party on the part of the Company is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. Section 4.04 Capitalization of the Company. Immediately prior to the execution and delivery of this Agreement, there are no Common Units issued and outstanding other than the Common Units issued the Wayzata Funds as set forth on the Schedule of Members to the LLC Agreement at the Effective Time (prior to giving effect to this Agreement). There are no outstanding options, warrants, rights (including conversion or preemptive rights), voting agreements, investor or other type of agreement with respect to the Common Units or other agreements for the purchase or acquisition from the Company of any Common Units, except for the LLC Options (as defined in the LLC Agreement) summarized on the Schedule of LLC Optionees to the LLC Agreement; provided, however, that the execution of any Transaction Document by the parties hereto either prior to, or contemporaneously with, this Agreement shall be expressly excluded from this Section 4.04. The assets and liabilities of the Company are as set forth in the financial statements included in the Prospectus as of the date indicated. Section 4.05 Regulation D Eligibility. None of the Bad Actor disqualifying events described in Rule 506(d)(1)(i) to (viii) promulgated under the Securities Act (a Disqualification Event) is applicable to the Company or any of its Rule 506(d) Related Parties except, if applicable, for a Disqualification Event as to which Rule 506(d)(2)(ii) or (iii) or (d)(3) is applicable. For purposes of this Agreement, Rule 506(d) Related Party shall mean any person in a capacity (relative to the Company) specified in the first paragraph of Rule 506(d)(1) under the Securities Act. ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION As of the date of this Agreement and as of each of the Initial Closing Date and, if applicable, the Over-Allotment Closing Date, the Corporation hereby represents and warrants to the Company and the Wayzata Funds as follows: Section 5.01 Organization; Good Standing; Qualification. The Corporation is a corporation duly organized and validly existing under the laws of the State of Delaware. The Corporation has the requisite power and authority to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. The Corporation is in good standing and qualified to do business in the State of Delaware and in each other jurisdiction where the failure to so qualify would have a material adverse effect on its ability to enter into this Agreement or to consummate the transactions contemplated hereby. |
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9 DRAFT 10-14-2014#86439997v1 Section 5.02 Authorization. The execution, delivery and performance of this Agreement and the subscription to the Initial Units have been duly authorized by the Corporation. This Agreement constitutes the legal, valid and binding obligation of the Corporation enforceable against the Corporation in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors rights generally and (ii) the effect of rules of law governing the availability of equitable remedies. Section 5.03 Consents. Except as has been obtained or will be obtained prior to Initial Closing and, if applicable, the Over-Allotment Closing, no consent, approval or authorization of, or designation, declaration or filing with, any governmental authority or other third party on the part of the Corporation is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. Section 5.04 Investor Representations. (a) The Corporation is acquiring the Common Units from the Company for its own account as an investment and not with a view to sell, transfer or otherwise distribute all or any part thereof to any other person in any transaction that would constitute a distribution within the meaning of the Securities Act. (b) The Corporation acknowledges and agrees that (i) it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Common Units and (ii) it can bear the economic risk of its investment in the Common Units. (c) The Corporation is an accredited investor as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act. (d) The Corporation understands that neither the offer nor sale of the Common Units by the Company hereunder has or will have been registered pursuant to the Securities Act or any applicable state securities laws, that all of the Common Units will be characterized as restricted securities under federal securities laws and that, under such laws and applicable regulations, none of the Units can be sold or otherwise disposed of without registration under the Securities Act or a valid exemption thereunder. (e) The Corporation acknowledges and agrees that it (i) has, without reliance on the Company or Wayzata, made its own inquiry and investigation into, and based thereon has formed an independent judgment concerning, the Company and the Common Units and (ii) has been furnished with, or given adequate access to, such information about the Company and the Common Units as it has requested. (f) The Corporation further acknowledges and agrees that (1) the only representations, warranties, covenants and agreements made in connection with its purchase of the Common Units from the Company are the representations, warranties, covenants and agreements made in this Agreement, and the Corporation has not relied upon any other representations or information made or supplied by or on behalf of the Company or its representatives, including any information provided by or through the Companys advisors, and |
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10 DRAFT 10-14-2014#86439997v1 that the Corporation will not have any right or remedy arising out of any such representation or other information and (2) any claims that the Corporation may have against the Company for breach of any representation or warranty shall be based solely on the representations and warranties set forth in Article IV (in the case of the Company) or set forth in Article VI (in the case of a Wayzata Fund). Section 5.05 Regulation D Eligibility. Neither the Corporation nor any of its shareholders, directors, executive officers or affiliates (the Corporation together with such Persons, the Corporation Covered Persons) are subject to a Disqualification Event, except, if applicable, for a Disqualification Event as to which Rule 506(d)(2)(ii) or (iii) or (d)(3) is applicable. The Corporation has exercised reasonable care to determine whether any Corporation Covered Person is subject to a Disqualification Event. The purchase of Common Units from the Company by the Corporation will not subject the Company to any Disqualification Event. ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF THE WAYZATA FUNDS. As of the date of this Agreement and as of the Over-Allotment Closing Date, each of the Wayzata Funds hereby represents and warrants, with respect to itself, to the Corporation as follows: Section 6.01 Organization; Good Standing; Qualification. Such Wayzata Fund is a limited partnership duly organized and validly existing under the laws of the State of Delaware. Such Wayzata Fund has the requisite power and authority to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. Such Wayzata Fund is in good standing and qualified to do business in the jurisdiction of its organization (to the extent such concept is applicable in such jurisdiction) and in each other jurisdiction where the failure to so qualify would have a material adverse effect on its ability to enter into this Agreement or to consummate the transactions contemplated hereby. Section 6.02 Authorization. The execution, delivery and performance of this Agreement and the sale of the Over-Allotment Units as contemplated hereby have been duly authorized by such Wayzata Fund. This Agreement constitutes the legal, valid and binding obligation of such Wayzata Fund, enforceable against such Wayzata Fund in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors rights generally and (ii) the effect of rules of law governing the availability of equitable remedies. Section 6.03 Consents. Except as has been obtained or will be obtained prior to Over- Allotment Closing, no consent, approval or authorization of, or designation, declaration or filing with, any governmental authority or other third party on the part of such Wayzata Fund is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. Section 6.04 Title to Units. Such Wayzata Fund is the record and beneficial owner of, and has, and on the Over-Allotment Closing Date will have, valid and marketable title to the |
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11 DRAFT 10-14-2014#86439997v1 Common Units to be sold by such Wayzata Fund to the Corporation pursuant to this Agreement, free and clear of all Encumbrances (other than such Encumbrances that will be extinguished upon the sale of the Common Units to the Corporation); and upon delivery of and payment for such Common Units hereunder, the Corporation will acquire valid and marketable title thereto, free and clear of any Encumbrances. Each Wayzata Fund is selling such Common Units to the Corporation for their own account and are not selling such Common Units for the benefit of the Company, the Corporation or any other person, and no part of the proceeds received by such Wayzata Fund in consideration of such sale of Common Units to the Corporation hereunder will inure, either directly or indirectly, to the benefit of the Company, the Corporation or any other person other than to the partners of such Wayzata Fund. ARTICLE VII. CONDITIONS TO CLOSING Section 7.01 Conditions to the Obligations of All Parties. The obligations of the parties under this Agreement are subject to the fulfillment or waiver of the following conditions: (a) There shall not have been issued and be in effect any order, decree or judgment of, or in, any court, tribunal of competent jurisdiction or governmental authority which makes the issuance by the Company of the Initial Units to the Corporation, the sale by the Wayzata Funds of the Over-Allotment Units to the Corporation, or any of the other transactions contemplated by this Agreement illegal or invalid; (b) The Corporation shall have entered into the Underwriting Agreement with respect to the IPO and all conditions to the consummation thereof shall have been, or will contemporaneously be, satisfied, except for conditions to be satisfied under this Agreement at the Initial Closing and, if applicable, the Over-Allotment Closing; (c) The Company shall have been recapitalized in the manner described in the Prospectus; and (d) The transactions described in the Prospectus under Prospectus SummaryThe Organizational Transactions shall have been completed prior to, or will be completed contemporaneously with, the execution of this Agreement. Section 7.02 Condition to Obligations of the Corporation. In addition to the conditions specified in Section 7.01, the obligations of the Corporation under this Agreement are subject to the fulfillment or waiver of the following conditions: (a) all covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to each of the Initial Closing and, if applicable, the Over- Allotment Closing shall have been performed or complied with in all material respects; (b) each of the representations and warranties of the Company set forth in this Agreement that is qualified as to a material adverse effect shall be true and correct, and each of the representations and warranties of the Company set forth in this Agreement that is not so qualified shall be true and correct in all material respects, in each case, as of the date of this Agreement and as of each of the Initial Closing Date and, if applicable, the Over-Allotment |
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12 DRAFT 10-14-2014#86439997v1 Closing Date as though made on and as of the Initial Closing Date and, if applicable, the Over- Allotment Closing Date (except to the extent in either case that such representations and warranties speak as of another date); (c) solely with respect to the Initial Closing, the Company shall have delivered, or caused to be delivered, to the Corporation instruments of transfer and other transaction documents, in form and substance reasonably satisfactory to the Corporation, to effect the issue of the Initial Units by the Company and the other transactions contemplated by this Agreement, including those documents identified in Section 2.04(a); and (d) solely with respect to the Over-Allotment Closing, if any, (i) each Wayzata Fund shall have delivered, or caused to be delivered, to the Corporation instruments of transfer and other transaction documents, in form and substance reasonably satisfactory to the Corporation, to effect the sale and transfer of the Over-Allotment Units by the Wayzata Funds and the other transactions contemplated by this Agreement, including those documents identified in Section 3.04(a) and (ii) the Company shall have delivered, or caused to be delivered, to the Corporation instruments of transfer and other transaction documents, in form and substance reasonably satisfactory to the Corporation, to effect the sale and transfer of the Over-Allotment Units by the Wayzata Funds and the other transactions contemplated by this Agreement, including those documents identified in Section 3.04(c). Section 7.03 Conditions to the Obligations of the Company. In addition to the conditions specified in Section 7.01, the obligations of the Company under this Agreement are subject to the fulfillment or waiver of the following conditions: (a) all covenants, agreements and conditions contained in this Agreement to be performed by the Corporation and the Wayzata Funds on or prior to the Initial Closing and, if applicable, the Over-Allotment Closing shall have been performed or complied with in all material respects; (b) each of the representations and warranties of the Corporation and the Wayzata Funds set forth in this Agreement that is qualified as to a material adverse effect shall be true and correct, and each of the representations and warranties of the Corporation set forth in this Agreement that is not so qualified shall be true and correct in all material respects, in each case, as of the date of this Agreement and as of the Initial Closing Date and, if applicable, the Over- Allotment Closing Date as though made on and as of the Initial Closing Date and, if applicable, the Over-Allotment Closing Date (except to the extent in either case that such representations and warranties speak as of another date); (c) solely with respect to the Initial Closing, the Corporation shall have delivered to the Company instruments of transfer and other transaction documents, in form and substance reasonably satisfactory to the Company, to effect the issue of the Initial Units by the Company and the other transactions contemplated by this Agreement, including those documents identified in Section 2.04(b); and (d) solely with respect to the Over-Allotment Closing, if any, (i) each Wayzata Fund shall have delivered, or caused to be delivered, to the Company instruments of transfer and other |
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13 DRAFT 10-14-2014#86439997v1 transaction documents, in form and substance reasonably satisfactory to the Company, to effect the sale and transfer of the Over-Allotment Units by the Wayzata Funds and the other transactions contemplated by this Agreement, including those documents identified in Section 3.04(a) and (ii) the Corporation shall have delivered, or caused to be delivered, to the Company instruments of transfer and other transaction documents, in form and substance reasonably satisfactory to the Company, to effect the sale and transfer of the Over-Allotment Units by the Wayzata Funds and the other transactions contemplated by this Agreement, including those documents identified in Section 3.04(b). Section 7.04 Conditions to the Obligations of the Wayzata Funds. In addition to the conditions specified in Section 7.01, the obligations of each Wayzata Fund under this Agreement are subject to the fulfillment or waiver of the following conditions: (a) all covenants, agreements and conditions contained in this Agreement to be performed by the Corporation and by Company on or prior to the Initial Closing shall have been performed or complied with in all material respects; (b) each of the representations and warranties of the Corporation and of the Company set forth in this Agreement that is qualified as to a material adverse effect shall be true and correct, and each of the representations and warranties of the Corporation and of the Company set forth in this Agreement that is not so qualified shall be true and correct in all material respects, in each case, as of the date of this Agreement and as of the Over-Allotment Closing Date as though made on and as of the Over-Allotment Closing Date (except to the extent in either case that such representations and warranties speak as of another date); and (c) (i) the Corporation shall have delivered to each Wayzata Fund instruments of transfer and other transaction documents, in form and substance reasonably satisfactory to each Wayzata Fund, to effect the transfer of Over-Allotment Units by such Wayzata fund to the Corporation and the other transactions contemplated by this Agreement, including those documents identified in Section 3.04(b) and (ii) the Company shall have delivered to each Wayzata Fund instruments of transfer and other transaction documents, in form and substance reasonably satisfactory to each Wayzata Fund, to effect the transfer of Over-Allotment Units by such Wayzata fund to the Corporation and the other transactions contemplated by this Agreement, including those documents identified in Section 3.04(c). ARTICLE VIII. TERMINATION If the conditions set forth in Article VII are not satisfied or waived on or before the completion of the IPO or if the Registration Statement is withdrawn for any reason prior to that date, this Agreement shall become null and void and be of no further force or effect whatsoever and none of the Company, the Wayzata Funds or the Corporation shall have any further obligations hereunder or with respect hereto. To the extent that the Over-Allotment Option is not |
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14 DRAFT 10-14-2014#86439997v1 exercised in full on or prior to 11:59 p.m. New York City time on [.], 20[.]1, all obligations of the Wayzata Funds hereunder will terminate and be extinguished as of such time and date. ARTICLE IX. COVENANTS Section 9.01 Further Assurances. From time to time after the date of this Agreement, the Corporation shall deliver or cause to be delivered to the Company and the Wayzata Funds such further documents and instruments and shall do and cause to be done such further acts as the Company and the Wayzata Funds shall reasonably request to carry out more effectively the provisions and purposes of this Agreement. From time to time after the date of this Agreement, the Company shall deliver or cause to be delivered to the Corporation and the Wayzata Funds such further documents and instruments and shall do and cause to be done such further acts as the Corporation and the Wayzata Funds shall reasonably request to carry out more effectively the provisions and purposes of this Agreement. From time to time after the date of this Agreement, each Wayzata Fund shall deliver or cause to be delivered to the Corporation and the Company such further documents and instruments and shall do and cause to be done such further acts as the Corporation and the Company Funds shall reasonably request to carry out more effectively the provisions and purposes of this Agreement; provided that no party hereto shall be required to make any representations or warranties except as and to the extent provided herein. Section 9.02 No Transfer or Encumbrance. Between the date hereof and each of the Initial Closing Date and, if applicable, the Over-Allotment Closing Date and except as specifically disclosed in the Prospectus, the Company shall not issue, grant, sell, transfer, pledge or otherwise hypothecate any additional Common Units or any rights to any Common Units; provided that the Company may and shall implement the stock split contemplated by the LLC Agreement. Between the date hereof and each of the Over-Allotment Closing Date and except as specifically disclosed in the Prospectus, the Wayzata Funds shall not sell, transfer, pledge or otherwise hypothecate any additional Common Units or any rights to any Common Units; provided that the Wayzata Funds may participate in the stock split contemplated by the LLC Agreement and may deliver Common Units to the Company or to the Corporation in accordance with this Agreement. Section 9.03 Conduct of the Business. Between the date hereof and each of the Initial Closing Date and, if applicable, the Over-Allotment Closing Date and except as specifically disclosed in the Prospectus, the Company shall (i) conduct the business of the Company in the ordinary course consistent with past practice, (ii) use all commercially reasonable efforts to (A) retain the services of its key employees, (B) preserve the Companys relationships with material customers, suppliers, sponsors, licensees and creditors, and (C) maintain and keep the Companys properties and assets in as good repair and condition as at present, ordinary wear and tear excepted, (iii) maintain its capital structure as it exists on the date of this Agreement, except as specifically contemplated hereunder. 1 NTD: To be 30 days after the date of the Underwriting Agreement. |
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15 DRAFT 10-14-2014#86439997v1 ARTICLE X. MISCELLANEOUS Section 10.01 Governing Law; Consent to Jurisdiction and Service of Process; Waiver of Jury Trial. (a) This Agreement shall be governed by and construed in all respects in accordance with the laws of the State of Delaware without giving effect to principles of conflicts of law that would result in the application of the laws of any other jurisdiction. (b) Each of the parties hereto hereby irrevocably submits to the non-exclusive jurisdiction of the United States District Court for the District of Delaware for the purposes of any suit, action o other proceeding arising out of this Agreement, any related agreement or any transaction contemplated hereby or thereby. Each of the parties hereto hereby further agrees that service of any process, summons, notice or document by U.S. registered mail to such partys respective address set forth above shall be effective service of process for any action, suit or proceeding with respect to any matters as to which it has submitted to jurisdiction in this paragraph. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement, any related agreement or any transaction contemplated hereby or thereby in the United States District Court for the District of Delaware, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. (c) AS A SPECIFICALLY BARGAINED FOR INDUCEMENT FOR EACH OF THE PARTIES HERETO TO ENTER INTO THIS AGREEMENT (AFTER HAVING THE OPPORTUNITY TO CONSULT WITH COUNSEL), EACH PARTY HERETO EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO OR ARISING IN ANY WAY FROM THIS AGREEMENT OR THE MATTERS CONTEMPLATED HEREBY. Section 10.02 Notices. All notices, demands or other communications to be given under or by reason of this Agreement shall be in writing and shall be deemed to have been received when delivered personally, or when transmitted by overnight delivery service, addressed as follows: If to the Corporation: Neff Corporation 3750 N.W. 87th Avenue, Suite 400 Miami, Florida 33178 Attention: Chief Financial Officer Fax: (305) 513-4156 with a copy to: Latham & Watkins LLP 885 Third Avenue |
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16 DRAFT 10-14-2014#86439997v1 New York, NY 10022 Attention: Dennis D. Lamont, Esq. Fax: (212) 751-4864 If to the Company: Neff Holdings LLC 3750 N.W. 87th Avenue, Suite 400 Miami, Florida 33178 Attention: Chief Financial Officer Fax: (305) 513-4156 with a copy to: Latham & Watkins LLP 885 Third Avenue New York, NY 10022 Attention: Dennis D. Lamont, Esq. Fax: (212) 751-4864 If to any Wayzata Fund: Wayzata Opportunities Fund II, L.P. Wayzata Opportunities Fund Offshore II, L.P. c/o Wayzata Investment Partners LLC 701 East Lake Street, Suite 300 Wayzata, Minnesota 55391 Attn: [Ray Wallander] Fax: [(952) 345-8901] Any party to this Agreement may change its address for notices, demands and other communications under this Agreement by giving notice of such change to the other party hereto in accordance with this Section 10.02. Section 10.03 Survival. The representations, warranties, covenants and agreements made herein shall survive any investigation made by any of the parties hereto and the closing of the transactions contemplated hereby. Section 10.04 Benefit of Parties; Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, legal representatives and permitted assigns. This Agreement may not be assigned by any party without the prior written consent of the other parties to this Agreement, and any assignment without such consent shall be null and void. Nothing herein contained shall confer or is intended to confer on any third party or entity that is not a party to this Agreement any rights under this Agreement. |
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17 DRAFT 10-14-2014#86439997v1 Section 10.05 Amendment. This Agreement may not be amended, modified, altered or supplemented except by means of a written instrument executed on behalf of each of the Corporation, the Company and each Wayzata Fund. Section 10.06 Waiver. No failure on the part of either party hereto to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of either party hereto in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver thereof; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. Section 10.07 Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. Section 10.08 Entire Agreement. This Agreement sets forth the entire understanding of the parties hereto and supersedes all other agreements and understandings between the parties hereto relating to the subject matter hereof. Section 10.09 Counterparts and Facsimiles. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other. The parties hereto may execute the signature pages hereof and exchange such signature pages by facsimile transmission. Section 10.10 Interpretation of Agreement. (a) As used in this Agreement, the words include and including, and variations thereof, shall not be deemed to be terms of limitation, and shall be deemed to be followed by the words without limitation. (b) Unless otherwise specified, references in this Agreement to Articles, Sections and Exhibits are intended to refer to Articles and Sections of, and Exhibits to, this Agreement. (c) The Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. (d) Each party hereto and its counsel cooperated in drafting and preparation of this Agreement and the documents referred to in this Agreement. Any rule of law or any legal decision that would require interpretation of any ambiguities in this Agreement against the party that drafted it is of no application and is hereby expressly waived. [Signature pages follow] |
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[Signature Page to Common Unit Purchase Agreement] DRAFT 10-14-2014#86439997v1 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written. NEFF HOLDINGS LLC By: Name: Title: NEFF CORPORATION By: Name: Title: WAYZATA OPPORTUNITIES FUND II, L.P. By: WOF II GP, L.P., its General Partner By: WOF II GP, LLC, its General Partner By: ________________________________ Name: Title: WAYZATA OPPORTUNITIES FUND OFFSHORE II, L.P. By: WOFO II GP, L.P., its General Partner By: WOFO II GP, LLC, its General Partner By: ________________________________ Name: Title: By: Name: Title: |
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DRAFT 10-14-2014#86439997v1 Exhibit A FORM OF LLC AGREEMENT [See attached] |
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#86469808v2 EXHIBIT D FORM OF TAX RECEIVABLE AGREEMENT [see attached] |
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NY\6516862.10 DRAFT 10-14-2014#86439996v1 Posting Version TAX RECEIVABLE AGREEMENT by and among NEFF CORPORATION WAYZATA OPPORTUNITIES FUND II, L.P. WAYZATA OPPORTUNITIES FUND OFFSHORE II, L.P. the several LLC OPTION HOLDERS (as defined herein) OTHER MEMBERS OF NEFF HOLDINGS LLC FROM TIME TO TIME PARTY HERETO Dated as of [], 2014 |
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i DRAFT 10-14-2014#86439996v1 CONTENTS Page Article I. DEFINITIONS 2 Section 1.1 Definitions 2 Section 1.2 Rules of Construction 10 Article II. DETERMINATION OF REALIZED TAX BENEFIT 11 Section 2.1 Basis Adjustments; Neff Holdings 754 Election; Reverse 704(c) Allocations 11 Section 2.2 Basis and Reverse 704(c) Schedules 12 Section 2.3 Tax Benefit Schedules 13 Section 2.4 Procedures; Amendments 14 Article III. TAX BENEFIT PAYMENTS 15 Section 3.1 Timing and Amount of Tax Benefit Payments 15 Section 3.2 No Duplicative Payments 17 Section 3.3 Pro-Ration of Payments as Between the Members 18 Section 3.4 Optional Estimated Payment Procedure 18 Section 3.5 Changes; Reserves; Suspension of Payments 19 Error! Bookmark not defined. Article IV. TERMINATION 21 Section 4.1 Early Termination of Agreement; Breach of Agreement; Change in Control 21 Section 4.2 Early Termination Notice 22 Section 4.3 Payment Upon Early Termination 23 Article V. SUBORDINATION AND LATE PAYMENTS 24 Section 5.1 Subordination 24 Section 5.2 Late Payments by the Corporation 24 Article VI. TAX MATTERS; CONSISTENCY; COOPERATION 24 Section 6.1 Participation in the Corporations and Neff Holdingss Tax Matters 24 Section 6.2 Consistency 24 Section 6.3 Cooperation 25 Article VII. MISCELLANEOUS 25 Section 7.1 Notices 25 Section 7.2 Counterparts 26 |
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ii DRAFT 10-14-2014#86439996v1 Section 7.3 Entire Agreement; No Third Party Beneficiaries 26 Section 7.4 Governing Law 26 Section 7.5 Severability 26 Section 7.6 Assignments; Amendments; Successors; No Waiver 27 Section 7.7 Titles and Subtitles 28 Section 7.8 Resolution of Disputes 28 Section 7.9 Reconciliation 29 Section 7.10 Withholding 30 Section 7.11 Admission of the Corporation into a Consolidated Group; Transfers of Corporate Assets 30 Section 7.12 Confidentiality 30 Section 7.13 Change in Law 31 Section 7.14 Interest Rate Limitation 31 Section 7.15 Independent Nature of Rights and Obligations 32 Exhibits Exhibit A - Form of Joinder Agreement |
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DRAFT 10-14-2014#86439996v1 TAX RECEIVABLE AGREEMENT This TAX RECEIVABLE AGREEMENT (this Agreement), dated as of [.], 2014, is hereby entered into by and among Neff Corporation, a Delaware corporation (the Corporation), Neff Holdings LLC, a Delaware limited liability company (Neff Holdings), each of the Members from time to time party hereto and the LLC Option Holders. Capitalized terms used but not otherwise defined herein have the respective meanings set forth in Section 1.01. RECITALS WHEREAS, Neff Holdings is treated as a partnership for U.S. federal income tax purposes; WHEREAS, each of the members of Neff Holdings other than the Corporation (such members, together with each other Person who becomes party hereto by satisfying the Joinder Requirement, the Members) owns (or, in the case of such other Persons, will own) common limited liability company interests in Neff Holdings (the Units); WHEREAS, the Corporation is the managing member of Neff Holdings, and is the registered owner and will be the registered owner of Units; WHEREAS, on the date hereof and exclusive of the Over-Allotment Option (as defined below), the Corporation issued [.] shares of its Class A common stock, par value $0.01 per share (the Class A Common Stock) to certain purchasers in an initial public offering of its Class A Common Stock (the IPO) in exchange for net proceeds of approximately $[.] million, after deducting underwriting discounts and commissions but before offering expenses; WHEREAS, on the date hereof, the Corporation used $[.] million of the net proceeds from the IPO to acquire newly-issued Units directly from Neff Holdings (the Corporations Capital Contribution), which proceeds will be used to repay or prepay certain indebtedness of Neff Holdings and to pay the fees and expenses from the IPO; WHEREAS, on and after the date hereof, the Corporation may issue additional Class A Common Stock in connection with the IPO as a result of the exercise by the underwriters of their over-allotment option (the Over-Allotment Option) and, if the Over-Allotment Option is in fact exercised in whole or in part, any additional net proceeds0F will be used by the Corporation to purchase Units of Neff Holdings directly from Wayzata at a price equal to the price per share in the IPO, less underwriting discounts and commissions (a Sale); WHEREAS, on and after the date hereof, pursuant to Article XI of the LLC Agreement, each Member has the right, in its sole discretion, from time to time to require Neff Holdings to redeem (a Redemption) all or a portion of such Members Units for cash or Class A Common Stock; provided that, at the election of the Corporation in its sole discretion, the Corporation may effect a direct exchange (a Direct Exchange) of such cash or shares of Class A Common Stock for such Units; |
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2 DRAFT 10-14-2014#86439996v1 WHEREAS, certain members of management of Neff Holdings and certain nonexecutive members of its board of managers (the LLC Option Holders) have existing options to acquire Units, which options may be exercised from time to time by the holder thereof in accordance with the terms thereof, whereupon such Person will be admitted as a member of Holdings, and it is anticipated that substantially simultaneous with such exercise such Person will become a Member; WHEREAS, Neff Holdings and any direct or indirect subsidiary (owned through a chain of pass-through entities) of Neff Holdings that is treated as a partnership for U.S. federal income tax purposes (together with Neff Holdings and any direct or indirect subsidiary (owned through a chain of pass-through entities) of Neff Holdings that is treated as a disregarded entity for U.S. federal income tax purposes, the Neff Holdings Group) will have in effect an election under Section 754 of the Code (as defined herein) for the Taxable Year (as defined herein) in which any Exchange (as defined below) occurs, which election will result in an adjustment to the Corporations share of the tax basis of the assets owned by the Neff Holdings Group as of the date of the Exchange, with a consequent result on the taxable income subsequently derived therefrom; and WHEREAS, the parties to this Agreement desire to provide for certain payments and make certain arrangements with respect to any tax benefits to be derived by the Corporation as the result of Exchanges and the receipt of payments under this Agreement, as contemplated by the LLC Agreement. NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I. DEFINITIONS Section 1.1 Definitions. As used in this Agreement, the terms set forth in this Article I shall have the following meanings (such meanings to be equally applicable to both (i) the singular and plural and (ii) the active and passive forms of the terms defined). Actual Interest Amount is defined in Section 3.1(b)(vii) of this Agreement. Advisory Firm means an accounting firm that is nationally recognized as being expert in Covered Tax matters and not an Affiliate of the Corporation, selected by the Corporation.1F 1 Advisory Firm Letter means a letter, that has been prepared by the Advisory Firm used by the Corporation in connection with the performance of its obligations under this Agreement, which states that the relevant Schedules, notices or other information to be provided by the Corporation to the Members, along with all supporting schedules and work papers, were prepared in a manner that is consistent with the terms of this Agreement and, to the extent not expressly provided in this Agreement, on a reasonable basis in light of the facts and law in 1 Note to draft: consider specifying Deloitte as the initial Advisory Firm |
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3 DRAFT 10-14-2014#86439996v1 existence on the date such Schedules, notices or other information were delivered by the Corporation to the Members. Affiliate means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. Agreed Rate means LIBOR plus 100 basis points. Agreement is defined in the preamble. Amended Schedule is defined in Section 2.4(b) of this Agreement. Attributable is defined in Section 3.1(b)(i) of this Agreement. Audit Committee means the audit committee of the Board. Basis Adjustment means the increase or decrease to the tax basis of, or the Corporations share of, the tax basis of the Reference Assets (i) under Section 734(b), 743(b) and 754 of the Code and, in each case, the comparable sections of U.S. state and local tax law (in situations where, following an Exchange, Neff Holdings remains in existence as an entity for tax purposes) and (ii) under Sections 732 and 1012 of the Code and, in each case, the comparable sections of U.S. state and local tax law (in situations where, as a result of one or more Exchanges, Neff Holdings becomes an entity that is disregarded as separate from its owner for tax purposes), in each case, as a result of any Exchange and any payments made under this Agreement. Notwithstanding any other provision of this Agreement, the amount of any Basis Adjustment resulting from an Exchange of one or more Units shall be determined without regard to any Pre-Exchange Transfer of such Units and as if any such Pre-Exchange Transfer had not occurred to the extent that such Pre-Exchange Transfer resulted in the partial or complete elimination of a future Basis Adjustment that the Corporation would have otherwise obtained pursuant to the terms of this Agreement. Basis Schedule is defined in Section 2.2 of this Agreement. Beneficial Owner means, with respect to any security, a Person who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares: (i) voting power, which includes the power to vote, or to direct the voting of, with respect to such security and/or (ii) investment power, which includes the power to dispose of, or to direct the disposition of, such security. Board means the Board of Directors of the Corporation. Book-Tax Disparity means, with respect to any Reference Asset, as of the date of the Corporations Capital Contribution, the difference between the Book Value (as defined in the LLC Agreement) of such Reference Asset and the adjusted basis thereof for U.S. federal income tax purposes as of such date. |
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4 DRAFT 10-14-2014#86439996v1 Business Day means any day excluding Saturday, Sunday and any day that is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in New York are closed. Change Notice is defined in Section 3.5(a) of this Agreement. Change of Control means the occurrence of any of the following events:2F 2 (1) (A) any person or group (within the meaning of Sections 13(d) and 14(d) of the Securities and Exchange Act of 1934, as amended, or any successor provisions thereto (the Exchange Act) but excluding any employee benefit plan of such person and its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan, and excluding the Permitted Investors) shall become the beneficial owner (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of voting stock of the Corporation entitling such person or group to cast more than thirty-five percent (35%) of the votes eligible to be cast in an election of directors of the Corporation and (B) the Permitted Investors shall own outstanding voting stock of the Corporation having a lesser percentage of the votes eligible to be cast in such an election of the Corporation at such time than the person or group in the foregoing clause (A); (2) the Corporation ceases to be the sole managing member of Neff Holdings; (3) the Corporation or any of its Subsidiaries acquires, by merger, consolidation or otherwise, assets with a gross fair market value, and/or equity interests in an entity with a gross enterprise value, in excess of 50% of the gross enterprise value of the Corporation on the date hereof; provided that for this purpose, the gross enterprise value of the Corporation on the date hereof shall be the fair market value of the outstanding shares of stock of the Corporation (based on the price per share in the IPO) plus the amount of the Corporations liabilities as of the date of the IPO; or (4) a change of control or similar defined term in any agreement governing indebtedness of Neff Holdings or any of its Subsidiaries with aggregate principal amount or aggregate commitments outstanding in excess of $25,000,000. Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the Class A Common Stock and Class B Common Stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in and voting control over, and own substantially all of the shares of, an entity which owns all or substantially all of the assets of the Corporation immediately following such transaction or series of transactions. 2 INTD: Conform to what we end up with in our amended credit agreements (amendments are a work in process). |
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5 DRAFT 10-14-2014#86439996v1 Code means the U.S. Internal Revenue Code of 1986, as amended, and applicable Treasury Regulations promulgated thereunder. Control means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. Corporation is defined in the preamble to this Agreement. Corporations Capital Contribution is defined in the recitals to this Agreement. Covered Taxes means any and all U.S. federal, state, local and foreign taxes, assessments or similar chargers that are based on or measure with respect to net income or profits, whether as an exclusive or an alternative basis, and any interest related thereto. Cumulative Net Realized Tax Benefit is defined in Section 3.1(b)(iii) of this Agreement. Default Rate means LIBOR plus 500 basis points. Default Rate Interest is defined in Section 3.1(b)(ix) of this Agreement. Determination shall have the meaning ascribed to such term in Section 1313(a) of the Code or similar provision of U.S. state tax law, as applicable, or any other event (including the execution of IRS Form 870-AD) that finally and conclusively establishes the amount of any liability for tax. Direct Exchange is defined in the recitals to this agreement. Dispute is defined in Section 7.8(a) of this Agreement. Early Termination Effective Date means the date of an Early Termination Notice for purposes of determining the Early Termination Payment. Early Termination Notice is defined in Section 4.2 of this Agreement. Early Termination Payment is defined in Section 4.3(b) of this Agreement. Early Termination Rate means the lesser of (i) 6.50% per annum, compounded annually, and (ii) the Agreed Rate. Early Termination Reference Date is defined in Section 4.2 of this Agreement. Early Termination Schedule is defined in Section 4.2 of this Agreement. Estimated Tax Benefit Payment is defined in Section 3.4 of this Agreement. Exchange means any Sale, Direct Exchange, Redemption or Section 734(b) Distribution. |
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6 DRAFT 10-14-2014#86439996v1 Exchange Date means the date of any Exchange. Expert is defined in Section 7.9 of this Agreement. Extension Rate Interest is defined in Section 3.1(b)(viii) of this Agreement. Final Payment Date means any date on which a payment is required to be made pursuant to this Agreement. For the avoidance of doubt, the Final Payment Date in respect of a Tax Benefit Payment is determined pursuant to Section 3.1(a) of this Agreement. GAAP means generally accepted accounting principles in the United States, as in effect from time to time; provided, however, that if the Corporation notifies the Members that the Corporation requests an amendment to any provision hereof to eliminate the effect of any change in GAAP or in the application thereof occurring after the date of this Agreement (including through the adoption of International Financial Reporting Standards and applicable accounting requirements set by the International Accounting Standards Board or any successor thereto, IFRS) on the operation of such provision (or if the Members notify the Corporation that they request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof (including through the adoption of IFRS), then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Hypothetical Tax Liability means, with respect to any Taxable Year, the hypothetical liability of the Corporation that would arise in respect of Covered Taxes, using the same methods, elections, conventions and similar practices used on the actual relevant Tax Returns of the Corporation but (i) calculating depreciation, amortization, or other similar deductions, or otherwise calculating any items of income, gain, or loss, using the Non-Adjusted Tax Basis as reflected on the Basis Schedule, including amendments thereto for the Taxable Year, (ii) disregarding the requirement under Treasury Regulation Sections 1.704-1(b)(2)(iv)(f)(4) and 1.704-1(b)(4)(i) to make Reverse 704(c) Allocations and (iii) excluding any deduction attributable to Imputed Interest or Actual Interest Amounts for the Taxable Year. For the avoidance of doubt, the Hypothetical Tax Liability shall be determined without taking into account the carryover or carryback of any tax item (or portions thereof) that is attributable to any of the items described in the previous sentence. Imputed Interest is defined in Section 3.1(b)(vi) of this Agreement. Independent Directors means the members of the Board who are independent under the standards set forth in Rule 10A-3 promulgated under the U.S. Securities Exchange Act of 1933, as amended, and the corresponding rules of the applicable exchange on which the Class A Common Stock is traded or quoted.3F 3 IPO is defined in the recitals to this Agreement 3 INTD: There is no single standard for independent, so Ive used the audit committee independence requirements which will exclude anyone affiliated with the Corporation (i.e., Wayzata directors would not be independent for this purpose). |
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7 DRAFT 10-14-2014#86439996v1 IRS means the U.S. Internal Revenue Service. Joinder means a joinder to this Agreement, in form and substance substantially similar to Exhibit A to this Agreement. Joinder Requirement is defined in Section 7.6(a) of this Agreement. LIBOR means during any period, a rate per annum equal to (i) the ICE LIBOR rate for a period of one year (ICE LIBOR), as published on the applicable Bloomberg screen page (or such other commercially available source providing quotations of ICE LIBOR as may be designated by the Corporation from time to time) at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such period, for dollar deposits (for delivery on the first day of such period) with a term equivalent to such period. LLC Agreement means that certain Second Amended and Restated Limited Liability Company Agreement of Neff Holdings LLC, dated as of the date hereof, as such agreement may be further amended, restated, supplemented and/or otherwise modified from time to time. LLC Option Holder is defined in the recitals to this Agreement. Market Value shall mean the Common Unit Redemption Price, as defined in the LLC Agreement, determined as of an Early Termination Date. Members is defined in the recitals to this Agreement. Neff Holdings is defined in the recitals to this Agreement. Net Tax Benefit is defined in Section 3.1(b)(ii) of this Agreement. Non-Adjusted Tax Basis means, with respect to any Reference Asset at any time, the tax basis that such asset would have had at such time if no Basis Adjustments had been made. Objection Notice is defined in Section 2.4(a)(i) of this Agreement. Over-Allotment Option is defined in the recitals to this Agreement. Parties means the parties named on the signature pages to this agreement and each additional party that satisfies the Joinder Requirement, in each case with their respective successors and assigns. Person means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity. Permitted Investors shall mean private investment funds managed by Wayzata Investment Partners, LLC and its Affiliates (excluding any portfolio company). |
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8 DRAFT 10-14-2014#86439996v1 Pre-Exchange Transfer means any transfer of one or more Units (including upon the death of a Member or upon the issuance of Units resulting from the exercise of an option to acquire such Units) (i) that occurs after the IPO but prior to an Exchange of such Units and (ii) to which Section 743(b) of the Code applies. Realized Tax Benefit is defined in Section 3.1(b)(iv) of this Agreement. Realized Tax Detriment is defined in Section 3.1(b)(v) of this Agreement. Reconciliation Dispute is defined in Section 7.9 of this Agreement. Reconciliation Procedures is defined in Section 2.4(a) of this Agreement. Redemption has the meaning in the recitals to this Agreement. Reference Asset means any tangible or intangible asset of Neff Holdings or any of its successors or assigns, and whether held directly by NEFF Holdings or indirectly by Neff Holdings through any entity in which Neff Holdings now holds or may subsequently hold an ownership interest, at the time of an Exchange. A Reference Asset also includes any asset the tax basis of which is determined, in whole or in part, by reference to the tax basis of an asset that is described in the preceding sentence, including substituted basis property within the meaning of Section 7701(a)(42) of the Code. Reserve Notice is defined in Section 3.5(b). Reverse 704(c) Allocations means, in accordance with Treasury Regulation Sections 1.704-1(b)(2)(iv)(f)(4) and 1.704-1(b)(4)(i), allocations of items of taxable income, gain, loss and deduction to take into account any Book-Tax Disparity of any Reference Asset on the date of the Corporations Capital Contribution in the same manner as under Section 704(c) of the Code using the traditional method as described in Treasury Regulation Section 1.704-3(b). Reverse 704(c) Schedule is defined in Section 2.2 of this Agreement Sale is defined in the recitals to this Agreement. Schedule means any of the following: (i) a Basis Schedule, (ii) Reverse 704(c) Schedule, (iii) a Tax Benefit Schedule, or (iv) the Early Termination Schedule, and, in each case, any amendments thereto. Section 734(b) Distribution means any actual or deemed distribution to any Member by Neff Holdings to which Section 734(b)(1) of the Code (or any similar sections of U.S. state and local tax law) applies. Senior Obligations is defined in Section 5.1 of this Agreement. Subsidiary means, with respect to any Person and as of the date of any determination, any other Person as to which such Person, owns, directly or indirectly, or otherwise controls, |
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9 DRAFT 10-14-2014#86439996v1 more than 50% of the voting power or other similar interests, or the sole general partner interest, or managing member or similar interest, of such Person. Subsidiary Stock means any stock or other equity interest in any subsidiary entity of the Corporation that is treated as a corporation for U.S. federal income tax purposes. Tax Benefit Payment is defined in Section 3.1(b) of this Agreement. Tax Benefit Schedule is defined in Section 2.3(a) of this Agreement. Tax Return means any return, declaration, report or similar statement required to be filed with respect to taxes (including any attached schedules), including, without limitation, any information return, claim for refund, amended return and declaration of estimated tax. Taxable Year means a taxable year of the Corporation as defined in Section 441(b) of the Code or comparable section of U.S. state or local tax law, as applicable (and, therefore, for the avoidance of doubt, may include a period of less than 12 months for which a Tax Return is made), ending on or after the closing date of the IPO. Taxing Authority shall mean any national, federal, state, county, municipal, or local government, or any subdivision, agency, commission or authority thereof, or any quasigovernmental body, or any other authority of any kind, exercising regulatory or other authority in relation to tax matters. Termination Objection Notice is defined in Section 4.2 of this Agreement. Treasury Regulations means the final, temporary, and (to the extent they can be relied upon) proposed regulations under the Code, as promulgated from time to time (including corresponding provisions and succeeding provisions) as in effect for the relevant taxable period. True-Up is defined in Section 3.4 of this Agreement. U.S. means the United States of America. Units is defined in the recitals to this Agreement. Valuation Assumptions shall mean, as of an Early Termination Effective Date, the assumptions that: (1) in each Taxable Year ending on or after such Early Termination Effective Date, the Corporation will have taxable income sufficient to fully use the deductions arising from the Basis Adjustments, the Reverse 704(c) Allocations and the Imputed Interest during such Taxable Year or future Taxable Years (including, for the avoidance of doubt, Basis Adjustments and Imputed Interest that would result from future Tax Benefit Payments that would be paid in accordance with the Valuation Assumptions) in which such deductions would become available; |
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10 DRAFT 10-14-2014#86439996v1 (2) the U.S. federal income tax rates and U.S. state income tax rates that will be in effect for each such Taxable Year will be those specified for each such Taxable Year by the Code and other law as in effect on the Early Termination Effective Date, except to the extent any change to such tax rates for such Taxable Year have already been enacted into law; (3) all taxable income of the Corporation will be subject to the maximum applicable tax rates for each Covered Tax throughout the relevant period; (4) any loss carryovers or carrybacks generated by any Basis Adjustment, Reverse 704(c) Allocations or Imputed Interest (including such Basis Adjustment and Imputed Interest generated as a result of payments under this Agreement) and available as of the date of the Early Termination Schedule will be used by the Corporation on a pro rata basis from the date of the Early Termination Schedule through the scheduled expiration date of such loss carryovers or carrybacks; (5) any non-amortizable assets (other than Subsidiary Stock) will be disposed of on the earlier of (i) the fifteenth anniversary of the applicable Basis Adjustment and (ii) the Early Termination Effective Date; (6) any Subsidiary Stock will be deemed never to be disposed of; (7) if, on the Early Termination Effective Date, (i) any Member has Units that have not been Exchanged, then such Units shall be deemed to be Exchanged for the Market Value of the shares of Class A Common Stock that would be received by such Member if such Units had been Exchanged on the Early Termination Effective Date, and such Member shall be deemed to receive the amount of cash such Member would have been entitled to pursuant to Section 4.3(a) had such Units actually been Exchanged on the Early Termination Effective Date and (ii) any LLC Option Holder has options that have not been exercised in exchange for Units, then such options shall be deemed to have been exercised in accordance with the terms thereof and such Units deemed to be received in connection with such exercise shall be deemed to be Exchanged for the Market Value of the shares of Class A Common Stock that would be received by such LLC Option Holder if such Units had been Exchanged on the Early Termination Effective Date, and such LLC Option Holder shall be deemed to receive the amount of cash such LLC Option Holder would have been entitled to pursuant to Section 4.3(a) had such options actually been exercised and such Units actually been Exchanged on the Early Termination Effective Date; and (8) any payment obligations pursuant to this Agreement will be satisfied on the date that any Tax Return to which such payment obligation relates is required to be filed excluding any extensions. Wayzata means Wayzata Opportunities Fund II, L.P. and Wayzata Opportunities Fund Offshore II, L.P. Section 1.2 Rules of Construction. Unless otherwise specified herein: |
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11 DRAFT 10-14-2014#86439996v1 (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) For purposes of interpretation of this Agreement: (i) The words herein, hereto, hereof and hereunder and words of similar import when used in any Loan Document shall refer to such Loan Document as a whole and not to any particular provision thereof. (ii) References in this Agreement to a Schedule, Article, Section, clause or sub-clause refer to the appropriate Schedule to, or Article, Section, clause or subclause in, this Agreement. (iii) References in this Agreement to dollars or $ refer to the lawful currency of the United States of America. (iv) The term including is by way of example and not limitation. (v) The term documents includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form. (c) In the computation of periods of time from a specified date to a later specified date, the word from means from and including; the words to and until each mean to but excluding; and the word through means to and including. (d) Section headings herein are included for convenience of reference only and shall not affect the interpretation of this Agreement. (e) Unless otherwise expressly provided herein, (a) references to organization documents (including the LLC Agreement), agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are permitted hereby; and (b) references to any law (including the Code and the Treasury Regulations) shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Law. ARTICLE II. DETERMINATION OF REALIZED TAX BENEFIT Section 2.1 Basis Adjustments; Neff Holdings 754 Election; Reverse 704(c) Allocations. (a) Basis Adjustments. (i) The Parties acknowledge and agree that (A) each Sale and each Direct Exchange shall give rise to Basis Adjustments and (B) each Redemption using cash or Class A |
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12 DRAFT 10-14-2014#86439996v1 Common Stock contributed to Neff Holdings by the Corporation shall be treated as a direct purchase of Units by the Corporation from the applicable Member pursuant to Section 707(a)(2)(B) of the Code that will give rise to Basis Adjustments. In connection with any Sale, Direct Exchange or Redemption, the Parties acknowledge and agree that pursuant to applicable law the Corporations share of the basis in the Reference Assets shall be increased by the excess, if any, of (A) the sum of (x) the Market Value of Class A Common Stock or the cash transferred to a Member pursuant to an Exchange as payment for the Units, (y) the amount of payments made pursuant to this Agreement with respect to such Exchange and (z) the amount of liabilities allocated to the Units acquired pursuant to the Exchange, over (B) the Corporations proportionate share of the basis of the Referenced Assets immediately after the Exchange attributable to the Units exchanged, determined as if each member of the Neff Holdings Group remains in existence as an entity for tax purposes and no member of the Neff Holdings Group made the election provided by Section 754 of the Code. (ii) The Parties acknowledge and agree that the Corporations Capital Contribution and the use of such proceeds to repay and prepay certain indebtedness of Neff Holdings may give rise to a Section 734(b) Distribution to Wayzata that will give rise to Basis Adjustments. In connection with any Section 734(b) Distribution, the Parties acknowledge and agree that pursuant to applicable law, Neff Holdings basis in the Reference Assets shall be increased by (A) the amount of any gain recognized pursuant to Section 731(a)(1) of the Code by the Member or Members to whom the Section 734(b) Distribution was made or deemed made and (B) in the case of distributed property to which Section 732(a)(2) or (b) of the Code applies, the excess, if any, of (x) Neff Holdings adjusted basis in property distributed to the relevant Member (as adjusted by Section 732(d) of the Code) immediately prior to the distribution over (y) the adjusted basis of such property in the hands of such Member as determined under Section 732 of the Code. For the avoidance of doubt, payments made under this Agreement shall not be treated as resulting in a Basis Adjustment to the extent such payments are treated as Imputed Interest or are Actual Interest Amounts. (b) Neff Holdings Section 754 Election. In its capacity as the sole managing member of Neff Holdings, the Corporation will ensure that, on and after the date hereof and continuing throughout the term of this Agreement, Neff Holdings and each of its direct and indirect Subsidiaries that is treated as a partnership for U.S. federal income tax purposes will have in effect an election under Section 754 of the Code (and under any similar provisions of applicable U.S. state or local law). (c) Reverse 704(c) Allocations. The Parties acknowledge and agree that as a result of the Reverse 704(c) Allocations, the Corporations share of amortization and depreciation deductions for U.S. federal income tax purposes (and applicable state and local income tax purposes) as a Member of Neff Holdings will be increased from that which would have been allocated to the Corporation without regard to the requirement under Treasury Regulation Sections 1.704-1(b)(2)(iv)(f)(4) and 1.704-1(b)(4)(i) to make Reverse 704(c) Allocations. Section 2.2 Basis and Reverse 704(c) Schedules. Within thirty (30) calendar days after the filing of the U.S. federal income Tax Return of the Corporation for each relevant |
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13 DRAFT 10-14-2014#86439996v1 Taxable Year, the Corporation shall deliver to the Members (i) a schedule (the Basis Schedule) that shows, in reasonable detail as necessary in order to understand the calculations performed under this Agreement: (a) the Non-Adjusted Tax Basis of the Reference Assets as of each applicable Exchange Date; (b) the Basis Adjustments with respect to the Reference Assets as a result of the relevant Exchanges effected in such Taxable Year, calculated (I) in the aggregate (including Exchanges attributable to all Members) and (II) solely with respect to Exchanges by each Member; (c) the period (or periods) over which the Reference Assets are amortizable and/or depreciable; and (d) the period (or periods) over which each Basis Adjustment is amortizable and/or depreciable and (ii) a schedule (the Reverse 704(c) Schedule) that shows, in reasonable detail as necessary in order to understand the calculations performed under this Agreement, (x) allocations of Neff Holdings items of income, gain, loss and depreciation without regard to any requirement to make Reverse 704(c) Allocations, (y) the Reverse Section 704(c) Allocations and (z) the period (or periods) over which the Reference Assets are amortizable and/or depreciable. The Basis Schedule and Reverse 704(c) Schedule will become final and binding on the Parties pursuant to the procedures set forth in Section 2.4(a) and may be amended by the Parties pursuant to the procedures set forth in Section 2.4(b). Section 2.3 Tax Benefit Schedules. (a) Tax Benefit Schedule. Within thirty (30) calendar days after the filing of the U.S. federal income Tax Return of the Corporation for any Taxable Year in which there is a Realized Tax Benefit or Realized Tax Detriment, the Corporation shall provide to the Members a schedule showing, in reasonable detail, the calculation of the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year (a Tax Benefit Schedule). The Tax Benefit Schedule will become final and binding on the Parties pursuant to the procedures set forth in Section 2.4(a), and may be amended by the Parties pursuant to the procedures set forth in Section 2.4(b). (b) Applicable Principles. Subject to the provisions of this Agreement, the Realized Tax Benefit or Realized Tax Detriment for each Taxable Year is intended to measure the decrease or increase in the actual liability of the Corporation for Covered Taxes for such Taxable Year attributable to the Basis Adjustments, Reverse 704(c) Allocations, Imputed Interest, and Actual Interest Amounts, as determined using a with and without methodology described in Section 2.4(a). Carryovers or carrybacks of any Tax item attributable to any Basis Adjustment, Reverse 704(c) Allocations, Imputed Interest, or Actual Interest Amounts shall be considered to be subject to the rules of the Code and the Treasury Regulations or the appropriate provisions of U.S. state and local tax law, as applicable, governing the use, limitation and expiration of carryovers or carrybacks of the relevant type. If a carryover or carryback of any Tax item includes a portion that is attributable to a Basis Adjustment, Reverse 704(c) Allocations, Imputed Interest, or Actual Interest Amounts (a TRA Portion) and another portion that is not (a Non- TRA Portion), such portions shall be considered to be used in accordance with the with and without methodology so that: (i) the amount of any Non-TRA Portion is deemed utilized first, followed by the amount of any TRA Portion (with the TRA Portion being applied on a proportionate basis consistent with the provisions of Section 3.3(a)); and (ii) in the case of a carryback of a Non-TRA Portion, such carryback shall not affect the original with and without calculation made in the prior Taxable Year. The Parties agree that (i) all Tax Benefit Payments attributable to a Sale, Direct Exchange or Redemption will (A) be treated as subsequent upward purchase price adjustments that give rise to further Basis Adjustments for the Corporation and |
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14 DRAFT 10-14-2014#86439996v1 (B) have the effect of creating additional Basis Adjustments for the Corporation in the year of payment, and (ii) as a result, such additional Basis Adjustments will be incorporated into the current Taxable Year continuing until any incremental current Taxable Year benefits equal an immaterial amount. Section 2.4 Procedures; Amendments. (a) Procedures. Each time the Corporation delivers an applicable Schedule to the Members under this Agreement, including any Amended Schedule delivered pursuant to Section 2.4(b), but excluding any Early Termination Schedule or amended Early Termination Schedule delivered pursuant to the procedures set forth in Section 4.2, the Corporation shall also: (x) deliver supporting schedules and work papers, as determined by the Corporation or as reasonably requested by any Member, that provide a reasonable level of detail regarding the data and calculations that were relevant for purposes of preparing the Schedule; (y) deliver an Advisory Firm Letter supporting such Schedule; and (z) allow the Members and their advisors to have reasonable access to the appropriate representatives, as determined by the Corporation or as reasonably requested by the Members, at the Corporation and the Advisory Firm in connection with a review of such Schedule. Without limiting the generality of the preceding sentence, the Corporation shall ensure that any Tax Benefit Schedule that is delivered to the Members, along with any supporting schedules and work papers, provides a reasonably detailed presentation of the calculation of the actual liability of the Corporation for Covered Taxes (the with calculation) and the Hypothetical Tax Liability of the Corporation (the without calculation), and identifies any material assumptions or operating procedures or principles that were used for purposes of such calculations. An applicable Schedule or amendment thereto shall become final and binding on the Parties thirty (30) calendar days from the date on which the Members first received the applicable Schedule or amendment thereto unless: (i) a Member within thirty (30) calendar days after receiving the applicable Schedule or amendment thereto, provides the Corporation with (A) written notice of a material objection to such Schedule that is made in good faith and that sets forth in reasonable detail such Members material objection (an Objection Notice) and (B) a letter from an Advisory Firm (that is different from the Advisory Firm that was used by the Corporation to prepare the Schedule at issue) in support of such Objection Notice; or (ii) each Member provides a written waiver of its right to deliver an Objection Notice within the time period described in clause (i) above, in which case such Schedule or amendment thereto becomes binding on the date the waiver from all Members is received by the Corporation. In the event that a Member timely delivers an Objection Notice pursuant to clause (i) above, and if the Parties, for any reason, are unable to successfully resolve the issues raised in the Objection Notice within thirty (30) calendar days after receipt by the Corporation of the Objection Notice, the Corporation and the Member shall employ the reconciliation procedures as described in Section 7.9 of this Agreement (the Reconciliation Procedures). For the avoidance of doubt, and notwithstanding anything to the contrary herein, the expense of preparing and obtaining the letter from an Advisory Firm referenced in clause (i) above shall be borne solely by the Member |
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15 DRAFT 10-14-2014#86439996v1 and the Corporation shall have no liability with respect to such letter or any of the expenses associated with its preparation and delivery. (b) Amended Schedule. The applicable Schedule for any Taxable Year may be amended from time to time by the Corporation: (i) in connection with a Determination affecting such Schedule; (ii) to correct inaccuracies in the Schedule identified as a result of the receipt of additional factual information relating to a Taxable Year after the date the Schedule was originally provided to the Member; (iii) to comply with an Experts determination under the Reconciliation Procedures applicable to this Agreement; (iv) to reflect a change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to a carryback or carryforward of a loss or other Tax item to such Taxable Year; (v) to reflect a change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to an amended Tax Return filed for such Taxable Year; or (vi) to adjust a Basis Schedule to take into account any Tax Benefit Payments made pursuant to this Agreement (any such Schedule, an Amended Schedule). ARTICLE III. TAX BENEFIT PAYMENTS Section 3.1 Timing and Amount of Tax Benefit Payments. (a) Timing of Payments. Except as provided in Sections 3.4 and 3.5, and subject to Sections 3.2 and 3.3, within three (3) Business Days following the date on which each Tax Benefit Schedule that is required to be delivered by the Corporation to the Members pursuant to Section 2.3(a) of this Agreement becomes final in accordance with Section 2.4(a) of this Agreement, the Corporation shall pay to each relevant Member the Tax Benefit Payment as determined pursuant to Section 3.1(b). Each such Tax Benefit Payment shall be made by wire transfer of immediately available funds to the bank account previously designated by such Members or as otherwise agreed by the Corporation and such Members. For the avoidance of doubt, the Members shall not be required under any circumstances to return any portion of any Tax Benefit Payment previously paid by the Corporation to the Members (including any portion of any Estimated Tax Benefit Payment or any Early Termination Payment). (b) Amount of Payments. For purposes of this Agreement, a Tax Benefit Payment with respect to any Member means an amount, not less than zero, equal to the sum of: (i) the Net Tax Benefit that is Attributable to such Member (including Imputed Interest calculated in respect of such amount); and (ii) the Actual Interest Amount. (i) Attributable. A Net Tax Benefit is Attributable to a Member to the extent that it is derived from any Basis Adjustment, Imputed Interest, or Actual Interest Amount that is attributable to an Exchange undertaken by or with respect to such Member or is attributable to a Reverse Section 704(c) Allocation that otherwise would have been allocated to such Member if Neff Holdings was not required to make such Reverse Section 704(c) Allocation. (ii) Net Tax Benefit. The Net Tax Benefit for a Taxable Year equals the amount of the excess, if any, of (x) 85% of the Cumulative Net Realized Tax Benefit as |
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16 DRAFT 10-14-2014#86439996v1 of the end of such Taxable Year over (y) the aggregate amount of all Tax Benefit Payments previously made to such Member under this Section 3.1. For the avoidance of doubt, if the Cumulative Net Realized Tax Benefit as of the end of any Taxable Year is less than the aggregate amount of all Tax Benefit Payments previously made to a Member, such Member shall not be required to return any portion of any Tax Benefit Payment previously made by the Corporation to such Member. (iii) Cumulative Net Realized Tax Benefit. The Cumulative Net Realized Tax Benefit for a Taxable Year equals the cumulative amount of Realized Tax Benefits for all Taxable Years of the Corporation, up to and including such Taxable Year, net of the cumulative amount of Realized Tax Detriments for the same period. The Realized Tax Benefit and Realized Tax Detriment for each Taxable Year shall be determined based on the most recent Tax Benefit Schedule or Amended Schedule, if any, in existence at the time of such determination. (iv) Realized Tax Benefit. The Realized Tax Benefit for a Taxable Year equals the excess, if any, of the Hypothetical Tax Liability over the actual liability of the Corporation for Covered Taxes. If all or a portion of the actual liability for such Covered Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Benefit unless and until there has been a Determination. (v) Realized Tax Detriment. The Realized Tax Detriment for a Taxable Year equals the excess, if any, of the actual liability of the Corporation for Covered Taxes over the Hypothetical Tax Liability for such Taxable Year. If all or a portion of the actual liability for such Covered Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Detriment unless and until there has been a Determination. (vi) Imputed Interest. The principles of Sections 1272, 1274, or 483 of the Code, as applicable, and the principles of any similar provision of U.S. state and local law, will apply to cause a portion of any Net Tax Benefit payable by the Corporation to a Member under this Agreement to be treated as imputed interest (Imputed Interest). For the avoidance of doubt, the deduction for the amount of Imputed Interest as determined with respect to any Net Tax Benefit payable by the Corporation to a Member shall be excluded in determining the Hypothetical Tax Liability of the Corporation for purposes of calculating Realized Tax Benefits and Realized Tax Detriments pursuant to this Agreement. (vii) Actual Interest Amount. The Actual Interest Amount calculated in respect of the Net Tax Benefit for a Taxable Year will equal the amount of any Extension Rate Interest. For the avoidance of doubt, any deduction for any Actual Interest Amount as determined with respect to any Net Tax Benefit payable by the Corporation to a Member shall be excluded in determining the Hypothetical Tax Liability of the Corporation for purposes of calculating Realized Tax Benefits and Realized Tax Detriments pursuant to this Agreement. |
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17 DRAFT 10-14-2014#86439996v1 (viii) Extension Rate Interest. Subject to Section 3.4, the amount of Extension Rate Interest calculated in respect of the Net Tax Benefit (including previously accrued Imputed Interest) for a Taxable Year will equal interest calculated at the Agreed Rate from the due date (without extensions) for filing the U.S. federal income Tax Return of the Corporation for such Taxable Year until the date on which the Corporation makes a timely Tax Benefit Payment to the Member on or before the Final Payment Date as determined pursuant to Section 3.1(a). (ix) Default Rate Interest. In the event that the Corporation does not make timely payment of all or any portion of a Tax Benefit Payment to a Member on or before the Final Payment Date as determined pursuant to Section 3.1(a), the amount of Default Rate Interest calculated in respect of the Net Tax Benefit (including previously accrued Imputed Interest and Extension Rate Interest) for a Taxable Year will equal interest calculated at the Default Rate from the Final Payment Date for a Tax Benefit Payment as determined pursuant to Section 3.1(a) until the date on which the Corporation makes such Tax Benefit Payment to such Member. For the avoidance of doubt, the amount of any Default Rate Interest as determined with respect to any Net Tax Benefit payable by the Corporation to a Member shall be included in the Hypothetical Tax Liability of the Corporation for purposes of calculating Realized Tax Benefits and Realized Tax Detriments pursuant to this Agreement. (x) The Corporation and the Members hereby acknowledge and agree that, as of the date of this Agreement and as of the date of any future Exchange that may be subject to this Agreement, the aggregate value of the Tax Benefit Payments cannot be reasonably ascertained for U.S. federal income or other applicable tax purposes. (c) Interest. The provisions of Section 3.1(b) are intended to operate so that interest will effectively accrue in respect of the Net Tax Benefit for any Taxable Year as follows: (i) first, at the applicable rate used to determine the amount of Imputed Interest under the Code (from the relevant Exchange Date or date on which the relevant Tax Benefit Payment was made until the due date (without extensions) for filing the U.S. federal income Tax Return of the Corporation for such Taxable Year); (ii) second, at the Agreed Rate in respect of any Extension Rate Interest (from the due date (without extensions) for filing the U.S. federal income Tax Return of the Corporation for such Taxable Year until the Final Payment Date for a Tax Benefit Payment as determined pursuant to Section 3.1(a)); and (iii) third, at the Default Rate in respect of any Default Rate Interest (from the Final Payment Date for a Tax Benefit Payment as determined pursuant to Section 3.1(a) until the date on which the Corporation makes the relevant Tax Benefit Payment to a Member). Section 3.2 No Duplicative Payments. It is intended that the provisions of this Agreement will not result in the duplicative payment of any amount (including interest) that may be required under this Agreement, and the provisions of this Agreement shall be consistently |
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18 DRAFT 10-14-2014#86439996v1 interpreted and applied in accordance with that intent. For purposes of this Agreement, and also for the avoidance of doubt, no Tax Benefit Payment shall be calculated or made in respect of any estimated tax payments, including, without limitation, any estimated U.S. federal income tax payments. Section 3.3 Pro-Ration of Payments as Between the Members. (a) Insufficient Taxable Income. Notwithstanding anything in Section 3.1(b) to the contrary, if the aggregate potential Covered Tax benefit of the Corporation as calculated with respect to the Basis Adjustments, Reverse Section 704(c) Allocations, Imputed Interest, and Actual Interest Amounts is limited in a particular Taxable Year because the Corporation does not have sufficient actual taxable income, then the available Covered Tax benefit for the Corporation shall be allocated among the Members in proportion to the respective Tax Benefit Payment that would have been payable if the Corporation had in fact had sufficient taxable income so that there had been no such limitation. As an illustration of the intended operation of this Section 3.3(a), if the Corporation had $200 of aggregate potential Covered Tax benefits with respect to the Basis Adjustments, Reverse Section 704(c) Allocations, Imputed Interest, and Actual Interest Amounts in a particular Taxable Year (with $50 of such Covered Tax benefits being attributable to Member 1 and $150 of such Covered Tax benefits being attributable to Member 2), such that Member 1 would have potentially been entitled to a Tax Benefit Payment of $42.50 and Member 2 would have been entitled to a Tax Benefit Payment of $127.50 if the Corporation had $200 of taxable income, and if at the same time the Corporation only had $100 of actual taxable income in such Taxable Year, then $25 of the aggregate $100 actual Covered Tax benefit for the Corporation for such Taxable Year would be allocated to Member 1 and $75 of the aggregate $100 actual Covered Tax benefit for the Corporation would be allocated to Member 2, such that Member 1 would receive a Tax Benefit Payment of $21.25 and Member 2 would receive a Tax Benefit Payment of $63.75. (b) Late Payments. If for any reason the Corporation is not able to timely and fully satisfy its payment obligations under this Agreement in respect of a particular Taxable Year, then Default Rate Interest will begin to accrue pursuant to Section 5.2 and the Corporation and other Parties agree that (i) the Corporation shall pay the Tax Benefit Payments due in respect of such Taxable Year to each Member pro rata, without favoring one obligation over the other, and (ii) no Tax Benefit Payment shall be made in respect of any Taxable Year until all Tax Benefit Payments to all Members in respect of all prior Taxable Years have been made in full. Section 3.4 Optional Estimated Payment Procedure. As long as the Corporation is current in respect of its payment obligations owed to each Member pursuant to this Agreement and there are no delinquent Tax Benefit Payments (including interest thereon) outstanding in respect of prior Taxable Years for any Member, the Corporation may, at any time on or after the due date (without extensions) for filing the U.S. federal income Tax Return of the Corporation for a Taxable Year and at the Corporations option, in its sole discretion, make one or more estimated payments to the Members in respect of any anticipated amounts to be owed with respect to a Taxable Year to the Members pursuant to Section 3.1 of this Agreement (any such estimated payments referred to as an Estimated Tax Benefit Payment); provided that any Estimated Tax Benefit Payment made to a Member pursuant to this Section 3.4 is matched by a proportionately equal Estimated Tax Benefit Payment to all other Members then entitled to a Tax |
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19 DRAFT 10-14-2014#86439996v1 Benefit Payment. Any Estimated Tax Benefit Payment made under this Section 3.4 shall be paid by the Corporation to the Members and applied against the final amount of any expected Tax Benefit Payment to be made pursuant to Section 3.1. The payment of an Estimated Tax Benefit Payment by the Corporation to the Members pursuant to this Section 3.4 shall also terminate the obligation of the Corporation to make payment of any Extension Rate Interest that might have otherwise accrued with respect to the proportionate amount of the Tax Benefit Payment that is being paid in advance of the applicable Tax Benefit Schedule being finalized pursuant to Section 2.4. Upon the making of any Estimated Tax Benefit Payment pursuant to this Section 3.4, the amount of such Estimated Tax Benefit Payment shall first be applied to any estimated Extension Rate Interest, then to Imputed Interest, and then applied to the remaining residual amount of the Tax Benefit Payment to be made pursuant to Section 3.1. In determining the final amount of any Tax Benefit Payment to be made pursuant to Section 3.1, and for purposes of finalizing the Tax Benefit Schedule pursuant to Section 2.4, the amount of any Estimated Tax Benefit Payments that may have been made with respect to the Taxable Year shall be increased, if the finally determined Tax Benefit Payment for a Taxable Year exceeds the Estimated Tax Benefit Payments made for such Taxable Year, with such increase being paid by the Corporation to the Members along with an appropriate amount of Extension Rate Interest in respect of the amount of such increase (a True-Up). If the Estimated Tax Benefit Payment for a Taxable Year exceeds the finally determined Tax Benefit Payment for such Taxable Year, such excess, along with an appropriate amount of Extension Rate Interest in respect of such excess (being charged by the Corporation to the Member), shall be applied to reduce the amount of any subsequent future Tax Benefit Payments (including Estimated Tax Benefit Payments, if any) to be paid by the Corporation to such Member. As of the date on which any Estimated Tax Benefit Payments are made, and as of the date on which any True-Up is made, all such payments shall be made in the same manner and subject to the same terms and conditions as otherwise contemplated by Section 3.1 and all other applicable terms of this Agreement. For the avoidance of doubt, as is the case with Tax Benefit Payments made by the Corporation to the Members pursuant to Section 3.1, the amount of any Estimated Tax Benefit Payments made pursuant to this Section 3.4 that are attributable to a Sale, Direct Exchange or Redemption shall also be treated, in part, as subsequent upward purchase price adjustments that give rise to Basis Adjustments in the Taxable Year of payment and as of the date on which such payments are made (to the extent of the estimated Net Tax Benefit associated with such Estimated Tax Benefit Payment, less any Imputed Interest, and exclusive of any Extension Rate Interest). Section 3.5 Changes; Reserves; Suspension of Payments. (a) Receipt of Change Notice. If any Party, or any Affiliate or Subsidiary of any Party, receives a 30-day letter, a final audit report, a statutory notice of deficiency, or similar written notice from any Taxing Authority relating to the amount of the Net Tax Benefit calculated for purposes of this Agreement, or relating to any other material tax matter that is relevant to the terms of this Agreement and the calculation of the Tax Benefit Payments that may be payable by the Corporation to the Members (a Change Notice), prompt written notification and a copy of the relevant Change Notice shall be delivered by the Party, or its Affiliate or Subsidiary, that received such Change Notice to each other Party. (b) Receipt of Reserve Notice. Prior to the delivery of any Tax Benefit Schedule or other Schedule by the Corporation to the Members pursuant to Section 2.4, the auditors for the |
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20 DRAFT 10-14-2014#86439996v1 Corporation shall consult with the management of the Corporation and, if necessary, the Advisory Firm or other legal or accounting advisors to the Corporation regarding the substantive tax issues and related conclusions that underlie the calculations related to the determination of the Tax Benefit Payments required under this Agreement. If, following such consultation, the auditors for the Corporation reasonably determine that a tax reserve or contingent liability must be established by the Corporation or Neff Holdings for financial accounting purposes (as determined in accordance with GAAP) in relation to any past or future tax position that affects the amount of any past or future Tax Benefit Payments that have been made or that may be made under this Agreement, then the management of the Corporation shall notify the Audit Committee of such determination (a Reserve Notice). (c) Suspension of Payments. From and after the date on which a Change Notice or a Reserve Notice is received, any Tax Benefit Payments required to be made under this Agreement will, to the extent determined reasonably necessary by the Audit Committee after considering the potential tax implications of the Change Notice or the Reserve Notice, be paid by the Corporation to a national bank mutually agreeable to the Parties to act as escrow agent to hold such funds in escrow pursuant to an escrow agreement until a Determination is received (in the case of a Change Notice) or the relevant reserve is released or contingent liability is eliminated (in the case of a Reserve Notice). For purposes of the preceding sentence, and in particular for purposes of the Audit Committees determination of the amount to be placed in escrow pending a Determination (in the case of a Change Notice) or the release of a reserve or the elimination of a contingent liability (in the Case of a Reserve Notice), the Audit Committee: (i) will suspend all future Tax Benefit Payments required under this Agreement until the amount of such suspended Tax Benefit Payments at least equals 85% of the amount of the asserted deficiency in tax owed (in the case of a Change Notice) or 85% of the amount of the reserve or contingent liability (in the case of a Reserve Notice); and (ii) upon the suspension of Tax Benefit Payments in the minimum amount contemplated by the preceding clause (i), may continue to suspend all or a portion of any future Tax Benefit Payments required under this Agreement. For the avoidance of doubt, the date on which the Corporation pays any such Tax Benefit Payments to the escrow agent shall be considered the date on which such Tax Benefit Payments are paid to the Members, including for purposes of determining the Actual Interest Amount and Default Rate Interest. (d) Release of Escrowed Funds. As of the date on which a reserve is released or contingent liability is eliminated (in the case of a Reserve Notice), and provided that no Change Notice has previously been issued and is still outstanding in relation to the same tax position that was the subject of the Reserve Notice, the relevant escrowed funds (along with any net interest earned on such funds, and less the out-of-pocket expenses incurred by the Corporation or Neff Holdings in administering the escrow) shall be distributed to the relevant Members. If a Determination is received (in the case of a Change Notice), and if such Determination results in no adjustment in any Tax Benefit Payments under this Agreement, and provided that no Reserve Notice has previously been issued and is still outstanding in relation to the same tax position that was the subject of the Change Notice, then the relevant escrowed funds (along with any net interest earned on such funds, and less the out-of-pocket expenses incurred by the Corporation or Neff Holdings in administering the escrow) shall be distributed to the relevant Members. If a Determination is received (in the case of a Change Notice), and if such Determination results in an adjustment in any Tax Benefit Payments under this Agreement, and provided that no Reserve Notice has previously been issued and is still outstanding in relation to the same tax position that |
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21 DRAFT 10-14-2014#86439996v1 was the subject of the Change Notice, then the relevant escrowed funds (along with any net interest earned on such funds) shall be distributed as follows: (i) first, to the Corporation or Neff Holdings in an amount equal to the out-of-pocket expenses incurred by the Corporation or Neff Holdings in administering the escrow and in contesting the Determination; and (ii) second, to the relevant Parties (which, for the avoidance of doubt and depending on the nature of the adjustments, may include the Corporation, Neff Holdings, or the relevant Members, or some combination thereof) in accordance with the relevant Amended Schedule prepared pursuant to Section 2.4 of this Agreement. ARTICLE IV. TERMINATION Section 4.1 Early Termination of Agreement; Breach of Agreement. (a) Corporations Early Termination Right. With the written approval of a majority of the Independent Directors, the Corporation may completely terminate this Agreement, as and to the extent provided herein, with respect to all amounts payable to the Members (for the avoidance of doubt, including the LLC Option Holders, who shall each be treated as a Member for this purpose) pursuant to this Agreement by paying to the Members the Early Termination Payment; provided that Early Termination Payments may be made pursuant to this Section 4.1(a) only if made to all Members that are entitled to such a payment simultaneously, and provided further, that the Corporation may withdraw any notice to execute its termination rights under this Section 4.1(a) prior to the time at which any Early Termination Payment has been paid. Upon the Corporation payment of the Early Termination Payment, the Corporation shall not have any further payment obligations under this Agreement, other than with respect to any: (i) prior Tax Benefit Payments that are due and payable under this Agreement but that still remain unpaid as of the date of the Early Termination Notice; and (ii) current Tax Benefit Payment due for the Taxable Year ending on or including the date of the Early Termination Notice (except to the extent that the amount described in clause (ii) is included in the calculation of the Early Termination Payment). If an Exchange subsequently occurs with respect to Units for which the Corporation has exercised its termination rights under this Section 4.1(a), the Corporation shall have no obligations under this Agreement with respect to such Exchange. (b) Acceleration Upon Change of Control. In the event of a Change of Control, all obligations hereunder shall be accelerated and such obligations shall be calculated pursuant to this Article IV as if an Early Termination Notice had been delivered on the closing date of the Change of Control and utilizing the Valuation Assumptions by substituting the phrase the closing date of a Change of Control in each place where the phrase Early Termination Effective Date appears. Such obligations shall include, but not be limited to, (1) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the closing date of the Change of Control, (2) any Tax Benefit Payments agreed to by the Corporation and the Members as due and payable but unpaid as of the Early Termination Notice and (3) any Tax Benefit Payments due for any Taxable Year ending prior to, with or including the closing date of a Change of Control (except to the extent that any amounts described in clauses (2) or (3) are included in the Early Termination Payment). For the avoidance of doubt, Sections 4.2 and 4.3 shall apply to a Change of Control, mutadis mutandi. |
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22 DRAFT 10-14-2014#86439996v1 (c) Acceleration Upon Breach of Agreement. In the event that the Corporation materially breaches any of its material obligations under this Agreement, whether as a result of failure to make any payment when due, failure to honor any other material obligation required hereunder, or by operation of law as a result of the rejection of this Agreement in a case commenced under the Bankruptcy Code or otherwise, then all obligations hereunder shall be accelerated and become immediately due and payable upon notice of acceleration from such Member (provided that in the case of any proceeding under the Bankruptcy Code or other insolvency statute, such acceleration shall be automatic without any such notice), and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date of such notice of acceleration (or, in the case of any proceeding under the Bankruptcy Code or other insolvency statute, on the date of such breach) and shall include, but not be limited to: (i) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the date of such acceleration; (ii) any prior Tax Benefit Payments that are due and payable under this Agreement but that still remain unpaid as of the date of such acceleration; and (iii) any current Tax Benefit Payment due for the Taxable Year ending with or including the date of such acceleration. Notwithstanding the foregoing, in the event that the Corporation breaches this Agreement and such breach is not a material breach of a material obligation, a Member shall still be entitled to enforce all of its rights otherwise available under this Agreement, including potentially seeking an acceleration of amounts payable under this Agreement. For purposes of this Section 4.1(c), and subject to the following sentence, the Parties agree that the failure to make any payment due pursuant to this Agreement within thirty (30) days of the relevant Final Payment Date shall be deemed to be a material breach of a material obligation under this Agreement for all purposes of this Agreement, and that it will not be considered to be a material breach of a material obligation under this Agreement to make a payment due pursuant to this Agreement within thirty (30) days of the relevant Final Payment Date. For the avoidance of doubt, a suspension of payments pursuant to Section 3.5 will not be considered to be a failure to make a payment due pursuant to this Agreement. Notwithstanding anything in this Agreement to the contrary, it shall not be a material breach of a material obligation of this Agreement if the Corporation fails to make any Tax Benefit Payment within thirty (30) days of the relevant Final Payment Date to the extent that the Corporation has insufficient funds, or cannot take commercially reasonable actions to obtain sufficient funds, to make such payment; provided that the interest provisions of Section 5.2 shall apply to such late payment (unless the Corporation does not have sufficient funds to make such payment as a result of limitations imposed by any Senior Obligations, in which case Section 5.2 shall apply, but the Default Rate shall be replaced by the Agreed Rate). Section 4.2 Early Termination Notice. If the Corporation chooses to exercise its right of early termination under Section 4.1 above, the Corporation shall deliver to the Members a notice of the Corporations decision to exercise such right (an Early Termination Notice) and a schedule (the Early Termination Schedule) showing in reasonable detail the calculation of the Early Termination Payment. The Corporation shall also (x) deliver supporting schedules and work papers, as determined by the Corporation or as reasonably requested by a Member, that provide a reasonable level of detail regarding the data and calculations that were relevant for purposes of preparing the Early Termination Schedule; (y) deliver an Advisory Firm Letter supporting such Early Termination Schedule; and (z) allow the Members and their advisors to have reasonable access to the appropriate representatives, as determined by the Corporation or as reasonably requested by the Members, at the Corporation and the Advisory Firm in connection |
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23 DRAFT 10-14-2014#86439996v1 with a review of such Early Termination Schedule. The Early Termination Schedule shall become final and binding on each Party thirty (30) calendar days from the first date on which the Members received such Early Termination Schedule unless: (i) a Member within thirty (30) calendar days after receiving the Early Termination Schedule, provides the Corporation with (A) notice of a material objection to such Early Termination Schedule made in good faith and setting forth in reasonable detail such Members material objection (a Termination Objection Notice) and (B) a letter from an Advisory Firm (that is different from the Advisory Firm that was used by the Corporation to prepare the Early Termination Schedule) in support of such Termination Objection Notice; or (ii) each Member provides a written waiver of such right of a Termination Objection Notice within the period described in clause (i) above, in which case such Early Termination Schedule becomes binding on the date the waiver from all Members is received by the Corporation. In the event that a Member timely delivers a Termination Objection Notice pursuant to clause (i) above, and if the Parties, for any reason, are unable to successfully resolve the issues raised in the Termination Objection Notice within thirty (30) calendar days after receipt by the Corporation of the Termination Objection Notice, the Corporation and such Member shall employ the Reconciliation Procedures. For the avoidance of doubt, and notwithstanding anything to the contrary herein, the expense of preparing and obtaining the letter from an Advisory Firm referenced in clause (i) above shall be borne solely by such Member and the Corporation shall have no liability with respect to such letter or any of the expenses associated with its preparation and delivery. The date on which the Early Termination Schedule becomes final in accordance with this Section 4.2 shall be the Early Termination Reference Date. Section 4.3 Payment Upon Early Termination. (a) Timing of Payment. Within three (3) Business Days after the Early Termination Reference Date, the Corporation shall pay to each Member an amount equal to the Early Termination Payment for such Member. Such Early Termination Payment shall be made by the Corporation by wire transfer of immediately available funds to a bank account or accounts designated by the Members or as otherwise agreed by the Corporation and the Members. (b) Amount of Payment. The Early Termination Payment payable to a Member pursuant to Section 4.3(a) shall equal the present value, discounted at the Early Termination Rate as determined as of the Early Termination Reference Date, of all Tax Benefit Payments that would be required to be paid by the Corporation to such Member, whether payable with respect to Units that were Exchanged prior to the Early Termination Effective Date or on or after the Early Termination Effective Date (for the avoidance of doubt, including Units that any LLC Option Holder would be entitled to receive upon exercise of such LLC Option Holders option to purchase such Units), beginning from the Early Termination Effective Date and using the Valuation Assumptions. |
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24 DRAFT 10-14-2014#86439996v1 ARTICLE V. SUBORDINATION AND LATE PAYMENTS Section 5.1 Subordination. Notwithstanding any other provision of this Agreement to the contrary, any Tax Benefit Payment or Early Termination Payment required to be made by the Corporation to the Members under this Agreement shall rank subordinate and junior in right of payment to any principal, interest, or other amounts due and payable in respect of any obligations owed in respect of secured indebtedness for borrowed money of the Corporation and its Subsidiaries (Senior Obligations) and shall rank pari passu in right of payment with all current or future unsecured obligations of the Corporation that are not Senior Obligations. To the extent that any payment under this Agreement is not permitted to be made at the time payment is due as a result of this Section 5.1 and the terms of the agreements governing Senior Obligations, such payment obligation nevertheless shall accrue for the benefit of the Members and the Corporation shall make such payments at the first opportunity that such payments are permitted to be made in accordance with the terms of the Senior Obligations. Section 5.2 Late Payments by the Corporation. The amount of all or any portion of any Tax Benefit Payment or Early Termination Payment not made to the Members when due under the terms of this Agreement, whether as a result of Section 5.1 and the terms of the Senior Obligations or otherwise, shall be payable together with any interest thereon, computed at the Default Rate and commencing from the Final Payment Date on which such Tax Benefit Payment or Early Termination Payment was first due and payable to the date of actual payment. ARTICLE VI. TAX MATTERS; CONSISTENCY; COOPERATION Section 6.1 Participation in the Corporations and Neff Holdings Tax Matters. Except as otherwise provided herein, and except as provided in Article IX of the LLC Agreement, the Corporation shall have full responsibility for, and sole discretion over, all tax matters concerning the Corporation and Neff Holdings, including without limitation the preparation, filing or amending of any Tax Return and defending, contesting or settling any issue pertaining to taxes. Notwithstanding the foregoing, the Corporation shall notify the Members of, and keep them reasonably informed with respect to, the portion of any tax audit of the Corporation or Neff Holdings, or any of Neff Holdings Subsidiaries, the outcome of which is reasonably expected to materially affect the Tax Benefit Payments payable to such Members under this Agreement, and such Members shall have the right to participate in and to monitor at their own expense (but, for the avoidance of doubt, not to control) any such portion of any such Tax audit. Section 6.2 Consistency. All calculations and determinations made hereunder, including, without limitation, any Basis Adjustments, Reverse Section 704(c) Allocations, the Schedules, and the determination of any Realized Tax Benefits or Realized Tax Detriments, shall be made in accordance with the elections, methodologies or positions taken by the Corporation and Neff Holdings on their respective Tax Returns. Each Member shall prepare its Tax Returns in a manner that is consistent with the terms of this Agreement, and any related calculations or determinations that are made hereunder, including, without limitation, the terms of Section 2.1 of this Agreement and the Schedules provided to the Members under this Agreement. In the event |
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25 DRAFT 10-14-2014#86439996v1 that an Advisory Firm is replaced with another Advisory Firm acceptable to the Audit Committee, such replacement Advisory Firm shall perform its services under this Agreement using procedures and methodologies consistent with the previous Advisory Firm, unless otherwise required by law or unless the Corporation and all of the Members agree to the use of other procedures and methodologies. Section 6.3 Cooperation. (a) Each Member shall (i) furnish to the Corporation in a timely manner such information, documents and other materials as the Corporation may reasonably request for purposes of making any determination or computation necessary or appropriate under this Agreement, preparing any Tax Return or contesting or defending any audit, examination or controversy with any Taxing Authority, (ii) make itself available to the Corporation and its representatives to provide explanations of documents and materials and such other information as the Corporation or its representatives may reasonably request in connection with any of the matters described in clause (i) above, and (iii) reasonably cooperate in connection with any such matter. (b) The Corporation shall reimburse the Members for any reasonable and documented out-of-pocket costs and expenses incurred pursuant to Section 6.3(a). ARTICLE VII. MISCELLANEOUS Section 7.1 Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by courier service, by fax, by electronic mail (delivery receipt requested) or by certified or registered mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be as specified in a notice given in accordance with this Section 7.1). All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the Party to receive such notice: If to the Corporation, to: Neff Corporation 3750 N.W. 87th Avenue, Suite 400 Miami, Florida 33178 Attn: Chief Financial Officer Facsimile: (305) 513-4156 E-mail: mirion@neffcorp.com with a copy (which shall not constitute notice to the Corporation) to: Latham & Watkins LLP 885 Third Avenue New York, New York 10022 Attn: David Raab, Esq. |
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26 DRAFT 10-14-2014#86439996v1 Facsimile: (212) 751-4684 E-mail: david.raab@lw.com If to any Wayzata Member: c/o Wayzata Investment Partners 701 East Lake Street, Suite 300 Wayzata, Minnesota 55391 Attn: Ray Wallander Facsimile: (952) 345-8901 E-mail: rwallander@wayzpartners.com with a copy (which shall not constitute notice to the Members and LLC Option Holders) to: [TBD] Attn: Facsimile: E-mail: Any Party may change its address, fax number or e-mail address by giving each of the other Parties written notice thereof in the manner set forth above. Section 7.2 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties, it being understood that all Parties need not sign the same counterpart. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement. Section 7.3 Entire Agreement; No Third Party Beneficiaries. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the Parties with respect to the subject matter hereof. This Agreement shall be binding upon and inure solely to the benefit of each Party hereto and their respective successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. Section 7.4 Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware, without regard to the conflicts of laws principles thereof that would mandate the application of the laws of another jurisdiction. Section 7.5 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this |
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27 DRAFT 10-14-2014#86439996v1 Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. Section 7.6 Assignments; Amendments; Successors; No Waiver. (a) Assignment. Neither any Member nor any LLC Option Holder may assign, sell, pledge, or otherwise alienate or transfer any interest in this Agreement, including the right to receive any Tax Benefit Payments under this Agreement, to any Person without the prior written consent of the Corporation, which consent shall not be unreasonably withheld, conditioned, or delayed, and without such Person executing and delivering a Joinder agreeing to succeed to the applicable portion of such Members or such LLC Option Holders interest in this Agreement and to become a Party for all purposes of this Agreement (the Joinder Requirement); provided, however, that to the extent any Member sells, exchanges, distributes, or otherwise transfers Units to any Person (other than the Corporation or Neff Holdings) in accordance with the terms of the LLC Agreement, the Members shall have the option to assign to the transferee of such Units its rights under this Agreement with respect to such transferred Units, provided that such transferee has satisfied the Joinder Requirement. For the avoidance of doubt, if a Member transfers Units in accordance with the terms of the LLC Agreement but does not assign to the transferee of such Units its rights under this Agreement with respect to such transferred Units, such Member shall continue to be entitled to receive the Tax Benefit Payments arising in respect of a subsequent Exchange of such Units. The Corporation may not assign any of its rights or obligations under this Agreement to any Person without the prior written consent of each of the Members and LLC Option Holders (and any purported assignment without such consent shall be null and void). (b) Amendments. No provision of this Agreement may be amended unless such amendment is approved in writing by each of the Parties; provided that amendment of the definition of Change of Control will also require the written approval of a majority of the Independent Directors. No provision of this Agreement may be waived unless such waiver is in writing and signed by the Party against whom the waiver is to be effective. (c) Successors. All of the terms and provisions of this Agreement shall be binding upon, and shall inure to the benefit of and be enforceable by, the Parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives. The Corporation shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place. (d) Waiver. No failure by any Party to insist upon the strict performance of any covenant, duty, agreement, or condition of this Agreement, or to exercise any right or remedy consequent upon a breach thereof, shall constitute a waiver of any such breach or any other covenant, duty, agreement, or condition. |
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28 DRAFT 10-14-2014#86439996v1 Section 7.7 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. Section 7.8 Resolution of Disputes. (a) Except for Reconciliation Disputes subject to Section 7.9, any and all disputes which cannot be settled amicably, including any ancillary claims of any Party, arising out of, relating to or in connection with the validity, negotiation, execution, interpretation, performance or non-performance of this Agreement (including the validity, scope and enforceability of this arbitration provision) (each a Dispute) shall be finally resolved by arbitration in accordance with the [International Institute for Conflict Prevention and Resolution Rules for Non- Administered Arbitration]4F 4 by a panel of three arbitrators, of which the Corporation shall designate one arbitrator and the Members party to such Dispute shall designate one arbitrator in accordance with the screened appointment procedure provided in Resolution Rule 5.4. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq., and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of the arbitration shall be Miami, Florida. (b) Notwithstanding the provisions of paragraph (a), any Party may bring an action or special proceeding in any court of competent jurisdiction for the purpose of compelling another Party to arbitrate, seeking temporary or preliminary relief in aid of an arbitration hereunder, and/or enforcing an arbitration award and, for the purposes of this paragraph (b), each Party (i) expressly consents to the application of paragraph (c) of this Section 7.8 to any such action or proceeding, and (ii) agrees that proof shall not be required that monetary damages for breach of the provisions of this Agreement would be difficult to calculate and that remedies at law would be inadequate. For the avoidance of doubt, this Section 7.8 shall not apply to Reconciliation Disputes to be settled in accordance with the procedures set forth in Section 7.9. (c) Each Party hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Chancery Court of the State of Delaware or, if such Court declines jurisdiction, the courts of the State of Delaware sitting in Wilmington, Delaware, and of the U.S. District Court for the District of Delaware sitting in Wilmington, Delaware, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or for recognition or enforcement of any judgment, and each of the Parties hereto irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Delaware State court or, to the fullest extent permitted by applicable law, in such U.S. District Court. Each Party agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (d) Each Party irrevocably and unconditionally waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in Section 4 Note to draft: please confirm if this venue is acceptable. |
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29 DRAFT 10-14-2014#86439996v1 7.8(c). Each Party irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of any such suit, action or proceeding in any such court. (e) Each Party irrevocably consents to service of process by means of notice in the manner provided for in Section 7.1. Nothing in this Agreement shall affect the right of any Party to serve process in any other manner permitted by law. (f) WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). (g) Any dispute as to whether a dispute is a Reconciliation Dispute within the meaning of Section 7.9, or a Dispute within the meaning of this Section 7.8, shall be decided and resolved as a Dispute subject to the procedures set forth in this Section 7.8. Section 7.9 Reconciliation. In the event that the Corporation and any Member are unable to resolve a disagreement with respect to a Schedule (other than an Early Termination Schedule) prepared in accordance with the procedures set forth in Section 2.4, or with respect to an Early Termination Schedule prepared in accordance with the procedures set forth in Section 4.2, within the relevant time period designated in this Agreement (a Reconciliation Dispute), the Reconciliation Dispute shall be submitted for determination to a nationally recognized expert (the Expert) in the particular area of disagreement mutually acceptable to both Parties. The Expert shall be a partner or principal in a nationally recognized accounting firm, and unless the Corporation and such Member agree otherwise, the Expert shall not, and the firm that employs the Expert shall not, have any material relationship with the Corporation or such Member or other actual or potential conflict of interest. If the Parties are unable to agree on an Expert within fifteen (15) calendar days of receipt by the respondent(s) of written notice of a Reconciliation Dispute, the selection of an Expert shall be treated as a Dispute subject to Section 7.8 and an arbitration panel shall pick an Expert from a nationally recognized accounting firm that does not have any material relationship with the Corporation or such Member or other actual or potential conflict of interest. The Expert shall resolve any matter relating to the Basis Schedule or an amendment thereto, Reverse 704(c) Schedule or an amendment thereto or the Early Termination Schedule or an amendment thereto within thirty (30) calendar days and shall resolve any matter relating to a Tax Benefit Schedule or an amendment thereto within fifteen (15) calendar days or as soon thereafter as is reasonably practicable, in each case after the matter has been submitted to the Expert for resolution. Notwithstanding the preceding sentence, if the matter is not resolved before any payment that is the subject of a disagreement would be due (in the absence of such disagreement) or any Tax Return reflecting the subject of a disagreement is due, the undisputed amount shall be paid on the date prescribed by this Agreement and such Tax Return may be filed as prepared by the Corporation, subject to adjustment or amendment upon resolution. The costs and expenses relating to the engagement of such Expert or amending any Tax Return shall be borne by the Corporation except as provided in the next sentence. The Corporation and the Members shall bear their own costs and expenses of such proceeding, unless (i) the Expert adopts the Members position, in which case the Corporation shall reimburse the Member for |
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30 DRAFT 10-14-2014#86439996v1 any reasonable and documented out-of-pocket costs and expenses in such proceeding, or (ii) the Expert adopts the Corporations position, in which case the Member shall reimburse the Corporation for any reasonable and documented out-of-pocket costs and expenses in such proceeding. The Expert shall finally determine any Reconciliation Dispute and the determinations of the Expert pursuant to this Section 7.9 shall be binding on the Corporation and the Members and may be entered and enforced in any court having competent jurisdiction. Section 7.10 Withholding. The Corporation shall be entitled to deduct and withhold from any payment that is payable to any Member or LLC Option Holder pursuant to this Agreement such amounts as the Corporation is required to deduct and withhold with respect to the making of such payment under the Code or any provision of U.S. state, local or foreign tax law. To the extent that amounts are so withheld and paid over to the appropriate Taxing Authority by the Corporation, such withheld amounts shall be treated for all purposes of this Agreement as having been paid by the Corporation to the relevant Member or LLC Option Holder. Each Member and each LLC Option Holder shall promptly provide the Corporation with any applicable tax forms and certifications reasonably requested by the Corporation in connection with determining whether any such deductions and withholdings are required under the Code or any provision of U.S. state, local or foreign tax law. Section 7.11 Admission of the Corporation into a Consolidated Group; Transfers of Corporate Assets. (a) If the Corporation is or becomes a member of an affiliated or consolidated group of corporations that files a consolidated income Tax Return pursuant to Section 1501 or other applicable Sections of the Code governing affiliated or consolidated groups, or any corresponding provisions of U.S. state or local law, then: (i) the provisions of this Agreement shall be applied with respect to the group as a whole; and (ii) Tax Benefit Payments, Early Termination Payments, and other applicable items hereunder shall be computed with reference to the consolidated taxable income of the group as a whole. (b) If any entity that is obligated to make a Tax Benefit Payment or Early Termination Payment hereunder transfers one or more assets to a corporation (or a Person classified as a corporation for U.S. income tax purposes) with which such entity does not file a consolidated Tax Return pursuant to Section 1501 of the Code, such entity, for purposes of calculating the amount of any Tax Benefit Payment or Early Termination Payment due hereunder, shall be treated as having disposed of such asset in a fully taxable transaction on the date of such contribution. The consideration deemed to be received by such entity shall be equal to the fair market value of the contributed asset. For purposes of this Section 7.11, a transfer of a partnership interest shall be treated as a transfer of the transferring partners share of each of the assets and liabilities of that partnership. Section 7.12 Confidentiality. Each Member or LLC Option Holder and its assignees acknowledges and agrees that the information of the Corporation is confidential and, except in the course of performing any duties as necessary for the Corporation and its Affiliates, as required by law or legal process or to enforce the terms of this Agreement, such Person shall keep and retain in the strictest confidence and not disclose to any Person any confidential matters, acquired pursuant to this Agreement, of the Corporation and its Affiliates and |
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31 DRAFT 10-14-2014#86439996v1 successors, learned by any Member or LLC Option Holder heretofore or hereafter. This Section 7.12 shall not apply to (i) any information that has been made publicly available by the Corporation or any of its Affiliates, becomes public knowledge (except as a result of an act of any Member or LLC Option Holder in violation of this Agreement) or is generally known to the business community, (ii) the disclosure of information to the extent necessary for a Member or LLC Option Holder to prosecute or defend claims arising under or relating to this Agreement, and (iii) the disclosure of information to the extent necessary for a Member or LLC Option Holder to prepare and file its Tax Returns, to respond to any inquiries regarding the same from any Taxing Authority or to prosecute or defend any action, proceeding or audit by any Taxing Authority with respect to such Tax Returns. Notwithstanding anything to the contrary herein, the Members, LLC Option Holders and each of their assignees (and each employee, representative or other agent of the Members or LLC Option Holders or their assignees, as applicable) may disclose at their discretion to any and all Persons, without limitation of any kind, the tax treatment and tax structure of the Corporation, the Members, the LLC Option Holders and any of their transactions, and all materials of any kind (including tax opinions or other tax analyses) that are provided to the Members or LLC Option Holders relating to such Tax treatment and Tax structure. If a Member, LLC Option Holder or an assignee commits a breach, or threatens to commit a breach, of any of the provisions of this Section 7.12, the Corporation shall have the right and remedy to have the provisions of this Section 7.12 specifically enforced by injunctive relief or otherwise by any court of competent jurisdiction without the need to post any bond or other security, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to the Corporation or any of its Subsidiaries and that money damages alone shall not provide an adequate remedy to such Persons. Such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available at law or in equity. Section 7.13 Change in Law. Notwithstanding anything herein to the contrary, if, in connection with an actual or proposed change in law, a Member reasonably believes that the existence of this Agreement could cause income (other than income arising from receipt of a payment under this Agreement) recognized by such Member (or direct or indirect equity holders in such Member) in connection with any Exchange to be treated as ordinary income rather than capital gain (or otherwise taxed at ordinary income rates) for U.S. federal income tax purposes or would have other material adverse tax consequences to such Member or any direct or indirect owner of such Member, then at the written election of such Member in its sole discretion (in an instrument signed by such Member and delivered to the Corporation) and to the extent specified therein by such Member, this Agreement shall cease to have further effect and shall not apply to an Exchange occurring after a date specified by such Member, or may be amended by in a manner reasonably determined by such Member, provided that such amendment shall not result in an increase in any payments owed by the Corporation under this Agreement at any time as compared to the amounts and times of payments that would have been due in the absence of such amendment. Section 7.14 Interest Rate Limitation. Notwithstanding anything to the contrary contained herein, the interest paid or agreed to be paid hereunder with respect to amounts due to any Member hereunder shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the Maximum Rate). If any Member shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the Tax Benefit Payment, Estimated Tax Benefit Payment or Early Termination Payment, as applicable (but in each case |
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32 DRAFT 10-14-2014#86439996v1 exclusive of any component thereof comprising interest) or, if it exceeds such unpaid noninterest amount, refunded to the Corporation. In determining whether the interest contracted for, charged, or received by any Member exceeds the Maximum Rate, such Member may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the payment obligations owed by the Corporation to such Member hereunder. Notwithstanding the foregoing, it is the intention of the Lenders and the Borrower to conform strictly to any applicable usury laws. Section 7.15 Independent Nature of Rights and Obligations. The rights and obligations of the each Member and LLC Option Holder hereunder are several and not joint with the rights and obligations of any other Person. A Member or an LLC Option Holder shall not be responsible in any way for the performance of the obligations of any other Person hereunder, nor shall a Member or an LLC Option Holder have the right to enforce the rights or obligations of any other Person hereunder (other than the Corporation). The obligations of a Member or an LLC Option Holder hereunder are solely for the benefit of, and shall be enforceable solely by, the Corporation. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Member or LLC Option Holder pursuant hereto or thereto, shall be deemed to constitute the Members and/or LLC Option Holders acting as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Members and/or LLC Option Holders are in any way acting in concert or as a group with respect to such rights or obligations or the transactions contemplated hereby, and the Corporation acknowledges that the Members and LLC Option Holders are not acting in concert or as a group and will not assert any such claim with respect to such rights or obligations or the transactions contemplated hereby. [Signature Page Follows This Page] |
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[Signature Page to Tax Receivable Agreement] NY\6516862.10 DRAFT 10-14-2014#86439996v1 IN WITNESS WHEREOF, the undersigned have executed or caused to be executed on their behalf this Agreement as of the date first written above. CORPORATION: NEFF CORPORATION By: _________________________________ Name: Title: MEMBERS: WAYZATA OPPORTUNITIES FUND II, L.P. By: WOF II GP, L.P., its General Partner By: WOF II GP, LLC, its General Partner By: _________________________________ Name: Title: WAYZATA OPPORTUNITIES FUND OFFSHORE, L.P. By: [WOFO II GP, L.P.], its General Partner By: [WOFO II GP, LLC], its General Partner By: _________________________________ Name: Title: NEFF HOLDINGS: NEFF HOLDINGS LLC By: _________________________________ Name: Title: |
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34 DRAFT 10-14-2014#86439996v1 LLC OPTION HOLDERS James Continenza ____________________________________ Robert Singer ____________________________________ Graham Hood ____________________________________ Mark Irion ____________________________________ Wes Parks ____________________________________ Henry Lawson ____________________________________ John Anderson ____________________________________ Brad Nowell ____________________________________ |
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35 DRAFT 10-14-2014#86439996v1 Steven Settelmayer ____________________________________ Paula Papamarcos ____________________________________ Steve Michaels ____________________________________ Tom Sutherland ____________________________________ Tammy Parham ____________________________________ Jim Horn ____________________________________ Bryant Becton ____________________________________ Bobby Corner ____________________________________ |
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[Exhibit A] DRAFT 10-14-2014#86439996v1 Exhibit A FORM OF JOINDER AGREEMENT This JOINDER AGREEMENT, dated as of _________________, 20___ (this Joinder), is delivered pursuant to that certain Tax Receivable Agreement, dated as of [.], 2014 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the Tax Receivable Agreement) by and among Neff Corporation, a Delaware corporation (the Corporation);;, [Neff Holdings LLC, a Delaware limited liability company (Neff Holdings),] and each of the Members from time to time party thereto. Capitalized terms used but not otherwise defined herein have the respective meanings set forth in the Tax Receivable Agreement. 1. Joinder to the Tax Receivable Agreement. The undersigned hereby represents and warrants to the Corporation that, as of the date hereof, the undersigned is a member of Neff Holdings, and that it acquired [__________] Units in Neff Holdings upon assignment from a Member. 2. Joinder to the Tax Receivable Agreement. Upon the execution of this Joinder by the undersigned and delivery hereof to the Corporation, the undersigned hereby is and hereafter will be a Member under the Tax Receivable Agreement and a Party thereto, with all the rights, privileges and responsibilities of a Member thereunder. The undersigned hereby agrees that it shall comply with and be fully bound by the terms of the Tax Receivable Agreement as if it had been a signatory thereto as of the date thereof. 3. Incorporation by Reference. All terms and conditions of the Tax Receivable Agreement are hereby incorporated by reference in this Joinder as if set forth herein in full. 4. Address. All notices under the Tax Receivable Agreement to the undersigned shall be direct to: [Name] [Address] [City, State, Zip Code] Attn: Facsimile: E-mail: IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Joinder as of the day and year first above written. [NAME OF NEW PARTY] By: _________________________________ Name: Title: |
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[Exhibit A] DRAFT 10-14-2014#86439996v1 Acknowledged and agreed as of the date first set forth above: NEFF CORPORATION By: ___________________________ Name: Title: |
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#86469808v2 EXHIBIT E FORM OF AMENDED NEFF HOLDINGS LLC MANAGEMENT EQUITY PLAN [see attached] |
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Posting Version #86439998v1 Neff Holdings LLC Management Equity Plan Amended and Restated as of October [__], 2014 Neff Holdings LLC, a Delaware limited liability company (the Company), originally adopted the Neff Holdings LLC Management Equity Plan (as amended and restated herein and as may be amended, supplemented, amended and restated or otherwise modified from time to time, the Plan), effective as of October 1, 2010. The Plan is hereby amended and restated in its entirety, effective as of October [_], 2014, in connection with the contemplated IPO and Recapitalization and associated conversion of each outstanding Award with respect to Class B Units into an Award with respect to Common Units. As of the Effective Time, all outstanding Awards, as so converted, will be governed by this amendment and restatement of the Plan, and, notwithstanding anything to the contrary herein, no additional Awards will be granted under the Plan. Section 1. Purpose. The purposes of the Plan are to provide an incentive for management and other employees, prospective employees and members of the Board of the Company and/or its subsidiaries by acquiring a proprietary interest in the success of the Company, to enhance the long-term performance of the Company and to remain in the service of the Company and/or its subsidiaries. Section 2. Definitions. Capitalized terms used in this Plan and not defined in this Plan shall have the meanings given thereto in the LLC Agreement. When used in this Plan, unless the context otherwise requires, the following terms shall have the meanings set forth next to such terms: (a) Award shall mean an award under this Plan as described in Section 5 hereof. (b) Award Agreement shall mean a written agreement entered into between the Company and the Grantee in connection with an Award. (c) Board shall mean the board of managers of the Company. (d) Cause shall mean, with respect to any Grantee, that one or more of the following has occurred: (i) the Grantee is convicted of a felony or pleads guilty or nolo contendere to a felony (whether or not with respect to the Company or any of its affiliates or subsidiaries); (ii) a failure of the Grantee to substantially perform his responsibilities and duties to the Company or any of its subsidiaries, after ten (10) days written notice given by the Company or its subsidiaries, which notice shall identify the failure in sufficient detail and grant the Grantee an opportunity to cure such failure within such ten (10) day period; (iii) the failure of the Grantee to carry out or comply with any lawful and reasonable directive of the Board (or any committee of the Board), any Subsidiary Governing Body, or the Chief Executive Officer of the Company or any of its subsidiaries, which is not remedied within ten (10) days after the Grantees receipt of written notice from any of the foregoing specifying such failure; (iv) the Grantee engages in illegal conduct, any act of dishonesty, breach of fiduciary duty (if any) or other misconduct, in each case in this clause (iv), against the Company, or any of its affiliates or subsidiaries; (v) a material violation or willful breach by the Grantee of any of the policies or |
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2 #86439998v1 procedures of the Company, or any of its subsidiaries, including, without any limitation, any employee manual, handbook or code of conduct of the Company or any of its subsidiaries which, to the extent curable, is not remedied within ten (10) days after the Grantees receipt of written notice given by the Company or any of its subsidiaries identifying the conduct in sufficient detail and granting the Grantee an opportunity to cure such conduct within such ten (10) day period; (vi) the Grantee fails to meet any material obligation Grantee may have under any agreement entered into with the Company or any of its subsidiaries; including, but not limited to, the LLC Agreement and any agreement entered into in connection with the Grantees employment or engagement with the Company or any of its subsidiaries which, to the extent curable, is not remedied within ten (10) days after the Grantees receipt of written notice given by the Company or any of its subsidiaries identifying the conduct in sufficient detail and granting the Grantee an opportunity to cure such conduct within such ten (10) day period; (vii) the Grantees habitual abuse of narcotics or alcohol; or (viii) the Grantees breach of any non-compete, non-solicit, confidentiality or other restrictive covenant to which the Grantee may be subject, pursuant to an employment agreement or otherwise. (e) Committee shall mean the Committee hereinafter described in Section 3 hereof. (f) Fair Market Value shall mean, with respect to any Award (including, without limitation, any Common Units), the fair market value of such Award, as determined in the sole discretion of the Committee, subject to Section 10 hereof, as applicable. (g) Grantee shall mean a person who receives an Award. (h) LLC Agreement shall mean the Second Amended and Restated Limited Liability Company Agreement of Neff Holdings LLC, dated as of October [_], 2014, as such agreement may be amended, supplemented, amended and restated or otherwise modified from time to time, together with all schedules, exhibits and annexes thereto. (i) Prior LLC Agreement shall mean the First Amended and Restated Limited Liability Company Agreement of the Company, dated as of October 1, 2010. (j) Sale Transaction shall mean the bona fide sale, lease, Transfer, issuance or other disposition, in one transaction or a series of related transactions, of (x) all or substantially all of the consolidated assets of the Company and its Subsidiaries or (y) at least a majority of the then-issued and outstanding Common Units to (in either case) any Person or group of related Persons (other than a Member or an Affiliate of a Member or the Company or an Affiliate of the Company), whether directly or indirectly or by way of any merger, statutory share exchange, sale or issuance of equity, tender offer, consolidation or other business combination transaction or purchase of beneficial ownership, provided, however, that a Sale Transaction shall not include a dividend or other distribution of cash or other assets of the Company to the Members (or any of the Members) made with the proceeds of borrowed money, regardless of whether the borrowing incurred to finance such dividend or distribution was incurred prior to or after such dividend or distribution. (k) Section 409A shall mean Section 409A of the Code. Section 3. Administration. |
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3 #86439998v1 (a) The Plan shall be administered by the Board or, if the Board shall so determine, by a Committee consisting of one or more Board members, selected by the Board. Any member of the Committee may resign by giving written notice thereof to the Board, and any member of the Committee may be removed at any time, with or without cause, by the Board. Any vacancy on the Committee shall be filled by the Board. During any period in which the Plan is administered by the Board, all references in the Plan or in any Award Agreement to the Committee shall be deemed to refer to the Board. (b) The Committee shall have complete authority to interpret and administer this Plan and each Award Agreement, including, without limitation, the power (i) to exercise all of the powers granted to it under the Plan, (ii) to construe, interpret and implement the Plan and any Award Agreement, (iii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules governing its own operations, (iv) to make all determinations necessary or advisable in administering the Plan, (v) to correct any defect, supply any omission and reconcile any inconsistency in the Plan, (vi) to amend the Plan to reflect changes in applicable law, (vii) to delegate such powers and authority to such person as it deems appropriate, and (viii) to waive any conditions under any Awards. The determination of the Committee on all matters relating to the Plan or any Award Agreement shall be final, binding and conclusive. Section 4. Eligibility for Awards. Awards under the Plan shall be made to such members of the Board and any Subsidiary Governing Body (as defined in the Prior LLC Agreement), and employees and prospective employees of the Company and/or its subsidiaries, as the Committee selects in its sole discretion. Section 5. Awards Under the Plan. (a) Awards may be made under the Plan in the form of Common Units, phantom units or options, warrants or other securities that are convertible, exercisable or exchangeable for or into Common Units, as the Committee determines is in the interest of the Company. (b) Each Award granted under the Plan shall be evidenced by an Award Agreement which shall contain such provisions (such as vesting, and manner and method of conversion, exchange or exercise (to the extent applicable)) as the Committee in its discretion deems necessary or desirable, consistent with the terms of this Plan and the LLC Agreement. The duration of any Award that is convertible, exchangeable or exercisable for or into Common Units shall have a duration that is fixed by the Committee, in its sole discretion, but in no event shall such Award remain in effect for a period of more than ten (10) years from the date of grant. (c) Any Award for Common Units, or, in the event an Award is converted, exercised or exchanged for or into Common Units, such conversion, exercise or exchange, shall be conditioned on (i) the Grantee executing a Joinder Agreement and becoming a Member under and bound by the terms of the LLC Agreement and (ii) the Grantees compliance with all other terms and conditions set forth in the LLC Agreement to be admitted as a Member. Section 6. Vesting and Forfeiture. Except as otherwise provided in the applicable Award Agreement, |
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4 #86439998v1 (a) Any portion of any then outstanding Award that is not vested (after taking into account any accelerated vesting that may apply under the Award Agreement or Section 7 hereof) and/or, if applicable, exercisable or exercised, convertible or converted, exchangeable or exchanged, at the time of the Grantees termination of employment or service with the Company or any of its subsidiaries, for any reason, shall immediately be forfeited and terminate and the Grantee shall no longer have any rights or interests in such Award. (b) If (i) the Grantees employment or service with the Company or any of its subsidiaries is terminated for Cause, (ii) the Grantees employment or service with the Company (and/or any of its subsidiaries) is terminated by the Company (and/or any of its subsidiaries) or the Grantee for any reason and the Grantee committed an act constituting Cause prior to such termination (regardless of whether the Grantees employment or service was terminated for Cause) and which such act, to the extent a cure period was allowed for such act in the definition of Cause, was not cured within such period prior to such termination or (iii) the Grantee breaches any restrictive covenants, including non-competition, non-solicitation and confidentiality covenants, with the Company (and/or any of its subsidiaries), all of the Grantees then outstanding Awards, whether or not previously vested and/or, if applicable, exercisable or exercised, convertible or converted, or exchangeable or exchanged, shall immediately be forfeited and terminate and the Grantee shall no longer have any rights or interests in such Award or anything such Award was exercised, converted or exchanged for or into. For purposes of this Section 6(b), the term Cause shall include, with respect to any Grantee that has an employment agreement with the Company (and/or any of its subsidiaries), in addition to (and not in lieu of) the definition of Cause set forth in this Plan, the definition of Cause set forth in such employment agreement. (c) Without limiting the conditions of Section 6(b) hereof, prior to the consummation of a Qualified Public Offering (as defined in the Prior LLC Agreement), in the event the Grantees employment or service with the Company and/or any of its subsidiaries is terminated for any reason (whether by the Company, the Grantee or any such subsidiary) and the Grantee has outstanding and vested Awards at the time of such termination, the Company shall have the right, but not the obligation, to elect within ninety (90) days of the effective date of termination of the Grantees employment or service or such other time periods as are prescribed by the Committee and set forth in an Award Agreement or any repurchase agreement thereunder, to repurchase the Grantees then outstanding and vested Awards. Unless otherwise prescribed by the Committee and set forth in an Award Agreement, such Awards shall be repurchased by the Company at the Fair Market Value of the applicable Award, less, to the extent applicable, any amounts owed by the Grantee to the Company pursuant to any loans outstanding under Section 5.2 (or any successor provision) of the Prior LLC Agreement or any other amounts owed by the Grantee to the Company or any of its subsidiaries. Section 7. Sale Transaction. (a) Subject to Section 6 hereof and except as provided in an Award Agreement, upon the occurrence of a Sale Transaction which occurs while the Grantee is still employed by, or in service with, the Company or any of its subsidiaries, all of the Grantees unvested Awards shall immediately become vested and/or exercisable, convertible or exchangeable, as applicable. |
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5 #86439998v1 (b) In addition, in the event of a Sale Transaction, with respect to any Award that is convertible, exchangeable or exercisable for or into Common Units, the Committee shall, in its sole discretion, either (i) provide for the assumption of such Awards theretofore granted, or the substitution for such Awards of new awards of the successor company or a parent or subsidiary thereof, with appropriate adjustments as to the number and kinds of shares and the per share exercise prices, consistent with Section 11 hereof, (ii) provide written notice to any holder of such Award that the Award shall be terminated to the extent that it is not converted, exchanged or exercised prior to a date certain specified in such notice (which date shall be no sooner than the consummation of the Sale Transaction) or (iii) provide that the Grantee of any such Award, to the extent then vested, shall be entitled to receive from the Company an amount equal to the excess of (A) the Fair Market Value (determined on the basis of the amount received by Members of the Company in connection with such transaction and consistent with Section 409A of the Code) of the Common Units subject to the vested portion of the Award not theretofore converted, exchanged or exercised, over (B) the aggregate purchase price which would be payable for such Common Units upon the conversion, exchange or exercise of such Award. Any actions under this Section 7 shall, to the extent applicable, be in accordance with the regulations promulgated under Section 409A of the Code so as not to cause a modification or deemed new grant of the Award. Section 8. Section 83(b) of the Code. As a requirement for receiving an Award of, or to acquire, Common Units under the Plan, each Grantee shall, if, and only if, required by the Committee, agree to make a timely election pursuant to Section 83(b) of the Code to include in the Grantees gross income or alternative minimum taxable income, as the case may be, for the taxable year in which the Award is granted (or, if applicable, exercised, converted or exchanged), the amount of any compensation taxable to the Grantee in connection with the Grantees receipt of such Award. If the Committee requires the Grantee to make such an election, the Grantee shall notify the Committee of such election within ten (10) days of filing notice of the election with the Internal Revenue Service, in addition to any filings and notifications required pursuant to the regulations issued under Section 83(b) of the Code. Section 9. Restrictions on Transfer. Except as otherwise provided in an Award Agreement, (a) Notwithstanding anything in the LLC Agreement to the contrary, no Awards of Common Units may be Transferred until vested; provided, however, that the Grantee may Transfer such unvested Awards to any one or more of the Grantees Family Members (as defined in the Prior LLC Agreement) if the requirements set forth in the LLC Agreement relating to such Transfer are complied with and provided the Award remains subject to this Plan and any Award Agreement (including any repurchase rights in favor of the Company). As a condition to such Transfer, the Transferee shall execute and deliver to the Company (i) a Joinder Agreement, (ii) a written undertaking, in form and substance satisfactory to the Committee, that such Transferee shall Transfer any Awards (vested or unvested) back to the Grantee if such Transferee ceases to be a Family Member of such Grantee and (iii) a written agreement acknowledging that such Transferred Award is subject to vesting, may never become vested and is subject to the terms and conditions of the Plan, the Award Agreement and the LLC Agreement. Any proposed Transfer of vested Awards of Common Units shall be in accordance with the LLC Agreement and the Award Agreement. |
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6 #86439998v1 (b) Awards that are convertible, exercisable or exchangeable for or into Common Units may not be Transferred at any time prior to such conversion, exercise or exchange; provided, however, that the Grantee may Transfer any unvested Award to any one or more of the Grantees Family Members provided the Award remains subject to this Plan and any Award Agreement (including any repurchase rights in favor of the Company). As a condition to such Transfer, (i) the Transferee shall execute and deliver to the Company (A) a written undertaking, in form and substance satisfactory to the Committee, that such Transferee shall Transfer any Awards (vested or unvested) back to the Grantee if such Transferee ceases to be a Family Member of such Grantee and (B) a written agreement (1) acknowledging that such Transferred Award is subject to vesting, may never become vested, and is subject to the terms of the Plan, the Award Agreement and, upon conversion, exercise or exchange, the LLC Agreement and (2) agreeing to execute and deliver to the Company, upon the conversion, exercise or exchange of the Award, a Joinder Agreement and a written undertaking referred to above, and (ii) each such agreement referred to in clause (2) above shall be, in fact, executed and delivered to the Company upon the conversion, exercise or exchange of the Award. Section 10. Conformity to Section 409A of the Code. It is intended that all Awards under this Plan and any Award Agreement, either be exempt from or comply with Section 409A. All options or other similar Awards that are granted with an exercise price shall be granted with an exercise price, such that the Award would not constitute deferred compensation under Section 409A. Any ambiguity in this Plan and any Award Agreement shall be interpreted to comply with Section 409A. To the extent applicable, (i) each amount or benefit payable pursuant to this Plan and any Award Agreement shall be deemed a separate payment for purposes of Section 409A and (ii) in the event the stock of the Company is publicly traded on an established securities market or otherwise and the Grantee is a specified employee (as determined under the Companys administrative procedure for such determinations, in accordance with Section 409A) at the time of the Grantees termination of employment, any payments under this Plan or any Award Agreement that are deemed to be deferred compensation subject to Section 409A shall not be paid or begin payment until the earlier of the Grantees death and the first day following the six (6) month anniversary of the Grantees date of termination of employment. Section 11. Adjustment. If, prior to the complete conversion, exchange or exercise of any Award that is convertible, exchangeable or exercisable for or into Common Units, the Units of the Company shall be split up, converted, exchanged, reclassified, or in any way substituted for or in the event of any extraordinary dividend or extraordinary distribution (of cash, Units, securities or other property), then the Award, to the extent it has not been converted, exchanged or exercised, shall be adjusted as the Committee deems appropriate to prevent the enlargement or dilution of rights of the Grantee, provided, however, that any such adjustment shall, to the extent applicable, be in accordance with the regulations promulgated under Section 409A so as not to cause a modification or deemed new grant of the Award. For avoidance of doubt, in no event shall any distributions for taxes or any regularly scheduled distribution or dividend paid pursuant to a distribution or dividend policy established by the Board constitute extraordinary dividends or extraordinary distributions. Section 12. Amendment Suspension or Termination of the Plan. The Board may from time to time suspend, discontinue, terminate, revise or amend (i) the Plan in any respect whatsoever and (ii) any Award Agreement, to the extent provided in such Award Agreement; provided, however, |
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7 #86439998v1 that in no event shall any such action adversely affect the rights of any Grantee in any material respect (without regard to any effect resulting from the individual circumstances of such Grantee) with respect to any previously granted Award without such Grantees consent, except to the extent such action is required by, or is necessary to comply with, law. Section 13. General Provisions. (a) No Right to Employment. Nothing contained in this Plan, any Award Agreement or the LLC Agreement shall confer upon any Grantee the right to continue in the employ of or association with the Company, its subsidiaries or its affiliates, or affect any rights which the Company, its subsidiaries or its affiliates may have to terminate such employment or association for any reason at any time. (b) Non-Uniform Determinations. The Committees determinations under the Plan need not be uniform and may be made by it selectively among persons who receive or are eligible to receive Awards (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Committee shall be entitled, among, other things, to make non-uniform and selective determinations, and to enter into non-uniform and selective Award Agreements, as to the person to receive Awards under the Plan, and the terms and provisions of Awards under the Plan. (c) Freedom of Action. Nothing contained in the Plan or any Award Agreement shall be construed to prevent the Company, its subsidiaries, its affiliates or any of the holders of Common Units from taking any corporate action, including, but not limited to, any recapitalization, reorganization, merger, consolidation, dissolution or sale, which is deemed by the Company, its subsidiaries, its affiliates or any of the holders of Common Units to be appropriate or in its or their best interest, whether or not such action would have an adverse effect on the Plan or any Awards thereunder. (d) Section Headings; Construction. The section headings contained herein are for the purpose of convenience only and are not intended to define or limit the contents of the sections. All words used in this Plan shall be construed to be of such gender or number, as the circumstances require. Unless otherwise expressly provided, the word including does not limit the preceding words or terms. (e) Governing Law. This Plan, any Award Agreement hereunder and any conflicts arising, hereunder or related hereto shall be governed by, and construed under, the laws of the State of Delaware, all rights and remedies being governed by said laws, regardless of the laws that might otherwise govern under applicable principles, to the fullest extent permitted by law, of conflicts of laws. (f) Severability; Entire Agreement. In the event any provision of this Plan or any Award Agreement shall be held illegal, invalid or unenforceable for any reason, the illegality, invalidity or unenforceability shall not affect the remaining provisions of this Plan and such illegal, invalid or unenforceable provision shall be deemed modified as if the illegal, invalid or unenforceable provisions had not been included. The Plan, any Award Agreement and the LLC Agreement contain the entire agreement of the parties with respect to the subject matter thereof |
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8 #86439998v1 and supersede all prior agreements, promises, covenants, arrangements, communications, representations and warranties between them, whether written or oral, with respect to the subject matter thereof. (g) Survival of Terms; Conflicts. The provisions of this Plan shall survive the termination of this Plan to the extent consistent with, or necessary to carry out, the purposes thereof. To the extent of any conflict between the Plan, any Award Agreement and the LLC Agreement, the LLC Agreement shall control; provided, however, that the Plan may impose greater restrictions or grant lesser rights than the LLC Agreement; and provided, further, that any Award Agreement may impose greater restrictions or grant lesser rights than either the LLC Agreement or the Plan. Subject to the second proviso in the immediately preceding sentence, in the event of any conflict between the Plan and any Award Agreement, the Plan shall control. (h) No Third Party Beneficiaries. Except as expressly provided therein, none of the Plan, any Award Agreement or the LLC Agreement shall confer on any person other than the Company and the Grantee any rights or remedies thereunder. (i) Successors and Assigns. The terms of this Plan shall be binding upon and inure to the benefit of the Company, its subsidiaries and their successors and assigns. (j) Notices. All notices, requests, waivers and other communications under the Plan or any Award Agreement shall be in writing and shall be deemed to be effectively given, sent, provided, delivered or received (i) when personally delivered to the party to be notified, (ii) when sent by confirmed facsimile or by electronic mail (e-mail) to the party to be notified, (iii) three (3) Business Days after deposit in the United States mail, postage prepaid, by certified or registered mail with return receipt requested, addressed to the party to be notified or (iv) one (1) Business Pay after deposit with a national overnight delivery service, postage prepaid, addressed to the party to be notified with next-Business Day delivery guaranteed, in each case sent or addressed to the Company at its principal office and to the Grantee at the Grantees mailing address, facsimile number or e-mail address as carried in the record books of the Company or at such other mailing address, facsimile number or e-mail address as the Grantee may from time to time designate in writing to the Company. The Grantee may change his or her mailing address, facsimile number or e-mail address for purposes of notice hereunder by giving notice of such change to the Company as provided herein. |
Exhibit 10.9
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EXECUTION VERSION AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT This AMENDMENT NO. 2, dated as of October 14, 2014 (this Amendment), is entered into by and among Neff LLC, a Delaware limited liability company (Parent Borrower), Neff Holdings LLC, a Delaware limited liability company (Holdings), Neff Rental LLC, a Delaware limited liability company, Bank of America, N.A., as administrative agent (in such capacity, Agent), and each of the financial institutions on the signature pages hereto in its capacity as a Lender under the Credit Agreement (as defined below), and amends that certain Amended and Restated Senior Secured Credit Agreement, dated as of October 1, 2010 and as amended and restated as of November 20, 2013 (as amended by that Amendment No. 1 to Amended and Restated Credit Agreement, dated as of June 9, 2014, and as the same may be further amended, restated, amended and restated, supplemented or otherwise modified from time to time prior to the date hereof, the Credit Agreement), by and among Parent Borrower, Holdings, the other Credit Parties party thereto, the Agent, the Lenders from time to time party thereto and the other parties thereto. Capitalized terms used and not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. PRELIMINARY STATEMENTS (1) WHEREAS, Parent Borrower, the other Credit Parties, the Agent and the Lenders have entered into the Credit Agreement; (2) WHEREAS, Parent Borrower, the other Credit Parties, the Agent and certain Lenders wish to amend the Credit Agreement as set forth in Section 2 below and provide the confirmations set forth in Section 5 below; (3) WHEREAS, pursuant to Section 9.2 of the Credit Agreement Parent Borrower may, with the consent of the Agent and the Requisite Lenders, amend the Credit Agreement as set forth in Section 2 below; and (4) WHEREAS, the Requisite Lenders are willing to consent to the amendments set forth in Section 2 below and provide the confirmations set forth in Section 5(b) below. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Defined Terms; References. Unless otherwise specifically defined herein, each capitalized term used herein that is not otherwise defined shall have the respective meaning assigned to such term in the Credit Agreement. Each reference contained in any Loan Document to hereof, hereunder, herein and hereby and each other similar reference and each reference contained in any Loan Document to this Agreement and each other similar reference, and each reference contained in any Loan Document to any other Loan Document or thereunder, thereof or other similar reference to such other Loan Document, shall, in each case after the Amendment No. 2 Operative Date (as defined in Section 4 of this Amendment), refer to such Loan Document or such other Loan Document as amended by this Amendment. Section 2. Amendments. With effect from the Amendment No. 2 Operative Date: |
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2 (a) Section 1.5(c)(iii) of the Credit Agreement shall be and hereby is amended by deleting the text of such Section in its entirety and inserting in lieu thereof [Reserved]. (b) Section 2.9(c)(ii) of the Credit Agreement shall be and hereby is amended by deleting the proviso at the end thereof and inserting in lieu thereof: provided, however, that after delivery by Agent of a control notice or similar notice as set forth in this clause (ii), (A) if the applicable Event of Default causing such delivery has been cured or (B) if such control notice or similar notice was delivered as a result of the Excess Availability thresholds set forth in this clause (ii), if Excess Availability is greater than or equal to the greater of (I) 12.5% of the aggregate Revolving Loan Commitments then in effect and (II) $35.0 million for a period of thirty (30) consecutive days (a Cash Dominion Reversal Event), then in the case of clause (A) or (B) Agent shall within one (1) Business Day thereof rescind such control notice or similar notice and instruct the applicable depositary institution, securities intermediary or commodities intermediary that all amounts on deposit in or credited to the applicable accounts shall cease to be transferred to the Concentration Account and shall be immediately available to the applicable Credit Party. (c) Section 3.1(j) of the Credit Agreement shall be and hereby is amended by deleting the text of such Section in its entirety and inserting in lieu thereof text as follows: unsecured Indebtedness in an aggregate principal amount not to exceed $50,000,000 at any one time outstanding so long as no cash interest or amortization payments are made on, or required with respect to, such Indebtedness and such Indebtedness has a final maturity date at least six months after the Commitment Termination Date;. (d) Section 3.5 of the Credit Agreement shall be and hereby is amended as follows: (i) By inserting immediately before the semicolon at the end of clause (a) thereof the text and Permitted Tax Receivable Payments. (ii) By deleting the text appearing in clause (e) thereof in its entirety and inserting in lieu thereof the following: Parent Borrower may make Restricted Payments to Holdings, and Holdings may make Restricted Payments to any Qualifying IPO Issuer, in the minimum amount necessary to enable Holdings or such Qualifying IPO Issuer to make repurchases of Stock deemed to occur upon the exercise of stock options if such Stock represents a portion of the exercise price thereof or the minimum amount of taxes due upon such exercises;. |
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3 (iii) (A) By deleting and at the end of clause (i) thereof, (B) replacing the period at the end of clause (j) thereof with ; and, and (C) adding a new clause (k) at the end of such Section as follows: (k) to the extent the Holdings LLC Agreement requires, (i) to reimburse Neff Corporation for expenses incurred on behalf or directly for the benefit of Holdings and its Subsidiaries, including without limitation expenses incurred in connection with the Neff Corporation Qualifying IPO, (ii) if any member of Holdings exercises its right to have its units in Holdings redeemed in accordance with the Holdings LLC Agreement, Holdings may make Restricted Payments in connection with such redemption in the form of any cash or Stock contributed to Holdings by Neff Corporation for such purpose, and (iii) in accordance with the Holdings LLC Agreement, Holdings shall be permitted to (A) undertake all actions, including, without limitation, a reclassification, distribution, division or recapitalization, with respect to its common units, to maintain at all times a one-to-one ratio between the number of common units owned by Neff Corporation and the number of outstanding shares of Class A common stock of Neff Corporation (disregarding, for purposes of maintaining the one-to-one ratio, such Stock of Neff Corporation as provided in the Holdings LLC Agreement); provided that, in the case of any action pursuant to this clause (k)(iii)(A) involving a distribution or other transfer by Holdings of cash or assets (other than Stock of Holdings), such distribution or other transfer is then permitted pursuant one or more other clauses of this Section 3.5, and (B) issue, transfer or deliver from treasury stock any units of Holdings to Neff Corporation.. (e) Section 3.6(a) of the Credit Agreement shall be and hereby is amended by adding a proviso at the end thereof as follows: provided that Holdings shall be permitted to amend and restate its limited liability company operating agreement on or before the closing date of the Neff Corporation Qualifying IPO substantially in the form attached as Exhibit B to Amendment No. 2;. (f) Section 3.8(b) of the Credit Agreement shall be and hereby is amended by deleting the text appearing in clause (i) thereof in its entirety and inserting in lieu thereof the following: (i) (x) reasonable fees and compensation paid to, and indemnity provided on behalf of, officers, directors, managers, members, employees or consultants of Holdings, Parent Borrower or any of its Subsidiaries as determined in good faith by Parent Borrowers Board of Directors or senior management, (y) incentive bonuses and other compensation, if any, paid to employees and/or members of the Board of Directors of any of the Credit Parties in connection with the 2014 Loan Transactions and (z) incentive bonuses and other compensation, if any, paid to employees and/or members of the Board of Directors of any of the Credit Parties |
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4 in connection with the Neff Corporation Qualifying IPO or under any Neff Holdings LLC 2014 Bonus Plan;. (g) Section 3.8(b) of the Credit Agreement shall be and hereby is amended by (i) deleting and at the end of clause (v) thereof, (ii) deleting the period at the end of clause (vi) thereof and inserting in lieu thereof ; and, and (iii) adding a new clause (vii) to the end thereof as follows: (vii) (A) in connection with a Neff Corporation Qualifying IPO, the entry into the Holdings LLC Agreement, the Tax Receivable Agreement, the IPO Common Unit Purchase Agreement and the Amended Neff Holdings LLC Management Equity Plan, and (B) Affiliate Transactions arising from the performance of such agreements (including pursuant to any amendment to such Contractual Obligations or documentation replacing such Contractual Obligations to the extent that such amendment or agreement is permitted hereunder and is not more disadvantageous to the applicable Credit Party or the Lenders in any material respect than the original Contractual Obligation).. (h) Section 3.9(a) of the Credit Agreement shall be and hereby is amended by deleting such clause in its entirety and inserting in lieu thereof the following: (a) Holdings shall not engage in any business or activity other than (i) being a guarantor with respect to the Obligations under the Loan Documents and performing its Obligations thereunder and a guarantor with respect to the obligations under the Second Lien Loans and any Parity Lien Debt and performing its obligations thereunder and the security and other documents executed in connection therewith, (ii) holding shares of the Stock of Parent Borrower, (iii) paying taxes, (iv) preparing reports to Governmental Authorities and to the holders of its Stock, (v) holding meetings of its Board of Directors and/or the holders of its Stock, preparing company records and other company activities required to maintain its separate company structure, (vi) entry into and performance of its obligations under the Neff Holdings LLC 2014 Bonus Plans and Amended Neff Holdings Management Equity Plan, (vii) entry into and performance of its obligations under the Holdings LLC Agreement, the Tax Receivable Agreement and the IPO Common Unit Purchase Agreement and (viii) any activities reasonably related thereto.. (i) Section 3.18 of the Credit Agreement shall be and hereby is amended by (i) deleting or at the end of clause (a) in the first sentence thereof and replacing it with ,, (ii) adding or at the end of clause (b)(y)(2) in the first sentence thereof and (iii) adding a new clause (c) to the end of the first sentence thereof as follows: (c) such Indebtedness is prepaid (including any consent fees and/or prepayment premiums payable in connection therewith) with the proceeds from a Neff Corporation Qualifying IPO or, thereafter, with the net proceeds from any other public offering of common equity securities by Neff Corporation (including in each case any green shoe or over-allotment option in connection therewith) that are applied by Neff Corporation to purchase common units of Holdings |
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5 (provided that payment of interest, customary breakage fees, and reimbursement of expenses of the Second Lien Agent in connection with such prepayment may be paid out of other funds of the Credit Parties). (j) Section 4.1 of the Credit Agreement shall be and hereby is amended by deleting the first full paragraph following clause (n) of such Section in its entirety and inserting in lieu thereof the following: Notwithstanding anything to the contrary set forth in this Section 4.1 or in any other provision of this Agreement that refers to this Section 4.1 or any clause hereof, the obligations of the Parent Borrower set forth in clauses (a), (b) and (c) of this Section 4.1 may be satisfied by furnishing the applicable financial information required by such clause with respect to Neff Corporation and its Subsidiaries on a consolidated basis in lieu of furnishing the applicable financial information required by such clause with respect to Parent Borrower and its Subsidiaries on a consolidated basis; provided, that to the extent such financial information relates to Neff Corporation and its Subsidiaries, such information is accompanied by consolidating information that explains in reasonable detail the differences between the information relating to such Neff Corporation and its Subsidiaries (other than Holdings and its Subsidiaries), on the one hand, and the information relating to Holdings and its Subsidiaries on a consolidated basis, on the other hand. Documents required to be delivered pursuant to Section 4.1(a), (b), (c) or (h) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which Parent Borrower posts such documents, or provides a link thereto on Parent Borrowers website on the Internet at the website address listed in Section 9.3; (ii) on which Neff Corporation electronically files such documents with the U.S. Securities and Exchange Commission and they become publicly available on www.sec.gov/edgar/searchedgar/companysearch.html (or any successor website maintained by such agency); or (iii) on which such documents are posted on Parent Borrowers behalf on an Internet or intranet website, if any, to which each Lender and the Agent have access (whether a commercial, third-party website or whether sponsored by the Agent); provided that (i) Parent Borrower shall deliver paper copies of such documents to the Agent or any Lender that requests Parent Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Agent or such Lender and (ii) any such posting shall only be deemed delivered when Parent Borrower shall notify the Agent (by facsimile or electronic mail) of the posting of any such documents and provide to the Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance Parent Borrower shall be required to provide paper copies of the Compliance and Pricing Certificates required by Section 4.1(m) to the Agent. Except for such Compliance and Pricing Certificates, the Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by Parent Borrower with any such |
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6 request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents. (k) Section 5.4(b)(iv) of the Credit Agreement shall be and hereby is amended by deleting such Section in its entirety and inserting in lieu thereof the following: (iv) each Credit Party is, and at the time of delivery of the Pledged Stock (as defined in the Security Agreement) to Agent will be, the sole holder of record and, other than Wayzata (or, after the Neff Corporation Qualifying IPO, Neff Corporation), the sole beneficial owner of such pledged Collateral pledged by each Credit Party free and clear of any Lien thereon or affecting the title thereto, except for any Lien created by this Agreement or any of the Collateral Documents in favor of the Agent for the benefit of the Agent and Lenders and the Permitted Encumbrances;. (l) Annex A to the Credit Agreement shall be and hereby is amended by: (i) Deleting the definition of Change of Control appearing therein in its entirety and inserting in lieu thereof the following: Change of Control means any event, transaction or occurrence as a result of which: (a) at any time prior to the consummation of a Qualifying IPO, the Permitted Holders cease to beneficially own (within the meaning of Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934) and control all of the voting rights associated with ownership of more than fifty percent (50%) of the outstanding Stock of Holdings having ordinary voting power on a fully diluted basis; or (b) at any time as of or after the consummation of a Qualifying IPO, (A) any person or group (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person and its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan, and excluding the Permitted Holders) shall become the beneficial owner (within the meaning of Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934), directly or indirectly, of outstanding Voting Stock of the Qualifying IPO Issuer entitling such person or group to cast more than thirty-five percent (35%) of the votes eligible to be cast in an election of directors, managing members or general partners, as applicable, of the Qualifying IPO Issuer and (B) the Permitted Holders shall own outstanding Voting Stock of the Qualifying IPO Issuer having a lesser percentage of the votes eligible to be cast in such an |
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7 election of the Qualifying IPO Issuer at such time than the person or group in the foregoing clause (A); or (c) Holdings ceases to own and control all of the voting rights associated with all of the outstanding Stock of Parent Borrower.. (ii) Deleting the definition of Continuing Director appearing therein in its entirety. (iii) Deleting the definition of Qualifying IPO Issuer appearing therein in its entirety and inserting in lieu thereof the following: Qualifying IPO Issuer means Holdings or a corporation or other legal entity which either (a) owns, directly or indirectly, 100% of the outstanding Stock of Holdings or (b) is the sole managing member of Holdings. For the avoidance of doubt, upon consummation of the Neff Corporation Qualifying IPO, Neff Corporation shall be a Qualifying IPO Issuer.. (iv) Deleting clause (a)(xvi) of the definition of Consolidated EBITDA appearing therein in its entirety and inserting in lieu thereof the following: (xvi) fees, expenses and other amounts payable by any Credit Party in connection with its performance, or payable or reimbursable to Neff Corporation in connection with its performance, of its obligations under the Tax Receivable Agreement and the IPO Common Unit Purchase Agreement,. (v) Further amending the definition of Consolidated EBITDA by (i) deleting and at the end of clause (a)(xvii) thereof and replacing it with ,, (ii) adding and at the end of clause (a)(xviii) thereof and (iii) adding a new clause (a)(xix) as follows: (xix) any fees, costs, expenses or charges related to, or arising in connection with, the Neff Corporation Qualifying IPO, Amendment No. 2 or Second Lien Amendment No. 1 (including, without limitation, (A) payment of consent fees to lenders, (B) payment of prepayment premium and breakage costs to lenders, (C) any incentive bonuses and other compensation, if any, paid or payable to employees and/or members of the Board of Directors of any of the Credit Parties in connection with the Neff Corporation Qualifying IPO or under any Neff Holdings LLC 2014 Bonus Plan, (D) filing fees and exchange listing fees, (E) roadshow expenses, printer costs and other offering expenses and (F) underwriter discounts and commissions). |
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8 (vi) Deleting clause (b)(iv) of the definition of Fixed Charge Coverage Ratio appearing therein in its entirety and inserting in lieu thereof the following: (iv) Restricted Payments paid by Holdings and its Subsidiaries after the Restatement Effective Date pursuant to Sections 3.5(a), (e), (f), (i) and (k)(i) (with respect to (k)(i), solely to the extent that such Restricted Payment is related to an expense of Neff Corporation that is an expense item that, if such payment were made by the Parent Borrower or its Subsidiaries and deducted in the calculation of Consolidated Net Income, such payment would be added back in the calculation of Consolidated EBITDA.. (vii) Deleting the definition of Stock appearing therein in its entirety and inserting in lieu thereof the following: Stock means all shares, options, warrants, general or limited partnership interests, membership interests or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock, common units, preferred units, units or any other equity security (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934).. (viii) Deleting the definition of Tax Distributions appearing therein in its entirety and inserting in lieu thereof the following: Tax Distributions means: (1) for so long as for U.S. federal income tax purposes, Parent Borrower is taxed as a partnership or disregarded entity and is not wholly owned (directly or indirectly) by a corporate parent, (A) with respect to any taxable year ending after the Closing Date, cash distributions to fund the assumed income tax liabilities of the direct or indirect equity owners of Parent Borrower (including estimated tax liabilities) in respect of the income of Parent Borrower for such taxable year, in an aggregate amount equal to the excess of (a) the product of (x) the net taxable income of Parent Borrower (treating Parent Borrower as a taxable entity, and calculated (i) by including in such net taxable income Parent Borrowers distributive share of all tax items attributable to Parent Borrower and any Subsidiary of Parent Borrower taxed as a partnership or disregarded entity for U.S. federal income tax purposes, and (ii) without regard to any adjustments pursuant to Section 734 of the Code that arises on or after the Qualifying IPO or any adjustments pursuant to Section 743 of the Code) for the taxable year in question, reduced by any cumulative net taxable loss with respect to any prior taxable year ending after the Closing Date to the extent such prior net taxable loss (I) is of a character (ordinary or |
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9 capital) that would permit such loss to be deducted against the income of the taxable year in question and (II) was not previously taken into account in determining the assumed income tax liabilities for any prior taxable year, and (y) the highest combined marginal federal and applicable state and/or local income tax rate (taking into account the deductibility of state and local income taxes for U.S. federal income tax purposes and the character of the taxable income in question (i.e., long term capital gain, qualified dividend income, etc.)) applicable to an individual United States citizen or corporation (whichever is higher) residing in New York, New York for the taxable year in question (or portion thereof), over (b) in the case of any taxable year beginning prior to the Closing Date, the aggregate amount of assumed estimated tax payments that should have been made under Section 6654 of the Code prior to the Closing Date (based on the assumption that all of the owners are individual or corporate residents of New York, New York (which results in a higher applicable combined marginal federal and applicable state and/or local income tax rate), calculated in a manner consistent with the calculation in clause (y) above); provided that, for the avoidance of doubt, in the event of any tax audit adjustment or other tax assessment or the filing of an amended tax return that results in additional taxable income of Parent Borrower (treating Parent Borrower as a taxable entity), the Tax Distributions with respect to such taxable year ending on or after the Closing Date shall be recalculated by giving effect to such adjustment, assessment or amended tax return (for the avoidance of doubt, taking into account interest and penalties), in a manner consistent with the calculation in clause (B) below) and (B) with respect to any taxable year ending prior to the Closing Date, cash distributions to pay the assumed income tax liabilities of the direct or indirect equity owners of Parent Borrower in respect of the income of Parent Borrower for such taxable year, in an aggregate amount equal to the sum of (i) the product of (I) any additional taxable income of Parent Borrower (calculated in a manner consistent with the calculation in clause (A) above) for such taxable year resulting from a tax audit adjustment or other tax assessment or the filing of an amended tax return made after the Closing Date and (II) the highest combined marginal federal and applicable state and/or local income tax rate (taking into account the deductibility of state and local income taxes for U.S. federal income tax purposes and the character of the taxable income in question (i.e., long term capital gain, qualified dividend income, etc.)) applicable to an individual United States citizen or corporation (whichever is higher) residing in New York, New York for the taxable year in question plus (ii) interest and penalties relating to such tax audit adjustment, assessment or amended tax return, (2) with respect to any taxable period for which Parent Borrower or any of its Subsidiaries is a member of a consolidated, combined or similar income, franchise or other state and/or local tax group of which Holdings or its direct or indirect parent is the common parent (a Tax Group), or for which Parent Borrower is a partnership or |
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10 disregarded entity that is wholly owned (directly or indirectly) by a corporate parent (a Corporate Parent), cash distributions to pay the portion of the Tax Groups or Corporate Parents actual cash income, franchise or other state and/or local tax liability attributable to Parent Borrower and/or its Subsidiaries, in an amount not to exceed the income, franchise or other state and/or local tax liability that would have been payable by Parent Borrower and/or such Subsidiaries if such entities had always been taxable on a stand-alone basis (reduced by any such income, franchise or other state and/or local taxes paid or to be paid directly by Parent Borrower or its Subsidiaries), and (3) cash distributions to pay any taxes of Holdings not described in clause (1) or (2) above, provided that the aggregate payments pursuant to this clause (3) shall not exceed $250,000 per calendar year.. (m) Annex A to the Credit Agreement shall be and hereby is amended by inserting the following definitions in appropriate alphabetical order: Amended Neff Holdings LLC Management Equity Plan means the Amended Neff Holdings LLC Management Equity Plan as in effect on the Amendment No. 2 Operative Date substantially in the form attached to Amendment No. 2 as Exhibit E as further amended from time to time in any manner that the Borrower reasonably determines is not adverse to the interests of the Agent or the Lenders. Amendment No. 2 means that certain Amendment No. 2 to Amended and Restated Credit Agreement, dated as of the Amendment No. 2 Effective Date, among the Agent, the Lenders party thereto, Holdings and Borrowers. Amendment No. 2 Effective Date means October 14, 2014. Amendment No. 2 Operative Date has the meaning set forth in Amendment No. 2. Holdings LLC Agreement means the Second Amended and Restated Limited Liability Company Agreement as in effect on the Amendment No. 2 Operative Date substantially in the form attached to Amendment No. 2 as Exhibit B as further amended from time to time in any manner that the Borrower reasonably determines is not adverse to the interests of the Agent or the Lenders. IPO Common Unit Purchase Agreement means the IPO Common Unit Purchase Agreement as in effect on the Amendment No. 2 Operative Date substantially in the form attached to Amendment No. 2 as Exhibit C as amended from time to time in any manner that the Borrower reasonably determines is not adverse to the interests of the Agent or the Lenders. Neff Corporation means Neff Corporation, a Delaware corporation formed at the direction of Wayzata for the purposes of effecting a Qualifying IPO, together with its successors and assigns. |
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11 Neff Corporation Qualifying IPO means a Qualifying IPO of Neff Corporation in connection with which (a) Holdings amends and restates its limited liability operating agreement substantially in the form of Exhibit B to Amendment No. 2, (b) Neff Corporation applies all or a portion of the net proceeds from such Qualifying IPO to purchase common units of Holdings, and (c) Neff Corporation becomes the sole managing member of Holdings. Neff Holdings LLC 2014 Bonus Plans means each of (a) the Neff Holdings LLC 2014 Management Special Bonus Plan, effective June 1, 2014, (b) the Neff Holdings LLC Amended and Restated Sale Transaction Bonus Plan, effective as of June 1, 2014 and as the same was further amended on or prior to the Amendment No. 2 Operative Date in connection with the Neff Corporation Qualifying IPO, and (c) the Neff Holdings LLC Incentive Bonus Plan, as in effect on or prior to the Amendment No. 2 Operative Date. Permitted Tax Receivable Payment means the aggregate amount of any accelerated lump sum amounts payable pursuant to the Tax Receivable Agreement by reason of any early termination of the Tax Receivable Agreement as a result of or in connection with the occurrence of a Change of Control that has been waived by the Requisite Lenders. Second Lien Agent means Credit Suisse AG, in its capacity as administrative and collateral agent under the Second Lien Credit Agreement, together with its successors and assigns. Second Lien Amendment No. 1 means that certain Amendment No. 1 to Second Lien Credit Agreement, to be dated and effective prior to or simultaneous with the Neff Corporation Qualifying IPO, by and among Parent Borrower, Holdings, the other Credit Parties that are party thereto, the Second Lien Agent and the Second Lien Lenders that are party thereto, which amends the Second Lien Credit Agreement. Second Lien Lenders means each of the Lenders as defined in the Second Lien Credit Agreement. Second Lien Loan Repayment Amount means the sum of (a) the aggregate principal amount of the Second Lien Loans prepaid with a portion of the net proceeds of from a Qualifying IPO received by the Credit Parties, plus (b) a 2.00% prepayment premium on the principal amount of Second Lien Loans repaid pursuant to the foregoing clause (a), plus (c) accrued and unpaid interest in respect of the principal amount of Second Lien Loans repaid pursuant to the foregoing clause (a), plus (d) solely to the extent ascertainable as of the date of pricing of the Neff Corporation Qualifying IPO, customary LIBOR breakage fees payable to the Second Lien Lenders in respect of the principal amount of Second Lien Loans repaid pursuant to the foregoing clause (a), plus (e) consent fees payable to the Second Lien Lenders, plus (f) solely to the extent ascertainable as of the date of pricing the Neff Corporation Qualifying IPO, expenses payable to |
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12 counsel to the Second Lien Agent in connection with the amendment to the Second Lien Credit Agreement. Tax Receivable Agreement means the Tax Receivable Agreement as in effect on the Amendment No. 2 Operative Date substantially in the form attached to Amendment No. 2 as Exhibit D as amended from time to time in any manner that the Borrower reasonably determines is not adverse to the interests of the Agent or the Lenders. Voting Stock means, with respect to any Person, any class or classes of Stock of such Person that entitles the holders thereof to vote in the election of directors, managing members or general partners, as the case may be, of such Person. Section 3. Representations. Holdings, Parent Borrower and each other Credit Party represents and warrants that immediately prior to and after giving effect to the effectiveness of this Amendment (i) the representations and warranties set forth in Section 5 of the Credit Agreement or any other Loan Document will be true and correct in all material respects (except to the extent any such representation or warranty is qualified by materially, Material Adverse Effect or a similar term, in which case such representation and warranty shall be true and correct in all respects) on and as of the Amendment No. 2 Effective Date and the Amendment No. 2 Operative Date, except in each case to the extent that such representations and warranties expressly relate to an earlier date, in which case they shall be true and correct in all material respects (except to the extent any such representation or warranty is qualified by materially, Material Adverse Effect or a similar term, in which case such representation and warranty shall be true and correct in all respects) as of such earlier date and (ii) no Default or Event of Default shall have occurred and be continuing under the Credit Agreement on the Amendment No. 2 Effective Date or on the Amendment No. 2 Operative Date. Section 4. Conditions to Effectiveness; Operation of Amendments and Confirmations. (a) This Amendment No. 2 shall become effective on the date (the Amendment No. 2 Effective Date) when, and only when, each of the following conditions shall have been satisfied to the reasonable satisfaction of the Administrative Agent (or waived by the Administrative Agent in its sole discretion): (i) Execution of Counterparts. The Agent shall have received from Holdings, Parent Borrower, each other Credit Party and the Requisite Lenders under the Credit Agreement an original counterpart of this Amendment signed by such party or a facsimile or electronic (i.e., .pdf or .tif) copy of such signed original counterpart. (ii) Officers Certificate. Parent Borrower shall have delivered to the Agent duly executed copies of a certificate of an authorized officer of Parent Borrower, dated the Amendment No. 2 Effective Date, certifying on behalf of Parent Borrower that as of the Amendment No. 2 Effective Date and after giving effect to this Amendment (i) the representations and warranties in this Amendment and the Credit Agreement are accurate, true and correct in all |
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13 material respects and (ii) no Default or Event of Default has occurred or is continuing. (iii) Expenses. The Agent shall have received all reasonable and documented fees and invoiced out-of-pocket expenses (including reasonable and documented expenses of counsel) due and payable by Holdings or Parent Borrower under Section 1.3(e) of the Credit Agreement or otherwise on or prior to the Amendment No. 2 Effective Date to the extent an invoice has been submitted to the Parent Borrower therefor. (b) Notwithstanding the fact that this Amendment No. 2 has become effective on the Amendment No. 2 Effective Date, the amendments set forth in Section 2 and consents set forth in Section 5(b) shall become operative only on the date on or prior to April 30, 2015 (the Amendment No. 2 Operative Date) when, and only when, each of the following conditions shall have been satisfied to the reasonable satisfaction of the Administrative Agent (or waived by the Administrative Agent in its sole discretion) and once operative, the provisions in Section 2 and Section 5(b) shall then be deemed to have occurred substantially simultaneous with the events contemplated therein and in Section 5(b): (i) Officers Certificate. Parent Borrower shall have delivered to the Agent duly executed copies of a certificate of an authorized officer of Parent Borrower, dated the Amendment No. 2 Operative Date, certifying on behalf of Parent Borrower that as of the Amendment No. 2 Operative Date and after giving effect to this Amendment (i) the representations and warranties in this Amendment and the Credit Agreement are accurate, true and correct in all material respects, (ii) no Default or Event of Default has occurred or is continuing and (iii) the Neff Corporation Qualifying IPO has closed or will close substantially simultaneous with the operation of the amendments set forth in Section 2 of this Amendment. (ii) Minimum Availability. On the Amendment No. 2 Operative Date (after giving effect to this Amendment and the operation of the amendments and consents herein), (i) Borrowers shall have Excess Availability of at least $150,000,000, calculated on a pro forma basis after giving effect to the consummation of the Neff Corporation Qualifying IPO and the application of a portion of the net proceeds therefrom to repay Loans and to prepay Second Lien Loans and (ii) Parent Borrower shall have delivered a certificate to the Agent setting forth the Second Lien Loan Repayment Amount (as defined in the Credit Agreement as amended hereby) and setting forth the calculation thereof (which calculation shall be reasonably acceptable to the Agent). (iii) Amendment Fee. The Parent Borrower shall have paid to each Lender consenting to this Amendment prior to Noon (New York City time) on October 8, 2014, a nonrefundable cash fee (the Amendment Fee) in U.S. dollars equal to five basis points of the Revolving Loan Commitments held by such Lender as of the Amendment No. 2 Effective Date. Such payment of the |
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14 Amendment Fee shall be made to the Agent for further distribution of the Lenders entitled thereto. (iv) Expenses. The Agent shall have received all reasonable and documented fees and invoiced out-of-pocket expenses (including reasonable and documented expenses of counsel) due and payable by Holdings or Parent Borrower under Section 1.3(e) of the Credit Agreement or otherwise on or prior to the Amendment No. 2 Operative Date to the extent an invoice has been submitted to the Parent Borrower therefor. For the avoidance of doubt, the operation of Section 2 and Section 5(b) are contingent upon the closing of the Neff Corporation Qualifying IPO and the satisfaction of the other conditions precedent set forth in this Section 4(b), and this Amendment shall lapse and have no effect if the Neff Corporation Qualifying IPO has not occurred and the other conditions set forth in this Section 4(b) have not been satisfied on or before April 30, 2015. Section 5. Confirmation of Loan Documents; Lender Consents. (a) The Credit Parties hereby confirm that the Collateral Documents and the obligations of such parties under the Loan Documents continue in full force and effect and shall not be affected by this Amendment, except as expressly provided herein. Each of the Credit Parties hereby further ratifies and reaffirms the validity and enforceability of all of the Liens and security interests heretofore granted, pursuant to and in connection with the Collateral Documents, to the Agent, as collateral security for the Obligations under the Loan Documents in accordance with their respective terms, and acknowledges that all of such Liens and security interests, and all Collateral heretofore pledged as security for such Obligations, continue to be and remain collateral for such obligations from and after the date hereof. (b) Notwithstanding anything set forth in the Credit Agreement, subject to the conditions set forth in Section 4 of this Amendment, each of the Lenders hereby consents to: (i) the prepayment by the Credit Parties of the Second Lien Loans with a portion of the net proceeds of from the Neff Corporation Qualifying IPO received by the Credit Parties; (ii) the payment by the Credit Parties to the Second Lien Lenders of a 2.00% prepayment premium on the principal amount of Second Lien Loans repaid pursuant to the foregoing clause (a) with a portion of the net proceeds of from Neff Corporation Qualifying IPO received by the Credit Parties; (iii) the payment by the Credit Parties of accrued and unpaid interest in respect of the principal amount of Second Lien Loans repaid pursuant to the foregoing clause (a), whether out of the proceeds from Neff Corporation Qualifying IPO received by the Credit Parties or otherwise; |
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15 (iv) the payment by the Credit Parties of customary LIBOR breakage fees payable to the Second Lien Lenders in respect of the principal amount of Second Lien Loans repaid pursuant to the foregoing clause (a), whether out of the proceeds from Neff Corporation Qualifying IPO received by the Credit Parties or otherwise; (v) the payment by the Credit Parties of consent fees payable to the Second Lien Lenders not to exceed $287,500 in the aggregate out of the proceeds from Neff Corporation Qualifying IPO received by the Credit Parties; (vi) the payment by the Credit Parties of expenses payable to counsel to the Second Lien Agent in connection with the amendment to the Second Lien Credit Agreement whether out of the proceeds from Neff Corporation Qualifying IPO received by the Credit Parties or otherwise; (vii) the entry by the Credit Parties into the Second Lien Amendment No. 1 substantially in the form attached hereto as Exhibit A; (viii) the amendment and restatement of the Holdings limited liability company operating agreement substantially in the form attached hereto as Exhibit B; (ix) the entry by Holdings into the IPO Common Unit Purchase Agreement substantially in the form attached hereto as Exhibit C; (x) the entry by Holdings into the Tax Receivable Agreement substantially in the form attached hereto as Exhibit D; (xi) the entry by Holdings into the Amended Neff Holdings LLC Management Equity Plan substantially in the form attached hereto as Exhibit E; and (xii) all transactions directly related to the foregoing clauses (i) through (xi). (c) Upon the Amendment No. 2 Effective Date this Amendment shall constitute a Loan Document. The execution, delivery, and performance of this Amendment shall not operate, except as expressly set forth herein, as a waiver of, consent to, or a modification or amendment of, any right, power, or remedy of Agent or any Lender under the Credit Agreement or any other Loan Document. Except for the amendments to the Credit Agreement and the consents expressly set forth herein, the Credit Agreement and the other Loan Documents shall remain unchanged and in full force and effect. The amendments and consents set forth herein shall, except to the extent they become operative on the Amendment No. 2 Operative Date, (i) neither excuse future non-compliance with the Loan Documents nor operate as a waiver of any Default or Event of Default, (ii) not operate as a consent to any matter under the Loan Documents except as expressly set forth herein and (iii) not be construed as an indication that the Lenders will agree to any other amendments or give any other consents or waivers with respect to the Credit Agreement or the other Loan Documents |
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16 that may be requested by the Credit Parties; it being understood that the agreement of any other amendments or giving of any other consents or waivers which may hereafter be requested by the Credit Parties remains in the sole and absolute discretion of Agent and the Lenders. Section 6. Certain Consequences Of Effectiveness. On and after the Amendment No. 2 Operative Date, the rights and obligations of the parties to the Credit Agreement and each other Loan Document shall be governed by the Credit Agreement as amended hereby; provided that the provisions of Section 2 and Section 5(b) of this Amendment shall not become operative (and this Amendment shall lapse and have no effect) unless and until the Neff Corporation Qualifying IPO and the other conditions precedent set forth in Section 4(b) hereof have occurred on or before April 30, 2015. To the extent that this Amendment has become effective and the provisions hereof have become operative, the Credit Agreement and the other Loan Documents, as specifically amended hereby, are, and shall continue to be, in full force and effect and are hereby ratified and confirmed in all respects. Section 7. Severability. Any provision of this Amendment held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. Section 8. Governing Law; Jurisdiction; Service of Process. THIS AMENDMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. PARENT BORROWER AND EACH CREDIT PARTY HEREBY CONSENT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN NEW YORK COUNTY, STATE OF NEW YORK AND IRREVOCABLY AGREE THAT, SUBJECT TO AGENTS ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AMENDMENT SHALL BE LITIGATED IN SUCH COURTS. PARENT BORROWER AND EACH CREDIT PARTY EXPRESSLY SUBMIT AND CONSENT TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVE ANY DEFENSE OF FORUM NON CONVENIENS. PARENT BORROWER AND EACH CREDIT PARTY HEREBY WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREE THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON PARENT BORROWER AND SUCH CREDIT PARTIES BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO PARENT BORROWER, AT THE ADDRESS SET FORTH IN SECTION 9.3 OF THE CREDIT AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED. Section 9. Waiver of Jury Trial. PARENT BORROWER, EACH CREDIT PARTY, AGENT, EACH LENDER AND EACH OTHER PARTY HERETO HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AMENDMENT. PARENT BORROWER, EACH CREDIT PARTY, AGENT, EACH LENDER AND EACH OTHER PARTY HERETO ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THIS WAIVER IN |
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17 ENTERING INTO THIS AMENDMENT AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. Section 10. Counterparts. This Amendment may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery by facsimile or email of an executed counterpart of a signature page to this Amendment shall be effective as delivery of an original executed counterpart of this Amendment. Section 11. Certain Tax Matters. For purposes of determining withholding Taxes imposed under the Foreign Account Tax Compliance Act (FATCA), from and after the Amendment No. 2 Effective Date, the Borrower and the Administrative Agent shall treat (and the Lenders hereby authorize the Administrative Agent to treat) the Loans as not qualifying as a "grandfathered obligation" within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i). |
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. NEFF LLC, as Parent Borrower By: Name: Mark Irion Title: Chief Financial Officer NEFF HOLDINGS LLC, as Holdings and a Credit Party By: Name: Mark Irion Title: Chief Financial Officer NEFF RENTAL LLC, as Borrower By: Name: Mark Irion Title: Chief Financial Officer [Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement]
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BANK OF AMERICA, N.A., as Agent and as a Lender: By: Name: Dennis S. Losin Title: Senior Vice President [Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] |
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RBS CITIZENS BUSINESS CAPITAL, a division of RBS Asset Finance, Inc., as a Lender: By: Name: James H. Herzog Jr Tile: Senior Vice President [Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] |
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SUNTRUST BANK, as a Lender: By Name: Alex Smith Title: Vice President [Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] |
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CIT FINANCE LLC, as a Lender: By: Name: Rence M. Singer Title: Managing Director [Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] |
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PNC BANK, NATIONAL ASSOCIATION, as a Lender: By: Name: Steven J. Chalmers Title: Vice President [Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] |
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[LENDER], as a Lender: By: Name: Title: Regions Bank Brucc Kasper Attorney in Fact |
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JFIN BUSINESS CREDIT FUND I LLC, as a Lender: By: Name: J. Paul McDonnell Title: Managing Director [Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] |
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CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as a Lender: By: Name: Mikhail Faybusovich Title: Authorized Signatory By: Name: Samuel Miller Title: Authorized Signatory [Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] |
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WELLS FARGO CAPITAL FINANCE, LLC, as a Lender: By: Name: Kevin S. Fong Title: Authorized Signatory [Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement] |
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EXHIBIT A FORM OF SECOND LIEN AMENDMENT NO. 1 [see attached] |
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EXECUTION VERSION #86420060v14 AMENDMENT NO. 1 TO SECOND LIEN CREDIT AGREEMENT This AMENDMENT NO. 1, dated as of October 14, 2014 (this Amendment), is entered into by and among Neff LLC, a Delaware limited liability company (Parent), Neff Holdings LLC, a Delaware limited liability company (Holdings), Neff Rental LLC, a Delaware limited liability company (the Borrower), Credit Suisse, AG, as administrative agent (in such capacity, Administrative Agent), and each of the financial institutions on the signature pages hereto in its capacity as a Lender under the Credit Agreement (as defined below), and amends that certain Second Lien Credit Agreement, dated as of June 9, 2014 (as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time prior to the date hereof, the Credit Agreement), by and among Parent, Borrower, Holdings, the Administrative Agent, the Lenders from time to time party thereto and the other parties thereto. PRELIMINARY STATEMENTS (1) WHEREAS, Parent, Borrower, Holdings, the Administrative Agent and the Lenders have entered into the Credit Agreement; (2) WHEREAS, Parent, Borrower, Holdings, the Administrative Agent and certain Lenders wish to amend the Credit Agreement as set forth in Section 2 below and provide the confirmations set forth in Section 5 below; (3) WHEREAS, pursuant to Section 9.08 of the Credit Agreement Borrower may, with the consent of the Administrative Agent and the Required Lenders, amend the Credit Agreement as set forth in Section 2 below; and (4) WHEREAS, the Required Lenders are willing to consent to the amendments set forth in Section 2 below and provide the confirmations set forth in Section 5(b) below. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Defined Terms; References. Unless otherwise specifically defined herein, each capitalized term used herein that is not otherwise defined shall have the respective meaning assigned to such term in the Credit Agreement. Each reference contained in any Loan Document to hereof, hereunder, herein and hereby and each other similar reference and each reference contained in any Loan Document to this Agreement and each other similar reference, and each reference contained in any Loan Document to any other Loan Document or thereunder, thereof or other similar reference to such other Loan Document, shall, in each case after the Amendment No. 1 Operative Date (as defined in Section 4 of this Amendment), refer to such Loan Document or such other Loan Document as amended by this Amendment. Section 2. Amendments. With effect from the Amendment No. 1 Operative Date: (a) Section 6.01(j) of the Credit Agreement shall be and hereby is amended by deleting the text of such Section in its entirety and inserting in lieu thereof text as follows: |
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2 #86420060v14 unsecured Indebtedness in an aggregate principal amount not to exceed $50,000,000 at any one time outstanding so long as no cash interest or amortization payments are made on, or required with respect to, such Indebtedness and such Indebtedness has a final maturity date at least six months after the Latest Maturity Date;. (b) Section 6.04(a) of the Credit Agreement shall be and hereby is amended as follows: (i) By deleting the text appearing in clause (iii) thereof in its entirety and inserting in lieu thereof the following: so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom, (A) Parent may make a Restricted Payment to Holdings to allow Holdings to, and Holdings may (and Holdings may make Restricted Payments to any Qualifying IPO Issuer to allow such Qualifying IPO Issuer to), purchase, redeem or otherwise acquire or retire for value Equity Interests of Holdings, Parent or the Borrower (or such Qualifying IPO Issuer) deemed to occur upon the exercise of stock options, warrants, rights to acquire Equity Interests or other convertible securities to the extent such Equity Interests represent a portion of the exercise or exchange price thereof and (B) Parent may make a Restricted Payment to Holdings to allow Holdings to, and Holdings may (and Holdings may make Restricted Payments to any Qualifying IPO Issuer to allow such Qualifying IPO Issuer to), purchase, redeem or otherwise acquire or retire for value Equity Interests of Holdings, Parent or the Borrower (or such Qualifying IPO Issuer) made in lieu of withholding taxes in connection with any exercise or exchange of stock options, warrants or other similar rights;. (ii) (A) By deleting and at the end of clause (vi) thereof, (B) by deleting the period at the end of clause (vii) thereof and inserting in lieu thereof the text and Permitted Tax Receivable Payments; and and (C) adding a new clause (viii) at the end of such Section as follows: (viii) to the extent the Holdings LLC Agreement requires, (I) to reimburse Neff Corporation for expenses incurred on behalf or directly for the benefit of Holdings and its Subsidiaries, including without limitation expenses incurred in connection with the Neff Corporation Qualifying IPO, (II) if any member of Holdings exercises its right to have its units in Holdings redeemed in accordance with the Holdings LLC Agreement, Holdings may make Restricted Payments in connection with such redemption in the form of any cash or Stock contributed to Holdings by Neff Corporation for such purpose, and (III) in accordance with the Holdings LLC Agreement, Holdings shall be permitted to (A) undertake all actions, including, without limitation, a reclassification, distribution, division or recapitalization, with respect to its common units, to maintain |
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3 #86420060v14 at all times a one-to-one ratio between the number of common units owned by Neff Corporation and the number of outstanding shares of Class A common stock of Neff Corporation (disregarding, for purposes of maintaining the one-to-one ratio, such Stock of Neff Corporation as provided in the Holdings LLC Agreement); provided that, in the case of any action pursuant to this clause (viii)(III)(A) involving a distribution or other transfer by Holdings of cash or assets (other than Equity Interests of Holdings), such distribution or other transfer is then permitted pursuant one or more other clauses of this proviso to Section 6.04(a), and (B) issue, transfer or deliver from treasury stock any units of Holdings to Neff Corporation.. (c) Section 6.11(b) of the Credit Agreement shall be and hereby is amended by adding a proviso at the end thereof as follows: provided that Holdings shall be permitted to amend and restate its limited liability company operating agreement on or before the closing date of the Neff Corporation Qualifying IPO substantially in the form attached as Exhibit B to Amendment No. 1;. (d) Section 6.11(c) of the Credit Agreement shall be and hereby is amended by adding a new proviso at the end thereof as follows: provided that the Loan Parties shall be permitted to enter into that certain Revolving Credit Facility Amendment No. 2 on or before the closing date of the Neff Corporation Qualifying IPO substantially in the form attached as Exhibit A to Amendment No. 1;. (e) Section 6.16 of the Credit Agreement shall be and hereby is amended by (i) deleting and at the end of clause (i) thereof, (ii) deleting the period at the end of clause (j) thereof and inserting in lieu thereof ; and, and (iii) adding a new clause (k) to the end thereof as follows: (k) (A) in connection with a Neff Corporation Qualifying IPO, the entry into the Holdings LLC Agreement, the Tax Receivable Agreement, the IPO Common Unit Purchase Agreement and the Amended Neff Holdings LLC Management Equity Plan, and (B) transactions arising from the performance of such agreements (including pursuant to any amendment to such agreements or documentation replacing such agreements to the extent that such amendment or agreement is permitted hereunder and is not more disadvantageous to the applicable Loan Party or the Lenders in any material respect than the original agreement).. (f) Section 6.19 of the Credit Agreement shall be and hereby is amended by deleting clause (i) thereof in its entirety and inserting in lieu thereof the following: (i) With respect to Holdings, engage in any business activities or have any assets or liabilities other than its ownership of the Equity Interests of Parent and |
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4 #86420060v14 activities and liabilities incidental thereto, including its liabilities pursuant to the Guarantee and Collateral Agreement and the Pledge Agreement; provided Holdings may (1) incur Indebtedness and Liens and make Restricted Payments to the extent permitted by the other Sections of this Article 6, (2) enter into and perform its obligations under the Neff Holdings LLC 2014 Bonus Plans and the Amended Neff Holdings LLC Management Equity Plan, (3) enter into and perform of its obligations under the Holdings LLC Agreement, the Tax Receivable Agreement and the IPO Common Unit Purchase Agreement and (4) any activities reasonably related thereto; provided, further that Holdings will not create, incur, assume or permit to exist any Lien (other than (1) Liens created under the Loan Documents and (2) Liens of a type described in clause (c), (d), (g), (j)(i), (j)(ii), (j)(vi), (j)(vii), (j)(viii), (k) (it being understood that such Lien will be terminated substantially concurrently with the consummation of the Transactions) and (u) of Section 6.02) on any Equity Interests issued by Parent, and. (g) Section 5.04 of the Credit Agreement shall be and hereby is amended by inserting two new paragraphs immediately following clause (n) of such Section as follows: Notwithstanding anything to the contrary set forth in this Section 5.04 or in any other provision of this Agreement that refers to this Section 5.04 or any clause hereof, the obligations of Holdings, Parent and Borrower set forth in clauses (a) and (b) of this Section 5.04 may be satisfied by furnishing the applicable financial information required by such clause with respect to Neff Corporation and its Subsidiaries on a consolidated basis in lieu of furnishing the applicable financial information required by such clause with respect to Holdings and its Subsidiaries on a consolidated basis; provided, that to the extent such financial information relates to Neff Corporation and its Subsidiaries, such information is accompanied by consolidating information that explains in reasonable detail the differences between the information relating to such Neff Corporation and its Subsidiaries (other than Holdings and its Subsidiaries), on the one hand, and the information relating to Holdings and its Subsidiaries on a consolidated basis, on the other hand. Documents required to be delivered pursuant to Section 5.04(a), (b) or (g) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which Holdings, Parent or Borrower posts such documents, or provides a link thereto on Holdings, Parents or Borrowers website on the Internet at www.neffcorp.com; (ii) on which Neff Corporation electronically files such documents with the U.S. Securities and Exchange Commission and they become publicly available on www.sec.gov/edgar/searchedgar/companysearch.html (or any successor website maintained by such agency); or (iii) on which such documents are posted on Holdings, Parents or Borrowers behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a |
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5 #86420060v14 commercial, third-party website or whether sponsored by the Administrative Agent); provided that (i) Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender that requests Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (ii) any such posting shall only be deemed delivered when Borrower shall notify the Administrative Agent (by facsimile or electronic mail) of the posting of any such documents and provide to the Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance Borrower shall be required to provide paper copies of the Compliance Certificates required by Section 5.04(d) to the Administrative Agent. Except for such Compliance Certificates, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents. (h) Section 1.01 of the Credit Agreement shall be and hereby is amended by: (i) Deleting the definition of Change of Control appearing therein in its entirety and inserting in lieu thereof the following: Change of Control shall mean the occurrence of any of the following events: (a) at any time prior to the consummation of a Qualifying IPO, the Permitted Investors cease to beneficially own (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), or to have the power to vote or direct the voting of, Voting Stock of Holdings representing more than fifty percent (50%) of the voting power of the total outstanding Voting Stock of Holdings; (b) at any time as of or after the consummation of a Qualifying IPO, (i) any person or group (within the meaning of Sections 13(d) and 14(d) of the Exchange Act, but excluding any employee benefit plan of such person and its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan, and excluding the Permitted Investors) shall become the beneficial owner (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of Voting Stock of the Qualifying IPO Issuer entitling such person or group to cast more than thirty-five percent (35%) of the votes eligible to be cast in an election of directors, managing members or general partners, as applicable, of the Qualifying IPO Issuer and (ii) the Permitted Investors shall own outstanding Voting Stock of the Qualifying IPO Issuer having a lesser percentage of the votes eligible to be cast in such an election of the Qualifying IPO Issuer at such time than the person or group in the foregoing clause (i); |
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6 #86420060v14 (c) Holdings ceases to own and control, directly or indirectly, all of the voting rights associated with all of the outstanding Equity Interests of Parent and Borrower; or (d) a Change of Control shall occur under and as defined in the Revolving Credit Facility Documentation.. (ii) Deleting the definition of Continuing Director appearing therein in its entirety. (iii) Deleting the definition of Qualifying IPO Issuer appearing therein in its entirety and inserting in lieu thereof the following: Qualifying IPO Issuer means Holdings or a corporation or other legal entity which either (a) owns, directly or indirectly, 100% of the outstanding Stock of Holdings or (b) is the sole managing member of Holdings. For the avoidance of doubt, upon consummation of the Neff Corporation Qualifying IPO, Neff Corporation shall be a Qualifying IPO Issuer.. (iv) Amending the definition of Consolidated EBITDA appearing therein by (A) deleting and appearing at the end of clause (a)(xiii) thereof and inserting in lieu thereof , and (B) inserting two new clauses immediately after the end of clause (a)(xiv) thereof and immediately before the words and minus following the end of clause (a)(xiv), as follows: , (xv) fees, expenses and other amounts payable by any Loan Party in connection with its performance, or payable or reimbursable to Neff Corporation in connection with its performance, of its obligations under the Tax Receivable Agreement and the IPO Common Unit Purchase Agreement and (xvi) any fees, costs, expenses or charges related to, or arising in connection with, the Neff Corporation Qualifying IPO, Amendment No. 1 or Revolving Credit Facility Amendment No. 2 (including, without limitation, (A) payment of consent fees to lenders, (B) payment of prepayment premium and breakage costs to lenders, (C) any incentive bonuses and other compensation, if any, paid or payable to employees and/or members of the board of directors of any of the Loan Parties in connection with the Neff Corporation Qualifying IPO or under any Neff Holdings LLC 2014 Bonus Plans, (D) filing fees and exchange listing fees, (E) roadshow expenses, printer costs and other offering expenses and (F) underwriter discounts and commissions),. (v) By deleting the definition of Permitted Tax Distributions appearing therein in its entirety and inserting in lieu thereof the following: Permitted Tax Distributions shall mean: |
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7 #86420060v14 (1) for so long as for U.S. federal income tax purposes Parent is taxed as a partnership or disregarded entity and is not wholly owned (directly or indirectly) by a corporate parent, (A) with respect to any taxable year ending after the Closing Date, cash distributions to fund the assumed income tax liabilities of the direct or indirect equity owners of Parent (including estimated tax liabilities) in respect of the income of Parent for such taxable year, in an aggregate amount equal to the excess of (a) the product of (x) the net taxable income of Parent (treating Parent as a taxable entity, and calculated (i) by including in such net taxable income Parents distributive share of all tax items attributable to Parent and any Subsidiary of Parent taxed as a partnership or disregarded entity for U.S. federal income tax purposes, and (ii) without regard to any adjustments pursuant to Section 734 of the Code that arises on or after the Qualifying IPO or any adjustments pursuant to Section 743 of the Code) for the taxable year in question, reduced by any cumulative net taxable loss with respect to any prior taxable year ending after the Closing Date to the extent such prior net taxable loss (I) is of a character (ordinary or capital) that would permit such loss to be deducted against the income of the taxable year in question and (II) was not previously taken into account in determining the assumed income tax liabilities for any prior taxable year and (y) the highest combined marginal federal and applicable state and/or local income tax rate (taking into account the deductibility of state and local income taxes for U.S. federal income tax purposes and the character of the taxable income in question (i.e., long term capital gain, qualified dividend income, etc.)) applicable to an individual United States citizen or corporation (whichever is higher) residing in New York, New York for the taxable year in question (or portion thereof), over (b) in the case of any taxable year beginning prior to the Closing Date, the aggregate amount of assumed estimated tax payments that should have been made under Section 6654 of the Code prior to the Closing Date (based on the assumption that all of the owners are individual or corporate residents of New York, New York (which results in a higher applicable combined marginal federal and applicable state and/or local income tax rate), calculated in a manner consistent with the calculation in clause (y) above); provided that, for the avoidance of doubt, in the event of any tax audit adjustment or other tax assessment or the filing of an amended tax return that results in additional taxable income of Parent (treating Parent as a taxable entity), the Permitted Tax Distributions with respect to such taxable year ending on or after the Closing Date shall be recalculated by giving effect to such adjustment, assessment or amended tax return (for the avoidance of doubt, taking into account interest and penalties), in a manner consistent with the calculation in clause (B) below) and (B) with respect to any taxable year ending prior to the Closing Date, cash distributions to pay the assumed income tax liabilities of the direct or indirect equity owners of Parent in respect of the income of Parent for such taxable year, in an aggregate amount equal to the sum of (i) the product of (I) any additional taxable income of Parent (calculated in a |
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8 #86420060v14 manner consistent with the calculation in clause (A) above) for such taxable year resulting from a tax audit adjustment or other tax assessment or the filing of an amended tax return made after the Closing Date and (II) the highest combined marginal federal and applicable state and/or local income tax rate (taking into account the deductibility of state and local income taxes for U.S. federal income tax purposes and the character of the taxable income in question (i.e., long term capital gain, qualified dividend income, etc.)) applicable to an individual United States citizen or corporation (whichever is higher) residing in New York, New York for the taxable year in question plus (ii) interest and penalties relating to such tax audit adjustment, assessment or amended tax return, (2) with respect to any taxable period for which Parent or any of its Subsidiaries is a member of a consolidated, combined or similar income, franchise or other state and/or local tax group of which Holdings or its direct or indirect parent is the common parent (a Tax Group), or for which Parent is a partnership or disregarded entity that is wholly owned (directly or indirectly) by a corporate parent (a Corporate Parent), cash distributions to pay the portion of the Tax Groups or Corporate Parents actual cash income, franchise or other state and/or local tax liability attributable to Parent and/or its Subsidiaries, in an amount not to exceed the income, franchise or other state and/or local tax liability that would have been payable by Parent and/or such Subsidiaries if such entities had always been taxable on a stand-alone basis (reduced by any such income, franchise or other state and/or local taxes paid or to be paid directly by Parent or its Subsidiaries), and (3) cash distributions to pay any taxes of Holdings not described in clause (1) or (2) above, provided that the aggregate payments pursuant to this clause (3) shall not exceed $250,000 per calendar year.. (vi) By deleting the definition of Voting Stock appearing therein in its entirety and inserting in lieu thereof the following: Voting Stock shall mean, with respect to any Person, any class or classes of Stock of such Person that entitles the holders thereof to vote in the election of directors, managing members or general partners, as the case may be, of such Person. (i) Section 1.01 of the Credit Agreement shall be and hereby is amended by inserting the following definitions in appropriate alphabetical order: Amended Neff Holdings LLC Management Equity Plan means the Amended Neff Holdings LLC Management Equity Plan as in effect on the Amendment No. 1 Operative Date substantially in the form attached to Amendment No. 1 as Exhibit E as further amended from time to time in any manner that the Borrower reasonably determines is not adverse to the interests of the Administrative Agent or the Lenders. |
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9 #86420060v14 Amendment No. 1 means that certain Amendment No. 1 to Second Lien Credit Agreement, dated as of the Amendment No. 1 Effective Date, among the Administrative Agent, the Lenders party thereto, Holdings, Parent and the Borrower. Amendment No. 1 Effective Date means October 14, 2014. Amendment No. 1 Operative Date has the meaning set forth in Amendment No. 1. Holdings LLC Agreement means the Second Amended and Restated Limited Liability Company Agreement as in effect on the Amendment No. 1 Operative Date substantially in the form attached to Amendment No. 1 as Exhibit B as further amended from time to time in any manner that the Borrower reasonably determines is not adverse to the interests of the Administrative Agent or the Lenders. IPO Common Unit Purchase Agreement means the IPO Common Unit Purchase Agreement as in effect on the Amendment No. 1 Operative Date substantially in the form attached to Amendment No. 1 as Exhibit C as amended from time to time in any manner that the Borrower reasonably determines is not adverse to the interests of the Administrative Agent or the Lenders. Neff Corporation means Neff Corporation, a Delaware corporation formed at the direction of Wayzata for the purposes of effecting a Qualifying IPO, together with its successors and assigns. Neff Corporation Qualifying IPO means a Qualifying IPO of Neff Corporation in connection with which (a) Holdings amends and restates its limited liability operating agreement substantially in the form of Exhibit B to Amendment No. 1, (b) Neff Corporation applies all or a portion of the net proceeds from such Qualifying IPO to purchase common units of Holdings, and (c) Neff Corporation becomes the sole managing member of Holdings. Neff Holdings LLC 2014 Bonus Plans means each of (a) the Neff Holdings LLC 2014 Management Special Bonus Plan, effective June 1, 2014, (b) the Neff Holdings LLC Amended and Restated Sale Transaction Bonus Plan, effective as of June 1, 2014 and as the same was further amended on or prior to the Amendment No. 1 Operative Date in connection with the Neff Corporation Qualifying IPO, and (c) the Neff Holdings LLC Incentive Bonus Plan, as in effect on or prior to the Amendment No. 1 Operative Date. Permitted Tax Receivable Payment means the aggregate amount of any accelerated lump sum amounts payable pursuant to the Tax Receivable Agreement by reason of any early termination of the Tax Receivable Agreement as a result of or in connection with the occurrence of a Change of Control that has been waived by the Required Lenders. |
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10 #86420060v14 Revolving Credit Facility Amendment No. 2 means that certain Amendment No. 2 to Amended and Restated Credit Agreement, to be dated and effective prior to or simultaneous with the Neff Corporation Qualifying IPO, by and among Holdings, Parent, the Borrower, the Revolving Agent and the Revolving Lenders that are party thereto, which amends the Revolving Credit Facility. Revolving Lenders means each of the Lenders as defined in the Revolving Credit Facility. Tax Receivable Agreement means the Tax Receivable Agreement as in effect on the Amendment No. 1 Operative Date substantially in the form attached to Amendment No. 1 as Exhibit D as amended from time to time in any manner that the Borrower reasonably determines is not adverse to the interests of the Administrative Agent or the Lenders. Section 3. Representations. Holdings, Parent, Borrower and each other Loan Party represents and warrants that immediately prior to and after giving effect to the effectiveness of this Amendment (i) the representations and warranties set forth in Article 3 of the Credit Agreement or any other Loan Document will be true and correct in all material respects (except to the extent any such representation or warranty is qualified by materially, Material Adverse Effect or a similar term, in which case such representation and warranty shall be true and correct in all respects) on and as of the Amendment No. 1 Effective Date and the Amendment No. 1 Operative Date, except in each case to the extent that such representations and warranties expressly relate to an earlier date, in which case they shall be true and correct in all material respects (except to the extent any such representation or warranty is qualified by materially, Material Adverse Effect or a similar term, in which case such representation and warranty shall be true and correct in all respects) as of such earlier date and (ii) no Default or Event of Default shall have occurred and be continuing under the Credit Agreement on the Amendment No. 1 Effective Date or on the Amendment No. 1 Operative Date. Section 4. Conditions to Effectiveness; Operation of Amendments and Confirmations. (a) This Amendment No. 1 shall become effective on the date (the Amendment No. 1 Effective Date) when, and only when, each of the following conditions shall have been satisfied to the reasonable satisfaction of the Administrative Agent (or waived by the Administrative Agent in its sole discretion): (i) Execution of Counterparts. The Administrative Agent shall have received from Holdings, Parent, Borrower, each other Loan Party and the Required Lenders under the Credit Agreement an original counterpart of this Amendment signed by such party or a facsimile or electronic (i.e., .pdf or .tif) copy of such signed original counterpart. (ii) Officers Certificate. Borrower shall have delivered to the Administrative Agent duly executed copies of a certificate of an authorized officer of Borrower, dated the Amendment No. 1 Effective Date, certifying on behalf of Borrower that (i) as of the Amendment No. 1 Effective Date and after giving |
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11 #86420060v14 effect to this Amendment, the representations and warranties in this Amendment and the Credit Agreement are accurate, true and correct in all material respects and (ii) no Default or Event of Default has occurred or is continuing. (iii) Expenses. The Administrative Agent shall have received all reasonable and documented fees and invoiced out-of-pocket expenses (including reasonable and documented expenses of counsel) due and payable by Holdings, Parent or Borrower under Section 9.05(a) of the Credit Agreement or otherwise on or prior to the Amendment No. 1 Effective Date to the extent an invoice has been submitted to the Borrower therefor. (b) Notwithstanding the fact that this Amendment No. 1 has become effective on the Amendment No. 1 Effective Date, the amendments set forth in Section 2 and consents set forth in Section 5(b) shall become operative only on the date on or prior to April 30, 2015 (the Amendment No. 1 Operative Date) when, and only when, each of the following conditions shall have been satisfied to the reasonable satisfaction of the Administrative Agent (or waived by the Administrative Agent in its sole discretion) and once operative, the provisions in Section 2 and Section 5(b) shall then be deemed to have occurred substantially simultaneous with the events contemplated therein and in Section 5(b): (i) Officers Certificate. Borrower shall have delivered to the Administrative Agent duly executed copies of a certificate of an authorized officer of Borrower, dated the Amendment No. 1 Operative Date, certifying on behalf of Borrower that (i) as of the Amendment No. 1 Operative Date and after giving effect to this Amendment, the representations and warranties in this Amendment and the Credit Agreement are accurate, true and correct in all material respects, (ii) no Default or Event of Default has occurred or is continuing and (iii) the Neff Corporation Qualifying IPO has closed or will close substantially simultaneous with the operation of the amendments set forth in Section 2 of this Amendment. (ii) Prepayment of Indebtedness. On the Amendment No. 1 Operative Date (after giving effect to this Amendment and the operation of the amendments and consents herein), (i) substantially simultaneous with the consummation of the Neff Corporation Qualifying IPO, the Borrower shall have repaid or prepaid Indebtedness in an aggregate principal amount not less than the greater of (x) $75,000,000 and (y) the aggregate net proceeds of the Neff Corporation Qualifying IPO (excluding any exercise of the over-allotment option) received by Holdings (and not otherwise applied, substantially concurrently with the consummation of the Neff Corporation Qualifying IPO, to redeem the Stock of Holdings from the Permitted Investors in lieu of the direct purchase of such Stock by Neff Corporation), net of premium, interest, breakage costs, consent fees, other fees and expenses incurred in connection with the repayment of such Indebtedness or in connection with this Amendment or the Revolving Credit Facility Amendment No. 2; provided that, (x) in the case of any revolving |
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12 #86420060v14 Indebtedness, commitments in respect thereof need not be terminated, and (y) not less than $50,000,000 of such repayment or prepayment, as applicable, shall be applied to prepay Loans (together with amounts required by the Credit Agreement to be paid upon such prepayment) and (ii) Borrower shall have delivered a certificate to the Administrative Agent setting forth the following (which calculation shall be reasonably acceptable to the Administrative Agent): the sum of (a) the aggregate principal amount of the Loans prepaid with a portion of the net proceeds of from a Qualifying IPO received by the Loan Parties, plus (b) a 2.00% prepayment premium on the principal amount of Loans repaid pursuant to the foregoing clause (a), plus (c) accrued and unpaid interest in respect of the principal amount of Loans repaid pursuant to the foregoing clause (a), plus (d) solely to the extent ascertainable as of the date of pricing of the Neff Corporation Qualifying IPO, customary LIBOR breakage fees payable to the Lenders in respect of the principal amount of Loans repaid pursuant to the foregoing clause (a), plus (e) consent fees payable to the Lenders, plus (f) solely to the extent ascertainable as of the date of pricing the Neff Corporation Qualifying IPO, expenses payable to counsel to the Administrative Agent in connection with this Amendment No. 1. (iii) Amendment Fee. The Borrower shall have paid to each Lender consenting to this Amendment prior to 3:00 p.m. (New York City time) on October 10, 2014, a nonrefundable cash fee (the Amendment Fee) in U.S. dollars equal to five basis points of the Loans held by such Lender as of the Amendment No. 1 Effective Date. Such payment of the Amendment Fee shall be made to the Administrative Agent for further distribution of the Lenders entitled thereto. (iv) Expenses. The Administrative Agent shall have received all reasonable and documented fees and invoiced out-of-pocket expenses (including reasonable and documented expenses of counsel) due and payable by Holdings, Parent or Borrower under Section 9.05(a) of the Credit Agreement or otherwise on or prior to the Amendment No. 1 Operative Date to the extent an invoice has been submitted to the Borrower therefor. For the avoidance of doubt, the operation of Section 2 and Section 5(b) are contingent upon the closing of the Neff Corporation Qualifying IPO and the satisfaction of the other conditions precedent set forth in this Section 4(b), and this Amendment shall lapse and have no effect if the Neff Corporation Qualifying IPO has not occurred and the other conditions set forth in this Section 4(b) have not been satisfied on or before April 30, 2015. Section 5. Confirmation of Loan Documents; Lender Consents. (a) The Loan Parties hereby confirm that the Collateral Documents and the obligations of such parties under the Loan Documents continue in full force and effect and shall not be affected by this Amendment, except as expressly provided herein. Each of the Loan Parties hereby further ratifies and reaffirms the validity and enforceability of |
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13 #86420060v14 all of the Liens and security interests heretofore granted, pursuant to and in connection with the Collateral Documents, to the Administrative Agent, as collateral security for the Obligations under the Loan Documents in accordance with their respective terms, and acknowledges that all of such Liens and security interests, and all Collateral heretofore pledged as security for such Obligations, continue to be and remain collateral for such obligations from and after the date hereof. (b) Notwithstanding anything set forth in the Credit Agreement, subject to the conditions set forth in Section 4 of this Amendment, each of the Lenders hereby consents to: (i) the entry by the Loan Parties into the Revolving Credit Facility Amendment No. 2 substantially in the form attached hereto as Exhibit A; (ii) the amendment and restatement of the Holdings limited liability company operating agreement substantially in the form attached hereto as Exhibit B; (iii) the entry by Holdings into the IPO Common Unit Purchase Agreement substantially in the form attached hereto as Exhibit C; (iv) the entry by Holdings into the Tax Receivable Agreement substantially in the form attached hereto as Exhibit D; (v) the entry by Holdings into the Amended Neff Holdings LLC Management Equity Plan substantially in the form attached hereto as Exhibit E; and (vi) all transactions directly related to the foregoing clauses (i) through (v). (c) Upon the Amendment No. 1 Effective Date this Amendment shall constitute a Loan Document. The execution, delivery, and performance of this Amendment shall not operate, except as expressly set forth herein, as a waiver of, consent to, or a modification or amendment of, any right, power, or remedy of Administrative Agent or any Lender under the Credit Agreement or any other Loan Document. Except for the amendments to the Credit Agreement and the consents expressly set forth herein, the Credit Agreement and the other Loan Documents shall remain unchanged and in full force and effect. The amendments and consents set forth herein shall, except to the extent they become operative on the Amendment No. 1 Operative Date, (i) neither excuse future non-compliance with the Loan Documents nor operate as a waiver of any Default or Event of Default, (ii) not operate as a consent to any matter under the Loan Documents except as expressly set forth herein and (iii) not be construed as an indication that the Lenders will agree to any other amendments or give any other consents or waivers with respect to the Credit Agreement or the other Loan Documents that may be requested by the Loan Parties; it being understood that the agreement of any other amendments or giving of any other consents or waivers |
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14 #86420060v14 which may hereafter be requested by the Loan Parties remains in the sole and absolute discretion of Administrative Agent and the Lenders. Section 6. Certain Consequences Of Effectiveness. On and after the Amendment No. 1 Operative Date, the rights and obligations of the parties to the Credit Agreement and each other Loan Document shall be governed by the Credit Agreement as amended hereby; provided that the provisions of Section 2 and Section 5(b) of this Amendment shall not become operative (and this Amendment shall lapse and have no effect) unless and until the Neff Corporation Qualifying IPO and the other conditions precedent set forth in Section 4(b) hereof have occurred on or before April 30, 2015. To the extent that this Amendment has become effective and the provisions hereof have become operative, the Credit Agreement and the other Loan Documents, as specifically amended hereby, are, and shall continue to be, in full force and effect and are hereby ratified and confirmed in all respects. Section 7. Severability. In the event any one or more of the provisions contained in this Amendment should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. Section 8. Governing Law; Jurisdiction; Service of Process. (a) THIS AMENDMENT AND ANY CLAIM, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. (b) BORROWER AND EACH LOAN PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT IT WILL NOT COMMENCE ANY ACTION, LITIGATION OR PROCEEDING OF ANY KIND OR DESCRIPTION, WHETHER IN LAW OR EQUITY, WHETHER IN CONTRACT OR IN TORT OR OTHERWISE, AGAINST ANY AGENT, ANY LENDER, OR ANY RELATED PARTY OF THE FOREGOING IN ANY WAY RELATING TO THIS AMENDMENT OR THE TRANSACTIONS RELATING HERETO, IN ANY FORUM OTHER THAN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY IN THE BOROUGH OF MANHATTAN, AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, AND EACH OF THE PARTIES HERETO IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS AND AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION, LITIGATION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY APPLICABLE LAW, SUCH FEDERAL COURT. NOTHING IN THIS AMENDMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT OR ANY LENDER MAY |
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15 #86420060v14 OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THE CREDIT AGREEMENT OR THE OTHER LOAN DOCUMENTS AGAINST HOLDINGS, PARENT, THE BORROWER OR THEIR RESPECTIVE PROPERTIES IN THE COURTS OF ANY JURISDICTION. (c) HOLDINGS, PARENT AND THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT IN ANY NEW YORK STATE OR FEDERAL COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT. (d) EACH PARTY TO THIS AMENDMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 9.01 OF THE CREDIT AGREEMENT. NOTHING IN THIS AMENDMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AMENDMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. Section 9. Waiver of Jury Trial. BORROWER, EACH LOAN PARTY, ADMINISTRATIVE AGENT, EACH LENDER AND EACH OTHER PARTY HERETO HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AMENDMENT OR ANY OF THE OTHER LOAN DOCUMENTS. BORROWER, EACH LOAN PARTY, ADMINISTRATIVE AGENT, EACH LENDER AND EACH OTHER PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AMENDMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9. Section 10. Counterparts. This Amendment may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed signature page to this Amendment by facsimile transmission or in electronic (i.e., pdf or tif) format shall be as effective as delivery of a manually signed counterpart of this Amendment. Section 11. Certain Tax Matters. For purposes of determining withholding Taxes imposed under the Foreign Account Tax Compliance Act (FATCA), from and after the Amendment No. 1 Effective Date, the Borrower and the Administrative Agent shall treat (and the Lenders hereby authorize the Administrative Agent to treat) the Loans as not qualifying as a "grandfathered obligation" within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i). |
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#86420060v14 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. NEFF LLC, as Parent and a Loan Party By: Name: Mark Irion Title: Chief Financial Officer NEFF HOLDINGS LLC, as Holdings and a Loan Party By: Name: Mark Irion Title: Chief Financial Officer NEFF RENTAL LLC, as Borrower and a Loan Party By: Name: Mark Irion Title: Chief Financial Officer |
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#86420060v14 CREDIT SUISSE, AG, as Administrative Agent: By: Name: Title: |
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#86420060v14 [LENDER], as a Lender: By: Name: Title: |
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#86420060v14 EXHIBIT A FORM OF REVOLVING CREDIT FACILITY AMENDMENT NO. 2 [see attached] |
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#86420060v14 EXHIBIT B FORM OF HOLDINGS LLC AGREEMENT [see attached] |
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#86420060v14 EXHIBIT C FORM OF IPO COMMON UNIT PURCHASE AGREEMENT [see attached] |
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#86420060v14 EXHIBIT D FORM OF TAX RECEIVABLE AGREEMENT [see attached] |
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#86420060v14 EXHIBIT E FORM OF AMENDED NEFF HOLDINGS LLC MANAGEMENT EQUITY PLAN [see attached] |
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EXHIBIT B FORM OF HOLDINGS LLC AGREEMENT [see attached] |
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12 NY\6520040.7 DRAFT 10-14-2014 voting interests thereof are at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, references to a Subsidiary of the Company shall be given effect only at such times that the Company has one or more Subsidiaries, and, unless otherwise indicated, the term Subsidiary refers to a Subsidiary of the Company. Substituted Member means a Person that is admitted as a Member to the Company pursuant to Section 12.01. Tax Distribution Date has the meaning set forth in Section 4.01(b)(i). Tax Distributions has the meaning set forth in Section 4.01(b)(i). Tax Matters Partner has the meaning set forth in Section 9.03. Tax Receivable Agreement means that certain Tax Receivable Agreement, dated as the date hereof, by and among the Corporation, on the one hand, and the Original Members, on the other hand (together with any joinder thereto from time to time executed by any LLC Optionee and/or by any successor or assign to any party to such agreement). Taxable Year means the Companys accounting period for U.S. federal income tax purposes determined pursuant to Section 9.02. Trading Day means a day on which the Stock Exchange or such other principal United States securities exchange on which the Class A Common Stock is listed or admitted to trading is open for the transaction of business (unless such trading shall have been suspended for the entire day). Transfer (and, with a correlative meaning, Transferring) means any sale, transfer, assignment, pledge, encumbrance or other disposition of (whether directly or indirectly, whether with or without consideration and whether voluntarily or involuntarily or by operation of Law) (a) any interest (legal or beneficial) in any Equity Securities or (b) any equity or other interest (legal or beneficial) in any Member if substantially all of the assets of such Member consist solely of Units. Treasury Regulations means the income tax regulations promulgated under the Code and any corresponding provisions of succeeding regulations. Underwriting Agreement means the Underwriting Agreement, dated as of [ ], 2014, by and among the Corporation, the Company, Morgan Stanley & Co. LLC and Jefferies LLC. Unit means a Company Interest of a Member or a permitted Assignee in the Company representing a fractional part of the Company Interests of all Members and Assignees as may be established by the Manager from time to time in accordance with Section 3.02; provided, however, that any class or group of Units issued shall have the relative rights, powers and duties set forth in this Agreement, and the Company Interest represented by such class or group of Units shall be determined in accordance with such relative rights, powers and duties. |
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13 NY\6520040.7 DRAFT 10-14-2014 Unitholder means a Common Unitholder and any Member who is the registered holder of any other class of Units, if any. Unvested Corporate Shares means shares of Class A Common Stock issued pursuant to the Corporate Omnibus Incentive Plan that are not Vested Corporate Shares. Value means (a) for any Stock Option Plan, the Market Price for the trading day immediately preceding the date of exercise of a stock option under such Stock Option Plan and (b) for any Equity Plan other than a Stock Option Plan, the Market Price for the trading day immediately preceding the Vesting Date. Vested Corporate Shares has the meaning set forth in Section 3.04(c)(ii). Vesting Date has the meaning set forth in Section 3.11(c)(ii). Voting Units means (a) the Common Units and (b) any other Units other than Units that by their express terms do not entitle the record holder thereof to vote on any matter presented to the Members generally under this Agreement for approval. Wayzata has the meaning set forth in the recitals to this Agreement. Wayzata Offshore has the meaning set forth in the recitals to this Agreement. ARTICLE II. ORGANIZATIONAL MATTERS Section 2.01 Formation of Company. The Company was formed on May 12, 2010 pursuant to the provisions of the Delaware Act. Section 2.02 Second Amended and Restated Limited Liability Company Agreement. The Members hereby execute this Agreement for the purpose of establishing the affairs of the Company and the conduct of its business in accordance with the provisions of the Delaware Act. The Members hereby agree that during the term of the Company set forth in Section 2.06 the rights and obligations of the Members with respect to the Company will be determined in accordance with the terms and conditions of this Agreement and the Delaware Act. On any matter upon which this Agreement is silent, the Delaware Act shall control. No provision of this Agreement shall be in violation of the Delaware Act and to the extent any provision of this Agreement is in violation of the Delaware Act, such provision shall be void and of no effect to the extent of such violation without affecting the validity of the other provisions of this Agreement; provided, however, that where the Delaware Act provides that a provision of the Delaware Act shall apply unless otherwise provided in a limited liability company agreement or words of similar effect, the provisions of this Agreement shall in each instance control; provided further, that notwithstanding the foregoing, Section 18-210 of the Delaware Act shall not apply or be incorporated into this Agreement. Section 2.03 Name. The name of the Company shall be Neff Holdings LLC. The Manager in its sole discretion may change the name of the Company at any time and from time to time. Notification of any such change shall be given to all of the Members and, to the extent |
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14 NY\6520040.7 DRAFT 10-14-2014 practicable, to all of the holders of any Equity Securities then outstanding. The Companys business may be conducted under its name and/or any other name or names deemed advisable by the Manager. Section 2.04 Purpose. The primary business and purpose of the Company shall be to engage in such activities as are permitted under the Delaware Act and determined from time to time by the Manager in accordance with the terms and conditions of this Agreement. Section 2.05 Principal Office; Registered Office. The principal office of the Company shall be at 3750 N.W. 87th Avenue, Suite 400, Miami, Florida 33178, or such other place as the Manager may from time to time designate. The address of the registered office of the Company in the State of Delaware shall be c/o The Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, County of New Castle, 19801, and the registered agent for service of process on the Company in the State of Delaware at such registered office shall be The Corporation Trust Company. The Manager may from time to time change the Companys registered agent and registered office in the State of Delaware. Section 2.06 Term. The term of the Company commenced upon the filing of the Certificate in accordance with the Delaware Act and shall continue in existence until termination and dissolution of the Company in accordance with the provisions of Article XIV. Section 2.07 No State-Law Partnership. The Members intend that the Company not be a partnership (including, without limitation, a limited partnership) or joint venture, and that no Member be a partner or joint venturer of any other Member by virtue of this Agreement, for any purposes other than as set forth in the last sentence of this Section 2.07, and neither this Agreement nor any other document entered into by the Company or any Member relating to the subject matter hereof shall be construed to suggest otherwise. The Members intend that the Company shall be treated as a partnership for U.S. federal and, if applicable, state or local income tax purposes, and that each Member and the Company shall file all tax returns and shall otherwise take all tax and financial reporting positions in a manner consistent with such treatment. ARTICLE III. MEMBERS; UNITS; CAPITALIZATION Section 3.01 Members. (a) Each of the Original Members previously was admitted as a Member to the Company pursuant to the First A&R LLC Agreement and shall remain a Member of the Company upon the Effective Time. At the Effective Time and concurrently with the IPO Common Unit Purchase, the Corporation shall be admitted to the Company as a Member. In accordance with Section 12.02, from time to time on or after the date of this Agreement, upon each LLC Option Exercise the applicable LLC Optionee shall be admitted to the Company as an Additional Member. (b) The Company shall maintain a schedule setting forth: (i) the name and address of each Member; (ii) the aggregate number of outstanding Units and the number and class of Units held by each Member; (iii) the aggregate amount of cash Capital Contributions that have been |
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15 NY\6520040.7 DRAFT 10-14-2014 made by the Members with respect to their Units; and (iv) the Fair Market Value of any property other than cash contributed by the Members with respect to their Units (including, if applicable, a description and the amount of any liability assumed by the Company or to which contributed property is subject) (such schedule, the Schedule of Members). The applicable Schedule of Members in effect as of the Effective Time is set forth as Schedule 1 to this Agreement. The Schedule of Members shall be the definitive record of ownership of each Unit of the Company and all relevant information with respect to each Member. The Company shall be entitled to recognize the exclusive right of a Person registered on its records as the owner of Units for all purposes and shall not be bound to recognize any equitable or other claim to or interest in Units on the part of any other Person, whether or not it shall have express or other notice thereof, except as otherwise provided by the Delaware Act. (c) No Member shall be required or, except as approved by the Manager pursuant to Section 6.01 and in accordance with the other provisions of this Agreement, permitted to loan any money or property to the Company or borrow any money or property from the Company. Section 3.02 Units. Interests in the Company shall be represented by Units, or such other securities of the Company, in each case as the Manager may establish in its discretion in accordance with the terms and subject to the restrictions hereof. Immediately after the Effective Time, the Units will be comprised of a single class of Common Units (with an aggregate of [ ] Common Units being authorized for issuance by the Company). To the extent required pursuant to Section 3.04(a), the Manager may create one or more classes or series of Common Units or preferred Units solely to the extent they are in the aggregate substantially equivalent to a class of common stock of the Corporation or class or series of preferred stock of the Corporation; provided that as long as there are any Members of the Company (other than the Corporation) or any LLC Optionees with respect to outstanding LLC Options, then no such new class or series of Units may deprive such Members or LLC Optionees of, or dilute or reduce, the pro rata share of all Company Interests they would have received or to which they would have been entitled (including on a pro forma basis for the exercise of LLC Options) if such new class or series of Units had not been created except to the extent (and solely to the extent) the Company actually receives cash in an aggregate amount, or other property with a Fair Market Value in an aggregate amount, equal to the pro rata share allocated to such new class or series of Units and the number thereof issued by the Company. Section 3.03 Recapitalization and Split; the Corporations Capital Contribution; the Corporations Purchase of Common Units; Redemptions. (a) Recapitalization and Split. In connection with the Recapitalization, immediately upon the Effective Time, the aggregate number of 9,200,000 Original Class A Units that were issued and outstanding and held by the Original Members prior to the execution and effectiveness of this Agreement are hereby converted into an aggregate of [ ] Common Units. The number of Common Units received by each Original Member reflect a [__]:1 ([_______________] to one) split of each Unit evidencing a common Company Interest previously held by each Original Member and reflected on Schedule A to, and in other applicable provisions of, the First A&R LLC Agreement. In connection with the Recapitalization, immediately upon the Effective Time, the aggregate number of 778,374 Original Class B Units that were underlying option grants to the Original LLC Optionees prior to the execution and |
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16 NY\6520040.7 DRAFT 10-14-2014 effectiveness of this Agreement are hereby converted into an aggregate of [ ] Common Units. The number of Common Units underlying each grant to an Original LLC Optionee will reflect a [__]:1 ([_______________] to one) split of each Unit evidencing a common Company Interest previously underlying the grant to such Original LLC Optionee and reflected in the applicable grant documentation under the Original Management Equity Plan and the applicable Original Award Agreement. (b) The Corporations Common Unit Purchase. Following the Recapitalization, immediately upon the Effective Time, the Corporation will contribute the IPO Net Proceeds to the Company in exchange for [ ] Common Units pursuant to the IPO Common Unit Purchase Agreement (the IPO Common Unit Purchase). The IPO Common Unit Purchase shall be reflected on the Schedule of Members. Section 3.04 Authorization and Issuance of Additional Units. (a) The Company shall undertake all actions, including, without limitation, a reclassification, distribution, division or recapitalization, with respect to the Common Units, to maintain at all times a one-to-one ratio between the number of Common Units owned by the Corporation and the number of outstanding shares of Class A Common Stock, disregarding, for purposes of maintaining the one-to-one ratio, (i) Unvested Corporate Shares, (ii) treasury stock or (iii) preferred stock or other debt or equity securities (including without limitation warrants, options or rights) issued by the Corporation that are convertible into or exercisable or exchangeable for Class A Common Stock (except to the extent the net proceeds from such other securities, including any exercise or purchase price payable upon conversion, exercise or exchange thereof, has been contributed by the Corporation to the equity capital of the Company). In the event the Corporation issues, transfers or delivers from treasury stock or repurchases Class A Common Stock in a transaction not contemplated in this Agreement, the Manager shall have the authority to take all actions such that, after giving effect to all such issuances, transfers, delivers or repurchases, the number of outstanding Common Units owned by the Corporation will equal on a one-for-one basis the number of outstanding shares of Class A Common Stock. In the event the Corporation issues, transfers or delivers from treasury stock or repurchases or redeems the Corporations preferred stock in a transaction not contemplated in this Agreement, the Manager shall have the authority to take all actions such that, after giving effect to all such issuances, transfers, deliveries repurchases or redemptions, the Corporation holds (in the case of any issuance, transfer or delivery) or ceases to hold (in the case of any repurchase or redemption) equity interests in the Company which (in the good faith determination by the Manager) are in the aggregate substantially equivalent to the outstanding preferred stock of the Corporation so issued, transferred, delivered, repurchased or redeemed. The Company shall not undertake any subdivision (by any Common Unit split, Common Unit distribution, reclassification, recapitalization or similar event) or combination (by reverse Common Unit split, reclassification, recapitalization or similar event) of the Common Units that is not accompanied by an identical subdivision or combination of Class A Common Stock to maintain at all times a one-to-one ratio between the number of Common Units owned by the Corporation and the number of outstanding shares of Class A Common Stock, unless such action is necessary to maintain at all times a oneto- one ratio between the number of Common Units owned by the Corporation and the number of outstanding shares of Class A Common Stock as contemplated by the first sentence of this Section 3.04(a). |
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17 NY\6520040.7 DRAFT 10-14-2014 (b) The Company shall only be permitted to issue additional Units or other Equity Securities in the Company to the Persons and on the terms and conditions provided for in Section 3.02, this Section 3.04, Section 3.10, Section 3.11 and Section 3.12. Subject to the foregoing, the Manager may cause the Company to issue additional Common Units authorized under this Agreement at such times and upon such terms as the Manager shall determine and the Manager shall amend this Agreement as necessary in connection with the issuance of additional Common Units and admission of additional Members under this Section 3.04. Section 3.05 Repurchase or Redemption of shares of Class A Common Stock. If, at any time, any shares of Class A Common Stock are repurchased or redeemed (whether by exercise of a put or call, automatically or by means of another arrangement) by the Corporation for cash, then the Manager shall cause the Company, immediately prior to such repurchase or redemption of Class A Common Stock, to redeem a corresponding number of Common Units held by the Corporation, at an aggregate redemption price equal to the aggregate purchase or redemption price of the shares of Class A Common Stock being repurchased or redeemed by the Corporation (plus any expenses related thereto) and upon such other terms as are the same for the shares of Class A Common Stock being repurchased or redeemed by the Corporation. Section 3.06 Certificates Representing Units; Lost, Stolen or Destroyed Certificates; Registration and Transfer of Units. (a) Units shall not be certificated unless otherwise determined by the Manager. If the Manager determines that one or more Units shall be certificated, each such certificate shall be signed by or in the name of the Company, by the Chief Executive Officer and any other officer designated by the Manager, representing the number of Units held by such holder. Such certificate shall be in such form (and shall contain such legends) as the Manager may determine. Any or all of such signatures on any certificate representing one or more Units may be a facsimile, engraved or printed, to the extent permitted by applicable Law. The Manager agrees that it shall not elect to treat any Unit as a security within the meaning of Article 8 of the Uniform Commercial Code unless thereafter all Units then outstanding are represented by one or more certificates. (b) If Units are certificated, the Manager may direct that a new certificate representing one or more Units be issued in place of any certificate theretofore issued by the Company alleged to have been lost, stolen or destroyed, upon delivery to the Manager of an affidavit of the owner or owners of such certificate, setting forth such allegation. The Manager may require the owner of such lost, stolen or destroyed certificate, or such owners legal representative, to give the Company a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate. (c) Upon surrender to the Company or the transfer agent of the Company, if any, of a certificate for one or more Units, duly endorsed or accompanied by appropriate evidence of succession, assignment or authority to transfer, in compliance with the provisions hereof, the Company shall issue a new certificate representing one or more Units to the Person entitled thereto, cancel the old certificate and record the transaction upon its books. Subject to the |
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18 NY\6520040.7 DRAFT 10-14-2014 provisions of this Agreement, the Manager may prescribe such additional rules and regulations as it may deem appropriate relating to the issue, Transfer and registration of Units. Section 3.07 Negative Capital Accounts. No Member shall be required to pay to any other Member or the Company any deficit or negative balance which may exist from time to time in such Members Capital Account (including upon and after dissolution of the Company). Section 3.08 No Withdrawal. No Person shall be entitled to withdraw any part of such Persons Capital Contribution or Capital Account or to receive any Distribution from the Company, except as expressly provided in this Agreement. Section 3.09 Loans From Members. Loans by Members to the Company shall not be considered Capital Contributions. Subject to the provisions of Section 3.01(c), the amount of any such advances shall be a debt of the Company to such Member and shall be payable or collectible in accordance with the terms and conditions upon which such advances are made. Section 3.10 LLC Option Exercises. If at any time or from time to time, in connection with any LLC Option, the LLC Optionee exercises its LLC Option in whole or in part: (a) If such LLC Optionee is not a Member as of the date of such exercise, such LLC Optionee shall execute and deliver to the Manager a Joinder to this Agreement whereby such LLC Optionee shall agree to become a Member under this Agreement, entitled to all of the rights and privileges and subject to all of the agreements and responsibilities of a Member hereunder from and after the date of such Joinder. (b) Notwithstanding the foregoing, if the LLC Optionee, in its capacity as a prospective Member hereunder as a result of such LLC Option exercise, intends to simultaneously exercise its Redemption Rights with respect to all (but not less than all) of the Common Units to be received as by such LLC Optionee as a result of such exercise, then: (i) the actions described in subsection (a) of this Section 3.10 shall be deemed to have occurred (including that such LLC Optionee shall be deemed to have become a Member for the period of time between such exercise and such Redemption) without requiring the actual execution of a Joinder or the actual issuance and delivery to the LLC Optionee of the applicable number of Common Units; and (ii) such LLC Optionee may proceed to exercise all of the rights of a Member with respect to a Redemption under Article XI hereof of up to the number of Common Units that such LLC Optionee is entitled to receive (and deemed to have received) as a result of such exercise. (e) Anti-dilution adjustments. For all purposes of this Section 3.10, the number of Common Units (or in connection with simultaneous Redemption, the number of shares of Class A Common Stock in lieu of Common Units) shall be determined after giving effect to all antidilution or similar adjustments that are applicable, as of the date of exercise, to the LLC Option being exercised the Original Management Equity Plan or applicable Original Award Agreement. Section 3.11 Corporate Stock Option Plans. |
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19 NY\6520040.7 DRAFT 10-14-2014 (a) Options Granted to Persons other than LLC Employees. If at any time or from time to time, in connection with any Stock Option Plan, a stock option granted over shares of Class A Common Stock to a Person other than an LLC Employee is duly exercised: (i) The Corporation shall, as soon as practicable after such exercise, make a Capital Contribution to the Company in an amount equal to the exercise price paid to the Corporation by such exercising Person in connection with the exercise of such stock option. (ii) Notwithstanding the amount of the Capital Contribution actually made pursuant to Section 3.11(a)(i), the Corporation shall be deemed to have contributed to the Company as a Capital Contribution, in lieu of the Capital Contribution actually made and in consideration of additional Common Units, an amount equal to the Value of a share of Class A Common Stock as of the date of such exercise multiplied by the number of shares of Class A Common Stock then being issued by the Corporation in connection with the exercise of such stock option. (iii) The Corporation shall receive in exchange for such Capital Contributions (as deemed made under 3.11(a)(ii)), a corresponding number of Units of a class correlative to the class of Equity Securities for which such stock options were granted. (b) Options Granted to LLC Employees. If at any time or from time to time, in connection with any Stock Option Plan, a stock option granted over shares of Class A Common Stock to an LLC Employee is duly exercised: (i) The Corporation shall sell to the Optionee, and the Optionee shall purchase from the Corporation, for a cash price per share equal to the Value of a share of Class A Common Stock at the time of the exercise, the number of shares of Class A Common Stock equal to the quotient of (x) the exercise price payable by the Optionee in connection with the exercise of such stock option divided by (y) the Value of a share of Class A Common Stock at the time of such exercise. (ii) The Corporation shall sell to the Company (or if the Optionee is an employee of, or other service provider to, a Subsidiary, the Corporation shall sell to such Subsidiary), and the Company (or such Subsidiary, as applicable) shall purchase from the Corporation, a number of shares of Class A Common Stock equal to the excess of (x) the number of shares of Class A Common Stock as to which such stock option is being exercised over (y) the number of shares of Class A Common Stock sold pursuant to Section 3.11(b)(i) hereof. The purchase price per share of Class A Common Stock for such sale of shares of Class A Common Stock to the Company (or such Subsidiary) shall be the Value of a share of Class A Common Stock as of the date of exercise of such stock option. (iii) The Company shall transfer to the Optionee (or if the Optionee is an employee of, or other service provider to, a Subsidiary, the Subsidiary shall transfer to the Optionee) at no additional cost to such LLC Employee and as additional |
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20 NY\6520040.7 DRAFT 10-14-2014 compensation to such LLC Employee, the number of shares of Class A Common Stock described in Section 3.11(b)(ii). (iv) The Corporation shall, as soon as practicable after such exercise, make a Capital Contribution to the Company in an amount equal to all proceeds received (from whatever source, but excluding any payment in respect of payroll taxes or other withholdings) by the Corporation in connection with the exercise of such stock option. The Corporation shall receive for such Capital Contribution, a number Units equal to the number of shares of Class A Common Stock for which such option was exercised. (c) Restricted Stock Granted to LLC Employees. If at any time or from time to time, in connection with any Equity Plan (other than a Stock Option Plan), any shares of Class A Common Stock are issued to an LLC Employee (including any shares of Class A Common Stock that are subject to forfeiture in the event such LLC Employee terminates his employment by the Company or any Subsidiary) in consideration for services performed for the Company or any Subsidiary: (i) The Corporation shall issue such number of shares of Class A Common Stock as are to be issued to the LLC Employee in accordance with the Equity Plan; (ii) On the date (such date, the Vesting Date) that the Value of such shares is includible in taxable income of the LLC Employee, the following events will be deemed to have occurred: (a) the Corporation shall be deemed to have sold such shares of Class A Common Stock to the Company (or if the LLC Employee is an employee of, or other service provider to, a Subsidiary, to such Subsidiary) for a purchase price equal to the Value of such shares of Class A Common Stock, (b) the Company (or such Subsidiary) shall be deemed to have delivered such shares of Class A Common Stock to the LLC Employee, (c) the Corporation shall be deemed to have contributed the purchase price for such shares of Class A Common Stock to the Company as a Capital Contribution, and (d) in the case where the LLC Employee is an employee of a Subsidiary, the Company shall be deemed to have contributed such amount to the capital of the Subsidiary; and (iii) The Company shall issue to the Corporation on the Vesting Date a number of Units equal to the number of shares of Class A Common Stock issued under Section 3.11(c)(i) in consideration for a Capital Contribution in cash in an amount equal to the product of (x) the number of such newly issued Units multiplied by (y) the Value of a share of Class A Common Stock. (d) Future Stock Incentive Plans. Nothing in this Agreement shall be construed or applied to preclude or restrain the Corporation from adopting, modifying or terminating stock incentive plans for the benefit of employees, directors or other business associates of the Corporation, the Company or any of their Affiliates. The Members acknowledge and agree that, in the event that any such plan is adopted, modified or terminated by the Corporation, amendments to this Section 3.11 may become necessary or advisable and that any approval or consent to any such amendments requested by the Corporation shall be deemed granted by the Members. |
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21 NY\6520040.7 DRAFT 10-14-2014 (e) Anti-dilution adjustments. For all purposes of this Section 3.11, the number of shares of Class A Common Stock and the corresponding number of Common Units shall be determined after giving effect to all anti-dilution or similar adjustments that are applicable, as of the date of exercise or vesting, to the option, warrant, restricted stock or other equity interest that is being exercised or becomes vested under the applicable Stock Option Plan or other Equity Plan and applicable award or grant documentation. Section 3.12 Dividend Reinvestment Plan, Cash Option Purchase Plan, Stock Incentive Plan or Other Plan. Except as may otherwise be provided in this Article III, all amounts received or deemed received by the Corporation in respect of any dividend reinvestment plan, cash option purchase plan, stock incentive or other stock or subscription plan or agreement, either (a) shall be utilized by the Corporation to effect open market purchases of shares of Class A Common Stock, or (b) if the Corporation elects instead to issue new shares of Class A Common Stock with respect to such amounts, shall be contributed by the Corporation to the Company in exchange for additional Units. Upon such contribution, the Company will issue to the Corporation a number of Units equal to the number of new shares of Class A Common Stock so issued. ARTICLE IV. DISTRIBUTIONS Section 4.01 Distributions. (a) Distributable Cash; Other Distributions. To the extent permitted by applicable Law and hereunder, Distributions to Members may be declared by the Manager out of Distributable Cash or other funds or property legally available therefor in such amounts and on such terms (including the payment dates of such Distributions) as the Manager shall determine using such record date as the Manager may designate; such Distributions shall be made to the Members as of the close of business on such record date on a pro rata basis in accordance with each Members Percentage Interest as of the close of business on such record date; provided, however, that the Manager shall have the obligation to make Distributions as set forth in Sections 4.01(b) and 14.02; and provided further that, notwithstanding any other provision herein to the contrary, no Distributions shall be made to any Member to the extent such Distribution would render the Company insolvent. For purposes of the foregoing sentence, insolvency means the inability of the Company to meet its payment obligations when due. Promptly following the designation of a record date and the declaration of a Distribution pursuant to this Section 4.01(a), the Manager shall give notice to each Member of the record date, the amount and the terms of the Distribution and the payment date thereof. In furtherance of the foregoing, it is intended that the Manager shall, to the extent permitted by applicable Law and hereunder, have the right in its sole discretion to make Distributions to the Members pursuant to this Section 4.01(a) in such amounts as shall enable the Corporation to pay dividends or to meet its obligations, including its obligations pursuant to the Tax Receivable Agreement (to the extent such obligations are not otherwise able to be satisfied as a result of Tax Distributions required to be made pursuant to Section 4.01(b)). (b) Tax Distributions. |
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22 NY\6520040.7 DRAFT 10-14-2014 (i) On or about each date (a Tax Distribution Date) that is [ten (10)] Business Days prior to (i) each date on which estimated U.S. federal income tax payments are required to be made by calendar year individual taxpayers (or, if earlier, the date on which estimated U.S. federal income tax payments are required for the Corporation) and (ii) each due date for the U.S. federal income tax return of an individual calendar year taxpayer (without regard to extensions) (or, if earlier, the due date for the U.S. federal income tax return of the Corporation, as determined without regard to extensions), the Company shall be required to make a Distribution to each Member of cash in an amount equal to the excess of such Members Assumed Tax Liability, if any, for such taxable period over the Distributions previously made to such Member pursuant to this Section 4.01(b) with respect to such taxable period (the Tax Distributions). (ii) To the extent a Member otherwise would be entitled to receive less than its Percentage Interest of the aggregate Tax Distributions to be paid pursuant to this Section 4.01(b) on any given date, the Tax Distributions to such Member shall be increased to ensure that all Distributions made pursuant to this Section 4.01(b) are made pro rata in accordance with Percentage Interests. If, on a Tax Distribution Date, there are insufficient funds on hand to distribute to the Members the full amount of the Tax Distributions to which such Members are otherwise entitled, Distributions pursuant to this Section 4.01(b) shall be made to the Members to the extent of available funds in accordance with their Percentage Interests and the Company shall make future Tax Distributions as soon as funds become available sufficient to pay the remaining portion of the Tax Distributions to which such Members are otherwise entitled. (iii) In the event of any audit by, or similar event with, a taxing authority that affects the calculation of any Members Assumed Tax Liability for any taxable year, or in the event the Company files an amended tax return, each Members Assumed Tax Liability with respect to such year shall be recalculated by giving effect to such event (for the avoidance of doubt, taking into account interest or penalties). Any shortfall in the amount of Tax Distributions the Members and former Members received for the relevant taxable years based on such recalculated Assumed Tax Liability promptly shall be distributed to such Members and the successors of such former Members, except, for the avoidance of doubt, to the extent Distributions were made to such Members and former Members pursuant to Section 4.01(a) and this Section 4.01(b) in the relevant taxable years sufficient to cover such shortfall. (iv) Notwithstanding the foregoing, Distributions pursuant to this Section 4.01(b), if any, shall be made to a Member only to the extent all previous Distributions to such Member pursuant to Section 4.01(a) during the Fiscal Year are less than the Distributions such Member otherwise would have been entitled to receive during such Fiscal Year pursuant to this Section 4.01(b). Section 4.02 Restricted Distributions. Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not make any Distribution to any Member on account of any Company Interest if such Distribution would violate any applicable Law or the terms of the Credit Agreements. |
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23 NY\6520040.7 DRAFT 10-14-2014 ARTICLE V. CAPITAL ACCOUNTS; ALLOCATIONS; TAX MATTERS Section 5.01 Capital Accounts. (a) The Company shall maintain a separate Capital Account for each Member according to the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). For this purpose, the Company may (in the discretion of the Manager), upon the occurrence of the events specified in Treasury Regulation Section 1.704-1(b)(2)(iv)(f), increase or decrease the Capital Accounts in accordance with the rules of such Treasury Regulation and Treasury Regulation Section 1.704-1(b)(2)(iv)(g) to reflect a revaluation of Company property. Upon the exercise by any LLC Optionee of its LLC Option, such LLC Optionees initial Capital Account shall be equal to the sum of (i) the exercise price paid by such LLC Optionee to the Company in connection with such exercise and (ii) the amount included in such LLC Optionees compensation income under Code Section 83 as a result of such exercise. (b) For purposes of computing the amount of any item of Company income, gain, loss or deduction to be allocated pursuant to this Article V and to be reflected in the Capital Accounts of the Members, the determination, recognition and classification of any such item shall be the same as its determination, recognition and classification for U.S. federal income tax purposes (including any method of depreciation, cost recovery or amortization used for this purpose); provided, however, that: (i) The computation of all items of income, gain, loss and deduction shall include those items described in Code Section 705(a)(l)(B) or Code Section 705(a)(2)(B) and Treasury Regulation Section 1.704-1(b)(2)(iv)(i), without regard to the fact that such items are not includable in gross income or are not deductible for U.S. federal income tax purposes. (ii) If the Book Value of any Company property is adjusted pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(f), the amount of such adjustment shall be taken into account as gain or loss from the disposition of such property. (iii) Items of income, gain, loss or deduction attributable to the disposition of Company property having a Book Value that differs from its adjusted basis for tax purposes shall be computed by reference to the Book Value of such property. (iv) Items of depreciation, amortization and other cost recovery deductions with respect to Company property having a Book Value that differs from its adjusted basis for tax purposes shall be computed by reference to the propertys Book Value in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(g). (v) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Sections 732(d), 734(b) or 743(b) is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis). |
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24 NY\6520040.7 DRAFT 10-14-2014 Section 5.02 Allocations. Except as otherwise provided in Section 5.03 and Section 5.04, Net Profits and Net Losses for any Fiscal Year or Fiscal Period shall be allocated among the Capital Accounts of the Members pro rata in accordance with their respective Percentage Interests. For the avoidance of doubt, in accordance with Code Section 706(d)(1), any deductions resulting from the exercise by any LLC Optionee of its LLC Option shall be allocated under a closing of the books method to the Members who were Members of the Company in the Fiscal Period ending on the day immediately prior the day of such exercise. Section 5.03 Regulatory Allocations. (a) Losses attributable to partner nonrecourse debt (as defined in Treasury Regulation Section 1.704-2(b)(4)) shall be allocated in the manner required by Treasury Regulation Section 1.704-2(i). If there is a net decrease during a Taxable Year in partner nonrecourse debt minimum gain (as defined in Treasury Regulation Section 1.704-2(i)(3)), Profits for such Taxable Year (and, if necessary, for subsequent Taxable Years) shall be allocated to the Members in the amounts and of such character as determined according to Treasury Regulation Section 1.704-2(i)(4). (b) Nonrecourse deductions (as determined according to Treasury Regulation Section 1.704-2(b)(1)) for any Taxable Year shall be allocated pro rata among the Members in accordance with their Percentage Interests. Except as otherwise provided in Section 4.03(a), if there is a net decrease in the Minimum Gain during any Taxable Year, each Member shall be allocated Profits for such Taxable Year (and, if necessary, for subsequent Taxable Years) in the amounts and of such character as determined according to Treasury Regulation Section 1.704-2(f). This Section 5.03(b) is intended to be a minimum gain chargeback provision that complies with the requirements of Treasury Regulation Section 1.704-2(f), and shall be interpreted in a manner consistent therewith. (c) If any Member that unexpectedly receives an adjustment, allocation or Distribution described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6) has an Adjusted Capital Account Deficit as of the end of any Taxable Year, computed after the application of Sections 5.03(a) and 5.03(b) but before the application of any other provision of this Article V, then Profits for such Taxable Year shall be allocated to such Member in proportion to, and to the extent of, such Adjusted Capital Account Deficit. This Section 5.03(c) is intended to be a qualified income offset provision as described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted in a manner consistent therewith. (d) If the allocation of Net Losses to a Member as provided in Section 5.02 would create or increase an Adjusted Capital Account Deficit, there shall be allocated to such Member only that amount of Losses as will not create or increase an Adjusted Capital Account Deficit. The Net Losses that would, absent the application of the preceding sentence, otherwise be allocated to such Member shall be allocated to the other Members in accordance with their relative Percentage Interests, subject to this Section 5.03(d). (e) Profits and Losses described in Section 5.01(b)(v) shall be allocated in a manner consistent with the manner that the adjustments to the Capital Accounts are required to be made pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(j), (k) and (m). |
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25 NY\6520040.7 DRAFT 10-14-2014 (f) The allocations set forth in Section 5.03(a) through and including Section 5.03(e) (the Regulatory Allocations) are intended to comply with certain requirements of Sections 1.704-1(b) and 1.704-2 of the Treasury Regulations. The Regulatory Allocations may not be consistent with the manner in which the Members intend to allocate Profit and Loss of the Company or make Distributions. Accordingly, notwithstanding the other provisions of this Article V, but subject to the Regulatory Allocations, income, gain, deduction and loss shall be reallocated among the Members so as to eliminate the effect of the Regulatory Allocations and thereby cause the respective Capital Accounts of the Members to be in the amounts (or as close thereto as possible) they would have been if Profit and Loss (and such other items of income, gain, deduction and loss) had been allocated without reference to the Regulatory Allocations. In general, the Members anticipate that this will be accomplished by specially allocating other Profit and Loss (and such other items of income, gain, deduction and loss) among the Members so that the net amount of the Regulatory Allocations and such special allocations to each such Member is zero. In addition, if in any Fiscal Year or Fiscal Period there is a decrease in partnership minimum gain, or in partner nonrecourse debt minimum gain, and application of the minimum gain chargeback requirements set forth in Section 5.03(a) or Section 5.03(b) would cause a distortion in the economic arrangement among the Members, the Members may, if they do not expect that the Company will have sufficient other income to correct such distortion, request the Internal Revenue Service to waive either or both of such minimum gain chargeback requirements. If such request is granted, this Agreement shall be applied in such instance as if it did not contain such minimum gain chargeback requirement. Section 5.04 Final Allocations. Notwithstanding any contrary provision in this Agreement except Section 5.03, the Manager shall make appropriate adjustments to allocations of Profits and Losses to (or, if necessary, allocate items of gross income, gain, loss or deduction of the Company among) the Members upon the liquidation of the Company (within the meaning of Section 1.704 1(b)(2)(ii)(g) of the Treasury Regulations), the transfer of substantially all the Units (whether by sale or exchange or merger) or sale of all or substantially all the assets of the Company, such that, to the maximum extent possible, the Capital Accounts of the Members are proportionate to their Percentage Interests. In each case, such adjustments or allocations shall occur, to the maximum extent possible, in the Fiscal Year of the event requiring such adjustments or allocations. Section 5.05 Tax Allocations. (a) The income, gains, losses, deductions and credits of the Company will be allocated, for federal, state and local income tax purposes, among the Members in accordance with the allocation of such income, gains, losses, deductions and credits among the Members for computing their Capital Accounts; provided that if any such allocation is not permitted by the Code or other applicable Law, the Companys subsequent income, gains, losses, deductions and credits will be allocated among the Members so as to reflect as nearly as possible the allocation set forth herein in computing their Capital Accounts. (b) Items of Company taxable income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall be allocated among the Members in accordance with Code Section 704(c) so as to take account of any variation between the adjusted |
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26 NY\6520040.7 DRAFT 10-14-2014 basis of such property to the Company for federal income tax purposes and its Book Value using the traditional method, as described in Treasury Regulations Section 1.704-3(b). (c) If the Book Value of any Company asset is adjusted pursuant to Section 5.01(b), subsequent allocations of items of taxable income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Book Value in the same manner as under Code Section 704(c) using the traditional method, as described in Treasury Regulations Section 1.704-3(b). (d) Allocations of tax credits, tax credit recapture, and any items related thereto shall be allocated to the Members pro rata as determined by the Manager taking into account the principles of Treasury Regulation Section 1.704-1(b)(4)(ii). (e) For purposes of determining a Members pro rata share of the Companys excess nonrecourse liabilities within the meaning of Treasury Regulation Section 1.752-3(a)(3), each Members interest in income and gain shall be in proportion to the Units held by such Member. (f) Allocations pursuant to this Section 5.05 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Members Capital Account or share of Profits, Losses, Distributions or other Company items pursuant to any provision of this Agreement. Section 5.06 Indemnification and Reimbursement for Payments on Behalf of a Member. If the Company is obligated to pay any amount to a Governmental Entity (or otherwise makes a payment to a Governmental Entity) that is specifically attributable to a Member or a Members status as such (including federal withholding taxes, state personal property taxes and state unincorporated business taxes, but excluding payments such as professional association fees and the like made voluntarily by the Company on behalf of any Member based upon such Members status as an employee of the Company), then such Person shall indemnify the Company in full for the entire amount paid (including interest, penalties and related expenses). The Manager may offset Distributions to which a Person is otherwise entitled under this Agreement against such Persons obligation to indemnify the Company under this Section 5.06. A Members obligation to make contributions to the Company under this Section 5.06 shall survive the termination, dissolution, liquidation and winding up of the Company, and for purposes of this Section 5.06, the Company shall be treated as continuing in existence. The Company may pursue and enforce all rights and remedies it may have against each Member under this Section 5.06, including instituting a lawsuit to collect such contribution with interest calculated at a rate per annum equal to the sum of the Base Rate plus [300] basis points (but not in excess of the highest rate per annum permitted by Law). ARTICLE VI. MANAGEMENT Section 6.01 Authority of Manager. (a) Except for situations in which the approval of any Member(s) is specifically required by this Agreement, (i) all management powers over the business and affairs of the Company shall be exclusively vested in the Corporation, as the sole managing member of the |
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27 NY\6520040.7 DRAFT 10-14-2014 Company (the Corporation, in such capacity, the Manager) and (ii) the Manager shall conduct, direct and exercise full control over all activities of the Company. The Manager shall be the manager of the Company for the purposes of the Delaware Act. Except as otherwise expressly provided for herein and subject to the other provisions of this Agreement, the Members hereby consent to the exercise by the Manager of all such powers and rights conferred on the Members by the Delaware Act with respect to the management and control of the Company. The Corporation may not be removed as a Manager except as provided in Section 6.04. Any Manager that is properly removed pursuant to Section 6.04 shall be replaced in the manner provided in Section 6.05. The Original Members terminate as of the Effective Time the Board previously established in order to conduct the business of the Company pursuant to the First A&R LLC Agreement (as such term was previously defined in the First A&R LLC Agreement). (b) The day-to-day business and operations of the Company shall be overseen and implemented by officers of the Company (each, an Officer and collectively, the Officers), subject to the limitations imposed by the Manager. An Officer may, but need not, be a Member. Each Officer shall be appointed by the Manager and shall hold office until his or her successor shall be duly designated and shall qualify or until his or her death or until he shall resign or shall have been removed in the manner hereinafter provided. Any one Person may hold more than one office. Subject to the other provisions in this Agreement (including in Section 6.08 below), the salaries or other compensation, if any, of the Officers of the Company shall be fixed from time to time by the Manager. The authority and responsibility of the Officers shall include, but not be limited to, such duties as the Manager may, from time to time, delegate to them and the carrying out of the Companys business and affairs on a day-today basis. The existing Officers of the Company as of the Effective Time shall remain in their respective positions and shall be deemed to have been appointed by the Manager. All Officers shall be, and shall be deemed to be, officers and employees of the Company. An Officer may also perform one or more roles as an officer of the Manager. (c) The Manager shall have the power and authority to effectuate the sale, lease, transfer, exchange or other disposition of any, all or substantially all of the assets of the Company (including the exercise or grant of any conversion, option, privilege or subscription right or any other right available in connection with any assets at any time held by the Company) or the merger, consolidation, reorganization or other combination of the Company with or into another entity. Section 6.02 Actions of the Manager. The Manager may act through any Officer or through any other Person or Persons to whom authority and duties have been delegated pursuant to Section 6.08. Section 6.03 Resignation. The Manager may resign at any time by giving written notice to the Members. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the Members, and the acceptance of the resignation shall not be necessary to make it effective. Section 6.04 Removal. The Manager may only be removed by the Corporation. |
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28 NY\6520040.7 DRAFT 10-14-2014 Section 6.05 Vacancies. Vacancies in the position of Manager occurring for any reason shall be filled by the Corporation (or, if the Corporation has ceased to exist without any successor or assign, then by the holders of a majority in interest of the voting capital stock of the Corporation immediately prior to such cessation). Section 6.06 Transactions Between Company and Manager. The Manager may cause the Company to contract and deal with the Manager, or any Affiliate of the Manager, provided such contracts and dealings are on terms comparable to and competitive with those available to the Company from others dealing at arms length or are approved by the Members and otherwise are permitted by the Credit Agreements. The Members hereby approve the IPO Common Unit Purchase Agreement. Section 6.07 Reimbursement for Expenses. The Manager shall not be compensated for its services as Manager of the Company except as expressly provided in this Agreement or as otherwise approved by the Members (other than the Manager) holding a majority of the Voting Units (excluding Voting Units held by the Manager) then outstanding. The Members acknowledge and agree that, upon consummation of the IPO, the Managers Class A Common Stock will be publicly traded and therefore the Manager will have access to the public capital markets and that such status and the services performed by the Manager will inure to the benefit of the Company and all Members; therefore, the Manager shall be reimbursed by the Company for any reasonable out-of-pocket expenses incurred on behalf of the Company, including without limitation all fees, expenses and costs associated with the IPO and all fees, expenses and costs of being a public company (including without limitation public reporting obligations, proxy statements, stockholder meetings, stock exchange fees, transfer agent fees, SEC and FINRA filing fees and offering expenses) and maintaining its corporate existence. In the event that shares of Class A Common Stock are sold to underwriters in the IPO (or in any subsequent public offering) at a price per share that is lower than the price per share for which such shares of Class A Common Stock are sold to the public in the IPO (or in such subsequent public offering) after taking into account underwriters discounts or commissions and brokers fees or commissions (such difference, the Discount), the Company shall reimburse the Manager for such Discount by treating such Discount as an additional Capital Contribution made by the Manager to the Company and increasing the Managers Capital Account by the amount of such Discount. To the extent practicable, expenses incurred by the Manager on behalf of or for the benefit of the Company shall be billed directly to and paid by the Company and, if and to the extent any reimbursements to the Manager or any of its Affiliates by the Company pursuant to this Section 6.07 constitute gross income to such Person (as opposed to the repayment of advances made by such Person on behalf of the Company), such amounts shall be treated as guaranteed payments within the meaning of Code Section 707(c) and shall not be treated as distributions for purposes of computing the Members Capital Accounts. Section 6.08 Delegation of Authority. The Manager (a) may, from time to time, delegate to one or more Persons such authority and duties as the Manager may deem advisable, and (b) may assign titles (including, without limitation, chief executive officer, president, chief executive officer, chief financial officers, chief operating officer, vice president, secretary, assistant secretary, treasurer or assistant treasurer) and delegate certain authority and duties to such Persons as the same may be amended, restated or otherwise modified from time to time. Any number of titles may be held by the same individual. The salaries or other compensation, if |
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29 NY\6520040.7 DRAFT 10-14-2014 any, of such agents of the Company shall be fixed from time to time by the Manager, subject to the other provisions in this Agreement. Section 6.09 Limitation of Liability of Manager. (a) Except as otherwise provided herein or in an agreement entered into by such Person and the Company, neither the Manager nor any of the Managers Affiliates shall be liable to the Company or to any Member that is not the Manager for any act or omission performed or omitted by the Manager in its capacity as the sole managing member of the Company pursuant to authority granted to the Manager by this Agreement; provided, however, that, except as otherwise provided herein, such limitation of liability shall not apply to the extent the act or omission was attributable to the Managers gross negligence, willful misconduct or knowing violation of Law or for any present or future breaches of any representations, warranties or covenants by the Manager or its Affiliates contained herein or in the other agreements with the Company. The Manager may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents, and shall not be responsible for any misconduct or negligence on the part of any such agent (so long as such agent was selected in good faith and with reasonable care). The Manager shall be entitled to rely upon the advice of legal counsel, independent public accountants and other experts, including financial advisors, and any act of or failure to act by the Manager in good faith reliance on such advice shall in no event subject the Manager to liability to the Company or any Member that is not the Manager. (b) Whenever this Agreement or any other agreement contemplated herein provides that the Manager shall act in a manner which is, or provide terms which are, fair and reasonable to the Company or any Member that is not the Manager, the Manager shall determine such appropriate action or provide such terms considering, in each case, the relative interests of each party to such agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable United States generally accepted accounting practices or principles. (c) Whenever in this Agreement or any other agreement contemplated herein, the Manager is permitted or required to take any action or to make a decision in its sole discretion or discretion, with complete discretion or under a grant of similar authority or latitude, the Manager shall be entitled to consider such interests and factors as it desires, including its own interests, and shall, to the fullest extent permitted by applicable Law, have no duty or obligation to give any consideration to any interest of or factors affecting the Company or other Members. (d) Whenever in this Agreement the Manager is permitted or required to take any action or to make a decision in its good faith or under another express standard, the Manager shall act under such express standard and, to the extent permitted by applicable Law, shall not be subject to any other or different standards imposed by this Agreement or any other agreement contemplated herein, and, notwithstanding anything contained herein to the contrary, so long as the Manager acts in good faith, the resolution, action or terms so made, taken or provided by the Manager shall not constitute a breach of this Agreement or any other agreement contemplated herein or impose liability upon the Manager or any of the Managers Affiliates. |
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30 NY\6520040.7 DRAFT 10-14-2014 Section 6.10 Investment Company Act. The Manager shall use its best efforts to ensure that the Company shall not be subject to registration as an investment company pursuant to the Investment Company Act. Section 6.11 Outside Activities of the Manager. The Manager shall not, directly or indirectly, enter into or conduct any business or operations, other than in connection with (a) the ownership, acquisition and disposition of Common Units, (b) the management of the business and affairs of the Company and its Subsidiaries, (c) the operation of the Manager as a reporting company with a class (or classes) of securities registered under Section 12 of the Exchange Act and listed on a securities exchange, (d) the offering, sale, syndication, private placement or public offering of stock, bonds, securities or other interests, (e) financing or refinancing of any type related to the Company, its Subsidiaries or their assets or activities, and (f) such activities as are incidental to the foregoing; provided, however, that, except as otherwise provided herein, the net proceeds of any financing raised by the Manager pursuant to the preceding clauses (d) and (e) shall be made available to the Company, whether as Capital Contributions, loans or otherwise, as appropriate, and, provided further, that the Manager may, in its sole and absolute discretion, from time to time hold or acquire assets in its own name or otherwise other than through the Company and its Subsidiaries so long as the Manager takes commercially reasonable measures to ensure that the economic benefits and burdens of such assets are otherwise vested in the Company or its Subsidiaries, through assignment, mortgage loan or otherwise or, if it is not commercially reasonable to vest such economic interests in the Company or any of its Subsidiaries, the Members shall negotiate in good faith to amend this Agreement to reflect such activities and the direct ownership of assets by the Manager. Nothing contained herein shall be deemed to prohibit the Manager from executing any guarantee of indebtedness of the Company or its Subsidiaries. ARTICLE VII. RIGHTS AND OBLIGATIONS OF MEMBERS Section 7.01 Limitation of Liability and Duties of Members. (a) Except as provided in this Agreement or in the Delaware Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company and no Member (including without limitation, the Manager) shall be obligated personally for any such debts, obligation or liability solely by reason of being a Member or acting as the Manager of the Company. Except as otherwise provided in this Agreement, a Members liability (in its capacity as such) for Company liabilities and Losses shall be limited to the Companys assets. Notwithstanding anything contained herein to the contrary, the failure of the Company to observe any formalities or requirements relating to the exercise of its powers or management of its business and affairs under this Agreement or the Delaware Act shall not be grounds for imposing personal liability on the Members for liabilities of the Company. (b) In accordance with the Delaware Act and the laws of the State of Delaware, a Member may, under certain circumstances, be required to return amounts previously distributed to such Member. It is the intent of the Members that no Distribution to any Member pursuant to Article IV shall be deemed a return of money or other property paid or distributed in violation of |
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31 NY\6520040.7 DRAFT 10-14-2014 the Delaware Act. The payment of any such money or Distribution of any such property to a Member shall be deemed to be a compromise within the meaning of Section 18-502(b) of the Act, and, to the fullest extent permitted by Law, any Member receiving any such money or property shall not be required to return any such money or property to the Company or any other Person. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Member is obligated to make any such payment, such obligation shall be the obligation of such Member and not of any other Member. (c) Notwithstanding any other provision of this Agreement, to the extent that, at law or in equity, any Member (or any Members Affiliate or any manager, managing member, general partner, director, officer, employee, agent, fiduciary or trustee of any Member or of any Affiliate of a Member) has duties (including fiduciary duties) to the Company, to the Manager, to another Member, to any Person who acquires an interest in a Company Interest or to any other Person bound by this Agreement, all such duties (including fiduciary duties) are hereby eliminated, to the fullest extent permitted by law, and replaced with the duties or standards expressly set forth herein, if any. The elimination of duties (including fiduciary duties) to the Company, the Manager, each of the Members, each other Person who acquires an interest in a Company Interest and each other Person bound by this Agreement and replacement thereof with the duties or standards expressly set forth herein, if any, are approved by the Company, the Manager, each of the Members, each other Person who acquires an interest in a Company Interest and each other Person bound by this Agreement. Section 7.02 Lack of Authority. No Member, other than the Manager or a duly appointed Officer, in each case in its capacity as such, has the authority or power to act for or on behalf of the Company, to do any act that would be binding on the Company or to make any expenditure on behalf of the Company. The Members hereby consent to the exercise by the Manager of the powers conferred on them by Law and this Agreement. Section 7.03 No Right of Partition. No Member, other than the Manager, shall have the right to seek or obtain partition by court decree or operation of Law of any Company property, or the right to own or use particular or individual assets of the Company. Section 7.04 Indemnification. (a) Subject to Section 5.06, the Company hereby agrees to indemnify and hold harmless any Person (each an Indemnified Person) to the fullest extent permitted under the Delaware Act, as the same now exists or may hereafter be amended, substituted or replaced (but, in the case of any such amendment, substitution or replacement only to the extent that such amendment, substitution or replacement permits the Company to provide broader indemnification rights than the Company is providing immediately prior to such amendment), against all expenses, liabilities and losses (including attorneys fees, judgments, fines, excise taxes or penalties) reasonably incurred or suffered by such Person (or one or more of such Persons Affiliates) by reason of the fact that such Person is or was a Member or is or was serving as the Manager, Officer, employee or other agent of the Company or is or was serving at the request of the Company as a manager, officer, director, principal, member, employee or agent of another corporation, partnership, joint venture, limited liability company, trust or other enterprise; provided, however, that no Indemnified Person shall be indemnified for any expenses, |
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32 NY\6520040.7 DRAFT 10-14-2014 liabilities and losses suffered that are attributable to such Indemnified Persons or its Affiliates gross negligence, willful misconduct or knowing violation of Law or for any present or future breaches of any representations, warranties or covenants by such Indemnified Person or its Affiliates contained herein or in the other agreements with the Company. Expenses, including attorneys fees, incurred by any such Indemnified Person in defending a proceeding shall be paid by the Company in advance of the final disposition of such proceeding, including any appeal therefrom, upon receipt of an undertaking by or on behalf of such Indemnified Person to repay such amount if it shall ultimately be determined that such Indemnified Person is not entitled to be indemnified by the Company. (b) The right to indemnification and the advancement of expenses conferred in this Section 7.04 shall not be exclusive of any other right which any Person may have or hereafter acquire under any statute, agreement, by-law, action by the Manager or otherwise. (c) The Company shall maintain directors and officers liability insurance, or substantially equivalent insurance, at its expense, to protect any Indemnified Person (and the investment funds, if any, they represent) against any expense, liability or loss described in Section 7.04(a) whether or not the Company would have the power to indemnify such Indemnified Person against such expense, liability or loss under the provisions of this Section 7.04. The Company shall use its commercially reasonable efforts to purchase and maintain property, casualty and liability insurance in types and at levels customary for companies of similar size engaged in similar lines of business, as determined in good faith by the Manager, and the Company shall use its commercially reasonable efforts to purchase directors and officers liability insurance (including employment practices coverage) with a carrier and in an amount determined necessary or desirable as determined in good faith by the Manager. (d) Notwithstanding anything contained herein to the contrary (including in this Section 7.04), any indemnity by the Company relating to the matters covered in this Section 7.04 shall be provided out of and to the extent of Company assets only and no Member (unless such Member otherwise agrees in writing or is found in a final decision by a court of competent jurisdiction to have personal liability on account thereof) shall have personal liability on account thereof or shall be required to make additional Capital Contributions to help satisfy such indemnity of the Company. (e) If this Section 7.04 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify and hold harmless each Indemnified Person pursuant to this Section 7.04 to the fullest extent permitted by any applicable portion of this Section 7.04 that shall not have been invalidated and to the fullest extent permitted by applicable Law. Section 7.05 Members Right to Act. For matters that require the approval of the Members, the Members shall act through meetings and written consents as described in paragraphs (a) and (b) below: (a) Except as otherwise expressly provided by this Agreement, acts by the Members holding a majority of the Units, voting together as a single class, shall be the acts of the Members. Any Member entitled to vote at a meeting of Members or to express consent or |
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33 NY\6520040.7 DRAFT 10-14-2014 dissent to Company action in writing without a meeting may authorize another person or persons to act for it by proxy. An electronic mail, telegram, telex, cablegram or similar transmission by the Member, or a photographic, photostatic, facsimile or similar reproduction of a writing executed by the Member shall (if stated thereon) be treated as a proxy executed in writing for purposes of this Section 7.05(a). No proxy shall be voted or acted upon after eleven months from the date thereof, unless the proxy provides for a longer period. A proxy shall be revocable unless the proxy form conspicuously states that the proxy is irrevocable and that the proxy is coupled with an interest. Should a proxy designate two or more Persons to act as proxies, unless that instrument shall provide to the contrary, a majority of such Persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting or giving consents thereby conferred, or, if only one be present, then such powers may be exercised by that one; or, if an even number attend and a majority do not agree on any particular issue, the Company shall not be required to recognize such proxy with respect to such issue if such proxy does not specify how the votes that are the subject of such proxy are to be voted with respect to such issue. (b) The actions by the Members permitted hereunder may be taken at a meeting called by the Manager or by the Members holding a majority of the Units entitled to vote on such matter on at least [48 hours] prior written notice to the other Members entitled to vote, which notice shall state the purpose or purposes for which such meeting is being called. The actions taken by the Members entitled to vote or consent at any meeting (as opposed to by written consent), however called and noticed, shall be as valid as though taken at a meeting duly held after regular call and notice if (but not until), either before, at or after the meeting, the Members entitled to vote or consent as to whom it was improperly held signs a written waiver of notice or a consent to the holding of such meeting or an approval of the minutes thereof. The actions by the Members entitled to vote or consent may be taken by vote of the Members entitled to vote or consent at a meeting or by written consent, so long as such consent is signed by Members having not less than the minimum number of Units that would be necessary to authorize or take such action at a meeting at which all Members entitled to vote thereon were present and voted. Prompt notice of the action so taken, which shall state the purpose or purposes for which such consent is required and may be delivered via email, without a meeting shall be given to those Members entitled to vote or consent who have not consented in writing; provided, however, that the failure to give any such notice shall not affect the validity of the action taken by such written consent. Any action taken pursuant to such written consent of the Members shall have the same force and effect as if taken by the Members at a meeting thereof. Section 7.06 Inspection Rights. The Company shall permit each Member and each of its designated representatives to (i) visit and inspect any of the properties of the Company and its Subsidiaries, all at reasonable times and upon reasonable notice, (ii) examine the corporate and financial records of the Company or any of its Subsidiaries and make copies thereof or extracts therefrom, (iii) consult with the managers, officers, employees and independent accountants of the Company or any of its Subsidiaries concerning the affairs, finances and accounts of the Company or any of its Subsidiaries. The presentation of an executed copy of this Agreement by any Member to the Companys independent accountants shall constitute the Companys permission to its independent accountants to participate in discussions with such Persons and their respective designated representatives. |
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34 NY\6520040.7 DRAFT 10-14-2014 ARTICLE VIII. BOOKS, RECORDS, ACCOUNTING AND REPORTS, AFFIRMATIVE COVENANTS Section 8.01 Records and Accounting. The Company shall keep, or cause to be kept, appropriate books and records with respect to the Companys business, including all books and records necessary to provide any information, lists and copies of documents required to be provided pursuant to Section 8.03 or pursuant to applicable Laws. All matters concerning (a) the determination of the relative amount of allocations and Distributions among the Members pursuant to Articles III and IV and (b) accounting procedures and determinations, and other determinations not specifically and expressly provided for by the terms of this Agreement, shall be determined by the Manager, whose determination shall be final and conclusive as to all of the Members absent manifest clerical error. Section 8.02 Fiscal Year. The Fiscal Year of the Company shall end on December 31 of each year or such other date as may be established by the Manager. Section 8.03 Reports. The Company shall deliver or cause to be delivered, within 90 days after the end of each Fiscal Year, to each Person who was a Member at any time during such Fiscal Year, all information reasonably necessary for the preparation of such Persons United States federal and applicable state income tax returns. ARTICLE IX. TAX MATTERS Section 9.01 Preparation of Tax Returns. The Company shall arrange for the preparation and timely filing of all tax returns required to be filed by the Company. On or before March 15, June 15, September 15, and December 15 of each Fiscal Year, the Company shall send to each Person who was a Member at any time during the prior quarter, an estimate of such Members state tax apportionment information and allocations to the Members of taxable income, gains, losses, deductions and credits for the prior quarter, which estimate shall have been reviewed by the Companys outside tax accountants. In addition, no later than the later of (i) March 15 following the end of the prior Fiscal Year, and (ii) five (5) Business Days after the issuance of the final audit report for a Fiscal Year by the Companys auditors, the Company shall send to each Person who was a Member at any time during such Fiscal Year, a statement showing such Members final state tax apportionment information and allocations to the Members of taxable income, gains, losses, deductions and credits for such Fiscal Year and a completed IRS Schedule K-1. Each Member shall notify the other Members upon receipt of any notice of tax examination of the Company by federal, state or local authorities. Subject to the terms and conditions of this Agreement, in its capacity as Tax Matters Partner, the Corporation shall have the authority to prepare the tax returns of the Company using such permissible methods and elections as it determines in its reasonable discretion, including without limitation the use of any permissible method under Section 706 of the Code for purposes of determining the varying Company Interests of its Members. Section 9.02 Tax Elections. The Taxable Year shall be the Fiscal Year set forth in Section 8.02. The Company shall make an election pursuant to Section 754 of the Code, shall not thereafter revoke such election and shall make a new election pursuant to Section 754 to the |
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35 NY\6520040.7 DRAFT 10-14-2014 extent necessary following any termination of the Company under Section 708 of the Code. Each Member will upon request supply any information reasonably necessary to give proper effect to any such elections. Section 9.03 Tax Controversies. The Corporation is hereby designated the Tax Matters Partner within the meaning given to such term in Section 6231 of the Code (the Corporation, in such capacity, the Tax Matters Partner) and is authorized and required to represent the Company (at the Companys expense) in connection with all examinations of the Companys affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Company funds for professional services reasonably incurred in connection therewith. Each Member agrees to cooperate with the Company and to do or refrain from doing any or all things reasonably requested by the Company with respect to the conduct of such proceedings. The Tax Matters Partners shall keep all Members fully informed of the progress of any examinations, audits or other proceedings, and all Members shall have the right to participate at their expense in any such examinations, audits or other proceedings. Notwithstanding the foregoing, the Tax Matters Partners shall not settle or otherwise compromise any issue in any such examination, audit or other proceeding without first obtaining approval of the Manager. Nothing herein shall diminish, limit or restrict the rights of any Member under Subchapter C, Chapter 63, Subtitle F of the Code (Code Sections 6221 et seq.). ARTICLE X. RESTRICTIONS ON TRANSFER OF UNITS; PREEMPTIVE RIGHTS Section 10.01 Transfers by Members. No holder of Units may Transfer any interest in any Units, except Transfers (a) pursuant to and in accordance with Section 10.02 or (b) approved in writing by the Manager. Notwithstanding the foregoing, Transfer shall not include an event that terminates the existence of a Member for income tax purposes (including, without limitation, a change in entity classification of a Member under Treasury Regulations Section 301.7701-3, termination of a partnership pursuant to Code Section 708(b)(1)(B), a sale of assets by, or liquidation of, a Member pursuant to an election under Code Section 338, or merger, severance, or allocation within a trust or among sub-trusts of a trust that is a Member), but that does not terminate the existence of such Member under applicable state law (or, in the case of a trust that is a Member, does not terminate the trusteeship of the fiduciaries under such trust with respect to all the Company Interests of such trust that is a Member). Section 10.02 Permitted Transfers. The restrictions contained in Section 10.01 shall not apply to any Transfer (each, a Permitted Transfer) pursuant to (i) a Change of Control Transaction, (ii) a Transfer by any Member to such Members spouse, any lineal ascendants or descendants or trusts or other entities in which such Member or Members spouse, lineal ascendants or descendants hold (and continue to hold while such trusts or other entities hold Units) 50% or more of such entitys beneficial interests, (iii) pursuant to the laws of descent and distribution and (iv) if such Transfer is made by an Original Member, a Transfer to a partner, shareholder or member of such Original Member; provided, however, that (A) the restrictions contained in this Agreement will continue to apply to Units after any Permitted Transfer of such Units, and (B) in the case of the foregoing clauses (ii), (iii) and (iv), the transferees of the Units so Transferred shall agree in writing to be bound by the provisions of this Agreement and, the transferor will deliver a written notice to the Company and the Members, which notice will |
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36 NY\6520040.7 DRAFT 10-14-2014 disclose in reasonable detail the identity of the proposed transferee. In the case of a Permitted Transfer by any Original Member of Common Units to a transferee in accordance with this Section 10.02, such Original Member (or any subsequent transferee of such Original Member) shall be required to also transfer the fraction of its remaining Class B Common Stock ownership corresponding to the proportion of such Original Members (or subsequent transferees) Common Units that were transferred in the transaction to such transferee. All Permitted Transfers are subject to the additional limitations set forth in Section 10.07(b). Section 10.03 Restricted Units Legend. The Units have not been registered under the Securities Act and, therefore, in addition to the other restrictions on Transfer contained in this Agreement, cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is then available. To the extent such Units have been certificated, each certificate evidencing Units and each certificate issued in exchange for or upon the Transfer of any Units (if such securities remain Units as defined herein after such Transfer) shall be stamped or otherwise imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON [ ], 2014, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER SPECIFIED IN THE SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF NEFF HOLDINGS LLC, AS MAY BE AMENDED AND MODIFIED FROM TIME TO TIME, AND NEFF HOLDINGS LLC RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO ANY TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED BY NEFF HOLDINGS LLC TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE. The Company shall imprint such legend on certificates (if any) evidencing Units. The legend set forth above shall be removed from the certificates (if any) evidencing any units which cease to be Units in accordance with the definition thereof. Section 10.04 Transfer. Prior to Transferring any Units (other than pursuant to a Change of Control Transaction), the Transferring Holder of Units shall cause the prospective Transferee to be bound by this Agreement and any other agreements executed by the holders of Units and relating to such Units in the aggregate (collectively, the Other Agreements), and shall cause the prospective Transferee to execute and deliver to the Company and the other holders of Units counterparts of this Agreement and any applicable Other Agreements. Any Transfer or attempted Transfer of any Units in violation of any provision of this Agreement (including any prohibited indirect Transfers) (a) shall be void, and (b) the Company shall not record such Transfer on its books or treat any purported Transferee of such Units as the owner of such securities for any purpose. |
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37 NY\6520040.7 DRAFT 10-14-2014 Section 10.05 Assignees Rights. (a) The Transfer of a Company Interest in accordance with this Agreement shall be effective as of the date of its assignment (assuming compliance with all of the conditions to such Transfer set forth herein), and such Transfer shall be shown on the books and records of the Company. Profits, Losses and other Company items shall be allocated between the transferor and the Assignee according to Code Section 706, using any permissible method as determined in the reasonable discretion of the Manager. Distributions made before the effective date of such Transfer shall be paid to the transferor, and Distributions made after such date shall be paid to the Assignee. (b) Unless and until an Assignee becomes a Member pursuant to Article XII, the Assignee shall not be entitled to any of the rights granted to a Member hereunder or under applicable Law, other than the rights granted specifically to Assignees pursuant to this Agreement; provided, however, that, without relieving the transferring Member from any such limitations or obligations as more fully described in Section 10.06, such Assignee shall be bound by any limitations and obligations of a Member contained herein that a Member would be bound on account of the Assignees Company Interest (including the obligation to make Capital Contributions on account of such Company Interest). Section 10.06 Assignors Rights and Obligations. Any Member who shall Transfer any Company Interest in a manner in accordance with this Agreement shall cease to be a Member with respect to such Units or other interest and shall no longer have any rights or privileges, or, except as set forth in this Section 10.06, duties, liabilities or obligations, of a Member with respect to such Units or other interest (it being understood, however, that the applicable provisions of Sections 6.09 and 7.04 shall continue to inure to such Persons benefit), except that unless and until the Assignee (if not already a Member) is admitted as a Substituted Member in accordance with the provisions of Article XII (the Admission Date), (i) such assigning Member shall retain all of the duties, liabilities and obligations of a Member with respect to such Units or other interest, and (ii) the Manager may, in its sole discretion, reinstate all or any portion of the rights and privileges of such Member with respect to such Units or other interest for any period of time prior to the Admission Date. Nothing contained herein shall relieve any Member who Transfers any Units or other interest in the Company from any liability of such Member to the Company with respect to such Company Interest that may exist on the Admission Date or that is otherwise specified in the Delaware Act and incorporated into this Agreement or for any liability to the Company or any other Person for any materially false statement made by such Member (in its capacity as such) or for any present or future breaches of any representations, warranties or covenants by such Member (in its capacity as such) contained herein or in the other agreements with the Company. Section 10.07 Overriding Provisions. (a) Any Transfer in violation of this Article X shall be null and void ab initio, and the provisions of Sections 10.05 and 10.06 shall not apply to any such Transfers. For the avoidance of doubt, any Person to whom a Transfer is made or attempted in violation of this Article X shall not become a Member, shall not be entitled to vote on any matters coming before the Members and shall not have any other rights in or with respect to any rights of a Member of the Company. |
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38 NY\6520040.7 DRAFT 10-14-2014 The approval of any Transfer in any one or more instances shall not limit or waive the requirement for such approval in any other or future instance. The Manager shall promptly amend the Schedule of Members to reflect any Permitted Transfer pursuant to this Article X. (b) Notwithstanding anything contained herein to the contrary (including, for the avoidance of doubt, the provisions of Section 10.01 and Article XI and Article XII), in no event shall any Member Transfer any Units to the extent such Transfer would: (i) result in the violation of the Securities Act, or any other applicable federal, state or foreign Laws; (ii) cause an assignment under the Investment Company Act; (iii) in the reasonable determination of the Manager, be a violation of or a default (or an event that, with notice or the lapse of time or both, would constitute a default) under, or result in an acceleration of any indebtedness under, any promissory note, mortgage, loan agreement, indenture or similar instrument or agreement to which the Company or the Manager is a party; provided that (x) the payee or creditor to whom the Company or the Manager owes such obligation is not an affiliate of the Company or the Manager and (y) such indebtedness, individually or in the aggregate, has an aggregate principal amount then outstanding that is greater than $25,000,000; (iv) cause the Company to lose its status as a partnership for federal income tax purposes and, without limiting the generality of the foregoing, such Transfer was effected on or through an established securities market or a secondary market or the substantial equivalent thereof, as such terms are used in Section 1.7704-1 of the Treasury Regulations; (v) be a Transfer to a Person who is not legally competent or who has not achieved his or her majority under applicable Law (excluding trusts for the benefit of minors); (vi) cause the Company to be treated as a publicly traded partnership or to be taxed as a corporation pursuant to Section 7704 of the Code or successor provision of the Code; or (vii) result in the Company having more than one hundred (100) partners, within the meaning of Treasury Regulations Section 1.7704-1(h)(1) (determined pursuant to the rules of Treasury Regulations Section 1.7704-1(h)(3)). ARTICLE XI. REDEMPTION AND EXCHANGE RIGHTS Section 11.01 Redemption Right of a Member and LLC Optionee. (a) Each Member (other than the Corporation) and each LLC Optionee (in connection with its exercise of an LLC Option) shall be entitled to cause the Company to redeem (a Redemption) its Common Units (the Redemption Right) at any time following the |
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39 NY\6520040.7 DRAFT 10-14-2014 expiration of the lock-up period under the lock-up agreements, dated as of [ ], 2014, executed by each Original Member and each Original LLC Optionee. A Member or LLC Optionee desiring to exercise its Redemption Right (the Redeeming Member) shall exercise such right by giving written notice (the Redemption Notice) to the Company with a copy to the Corporation. The Redemption Notice shall specify the number of Common Units (the Redeemed Units) that the Redeeming Member intends to have the Company redeem and a date, not less than seven (7) Business Days nor more than ten (10) Business Days after delivery of the Redemption Notice (unless and to the extent that the Manager in its sole discretion agrees in writing to waive such time periods), on which exercise of the Redemption Right shall be completed (the Redemption Date); provided that the Company, the Corporation and the Redeeming Member may change the number of Redeemed Units and/or the Redemption Date specified in the Redemption Notice to another number and/or date by mutual agreement signed in writing by each of them; provided further that a Redemption Notice may be conditioned on the closing of an underwritten distribution of the shares of Class A Common Stock that may be issued at the election of the Corporation in connection with such proposed Redemption. Unless the Redeeming Member timely has delivered a Retraction Notice as provided in Section 11.01(b) or has revoked or delayed a Redemption as provided in Section 11.01(c), on the Redemption Date (to be effective immediately prior to the close of business on the Redemption Date) (i) only in the case of an LLC Optionee, the Redeeming Member shall have completed its exercised of an LLC Option for a corresponding number of Units subject to the Redemption Notice, (ii) the Redeeming Member shall transfer and surrender the Redeemed Units to the Company, free and clear of all liens and encumbrances (which in the case of an LLC Optionee will be deemed to be delivered by the Company in lieu of delivery of the Units underlying the LLC Option to the LLC Optionee), and (ii) the Company shall (x) cancel the Redeemed Units, (y) transfer to the Redeeming Member the consideration to which the Redeeming Member is entitled under Section 11.01(b), and (z), if the Units are certificated, issue to the Redeeming Member a certificate for a number of Common Units equal to the difference (if any) between the number of Common Units evidenced by the certificate surrendered by the Redeeming Member pursuant to clause (i) of this Section 11.01(a) and the Redeemed Units. (b) In exercising its Redemption Right, a Redeeming Member shall be entitled to receive the Share Settlement or the Cash Settlement; provided that the Corporation shall have the option as provided in Section 11.02 and subject to Section 11.01(d) to select whether the redemption payment is made by means of a Share Settlement or a Cash Settlement. Within three (3) Business Days of delivery of the Redemption Notice, the Corporation shall give written notice (the Contribution Notice) to the Company (with a copy to the Redeeming Member) of its intended settlement method; provided that if the Corporation does not timely deliver a Contribution Notice, the Corporation shall be deemed to have elected the Share Settlement method. If the Corporation elects the Cash Settlement method, the Redeeming Member may retract its Redemption Notice by giving written notice (the Retraction Notice) to the Company (with a copy to the Corporation) within two (2) Business Days of delivery of the Contribution Notice. The timely delivery of a Retraction Notice shall terminate all of the Redeeming Members, Companys and the Corporation rights and obligations under this Section 11.01 arising from the Redemption Notice. (c) In the event the Corporation elects a Share Settlement in connection with a Redemption, a Redeeming Member shall be entitled to revoke its Redemption Notice or delay |
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40 NY\6520040.7 DRAFT 10-14-2014 the consummation of a Redemption if any of the following conditions exists: (i) any registration statement pursuant to which the resale of the Class A Common Stock to be registered for such Redeeming Member at or immediately following the consummation of the Redemption shall have ceased to be effective pursuant to any action or inaction by the SEC or no such resale registration statement has yet become effective; (ii) the Corporation shall have failed to cause any related prospectus to be supplemented by any required prospectus supplement necessary to effect such Redemption; (iii) the Corporation shall have exercised its right to defer, delay or suspend the filing or effectiveness of a registration statement and such deferral, delay or suspension shall affect the ability of such Redeeming Member to have its Class A Common Stock registered at or immediately following the consummation of the Redemption; (iv) the Corporation shall have disclosed to such Redeeming Member any material non-public information concerning the Corporation, the receipt of which results in such Redeeming Member being prohibited or restricted from selling Class A Common Stock at or immediately following the Redemption without disclosure of such information (and the Corporation does not permit disclosure); (v) any stop order relating to the registration statement pursuant to which the Class A Common Stock was to be registered by such Redeeming Member at or immediately following the Redemption shall have been issued by the SEC; (vi) there shall have occurred a material disruption in the securities markets generally or in the market or markets in which the Class A Common Stock is then traded; (vii) there shall be in effect an injunction, a restraining order or a decree of any nature of any Governmental Entity that restrains or prohibits the Redemption; (viii) the Corporation shall have failed to comply in all material respects with its obligations under the Registration Rights Agreement, and such failure shall have affected the ability of such Redeeming Member to consummate the resale of Class A Common Stock to be received upon such redemption pursuant to an effective registration statement; (ix) the Redemption Date would occur [three (3)] Business Days or less prior to, or during, a Black-Out Period; provided further, that in no event shall the Redeeming Member seeking to revoke its Redemption Notice or delay the consummation of such Redemption and relying on any of the matters contemplated in clauses (i) through (ix) above have controlled or intentionally influenced any facts, circumstances, or Persons in connection therewith (except in the good faith performance of his or her duties as an officer or director of the Corporation) in order to provide such Redeeming Member with a basis for such delay or revocation. If a Redeeming Member delays the consummation of a Redemption pursuant to this Section 11.01(c), the Redemption Date shall occur on the fifth Business Day following the date on which the conditions giving rise to such delay cease to exist (or such earlier day as the Corporation, the Company and such Redeeming Member may agree in writing). (d) The number of shares of Class A Common Stock or the Redeemed Units Equivalent that a Redeeming Member is entitled to receive under Section 11.01(b) (whether through a Share Settlement or Cash Settlement) shall not be adjusted on account of any Distributions previously made with respect to the Redeemed Units or dividends previously paid with respect to Class A Common Stock; provided, however, that if a Redeeming Member (other than an LLC Optionee) causes the Company to redeem Redeemed Units and the Redemption Date occurs subsequent to the record date for any Distribution with respect to the Redeemed Units but prior to payment of such Distribution, the Redeeming Member shall be entitled to receive such Distribution with respect to the Redeemed Units on the date that it is made notwithstanding that the Redeeming Member transferred and surrendered the Redeemed Units to the Company prior to such date. |
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41 NY\6520040.7 DRAFT 10-14-2014 (e) In the event of a reclassification or other similar transaction as a result of which the shares of Class A Common Stock are converted into another security, then in exercising it Redemption Right a Redeeming Member shall be entitled to receive the amount of such security that the Redeeming Member would have received if such Redemption Right had been exercised and the Redemption Date had occurred immediately prior to the record date of such reclassification or other similar transaction. Section 11.02 Election and Contribution of the Corporation. In connection with the exercise of a Redeeming Members Redemption Rights under Section 11.01(a), the Corporation shall contribute to the Company the consideration the Redeeming Member is entitled to receive under Section 11.01(b). The Corporation, at its option, shall determine whether to contribute, pursuant to Section 11.01(b), the Share Settlement or the Cash Settlement. Unless the Redeeming Member has timely delivered a Retraction Notice as provided in Section 11.01(b), or has revoked or delayed a Redemption as provided in Section 11.01(c), on the Redemption Date (to be effective immediately prior to the close of business on the Redemption Date) (i) the Corporation shall make its Capital Contribution to the Company (in the form of the Share Settlement or the Cash Settlement) required under this Section 11.02, and (ii) the Company shall issue to the Corporation a number of Common Units equal to the number of Redeemed Units surrendered by the Redeeming Member. Notwithstanding any other provisions of this Agreement to the contrary, in the event that the Corporation elects a Cash Settlement, the Corporation shall only be obligated to contribute to the Company an amount in respect of such Cash Settlement equal to the net proceeds (after deduction of any underwriters discounts or commissions and brokers fees or commissions) from the sale by the Corporation of a number of shares of Class A Common Stock equal to the number of Redeemed Units to be redeemed with such Cash Settlement provided that the Corporations Capital Account shall be increased by an amount equal to any Discount relating to such sale of shares of Class A Common Stock in accordance with Section 6.07. The timely delivery of a Retraction Notice shall terminate all of the Companys and the Corporation rights and obligations under this Section 11.02 arising from the Redemption Notice. Section 11.03 Exchange Right of the Corporation. (a) Notwithstanding anything to the contrary in this Article XI, the Corporation may, in its sole and absolute discretion, elect to effect on the Redemption Date the exchange of Redeemed Units for the Share Settlement or Cash Settlement, as the case may be, through a direct exchange of such Redeemed Units and such consideration between the Redeeming Member and the Corporation (a Direct Exchange). Upon such Direct Exchange pursuant to this Section 11.03, the Corporation shall acquire the Redeemed Units and shall be treated for all purposes of this Agreement as the owner of such Units. (b) The Corporation may, at any time prior to a Redemption Date, deliver written notice (an Exchange Election Notice) to the Company and the Redeeming Member setting forth its election to exercise its right to consummate a Direct Exchange; provided that such election does not prejudice the ability of the parties to consummate a Redemption or Direct Exchange on the Redemption Date. An Exchange Election Notice may be revoked by the Corporation at any time; provided that any such revocation does not prejudice the ability of the parties to consummate a Redemption or Direct Exchange on the Redemption Date. The right to |
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42 NY\6520040.7 DRAFT 10-14-2014 consummate a Direct Exchange in all events shall be exercisable for all the Redeemed Units that would have otherwise been subject to a Redemption. Except as otherwise provided by this Section 11.03, a Direct Exchange shall be consummated pursuant to the same timeframe and in the same manner as the relevant Redemption would have been consummated if the Corporation had not delivered an Exchange Election Notice. Section 11.04 Reservation of shares of Class A Common Stock; Listing; Certificate of the Corporation. At all times the Corporation shall reserve and keep available out of its authorized but unissued Class A Common Stock, solely for the purpose of issuance upon a Redemption or Direct Exchange, such number of shares of Class A Common Stock as shall be issuable upon any such Redemption or Direct Exchange pursuant to Share Settlements; provided that nothing contained herein shall be construed to preclude the Corporation from satisfying its obligations in respect of any such Redemption or Direct Exchange by delivery of purchased Class A Common Stock (which may or may not be held in the treasury of the Corporation) or the delivery of cash pursuant to a Cash Settlement. The Corporation shall deliver Class A Common Stock that has been registered under the Securities Act with respect to any Redemption or Direct Exchange to the extent a registration statement is effective and available for such shares. The Corporation shall use its commercially reasonable efforts to list the Class A Common Stock required to be delivered upon any such Redemption or Direct Exchange prior to such delivery upon each national securities exchange upon which the outstanding shares of Class A Common Stock are listed at the time of such Redemption or Direct Exchange (it being understood that any such shares may be subject to transfer restrictions under applicable securities Laws). The Corporation covenants that all Class A Common Stock issued upon a Redemption or Direct Exchange will, upon issuance, be validly issued, fully paid and non-assessable. The provisions of this Article XI shall be interpreted and applied in a manner consistent with the corresponding provisions of the Corporations certificate of incorporation. Section 11.05 Effect of Exercise of Redemption or Exchange Right. This Agreement shall continue notwithstanding the consummation of a Redemption or Direct Exchange and all governance or other rights set forth herein shall be exercised by the remaining Members, LLC Optionees (to the extent of such LLC Optionees rights to exercise LLC Options and the related Redemption Right) and the Redeeming Member (to the extent of such Redeeming Members remaining interest in the Company). No Redemption or Direct Exchange shall relieve such Redeeming Member of any prior breach of this Agreement. Section 11.06 Tax Treatment. Unless otherwise required by applicable Law, the parties hereto acknowledge and agree a Redemption or a Direct Exchange, as the case may be, shall be treated as a direct exchange between the Corporation and the Redeeming Member for U.S. federal and applicable state and local income tax purposes. ARTICLE XII. ADMISSION OF MEMBERS Section 12.01 Substituted Members. Subject to the provisions of Article X hereof, in connection with the Permitted Transfer of a Company Interest hereunder, the transferee shall become a substituted Member (Substituted Member) on the effective date of such Transfer, |
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43 NY\6520040.7 DRAFT 10-14-2014 which effective date shall not be earlier than the date of compliance with the conditions to such Transfer, and such admission shall be shown on the books and records of the Company. Section 12.02 Additional Members. Each LLC Optionee upon exercise of an LLC Option (to the extent such LLC Optionee does not simultaneously exercise its Redemption Right with respect thereto under Article XI) and, subject to the provisions of Article X hereof, any other Person may be admitted to the Company as an additional Member (any such LLC Optionee or other Person, an Additional Member) only upon furnishing to the Manager (a) counterparts of this Agreement and any applicable Other Agreements and (b) such other documents or instruments as may be reasonably necessary or appropriate to effect such Persons admission as a Member (including entering into such documents as the Manager may deem appropriate in its sole discretion). Such admission shall become effective on the date on which the Manager determines in its sole discretion that such conditions have been satisfied and when any such admission is shown on the books and records of the Company. ARTICLE XIII. WITHDRAWAL AND RESIGNATION; TERMINATION OF RIGHTS Section 13.01 Withdrawal and Resignation of Members. No Member shall have the power or right to withdraw or otherwise resign as a Member from the Company prior to the dissolution and winding up of the Company pursuant to this Article XIII. Any Member, however, that attempts to withdraw or otherwise resign as a Member from the Company without the prior written consent of the Manager upon or following the dissolution and winding up of the Company pursuant to this Article XIII, but prior to such Member receiving the full amount of Distributions from the Company to which such Member is entitled pursuant to this Article XIII, shall be liable to the Company for all damages (including all lost profits and special, indirect and consequential damages) directly or indirectly caused by the withdrawal or resignation of such Member. Upon a Transfer of all of a Members Units in a Transfer permitted by this Agreement, subject to the provisions of Section 10.06, such Member shall cease to be a Member. Section 13.02 Termination of Rights of LLC Optionees. With respect to each LLC Optionee, all rights of such Person to exercise a Redemption Right hereunder pursuant to Article XI or to become a Member hereunder pursuant to Article XII, and all other rights afforded such Person hereunder in his or her capacity as an LLC Optionee, shall automatically terminate upon the expiration or other termination (whether as a result of exercise in full, forfeiture, death, disability, termination of employment or otherwise) of all LLC Options awarded by the Company to such Person (except to the extent the Company substantially simultaneously novates or reissues an LLC Option to such Person or his or her heirs), and upon such expiration or termination such Person shall cease to be an LLC Optionee hereunder. ARTICLE XIV. DISSOLUTION AND LIQUIDATION Section 14.01 Dissolution. The Company shall not be dissolved by the admission of Additional Members or Substituted Members or the attempted withdrawal or resignation of a Member. The Company shall dissolve, and its affairs shall be wound up, upon: |
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44 NY\6520040.7 DRAFT 10-14-2014 (a) the unanimous decision of the Members that then hold Voting Units to dissolve the Company; (b) a Change of Control Transaction that is not approved by the Majority Members; (c) a dissolution of the Company under Section 18-801(4) of the Delaware Act; or (d) the entry of a decree of judicial dissolution of the Company under Section 18-802 of the Delaware Act. Except as otherwise set forth in this Article XIV, the Company is intended to have perpetual existence. An Event of Withdrawal shall not cause a dissolution of the Company and the Company shall continue in existence subject to the terms and conditions of this Agreement. Section 14.02 Liquidation and Termination. On dissolution of the Company, the Manager shall act as liquidator or may appoint one or more Persons as liquidator. The liquidators shall proceed diligently to wind up the affairs of the Company and make final distributions as provided herein and in the Delaware Act. The costs of liquidation shall be borne as a Company expense. Until final distribution, the liquidators shall continue to operate the Company properties with all of the power and authority of the Manager. The steps to be accomplished by the liquidators are as follows: (a) as promptly as possible after dissolution and again after final liquidation, the liquidators shall cause a proper accounting to be made by a recognized firm of certified public accountants of the Companys assets, liabilities and operations through the last day of the calendar month in which the dissolution occurs or the final liquidation is completed, as applicable; (b) the liquidators shall cause the notice described in the Delaware Act to be mailed to each known creditor of and claimant against the Company in the manner described thereunder; (c) the liquidators shall pay, satisfy or discharge from Company funds, or otherwise make adequate provision for payment and discharge thereof (including, without limitation, the establishment of a cash fund for contingent liabilities in such amount and for such term as the liquidators may reasonably determine): first, all expenses incurred in liquidation; and second, all of the debts, liabilities and obligations of the Company; and (d) all remaining assets of the Company shall be distributed to the Members in accordance with Article IV by the end of the Taxable Year during which the liquidation of the Company occurs (or, if later, by 90 days after the date of the liquidation). The distribution of cash and/or property to the Members in accordance with the provisions of this Section 14.02 and Section 14.03 below constitutes a complete return to the Members of their Capital Contributions, a complete distribution to the Members of their interest in the Company and all the Companys property and constitutes a compromise to which all Members have consented within the meaning of the Delaware Act. To the extent that a Member returns funds to the Company, it has no claim against any other Member for those funds. |
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45 NY\6520040.7 DRAFT 10-14-2014 Section 14.03 Deferment; Distribution in Kind. Notwithstanding the provisions of Section 14.02, but subject to the order of priorities set forth therein, if upon dissolution of the Company the liquidators determine that an immediate sale of part or all of the Companys assets would be impractical or would cause undue loss (or would otherwise not be beneficial) to the Members, the liquidators may, in their sole discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy Company liabilities (other than loans to the Company by Members) and reserves. Subject to the order of priorities set forth in Section 14.02, the liquidators may, in their sole discretion, distribute to the Members, in lieu of cash, either (a) all or any portion of such remaining Company assets in-kind in accordance with the provisions of Section 14.02(d), (b) as tenants in common and in accordance with the provisions of Section 14.02(d), undivided interests in all or any portion of such Company assets or (c) a combination of the foregoing. Any such Distributions in kind shall be subject to (a) such conditions relating to the disposition and management of such assets as the liquidators deem reasonable and equitable and (b) the terms and conditions of any agreements governing such assets (or the operation thereof or the holders thereof) at such time. Any Company assets distributed in kind will first be written up or down to their Fair Market Value, thus creating Profit or Loss (if any), which shall be allocated in accordance with Article V. The liquidators shall determine the Fair Market Value of any property distributed in accordance with the valuation procedures set forth in Article XV. Section 14.04 Cancellation of Certificate. On completion of the distribution of Company assets as provided herein, the Company is terminated (and the Company shall not be terminated prior to such time), and the Manager (or such other Person or Persons as the Delaware Act may require or permit) shall file a certificate of cancellation with the Secretary of State of Delaware, cancel any other filings made pursuant to this Agreement that are or should be canceled and take such other actions as may be necessary to terminate the Company. The Company shall be deemed to continue in existence for all purposes of this Agreement until it is terminated pursuant to this Section 14.04. Section 14.05 Reasonable Time for Winding Up. A reasonable time shall be allowed for the orderly winding up of the business and affairs of the Company and the liquidation of its assets pursuant to Sections 14.02 and 14.03 in order to minimize any losses otherwise attendant upon such winding up. Section 14.06 Return of Capital. The liquidators shall not be personally liable for the return of Capital Contributions or any portion thereof to the Members (it being understood that any such return shall be made solely from Company assets). ARTICLE XV. VALUATION Section 15.01 Determination. Fair Market Value of a specific Company asset will mean the amount which the Company would receive in an all-cash sale of such asset in an armslength transaction with a willing unaffiliated third party, with neither party having any compulsion to buy or sell, consummated on the day immediately preceding the date on which the event occurred which necessitated the determination of the Fair Market Value (and after giving effect to any transfer taxes payable in connection with such sale), as such amount is determined |
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46 NY\6520040.7 DRAFT 10-14-2014 by the Manager (or, if pursuant to Section 14.02, the liquidators) in its good faith judgment using all factors, information and data it deems to be pertinent. Section 15.02 Dispute Resolution. If any Member or Members dispute the accuracy of any determination of Fair Market Value in accordance with Section 15.01, and the Manager and such Member(s) are unable to agree on the determination of the Fair Market Value of any asset of the Company, the Manager and such Member(s) shall each select a nationally recognized investment banking firm experienced in valuing securities of closely-held companies such as the Company in the Companys industry (the Appraisers), who shall each determine the Fair Market Value of the asset or the Company (as applicable) in accordance with the provisions of Section 15.01. The Appraisers shall be instructed to give written notice of their determination of the Fair Market Value of the asset or the Company (as applicable) within 30 days of their appointment as Appraisers. If Fair Market Value as determined by an Appraiser is higher than Fair Market Value as determined by the other Appraiser by 10% or more, and the Manager and such Member(s) do not otherwise agree on a Fair Market Value, the original Appraisers shall designate a third Appraiser meeting the same criteria used to select the original two. If Fair Market Value as determined by an Appraiser is within 10% of the Fair Market Value as determined by the other Appraiser (but not identical), and the Manager and such Member(s) do not otherwise agree on a Fair Market Value, the Manager shall select the Fair Market Value of one of the Appraisers. The fees and expenses of the Appraisers shall be borne by the Company. ARTICLE XVI. GENERAL PROVISIONS Section 16.01 Power of Attorney. (a) Each Member who is an individual hereby constitutes and appoints the Manager (or the liquidator, if applicable) with full power of substitution, as his true and lawful agent and attorney-in-fact, with full power and authority in his or its name, place and stead, to: (i) execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (A) this Agreement, all certificates and other instruments and all amendments thereof which the Manager deems appropriate or necessary to form, qualify, or continue the qualification of, the Company as a limited liability company in the State of Delaware and in all other jurisdictions in which the Company may conduct business or own property; (B) all instruments which the Manager deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (C) all conveyances and other instruments or documents which the Manager deems appropriate or necessary to reflect the dissolution and liquidation of the Company pursuant to the terms of this Agreement, including a certificate of cancellation; and (D) all instruments relating to the admission, withdrawal or substitution of any Member pursuant to Article XII or XIII; and (ii) sign, execute, swear to and acknowledge all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the reasonable judgment of the Manager, to evidence, confirm or ratify any vote, consent, approval, agreement or other action which is made or given by the Members hereunder or is |
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47 NY\6520040.7 DRAFT 10-14-2014 consistent with the terms of this Agreement and/or appropriate or necessary (and not inconsistent with the terms of this Agreement), in the reasonable judgment of the Manager, to effectuate the terms of this Agreement. (b) The foregoing power of attorney is irrevocable and coupled with an interest, and shall survive the death, disability, incapacity, dissolution, bankruptcy, insolvency or termination of any Member who is an individual and the transfer of all or any portion of his or its Company Interest and shall extend to such Members heirs, successors, assigns and personal representatives. Section 16.02 Confidentiality. The Manager and each of the Members agree to hold the Companys Confidential Information in confidence and may not use such information except in furtherance of the business of the Company or as otherwise authorized separately in writing by the Manager. Confidential Information as used herein includes, but is not limited to, ideas, financial product structuring, business strategies, innovations and materials, all aspects of the Companys business plan, proposed operation and products, corporate structure, financial and organizational information, analyses, proposed partners, software code and system and product designs, employees and their identities, equity ownership, the methods and means by which the Company plans to conduct its business, all trade secrets, trademarks, tradenames and all intellectual property associated with the Companys business. With respect to the Manager and each Member, Confidential Information does not include information or material that: (a) is rightfully in the possession of the Manager or each Member at the time of disclosure by the Company; (b) before or after it has been disclosed to the Manager or each Member by the Company, becomes part of public knowledge, not as a result of any action or inaction of the Manager or such Member, respectively, in violation of this Agreement; (c) is approved for release by written authorization of the CEO of the Company or of the Corporation; (d) is disclosed to the Manager or such Member or their representatives by a third party not, to the knowledge of the Manager or such Member, respectively, in violation of any obligation of confidentiality owed to the Company with respect to such information; or (e) is or becomes independently developed by the Manager or such Member or their respective representatives without use or reference to the Confidential Information. Section 16.03 Amendments. This Agreement may be amended or modified upon the consent of the Majority Members. Notwithstanding the foregoing, no amendment or modification to any of the terms and conditions of this Agreement which terms and conditions expressly require the approval or action of certain Persons may be made without obtaining the consent of the requisite number or specified percentage of such Persons who are entitled to approve or take action on such matter. In addition, Section 3.01(a), Section 3.02, Section 3.03(a), Section 3.10, Article XI, Section 12.02 and Section 13.02 may not be amended in a manner that is materially adverse to the interests of the LLC Optionees without the prior written consent of the LLC Optionees representing a majority of the aggregate number of Common Units underlying all LLC Options then outstanding. Section 16.04 Title to Company Assets. Company assets shall be deemed to be owned by the Company as an entity, and no Member, individually or collectively, shall have any ownership interest in such Company assets or any portion thereof. The Company shall hold title to all of its property in the name of the Company and not in the name of any Member. All |
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48 NY\6520040.7 DRAFT 10-14-2014 Company assets shall be recorded as the property of the Company on its books and records, irrespective of the name in which legal title to such Company assets is held. The Companys credit and assets shall be used solely for the benefit of the Company, and no asset of the Company shall be transferred or encumbered for, or in payment of, any individual obligation of any Member. Section 16.05 Addresses and Notices. Any notice provided for in this Agreement will be in writing and will be either personally delivered, or received by certified mail, return receipt requested, or sent by reputable overnight courier service (charges prepaid) to the Company at the address set forth below and to any other recipient and to any Member at such address as indicated by the Companys records, or at such address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Notices will be deemed to have been given hereunder when delivered personally or sent by telecopier (provided confirmation of transmission is received), three days after deposit in the U.S. mail and one day after deposit with a reputable overnight courier service. The Companys address is: to the Company: Neff Holdings LLC 3750 N.W. 87th Avenue, Suite 400 Miami, Florida 33178 Attn: Mark Irion, Chief Financial Officer Facsimile: (305) 773-2291 E-mail: mirion@neffcorp.com with a copy (which copy shall not constitute notice) to: Latham & Watkins LLP 885 Third Avenue New York, New York 10022 Attn: Dennis D. Lamont Facsimile: (212) 751-4864 E-mail: dennis.lamont@lw.com Section 16.06 Binding Effect; Intended Beneficiaries. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns. Section 3.01(a), Section 3.02, Section 3.03(a), Section 3.10, Article XI, Section 12.02 and Section 13.02 hereof shall inure to the benefit of the LLC Optionees who are intended to be third-party beneficiaries thereof and which Articles and Sections shall be enforceable by each LLC Optionee and its successors and assigns. Section 16.07 Creditors. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditors of the Company or any of its Affiliates, and no creditor who makes a loan to the Company or any of its Affiliates may have or acquire (except pursuant to the terms of a separate agreement executed by the Company in favor of such creditor) at any time as a result of making the loan any direct or indirect interest in Company Profits, Losses, Distributions, capital or property other than as a secured creditor. |
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49 NY\6520040.7 DRAFT 10-14-2014 Section 16.08 Waiver. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute a waiver of any such breach or any other covenant, duty, agreement or condition. Section 16.09 Counterparts. This Agreement may be executed in separate counterparts, each of which will be an original and all of which together shall constitute one and the same agreement binding on all the parties hereto. Section 16.10 Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. Any dispute relating hereto shall be heard in the state or federal courts of the State of Delaware, and the parties agree to jurisdiction and venue therein. Section 16.11 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable Law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. Section 16.12 Further Action. The parties shall execute and deliver all documents, provide all information and take or refrain from taking such actions as may be necessary or appropriate to achieve the purposes of this Agreement. Section 16.13 Delivery by Electronic Transmission. This Agreement and any signed agreement or instrument entered into in connection with this Agreement or contemplated hereby, and any amendments hereto or thereto, to the extent signed and delivered by means of an electronic transmission, including by a facsimile machine or via email, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such agreement or instrument, each other party hereto or thereto shall re-execute original forms thereof and deliver them to all other parties. No party hereto or to any such agreement or instrument shall raise the use of electronic transmission by a facsimile machine or via email to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through such electronic transmission as a defense to the formation of a contract and each such party forever waives any such defense. Section 16.14 Right of Offset. Whenever the Company is to pay any sum (other than pursuant to Article IV) to any Member, any amounts that such Member owes to the Company which are not the subject of a good faith dispute may be deducted from that sum before payment. For the avoidance of doubt, the distribution of Units to the Corporation shall not be subject to this Section 16.14. |
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50 NY\6520040.7 DRAFT 10-14-2014 Section 16.15 Effectiveness. This Agreement shall be effective immediately prior to the time at which the IPO closes on the IPO Closing Date (the Effective Time). The First A&R LLC Agreement shall govern the rights and obligations of the Company and the other parties to this Agreement in their capacity as Unitholders prior to the Effective Time. Section 16.16 Entire Agreement. This Agreement, those documents expressly referred to herein (including the Registration Rights Agreement and the Tax Receivable Agreement), any indemnity agreements entered into in connection with the First A&R LLC Agreement with any member of the board of managers at that time and other documents of even date herewith embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. For the avoidance of doubt, the First A&R LLC Agreement is superseded by this Agreement as of the Effective Time and shall be of no further force and effect thereafter. Section 16.17 Remedies. Each Member shall have all rights and remedies set forth in this Agreement and all rights and remedies which such Person has been granted at any time under any other agreement or contract and all of the rights which such Person has under any Law. Any Person having any rights under any provision of this Agreement or any other agreements contemplated hereby shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by Law. Section 16.18 Descriptive Headings; Interpretation. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a substantive part of this Agreement. Whenever required by the context, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. The use of the word including in this Agreement shall be by way of example rather than by limitation. Reference to any agreement, document or instrument means such agreement, document or instrument as amended or otherwise modified from time to time in accordance with the terms thereof, and if applicable hereof. Without limiting the generality of the immediately preceding sentence, no amendment or other modification to any agreement, document or instrument that requires the consent of any Person pursuant to the terms of this Agreement or any other agreement will be given effect hereunder unless such Person has consented in writing to such amendment or modification. Wherever required by the context, references to a Fiscal Year shall refer to a portion thereof. The use of the words or, either and any shall not be exclusive. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Wherever a conflict exists between this Agreement and any other agreement, this Agreement shall control but solely to the extent of such conflict. |
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51 NY\6520040.7 DRAFT 10-14-2014 IN WITNESS WHEREOF, the undersigned have executed or caused to be executed on their behalf this Agreement as of the date first written above. COMPANY: NEFF HOLDINGS LLC By: NEFF CORPORATION, its Managing Member By: Name: Title: MEMBERS: WAYZATA OPPORTUNITIES FUND II, L.P. By: WOF II GP, L.P., its General Partner By: WOF II GP, LLC, its General Partner By: Name: Title: WAYZATA OPPORTUNITIES FUND OFFSHORE II, L.P. By: [WOFO II GP, L.P.], its General Partner By: [WOFO II GP, LLC], its General Partner By: Name: Title: NEFF CORPORATION By: Name: Title: |
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NY\6520040.7 DRAFT 10-14-2014 SCHEDULE 1* SCHEDULE OF MEMBERS Member Common Units Percentage Interest Wayzata Opportunities Fund II, L.P. [] ** [] Wayzata Opportunities Fund Offshore II, L.P. [] ** [] Neff Corporation [] *** [] Total [] 100.00000 % * This Schedule of Members reflects the Recapitalization and shall be updated from time to time to reflect any adjustment with respect to any subdivision (by Unit split or otherwise) or any combination (by reverse Unit split or otherwise) of any outstanding Common Units, or to reflect any additional issuances of Common Units pursuant to this Agreement. ** Reflects the Recapitalization and the Over-Allotment Option Redemption (if applicable). *** Reflects the contribution of the IPO Net Proceeds and Over-Allotment Option Net Proceeds (if any). |
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NY\6520040.7 DRAFT 10-14-2014 SCHEDULE 2* SCHEDULE OF LLC OPTIONEES Original LLC Options Number of Common Units Underlying LLC Options** Number of Common Units Underlying LLC Optionees Performance Options Service Options Total Options Performance Options Service Options Total Options James Continenza 12,573 12,573 [] [] [] Robert Singer 8,801 8,801 [] [] [] Graham Hood 81,750 136,250 218,000 [] [] [] Mark Irion 48,750 81,250 130,000 [] [] [] Wes Parks 22,500 37,500 60,000 [] [] [] Henry Lawson 22,500 37,500 60,000 [] [] [] John Anderson 22,500 37,500 60,000 [] [] [] Brad Nowell 13,875 23,125 37,000 [] [] [] Steven Settelmayer 13,875 23,125 37,000 [] [] [] Paula Papamarcos 11,625 19,375 31,000 [] [] [] Steve Michaels 13,875 23,125 37,000 [] [] [] Tom Sutherland 11,625 19,375 31,000 [] [] [] Tammy Parham 5,250 8,750 14,000 [] [] [] Jim Horn 5,250 8,750 14,000 [] [] [] Bryant Becton 5,250 8,750 14,000 [] [] [] Bobby Corner 5,250 8,750 14,000 [] [] [] Total 283,875 494,499 778,374 [] [] [] * This Schedule of LLC Optionees shall be updated from time to time to reflect any adjustment with respect to any subdivision (by Unit split or otherwise) or any combination (by reverse Unit split or otherwise) of any outstanding Common Units, or to reflect any additional issuances of Common Units pursuant to this Agreement. ** This column reflects the Recapitalization. |
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NY\6520040.7 DRAFT 10-14-2014 Exhibit A FORM OF JOINDER AGREEMENT This JOINDER AGREEMENT, dated as of , 20 (this Joinder), is delivered pursuant to that certain Second Amended and Restated Limited Liability Company Agreement, dated as of [ ], 2014 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the LLC Agreement) by and among Neff Holdings LLC, a Delaware limited liability company (the Company), Neff Corporation, a Delaware corporation and the managing member of the Company (the Holdings), and each of the Members from time to time party thereto. Capitalized terms used but not otherwise defined herein have the respective meanings set forth in the LLC Agreement. 1. Joinder to the LLC Agreement. Upon the execution of this Joinder by the undersigned and delivery hereof to Holdings, the undersigned hereby is and hereafter will be a Member under the LLC Agreement and a party thereto, with all the rights, privileges and responsibilities of a Member thereunder. The undersigned hereby agrees that it shall comply with and be fully bound by the terms of the LLC Agreement as if it had been a signatory thereto as of the date thereof. 2. Incorporation by Reference. All terms and conditions of the LLC Agreement are hereby incorporated by reference in this Joinder as if set forth herein in full. 3. Address. All notices under the LLC Agreement to the undersigned shall be direct to: [Name] [Address] [City, State, Zip Code] Attn: Facsimile: E-mail: IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Joinder as of the day and year first above written. [NAME OF NEW MEMBER] By: Name: Title: |
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NY\6520040.7 DRAFT 10-14-2014 Acknowledged and agreed as of the date first set forth above: NEFF HOLDINGS LLC By: NEFF CORPORATION, its Managing Member By: Name: Title: |
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EXHIBIT C FORM OF IPO COMMON UNIT PURCHASE AGREEMENT [see attached] |
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NY\6528071.5 DRAFT 10-14-2014 COMMON UNIT PURCHASE AGREEMENT This COMMON UNIT PURCHASE AGREEMENT (this Agreement) is made and entered into as of [ ], 2014, by and among Neff Corporation, a Delaware corporation (the Corporation), Neff Holdings LLC, a Delaware limited liability company (the Company), Wayzata Opportunities Fund II, L.P., a Delaware limited partnership (Wayzata), and Wayzata Opportunities Fund Offshore II, L.P., a Cayman Islands limited partnership (Wayzata Offshore and, together with Wayzata, the Wayzata Funds). RECITALS WHEREAS, the Corporation is contemplating an offer and sale of its shares of Class A common stock, par value $0.01 per share (the Class A Common Stock and such shares, the Shares), to the public in an underwritten initial public offering (the IPO) pursuant to the Registration Statement (as defined herein); WHEREAS, the Corporation desires to use a portion of the net proceeds from the IPO to purchase Common Units (as defined below) of the Company, and the Company desires to issue its Common Units to the Corporation in exchange for such portion of the net proceeds from the IPO; WHEREAS, immediately prior to or simultaneous with the purchase by the Corporation of the Common Units and consummation of the other transactions contemplated by this Agreement, the Corporation, the Company and the Wayzata Funds will enter into that certain Second Amended and Restated Limited Liability Company Agreement of the Company in the form substantially set forth as Exhibit A hereto (such agreement, as it may be amended, restated, amended and restated, supplemented or otherwise modified from time to time, the LLC Agreement); WHEREAS, upon the Effective Time (as defined below) the Corporation will become the sole managing member of the Company, and the Wayzata Funds will become non-managing members of the Company but otherwise retain their units in the Company (which under the LLC Agreement are converted from Class A Common Units to Common Units), except as otherwise contemplated herein; and WHEREAS, the parties hereto intend for the Corporations contribution to the Company of the proceeds received from the Corporations IPO in exchange for Common Units to be treated as a contribution of property governed by Section 721(a) of the Internal Revenue Code of 1986, as amended; NOW, THEREFORE, in consideration of the covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Corporation, the Wayzata Funds and the Company agree as follows: |
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2 NY\6528071.5 DRAFT 10-14-2014 AGREEMENT ARTICLE I. DEFINITIONS Section 1.01 Certain Definitions. For purposes of this Agreement, the following terms shall have the meanings specified in this Section 1.01: Common Units means the Common Units of the Company as defined in the LLC Agreement. Company has the meaning set forth in the Preamble. Corporation has the meaning set forth in the Preamble. Effective Time means the Effective Time as defined in the LLC Agreement. Encumbrance means, with respect to any specified asset, any security interest, lien, mortgage, claim, charge, pledge, restriction, option, reservation, equitable interest, deed of trust, right of first refusal, easement, servitude or encumbrance of any nature. Initial Closing means the closing of the transactions contemplated in Sections 2.01, 2.02 and 2.04. Initial Closing Date has the meaning set forth in Section 2.03. Initial Consideration has the meaning set forth in Section 2.02. Initial Units has the meaning set forth in Section 2.01. Initial Proceeds means the net proceeds received by the Corporation in exchange for the issuance and sale of Shares in the IPO. Initial Proceeds will be calculated as the product of (a) the sum of (i) the price per share at which Shares are sold to the public in the IPO minus (ii) the aggregate underwriting discounts and commissions per share in such offering, multiplied by (b) the number of Shares sold to the public in the IPO without giving effect to any exercise of the Over-Allotment Option. For the avoidance of doubt, Initial Proceeds shall not include the Over- Allotment Proceeds. IPO has the meaning set forth in the Recitals. LLC Agreement has the meaning set forth in the Recitals. Managing Underwriters means Morgan Stanley & Co. LLC and Jefferies LLC. Over-Allotment Closing means the closing of the transactions contemplated in Section 3.01, 3.02 and 3.04. Over-Allotment Closing Date has the meaning set forth in Section 3.03. |
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3 NY\6528071.5 DRAFT 10-14-2014 Over-Allotment Option means the Underwriters option to purchase additional Shares from the Corporation in the IPO pursuant to the second paragraph of Section 2 of the Underwriting Agreement. Over-Allotment Proceeds means the net proceeds received by the Corporation in exchange for the issuance and sale of Shares in the IPO but solely as a result of the exercise, in whole or in part, by the Underwriters of the Over-Allotment Option. Over-Allotment Proceeds will be calculated as the product of (a) the sum of (i) the price per share at which Shares are sold to the public in the IPO minus (ii) the aggregate underwriting discounts and commissions per share in such offering, multiplied by (b) the number of Shares sold to the public in the IPO solely to the extent of any exercise of the Over-Allotment Option. For the avoidance of doubt, Over- Allotment Proceeds shall not include the Initial Proceeds. Over-Allotment Units has the meaning set forth in Section 3.01. Prospectus means the final prospectus for the IPO contained in the Registration Statement. Registration Statement means the Corporations registration statement on Form S-1, file no. 333-198559, as filed with the U.S. Securities and Exchange Commission on the date hereof, together with any other registration statement on Form S-1 that the Corporation may file in connection with the IPO in reliance on Rule 462(b) promulgated under the Securities Act. Securities Act means the U.S. Securities Act of 1933, as amended. Shares has the meaning set forth in the Recitals. Transaction Documents mean the transactional and organizational documents entered into contemporaneously with this Agreement by either the Company, the Corporation or the Wayzata Funds, as applicable, in connection with the IPO. Underwriters means each of the financial institutions identified in the Prospectus and in the Underwriting Agreement as an underwriter in the IPO, including without limitation the Managing Underwriters. Underwriting Agreement means that certain Underwriting Agreement, [dated the date hereof], by and among the Corporation and the managing underwriters, on behalf of the several Underwriters, with respect to the sale of Shares in the IPO. Wayzata has the meaning set forth in the Preamble. Wayzata Funds has the meaning set forth in the Preamble. Wayzata Offshore has the meaning set forth in the Preamble. |
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4 NY\6528071.5 DRAFT 10-14-2014 ARTICLE II. INITIAL CLOSING Section 2.01 Company Issuance of Common Units to Corporation. The Company hereby agrees to issue to the Corporation on the Initial Closing Date, and the Corporation hereby agrees to subscribe for, purchase and accept on the Initial Closing Date, free and clear of all Encumbrances, an aggregate number of Common Units equal to the aggregate number of Shares sold (excluding any Shares sold pursuant to the exercise of the Over-Allotment Option) in the IPO (such Common Units collectively, the Initial Units). Section 2.02 Consideration. The consideration for the Initial Units shall be an amount equal to the Initial Proceeds (the Initial Consideration). Section 2.03 Initial Closing. The Initial Closing shall be held at the offices of Latham & Watkins LLP, 885 Third Avenue, New York, NY 10022 at the time and date on which all the conditions set forth in Article VII have been satisfied or waived, or at such later time and date as the Corporation, the Company and the Wayzata Funds shall agree in writing (such time and date, the Initial Closing Date). Section 2.04 Initial Closing Deliverables. (a) The Company shall deliver, or cause to be delivered, the following documents to the Corporation at the Initial Closing: (i) (x) solely to the extent that the Common Units are certificated, a certificate or certificates representing the Initial Units being issued to the Corporation identifying the Corporation as the registered holder thereof or (y) if the Common Units are not certificated, evidence reasonably satisfactory to the Corporation that the Corporation has been registered as the holder of the Initial Units in the books and records of the Company (which evidence may be satisfied by the Schedule of Members attached to the LLC Agreement at the Effective Time, as modified to give effect to the Initial Closing); and (ii) all other customary documents, instruments or certificates as shall be reasonably requested by the Corporation and as shall be consistent with the terms of this Agreement; and (b) The Corporation shall deliver, or cause to be delivered, the following to the Company at the Initial Closing: (i) the Initial Consideration by wire transfer of immediately available funds to the following bank account of the Company: Bank [ ] Bank Address [ ] ABA Routing No. [ ] Account No. [ ] Beneficiary Name: Neff Holdings LLC |
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5 NY\6528071.5 DRAFT 10-14-2014 (ii) all other customary documents, instruments or certificates as shall be reasonably requested by the Company and as shall be consistent with the terms of this Agreement and which will not require any representations or warranties other than those set forth in Article IV. Section 2.05 Closing Costs; Transfer Taxes and Fees. The Company shall be solely responsible for the documentary and transfer taxes and any sales or other similar taxes, if any, imposed on the issuance and sale of the Initial Units by the Company to the Corporation under this Agreement, as well as any deficiency, interest or penalty asserted with respect thereto. ARTICLE III. OVER-ALLOTMENT CLOSING Section 3.01 Corporation Purchase of Additional Common Units from the Wayzata Funds. Solely to the extent that the Underwriters exercise the Over-Allotment Option, the Wayzata Funds hereby agree, severally and not jointly, to sell to the Corporation on the Over- Allotment Closing Date, and the Corporation hereby agrees to purchase and accept from the Wayzata Funds on the Over-Allotment Closing Date, free and clear of all Encumbrances, an aggregate number of Common Units equal to the aggregate number of Shares sold to the Underwriters solely pursuant to the exercise, in whole or in part, by the Underwriters of the Over-Allotment Option in the IPO (such Common Units collectively, the Over-Allotment Units). The Corporation and the Wayzata Funds hereby acknowledge and agree that the obligation of the Wayzata Funds to issue any Over-Allotment Units in connection with the Over- Allotment Option are contingent upon the Underwriters exercise of their Over-Allotment Option. If the Underwriters exercise their Over-Allotment Option in whole or in part, the Corporation will, contemporaneously with the sale of Shares by the Corporation to the Underwriters pursuant to the Over-Allotment Option, purchase an aggregate number of Over- Allotment Units from the Wayzata Funds equal to the aggregate number of Shares purchased by the Underwriters from the Corporation pursuant to the exercise of the Over-Allotment Option. The sale of such Over-Allotment Units by the Wayzata Funds shall be made pro rata between them, except for such adjustments as the Wayzata Funds may mutually agree between them in order to avoid any fractional interest in Common Units. Section 3.02 Consideration. The consideration for the Over-Allotment Units shall be an amount equal to the Over-Allotment Proceeds (the Over-Allotment Consideration). The Corporation shall pay the Over-Allotment Consideration to the Wayzata Funds ratably in the same proportion as the Wayzata Funds are selling to the Corporation the Over-Allotment Units. Section 3.03 Over-Allotment Closing. The Over-Allotment Closing shall be held at the offices of Latham & Watkins LLP, 885 Third Avenue, New York, NY 10022 at the time and date on which all the conditions set forth in Article VII have been satisfied or waived, or at such later time and date as the Corporation and the Wayzata Funds shall agree in writing (such time and date, the Over-Allotment Closing Date). Section 3.04 Over-Allotment Closing Deliverables. |
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6 NY\6528071.5 DRAFT 10-14-2014 (a) Each Wayzata Fund shall deliver, or cause to be delivered, the following documents to the Corporation at the Over-Allotment Closing: (i) solely to the extent that the Common Units are certificated, the certificate or certificates representing the Over-Allotment Units being sold to the Corporation (provided that, to the extent a certificate represents more than the exact number of Common Units to be delivered to the Corporation hereunder, then in lieu of the obligation to deliver such certificate(s) to the Corporation the applicable Wayzata Fund may surrender such certificate(s) to the Company for exchange into one or more certificates evidencing (x) the Common Units to be delivered to the Corporation pursuant to this Agreement, which shall be registered in the name of the Corporation and (y) the remaining Common Units to be retained by such Wayzata Fund); and (ii) all other customary documents, instruments or certificates as shall be reasonably requested by the Corporation and as shall be consistent with the terms of this Agreement and which will not require any representations or warranties other than those set forth in Article VI. (b) The Corporation shall deliver, or cause to be delivered, the following to the Wayzata Funds at the Over-Allotment Closing: (i) a letter executed by the Managing Underwriters on behalf of the several Underwriters evidencing the exercise of the Over-Allotment Option by the Underwriters in a form reasonably satisfactory to the Company, which clearly states the total number of Shares with respect to which the Over-Allotment Option has been exercised; (ii) the Over-Allotment Consideration by wire transfer of immediately available funds to the following bank account of the Wayzata Funds: For the Over-Allotment Consideration payable to Wayzata: Bank [ ] Bank Address [ ] ABA Routing No. [ ] Account No. [ ] Beneficiary Name: Wayzata Opportunities Fund II, L.P. For the Over-Allotment Consideration payable to Wayzata Offshore: Bank [ ] Bank Address [ ] ABA Routing No. [ ] Account No. [ ] Beneficiary Name: Wayzata Opportunities Fund Offshore II, L.P. (iii) all other customary documents, instruments or certificates as shall be reasonably requested by the Company and as shall be consistent with the terms of this Agreement; and |
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7 NY\6528071.5 DRAFT 10-14-2014 (c) The Company shall deliver, or cause to be delivered, the following documents to the Corporation at the Over-Allotment Closing: (i) (x) solely to the extent that the Common Units are certificated, a certificate or certificates representing the Initial Units being issued to the Corporation identifying the Corporation as the registered holder thereof or (y) if the Common Units are not certificated, evidence reasonably satisfactory to the Corporation that the Corporation has been registered as the holder of the Initial Units in the books and records of the Company (which evidence may be satisfied by the Schedule of Members attached to the LLC Agreement at the Effective Time, as modified to give effect to the Over- Allotment Closing); (ii) a duly authorized certificate in accordance with Treasury Regulation Section 1.1445-11T, certifying that fifty percent (50%) or more of the value of the gross assets of the Company does not consist of U.S. real property interests or that ninety percent (90%) or more of the value of the gross assets of the Company does not consist of U.S. real property interests plus cash or cash equivalents; and (iii) all other customary documents, instruments or certificates as shall be reasonably requested by the Corporation and as shall be consistent with the terms of this Agreement. Section 3.05 Closing Costs; Transfer Taxes and Fees. The Company shall be solely responsible for the documentary and transfer taxes and any sales or other similar taxes, if any, imposed on the sale and transfer by the Wayzata Funds of the Over-Allotment Units to the Corporation under this Agreement, as well as any deficiency, interest or penalty asserted with respect thereto. ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY As of the date of this Agreement and as of each of the Initial Closing Date and, if applicable, the Over-Allotment Closing Date, the Company represents and warrants to the Corporation and the Wayzata Funds as follows: Section 4.01 Organization; Good Standing; Qualification. The Company is a limited liability company, duly organized and validly existing under the laws of the State of Delaware. The Company has the requisite power and authority to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. The Company is in good standing and qualified to do business in the State of Delaware and in each other jurisdiction where the failure to so qualify would have a material adverse effect on its business or financial condition or its ability to enter into this Agreement or to consummate the transactions contemplated hereby. Section 4.02 Authorization. The execution, delivery and performance of this Agreement and the issuance by the Company of the Initial Units have been duly authorized by the Company. This Agreement constitutes the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as may be |
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8 NY\6528071.5 DRAFT 10-14-2014 limited by (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors rights generally and (ii) the effect of rules of law governing the availability of equitable remedies. Section 4.03 Consents. Except as has been obtained or will be obtained prior to the Initial Closing and, if applicable, the Over-Allotment Closing, no consent, approval or authorization of, or designation, declaration or filing with, any governmental authority or other third party on the part of the Company is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. Section 4.04 Capitalization of the Company. Immediately prior to the execution and delivery of this Agreement, there are no Common Units issued and outstanding other than the Common Units issued the Wayzata Funds as set forth on the Schedule of Members to the LLC Agreement at the Effective Time (prior to giving effect to this Agreement). There are no outstanding options, warrants, rights (including conversion or preemptive rights), voting agreements, investor or other type of agreement with respect to the Common Units or other agreements for the purchase or acquisition from the Company of any Common Units, except for the LLC Options (as defined in the LLC Agreement) summarized on the Schedule of LLC Optionees to the LLC Agreement; provided, however, that the execution of any Transaction Document by the parties hereto either prior to, or contemporaneously with, this Agreement shall be expressly excluded from this Section 4.04. The assets and liabilities of the Company are as set forth in the financial statements included in the Prospectus as of the date indicated. Section 4.05 Regulation D Eligibility. None of the Bad Actor disqualifying events described in Rule 506(d)(1)(i) to (viii) promulgated under the Securities Act (a Disqualification Event) is applicable to the Company or any of its Rule 506(d) Related Parties except, if applicable, for a Disqualification Event as to which Rule 506(d)(2)(ii) or (iii) or (d)(3) is applicable. For purposes of this Agreement, Rule 506(d) Related Party shall mean any person in a capacity (relative to the Company) specified in the first paragraph of Rule 506(d)(1) under the Securities Act. ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION As of the date of this Agreement and as of each of the Initial Closing Date and, if applicable, the Over-Allotment Closing Date, the Corporation hereby represents and warrants to the Company and the Wayzata Funds as follows: Section 5.01 Organization; Good Standing; Qualification. The Corporation is a corporation duly organized and validly existing under the laws of the State of Delaware. The Corporation has the requisite power and authority to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. The Corporation is in good standing and qualified to do business in the State of Delaware and in each other jurisdiction where the failure to so qualify would have a material adverse effect on its ability to enter into this Agreement or to consummate the transactions contemplated hereby. |
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9 NY\6528071.5 DRAFT 10-14-2014 Section 5.02 Authorization. The execution, delivery and performance of this Agreement and the subscription to the Initial Units have been duly authorized by the Corporation. This Agreement constitutes the legal, valid and binding obligation of the Corporation enforceable against the Corporation in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors rights generally and (ii) the effect of rules of law governing the availability of equitable remedies. Section 5.03 Consents. Except as has been obtained or will be obtained prior to Initial Closing and, if applicable, the Over-Allotment Closing, no consent, approval or authorization of, or designation, declaration or filing with, any governmental authority or other third party on the part of the Corporation is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. Section 5.04 Investor Representations. (a) The Corporation is acquiring the Common Units from the Company for its own account as an investment and not with a view to sell, transfer or otherwise distribute all or any part thereof to any other person in any transaction that would constitute a distribution within the meaning of the Securities Act. (b) The Corporation acknowledges and agrees that (i) it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Common Units and (ii) it can bear the economic risk of its investment in the Common Units. (c) The Corporation is an accredited investor as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act. (d) The Corporation understands that neither the offer nor sale of the Common Units by the Company hereunder has or will have been registered pursuant to the Securities Act or any applicable state securities laws, that all of the Common Units will be characterized as restricted securities under federal securities laws and that, under such laws and applicable regulations, none of the Units can be sold or otherwise disposed of without registration under the Securities Act or a valid exemption thereunder. (e) The Corporation acknowledges and agrees that it (i) has, without reliance on the Company or Wayzata, made its own inquiry and investigation into, and based thereon has formed an independent judgment concerning, the Company and the Common Units and (ii) has been furnished with, or given adequate access to, such information about the Company and the Common Units as it has requested. (f) The Corporation further acknowledges and agrees that (1) the only representations, warranties, covenants and agreements made in connection with its purchase of the Common Units from the Company are the representations, warranties, covenants and agreements made in this Agreement, and the Corporation has not relied upon any other representations or information made or supplied by or on behalf of the Company or its representatives, including any information provided by or through the Companys advisors, and |
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10 NY\6528071.5 DRAFT 10-14-2014 that the Corporation will not have any right or remedy arising out of any such representation or other information and (2) any claims that the Corporation may have against the Company for breach of any representation or warranty shall be based solely on the representations and warranties set forth in Article IV (in the case of the Company) or set forth in Article VI (in the case of a Wayzata Fund). Section 5.05 Regulation D Eligibility. Neither the Corporation nor any of its shareholders, directors, executive officers or affiliates (the Corporation together with such Persons, the Corporation Covered Persons) are subject to a Disqualification Event, except, if applicable, for a Disqualification Event as to which Rule 506(d)(2)(ii) or (iii) or (d)(3) is applicable. The Corporation has exercised reasonable care to determine whether any Corporation Covered Person is subject to a Disqualification Event. The purchase of Common Units from the Company by the Corporation will not subject the Company to any Disqualification Event. ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF THE WAYZATA FUNDS. As of the date of this Agreement and as of the Over-Allotment Closing Date, each of the Wayzata Funds hereby represents and warrants, with respect to itself, to the Corporation as follows: Section 6.01 Organization; Good Standing; Qualification. Such Wayzata Fund is a limited partnership duly organized and validly existing under the laws of the State of Delaware. Such Wayzata Fund has the requisite power and authority to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. Such Wayzata Fund is in good standing and qualified to do business in the jurisdiction of its organization (to the extent such concept is applicable in such jurisdiction) and in each other jurisdiction where the failure to so qualify would have a material adverse effect on its ability to enter into this Agreement or to consummate the transactions contemplated hereby. Section 6.02 Authorization. The execution, delivery and performance of this Agreement and the sale of the Over-Allotment Units as contemplated hereby have been duly authorized by such Wayzata Fund. This Agreement constitutes the legal, valid and binding obligation of such Wayzata Fund, enforceable against such Wayzata Fund in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors rights generally and (ii) the effect of rules of law governing the availability of equitable remedies. Section 6.03 Consents. Except as has been obtained or will be obtained prior to Over- Allotment Closing, no consent, approval or authorization of, or designation, declaration or filing with, any governmental authority or other third party on the part of such Wayzata Fund is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. Section 6.04 Title to Units. Such Wayzata Fund is the record and beneficial owner of, and has, and on the Over-Allotment Closing Date will have, valid and marketable title to the |
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11 NY\6528071.5 DRAFT 10-14-2014 Common Units to be sold by such Wayzata Fund to the Corporation pursuant to this Agreement, free and clear of all Encumbrances (other than such Encumbrances that will be extinguished upon the sale of the Common Units to the Corporation); and upon delivery of and payment for such Common Units hereunder, the Corporation will acquire valid and marketable title thereto, free and clear of any Encumbrances. Each Wayzata Fund is selling such Common Units to the Corporation for their own account and are not selling such Common Units for the benefit of the Company, the Corporation or any other person, and no part of the proceeds received by such Wayzata Fund in consideration of such sale of Common Units to the Corporation hereunder will inure, either directly or indirectly, to the benefit of the Company, the Corporation or any other person other than to the partners of such Wayzata Fund. ARTICLE VII. CONDITIONS TO CLOSING Section 7.01 Conditions to the Obligations of All Parties. The obligations of the parties under this Agreement are subject to the fulfillment or waiver of the following conditions: (a) There shall not have been issued and be in effect any order, decree or judgment of, or in, any court, tribunal of competent jurisdiction or governmental authority which makes the issuance by the Company of the Initial Units to the Corporation, the sale by the Wayzata Funds of the Over-Allotment Units to the Corporation, or any of the other transactions contemplated by this Agreement illegal or invalid; (b) The Corporation shall have entered into the Underwriting Agreement with respect to the IPO and all conditions to the consummation thereof shall have been, or will contemporaneously be, satisfied, except for conditions to be satisfied under this Agreement at the Initial Closing and, if applicable, the Over-Allotment Closing; (c) The Company shall have been recapitalized in the manner described in the Prospectus; and (d) The transactions described in the Prospectus under Prospectus SummaryThe Organizational Transactions shall have been completed prior to, or will be completed contemporaneously with, the execution of this Agreement. Section 7.02 Condition to Obligations of the Corporation. In addition to the conditions specified in Section 7.01, the obligations of the Corporation under this Agreement are subject to the fulfillment or waiver of the following conditions: (a) all covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to each of the Initial Closing and, if applicable, the Over- Allotment Closing shall have been performed or complied with in all material respects; (b) each of the representations and warranties of the Company set forth in this Agreement that is qualified as to a material adverse effect shall be true and correct, and each of the representations and warranties of the Company set forth in this Agreement that is not so qualified shall be true and correct in all material respects, in each case, as of the date of this Agreement and as of each of the Initial Closing Date and, if applicable, the Over-Allotment |
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12 NY\6528071.5 DRAFT 10-14-2014 Closing Date as though made on and as of the Initial Closing Date and, if applicable, the Over- Allotment Closing Date (except to the extent in either case that such representations and warranties speak as of another date); (c) solely with respect to the Initial Closing, the Company shall have delivered, or caused to be delivered, to the Corporation instruments of transfer and other transaction documents, in form and substance reasonably satisfactory to the Corporation, to effect the issue of the Initial Units by the Company and the other transactions contemplated by this Agreement, including those documents identified in Section 2.04(a); and (d) solely with respect to the Over-Allotment Closing, if any, (i) each Wayzata Fund shall have delivered, or caused to be delivered, to the Corporation instruments of transfer and other transaction documents, in form and substance reasonably satisfactory to the Corporation, to effect the sale and transfer of the Over-Allotment Units by the Wayzata Funds and the other transactions contemplated by this Agreement, including those documents identified in Section 3.04(a) and (ii) the Company shall have delivered, or caused to be delivered, to the Corporation instruments of transfer and other transaction documents, in form and substance reasonably satisfactory to the Corporation, to effect the sale and transfer of the Over-Allotment Units by the Wayzata Funds and the other transactions contemplated by this Agreement, including those documents identified in Section 3.04(c). Section 7.03 Conditions to the Obligations of the Company. In addition to the conditions specified in Section 7.01, the obligations of the Company under this Agreement are subject to the fulfillment or waiver of the following conditions: (a) all covenants, agreements and conditions contained in this Agreement to be performed by the Corporation and the Wayzata Funds on or prior to the Initial Closing and, if applicable, the Over-Allotment Closing shall have been performed or complied with in all material respects; (b) each of the representations and warranties of the Corporation and the Wayzata Funds set forth in this Agreement that is qualified as to a material adverse effect shall be true and correct, and each of the representations and warranties of the Corporation set forth in this Agreement that is not so qualified shall be true and correct in all material respects, in each case, as of the date of this Agreement and as of the Initial Closing Date and, if applicable, the Over- Allotment Closing Date as though made on and as of the Initial Closing Date and, if applicable, the Over-Allotment Closing Date (except to the extent in either case that such representations and warranties speak as of another date); (c) solely with respect to the Initial Closing, the Corporation shall have delivered to the Company instruments of transfer and other transaction documents, in form and substance reasonably satisfactory to the Company, to effect the issue of the Initial Units by the Company and the other transactions contemplated by this Agreement, including those documents identified in Section 2.04(b); and (d) solely with respect to the Over-Allotment Closing, if any, (i) each Wayzata Fund shall have delivered, or caused to be delivered, to the Company instruments of transfer and other |
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13 NY\6528071.5 DRAFT 10-14-2014 transaction documents, in form and substance reasonably satisfactory to the Company, to effect the sale and transfer of the Over-Allotment Units by the Wayzata Funds and the other transactions contemplated by this Agreement, including those documents identified in Section 3.04(a) and (ii) the Corporation shall have delivered, or caused to be delivered, to the Company instruments of transfer and other transaction documents, in form and substance reasonably satisfactory to the Company, to effect the sale and transfer of the Over-Allotment Units by the Wayzata Funds and the other transactions contemplated by this Agreement, including those documents identified in Section 3.04(b). Section 7.04 Conditions to the Obligations of the Wayzata Funds. In addition to the conditions specified in Section 7.01, the obligations of each Wayzata Fund under this Agreement are subject to the fulfillment or waiver of the following conditions: (a) all covenants, agreements and conditions contained in this Agreement to be performed by the Corporation and by Company on or prior to the Initial Closing shall have been performed or complied with in all material respects; (b) each of the representations and warranties of the Corporation and of the Company set forth in this Agreement that is qualified as to a material adverse effect shall be true and correct, and each of the representations and warranties of the Corporation and of the Company set forth in this Agreement that is not so qualified shall be true and correct in all material respects, in each case, as of the date of this Agreement and as of the Over-Allotment Closing Date as though made on and as of the Over-Allotment Closing Date (except to the extent in either case that such representations and warranties speak as of another date); and (c) (i) the Corporation shall have delivered to each Wayzata Fund instruments of transfer and other transaction documents, in form and substance reasonably satisfactory to each Wayzata Fund, to effect the transfer of Over-Allotment Units by such Wayzata fund to the Corporation and the other transactions contemplated by this Agreement, including those documents identified in Section 3.04(b) and (ii) the Company shall have delivered to each Wayzata Fund instruments of transfer and other transaction documents, in form and substance reasonably satisfactory to each Wayzata Fund, to effect the transfer of Over-Allotment Units by such Wayzata fund to the Corporation and the other transactions contemplated by this Agreement, including those documents identified in Section 3.04(c). ARTICLE VIII. TERMINATION If the conditions set forth in Article VII are not satisfied or waived on or before the completion of the IPO or if the Registration Statement is withdrawn for any reason prior to that date, this Agreement shall become null and void and be of no further force or effect whatsoever and none of the Company, the Wayzata Funds or the Corporation shall have any further obligations hereunder or with respect hereto. To the extent that the Over-Allotment Option is not |
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14 NY\6528071.5 DRAFT 10-14-2014 exercised in full on or prior to 11:59 p.m. New York City time on [ ], 20[ ]1, all obligations of the Wayzata Funds hereunder will terminate and be extinguished as of such time and date. ARTICLE IX. COVENANTS Section 9.01 Further Assurances. From time to time after the date of this Agreement, the Corporation shall deliver or cause to be delivered to the Company and the Wayzata Funds such further documents and instruments and shall do and cause to be done such further acts as the Company and the Wayzata Funds shall reasonably request to carry out more effectively the provisions and purposes of this Agreement. From time to time after the date of this Agreement, the Company shall deliver or cause to be delivered to the Corporation and the Wayzata Funds such further documents and instruments and shall do and cause to be done such further acts as the Corporation and the Wayzata Funds shall reasonably request to carry out more effectively the provisions and purposes of this Agreement. From time to time after the date of this Agreement, each Wayzata Fund shall deliver or cause to be delivered to the Corporation and the Company such further documents and instruments and shall do and cause to be done such further acts as the Corporation and the Company Funds shall reasonably request to carry out more effectively the provisions and purposes of this Agreement; provided that no party hereto shall be required to make any representations or warranties except as and to the extent provided herein. Section 9.02 No Transfer or Encumbrance. Between the date hereof and each of the Initial Closing Date and, if applicable, the Over-Allotment Closing Date and except as specifically disclosed in the Prospectus, the Company shall not issue, grant, sell, transfer, pledge or otherwise hypothecate any additional Common Units or any rights to any Common Units; provided that the Company may and shall implement the stock split contemplated by the LLC Agreement. Between the date hereof and each of the Over-Allotment Closing Date and except as specifically disclosed in the Prospectus, the Wayzata Funds shall not sell, transfer, pledge or otherwise hypothecate any additional Common Units or any rights to any Common Units; provided that the Wayzata Funds may participate in the stock split contemplated by the LLC Agreement and may deliver Common Units to the Company or to the Corporation in accordance with this Agreement. Section 9.03 Conduct of the Business. Between the date hereof and each of the Initial Closing Date and, if applicable, the Over-Allotment Closing Date and except as specifically disclosed in the Prospectus, the Company shall (i) conduct the business of the Company in the ordinary course consistent with past practice, (ii) use all commercially reasonable efforts to (A) retain the services of its key employees, (B) preserve the Companys relationships with material customers, suppliers, sponsors, licensees and creditors, and (C) maintain and keep the Companys properties and assets in as good repair and condition as at present, ordinary wear and tear excepted, (iii) maintain its capital structure as it exists on the date of this Agreement, except as specifically contemplated hereunder. 1 NTD: To be 30 days after the date of the Underwriting Agreement. |
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15 NY\6528071.5 DRAFT 10-14-2014 ARTICLE X. MISCELLANEOUS Section 10.01 Governing Law; Consent to Jurisdiction and Service of Process; Waiver of Jury Trial. (a) This Agreement shall be governed by and construed in all respects in accordance with the laws of the State of Delaware without giving effect to principles of conflicts of law that would result in the application of the laws of any other jurisdiction. (b) Each of the parties hereto hereby irrevocably submits to the non-exclusive jurisdiction of the United States District Court for the District of Delaware for the purposes of any suit, action o other proceeding arising out of this Agreement, any related agreement or any transaction contemplated hereby or thereby. Each of the parties hereto hereby further agrees that service of any process, summons, notice or document by U.S. registered mail to such partys respective address set forth above shall be effective service of process for any action, suit or proceeding with respect to any matters as to which it has submitted to jurisdiction in this paragraph. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement, any related agreement or any transaction contemplated hereby or thereby in the United States District Court for the District of Delaware, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. (c) AS A SPECIFICALLY BARGAINED FOR INDUCEMENT FOR EACH OF THE PARTIES HERETO TO ENTER INTO THIS AGREEMENT (AFTER HAVING THE OPPORTUNITY TO CONSULT WITH COUNSEL), EACH PARTY HERETO EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO OR ARISING IN ANY WAY FROM THIS AGREEMENT OR THE MATTERS CONTEMPLATED HEREBY. Section 10.02 Notices. All notices, demands or other communications to be given under or by reason of this Agreement shall be in writing and shall be deemed to have been received when delivered personally, or when transmitted by overnight delivery service, addressed as follows: If to the Corporation: Neff Corporation 3750 N.W. 87th Avenue, Suite 400 Miami, Florida 33178 Attention: Chief Financial Officer Fax: (305) 513-4156 with a copy to: Latham & Watkins LLP 885 Third Avenue |
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16 NY\6528071.5 DRAFT 10-14-2014 New York, NY 10022 Attention: Dennis D. Lamont, Esq. Fax: (212) 751-4864 If to the Company: Neff Holdings LLC 3750 N.W. 87th Avenue, Suite 400 Miami, Florida 33178 Attention: Chief Financial Officer Fax: (305) 513-4156 with a copy to: Latham & Watkins LLP 885 Third Avenue New York, NY 10022 Attention: Dennis D. Lamont, Esq. Fax: (212) 751-4864 If to any Wayzata Fund: Wayzata Opportunities Fund II, L.P. Wayzata Opportunities Fund Offshore II, L.P. c/o Wayzata Investment Partners LLC 701 East Lake Street, Suite 300 Wayzata, Minnesota 55391 Attn: [Ray Wallander] Fax: [(952) 345-8901] Any party to this Agreement may change its address for notices, demands and other communications under this Agreement by giving notice of such change to the other party hereto in accordance with this Section 10.02. Section 10.03 Survival. The representations, warranties, covenants and agreements made herein shall survive any investigation made by any of the parties hereto and the closing of the transactions contemplated hereby. Section 10.04 Benefit of Parties; Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, legal representatives and permitted assigns. This Agreement may not be assigned by any party without the prior written consent of the other parties to this Agreement, and any assignment without such consent shall be null and void. Nothing herein contained shall confer or is intended to confer on any third party or entity that is not a party to this Agreement any rights under this Agreement. |
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17 NY\6528071.5 DRAFT 10-14-2014 Section 10.05 Amendment. This Agreement may not be amended, modified, altered or supplemented except by means of a written instrument executed on behalf of each of the Corporation, the Company and each Wayzata Fund. Section 10.06 Waiver. No failure on the part of either party hereto to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of either party hereto in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver thereof; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. Section 10.07 Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. Section 10.08 Entire Agreement. This Agreement sets forth the entire understanding of the parties hereto and supersedes all other agreements and understandings between the parties hereto relating to the subject matter hereof. Section 10.09 Counterparts and Facsimiles. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other. The parties hereto may execute the signature pages hereof and exchange such signature pages by facsimile transmission. Section 10.10 Interpretation of Agreement. (a) As used in this Agreement, the words include and including, and variations thereof, shall not be deemed to be terms of limitation, and shall be deemed to be followed by the words without limitation. (b) Unless otherwise specified, references in this Agreement to Articles, Sections and Exhibits are intended to refer to Articles and Sections of, and Exhibits to, this Agreement. (c) The Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. (d) Each party hereto and its counsel cooperated in drafting and preparation of this Agreement and the documents referred to in this Agreement. Any rule of law or any legal decision that would require interpretation of any ambiguities in this Agreement against the party that drafted it is of no application and is hereby expressly waived. [Signature pages follow] |
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[Signature Page to Common Unit Purchase Agreement] DRAFT 10-14-2014 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written. NEFF HOLDINGS LLC By: Name: Title: NEFF CORPORATION By: Name: Title: WAYZATA OPPORTUNITIES FUND II, L.P. By: WOF II GP, L.P., its General Partner By: WOF II GP, LLC, its General Partner By: Name: Title: WAYZATA OPPORTUNITIES FUND OFFSHORE II, L.P. By: WOFO II GP, L.P., its General Partner By: WOFO II GP, LLC, its General Partner By: Name: Title: By: Name: Title: |
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NY\6528071.5 DRAFT 10-14-2014 Exhibit A FORM OF LLC AGREEMENT [See attached] |
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EXHIBIT D FORM OF TAX RECEIVABLE AGREEMENT [see attached] |
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NY\6516862.10 DRAFT 10-14-2014 TAX RECEIVABLE AGREEMENT by and among NEFF CORPORATION WAYZATA OPPORTUNITIES FUND II, L.P. WAYZATA OPPORTUNITIES FUND OFFSHORE II, L.P. the several LLC OPTION HOLDERS (as defined herein) OTHER MEMBERS OF NEFF HOLDINGS LLC FROM TIME TO TIME PARTY HERETO Dated as of [], 2014 |
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i NY\6516862.10 DRAFT 10-14-2014 CONTENTS Page Article I. DEFINITIONS 2 Section 1.1 Definitions2 Section 1.2 Rules of Construction 11 Article II. DETERMINATION OF REALIZED TAX BENEFIT 12 Section 2.1 Basis Adjustments; Neff Holdings 754 Election 12 Section 2.2 Basis and Reverse 704(c) Schedules13 Section 2.3 Tax Benefit Schedules 13 Section 2.4 Procedures; Amendments 14 Article III. TAX BENEFIT PAYMENTS 15 Section 3.1 Timing and Amount of Tax Benefit Payments 15 Section 3.2 No Duplicative Payments 18 Section 3.3 Pro-Ration of Payments as Between the Members 18 Section 3.4 Optional Estimated Payment Procedure 19 Section 3.5 Changes; Reserves; Suspension of Payments 20 Article IV. TERMINATION 21 Section 4.1 Early Termination of Agreement; Breach of Agreement 21 Section 4.2 Early Termination Notice 23 Section 4.3 Payment Upon Early Termination 24 Article V. SUBORDINATION AND LATE PAYMENTS 24 Section 5.1 Subordination 24 Section 5.2 Late Payments by the Corporation 24 Article VI. TAX MATTERS; CONSISTENCY; COOPERATION 25 Section 6.1 Participation in the Corporations and Neff Holdings Tax Matters 25 Section 6.2 Consistency 25 Section 6.3 Cooperation 25 Article VII. MISCELLANEOUS26 Section 7.1 Notices 26 Section 7.2 Counterparts 27 Section 7.3 Entire Agreement; No Third Party Beneficiaries27 Section 7.4 Governing Law 27 Section 7.5 Severability 27 |
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ii NY\6516862.10 DRAFT 10-14-2014 Section 7.6 Assignments; Amendments; Successors; No Waiver 27 Section 7.7 Titles and Subtitles 28 Section 7.8 Resolution of Disputes 28 Section 7.9 Reconciliation 30 Section 7.10 Withholding 30 Section 7.11 Admission of the Corporation into a Consolidated Group; Transfers of Corporate Assets 31 Section 7.12 Confidentiality 31 Section 7.13 Change in Law 32 Section 7.14 Interest Rate Limitation 32 Section 7.15 Independent Nature of Rights and Obligations 32 Exhibits Exhibit A - Form of Joinder Agreement |
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NY\6516862.10 DRAFT 10-14-2014 TAX RECEIVABLE AGREEMENT This TAX RECEIVABLE AGREEMENT (this Agreement), dated as of [ ], 2014, is hereby entered into by and among Neff Corporation, a Delaware corporation (the Corporation), Neff Holdings LLC, a Delaware limited liability company (Neff Holdings), each of the Members from time to time party hereto and the LLC Option Holders. Capitalized terms used but not otherwise defined herein have the respective meanings set forth in Section 1.01. RECITALS WHEREAS, Neff Holdings is treated as a partnership for U.S. federal income tax purposes; WHEREAS, each of the members of Neff Holdings other than the Corporation (such members, together with each other Person who becomes party hereto by satisfying the Joinder Requirement, the Members) owns (or, in the case of such other Persons, will own) common limited liability company interests in Neff Holdings (the Units); WHEREAS, the Corporation is the managing member of Neff Holdings, and is the registered owner and will be the registered owner of Units; WHEREAS, on the date hereof and exclusive of the Over-Allotment Option (as defined below), the Corporation issued [ ] shares of its Class A common stock, par value $0.01 per share (the Class A Common Stock) to certain purchasers in an initial public offering of its Class A Common Stock (the IPO) in exchange for net proceeds of approximately $[ ] million, after deducting underwriting discounts and commissions but before offering expenses; WHEREAS, on the date hereof, the Corporation used $[ ] million of the net proceeds from the IPO to acquire newly-issued Units directly from Neff Holdings (the Corporations Capital Contribution), which proceeds will be used to repay or prepay certain indebtedness of Neff Holdings and to pay the fees and expenses from the IPO; WHEREAS, on and after the date hereof, the Corporation may issue additional Class A Common Stock in connection with the IPO as a result of the exercise by the underwriters of their over-allotment option (the Over-Allotment Option) and, if the Over-Allotment Option is in fact exercised in whole or in part, any additional net proceeds0F will be used by the Corporation to purchase Units of Neff Holdings directly from Wayzata at a price equal to the price per share in the IPO, less underwriting discounts and commissions (a Sale); WHEREAS, on and after the date hereof, pursuant to Article XI of the LLC Agreement, each Member has the right, in its sole discretion, from time to time to require Neff Holdings to redeem (a Redemption) all or a portion of such Members Units for cash or Class A Common Stock; provided that, at the election of the Corporation in its sole discretion, the Corporation may effect a direct exchange (a Direct Exchange) of such cash or shares of Class A Common Stock for such Units; |
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2 NY\6516862.10 DRAFT 10-14-2014 WHEREAS, certain members of management of Neff Holdings and certain nonexecutive members of its board of managers (the LLC Option Holders) have existing options to acquire Units, which options may be exercised from time to time by the holder thereof in accordance with the terms thereof, whereupon such Person will be admitted as a member of Holdings, and it is anticipated that substantially simultaneous with such exercise such Person will become a Member; WHEREAS, Neff Holdings and any direct or indirect subsidiary (owned through a chain of pass-through entities) of Neff Holdings that is treated as a partnership for U.S. federal income tax purposes (together with Neff Holdings and any direct or indirect subsidiary (owned through a chain of pass-through entities) of Neff Holdings that is treated as a disregarded entity for U.S. federal income tax purposes, the Neff Holdings Group) will have in effect an election under Section 754 of the Code (as defined herein) for the Taxable Year (as defined herein) in which any Exchange (as defined below) occurs, which election will result in an adjustment to the Corporations share of the tax basis of the assets owned by the Neff Holdings Group as of the date of the Exchange, with a consequent result on the taxable income subsequently derived therefrom; and WHEREAS, the parties to this Agreement desire to provide for certain payments and make certain arrangements with respect to any tax benefits to be derived by the Corporation as the result of Exchanges and the receipt of payments under this Agreement, as contemplated by the LLC Agreement. NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I. DEFINITIONS Section 1.1 Definitions. As used in this Agreement, the terms set forth in this Article I shall have the following meanings (such meanings to be equally applicable to both (i) the singular and plural and (ii) the active and passive forms of the terms defined). Actual Interest Amount is defined in Section 3.1(b)(vii) of this Agreement. Advisory Firm means an accounting firm that is nationally recognized as being expert in Covered Tax matters and not an Affiliate of the Corporation, selected by the Corporation.1F 1 Advisory Firm Letter means a letter, that has been prepared by the Advisory Firm used by the Corporation in connection with the performance of its obligations under this Agreement, which states that the relevant Schedules, notices or other information to be provided by the Corporation to the Members, along with all supporting schedules and work papers, were 1 Note to draft: consider specifying Deloitte as the initial Advisory Firm |
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3 NY\6516862.10 DRAFT 10-14-2014 prepared in a manner that is consistent with the terms of this Agreement and, to the extent not expressly provided in this Agreement, on a reasonable basis in light of the facts and law in existence on the date such Schedules, notices or other information were delivered by the Corporation to the Members. Affiliate means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. Agreed Rate means LIBOR plus 100 basis points. Agreement is defined in the preamble. Amended Schedule is defined in Section 2.4(b) of this Agreement. Attributable is defined in Section 3.1(b)(i) of this Agreement. Audit Committee means the audit committee of the Board. Basis Adjustment means the increase or decrease to the tax basis of, or the Corporations share of, the tax basis of the Reference Assets (i) under Section 734(b), 743(b) and 754 of the Code and, in each case, the comparable sections of U.S. state and local tax law (in situations where, following an Exchange, Neff Holdings remains in existence as an entity for tax purposes) and (ii) under Sections 732 and 1012 of the Code and, in each case, the comparable sections of U.S. state and local tax law (in situations where, as a result of one or more Exchanges, Neff Holdings becomes an entity that is disregarded as separate from its owner for tax purposes), in each case, as a result of any Exchange and any payments made under this Agreement. Notwithstanding any other provision of this Agreement, the amount of any Basis Adjustment resulting from an Exchange of one or more Units shall be determined without regard to any Pre-Exchange Transfer of such Units and as if any such Pre-Exchange Transfer had not occurred to the extent that such Pre-Exchange Transfer resulted in the partial or complete elimination of a future Basis Adjustment that the Corporation would have otherwise obtained pursuant to the terms of this Agreement. Basis Schedule is defined in Section 2.2 of this Agreement. Beneficial Owner means, with respect to any security, a Person who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares: (i) voting power, which includes the power to vote, or to direct the voting of, with respect to such security and/or (ii) investment power, which includes the power to dispose of, or to direct the disposition of, such security. Board means the Board of Directors of the Corporation. Book-Tax Disparity means, with respect to any Reference Asset, as of the date of the Corporations Capital Contribution, the difference between the Book Value (as defined in the |
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4 NY\6516862.10 DRAFT 10-14-2014 LLC Agreement) of such Reference Asset and the adjusted basis thereof for U.S. federal income tax purposes as of such date. Business Day means any day excluding Saturday, Sunday and any day that is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in New York are closed. Change Notice is defined in Section 3.5(a) of this Agreement. Change of Control means the occurrence of any of the following events:2F 2 (1) (A) any person or group (within the meaning of Sections 13(d) and 14(d) of the Securities and Exchange Act of 1934, as amended, or any successor provisions thereto (the Exchange Act) but excluding any employee benefit plan of such person and its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan, and excluding the Permitted Investors) shall become the beneficial owner (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of voting stock of the Corporation entitling such person or group to cast more than thirty-five percent (35%) of the votes eligible to be cast in an election of directors of the Corporation and (B) the Permitted Investors shall own outstanding voting stock of the Corporation having a lesser percentage of the votes eligible to be cast in such an election of the Corporation at such time than the person or group in the foregoing clause (A); (2) the Corporation ceases to be the sole managing member of Neff Holdings; (3) the Corporation or any of its Subsidiaries acquires, by merger, consolidation or otherwise, assets with a gross fair market value, and/or equity interests in an entity with a gross enterprise value, in excess of 50% of the gross enterprise value of the Corporation on the date hereof; provided that for this purpose, the gross enterprise value of the Corporation on the date hereof shall be the fair market value of the outstanding shares of stock of the Corporation (based on the price per share in the IPO) plus the amount of the Corporations liabilities as of the date of the IPO; or (4) a change of control or similar defined term in any agreement governing indebtedness of Neff Holdings or any of its Subsidiaries with aggregate principal amount or aggregate commitments outstanding in excess of $25,000,000. Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the Class A Common Stock and Class B Common Stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in and 2 INTD: Conform to what we end up with in our amended credit agreements (amendments are a work in process). |
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5 NY\6516862.10 DRAFT 10-14-2014 voting control over, and own substantially all of the shares of, an entity which owns all or substantially all of the assets of the Corporation immediately following such transaction or series of transactions. Code means the U.S. Internal Revenue Code of 1986, as amended, and applicable Treasury Regulations promulgated thereunder. Control means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. Corporation is defined in the preamble to this Agreement. Corporations Capital Contribution is defined in the recitals to this Agreement. Covered Taxes means any and all U.S. federal, state, local and foreign taxes, assessments or similar chargers that are based on or measure with respect to net income or profits, whether as an exclusive or an alternative basis, and any interest related thereto. Cumulative Net Realized Tax Benefit is defined in Section 3.1(b)(iii) of this Agreement. Default Rate means LIBOR plus 500 basis points. Default Rate Interest is defined in Section 3.1(b)(ix) of this Agreement. Determination shall have the meaning ascribed to such term in Section 1313(a) of the Code or similar provision of U.S. state tax law, as applicable, or any other event (including the execution of IRS Form 870-AD) that finally and conclusively establishes the amount of any liability for tax. Direct Exchange is defined in the recitals to this agreement. Dispute is defined in Section 7.8(a) of this Agreement. Early Termination Effective Date means the date of an Early Termination Notice for purposes of determining the Early Termination Payment. Early Termination Notice is defined in Section 4.2 of this Agreement. Early Termination Payment is defined in Section 4.3(b) of this Agreement. Early Termination Rate means the lesser of (i) 6.50% per annum, compounded annually, and (ii) the Agreed Rate. Early Termination Reference Date is defined in Section 4.2 of this Agreement. Early Termination Schedule is defined in Section 4.2 of this Agreement. |
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6 NY\6516862.10 DRAFT 10-14-2014 Estimated Tax Benefit Payment is defined in Section 3.4 of this Agreement. Exchange means any Sale, Direct Exchange, Redemption or Section 734(b) Distribution. Exchange Date means the date of any Exchange. Expert is defined in Section 7.9 of this Agreement. Extension Rate Interest is defined in Section 3.1(b)(viii) of this Agreement. Final Payment Date means any date on which a payment is required to be made pursuant to this Agreement. For the avoidance of doubt, the Final Payment Date in respect of a Tax Benefit Payment is determined pursuant to Section 3.1(a) of this Agreement. GAAP means generally accepted accounting principles in the United States, as in effect from time to time; provided, however, that if the Corporation notifies the Members that the Corporation requests an amendment to any provision hereof to eliminate the effect of any change in GAAP or in the application thereof occurring after the date of this Agreement (including through the adoption of International Financial Reporting Standards and applicable accounting requirements set by the International Accounting Standards Board or any successor thereto, IFRS) on the operation of such provision (or if the Members notify the Corporation that they request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof (including through the adoption of IFRS), then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Hypothetical Tax Liability means, with respect to any Taxable Year, the hypothetical liability of the Corporation that would arise in respect of Covered Taxes, using the same methods, elections, conventions and similar practices used on the actual relevant Tax Returns of the Corporation but (i) calculating depreciation, amortization, or other similar deductions, or otherwise calculating any items of income, gain, or loss, using the Non-Adjusted Tax Basis as reflected on the Basis Schedule, including amendments thereto for the Taxable Year, (ii) disregarding the requirement under Treasury Regulation Sections 1.704-1(b)(2)(iv)(f)(4) and 1.704-1(b)(4)(i) to make Reverse 704(c) Allocations and (iii) excluding any deduction attributable to Imputed Interest or Actual Interest Amounts for the Taxable Year. For the avoidance of doubt, the Hypothetical Tax Liability shall be determined without taking into account the carryover or carryback of any tax item (or portions thereof) that is attributable to any of the items described in the previous sentence. Imputed Interest is defined in Section 3.1(b)(vi) of this Agreement. Independent Directors means the members of the Board who are independent under the standards set forth in Rule 10A-3 promulgated under the U.S. Securities Exchange Act of |
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7 NY\6516862.10 DRAFT 10-14-2014 1933, as amended, and the corresponding rules of the applicable exchange on which the Class A Common Stock is traded or quoted.3F 3 IPO is defined in the recitals to this Agreement IRS means the U.S. Internal Revenue Service. Joinder means a joinder to this Agreement, in form and substance substantially similar to Exhibit A to this Agreement. Joinder Requirement is defined in Section 7.6(a) of this Agreement. LIBOR means during any period, a rate per annum equal to (i) the ICE LIBOR rate for a period of one year (ICE LIBOR), as published on the applicable Bloomberg screen page (or such other commercially available source providing quotations of ICE LIBOR as may be designated by the Corporation from time to time) at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such period, for dollar deposits (for delivery on the first day of such period) with a term equivalent to such period. LLC Agreement means that certain Second Amended and Restated Limited Liability Company Agreement of Neff Holdings LLC, dated as of the date hereof, as such agreement may be further amended, restated, supplemented and/or otherwise modified from time to time. LLC Option Holder is defined in the recitals to this Agreement. Market Value shall mean the Common Unit Redemption Price, as defined in the LLC Agreement, determined as of an Early Termination Date. Members is defined in the recitals to this Agreement. Neff Holdings is defined in the recitals to this Agreement. Net Tax Benefit is defined in Section 3.1(b)(ii) of this Agreement. Non-Adjusted Tax Basis means, with respect to any Reference Asset at any time, the tax basis that such asset would have had at such time if no Basis Adjustments had been made. Objection Notice is defined in Section 2.4(a)(i) of this Agreement. Over-Allotment Option is defined in the recitals to this Agreement. 3 INTD: There is no single standard for independent, so Ive used the audit committee independence requirements which will exclude anyone affiliated with the Corporation (i.e., Wayzata directors would not be independent for this purpose). |
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8 NY\6516862.10 DRAFT 10-14-2014 Parties means the parties named on the signature pages to this agreement and each additional party that satisfies the Joinder Requirement, in each case with their respective successors and assigns. Person means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity. Permitted Investors shall mean private investment funds managed by Wayzata Investment Partners, LLC and its Affiliates (excluding any portfolio company). Pre-Exchange Transfer means any transfer of one or more Units (including upon the death of a Member or upon the issuance of Units resulting from the exercise of an option to acquire such Units) (i) that occurs after the IPO but prior to an Exchange of such Units and (ii) to which Section 743(b) of the Code applies. Realized Tax Benefit is defined in Section 3.1(b)(iv) of this Agreement. Realized Tax Detriment is defined in Section 3.1(b)(v) of this Agreement. Reconciliation Dispute is defined in Section 7.9 of this Agreement. Reconciliation Procedures is defined in Section 2.4(a) of this Agreement. Redemption has the meaning in the recitals to this Agreement. Reference Asset means any tangible or intangible asset of Neff Holdings or any of its successors or assigns, and whether held directly by NEFF Holdings or indirectly by Neff Holdings through any entity in which Neff Holdings now holds or may subsequently hold an ownership interest, at the time of an Exchange. A Reference Asset also includes any asset the tax basis of which is determined, in whole or in part, by reference to the tax basis of an asset that is described in the preceding sentence, including substituted basis property within the meaning of Section 7701(a)(42) of the Code. Reserve Notice is defined in Section 3.5(b). Reverse 704(c) Allocations means, in accordance with Treasury Regulation Sections 1.704-1(b)(2)(iv)(f)(4) and 1.704-1(b)(4)(i), allocations of items of taxable income, gain, loss and deduction to take into account any Book-Tax Disparity of any Reference Asset on the date of the Corporations Capital Contribution in the same manner as under Section 704(c) of the Code using the traditional method as described in Treasury Regulation Section 1.704-3(b). Reverse 704(c) Schedule is defined in Section 2.2 of this Agreement Sale is defined in the recitals to this Agreement. |
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9 NY\6516862.10 DRAFT 10-14-2014 Schedule means any of the following: (i) a Basis Schedule, (ii) Reverse 704(c) Schedule, (iii) a Tax Benefit Schedule, or (iv) the Early Termination Schedule, and, in each case, any amendments thereto. Section 734(b) Distribution means any actual or deemed distribution to any Member by Neff Holdings to which Section 734(b)(1) of the Code (or any similar sections of U.S. state and local tax law) applies. Senior Obligations is defined in Section 5.1 of this Agreement. Subsidiary means, with respect to any Person and as of the date of any determination, any other Person as to which such Person, owns, directly or indirectly, or otherwise controls, more than 50% of the voting power or other similar interests, or the sole general partner interest, or managing member or similar interest, of such Person. Subsidiary Stock means any stock or other equity interest in any subsidiary entity of the Corporation that is treated as a corporation for U.S. federal income tax purposes. Tax Benefit Payment is defined in Section 3.1(b) of this Agreement. Tax Benefit Schedule is defined in Section 2.3(a) of this Agreement. Tax Return means any return, declaration, report or similar statement required to be filed with respect to taxes (including any attached schedules), including, without limitation, any information return, claim for refund, amended return and declaration of estimated tax. Taxable Year means a taxable year of the Corporation as defined in Section 441(b) of the Code or comparable section of U.S. state or local tax law, as applicable (and, therefore, for the avoidance of doubt, may include a period of less than 12 months for which a Tax Return is made), ending on or after the closing date of the IPO. Taxing Authority shall mean any national, federal, state, county, municipal, or local government, or any subdivision, agency, commission or authority thereof, or any quasigovernmental body, or any other authority of any kind, exercising regulatory or other authority in relation to tax matters. Termination Objection Notice is defined in Section 4.2 of this Agreement. Treasury Regulations means the final, temporary, and (to the extent they can be relied upon) proposed regulations under the Code, as promulgated from time to time (including corresponding provisions and succeeding provisions) as in effect for the relevant taxable period. True-Up is defined in Section 3.4 of this Agreement. U.S. means the United States of America. Units is defined in the recitals to this Agreement. |
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10 NY\6516862.10 DRAFT 10-14-2014 Valuation Assumptions shall mean, as of an Early Termination Effective Date, the assumptions that: (1) in each Taxable Year ending on or after such Early Termination Effective Date, the Corporation will have taxable income sufficient to fully use the deductions arising from the Basis Adjustments, the Reverse 704(c) Allocations and the Imputed Interest during such Taxable Year or future Taxable Years (including, for the avoidance of doubt, Basis Adjustments and Imputed Interest that would result from future Tax Benefit Payments that would be paid in accordance with the Valuation Assumptions) in which such deductions would become available; (2) the U.S. federal income tax rates and U.S. state income tax rates that will be in effect for each such Taxable Year will be those specified for each such Taxable Year by the Code and other law as in effect on the Early Termination Effective Date, except to the extent any change to such tax rates for such Taxable Year have already been enacted into law; (3) all taxable income of the Corporation will be subject to the maximum applicable tax rates for each Covered Tax throughout the relevant period; (4) any loss carryovers or carrybacks generated by any Basis Adjustment, Reverse 704(c) Allocations or Imputed Interest (including such Basis Adjustment and Imputed Interest generated as a result of payments under this Agreement) and available as of the date of the Early Termination Schedule will be used by the Corporation on a pro rata basis from the date of the Early Termination Schedule through the scheduled expiration date of such loss carryovers or carrybacks; (5) any non-amortizable assets (other than Subsidiary Stock) will be disposed of on the earlier of (i) the fifteenth anniversary of the applicable Basis Adjustment and (ii) the Early Termination Effective Date; (6) any Subsidiary Stock will be deemed never to be disposed of; (7) if, on the Early Termination Effective Date, (i) any Member has Units that have not been Exchanged, then such Units shall be deemed to be Exchanged for the Market Value of the shares of Class A Common Stock that would be received by such Member if such Units had been Exchanged on the Early Termination Effective Date, and such Member shall be deemed to receive the amount of cash such Member would have been entitled to pursuant to Section 4.3(a) had such Units actually been Exchanged on the Early Termination Effective Date and (ii) any LLC Option Holder has options that have not been exercised in exchange for Units, then such options shall be deemed to have been exercised in accordance with the terms thereof and such Units deemed to be received in connection with such exercise shall be deemed to be Exchanged for the Market Value of the shares of Class A Common Stock that would be received by such LLC Option Holder if such Units had been Exchanged on the Early Termination Effective Date, and such LLC Option Holder shall be deemed to receive the amount of cash such LLC Option Holder would have been entitled to pursuant to Section 4.3(a) had such options actually |
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11 NY\6516862.10 DRAFT 10-14-2014 been exercised and such Units actually been Exchanged on the Early Termination Effective Date; and (8) any payment obligations pursuant to this Agreement will be satisfied on the date that any Tax Return to which such payment obligation relates is required to be filed excluding any extensions. Wayzata means Wayzata Opportunities Fund II, L.P. and Wayzata Opportunities Fund Offshore II, L.P. Section 1.2 Rules of Construction. Unless otherwise specified herein: (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) For purposes of interpretation of this Agreement: (i) The words herein, hereto, hereof and hereunder and words of similar import when used in any Loan Document shall refer to such Loan Document as a whole and not to any particular provision thereof. (ii) References in this Agreement to a Schedule, Article, Section, clause or sub-clause refer to the appropriate Schedule to, or Article, Section, clause or subclause in, this Agreement. (iii) References in this Agreement to dollars or $ refer to the lawful currency of the United States of America. (iv) The term including is by way of example and not limitation. (v) The term documents includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form. (c) In the computation of periods of time from a specified date to a later specified date, the word from means from and including; the words to and until each mean to but excluding; and the word through means to and including. (d) Section headings herein are included for convenience of reference only and shall not affect the interpretation of this Agreement. (e) Unless otherwise expressly provided herein, (a) references to organization documents (including the LLC Agreement), agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are permitted hereby; and (b) references to any law (including the Code and the Treasury Regulations) shall |
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12 NY\6516862.10 DRAFT 10-14-2014 include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Law. ARTICLE II. DETERMINATION OF REALIZED TAX BENEFIT Section 2.1 Basis Adjustments; Neff Holdings 754 Election; Reverse 704(c) Allocations. (a) Basis Adjustments. (i) The Parties acknowledge and agree that (A) each Sale and each Direct Exchange shall give rise to Basis Adjustments and (B) each Redemption using cash or Class A Common Stock contributed to Neff Holdings by the Corporation shall be treated as a direct purchase of Units by the Corporation from the applicable Member pursuant to Section 707(a)(2)(B) of the Code that will give rise to Basis Adjustments. In connection with any Sale, Direct Exchange or Redemption, the Parties acknowledge and agree that pursuant to applicable law the Corporations share of the basis in the Reference Assets shall be increased by the excess, if any, of (A) the sum of (x) the Market Value of Class A Common Stock or the cash transferred to a Member pursuant to an Exchange as payment for the Units, (y) the amount of payments made pursuant to this Agreement with respect to such Exchange and (z) the amount of liabilities allocated to the Units acquired pursuant to the Exchange, over (B) the Corporations proportionate share of the basis of the Referenced Assets immediately after the Exchange attributable to the Units exchanged, determined as if each member of the Neff Holdings Group remains in existence as an entity for tax purposes and no member of the Neff Holdings Group made the election provided by Section 754 of the Code. (ii) The Parties acknowledge and agree that the Corporations Capital Contribution and the use of such proceeds to repay and prepay certain indebtedness of Neff Holdings may give rise to a Section 734(b) Distribution to Wayzata that will give rise to Basis Adjustments. In connection with any Section 734(b) Distribution, the Parties acknowledge and agree that pursuant to applicable law, Neff Holdings basis in the Reference Assets shall be increased by (A) the amount of any gain recognized pursuant to Section 731(a)(1) of the Code by the Member or Members to whom the Section 734(b) Distribution was made or deemed made and (B) in the case of distributed property to which Section 732(a)(2) or (b) of the Code applies, the excess, if any, of (x) Neff Holdings adjusted basis in property distributed to the relevant Member (as adjusted by Section 732(d) of the Code) immediately prior to the distribution over (y) the adjusted basis of such property in the hands of such Member as determined under Section 732 of the Code. For the avoidance of doubt, payments made under this Agreement shall not be treated as resulting in a Basis Adjustment to the extent such payments are treated as Imputed Interest or are Actual Interest Amounts. (b) Neff Holdings Section 754 Election. In its capacity as the sole managing member of Neff Holdings, the Corporation will ensure that, on and after the date hereof and continuing throughout the term of this Agreement, Neff Holdings and each of its direct and indirect |
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13 NY\6516862.10 DRAFT 10-14-2014 Subsidiaries that is treated as a partnership for U.S. federal income tax purposes will have in effect an election under Section 754 of the Code (and under any similar provisions of applicable U.S. state or local law). (c) Reverse 704(c) Allocations. The Parties acknowledge and agree that as a result of the Reverse 704(c) Allocations, the Corporations share of amortization and depreciation deductions for U.S. federal income tax purposes (and applicable state and local income tax purposes) as a Member of Neff Holdings will be increased from that which would have been allocated to the Corporation without regard to the requirement under Treasury Regulation Sections 1.704-1(b)(2)(iv)(f)(4) and 1.704-1(b)(4)(i) to make Reverse 704(c) Allocations. Section 2.2 Basis and Reverse 704(c) Schedules. Within thirty (30) calendar days after the filing of the U.S. federal income Tax Return of the Corporation for each relevant Taxable Year, the Corporation shall deliver to the Members (i) a schedule (the Basis Schedule) that shows, in reasonable detail as necessary in order to understand the calculations performed under this Agreement: (a) the Non-Adjusted Tax Basis of the Reference Assets as of each applicable Exchange Date; (b) the Basis Adjustments with respect to the Reference Assets as a result of the relevant Exchanges effected in such Taxable Year, calculated (I) in the aggregate (including Exchanges attributable to all Members) and (II) solely with respect to Exchanges by each Member; (c) the period (or periods) over which the Reference Assets are amortizable and/or depreciable; and (d) the period (or periods) over which each Basis Adjustment is amortizable and/or depreciable and (ii) a schedule (the Reverse 704(c) Schedule) that shows, in reasonable detail as necessary in order to understand the calculations performed under this Agreement, (x) allocations of Neff Holdings items of income, gain, loss and depreciation without regard to any requirement to make Reverse 704(c) Allocations, (y) the Reverse Section 704(c) Allocations and (z) the period (or periods) over which the Reference Assets are amortizable and/or depreciable. The Basis Schedule and Reverse 704(c) Schedule will become final and binding on the Parties pursuant to the procedures set forth in Section 2.4(a) and may be amended by the Parties pursuant to the procedures set forth in Section 2.4(b). Section 2.3 Tax Benefit Schedules. (a) Tax Benefit Schedule. Within thirty (30) calendar days after the filing of the U.S. federal income Tax Return of the Corporation for any Taxable Year in which there is a Realized Tax Benefit or Realized Tax Detriment, the Corporation shall provide to the Members a schedule showing, in reasonable detail, the calculation of the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year (a Tax Benefit Schedule). The Tax Benefit Schedule will become final and binding on the Parties pursuant to the procedures set forth in Section 2.4(a), and may be amended by the Parties pursuant to the procedures set forth in Section 2.4(b). (b) Applicable Principles. Subject to the provisions of this Agreement, the Realized Tax Benefit or Realized Tax Detriment for each Taxable Year is intended to measure the decrease or increase in the actual liability of the Corporation for Covered Taxes for such Taxable Year attributable to the Basis Adjustments, Reverse 704(c) Allocations, Imputed Interest, and Actual Interest Amounts, as determined using a with and without methodology described in Section 2.4(a). Carryovers or carrybacks of any Tax item attributable to any Basis Adjustment, |
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14 NY\6516862.10 DRAFT 10-14-2014 Reverse 704(c) Allocations, Imputed Interest, or Actual Interest Amounts shall be considered to be subject to the rules of the Code and the Treasury Regulations or the appropriate provisions of U.S. state and local tax law, as applicable, governing the use, limitation and expiration of carryovers or carrybacks of the relevant type. If a carryover or carryback of any Tax item includes a portion that is attributable to a Basis Adjustment, Reverse 704(c) Allocations, Imputed Interest, or Actual Interest Amounts (a TRA Portion) and another portion that is not (a Non- TRA Portion), such portions shall be considered to be used in accordance with the with and without methodology so that: (i) the amount of any Non-TRA Portion is deemed utilized first, followed by the amount of any TRA Portion (with the TRA Portion being applied on a proportionate basis consistent with the provisions of Section 3.3(a)); and (ii) in the case of a carryback of a Non-TRA Portion, such carryback shall not affect the original with and without calculation made in the prior Taxable Year. The Parties agree that (i) all Tax Benefit Payments attributable to a Sale, Direct Exchange or Redemption will (A) be treated as subsequent upward purchase price adjustments that give rise to further Basis Adjustments for the Corporation and (B) have the effect of creating additional Basis Adjustments for the Corporation in the year of payment, and (ii) as a result, such additional Basis Adjustments will be incorporated into the current Taxable Year continuing until any incremental current Taxable Year benefits equal an immaterial amount. Section 2.4 Procedures; Amendments. (a) Procedures. Each time the Corporation delivers an applicable Schedule to the Members under this Agreement, including any Amended Schedule delivered pursuant to Section 2.4(b), but excluding any Early Termination Schedule or amended Early Termination Schedule delivered pursuant to the procedures set forth in Section 4.2, the Corporation shall also: (x) deliver supporting schedules and work papers, as determined by the Corporation or as reasonably requested by any Member, that provide a reasonable level of detail regarding the data and calculations that were relevant for purposes of preparing the Schedule; (y) deliver an Advisory Firm Letter supporting such Schedule; and (z) allow the Members and their advisors to have reasonable access to the appropriate representatives, as determined by the Corporation or as reasonably requested by the Members, at the Corporation and the Advisory Firm in connection with a review of such Schedule. Without limiting the generality of the preceding sentence, the Corporation shall ensure that any Tax Benefit Schedule that is delivered to the Members, along with any supporting schedules and work papers, provides a reasonably detailed presentation of the calculation of the actual liability of the Corporation for Covered Taxes (the with calculation) and the Hypothetical Tax Liability of the Corporation (the without calculation), and identifies any material assumptions or operating procedures or principles that were used for purposes of such calculations. An applicable Schedule or amendment thereto shall become final and binding on the Parties thirty (30) calendar days from the date on which the Members first received the applicable Schedule or amendment thereto unless: (i) a Member within thirty (30) calendar days after receiving the applicable Schedule or amendment thereto, provides the Corporation with (A) written notice of a material objection to such Schedule that is made in good faith and that sets forth in reasonable detail such Members material objection (an Objection Notice) and (B) a |
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15 NY\6516862.10 DRAFT 10-14-2014 letter from an Advisory Firm (that is different from the Advisory Firm that was used by the Corporation to prepare the Schedule at issue) in support of such Objection Notice; or (ii) each Member provides a written waiver of its right to deliver an Objection Notice within the time period described in clause (i) above, in which case such Schedule or amendment thereto becomes binding on the date the waiver from all Members is received by the Corporation. In the event that a Member timely delivers an Objection Notice pursuant to clause (i) above, and if the Parties, for any reason, are unable to successfully resolve the issues raised in the Objection Notice within thirty (30) calendar days after receipt by the Corporation of the Objection Notice, the Corporation and the Member shall employ the reconciliation procedures as described in Section 7.9 of this Agreement (the Reconciliation Procedures). For the avoidance of doubt, and notwithstanding anything to the contrary herein, the expense of preparing and obtaining the letter from an Advisory Firm referenced in clause (i) above shall be borne solely by the Member and the Corporation shall have no liability with respect to such letter or any of the expenses associated with its preparation and delivery. (b) Amended Schedule. The applicable Schedule for any Taxable Year may be amended from time to time by the Corporation: (i) in connection with a Determination affecting such Schedule; (ii) to correct inaccuracies in the Schedule identified as a result of the receipt of additional factual information relating to a Taxable Year after the date the Schedule was originally provided to the Member; (iii) to comply with an Experts determination under the Reconciliation Procedures applicable to this Agreement; (iv) to reflect a change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to a carryback or carryforward of a loss or other Tax item to such Taxable Year; (v) to reflect a change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to an amended Tax Return filed for such Taxable Year; or (vi) to adjust a Basis Schedule to take into account any Tax Benefit Payments made pursuant to this Agreement (any such Schedule, an Amended Schedule). ARTICLE III. TAX BENEFIT PAYMENTS Section 3.1 Timing and Amount of Tax Benefit Payments. (a) Timing of Payments. Except as provided in Sections 3.4 and 3.5, and subject to Sections 3.2 and 3.3, within three (3) Business Days following the date on which each Tax Benefit Schedule that is required to be delivered by the Corporation to the Members pursuant to Section 2.3(a) of this Agreement becomes final in accordance with Section 2.4(a) of this Agreement, the Corporation shall pay to each relevant Member the Tax Benefit Payment as determined pursuant to Section 3.1(b). Each such Tax Benefit Payment shall be made by wire transfer of immediately available funds to the bank account previously designated by such Members or as otherwise agreed by the Corporation and such Members. For the avoidance of doubt, the Members shall not be required under any circumstances to return any portion of any |
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16 NY\6516862.10 DRAFT 10-14-2014 Tax Benefit Payment previously paid by the Corporation to the Members (including any portion of any Estimated Tax Benefit Payment or any Early Termination Payment). (b) Amount of Payments. For purposes of this Agreement, a Tax Benefit Payment with respect to any Member means an amount, not less than zero, equal to the sum of: (i) the Net Tax Benefit that is Attributable to such Member (including Imputed Interest calculated in respect of such amount); and (ii) the Actual Interest Amount. (i) Attributable. A Net Tax Benefit is Attributable to a Member to the extent that it is derived from any Basis Adjustment, Imputed Interest, or Actual Interest Amount that is attributable to an Exchange undertaken by or with respect to such Member or is attributable to a Reverse Section 704(c) Allocation that otherwise would have been allocated to such Member if Neff Holdings was not required to make such Reverse Section 704(c) Allocation. (ii) Net Tax Benefit. The Net Tax Benefit for a Taxable Year equals the amount of the excess, if any, of (x) 85% of the Cumulative Net Realized Tax Benefit as of the end of such Taxable Year over (y) the aggregate amount of all Tax Benefit Payments previously made to such Member under this Section 3.1. For the avoidance of doubt, if the Cumulative Net Realized Tax Benefit as of the end of any Taxable Year is less than the aggregate amount of all Tax Benefit Payments previously made to a Member, such Member shall not be required to return any portion of any Tax Benefit Payment previously made by the Corporation to such Member. (iii) Cumulative Net Realized Tax Benefit. The Cumulative Net Realized Tax Benefit for a Taxable Year equals the cumulative amount of Realized Tax Benefits for all Taxable Years of the Corporation, up to and including such Taxable Year, net of the cumulative amount of Realized Tax Detriments for the same period. The Realized Tax Benefit and Realized Tax Detriment for each Taxable Year shall be determined based on the most recent Tax Benefit Schedule or Amended Schedule, if any, in existence at the time of such determination. (iv) Realized Tax Benefit. The Realized Tax Benefit for a Taxable Year equals the excess, if any, of the Hypothetical Tax Liability over the actual liability of the Corporation for Covered Taxes. If all or a portion of the actual liability for such Covered Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Benefit unless and until there has been a Determination. (v) Realized Tax Detriment. The Realized Tax Detriment for a Taxable Year equals the excess, if any, of the actual liability of the Corporation for Covered Taxes over the Hypothetical Tax Liability for such Taxable Year. If all or a portion of the actual liability for such Covered Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Detriment unless and until there has been a Determination. |
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17 NY\6516862.10 DRAFT 10-14-2014 (vi) Imputed Interest. The principles of Sections 1272, 1274, or 483 of the Code, as applicable, and the principles of any similar provision of U.S. state and local law, will apply to cause a portion of any Net Tax Benefit payable by the Corporation to a Member under this Agreement to be treated as imputed interest (Imputed Interest). For the avoidance of doubt, the deduction for the amount of Imputed Interest as determined with respect to any Net Tax Benefit payable by the Corporation to a Member shall be excluded in determining the Hypothetical Tax Liability of the Corporation for purposes of calculating Realized Tax Benefits and Realized Tax Detriments pursuant to this Agreement. (vii) Actual Interest Amount. The Actual Interest Amount calculated in respect of the Net Tax Benefit for a Taxable Year will equal the amount of any Extension Rate Interest. For the avoidance of doubt, any deduction for any Actual Interest Amount as determined with respect to any Net Tax Benefit payable by the Corporation to a Member shall be excluded in determining the Hypothetical Tax Liability of the Corporation for purposes of calculating Realized Tax Benefits and Realized Tax Detriments pursuant to this Agreement. (viii) Extension Rate Interest. Subject to Section 3.4, the amount of Extension Rate Interest calculated in respect of the Net Tax Benefit (including previously accrued Imputed Interest) for a Taxable Year will equal interest calculated at the Agreed Rate from the due date (without extensions) for filing the U.S. federal income Tax Return of the Corporation for such Taxable Year until the date on which the Corporation makes a timely Tax Benefit Payment to the Member on or before the Final Payment Date as determined pursuant to Section 3.1(a). (ix) Default Rate Interest. In the event that the Corporation does not make timely payment of all or any portion of a Tax Benefit Payment to a Member on or before the Final Payment Date as determined pursuant to Section 3.1(a), the amount of Default Rate Interest calculated in respect of the Net Tax Benefit (including previously accrued Imputed Interest and Extension Rate Interest) for a Taxable Year will equal interest calculated at the Default Rate from the Final Payment Date for a Tax Benefit Payment as determined pursuant to Section 3.1(a) until the date on which the Corporation makes such Tax Benefit Payment to such Member. For the avoidance of doubt, the amount of any Default Rate Interest as determined with respect to any Net Tax Benefit payable by the Corporation to a Member shall be included in the Hypothetical Tax Liability of the Corporation for purposes of calculating Realized Tax Benefits and Realized Tax Detriments pursuant to this Agreement. (x) The Corporation and the Members hereby acknowledge and agree that, as of the date of this Agreement and as of the date of any future Exchange that may be subject to this Agreement, the aggregate value of the Tax Benefit Payments cannot be reasonably ascertained for U.S. federal income or other applicable tax purposes. (c) Interest. The provisions of Section 3.1(b) are intended to operate so that interest will effectively accrue in respect of the Net Tax Benefit for any Taxable Year as follows: |
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18 NY\6516862.10 DRAFT 10-14-2014 (i) first, at the applicable rate used to determine the amount of Imputed Interest under the Code (from the relevant Exchange Date or date on which the relevant Tax Benefit Payment was made until the due date (without extensions) for filing the U.S. federal income Tax Return of the Corporation for such Taxable Year); (ii) second, at the Agreed Rate in respect of any Extension Rate Interest (from the due date (without extensions) for filing the U.S. federal income Tax Return of the Corporation for such Taxable Year until the Final Payment Date for a Tax Benefit Payment as determined pursuant to Section 3.1(a)); and (iii) third, at the Default Rate in respect of any Default Rate Interest (from the Final Payment Date for a Tax Benefit Payment as determined pursuant to Section 3.1(a) until the date on which the Corporation makes the relevant Tax Benefit Payment to a Member). Section 3.2 No Duplicative Payments. It is intended that the provisions of this Agreement will not result in the duplicative payment of any amount (including interest) that may be required under this Agreement, and the provisions of this Agreement shall be consistently interpreted and applied in accordance with that intent. For purposes of this Agreement, and also for the avoidance of doubt, no Tax Benefit Payment shall be calculated or made in respect of any estimated tax payments, including, without limitation, any estimated U.S. federal income tax payments. Section 3.3 Pro-Ration of Payments as Between the Members. (a) Insufficient Taxable Income. Notwithstanding anything in Section 3.1(b) to the contrary, if the aggregate potential Covered Tax benefit of the Corporation as calculated with respect to the Basis Adjustments, Reverse Section 704(c) Allocations, Imputed Interest, and Actual Interest Amounts is limited in a particular Taxable Year because the Corporation does not have sufficient actual taxable income, then the available Covered Tax benefit for the Corporation shall be allocated among the Members in proportion to the respective Tax Benefit Payment that would have been payable if the Corporation had in fact had sufficient taxable income so that there had been no such limitation. As an illustration of the intended operation of this Section 3.3(a), if the Corporation had $200 of aggregate potential Covered Tax benefits with respect to the Basis Adjustments, Reverse Section 704(c) Allocations, Imputed Interest, and Actual Interest Amounts in a particular Taxable Year (with $50 of such Covered Tax benefits being attributable to Member 1 and $150 of such Covered Tax benefits being attributable to Member 2), such that Member 1 would have potentially been entitled to a Tax Benefit Payment of $42.50 and Member 2 would have been entitled to a Tax Benefit Payment of $127.50 if the Corporation had $200 of taxable income, and if at the same time the Corporation only had $100 of actual taxable income in such Taxable Year, then $25 of the aggregate $100 actual Covered Tax benefit for the Corporation for such Taxable Year would be allocated to Member 1 and $75 of the aggregate $100 actual Covered Tax benefit for the Corporation would be allocated to Member 2, such that Member 1 would receive a Tax Benefit Payment of $21.25 and Member 2 would receive a Tax Benefit Payment of $63.75. |
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19 NY\6516862.10 DRAFT 10-14-2014 (b) Late Payments. If for any reason the Corporation is not able to timely and fully satisfy its payment obligations under this Agreement in respect of a particular Taxable Year, then Default Rate Interest will begin to accrue pursuant to Section 5.2 and the Corporation and other Parties agree that (i) the Corporation shall pay the Tax Benefit Payments due in respect of such Taxable Year to each Member pro rata, without favoring one obligation over the other, and (ii) no Tax Benefit Payment shall be made in respect of any Taxable Year until all Tax Benefit Payments to all Members in respect of all prior Taxable Years have been made in full. Section 3.4 Optional Estimated Payment Procedure. As long as the Corporation is current in respect of its payment obligations owed to each Member pursuant to this Agreement and there are no delinquent Tax Benefit Payments (including interest thereon) outstanding in respect of prior Taxable Years for any Member, the Corporation may, at any time on or after the due date (without extensions) for filing the U.S. federal income Tax Return of the Corporation for a Taxable Year and at the Corporations option, in its sole discretion, make one or more estimated payments to the Members in respect of any anticipated amounts to be owed with respect to a Taxable Year to the Members pursuant to Section 3.1 of this Agreement (any such estimated payments referred to as an Estimated Tax Benefit Payment); provided that any Estimated Tax Benefit Payment made to a Member pursuant to this Section 3.4 is matched by a proportionately equal Estimated Tax Benefit Payment to all other Members then entitled to a Tax Benefit Payment. Any Estimated Tax Benefit Payment made under this Section 3.4 shall be paid by the Corporation to the Members and applied against the final amount of any expected Tax Benefit Payment to be made pursuant to Section 3.1. The payment of an Estimated Tax Benefit Payment by the Corporation to the Members pursuant to this Section 3.4 shall also terminate the obligation of the Corporation to make payment of any Extension Rate Interest that might have otherwise accrued with respect to the proportionate amount of the Tax Benefit Payment that is being paid in advance of the applicable Tax Benefit Schedule being finalized pursuant to Section 2.4. Upon the making of any Estimated Tax Benefit Payment pursuant to this Section 3.4, the amount of such Estimated Tax Benefit Payment shall first be applied to any estimated Extension Rate Interest, then to Imputed Interest, and then applied to the remaining residual amount of the Tax Benefit Payment to be made pursuant to Section 3.1. In determining the final amount of any Tax Benefit Payment to be made pursuant to Section 3.1, and for purposes of finalizing the Tax Benefit Schedule pursuant to Section 2.4, the amount of any Estimated Tax Benefit Payments that may have been made with respect to the Taxable Year shall be increased, if the finally determined Tax Benefit Payment for a Taxable Year exceeds the Estimated Tax Benefit Payments made for such Taxable Year, with such increase being paid by the Corporation to the Members along with an appropriate amount of Extension Rate Interest in respect of the amount of such increase (a True-Up). If the Estimated Tax Benefit Payment for a Taxable Year exceeds the finally determined Tax Benefit Payment for such Taxable Year, such excess, along with an appropriate amount of Extension Rate Interest in respect of such excess (being charged by the Corporation to the Member), shall be applied to reduce the amount of any subsequent future Tax Benefit Payments (including Estimated Tax Benefit Payments, if any) to be paid by the Corporation to such Member. As of the date on which any Estimated Tax Benefit Payments are made, and as of the date on which any True-Up is made, all such payments shall be made in the same manner and subject to the same terms and conditions as otherwise contemplated by Section 3.1 and all other applicable terms of this Agreement. For the avoidance of doubt, as is the case with Tax Benefit Payments made by the Corporation to the Members pursuant to |
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20 NY\6516862.10 DRAFT 10-14-2014 Section 3.1, the amount of any Estimated Tax Benefit Payments made pursuant to this Section 3.4 that are attributable to a Sale, Direct Exchange or Redemption shall also be treated, in part, as subsequent upward purchase price adjustments that give rise to Basis Adjustments in the Taxable Year of payment and as of the date on which such payments are made (to the extent of the estimated Net Tax Benefit associated with such Estimated Tax Benefit Payment, less any Imputed Interest, and exclusive of any Extension Rate Interest). Section 3.5 Changes; Reserves; Suspension of Payments. (a) Receipt of Change Notice. If any Party, or any Affiliate or Subsidiary of any Party, receives a 30-day letter, a final audit report, a statutory notice of deficiency, or similar written notice from any Taxing Authority relating to the amount of the Net Tax Benefit calculated for purposes of this Agreement, or relating to any other material tax matter that is relevant to the terms of this Agreement and the calculation of the Tax Benefit Payments that may be payable by the Corporation to the Members (a Change Notice), prompt written notification and a copy of the relevant Change Notice shall be delivered by the Party, or its Affiliate or Subsidiary, that received such Change Notice to each other Party. (b) Receipt of Reserve Notice. Prior to the delivery of any Tax Benefit Schedule or other Schedule by the Corporation to the Members pursuant to Section 2.4, the auditors for the Corporation shall consult with the management of the Corporation and, if necessary, the Advisory Firm or other legal or accounting advisors to the Corporation regarding the substantive tax issues and related conclusions that underlie the calculations related to the determination of the Tax Benefit Payments required under this Agreement. If, following such consultation, the auditors for the Corporation reasonably determine that a tax reserve or contingent liability must be established by the Corporation or Neff Holdings for financial accounting purposes (as determined in accordance with GAAP) in relation to any past or future tax position that affects the amount of any past or future Tax Benefit Payments that have been made or that may be made under this Agreement, then the management of the Corporation shall notify the Audit Committee of such determination (a Reserve Notice). (c) Suspension of Payments. From and after the date on which a Change Notice or a Reserve Notice is received, any Tax Benefit Payments required to be made under this Agreement will, to the extent determined reasonably necessary by the Audit Committee after considering the potential tax implications of the Change Notice or the Reserve Notice, be paid by the Corporation to a national bank mutually agreeable to the Parties to act as escrow agent to hold such funds in escrow pursuant to an escrow agreement until a Determination is received (in the case of a Change Notice) or the relevant reserve is released or contingent liability is eliminated (in the case of a Reserve Notice). For purposes of the preceding sentence, and in particular for purposes of the Audit Committees determination of the amount to be placed in escrow pending a Determination (in the case of a Change Notice) or the release of a reserve or the elimination of a contingent liability (in the Case of a Reserve Notice), the Audit Committee: (i) will suspend all future Tax Benefit Payments required under this Agreement until the amount of such suspended Tax Benefit Payments at least equals 85% of the amount of the asserted deficiency in tax owed (in the case of a Change Notice) or 85% of the amount of the reserve or contingent liability (in the case of a Reserve Notice); and (ii) upon the suspension of Tax Benefit Payments in the |
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21 NY\6516862.10 DRAFT 10-14-2014 minimum amount contemplated by the preceding clause (i), may continue to suspend all or a portion of any future Tax Benefit Payments required under this Agreement. For the avoidance of doubt, the date on which the Corporation pays any such Tax Benefit Payments to the escrow agent shall be considered the date on which such Tax Benefit Payments are paid to the Members, including for purposes of determining the Actual Interest Amount and Default Rate Interest. (d) Release of Escrowed Funds. As of the date on which a reserve is released or contingent liability is eliminated (in the case of a Reserve Notice), and provided that no Change Notice has previously been issued and is still outstanding in relation to the same tax position that was the subject of the Reserve Notice, the relevant escrowed funds (along with any net interest earned on such funds, and less the out-of-pocket expenses incurred by the Corporation or Neff Holdings in administering the escrow) shall be distributed to the relevant Members. If a Determination is received (in the case of a Change Notice), and if such Determination results in no adjustment in any Tax Benefit Payments under this Agreement, and provided that no Reserve Notice has previously been issued and is still outstanding in relation to the same tax position that was the subject of the Change Notice, then the relevant escrowed funds (along with any net interest earned on such funds, and less the out-of-pocket expenses incurred by the Corporation or Neff Holdings in administering the escrow) shall be distributed to the relevant Members. If a Determination is received (in the case of a Change Notice), and if such Determination results in an adjustment in any Tax Benefit Payments under this Agreement, and provided that no Reserve Notice has previously been issued and is still outstanding in relation to the same tax position that was the subject of the Change Notice, then the relevant escrowed funds (along with any net interest earned on such funds) shall be distributed as follows: (i) first, to the Corporation or Neff Holdings in an amount equal to the out-of-pocket expenses incurred by the Corporation or Neff Holdings in administering the escrow and in contesting the Determination; and (ii) second, to the relevant Parties (which, for the avoidance of doubt and depending on the nature of the adjustments, may include the Corporation, Neff Holdings, or the relevant Members, or some combination thereof) in accordance with the relevant Amended Schedule prepared pursuant to Section 2.4 of this Agreement. ARTICLE IV. TERMINATION Section 4.1 Early Termination of Agreement; Breach of Agreement. (a) Corporations Early Termination Right. With the written approval of a majority of the Independent Directors, the Corporation may completely terminate this Agreement, as and to the extent provided herein, with respect to all amounts payable to the Members (for the avoidance of doubt, including the LLC Option Holders, who shall each be treated as a Member for this purpose) pursuant to this Agreement by paying to the Members the Early Termination Payment; provided that Early Termination Payments may be made pursuant to this Section 4.1(a) only if made to all Members that are entitled to such a payment simultaneously, and provided further, that the Corporation may withdraw any notice to execute its termination rights under this Section 4.1(a) prior to the time at which any Early Termination Payment has been paid. Upon the Corporation payment of the Early Termination Payment, the Corporation shall not have any further payment obligations under this Agreement, other than with respect to any: (i) prior Tax |
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22 NY\6516862.10 DRAFT 10-14-2014 Benefit Payments that are due and payable under this Agreement but that still remain unpaid as of the date of the Early Termination Notice; and (ii) current Tax Benefit Payment due for the Taxable Year ending on or including the date of the Early Termination Notice (except to the extent that the amount described in clause (ii) is included in the calculation of the Early Termination Payment). If an Exchange subsequently occurs with respect to Units for which the Corporation has exercised its termination rights under this Section 4.1(a), the Corporation shall have no obligations under this Agreement with respect to such Exchange. (b) Acceleration Upon Change of Control. In the event of a Change of Control, all obligations hereunder shall be accelerated and such obligations shall be calculated pursuant to this Article IV as if an Early Termination Notice had been delivered on the closing date of the Change of Control and utilizing the Valuation Assumptions by substituting the phrase the closing date of a Change of Control in each place where the phrase Early Termination Effective Date appears. Such obligations shall include, but not be limited to, (1) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the closing date of the Change of Control, (2) any Tax Benefit Payments agreed to by the Corporation and the Members as due and payable but unpaid as of the Early Termination Notice and (3) any Tax Benefit Payments due for any Taxable Year ending prior to, with or including the closing date of a Change of Control (except to the extent that any amounts described in clauses (2) or (3) are included in the Early Termination Payment). For the avoidance of doubt, Sections 4.2 and 4.3 shall apply to a Change of Control, mutadis mutandi. (c) Acceleration Upon Breach of Agreement. In the event that the Corporation materially breaches any of its material obligations under this Agreement, whether as a result of failure to make any payment when due, failure to honor any other material obligation required hereunder, or by operation of law as a result of the rejection of this Agreement in a case commenced under the Bankruptcy Code or otherwise, then all obligations hereunder shall be accelerated and become immediately due and payable upon notice of acceleration from such Member (provided that in the case of any proceeding under the Bankruptcy Code or other insolvency statute, such acceleration shall be automatic without any such notice), and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date of such notice of acceleration (or, in the case of any proceeding under the Bankruptcy Code or other insolvency statute, on the date of such breach) and shall include, but not be limited to: (i) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the date of such acceleration; (ii) any prior Tax Benefit Payments that are due and payable under this Agreement but that still remain unpaid as of the date of such acceleration; and (iii) any current Tax Benefit Payment due for the Taxable Year ending with or including the date of such acceleration. Notwithstanding the foregoing, in the event that the Corporation breaches this Agreement and such breach is not a material breach of a material obligation, a Member shall still be entitled to enforce all of its rights otherwise available under this Agreement, including potentially seeking an acceleration of amounts payable under this Agreement. For purposes of this Section 4.1(c), and subject to the following sentence, the Parties agree that the failure to make any payment due pursuant to this Agreement within thirty (30) days of the relevant Final Payment Date shall be deemed to be a material breach of a material obligation under this Agreement for all purposes of this Agreement, and that it will not be considered to be a material breach of a material obligation under this Agreement to make a payment due pursuant to this |
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23 NY\6516862.10 DRAFT 10-14-2014 Agreement within thirty (30) days of the relevant Final Payment Date. For the avoidance of doubt, a suspension of payments pursuant to Section 3.5 will not be considered to be a failure to make a payment due pursuant to this Agreement. Notwithstanding anything in this Agreement to the contrary, it shall not be a material breach of a material obligation of this Agreement if the Corporation fails to make any Tax Benefit Payment within thirty (30) days of the relevant Final Payment Date to the extent that the Corporation has insufficient funds, or cannot take commercially reasonable actions to obtain sufficient funds, to make such payment; provided that the interest provisions of Section 5.2 shall apply to such late payment (unless the Corporation does not have sufficient funds to make such payment as a result of limitations imposed by any Senior Obligations, in which case Section 5.2 shall apply, but the Default Rate shall be replaced by the Agreed Rate). Section 4.2 Early Termination Notice. If the Corporation chooses to exercise its right of early termination under Section 4.1 above, the Corporation shall deliver to the Members a notice of the Corporations decision to exercise such right (an Early Termination Notice) and a schedule (the Early Termination Schedule) showing in reasonable detail the calculation of the Early Termination Payment. The Corporation shall also (x) deliver supporting schedules and work papers, as determined by the Corporation or as reasonably requested by a Member, that provide a reasonable level of detail regarding the data and calculations that were relevant for purposes of preparing the Early Termination Schedule; (y) deliver an Advisory Firm Letter supporting such Early Termination Schedule; and (z) allow the Members and their advisors to have reasonable access to the appropriate representatives, as determined by the Corporation or as reasonably requested by the Members, at the Corporation and the Advisory Firm in connection with a review of such Early Termination Schedule. The Early Termination Schedule shall become final and binding on each Party thirty (30) calendar days from the first date on which the Members received such Early Termination Schedule unless: (i) a Member within thirty (30) calendar days after receiving the Early Termination Schedule, provides the Corporation with (A) notice of a material objection to such Early Termination Schedule made in good faith and setting forth in reasonable detail such Members material objection (a Termination Objection Notice) and (B) a letter from an Advisory Firm (that is different from the Advisory Firm that was used by the Corporation to prepare the Early Termination Schedule) in support of such Termination Objection Notice; or (ii) each Member provides a written waiver of such right of a Termination Objection Notice within the period described in clause (i) above, in which case such Early Termination Schedule becomes binding on the date the waiver from all Members is received by the Corporation. In the event that a Member timely delivers a Termination Objection Notice pursuant to clause (i) above, and if the Parties, for any reason, are unable to successfully resolve the issues raised in the Termination Objection Notice within thirty (30) calendar days after receipt by the Corporation of the Termination Objection Notice, the Corporation and such Member shall employ the Reconciliation Procedures. For the avoidance of doubt, and notwithstanding anything to the contrary herein, the expense of preparing and obtaining the letter from an |
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24 NY\6516862.10 DRAFT 10-14-2014 Advisory Firm referenced in clause (i) above shall be borne solely by such Member and the Corporation shall have no liability with respect to such letter or any of the expenses associated with its preparation and delivery. The date on which the Early Termination Schedule becomes final in accordance with this Section 4.2 shall be the Early Termination Reference Date. Section 4.3 Payment Upon Early Termination. (a) Timing of Payment. Within three (3) Business Days after the Early Termination Reference Date, the Corporation shall pay to each Member an amount equal to the Early Termination Payment for such Member. Such Early Termination Payment shall be made by the Corporation by wire transfer of immediately available funds to a bank account or accounts designated by the Members or as otherwise agreed by the Corporation and the Members. (b) Amount of Payment. The Early Termination Payment payable to a Member pursuant to Section 4.3(a) shall equal the present value, discounted at the Early Termination Rate as determined as of the Early Termination Reference Date, of all Tax Benefit Payments that would be required to be paid by the Corporation to such Member, whether payable with respect to Units that were Exchanged prior to the Early Termination Effective Date or on or after the Early Termination Effective Date (for the avoidance of doubt, including Units that any LLC Option Holder would be entitled to receive upon exercise of such LLC Option Holders option to purchase such Units), beginning from the Early Termination Effective Date and using the Valuation Assumptions. ARTICLE V. SUBORDINATION AND LATE PAYMENTS Section 5.1 Subordination. Notwithstanding any other provision of this Agreement to the contrary, any Tax Benefit Payment or Early Termination Payment required to be made by the Corporation to the Members under this Agreement shall rank subordinate and junior in right of payment to any principal, interest, or other amounts due and payable in respect of any obligations owed in respect of secured indebtedness for borrowed money of the Corporation and its Subsidiaries (Senior Obligations) and shall rank pari passu in right of payment with all current or future unsecured obligations of the Corporation that are not Senior Obligations. To the extent that any payment under this Agreement is not permitted to be made at the time payment is due as a result of this Section 5.1 and the terms of the agreements governing Senior Obligations, such payment obligation nevertheless shall accrue for the benefit of the Members and the Corporation shall make such payments at the first opportunity that such payments are permitted to be made in accordance with the terms of the Senior Obligations. Section 5.2 Late Payments by the Corporation. The amount of all or any portion of any Tax Benefit Payment or Early Termination Payment not made to the Members when due under the terms of this Agreement, whether as a result of Section 5.1 and the terms of the Senior Obligations or otherwise, shall be payable together with any interest thereon, computed at the Default Rate and commencing from the Final Payment Date on which such Tax Benefit Payment or Early Termination Payment was first due and payable to the date of actual payment. |
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25 NY\6516862.10 DRAFT 10-14-2014 ARTICLE VI. TAX MATTERS; CONSISTENCY; COOPERATION Section 6.1 Participation in the Corporations and Neff Holdings Tax Matters. Except as otherwise provided herein, and except as provided in Article IX of the LLC Agreement, the Corporation shall have full responsibility for, and sole discretion over, all tax matters concerning the Corporation and Neff Holdings, including without limitation the preparation, filing or amending of any Tax Return and defending, contesting or settling any issue pertaining to taxes. Notwithstanding the foregoing, the Corporation shall notify the Members of, and keep them reasonably informed with respect to, the portion of any tax audit of the Corporation or Neff Holdings, or any of Neff Holdings Subsidiaries, the outcome of which is reasonably expected to materially affect the Tax Benefit Payments payable to such Members under this Agreement, and such Members shall have the right to participate in and to monitor at their own expense (but, for the avoidance of doubt, not to control) any such portion of any such Tax audit. Section 6.2 Consistency. All calculations and determinations made hereunder, including, without limitation, any Basis Adjustments, Reverse Section 704(c) Allocations, the Schedules, and the determination of any Realized Tax Benefits or Realized Tax Detriments, shall be made in accordance with the elections, methodologies or positions taken by the Corporation and Neff Holdings on their respective Tax Returns. Each Member shall prepare its Tax Returns in a manner that is consistent with the terms of this Agreement, and any related calculations or determinations that are made hereunder, including, without limitation, the terms of Section 2.1 of this Agreement and the Schedules provided to the Members under this Agreement. In the event that an Advisory Firm is replaced with another Advisory Firm acceptable to the Audit Committee, such replacement Advisory Firm shall perform its services under this Agreement using procedures and methodologies consistent with the previous Advisory Firm, unless otherwise required by law or unless the Corporation and all of the Members agree to the use of other procedures and methodologies. Section 6.3 Cooperation. (a) Each Member shall (i) furnish to the Corporation in a timely manner such information, documents and other materials as the Corporation may reasonably request for purposes of making any determination or computation necessary or appropriate under this Agreement, preparing any Tax Return or contesting or defending any audit, examination or controversy with any Taxing Authority, (ii) make itself available to the Corporation and its representatives to provide explanations of documents and materials and such other information as the Corporation or its representatives may reasonably request in connection with any of the matters described in clause (i) above, and (iii) reasonably cooperate in connection with any such matter. (b) The Corporation shall reimburse the Members for any reasonable and documented out-of-pocket costs and expenses incurred pursuant to Section 6.3(a). |
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26 NY\6516862.10 DRAFT 10-14-2014 ARTICLE VII. MISCELLANEOUS Section 7.1 Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by courier service, by fax, by electronic mail (delivery receipt requested) or by certified or registered mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be as specified in a notice given in accordance with this Section 7.1). All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the Party to receive such notice: If to the Corporation, to: Neff Corporation 3750 N.W. 87th Avenue, Suite 400 Miami, Florida 33178 Attn: Chief Financial Officer Facsimile: (305) 513-4156 E-mail: mirion@neffcorp.com with a copy (which shall not constitute notice to the Corporation) to: Latham & Watkins LLP 885 Third Avenue New York, New York 10022 Attn: David Raab, Esq. Facsimile: (212) 751-4684 E-mail: david.raab@lw.com If to any Wayzata Member: c/o Wayzata Investment Partners 701 East Lake Street, Suite 300 Wayzata, Minnesota 55391 Attn: Ray Wallander Facsimile: (952) 345-8901 E-mail: rwallander@wayzpartners.com with a copy (which shall not constitute notice to the Members and LLC Option Holders) to: [TBD] Attn: Facsimile: E-mail: |
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27 NY\6516862.10 DRAFT 10-14-2014 Any Party may change its address, fax number or e-mail address by giving each of the other Parties written notice thereof in the manner set forth above. Section 7.2 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties, it being understood that all Parties need not sign the same counterpart. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement. Section 7.3 Entire Agreement; No Third Party Beneficiaries. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the Parties with respect to the subject matter hereof. This Agreement shall be binding upon and inure solely to the benefit of each Party hereto and their respective successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. Section 7.4 Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware, without regard to the conflicts of laws principles thereof that would mandate the application of the laws of another jurisdiction. Section 7.5 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. Section 7.6 Assignments; Amendments; Successors; No Waiver. (a) Assignment. Neither any Member nor any LLC Option Holder may assign, sell, pledge, or otherwise alienate or transfer any interest in this Agreement, including the right to receive any Tax Benefit Payments under this Agreement, to any Person without the prior written consent of the Corporation, which consent shall not be unreasonably withheld, conditioned, or delayed, and without such Person executing and delivering a Joinder agreeing to succeed to the applicable portion of such Members or such LLC Option Holders interest in this Agreement and to become a Party for all purposes of this Agreement (the Joinder Requirement); provided, however, that to the extent any Member sells, exchanges, distributes, or otherwise transfers Units to any Person (other than the Corporation or Neff Holdings) in accordance with the terms of the LLC Agreement, the Members shall have the option to assign to the transferee of such Units its rights under this Agreement with respect to such transferred Units, provided that such transferee has satisfied the Joinder Requirement. For the avoidance of doubt, if a Member transfers Units |
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28 NY\6516862.10 DRAFT 10-14-2014 in accordance with the terms of the LLC Agreement but does not assign to the transferee of such Units its rights under this Agreement with respect to such transferred Units, such Member shall continue to be entitled to receive the Tax Benefit Payments arising in respect of a subsequent Exchange of such Units. The Corporation may not assign any of its rights or obligations under this Agreement to any Person without the prior written consent of each of the Members and LLC Option Holders (and any purported assignment without such consent shall be null and void). (b) Amendments. No provision of this Agreement may be amended unless such amendment is approved in writing by each of the Parties; provided that amendment of the definition of Change of Control will also require the written approval of a majority of the Independent Directors. No provision of this Agreement may be waived unless such waiver is in writing and signed by the Party against whom the waiver is to be effective. (c) Successors. All of the terms and provisions of this Agreement shall be binding upon, and shall inure to the benefit of and be enforceable by, the Parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives. The Corporation shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place. (d) Waiver. No failure by any Party to insist upon the strict performance of any covenant, duty, agreement, or condition of this Agreement, or to exercise any right or remedy consequent upon a breach thereof, shall constitute a waiver of any such breach or any other covenant, duty, agreement, or condition. Section 7.7 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. Section 7.8 Resolution of Disputes. (a) Except for Reconciliation Disputes subject to Section 7.9, any and all disputes which cannot be settled amicably, including any ancillary claims of any Party, arising out of, relating to or in connection with the validity, negotiation, execution, interpretation, performance or non-performance of this Agreement (including the validity, scope and enforceability of this arbitration provision) (each a Dispute) shall be finally resolved by arbitration in accordance with the [International Institute for Conflict Prevention and Resolution Rules for Non- Administered Arbitration]4F 4 by a panel of three arbitrators, of which the Corporation shall designate one arbitrator and the Members party to such Dispute shall designate one arbitrator in accordance with the screened appointment procedure provided in Resolution Rule 5.4. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq., and judgment 4 Note to draft: please confirm if this venue is acceptable. |
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29 NY\6516862.10 DRAFT 10-14-2014 upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of the arbitration shall be Miami, Florida. (b) Notwithstanding the provisions of paragraph (a), any Party may bring an action or special proceeding in any court of competent jurisdiction for the purpose of compelling another Party to arbitrate, seeking temporary or preliminary relief in aid of an arbitration hereunder, and/or enforcing an arbitration award and, for the purposes of this paragraph (b), each Party (i) expressly consents to the application of paragraph (c) of this Section 7.8 to any such action or proceeding, and (ii) agrees that proof shall not be required that monetary damages for breach of the provisions of this Agreement would be difficult to calculate and that remedies at law would be inadequate. For the avoidance of doubt, this Section 7.8 shall not apply to Reconciliation Disputes to be settled in accordance with the procedures set forth in Section 7.9. (c) Each Party hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Chancery Court of the State of Delaware or, if such Court declines jurisdiction, the courts of the State of Delaware sitting in Wilmington, Delaware, and of the U.S. District Court for the District of Delaware sitting in Wilmington, Delaware, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or for recognition or enforcement of any judgment, and each of the Parties hereto irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Delaware State court or, to the fullest extent permitted by applicable law, in such U.S. District Court. Each Party agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (d) Each Party irrevocably and unconditionally waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in Section 7.8(c). Each Party irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of any such suit, action or proceeding in any such court. (e) Each Party irrevocably consents to service of process by means of notice in the manner provided for in Section 7.1. Nothing in this Agreement shall affect the right of any Party to serve process in any other manner permitted by law. (f) WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). (g) Any dispute as to whether a dispute is a Reconciliation Dispute within the meaning of Section 7.9, or a Dispute within the meaning of this Section 7.8, shall be decided and resolved as a Dispute subject to the procedures set forth in this Section 7.8. |
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30 NY\6516862.10 DRAFT 10-14-2014 Section 7.9 Reconciliation. In the event that the Corporation and any Member are unable to resolve a disagreement with respect to a Schedule (other than an Early Termination Schedule) prepared in accordance with the procedures set forth in Section 2.4, or with respect to an Early Termination Schedule prepared in accordance with the procedures set forth in Section 4.2, within the relevant time period designated in this Agreement (a Reconciliation Dispute), the Reconciliation Dispute shall be submitted for determination to a nationally recognized expert (the Expert) in the particular area of disagreement mutually acceptable to both Parties. The Expert shall be a partner or principal in a nationally recognized accounting firm, and unless the Corporation and such Member agree otherwise, the Expert shall not, and the firm that employs the Expert shall not, have any material relationship with the Corporation or such Member or other actual or potential conflict of interest. If the Parties are unable to agree on an Expert within fifteen (15) calendar days of receipt by the respondent(s) of written notice of a Reconciliation Dispute, the selection of an Expert shall be treated as a Dispute subject to Section 7.8 and an arbitration panel shall pick an Expert from a nationally recognized accounting firm that does not have any material relationship with the Corporation or such Member or other actual or potential conflict of interest. The Expert shall resolve any matter relating to the Basis Schedule or an amendment thereto, Reverse 704(c) Schedule or an amendment thereto or the Early Termination Schedule or an amendment thereto within thirty (30) calendar days and shall resolve any matter relating to a Tax Benefit Schedule or an amendment thereto within fifteen (15) calendar days or as soon thereafter as is reasonably practicable, in each case after the matter has been submitted to the Expert for resolution. Notwithstanding the preceding sentence, if the matter is not resolved before any payment that is the subject of a disagreement would be due (in the absence of such disagreement) or any Tax Return reflecting the subject of a disagreement is due, the undisputed amount shall be paid on the date prescribed by this Agreement and such Tax Return may be filed as prepared by the Corporation, subject to adjustment or amendment upon resolution. The costs and expenses relating to the engagement of such Expert or amending any Tax Return shall be borne by the Corporation except as provided in the next sentence. The Corporation and the Members shall bear their own costs and expenses of such proceeding, unless (i) the Expert adopts the Members position, in which case the Corporation shall reimburse the Member for any reasonable and documented out-of-pocket costs and expenses in such proceeding, or (ii) the Expert adopts the Corporations position, in which case the Member shall reimburse the Corporation for any reasonable and documented out-of-pocket costs and expenses in such proceeding. The Expert shall finally determine any Reconciliation Dispute and the determinations of the Expert pursuant to this Section 7.9 shall be binding on the Corporation and the Members and may be entered and enforced in any court having competent jurisdiction. Section 7.10 Withholding. The Corporation shall be entitled to deduct and withhold from any payment that is payable to any Member or LLC Option Holder pursuant to this Agreement such amounts as the Corporation is required to deduct and withhold with respect to the making of such payment under the Code or any provision of U.S. state, local or foreign tax law. To the extent that amounts are so withheld and paid over to the appropriate Taxing Authority by the Corporation, such withheld amounts shall be treated for all purposes of this Agreement as having been paid by the Corporation to the relevant Member or LLC Option Holder. Each Member and each LLC Option Holder shall promptly provide the Corporation with any applicable tax forms and certifications reasonably requested by the Corporation in |
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31 NY\6516862.10 DRAFT 10-14-2014 connection with determining whether any such deductions and withholdings are required under the Code or any provision of U.S. state, local or foreign tax law. Section 7.11 Admission of the Corporation into a Consolidated Group; Transfers of Corporate Assets. (a) If the Corporation is or becomes a member of an affiliated or consolidated group of corporations that files a consolidated income Tax Return pursuant to Section 1501 or other applicable Sections of the Code governing affiliated or consolidated groups, or any corresponding provisions of U.S. state or local law, then: (i) the provisions of this Agreement shall be applied with respect to the group as a whole; and (ii) Tax Benefit Payments, Early Termination Payments, and other applicable items hereunder shall be computed with reference to the consolidated taxable income of the group as a whole. (b) If any entity that is obligated to make a Tax Benefit Payment or Early Termination Payment hereunder transfers one or more assets to a corporation (or a Person classified as a corporation for U.S. income tax purposes) with which such entity does not file a consolidated Tax Return pursuant to Section 1501 of the Code, such entity, for purposes of calculating the amount of any Tax Benefit Payment or Early Termination Payment due hereunder, shall be treated as having disposed of such asset in a fully taxable transaction on the date of such contribution. The consideration deemed to be received by such entity shall be equal to the fair market value of the contributed asset. For purposes of this Section 7.11, a transfer of a partnership interest shall be treated as a transfer of the transferring partners share of each of the assets and liabilities of that partnership. Section 7.12 Confidentiality. Each Member or LLC Option Holder and its assignees acknowledges and agrees that the information of the Corporation is confidential and, except in the course of performing any duties as necessary for the Corporation and its Affiliates, as required by law or legal process or to enforce the terms of this Agreement, such Person shall keep and retain in the strictest confidence and not disclose to any Person any confidential matters, acquired pursuant to this Agreement, of the Corporation and its Affiliates and successors, learned by any Member or LLC Option Holder heretofore or hereafter. This Section 7.12 shall not apply to (i) any information that has been made publicly available by the Corporation or any of its Affiliates, becomes public knowledge (except as a result of an act of any Member or LLC Option Holder in violation of this Agreement) or is generally known to the business community, (ii) the disclosure of information to the extent necessary for a Member or LLC Option Holder to prosecute or defend claims arising under or relating to this Agreement, and (iii) the disclosure of information to the extent necessary for a Member or LLC Option Holder to prepare and file its Tax Returns, to respond to any inquiries regarding the same from any Taxing Authority or to prosecute or defend any action, proceeding or audit by any Taxing Authority with respect to such Tax Returns. Notwithstanding anything to the contrary herein, the Members, LLC Option Holders and each of their assignees (and each employee, representative or other agent of the Members or LLC Option Holders or their assignees, as applicable) may disclose at their discretion to any and all Persons, without limitation of any kind, the tax treatment and tax structure of the Corporation, the Members, the LLC Option Holders and any of their transactions, and all materials of any kind (including tax opinions or other tax analyses) that |
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32 NY\6516862.10 DRAFT 10-14-2014 are provided to the Members or LLC Option Holders relating to such Tax treatment and Tax structure. If a Member, LLC Option Holder or an assignee commits a breach, or threatens to commit a breach, of any of the provisions of this Section 7.12, the Corporation shall have the right and remedy to have the provisions of this Section 7.12 specifically enforced by injunctive relief or otherwise by any court of competent jurisdiction without the need to post any bond or other security, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to the Corporation or any of its Subsidiaries and that money damages alone shall not provide an adequate remedy to such Persons. Such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available at law or in equity. Section 7.13 Change in Law. Notwithstanding anything herein to the contrary, if, in connection with an actual or proposed change in law, a Member reasonably believes that the existence of this Agreement could cause income (other than income arising from receipt of a payment under this Agreement) recognized by such Member (or direct or indirect equity holders in such Member) in connection with any Exchange to be treated as ordinary income rather than capital gain (or otherwise taxed at ordinary income rates) for U.S. federal income tax purposes or would have other material adverse tax consequences to such Member or any direct or indirect owner of such Member, then at the written election of such Member in its sole discretion (in an instrument signed by such Member and delivered to the Corporation) and to the extent specified therein by such Member, this Agreement shall cease to have further effect and shall not apply to an Exchange occurring after a date specified by such Member, or may be amended by in a manner reasonably determined by such Member, provided that such amendment shall not result in an increase in any payments owed by the Corporation under this Agreement at any time as compared to the amounts and times of payments that would have been due in the absence of such amendment. Section 7.14 Interest Rate Limitation. Notwithstanding anything to the contrary contained herein, the interest paid or agreed to be paid hereunder with respect to amounts due to any Member hereunder shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the Maximum Rate). If any Member shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the Tax Benefit Payment, Estimated Tax Benefit Payment or Early Termination Payment, as applicable (but in each case exclusive of any component thereof comprising interest) or, if it exceeds such unpaid noninterest amount, refunded to the Corporation. In determining whether the interest contracted for, charged, or received by any Member exceeds the Maximum Rate, such Member may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the payment obligations owed by the Corporation to such Member hereunder. Notwithstanding the foregoing, it is the intention of the Lenders and the Borrower to conform strictly to any applicable usury laws. Section 7.15 Independent Nature of Rights and Obligations. The rights and obligations of the each Member and LLC Option Holder hereunder are several and not joint with the rights and obligations of any other Person. A Member or an LLC Option Holder shall not be responsible in any way for the performance of the obligations of any other Person hereunder, nor |
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33 NY\6516862.10 DRAFT 10-14-2014 shall a Member or an LLC Option Holder have the right to enforce the rights or obligations of any other Person hereunder (other than the Corporation). The obligations of a Member or an LLC Option Holder hereunder are solely for the benefit of, and shall be enforceable solely by, the Corporation. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Member or LLC Option Holder pursuant hereto or thereto, shall be deemed to constitute the Members and/or LLC Option Holders acting as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Members and/or LLC Option Holders are in any way acting in concert or as a group with respect to such rights or obligations or the transactions contemplated hereby, and the Corporation acknowledges that the Members and LLC Option Holders are not acting in concert or as a group and will not assert any such claim with respect to such rights or obligations or the transactions contemplated hereby. [Signature Page Follows This Page] |
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[Signature Page to Tax Receivable Agreement] NY\6516862.10 DRAFT 10-14-2014 IN WITNESS WHEREOF, the undersigned have executed or caused to be executed on their behalf this Agreement as of the date first written above. CORPORATION: NEFF CORPORATION By: Name: Title: MEMBERS: WAYZATA OPPORTUNITIES FUND II, L.P. By: WOF II GP, L.P., its General Partner By: WOF II GP, LLC, its General Partner By: Name: Title: WAYZATA OPPORTUNITIES FUND OFFSHORE, L.P. By: [WOFO II GP, L.P.], its General Partner By: [WOFO II GP, LLC], its General Partner By: Name: Title: NEFF HOLDINGS: NEFF HOLDINGS LLC By: Name: Title: |
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35 NY\6516862.10 DRAFT 10-14-2014 LLC OPTION HOLDERS James Continenza Robert Singer Graham Hood Mark Irion Wes Parks Henry Lawson John Anderson Brad Nowell |
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36 NY\6516862.10 DRAFT 10-14-2014 |
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37 NY\6516862.10 DRAFT 10-14-2014 Steven Settelmayer Paula Papamarcos Steve Michaels Tom Sutherland Tammy Parham Jim Horn Bryant Becton Bobby Corner |
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[Exhibit A] NY\6516862.10 DRAFT 10-14-2014 Exhibit A FORM OF JOINDER AGREEMENT This JOINDER AGREEMENT, dated as of , 20 (this Joinder), is delivered pursuant to that certain Tax Receivable Agreement, dated as of [ ], 2014 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the Tax Receivable Agreement) by and among Neff Corporation, a Delaware corporation (the Corporation);;, [Neff Holdings LLC, a Delaware limited liability company (Neff Holdings),] and each of the Members from time to time party thereto. Capitalized terms used but not otherwise defined herein have the respective meanings set forth in the Tax Receivable Agreement. 1. Joinder to the Tax Receivable Agreement. The undersigned hereby represents and warrants to the Corporation that, as of the date hereof, the undersigned is a member of Neff Holdings, and that it acquired [ ] Units in Neff Holdings upon assignment from a Member. 2. Joinder to the Tax Receivable Agreement. Upon the execution of this Joinder by the undersigned and delivery hereof to the Corporation, the undersigned hereby is and hereafter will be a Member under the Tax Receivable Agreement and a Party thereto, with all the rights, privileges and responsibilities of a Member thereunder. The undersigned hereby agrees that it shall comply with and be fully bound by the terms of the Tax Receivable Agreement as if it had been a signatory thereto as of the date thereof. 3. Incorporation by Reference. All terms and conditions of the Tax Receivable Agreement are hereby incorporated by reference in this Joinder as if set forth herein in full. 4. Address. All notices under the Tax Receivable Agreement to the undersigned shall be direct to: [Name] [Address] [City, State, Zip Code] Attn: Facsimile: E-mail: IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Joinder as of the day and year first above written. [NAME OF NEW PARTY] By: Name: Title: |
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[Exhibit A] NY\6516862.10 DRAFT 10-14-2014 Acknowledged and agreed as of the date first set forth above: NEFF CORPORATION By: Name: Title: |
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EXHIBIT E FORM OF AMENDED NEFF HOLDINGS LLC MANAGEMENT EQUITY PLAN [see attached] |
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NY\6570147.4 Neff Holdings LLC Management Equity Plan Amended and Restated as of October [ ], 2014 Neff Holdings LLC, a Delaware limited liability company (the Company), originally adopted the Neff Holdings LLC Management Equity Plan (as amended and restated herein and as may be amended, supplemented, amended and restated or otherwise modified from time to time, the Plan), effective as of October 1, 2010. The Plan is hereby amended and restated in its entirety, effective as of October [ ], 2014, in connection with the contemplated IPO and Recapitalization and associated conversion of each outstanding Award with respect to Class B Units into an Award with respect to Common Units. As of the Effective Time, all outstanding Awards, as so converted, will be governed by this amendment and restatement of the Plan, and, notwithstanding anything to the contrary herein, no additional Awards will be granted under the Plan. Section 1. Purpose. The purposes of the Plan are to provide an incentive for management and other employees, prospective employees and members of the Board of the Company and/or its subsidiaries by acquiring a proprietary interest in the success of the Company, to enhance the long-term performance of the Company and to remain in the service of the Company and/or its subsidiaries. Section 2. Definitions. Capitalized terms used in this Plan and not defined in this Plan shall have the meanings given thereto in the LLC Agreement. When used in this Plan, unless the context otherwise requires, the following terms shall have the meanings set forth next to such terms: (a) Award shall mean an award under this Plan as described in Section 5 hereof. (b) Award Agreement shall mean a written agreement entered into between the Company and the Grantee in connection with an Award. (c) Board shall mean the board of managers of the Company. (d) Cause shall mean, with respect to any Grantee, that one or more of the following has occurred: (i) the Grantee is convicted of a felony or pleads guilty or nolo contendere to a felony (whether or not with respect to the Company or any of its affiliates or subsidiaries); (ii) a failure of the Grantee to substantially perform his responsibilities and duties to the Company or any of its subsidiaries, after ten (10) days written notice given by the Company or its subsidiaries, which notice shall identify the failure in sufficient detail and grant the Grantee an opportunity to cure such failure within such ten (10) day period; (iii) the failure of the Grantee to carry out or comply with any lawful and reasonable directive of the Board (or any committee of the Board), any Subsidiary Governing Body, or the Chief Executive Officer of the Company or any of its subsidiaries, which is not remedied within ten (10) days after the Grantees receipt of written notice from any of the foregoing specifying such failure; (iv) the Grantee engages in illegal conduct, any act of dishonesty, breach of fiduciary duty (if any) or other misconduct, in each case in this clause (iv), against the Company, or any of its affiliates or subsidiaries; (v) a material violation or willful breach by the Grantee of any of the policies or |
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2 NY\6570147.4 procedures of the Company, or any of its subsidiaries, including, without any limitation, any employee manual, handbook or code of conduct of the Company or any of its subsidiaries which, to the extent curable, is not remedied within ten (10) days after the Grantees receipt of written notice given by the Company or any of its subsidiaries identifying the conduct in sufficient detail and granting the Grantee an opportunity to cure such conduct within such ten (10) day period; (vi) the Grantee fails to meet any material obligation Grantee may have under any agreement entered into with the Company or any of its subsidiaries; including, but not limited to, the LLC Agreement and any agreement entered into in connection with the Grantees employment or engagement with the Company or any of its subsidiaries which, to the extent curable, is not remedied within ten (10) days after the Grantees receipt of written notice given by the Company or any of its subsidiaries identifying the conduct in sufficient detail and granting the Grantee an opportunity to cure such conduct within such ten (10) day period; (vii) the Grantees habitual abuse of narcotics or alcohol; or (viii) the Grantees breach of any non-compete, non-solicit, confidentiality or other restrictive covenant to which the Grantee may be subject, pursuant to an employment agreement or otherwise. (e) Committee shall mean the Committee hereinafter described in Section 3 hereof. (f) Fair Market Value shall mean, with respect to any Award (including, without limitation, any Common Units), the fair market value of such Award, as determined in the sole discretion of the Committee, subject to Section 10 hereof, as applicable. (g) Grantee shall mean a person who receives an Award. (h) LLC Agreement shall mean the Second Amended and Restated Limited Liability Company Agreement of Neff Holdings LLC, dated as of October [_], 2014, as such agreement may be amended, supplemented, amended and restated or otherwise modified from time to time, together with all schedules, exhibits and annexes thereto. (i) Prior LLC Agreement shall mean the First Amended and Restated Limited Liability Company Agreement of the Company, dated as of October 1, 2010. (j) Sale Transaction shall mean the bona fide sale, lease, Transfer, issuance or other disposition, in one transaction or a series of related transactions, of (x) all or substantially all of the consolidated assets of the Company and its Subsidiaries or (y) at least a majority of the then-issued and outstanding Common Units to (in either case) any Person or group of related Persons (other than a Member or an Affiliate of a Member or the Company or an Affiliate of the Company), whether directly or indirectly or by way of any merger, statutory share exchange, sale or issuance of equity, tender offer, consolidation or other business combination transaction or purchase of beneficial ownership, provided, however, that a Sale Transaction shall not include a dividend or other distribution of cash or other assets of the Company to the Members (or any of the Members) made with the proceeds of borrowed money, regardless of whether the borrowing incurred to finance such dividend or distribution was incurred prior to or after such dividend or distribution. (k) Section 409A shall mean Section 409A of the Code. Section 3. Administration. |
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3 NY\6570147.4 (a) The Plan shall be administered by the Board or, if the Board shall so determine, by a Committee consisting of one or more Board members, selected by the Board. Any member of the Committee may resign by giving written notice thereof to the Board, and any member of the Committee may be removed at any time, with or without cause, by the Board. Any vacancy on the Committee shall be filled by the Board. During any period in which the Plan is administered by the Board, all references in the Plan or in any Award Agreement to the Committee shall be deemed to refer to the Board. (b) The Committee shall have complete authority to interpret and administer this Plan and each Award Agreement, including, without limitation, the power (i) to exercise all of the powers granted to it under the Plan, (ii) to construe, interpret and implement the Plan and any Award Agreement, (iii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules governing its own operations, (iv) to make all determinations necessary or advisable in administering the Plan, (v) to correct any defect, supply any omission and reconcile any inconsistency in the Plan, (vi) to amend the Plan to reflect changes in applicable law, (vii) to delegate such powers and authority to such person as it deems appropriate, and (viii) to waive any conditions under any Awards. The determination of the Committee on all matters relating to the Plan or any Award Agreement shall be final, binding and conclusive. Section 4. Eligibility for Awards. Awards under the Plan shall be made to such members of the Board and any Subsidiary Governing Body (as defined in the Prior LLC Agreement), and employees and prospective employees of the Company and/or its subsidiaries, as the Committee selects in its sole discretion. Section 5. Awards Under the Plan. (a) Awards may be made under the Plan in the form of Common Units, phantom units or options, warrants or other securities that are convertible, exercisable or exchangeable for or into Common Units, as the Committee determines is in the interest of the Company. (b) Each Award granted under the Plan shall be evidenced by an Award Agreement which shall contain such provisions (such as vesting, and manner and method of conversion, exchange or exercise (to the extent applicable)) as the Committee in its discretion deems necessary or desirable, consistent with the terms of this Plan and the LLC Agreement. The duration of any Award that is convertible, exchangeable or exercisable for or into Common Units shall have a duration that is fixed by the Committee, in its sole discretion, but in no event shall such Award remain in effect for a period of more than ten (10) years from the date of grant. (c) Any Award for Common Units, or, in the event an Award is converted, exercised or exchanged for or into Common Units, such conversion, exercise or exchange, shall be conditioned on (i) the Grantee executing a Joinder Agreement and becoming a Member under and bound by the terms of the LLC Agreement and (ii) the Grantees compliance with all other terms and conditions set forth in the LLC Agreement to be admitted as a Member. Section 6. Vesting and Forfeiture. Except as otherwise provided in the applicable Award Agreement, |
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4 NY\6570147.4 (a) Any portion of any then outstanding Award that is not vested (after taking into account any accelerated vesting that may apply under the Award Agreement or Section 7 hereof) and/or, if applicable, exercisable or exercised, convertible or converted, exchangeable or exchanged, at the time of the Grantees termination of employment or service with the Company or any of its subsidiaries, for any reason, shall immediately be forfeited and terminate and the Grantee shall no longer have any rights or interests in such Award. (b) If (i) the Grantees employment or service with the Company or any of its subsidiaries is terminated for Cause, (ii) the Grantees employment or service with the Company (and/or any of its subsidiaries) is terminated by the Company (and/or any of its subsidiaries) or the Grantee for any reason and the Grantee committed an act constituting Cause prior to such termination (regardless of whether the Grantees employment or service was terminated for Cause) and which such act, to the extent a cure period was allowed for such act in the definition of Cause, was not cured within such period prior to such termination or (iii) the Grantee breaches any restrictive covenants, including non-competition, non-solicitation and confidentiality covenants, with the Company (and/or any of its subsidiaries), all of the Grantees then outstanding Awards, whether or not previously vested and/or, if applicable, exercisable or exercised, convertible or converted, or exchangeable or exchanged, shall immediately be forfeited and terminate and the Grantee shall no longer have any rights or interests in such Award or anything such Award was exercised, converted or exchanged for or into. For purposes of this Section 6(b), the term Cause shall include, with respect to any Grantee that has an employment agreement with the Company (and/or any of its subsidiaries), in addition to (and not in lieu of) the definition of Cause set forth in this Plan, the definition of Cause set forth in such employment agreement. (c) Without limiting the conditions of Section 6(b) hereof, prior to the consummation of a Qualified Public Offering (as defined in the Prior LLC Agreement), in the event the Grantees employment or service with the Company and/or any of its subsidiaries is terminated for any reason (whether by the Company, the Grantee or any such subsidiary) and the Grantee has outstanding and vested Awards at the time of such termination, the Company shall have the right, but not the obligation, to elect within ninety (90) days of the effective date of termination of the Grantees employment or service or such other time periods as are prescribed by the Committee and set forth in an Award Agreement or any repurchase agreement thereunder, to repurchase the Grantees then outstanding and vested Awards. Unless otherwise prescribed by the Committee and set forth in an Award Agreement, such Awards shall be repurchased by the Company at the Fair Market Value of the applicable Award, less, to the extent applicable, any amounts owed by the Grantee to the Company pursuant to any loans outstanding under Section 5.2 (or any successor provision) of the Prior LLC Agreement or any other amounts owed by the Grantee to the Company or any of its subsidiaries. Section 7. Sale Transaction. (a) Subject to Section 6 hereof and except as provided in an Award Agreement, upon the occurrence of a Sale Transaction which occurs while the Grantee is still employed by, or in service with, the Company or any of its subsidiaries, all of the Grantees unvested Awards shall immediately become vested and/or exercisable, convertible or exchangeable, as applicable. |
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5 NY\6570147.4 (b) In addition, in the event of a Sale Transaction, with respect to any Award that is convertible, exchangeable or exercisable for or into Common Units, the Committee shall, in its sole discretion, either (i) provide for the assumption of such Awards theretofore granted, or the substitution for such Awards of new awards of the successor company or a parent or subsidiary thereof, with appropriate adjustments as to the number and kinds of shares and the per share exercise prices, consistent with Section 11 hereof, (ii) provide written notice to any holder of such Award that the Award shall be terminated to the extent that it is not converted, exchanged or exercised prior to a date certain specified in such notice (which date shall be no sooner than the consummation of the Sale Transaction) or (iii) provide that the Grantee of any such Award, to the extent then vested, shall be entitled to receive from the Company an amount equal to the excess of (A) the Fair Market Value (determined on the basis of the amount received by Members of the Company in connection with such transaction and consistent with Section 409A of the Code) of the Common Units subject to the vested portion of the Award not theretofore converted, exchanged or exercised, over (B) the aggregate purchase price which would be payable for such Common Units upon the conversion, exchange or exercise of such Award. Any actions under this Section 7 shall, to the extent applicable, be in accordance with the regulations promulgated under Section 409A of the Code so as not to cause a modification or deemed new grant of the Award. Section 8. Section 83(b) of the Code. As a requirement for receiving an Award of, or to acquire, Common Units under the Plan, each Grantee shall, if, and only if, required by the Committee, agree to make a timely election pursuant to Section 83(b) of the Code to include in the Grantees gross income or alternative minimum taxable income, as the case may be, for the taxable year in which the Award is granted (or, if applicable, exercised, converted or exchanged), the amount of any compensation taxable to the Grantee in connection with the Grantees receipt of such Award. If the Committee requires the Grantee to make such an election, the Grantee shall notify the Committee of such election within ten (10) days of filing notice of the election with the Internal Revenue Service, in addition to any filings and notifications required pursuant to the regulations issued under Section 83(b) of the Code. Section 9. Restrictions on Transfer. Except as otherwise provided in an Award Agreement, (a) Notwithstanding anything in the LLC Agreement to the contrary, no Awards of Common Units may be Transferred until vested; provided, however, that the Grantee may Transfer such unvested Awards to any one or more of the Grantees Family Members (as defined in the Prior LLC Agreement) if the requirements set forth in the LLC Agreement relating to such Transfer are complied with and provided the Award remains subject to this Plan and any Award Agreement (including any repurchase rights in favor of the Company). As a condition to such Transfer, the Transferee shall execute and deliver to the Company (i) a Joinder Agreement, (ii) a written undertaking, in form and substance satisfactory to the Committee, that such Transferee shall Transfer any Awards (vested or unvested) back to the Grantee if such Transferee ceases to be a Family Member of such Grantee and (iii) a written agreement acknowledging that such Transferred Award is subject to vesting, may never become vested and is subject to the terms and conditions of the Plan, the Award Agreement and the LLC Agreement. Any proposed Transfer of vested Awards of Common Units shall be in accordance with the LLC Agreement and the Award Agreement. |
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6 NY\6570147.4 (b) Awards that are convertible, exercisable or exchangeable for or into Common Units may not be Transferred at any time prior to such conversion, exercise or exchange; provided, however, that the Grantee may Transfer any unvested Award to any one or more of the Grantees Family Members provided the Award remains subject to this Plan and any Award Agreement (including any repurchase rights in favor of the Company). As a condition to such Transfer, (i) the Transferee shall execute and deliver to the Company (A) a written undertaking, in form and substance satisfactory to the Committee, that such Transferee shall Transfer any Awards (vested or unvested) back to the Grantee if such Transferee ceases to be a Family Member of such Grantee and (B) a written agreement (1) acknowledging that such Transferred Award is subject to vesting, may never become vested, and is subject to the terms of the Plan, the Award Agreement and, upon conversion, exercise or exchange, the LLC Agreement and (2) agreeing to execute and deliver to the Company, upon the conversion, exercise or exchange of the Award, a Joinder Agreement and a written undertaking referred to above, and (ii) each such agreement referred to in clause (2) above shall be, in fact, executed and delivered to the Company upon the conversion, exercise or exchange of the Award. Section 10. Conformity to Section 409A of the Code. It is intended that all Awards under this Plan and any Award Agreement, either be exempt from or comply with Section 409A. All options or other similar Awards that are granted with an exercise price shall be granted with an exercise price, such that the Award would not constitute deferred compensation under Section 409A. Any ambiguity in this Plan and any Award Agreement shall be interpreted to comply with Section 409A. To the extent applicable, (i) each amount or benefit payable pursuant to this Plan and any Award Agreement shall be deemed a separate payment for purposes of Section 409A and (ii) in the event the stock of the Company is publicly traded on an established securities market or otherwise and the Grantee is a specified employee (as determined under the Companys administrative procedure for such determinations, in accordance with Section 409A) at the time of the Grantees termination of employment, any payments under this Plan or any Award Agreement that are deemed to be deferred compensation subject to Section 409A shall not be paid or begin payment until the earlier of the Grantees death and the first day following the six (6) month anniversary of the Grantees date of termination of employment. Section 11. Adjustment. If, prior to the complete conversion, exchange or exercise of any Award that is convertible, exchangeable or exercisable for or into Common Units, the Units of the Company shall be split up, converted, exchanged, reclassified, or in any way substituted for or in the event of any extraordinary dividend or extraordinary distribution (of cash, Units, securities or other property), then the Award, to the extent it has not been converted, exchanged or exercised, shall be adjusted as the Committee deems appropriate to prevent the enlargement or dilution of rights of the Grantee, provided, however, that any such adjustment shall, to the extent applicable, be in accordance with the regulations promulgated under Section 409A so as not to cause a modification or deemed new grant of the Award. For avoidance of doubt, in no event shall any distributions for taxes or any regularly scheduled distribution or dividend paid pursuant to a distribution or dividend policy established by the Board constitute extraordinary dividends or extraordinary distributions. Section 12. Amendment Suspension or Termination of the Plan. The Board may from time to time suspend, discontinue, terminate, revise or amend (i) the Plan in any respect whatsoever and (ii) any Award Agreement, to the extent provided in such Award Agreement; provided, however, |
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7 NY\6570147.4 that in no event shall any such action adversely affect the rights of any Grantee in any material respect (without regard to any effect resulting from the individual circumstances of such Grantee) with respect to any previously granted Award without such Grantees consent, except to the extent such action is required by, or is necessary to comply with, law. Section 13. General Provisions. (a) No Right to Employment. Nothing contained in this Plan, any Award Agreement or the LLC Agreement shall confer upon any Grantee the right to continue in the employ of or association with the Company, its subsidiaries or its affiliates, or affect any rights which the Company, its subsidiaries or its affiliates may have to terminate such employment or association for any reason at any time. (b) Non-Uniform Determinations. The Committees determinations under the Plan need not be uniform and may be made by it selectively among persons who receive or are eligible to receive Awards (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Committee shall be entitled, among, other things, to make non-uniform and selective determinations, and to enter into non-uniform and selective Award Agreements, as to the person to receive Awards under the Plan, and the terms and provisions of Awards under the Plan. (c) Freedom of Action. Nothing contained in the Plan or any Award Agreement shall be construed to prevent the Company, its subsidiaries, its affiliates or any of the holders of Common Units from taking any corporate action, including, but not limited to, any recapitalization, reorganization, merger, consolidation, dissolution or sale, which is deemed by the Company, its subsidiaries, its affiliates or any of the holders of Common Units to be appropriate or in its or their best interest, whether or not such action would have an adverse effect on the Plan or any Awards thereunder. (d) Section Headings; Construction. The section headings contained herein are for the purpose of convenience only and are not intended to define or limit the contents of the sections. All words used in this Plan shall be construed to be of such gender or number, as the circumstances require. Unless otherwise expressly provided, the word including does not limit the preceding words or terms. (e) Governing Law. This Plan, any Award Agreement hereunder and any conflicts arising, hereunder or related hereto shall be governed by, and construed under, the laws of the State of Delaware, all rights and remedies being governed by said laws, regardless of the laws that might otherwise govern under applicable principles, to the fullest extent permitted by law, of conflicts of laws. (f) Severability; Entire Agreement. In the event any provision of this Plan or any Award Agreement shall be held illegal, invalid or unenforceable for any reason, the illegality, invalidity or unenforceability shall not affect the remaining provisions of this Plan and such illegal, invalid or unenforceable provision shall be deemed modified as if the illegal, invalid or unenforceable provisions had not been included. The Plan, any Award Agreement and the LLC Agreement contain the entire agreement of the parties with respect to the subject matter thereof |
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8 NY\6570147.4 and supersede all prior agreements, promises, covenants, arrangements, communications, representations and warranties between them, whether written or oral, with respect to the subject matter thereof. (g) Survival of Terms; Conflicts. The provisions of this Plan shall survive the termination of this Plan to the extent consistent with, or necessary to carry out, the purposes thereof. To the extent of any conflict between the Plan, any Award Agreement and the LLC Agreement, the LLC Agreement shall control; provided, however, that the Plan may impose greater restrictions or grant lesser rights than the LLC Agreement; and provided, further, that any Award Agreement may impose greater restrictions or grant lesser rights than either the LLC Agreement or the Plan. Subject to the second proviso in the immediately preceding sentence, in the event of any conflict between the Plan and any Award Agreement, the Plan shall control. (h) No Third Party Beneficiaries. Except as expressly provided therein, none of the Plan, any Award Agreement or the LLC Agreement shall confer on any person other than the Company and the Grantee any rights or remedies thereunder. (i) Successors and Assigns. The terms of this Plan shall be binding upon and inure to the benefit of the Company, its subsidiaries and their successors and assigns. (j) Notices. All notices, requests, waivers and other communications under the Plan or any Award Agreement shall be in writing and shall be deemed to be effectively given, sent, provided, delivered or received (i) when personally delivered to the party to be notified, (ii) when sent by confirmed facsimile or by electronic mail (e-mail) to the party to be notified, (iii) three (3) Business Days after deposit in the United States mail, postage prepaid, by certified or registered mail with return receipt requested, addressed to the party to be notified or (iv) one (1) Business Pay after deposit with a national overnight delivery service, postage prepaid, addressed to the party to be notified with next-Business Day delivery guaranteed, in each case sent or addressed to the Company at its principal office and to the Grantee at the Grantees mailing address, facsimile number or e-mail address as carried in the record books of the Company or at such other mailing address, facsimile number or e-mail address as the Grantee may from time to time designate in writing to the Company. The Grantee may change his or her mailing address, facsimile number or e-mail address for purposes of notice hereunder by giving notice of such change to the Company as provided herein. |
Exhibit 10.14
First Amendment to Neff Holdings LLC June 1, 2014 Sale Transaction Bonus Plan
Reference is made to the Sale Transaction Bonus Plan, Amended and Restated Effective as of June 1, 2014 (the Plan) established by Neff Holdings LLC (the Company). Capitalized terms not defined herein shall have the meanings set forth for such terms in the Plan. By this First Amendment to Neff Holdings LLC June 1, 2014 Sale Transaction Bonus Plan (this Amendment), the Board wishes to amend the Plan in accordance with Section 9(j) thereof in order to clarify the definition of Sale Transaction as such term is used therein. Accordingly, the Plan is hereby amended as follows:
The definition of Sale Transaction is hereby amended by deleting it in its entirety and replacing it with the following:
Sale Transaction shall mean the bona fide sale or transfer, in one transaction or a series of related transactions, of (x) all or substantially all of the consolidated assets of the Company Group or (y) at least a majority of the then-issued and outstanding Class A Units of the Company to (in either case) any person or group of related persons (other than a member or an affiliate of a member of the Company Group), provided, however, that a Sale Transaction shall not include a dividend or other distribution of cash or other assets of the Company to its members made with the proceeds of borrowed money, regardless of whether the borrowing incurred to finance such dividend or distribution was incurred prior to or after such dividend or distribution. In addition, a Sale Transaction shall include an underwritten public offering by the Company, any successor thereto, or any holding company or other new company formed by the Company for the purpose of owning an equity interest in the Company (an Up-C Member) pursuant to an effective registration statement covering a sale of equity to the public that (a) results in equity securities of the Company, the Up-C Member, or any corporate successor to the Company (including any successor by conversion to a subchapter C corporation, merger or consolidation into a corporation, recapitalization or reorganization, sale of securities or otherwise) being listed on an SEC-registered national securities exchange, and (b) involves gross cash proceeds from the sale of such equity securities of at least $175 million that are applied toward the payment of liabilities of the Company Group or otherwise distributed to the members of the Company; if a Sale Transaction as described in this sentence occurs all references in the Plan to the consummation or closing of the Sale Transaction, or like terms, shall be deemed to refer to the listing date of such equity securities on a covered exchange.
This Amendment shall become effective as of November 7, 2014. Except as expressly provided herein, this Amendment shall not, by implication or otherwise, alter, modify, amend or in any way affect any of the terms or other provisions contained in the Plan or any Award Agreement issued in connection therewith, all of which are ratified and confirmed in all respects by the parties and shall continue in full force and effect. Each reference to the Plan hereafter made in any document, agreement, instrument, notice or communication shall mean and be a reference to the Plan as amended hereby.
Exhibit 10.15
Neff Holdings LLC
2014 Incentive Bonus Plan
Section 1. Purpose
The purpose of the Neff Holdings LLC 2014 Incentive Bonus Plan is to provide incentives to certain managers and employees of the Company Group based on the amount of cash proceeds returned to Sponsor under certain specified circumstances.
Section 2. Definitions
When used in this Plan, unless the context otherwise requires, the following terms shall have the meanings set forth next to such terms:
(a) Award shall mean the contingent right of a Participant to receive a payment under the Plan, subject to the terms and conditions of the Plan.
(b) Award Agreement shall mean a written agreement entered into between the Company and the Participant in connection with an Award (including any notice of an Award executed and delivered by the Company to a Participant and which is countersigned or acknowledged by such Participant).
(c) Award Percentage shall mean the percentage of the Award Pool granted to a Participant pursuant to an Award as provided in Section 5.
(d) Award Pool shall mean the incentive pool established pursuant to the Plan in accordance with Section 5.
(e) Board shall mean the Board of Managers of the Company (or equivalent governing body) or a committee established by the Board with the authority to oversee, administer and implement the Plan.
(f) Class A Units shall mean the Class A Voting Common Units of the Company.
(g) Company shall mean Neff Holdings LLC, a Delaware limited liability company.
(h) Company Group shall mean any of the Company or its direct or indirect subsidiaries, including Operating Company.
(i) Effective Date shall mean the date this Agreement is approved by the Board.
(j) Operating Company shall mean Neff Rental LLC.
(k) Participant shall mean a manager or an employee of the Company Group who has been granted an Award under the Plan.
(l) Plan shall mean the Neff Holdings LLC 2014 Incentive Bonus Plan, as it may be amended or supplemented from time to time.
(m) Proceeds shall mean actual cash proceeds received by Sponsor in connection with the sale, disposition or transfer of its Class A Units in the Company on or after the Effective Date in addition to any cash dividends or cash distributions paid by the Company to Sponsor on account of Sponsors Class A Units in the Company.
(n) Sponsor shall mean Wayzata Opportunities Fund II, L.P. and Wayzata Opportunities Fund Offshore II, L.P., holders of Class A Units in the Company.
Section 3. Plan Administration
The Plan shall be administered by the Board. The Board shall have such powers and authority as may be necessary or appropriate for the Board to carry out its functions as described herein, including, but not limited to, (i) complete authority to interpret and administer the Plan, any Awards granted under the Plan and, if applicable, any Award Agreements evidencing Awards granted under the Plan, (ii) exercise all of the powers granted to it under the Plan, (iii) construe, interpret and implement the Plan and, if applicable, any Award Agreements, (iv) prescribe, amend and rescind rules and regulations relating to the Plan, including rules governing its own operations, (v) make all determinations necessary or advisable in administering the Plan, (vi) correct any defect, supply any omission and reconcile any inconsistency in the Plan, (vii) amend the Plan to reflect changes in applicable law, (viii) delegate such powers and authority to such person as it deems appropriate, and (ix) waive any conditions under any Awards or, if applicable, any Award Agreements. The determination of the Board on all matters relating to the Plan or, if applicable, any Award Agreement shall be final, binding and conclusive. No member of the Board shall be liable for any action or determination made in good faith by the Board with respect to the Plan or any Award thereunder.
Section 4. Grant of Awards
The Board shall determine the Participants to whom Awards are granted under the Plan and the terms of such Awards, in accordance with, and not inconsistent with the terms of the Plan.
As of the Effective Date, the Board has determined to grant Awards to those Participants identified on Exhibit A hereto, with an Award Percentage identified next to each such Participants name on Exhibit A hereto.
Section 5. Award
(a) Initial Award Pool. At such time as Sponsor receives Proceeds that equal or exceed $81,000,000, an incentive pool (the Initial Award Pool) will be established by Operating Company (the date such Initial Award Pool is established shall be referred to as the Initial Pool Establishment Date) equal to $2,100,000.
(b) Subsequent Award Pool. At such time as Sponsor receives Proceeds that equal or exceed $108,000,000, an additional incentive Pool (the Subsequent Award Pool) will be established by Operating Company (the date such Subsequent Award Pool is established shall be
referred to as the Subsequent Pool Establishment Date) equal to $2,100,000. The Subsequent Award Pool shall be separate and distinct from the Initial Award Pool. Each of the Initial Award Pool and the Subsequent Award Pool are referred to herein as an Award Pool and each of the Initial Pool Establishment Date and the Subsequent Pool Establishment Date are referred to herein as a Pool Establishment Date.
(c) Award Percentage. Each Participant who is granted an Award shall be granted a percentage share (an Award Percentage) of the Award Pool as indicated for such Participant on Exhibit A.
(d) Forfeiture of Awards. In the event any Participants Award is forfeited as a result of such Participants termination of employment with (or service to) any member of the Company Group or otherwise, each remaining Participant in the Plan shall be entitled to an additional Award equal to his or her Award Percentage multiplied by the Award Percentage of the forfeiting Participant multiplied by the Award Pool.
Section 6. Entitlement to Awards and Payment
(a) Entitlement to Payments. Payments pursuant to Awards shall be earned only upon a return of Proceeds to Sponsor which results in the establishment of an Award Pool, as determined by the Board and Sponsor, and a Participant shall only be eligible to receive payments pursuant to his or her Award:
(i) to the extent a Participant is given an Award Agreement, the Participant has signed and returned the Award Agreement (or related acknowledgement) in the time period specified in such Award Agreement;
(ii) provided the Participant remains employed by (or in service to) the Company Group at the time of the relevant Pool Establishment Date; and
(iii) if requested by the Board, the Participant has executed and delivered to the Company an enforceable release of claims in the form provided by the Company, which shall be in substantially the form attached as Exhibit B hereto (the General Release), and the consideration and revocation period described therein (which shall not be longer than thirty days) has expired without the General Release having been revoked.
In no event shall a Participant be entitled to payment under an Award (x) if the Pool Establishment Date does not occur prior to December 31, 2021, or (y) if Proceeds returned to Sponsor do not result in the establishment of an Award Pool under Section 5.
(b) Form. All payments due under the Plan shall be made in cash and may be made through the Company Groups payroll system.
(c) Timing of Payments. All payments to a Participant hereunder shall be paid in a single, lump-sum within thirty (30) days of the applicable Pool Establishment Date; provided, however, if any such payment is to be made through the Company Groups payroll system and if such payment cannot be made on such Pool Establishment Date through the Company Groups
payroll system, such payment shall be made on the first reasonably practicable day following such Pool Establishment Date which such payment can be made through the Company Groups payroll system (but in no event later than two and one-half months after the end of the calendar year in which such Pool Establishment Date occurs).
Section 7. Service Requirement
Any payment to a Participant under the Plan pursuant to an Award shall be conditioned upon such Participants continued employment with (or service to) the Company Group from the date of grant of such Award until the Pool Establishment Date. A Participant shall not be entitled to the payment of an Award if his or her employment (or service) is terminated at any time or for any reason prior to the applicable Pool Establishment Date.
If a Participants employment with (or service to) the Company Group is terminated for any reason prior to the Initial Pool Establishment Date, the Participant shall be deemed to have forfeited any and all interest in any Award held by the Participant. Furthermore, if a Participants employment with (or service to) the Company Group is terminated for any reason subsequent to the Initial Pool Establishment Date but prior to the Subsequent Pool Establishment Date, the Participant shall be deemed to have forfeited any and all interest in any remaining Award held by the Participant.
Section 8. Unfunded Status
All amounts which become payable pursuant to this Plan remain general obligations of the Operating Company. All payments made pursuant to this Plan shall come from the general assets of the Operating Company. The payment of any amount is not secured by any specific assets of the Company Group. No Participant shall be entitled to or have any rights of a member of the Company with respect to any Award granted under this Plan.
Section 9. General Rules Applicable to Awards
All Awards shall be subject to the following:
(a) The obligation of the Operating Company to make payment with respect to an Award shall be subject to all applicable laws, rules and regulations and to such approvals by government agencies as may be required.
(b) The Operating Company shall have the right to withhold from payment made under any Awards any federal, state or local taxes as required by law to be withheld with respect to such Awards. Any such taxes are the sole responsibility of the Participant and the Participant shall have no right to indemnification for any or all taxes owed in connection with payment under such Awards.
(c) No Award may be transferred by a Participant other than by will or by the laws of descent and distribution.
(d) Where the day on or by which anything is to be done is not a business day, it shall be done on or by the first business day thereafter.
Section 10. General Provisions
(a) No Right to Employment. Nothing contained in this Plan shall confer upon any Participant the right to continue in the employ of or service with the Company Group, or affect any rights which the Company Group may have to terminate such employment or service for any reason at any time.
(b) Non-Uniform Determinations. The Boards determinations of Awards under the Plan need not be uniform and may be made by it selectively among persons who receive or are eligible to receive Awards (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Board shall be entitled, among other things, to make non-uniform and selective determinations, and to enter into non-uniform and selective Awards, as to the person to receive Awards under the Plan.
(c) Section Headings; Construction. The section headings contained herein are for the purpose of convenience only and are not intended to define or limit the contents of the sections. All words used in this Plan shall be construed to be of such gender or number, as the circumstances require. Unless otherwise expressly provided, the word including does not limit the preceding words or terms.
(d) Governing Law. This Plan, any Award hereunder, any Award Agreement and any conflicts arising hereunder or thereunder or related hereto or thereto shall be governed by, and construed under, the laws of the State of Delaware, all rights and remedies being governed by said laws, regardless of the laws that might otherwise govern under applicable principles, to the fullest extent permitted by law, of conflicts of laws.
(e) Confidentiality. The Participant agrees to maintain in confidence and not disclose the terms of this Plan or any Award granted hereunder (except to the Participants immediate family and his or her professional advisors).
(f) Severability; Entire Agreement. In the event any provision of this Plan, any Award Agreement, or any Award shall be held illegal, invalid or unenforceable for any reason, the illegality, invalidity or unenforceability shall not affect the remaining provisions of this Plan, such Award or such Award Agreement (as applicable) and such illegal, invalid or unenforceable provision shall be deemed modified as if the illegal, invalid or unenforceable provisions had not been included. The Plan, any Award and, if applicable, any Award Agreement, contain the entire agreement of the parties with respect to the subject matter thereof and supersede all prior agreements, promises, covenants, arrangements, communications, representations and warranties between them, whether written or oral, with respect to the subject matter thereof.
(g) No Third-Party Beneficiaries. Except as expressly provided therein, none of the Plan or any Award or, if applicable, any Award Agreement shall confer on any person other than the Company and the Participant any rights or remedies thereunder.
(h) Freedom of Action. Nothing contained in the Plan or, if applicable, any Award Agreement shall be construed to prevent the Company Group, Sponsor, or their affiliates from taking any corporate action, including, but not limited to, any recapitalization, reorganization, merger, consolidation, dissolution or sale, which is deemed by the Company Group, Sponsor or their affiliates to be appropriate or in its or their best interest, whether or not such action would have an adverse effect on the Plan or any Awards thereunder.
(i) Section 409A. It is the intention of the Board that all payments and benefits under this Plan shall be made and provided in a manner that is exempt from taxation under Section 409A of the Internal Revenue Code and the rules and regulations thereunder, to the extent applicable. Any ambiguity in this Plan shall be interpreted to comply with the foregoing. Each amount payable pursuant to this Plan shall be deemed to be a separate payment for purposes of Section 409A of the Internal Revenue Code. For all purposes under the Plan, any iteration of the word termination (e.g., terminated) with respect to a Participants employment or service, shall mean a separation from service within the meaning of Section 409A of the Internal Revenue Code and the regulations thereunder. Notwithstanding the foregoing, no member of the Company Group nor any of their affiliates shall be liable to, and each Participant shall be solely liable and responsible for, any taxes (or penalties) that may be imposed on such Participant under Section 409A of the Code with respect to the Participants receipt of any Award and payment thereunder.
(j) Amendment, Suspension or Termination of the Plan. The Board may from time to time suspend, discontinue, terminate, revise or amend (i) the Plan in any respect whatsoever and (ii) any Award Agreement; provided, however, that in no event shall any such action adversely affect the rights of any Participant in any material respect (without regard to any effect resulting from the individual circumstances of such Participant) with respect to any previously granted Award without such Participants consent, except to the extent such action is required by, or is necessary to comply with, law. If Sponsor disposes of all of its Class A Units and the Proceeds returned to Sponsor on account of its all of its Class A Units do not result in the establishment of an Award Pool under Section 5, then this Plan will thereupon be terminated.
(k) Successors and Assigns. The terms of this Plan shall be binding upon and inure to the benefit of the Company, its subsidiaries and their successors and assigns.
Exhibit 10.17
NEFF CORPORATION
EXECUTIVE OFFICER STOCK OWNERSHIP POLICY
as of [ ], 2014
(the Effective Date)
Purpose
This Executive Officer Stock Ownership Policy (the Policy) of Neff Corporation (Neff) is designed to align the interests of executive officers of Neff with the interests of Neffs common stockholders.
Eligibility
This Policy shall apply to all Executive Officers of Neff. For purposes of this Policy, Executive Officer shall mean any executive officer who, in the determination of Neffs Board of Directors for purposes of Item 401(b) of Regulation S-K, is a vice president in charge of a principal business unit, division or function of Neff or performs a policy-making function.
Share Retention Requirement
Following the Compliance Date (as defined below), all Executive Officers must hold (and not transfer) a pre-defined percentage of all net settled shares (as defined below) received from the vesting, delivery or exercise of equity awards granted under the equity award plans of Neff or Neff Holdings LLC (Neff Holdings) or the redemption of Common Units of Neff Holdings (Common Units), if the Executive Officers total Qualifying Shareholdings (as defined herein) are less in value than the Executive Officers applicable ownership threshold, as reflected under Salary Multiple Used to Determine Ownership Thresholds below. This share retention requirement applies to an Executive Officer only if such Executive Officer has not achieved his or her applicable ownership threshold at any time on or following such Executive Officers Compliance Date (as defined below).
For purposes of this Policy, net settled shares means those shares of Neffs Class A common stock (Common Stock) or Common Units that remain after payment of (i) the exercise price of stock options or purchase price of other awards and all applicable withholding taxes, and (ii) all applicable transaction costs.
The percentage of net settled shares required after the Compliance Date to be held if the Executive Officers Qualifying Shareholdings after the Compliance Date is less than his or her applicable ownership threshold is 50%.
Ownership Guidelines
Effective as of the fifth anniversary of the later of (i) the Effective Date and (ii) the date of an Executive Officers hire by Neff (such later date, an Executive Officers Compliance Date), each Executive Officer must hold Qualifying Shareholdings that are at least equal in value to the Executive Officers ownership threshold.
Neff uses the average New York Stock Exchange closing price per share of Common Stock (as adjusted for stock splits and similar changes to the Common Stock) for the most recently completed fiscal year (the Average NYSE Closing Price) to determine the number of Qualifying Shareholdings required to meet the following thresholds, which are calculated as a multiple of the Executive Officers base salary in effect from time to time:
Executive |
|
Salary Multiple Used to Determine |
|
Chief Executive Officer |
|
5x |
|
Chief Financial Officer, Executive Vice Presidents, Senior Vice Presidents |
|
3x |
|
Regional Vice Presidents, Vice Presidents |
|
1x |
|
Any person who becomes subject to the Policy after the Effective Date will have his or her initial individual threshold established based upon his or her title and base salary in effect at the time he or she becomes subject to the Policy.
Once established, an Executive Officers salary multiple used to determine the ownership threshold will not change as a result of fluctuations in Common Stock price, and will not change as a result of a change in his or her base salary that is not made in connection with a change in title, but may increase or decrease as a result of a change in title of the Executive Officer in accordance with the chart above; provided that an Executive Officer will not be required to hold the increased number of Qualified Shareholdings required as a result of a promotion until the second anniversary of such promotion.
Qualifying Shareholdings
Securities that qualify in determining whether an Executive Officer has satisfied the shareholding requirements of this Policy (Qualifying Shareholdings) include: (i) issued and outstanding shares of Common Stock held beneficially or of record by the Executive Officer that are not subject to transfer or other restrictions; (ii) issued and outstanding Common Units held beneficially or of record by the Executive Officer; (iii) issued and outstanding shares of Common Stock or Common Units held by a Qualifying Trust (as defined below); (iv) issued and outstanding shares of Common Stock or Common Units held by a 401(k) or other qualified pension or profit-sharing plan for the benefit of the Executive Officer (whether denominated in shares or units); (v) shares of Common Stock underlying vested and unvested Neff time-based stock options and restricted stock units; and (vi) Common Units underlying vested and unvested time-based stock options of Neff Holdings, LLC; provided that the number of shares of Common Stock or Common Units underlying stock options or restricted stock units constituting Qualifying Shareholdings shall equal the number of shares of Common Stock or Common Units that would be deliverable upon exercise or settlement in full of the respective awards, less (A) a number of shares of Common Stock or Common Units with a value equal to any applicable withholding taxes, utilizing an assumed tax rate equal to [ ]% (the Tax Withholding Amount), and (B) in the case of stock options, a number of shares of Common Stock or Common Units with a value equal to the exercise price thereof. Neff uses the Average NYSE Closing Price to determine the number of shares or Common Units needed to satisfy the Tax Withholding Amount and the exercise price.
For purposes of the foregoing paragraph, beneficial ownership shall mean the ownership or sharing, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, of (i) voting power which includes the power to vote, or to direct the voting of, such security; and/or (ii) investment power which includes the power to dispose, or to direct the disposition, of such security. Qualifying Trust means a trust created for the benefit of the Executive Officer, the Executive Officers spouse, or members of the Executive Officers immediate family.
Qualifying Shareholdings Reporting
Each Executive Officer shall report in such Executive Officers annual Director and Officer Questionnaire (D&O Questionnaire) his or her Qualifying Shareholdings as of the date the D&O Questionnaire is completed and, in the case of newly appointed (whether through promotion or new employment) Executive Officers, such information shall also be reported in such Executive Officers initial D&O Questionnaire.
Remedies for Non-Compliance
Any Executive Officer who does not comply with this Policy following his or her Compliance Date shall be subject to discipline by Neff, up to and including termination of employment. In addition, Neffs Compensation Committee (the Committee) has the authority to review each Executive Officers compliance (or progress towards compliance) with this Policy from time to time following such Executive Officers Compliance Date and, in its sole discretion, to impose such conditions, restrictions or limitations on any Executive Officer as the Committee determines to be necessary or appropriate in order to achieve the purposes of this Policy. For example, the Committee may mandate that an Executive Officer retain (and not transfer) all or a portion of any shares or Common Units delivered to the participant through the equity plans of Neff or Neff Holdings (or any shares received upon redemption of Common Units) or otherwise restrict the Executive Officers transfer or redemption of previously owned shares or Common Units. With regard to Executive Officers other than the CEO, the Committee may delegate this authority to the CEO as it deems appropriate from time to time.
Undue Hardship
There may be instances in which this Policy would place a severe hardship on an Executive Officer or prevent the Executive Officer from complying with a court order, such as a divorce settlement, or other legal requirement. In these instances, the Executive Officer must submit a request in writing to the Chairman of the Compensation Committee or his or her designee that summarizes the circumstances and describes the extent to which an exemption is being requested. The Chairman of the Compensation Committee or his or her designee will make the final decision as to whether an exemption will be granted. If such a request is granted in whole or part, the Chairman of the Compensation Committee or his or her designee will work with the Executive Officer to develop an alternative stock ownership plan that reflects both the intention of this Policy and the Executive Officers individual circumstances.
Administration
This Policy is administered and interpreted by the Committee. The Committee retains the authority to make exceptions to or waivers of the Policy based upon changes in circumstances or to otherwise amend or alter the guidelines as it may determine appropriate. The Committee will review each Executive Officers compliance efforts with respect to this Policy no less than annually, and will review this Policy from time to time as the Committee deems necessary or appropriate.
Exhibit 10.18
Neff Holdings LLC
Management Equity Plan
Amended and Restated as of October [ ], 2014
Neff Holdings LLC, a Delaware limited liability company (the Company), originally adopted the Neff Holdings LLC Management Equity Plan (as amended and restated herein and as may be amended, supplemented, amended and restated or otherwise modified from time to time, the Plan), effective as of October 1, 2010. The Plan is hereby amended and restated in its entirety, effective as of October [ ], 2014, in connection with the contemplated IPO and Recapitalization and associated conversion of each outstanding Award with respect to Class B Units into an Award with respect to Common Units. As of the Effective Time, all outstanding Awards, as so converted, will be governed by this amendment and restatement of the Plan, and, notwithstanding anything to the contrary herein, no additional Awards will be granted under the Plan.
Section 1. Purpose. The purposes of the Plan are to provide an incentive for management and other employees, prospective employees and members of the Board or the board of directors or managers of the subsidiaries of the Company and/or its subsidiaries by acquiring a proprietary interest in the success of the Company, to enhance the long-term performance of the Company and to remain in the service of the Company and/or its subsidiaries.
Section 2. Definitions. Capitalized terms used in this Plan and not defined in this Plan shall have the meanings given thereto in the LLC Agreement. When used in this Plan, unless the context otherwise requires, the following terms shall have the meanings set forth next to such terms:
(a) Award shall mean an award under this Plan as described in Section 5 hereof.
(b) Award Agreement shall mean a written agreement entered into between the Company and the Grantee in connection with an Award.
(c) Board shall mean the board of managers of the Company.
(d) Cause shall mean, with respect to any Grantee, that one or more of the following has occurred: (i) the Grantee is convicted of a felony or pleads guilty or nolo contendere to a felony (whether or not with respect to the Company or any of its affiliates or subsidiaries); (ii) a failure of the Grantee to substantially perform his responsibilities and duties to the Company or any of its subsidiaries, after ten (10) days written notice given by the Company or its subsidiaries, which notice shall identify the failure in sufficient detail and grant the Grantee an opportunity to cure such failure within such ten (10) day period; (iii) the failure of the Grantee to carry out or comply with any lawful and reasonable directive of the Board (or any committee of the Board), any Subsidiary Governing Body, or the Chief Executive Officer of the Company or any of its subsidiaries, which is not remedied within ten (10) days after the Grantees receipt of written notice from any of the foregoing specifying such failure; (iv) the Grantee engages in illegal conduct, any act of dishonesty, breach of fiduciary duty (if any) or other misconduct, in each case in this clause (iv), against the Company, or any of its affiliates or subsidiaries; (v) a material violation or willful breach by the Grantee of any of the policies or
procedures of the Company, or any of its subsidiaries, including, without any limitation, any employee manual, handbook or code of conduct of the Company or any of its subsidiaries which, to the extent curable, is not remedied within ten (10) days after the Grantees receipt of written notice given by the Company or any of its subsidiaries identifying the conduct in sufficient detail and granting the Grantee an opportunity to cure such conduct within such ten (10) day period; (vi) the Grantee fails to meet any material obligation Grantee may have under any agreement entered into with the Company or any of its subsidiaries; including, but not limited to, the LLC Agreement and any agreement entered into in connection with the Grantees employment or engagement with the Company or any of its subsidiaries which, to the extent curable, is not remedied within ten (10) days after the Grantees receipt of written notice given by the Company or any of its subsidiaries identifying the conduct in sufficient detail and granting the Grantee an opportunity to cure such conduct within such ten (10) day period; (vii) the Grantees habitual abuse of narcotics or alcohol; or (viii) the Grantees breach of any non-compete, non-solicit, confidentiality or other restrictive covenant to which the Grantee may be subject, pursuant to an employment agreement or otherwise.
(e) Committee shall mean the Committee hereinafter described in Section 3 hereof.
(f) Fair Market Value shall mean, with respect to any Award (including, without limitation, any Common Units), the fair market value of such Award, as determined in the sole discretion of the Committee, subject to Section 10 hereof, as applicable.
(g) Grantee shall mean a person who receives an Award.
(h) LLC Agreement shall mean the Second Amended and Restated Limited Liability Company Agreement of Neff Holdings LLC, dated as of October [ ], 2014, as such agreement may be amended, supplemented, amended and restated or otherwise modified from time to time, together with all schedules, exhibits and annexes thereto.
(i) Prior LLC Agreement shall mean the First Amended and Restated Limited Liability Company Agreement of the Company, dated as of October 1, 2010.
(j) Sale Transaction shall mean the bona fide sale, lease, Transfer, issuance or other disposition, in one transaction or a series of related transactions, of (x) all or substantially all of the consolidated assets of the Company and its Subsidiaries or (y) at least a majority of the then-issued and outstanding Common Units to (in either case) any Person or group of related Persons (other than a Member or an Affiliate of a Member or the Company or an Affiliate of the Company), whether directly or indirectly or by way of any merger, statutory share exchange, sale or issuance of equity, tender offer, consolidation or other business combination transaction or purchase of beneficial ownership, provided, however, that a Sale Transaction shall not include a dividend or other distribution of cash or other assets of the Company to the Members (or any of the Members) made with the proceeds of borrowed money, regardless of whether the borrowing incurred to finance such dividend or distribution was incurred prior to or after such dividend or distribution.
(k) Section 409A shall mean Section 409A of the Code.
Section 3. Administration.
(a) The Plan shall be administered by the Board or, if the Board shall so determine, by a Committee consisting of one or more Board members, selected by the Board. Any member of the Committee may resign by giving written notice thereof to the Board, and any member of the Committee may be removed at any time, with or without cause, by the Board. Any vacancy on the Committee shall be filled by the Board. During any period in which the Plan is administered by the Board, all references in the Plan or in any Award Agreement to the Committee shall be deemed to refer to the Board.
(b) The Committee shall have complete authority to interpret and administer this Plan and each Award Agreement, including, without limitation, the power (i) to exercise all of the powers granted to it under the Plan, (ii) to construe, interpret and implement the Plan and any Award Agreement, (iii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules governing its own operations, (iv) to make all determinations necessary or advisable in administering the Plan, (v) to correct any defect, supply any omission and reconcile any inconsistency in the Plan, (vi) to amend the Plan to reflect changes in applicable law, (vii) to delegate such powers and authority to such person as it deems appropriate, and (viii) to waive any conditions under any Awards. The determination of the Committee on all matters relating to the Plan or any Award Agreement shall be final, binding and conclusive.
Section 4. Eligibility for Awards. Awards under the Plan shall be made to such members of the Board and any Subsidiary Governing Body (as defined in the Prior LLC Agreement), and employees and prospective employees of the Company and/or its subsidiaries, as the Committee selects in its sole discretion.
Section 5. Awards Under the Plan.
(a) Awards may be made under the Plan in the form of Common Units, phantom units or options, warrants or other securities that are convertible, exercisable or exchangeable for or into Common Units, as the Committee determines is in the interest of the Company.
(b) Each Award granted under the Plan shall be evidenced by an Award Agreement which shall contain such provisions (such as vesting, and manner and method of conversion, exchange or exercise (to the extent applicable)) as the Committee in its discretion deems necessary or desirable, consistent with the terms of this Plan and the LLC Agreement. The duration of any Award that is convertible, exchangeable or exercisable for or into Common Units shall have a duration that is fixed by the Committee, in its sole discretion, but in no event shall such Award remain in effect for a period of more than ten (10) years from the date of grant.
(c) Any Award for Common Units, or, in the event an Award is converted, exercised or exchanged for or into Common Units, such conversion, exercise or exchange, shall be conditioned on (i) the Grantee executing a Joinder Agreement and becoming a Member under and bound by the terms of the LLC Agreement and (ii) the Grantees compliance with all other terms and conditions set forth in the LLC Agreement to be admitted as a Member.
Section 6. Vesting and Forfeiture. Except as otherwise provided in the applicable Award Agreement,
(a) Any portion of any then outstanding Award that is not vested (after taking into account any accelerated vesting that may apply under the Award Agreement or Section 7 hereof) and/or, if applicable, exercisable or exercised, convertible or converted, exchangeable or exchanged, at the time of the Grantees termination of employment or service with the Company or any of its subsidiaries, for any reason, shall immediately be forfeited and terminate and the Grantee shall no longer have any rights or interests in such Award.
(b) If (i) the Grantees employment or service with the Company or any of its subsidiaries is terminated for Cause, (ii) the Grantees employment or service with the Company (and/or any of its subsidiaries) is terminated by the Company (and/or any of its subsidiaries) or the Grantee for any reason and the Grantee committed an act constituting Cause prior to such termination (regardless of whether the Grantees employment or service was terminated for Cause) and which such act, to the extent a cure period was allowed for such act in the definition of Cause, was not cured within such period prior to such termination or (iii) the Grantee breaches any restrictive covenants, including non-competition, non-solicitation and confidentiality covenants, with the Company (and/or any of its subsidiaries), all of the Grantees then outstanding Awards, whether or not previously vested and/or, if applicable, exercisable or exercised, convertible or converted, or exchangeable or exchanged, shall immediately be forfeited and terminate and the Grantee shall no longer have any rights or interests in such Award or anything such Award was exercised, converted or exchanged for or into. For purposes of this Section 6(b), the term Cause shall include, with respect to any Grantee that has an employment agreement with the Company (and/or any of its subsidiaries), in addition to (and not in lieu of) the definition of Cause set forth in this Plan, the definition of Cause set forth in such employment agreement.
(c) Without limiting the conditions of Section 6(b) hereof, prior to the consummation of a Qualified Public Offering (as defined in the Prior LLC Agreement), in the event the Grantees employment or service with the Company and/or any of its subsidiaries is terminated for any reason (whether by the Company, the Grantee or any such subsidiary) and the Grantee has outstanding and vested Awards at the time of such termination, the Company shall have the right, but not the obligation, to elect within ninety (90) days of the effective date of termination of the Grantees employment or service or such other time periods as are prescribed by the Committee and set forth in an Award Agreement or any repurchase agreement thereunder, to repurchase the Grantees then outstanding and vested Awards. Unless otherwise prescribed by the Committee and set forth in an Award Agreement, such Awards shall be repurchased by the Company at the Fair Market Value of the applicable Award, less, to the extent applicable, any amounts owed by the Grantee to the Company pursuant to any loans outstanding under Section 5.2 (or any successor provision) of the Prior LLC Agreement or any other amounts owed by the Grantee to the Company or any of its subsidiaries.
Section 7. Sale Transaction.
(a) Subject to Section 6 hereof and except as provided in an Award Agreement, upon the occurrence of a Sale Transaction which occurs while the Grantee is still employed by, or in service with, the Company or any of its subsidiaries, all of the Grantees unvested Awards shall immediately become vested and/or exercisable, convertible or exchangeable, as applicable.
(b) In addition, in the event of a Sale Transaction, with respect to any Award that is convertible, exchangeable or exercisable for or into Common Units, the Committee shall, in its sole discretion, either (i) provide for the assumption of such Awards theretofore granted, or the substitution for such Awards of new awards of the successor company or a parent or subsidiary thereof, with appropriate adjustments as to the number and kinds of shares and the per share exercise prices, consistent with Section 11 hereof, (ii) provide written notice to any holder of such Award that the Award shall be terminated to the extent that it is not converted, exchanged or exercised prior to a date certain specified in such notice (which date shall be no sooner than the consummation of the Sale Transaction) or (iii) provide that the Grantee of any such Award, to the extent then vested, shall be entitled to receive from the Company an amount equal to the excess of (A) the Fair Market Value (determined on the basis of the amount received by Members of the Company in connection with such transaction and consistent with Section 409A of the Code) of the Common Units subject to the vested portion of the Award not theretofore converted, exchanged or exercised, over (B) the aggregate purchase price which would be payable for such Common Units upon the conversion, exchange or exercise of such Award. Any actions under this Section 7 shall, to the extent applicable, be in accordance with the regulations promulgated under Section 409A of the Code so as not to cause a modification or deemed new grant of the Award.
Section 8. Section 83(b) of the Code. As a requirement for receiving an Award of, or to acquire, Common Units under the Plan, each Grantee shall, if, and only if, required by the Committee, agree to make a timely election pursuant to Section 83(b) of the Code to include in the Grantees gross income or alternative minimum taxable income, as the case may be, for the taxable year in which the Award is granted (or, if applicable, exercised, converted or exchanged), the amount of any compensation taxable to the Grantee in connection with the Grantees receipt of such Award. If the Committee requires the Grantee to make such an election, the Grantee shall notify the Committee of such election within ten (10) days of filing notice of the election with the Internal Revenue Service, in addition to any filings and notifications required pursuant to the regulations issued under Section 83(b) of the Code.
Section 9. Restrictions on Transfer. Except as otherwise provided in an Award Agreement,
(a) Notwithstanding anything in the LLC Agreement to the contrary, no Awards of Common Units may be Transferred until vested; provided, however, that the Grantee may Transfer such unvested Awards to any one or more of the Grantees Family Members (as defined in the Prior LLC Agreement) if the requirements set forth in the LLC Agreement relating to such Transfer are complied with and provided the Award remains subject to this Plan and any Award Agreement (including any repurchase rights in favor of the Company). As a condition to such Transfer, the Transferee shall execute and deliver to the Company (i) a Joinder Agreement, (ii) a written undertaking, in form and substance satisfactory to the Committee, that such Transferee shall Transfer any Awards (vested or unvested) back to the Grantee if such Transferee ceases to be a Family Member of such Grantee and (iii) a written agreement acknowledging that such Transferred Award is subject to vesting, may never become vested and is subject to the terms and conditions of the Plan, the Award Agreement and the LLC Agreement. Any proposed Transfer of vested Awards of Common Units shall be in accordance with the LLC Agreement and the Award Agreement.
(b) Awards that are convertible, exercisable or exchangeable for or into Common Units may not be Transferred at any time prior to such conversion, exercise or exchange; provided, however, that the Grantee may Transfer any unvested Award to any one or more of the Grantees Family Members provided the Award remains subject to this Plan and any Award Agreement (including any repurchase rights in favor of the Company). As a condition to such Transfer, (i) the Transferee shall execute and deliver to the Company (A) a written undertaking, in form and substance satisfactory to the Committee, that such Transferee shall Transfer any Awards (vested or unvested) back to the Grantee if such Transferee ceases to be a Family Member of such Grantee and (B) a written agreement (1) acknowledging that such Transferred Award is subject to vesting, may never become vested, and is subject to the terms of the Plan, the Award Agreement and, upon conversion, exercise or exchange, the LLC Agreement and (2) agreeing to execute and deliver to the Company, upon the conversion, exercise or exchange of the Award, a Joinder Agreement and a written undertaking referred to above, and (ii) each such agreement referred to in clause (2) above shall be, in fact, executed and delivered to the Company upon the conversion, exercise or exchange of the Award.
Section 10. Conformity to Section 409A of the Code. It is intended that all Awards under this Plan and any Award Agreement, either be exempt from or comply with Section 409A. All options or other similar Awards that are granted with an exercise price shall be granted with an exercise price, such that the Award would not constitute deferred compensation under Section 409A. Any ambiguity in this Plan and any Award Agreement shall be interpreted to comply with Section 409A. To the extent applicable, (i) each amount or benefit payable pursuant to this Plan and any Award Agreement shall be deemed a separate payment for purposes of Section 409A and (ii) in the event the stock of the Company is publicly traded on an established securities market or otherwise and the Grantee is a specified employee (as determined under the Companys administrative procedure for such determinations, in accordance with Section 409A) at the time of the Grantees termination of employment, any payments under this Plan or any Award Agreement that are deemed to be deferred compensation subject to Section 409A shall not be paid or begin payment until the earlier of the Grantees death and the first day following the six (6) month anniversary of the Grantees date of termination of employment.
Section 11. Adjustment. If, prior to the complete conversion, exchange or exercise of any Award that is convertible, exchangeable or exercisable for or into Common Units, the Units of the Company shall be split up, converted, exchanged, reclassified, or in any way substituted for or in the event of any extraordinary dividend or extraordinary distribution (of cash, Units, securities or other property), then the Award, to the extent it has not been converted, exchanged or exercised, shall be adjusted as the Committee deems appropriate to prevent the enlargement or dilution of rights of the Grantee, provided, however, that any such adjustment shall, to the extent applicable, be in accordance with the regulations promulgated under Section 409A so as not to cause a modification or deemed new grant of the Award. For avoidance of doubt, in no event shall any distributions for taxes or any regularly scheduled distribution or dividend paid pursuant to a distribution or dividend policy established by the Board constitute extraordinary dividends or extraordinary distributions.
Section 12. Amendment Suspension or Termination of the Plan. The Board may from time to time suspend, discontinue, terminate, revise or amend (i) the Plan in any respect whatsoever and (ii) any Award Agreement, to the extent provided in such Award Agreement; provided, however,
that in no event shall any such action adversely affect the rights of any Grantee in any material respect (without regard to any effect resulting from the individual circumstances of such Grantee) with respect to any previously granted Award without such Grantees consent, except to the extent such action is required by, or is necessary to comply with, law.
Section 13. General Provisions.
(a) No Right to Employment. Nothing contained in this Plan, any Award Agreement or the LLC Agreement shall confer upon any Grantee the right to continue in the employ of or association with the Company, its subsidiaries or its affiliates, or affect any rights which the Company, its subsidiaries or its affiliates may have to terminate such employment or association for any reason at any time.
(b) Non-Uniform Determinations. The Committees determinations under the Plan need not be uniform and may be made by it selectively among persons who receive or are eligible to receive Awards (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Committee shall be entitled, among, other things, to make non-uniform and selective determinations, and to enter into non-uniform and selective Award Agreements, as to the person to receive Awards under the Plan, and the terms and provisions of Awards under the Plan.
(c) Freedom of Action. Nothing contained in the Plan or any Award Agreement shall be construed to prevent the Company, its subsidiaries, its affiliates or any of the holders of Common Units from taking any corporate action, including, but not limited to, any recapitalization, reorganization, merger, consolidation, dissolution or sale, which is deemed by the Company, its subsidiaries, its affiliates or any of the holders of Common Units to be appropriate or in its or their best interest, whether or not such action would have an adverse effect on the Plan or any Awards thereunder.
(d) Section Headings; Construction. The section headings contained herein are for the purpose of convenience only and are not intended to define or limit the contents of the sections. All words used in this Plan shall be construed to be of such gender or number, as the circumstances require. Unless otherwise expressly provided, the word including does not limit the preceding words or terms.
(e) Governing Law. This Plan, any Award Agreement hereunder and any conflicts arising, hereunder or related hereto shall be governed by, and construed under, the laws of the State of Delaware, all rights and remedies being governed by said laws, regardless of the laws that might otherwise govern under applicable principles, to the fullest extent permitted by law, of conflicts of laws.
(f) Severability; Entire Agreement. In the event any provision of this Plan or any Award Agreement shall be held illegal, invalid or unenforceable for any reason, the illegality, invalidity or unenforceability shall not affect the remaining provisions of this Plan and such illegal, invalid or unenforceable provision shall be deemed modified as if the illegal, invalid or unenforceable provisions had not been included. The Plan, any Award Agreement and the LLC Agreement contain the entire agreement of the parties with respect to the subject matter thereof
and supersede all prior agreements, promises, covenants, arrangements, communications, representations and warranties between them, whether written or oral, with respect to the subject matter thereof.
(g) Survival of Terms; Conflicts. The provisions of this Plan shall survive the termination of this Plan to the extent consistent with, or necessary to carry out, the purposes thereof. To the extent of any conflict between the Plan, any Award Agreement and the LLC Agreement, the LLC Agreement shall control; provided, however, that the Plan may impose greater restrictions or grant lesser rights than the LLC Agreement; and provided, further, that any Award Agreement may impose greater restrictions or grant lesser rights than either the LLC Agreement or the Plan. Subject to the second proviso in the immediately preceding sentence, in the event of any conflict between the Plan and any Award Agreement, the Plan shall control.
(h) No Third Party Beneficiaries. Except as expressly provided therein, none of the Plan, any Award Agreement or the LLC Agreement shall confer on any person other than the Company and the Grantee any rights or remedies thereunder.
(i) Successors and Assigns. The terms of this Plan shall be binding upon and inure to the benefit of the Company, its subsidiaries and their successors and assigns.
(j) Notices. All notices, requests, waivers and other communications under the Plan or any Award Agreement shall be in writing and shall be deemed to be effectively given, sent, provided, delivered or received (i) when personally delivered to the party to be notified, (ii) when sent by confirmed facsimile or by electronic mail (e-mail) to the party to be notified, (iii) three (3) Business Days after deposit in the United States mail, postage prepaid, by certified or registered mail with return receipt requested, addressed to the party to be notified or (iv) one (1) Business Pay after deposit with a national overnight delivery service, postage prepaid, addressed to the party to be notified with next-Business Day delivery guaranteed, in each case sent or addressed to the Company at its principal office and to the Grantee at the Grantees mailing address, facsimile number or e-mail address as carried in the record books of the Company or at such other mailing address, facsimile number or e-mail address as the Grantee may from time to time designate in writing to the Company. The Grantee may change his or her mailing address, facsimile number or e-mail address for purposes of notice hereunder by giving notice of such change to the Company as provided herein.
Exhibit 10.22
INDEMNITY AGREEMENT
This Indemnification Agreement (Agreement) is made as of , 201 by and between Neff Corporation, a Delaware corporation (the Company), and (Indemnitee).
RECITALS
WHEREAS, highly competent persons have become more reluctant to serve publicly-held corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;
WHEREAS, the Board of Directors of the Company (the Board) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. The amended and restated bylaws of the Company (the Bylaws) require indemnification of the officers and directors of the Company. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (DGCL). The Bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification;
WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons;
WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Companys stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;
WHEREAS, this Agreement is a supplement to and in furtherance of the Bylaws of the Company and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder;
WHEREAS, Indemnitee does not regard the protection available under the Bylaws and insurance as adequate in the present circumstances, and may not be willing to serve as an officer or director without adequate protection, and the Company desires Indemnitee to serve in such capacity. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified; and
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
Section 1. Services to the Company.Indemnitee agrees to serve [as a [director] [officer] [employee] [agent] of the Company]. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise (as defined below)) and Indemnitee. Indemnitee specifically acknowledges that Indemnitees employment with the Company (or any of its subsidiaries or any Enterprise), if any, is at will, and the Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment contract between Indemnitee and the Company (or any of its subsidiaries or any Enterprise), other applicable formal severance policies duly adopted by the Board, or, with respect to service as a director or officer of the Company, by the Companys amended and restated certificate of incorporation (the Certificate of Incorporation), the Bylaws, and the DGCL. The foregoing notwithstanding, this Agreement shall continue in force after Indemnitee has ceased to serve as an [officer] [director] [agent] [employee] of the Company.
Section 2. Definitions.As used in this Agreement:
(a) A Change in Control shall mean the occurrence of any of the following events:
(i) (A) any person or group (within the meaning of Sections 13(d) and 14(d) of the Securities and Exchange Act of 1934, as amended, or any successor provisions thereto (the Exchange Act) but excluding any employee benefit plan of such person and its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan, and excluding the Permitted Investors (as defined below)) shall become the beneficial owner (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of voting stock of the Company entitling such person or group to cast more than thirty-five percent (35%) of the votes eligible to be cast in an election of directors of the Company and (B) the Permitted Investors shall own outstanding voting stock of the Company having a lesser percentage of the votes eligible to be cast in such an election of the Company at such time than the person or group in the foregoing clause (A);
(ii) the Company ceases to be the sole managing member of Neff Holdings LLC, a Delaware limited liability company (Neff Holdings);
(iii) the Company or any of its subsidiaries acquires, by merger, consolidation or otherwise, assets with a gross fair market value, and/or equity interests in an entity with a gross enterprise value, in excess of 50% of the gross enterprise value of the Company on the date hereof; provided that for this purpose, the gross enterprise value of the Company on the date hereof shall be the fair market value of the outstanding shares of stock of the Company (based on the price per share in the IPO (as defined below)) plus the amount of the Companys liabilities as of the date of the IPO; or
(iv) a change in control or similar defined term in any agreement governing indebtedness of Neff Holdings or any of its subsidiaries with aggregate principal amount or aggregate commitments outstanding in excess of $25,000,000.
Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the Class A Common Stock (as defined below) and Class B Common Stock (as defined below) immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in and voting control over, and own substantially all of the shares of, an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions.
For purposes of this Section 2(a), the following terms shall have the following meanings:
(A) Class B Common Stock shall mean the Companys class B common stock, par value $0.01 per share, issued to the Permitted Investors in connection with the IPO;
(B) IPO shall mean the Companys issuance of [·] shares of its Class A common stock, par value $0.01 per share (the Class A Common Stock) to certain purchasers in an initial public offering of its Class A Common Stock; and
(C) Permitted Investors shall mean private investment funds managed by Wayzata Investment Partners, LLC and its affiliates (excluding any portfolio company).
(b) Corporate Status describes the status of a person who is or was a director, officer, employee or agent of the Company or of any other corporation, partnership or joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company.
(c) Disinterested Director means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(d) Enterprise shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary.
(e) Expenses shall include all reasonable attorneys fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.
(f) Independent Counsel means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitees rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
(g) The term Proceeding shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative or investigative nature, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was a director or officer of the Company, by reason of any action taken by him or of any action on his part while acting as director or officer of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement, or advancement of expenses can be provided under this Agreement; except one initiated by a Indemnitee to enforce his rights under this Agreement.
(h) Reference to other enterprise shall include employee benefit plans; references to fines shall include any excise tax assessed with respect to any employee benefit plan; references to serving at the request of the Company shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves
services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in manner not opposed to the best interests of the Company as referred to in this Agreement.
Section 3. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding had no reasonable cause to believe that his conduct was unlawful.
Section 4. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery or any court in which the Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.
Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. If the Indemnitee is not wholly successful in such Proceeding, the Company also shall indemnify Indemnitee against all Expenses reasonably incurred in connection with a claim, issue or matter related to any claim, issue, or matter on which the Indemnitee was successful. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
Section 6. Indemnification For Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.
Section 7. Additional Indemnification.
(a) Notwithstanding any limitation in Sections 3, 4, or 5, the Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with the Proceeding.
(b) For purposes of Section 7(a), the meaning of the phrase to the fullest extent permitted by law shall include, but not be limited to:
i. to the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL; and
ii. to the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.
Section 8. Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:
(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; or
(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act, or similar provisions of state statutory law or common law; or
(c) in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board of Directors of the Company authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.
Section 9. Advances of Expenses. Notwithstanding any provision of this Agreement to the contrary, the Company shall advance the expenses incurred by Indemnitee in connection with any Proceeding within 30 days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitees ability to repay the expenses and without regard to Indemnitees ultimate entitlement to indemnification under the other provisions of this Agreement. Advances shall include any and all reasonable Expenses incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed. The Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement which shall constitute an undertaking providing that the Indemnitee undertakes to repay the advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. This Section 9 shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 8.
Section 10. Procedure for Notification and Defense of Claim.
(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification, not later than thirty (30) days after receipt by Indemnitee of notice of the commencement of any Proceeding. The omission to notify the Company will not relieve the Company from any liability which it may have to Indemnitee otherwise than under this Agreement. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification.
(b) The Company will be entitled to participate in the Proceeding at its own expense.
Section 11. Procedure Upon Application for Indemnification.
(a) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 10(a), a determination, if required by applicable law, with respect to Indemnitees entitlement thereto shall be made in the specific case: (i) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee; or (ii) if a Change in Control shall not have occurred, (A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (C) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (D) if so directed by the Board, by the stockholders of the Company; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitees entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any
documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitees entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(b) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 11(a) hereof, the Independent Counsel shall be selected as provided in this Section 11(b). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within 10 days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 10(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition a court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the others selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 11(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 13(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
Section 12. Presumptions and Effect of Certain Proceedings.
(a) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 10(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Company (including by its directors or independent legal counsel) to
have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
(b) If the person, persons or entity empowered or selected under Section 11 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 12(b) shall not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 11(a) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board of Directors has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 11(a) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(d) Reliance as Safe Harbor. For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitees action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with the reasonable care by the Enterprise. The provisions of this Section 12(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the
Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.
(e) Actions of Others. The knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.
Section 13. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section 11 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 9 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 11(a) of this Agreement within 45 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5 or 6 or the last sentence of Section 11(a) of this Agreement within ten (10) days after receipt by the Company of a written request therefor, or (v) payment of indemnification pursuant to Section 3, 4 or 7 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by a court of his entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 13(a); provided, however, that the foregoing clause shall not apply in respect of a proceeding brought by Indemnitee to enforce his rights under Section 5 of this Agreement. The Company shall not oppose Indemnitees right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to Section 11(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 13 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 13 the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 11(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 13, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 13 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or
before any such arbitrator that the Company is bound by all the provisions of this Agreement. The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefore) advance such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors and officers liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.
Section 14. Non-exclusivity; Survival of Rights; Insurance; Subrogation.
(a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.
(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable (or for which advancement is provided hereunder) hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
(e) The Companys obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.
Section 15. Duration of Agreement. This Agreement shall continue until and terminate upon the later of: (a) 10 years after the date that Indemnitee shall have ceased to serve [as a [director] [officer] [employee] [agent] of the Company] or (b) 1 year after the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 13 of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his heirs, executors and administrators.
Section 16. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.
Section 17. Enforcement.
(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.
(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.
Section 18. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties thereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.
Section 19. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise.
Section 20. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) if delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:
(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide to the Company.
(b) If to the Company to
Neff Corporation
3750 N.W. 87th Avenue, Suite 400
Miami, Florida 33178
Attn: Chief Financial Officer
Facsimile: (305) 513-4156
E-mail: mirion@neffcorp.com
or to any other address as may have been furnished to Indemnitee by the Company.
Section 21. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).
Section 22. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 10(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that
any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the Delaware Court), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, irrevocably [RL&F Service Corp., One Rodney Square, 10th Floor, 10th and King Streets, Wilmington, Delaware 19801] as its agent in the State of Delaware as such partys agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.
Section 23. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
Section 24. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Amendment No. 3 to Registration Statement No. 333-198559 on Form S-1 of our report dated September 3, 2014, relating to the financial statement of Neff Corporation appearing in the Prospectus, which is a part of such Registration Statement.
We also consent to the reference to us under the heading Experts in such Prospectus.
/s/ Deloitte & Touche LLP
Miami, Florida
November 10, 2014
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Amendment No. 3 to Registration Statement No. 333-198559 on Form S-1 of our report dated September 3, 2014, relating to the consolidated financial statements of Neff Holdings LLC and subsidiaries appearing in the Prospectus, which is a part of such Registration Statement.
We also consent to the reference to us under the heading Experts in such Prospectus.
/s/ Deloitte & Touche LLP
Miami, Florida
November 10, 2014
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