STOCK PURCHASE AGREEMENT

 

 

STOCK PURCHASE AGREEMENT

STOCK PURCHASE AGREEMENT , dated as of May 18, 2006 (this “ Agreement ”), is entered into by and among Neff Rental, Inc., a Florida corporation (“ Neff ”), River City Connections, Inc., a California corporation (the “ Corporation ”), and Don Bates, Don Greene and Tony Pugh (collectively, the “ Shareholders ”).

WHEREAS , the Corporation is engaged in the equipment rental, sales and service business at locations in Roseville and Elk Grove, California;

WHEREAS , the Shareholders own all of the issued and outstanding capital stock of the Corporation (the “ Corporation’s Stock ”);

WHEREAS , Neff wishes to acquire from the Shareholders all of the Corporation’s Stock;

NOW, THEREFORE , in consideration of the premises and of the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto, each intending to be bound hereby, agree as follows:

1.             PURCHASE OF CORPORATION’S STOCK

1.1         Shares to be Purchased . At the Closing (as hereinafter defined), the Shareholders shall sell and deliver to Neff all of the issued and outstanding shares of the Corporation’s Stock, being the aggregate number of shares of the Corporation set forth on Schedule 3.2 opposite the Shareholders’ names.  At the Closing, Neff shall purchase the Corporation’s Stock and in exchange therefore shall deliver to the Shareholders at the Closing or thereafter as provided by this Agreement cash in an aggregate amount equal to the purchase price described in Section 1.2 (the “ Purchase Price ”).

1.2         Purchase Price .  The Purchase Price is Fourteen Million Five Hundred  Thousand Dollars ($14,500,000.00) (the “ Base Purchase Price ”), subject to adjustment as provided in Section 1.3 and Section 1.4.  The Base Purchase Price, as adjusted by Sections 1.3(a), 1.3(b)(ii), 1.3(c)(ii) and 1.4(b) (excluding, for purposes of all Closing payments, the effect of any Post-Closing Equipment Condition Adjustment), less the Hold Back (as defined in Section 1.4(a)), shall be paid in cash at the Closing by wire transfer to the accounts of the Shareholders as set forth on Schedule 3.2.  Notwithstanding the foregoing, or anything else in this Agreement to the contrary, the amount payable at the Closing pursuant to this Section 1.2 shall be further reduced by Twenty Thousand Dollars ($20,000).  Following the Closing, the Corporation will purchase and install a clarifier at the Corporation’s Elk Grove location.  Upon completion of such installation, Neff shall pay to the Shareholders as an increase to the Purchase Price, pro rata based on the relative amounts payable at the Closing pursuant to this Section 1.2, an aggregate amount equal to (a) Twenty Thousand Dollars ($20,000) less (b) the total costs and expenses incurred by the Corporation and Neff to purchase and install such clarifier.

1.3         Adjustments to Purchase Price .  The Purchase Price shall be adjusted as follows:

 

 

(a)           The Funded Debt shall be subtracted from the Base Purchase Price for purposes of determining the Purchase Price.  The “ Funded Debt ” includes: (i) the amount of the aggregate debt (excluding capital leases and trade payables) of the Corporation outstanding immediately prior to Closing and all prepayment penalties incurred or to be incurred by Neff or the Corporation in connection with the repayment of any such debt including all interest accrued through and including the Closing Date; (ii) to the extent not included in clause (i) of this Section 1.3(a), any debt or other payment obligation incurred pursuant to “floor planning” arrangements entered into with vendors of equipment held for sale by the Corporation; and (iii) the aggregate unpaid amount of all capitalized lease obligations (determined in accordance with U.S. GAAP, as defined in Section 1.4(c)) of the Corporation.  The Funded Debt is set forth on Schedule 1.3(a).  Notwithstanding the foregoing, “Funded Debt” shall not include equipment rented by Corporation that is not a capitalized lease as described in clause (iii) of the immediately preceding sentence (“ RPO Equipment ”). The Corporation does not own the RPO Equipment, however, the Corporation may purchase such equipment pursuant to an agreement upon terms favorable to the Company (the rights to which will remain with Corporation at Closing).

(b)           (i) The amount by which the Closing Date Working Capital is greater than zero shall be added to the Purchase Price or the amount by which the Closing Date Working Capital is less than zero shall be subtracted from the Purchase Price (the “ Working Capital Adjustment ”). The “ Closing Date Working Capital ” shall be determined by subtracting the Closing Date Current Liabilities from the Closing Date Current Assets.  The “ Closing Date Current Assets ” consist of the amount of the aggregate cash (less the aggregate amount of all outstanding checks to the extent not included in accounts payable) of the Corporation as of the Closing Date plus the aggregate amount of accounts receivable and earned but not-yet-billed income (in each case, less an allowance for doubtful accounts), prepaid expenses, repair parts inventory, fuel inventory and deposits, but exclude prepaid interest, equipment inventory, the resale inventory of merchandise  and estimated income tax payments made for current year operations.  The “ Closing Date Current Liabilities ” consist of the amount of the aggregate current liabilities (excluding the current portion of Funded Debt) including accounts payable, accrued expenses, accrued income taxes and customer deposits.  Schedule 1.3(b)(i) sets forth an example of the calculation of the Closing Date Working Capital assuming that the Closing had occurred on December 31, 2005 and derived from the balance sheet of the Company dated as of December 31, 2005 included in Schedule 3.7.

(ii) The Corporation’s best good faith estimate of the Closing Date Working Capital, the Closing Date Current Assets and the Closing Date Current Liabilities are set forth on Schedule 1.3(b)(ii).  Such amounts shall be used to determine an estimate of Closing Date Working Capital.  The amount by which the estimate of the Closing Date Working Capital is greater than zero shall be added to the Base Purchase Price or the amount by which the estimate of the Closing Date Working Capital is less than zero shall be subtracted from the Base Purchase Price, in either case, for purpose of determining the amounts payable to the  Shareholders at the Closing pursuant to Section 1.2.

(c)           (i) The invoice value of any new rental equipment (other than any such equipment disposed of by the Corporation after January 31, 2006), which new rental equipment was not included in the January 31, 2006 Rental Asset Listing described in

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Section 1.4(b) because it was acquired by the Corporation after January 31, 2006 and prior to the Closing Date shall be added to the Purchase Price.  The proceeds of all rental equipment, which rental equipment was included on the January 31, 2006 Rental Asset Listing but has been disposed of by the Corporation after the January 31, 2006 and prior to the Closing Date, shall be subtracted from the Purchase Price.  All such equipment which has been acquired or disposed of since January 31, 2006 is listed on Schedule 1.3(c).  The net adjustment described in this Section 1.3(c)(i) for acquisitions of new equipment and dispositions of existing equipment is referred to in this Agreement as the “Net Equipment Adjustment” .  Schedule 1.3(c)(i) sets forth an example of the calculation of the Net Equipment Adjustment assuming the Closing had occurred March 31, 2006.

(ii) The Corporation’s best good-faith estimate of (A) the invoice value of each such piece of rental equipment acquired by the Corporation after January 31, 2006 and prior to the Closing Date and of the total invoice value of all such new equipment and (B) the proceeds of all rental equipment disposed of after January 31, 2006 and prior to the Closing Date, are set forth on Schedule 1.3(c)(ii).  Such amounts shall be used to determine an estimate of the Net Equipment Adjustment.  The amount by which the estimate of the Net Equipment Adjustment is greater than zero shall be added to the Base Purchase Price or the amount by which the estimate of the Net Equipment Adjustment is less than zero shall be subtracted from the Base Purchase Price, in either case, for purposes of determining the amounts payable to the Shareholders at the Closing pursuant to Section 1.2.

1.4         Hold Back .

(a)           (i) Neff shall hold back an amount equal to Seven Hundred Fifty Thousand Dollars ($750,000.00) of the Purchase Price, subject to possible reduction pursuant to Section 1.4(b) (the “ General Hold Back ”), plus an amount equal to Two Hundred Thousand Dollars ($200,000.00) of the Purchase Price (the “ Funded Debt Hold Back ” and, together with the General Hold Back, the “ Hold Back ”).  The amount of the Hold Back shall be deposited by Neff with U.S. Bank National Association, Corporate Trust Group, a national banking association (the “ Escrow Agent ”), to be held pursuant to an Escrow Agreement in the form attached hereto as Exhibit A (the “ Escrow Agreement ”) for later distribution pending the determination of (A) the amount of the Post-Closing Equipment Condition Adjustment pursuant to Section 1.4(b), (B) the Working Capital Adjustment and the Net Equipment Adjustment pursuant to Sections 1.4(b) and 1.4(c), (C) the amount, if any, of Funded Debt not repaid at Closing determined pursuant to Section 1.4(a)(ii) and (D) the Shareholders’ indemnity obligations pursuant to Section 7; provided , however , that the Escrow Agreement will provide that any amounts remaining in the Hold Back that are not the subject of pending claims (for payment of the Purchase Price pursuant to Sections 1.4(b) and 1.4(c), to repay Funded Debt pursuant to Section 1.4(a)(ii) or pursuant to Section 7) shall be released to the Shareholders on July 18, 2006, with respect to the Funded Debt Hold Back, and November 6, 2006, with respect to the General Hold Back, in each case, pro rata based on their respective ownership of the Corporation’s Stock immediately prior to the Closing.  The parties hereby acknowledge and agree that the Hold Back shall be treated as an installment obligation for purposes of Section 453 of the Code, and no party shall take any action or filing position inconsistent with such characterization.

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(ii) To the extent that any Payoff Letters or Termination Statements (each as defined in Section 5.2(h)) have not been delivered to Neff as of the Closing Date, the Shareholders shall use their reasonable best efforts to cause Payoff Letters and Termination Statements from all lenders of Funded Debt that have not been delivered to Neff as of the Closing Date to be delivered to Neff of the Corporation as soon as practicable.  If, following the Closing Date, it is determined that any Funded Debt was not included in the calculation of the Purchase Price, then, in addition to any other remedies available to Neff (but without duplication as to amounts payable pursuant to any such remedy), Neff shall have the right to cause the amounts required to repay such Funded Debt (including any interest accrued thereon and any prepayment or similar penalties and expenses associated with the prepayment of such indebtedness through the date of repayment) to be paid from the Hold Back.

(b)           Schedule 1.4(b) (the “ Rental Asset Listing ”) sets forth the asset description, make, model, date of acquisition, serial number, original cost and net book value of all equipment owned or leased by the Corporation for rent to customers as of January 31, 2006, other than the RPO Equipment.  As used herein, the term “ Equipment ” means all of the equipment listed on the Rental Asset Listing and Schedule 1.3(c).  Immediately prior to the Closing Date, Neff and the Shareholders jointly shall complete a physical inventory of each item of Equipment on the Rental Asset Listing and Schedule 1.3(c) (it being understood that Neff will complete such physical inventory no later than 60 days after the Closing with respect to any Equipment that is unavailable because it is on rent at the time of the pre-Closing physical inventory).  The Purchase Price shall be reduced (the “ Equipment Condition Adjustment ”) for each item of Equipment listed on the Rental Asset Listing or Schedule 1.3(c), in each case, which is not Rental Ready (as defined in this Section 1.4(b)), has been sold, is missing, or is otherwise not available for rent to customers by the Corporation.  The reduction in the Purchase Price shall be an aggregate amount equal to (i) the cost to bring Equipment that is not Rental Ready to Rental Ready condition, plus (ii) the fair market value (as determined by Neff and the Shareholders or pursuant to Section 10) of all missing or unavailable Equipment, plus (iii) to the extent not otherwise included as an adjustment pursuant to Section 1.3(c), the proceeds to the Corporation received from the sale of Equipment sold between the date of the Rental Asset Listing and the Closing Date.  In the event of a Purchase Price reduction due to an Equipment Condition Adjustment, Neff shall be entitled to retain a portion of the Hold Back equal to such reduction, and the amount of such reduction shall be subtracted from $750,000 for purposes of determining the amount of the Hold Back under Section 1.4(a); provided , however , that with respect to any such adjustment related to Equipment that is unavailable because it is on rent at the time of the pre-Closing physical inventory, the Shareholder Representative (as defined in Section 1.4(c)) shall instruct the Escrow Agent promptly to pay Neff, by wire transfer of immediately available funds to an account designated by Neff, an amount equal to the amount of such reduction (such amount, the “ Post-Closing Equipment Condition Adjustment ”).  For purposes of this Agreement, an item of Equipment is “ Rental Ready ” only if all reasonably required maintenance has been performed and it does not require any repairs before being rented to a customer. Notwithstanding the foregoing, Equipment will be in “rental ready” condition for any item with an original cost of less than five thousand ($5,000.00) dollars that requires no more than two hundred ($200.00) of repairs for any one item and for any item with an original cost greater than five thousand ($5,000.00) dollars that requires no more than four hundred ($400.00) dollars of repairs for any one item. Notwithstanding anything to the contrary provided

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herein, there will be a deduction from the Purchase Price, only to the extent that the aggregate original value of missing or inoperative equipment (including any such Equipment identified in either the pre-Closing physical inventory or the post-Closing physical inventory) exceeds one hundred twenty-five thousand ($125,000.00) dollars.   Any disputes as to the physical count, fair market value or Rental Readiness of any item of Equipment will, if possible, be resolved by Neff and the Shareholders while the physical inventory of such Equipment is being taken.  Any such disputes not so resolved will be resolved by arbitration in accordance with Section 10.

(c)           (i)           Neff shall pre­pare and deliver to Don Bates (the “ Shareholder Representative ”), not later than 90 days after the Closing, on a consolidated basis, (A) a statement setting forth a calculation of the Closing Date Working Capital as of the close of business on the Closing Date (the “ Closing Working Capital Statement ”) and (B) a statement setting forth (1) the invoice value of each piece of rental equipment acquired by the Corporation after January 31, 2006 and prior to the Closing Date and the total invoice value of all such new equipment, (2) the proceeds of all rental equipment disposed of after January 31, 2006 and prior to the Closing Date and (3) a calculation of the Net Equipment Adjustment (the “ Net Equipment Adjustment Statement ”).  The Closing Working Capital Statement shall be prepared in accordance with U.S. GAAP applied consistently with the financial statements set forth in Schedule 3.7 hereto ( provided that in the event of a conflict between U.S. GAAP and consistency, U.S. GAAP shall control), and shall present fairly, in all material respects, the financial condition of the Corporation as of the Closing.  The Shareholders shall cooperate with Neff and its accountants in the preparation of the Closing Working Capital Statement and the Net Equipment Adjustment Statement.  For purposes of the foregoing, “ U.S. GAAP ” means accounting principles generally accepted in the United States of America, including generally accepted accounting principles as interpreted by the United States Securities and Exchange Commission.  For the avoidance of doubt, the term, “ U.S. GAAP ,” when used herein, shall mean the accounting prin­ciples generally accepted by the SEC as reflected in Regulation S-X promulgated under the Securi­ties Exchange Act as in effect from time to time.

(ii)           Neff will cooperate with the Shareholder Representative and will ensure that the Shareholder Representative and his auditor will be able to review the Closing Working Capital Statement and Net Equipment Adjustment Statement as soon as practicable after it is delivered to the Shareholder Representative.  Within 30 days following the Shareholder Representative’s receipt of the Closing Working Capital Statement and Net Equipment Adjustment Statement, the Shareholder Representative shall notify Neff in writing of any objections that the Shareholder Representative may have to the Closing Working Capital Statement or the Net Equipment Adjustment Statement, stating in reasonable detail the basis for any such objections (an “ Objection Notice ”); provided , that the only bases for objection shall be (A) non-compliance with the standards set forth in Section 1.4(c)(i) for the preparation of the Closing Working Capital Statement and (B) computational errors.  If the Shareholder Representative fails to deliver an Objection Notice to Neff within such 30-day period, the Shareholder Representative will be deemed to have concurred with the Closing Working Capital Statement and the Net Equipment Adjustment Statement.

(iii)          If the Shareholder Representative timely delivers an Objection Notice to Neff in accordance with 1.4(c)(ii), Neff and the Shareholder Representative shall, together with their respective independent certified public accountants, promptly consult

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with each other in good faith and exercise reason­able efforts to attempt to resolve differences in their respective analyses of the Closing Working Capital Statement and Net Equipment Adjustment Statement within ten days after the Shareholder Representative delivers the Objection Notice.  Any matter not specifically referenced in the Objection Notice shall be conclusively deemed to have been agreed upon by the parties.  If the parties are unable to resolve their differences within such ten-day period, the matter shall be resolved in accordance with Section 10.

(iv)          Each party shall bear the fees and expenses of its re­spec­tive independent certified public accountants incurred in performing services pursuant to this Section.

(v)           Subject to the terms and conditions of this Agreement, the following adjustments and payments shall be made:

(A)                If the Closing Date Working Capital as set forth on the Closing Working Capital Statement as concurred with by the Shareholder Representative or as finally resolved in the manner set forth above exceeds the estimate of the Closing Date Working Capital determined pursuant to Section 1.3(b)(ii) and used to determine the amounts paid to the Shareholders at the Closing pursuant to Section 1.2, the Purchase Price shall be increased by the amount of such excess.

(B)                 If the Closing Date Working Capital as set forth on the Closing Working Capital Statement as concurred with by the Shareholder Representative or as finally resolved in the manner set forth above is less than the estimate of the Closing Date Working Capital determined pursuant to Section 1.3(b)(ii) and used to determine the amounts paid to the Shareholders at the Closing pursuant to Section 1.2, the Purchase Price shall be reduced by the amount of such difference.

(C)                 If the Net Equipment Adjustment as set forth on the Net Equipment Adjustment Statement as concurred with by the Shareholder Representative or as finally resolved in the manner set forth above exceeds the estimate of the Net Equipment Adjustment determined pursuant to Section 1.3(c)(ii) and used to determine the amounts paid to the Shareholders at the Closing pursuant to Section 1.2, the Purchase Price shall be increased by the amount of such excess.

(D)                If the Net Equipment Adjustment as set forth on the Net Equipment Adjustment Statement as concurred with by the Shareholder Representative or as finally resolved in the manner set forth above is less than the estimate of the Net Equipment Adjustment determined pursuant to Section 1.3(c)(ii) and used to determine the amounts paid to the Shareholders at the Closing pursuant to Section 1.2, the Purchase Price shall be reduced by the amount of such difference.

(E)                 If the aggregate amount paid at the Closing by Neff (including with respect to the Hold Back) exceeded the final Purchase Price, as adjusted pursuant to this Section 1.4(c), the Shareholder Representative shall instruct the Escrow Agent promptly pay to Neff, by wire transfer of immediately available funds to an account designated by Neff, an

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amount equal to such excess.  If the aggregate amount paid at the Closing by Neff (including with respect to the Hold Back) was less than the final Purchase Price, as adjusted pursuant to this Section 1.4(c), Neff shall promptly pay to the Shareholder Representative an amount equal to the difference between such final Purchase Price and the aggregate amount so paid by Neff at the Closing.  Any payment made pursuant to this Section 1.4(c) shall be accompanied by the payment of interest on the amount so paid, from and including the date of the Closing to but excluding the date of the payment, calculated on a monthly basis at the prime, rate of interest announced in The Wall Street Journal from time to time during the period beginning on the date of the Closing and ending on the date of payment.

1.5         Excluded Assets .  The assets listed on Schedule 1.5 (the “ Excluded Assets ”) shall be transferred to the Shareholders prior to the Closing, and Neff shall acquire no interest in or claim to any of the Excluded Assets.  The transfer of Excluded Assets shall be deemed effective for all purposes prior to the Closing Date.

1.6           Withholding Rights .  Neff and the Escrow Agent shall be entitled to deduct and withhold from any amount otherwise payable pursuant to this Agreement to the Shareholders such amounts as Neff and the Escrow Agent are required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the “Code” ) or any provision of state, local or foreign Tax law.  To the extent that amounts are so withheld by Neff and the Escrow Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Shareholders.  The parties acknowledge that, in reliance upon the representations of the Shareholders pursuant to Section 6.5, no amounts are being withheld with respect to the payments being made to the Shareholders on the date hereof pursuant to Section 1.2.

2.             CLOSING TIME AND PLACE

The closing of the transactions contemplated herein (the “ Closing ”) shall take place on May 18, 2006 (the “ Closing Date ”).  The Closing shall take place at the offices of Latham & Watkins LLP, 633 West Fifth Street, Suite 4000, Los Angeles, CA 90077. At the Closing, Neff and the Shareholders shall deliver to each other the documents, instruments and other items described in Section 5 of this Agreement.

3.             REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE SHAREHOLDERS

The Corporation and the Shareholders, jointly and severally, (i) represent and warrant that each of the following representations and warranties is true as of the Closing Date with respect to the Shareholders and the Corporation, as the case may be, and (ii) agree that such representations and warranties shall survive the Closing.

3.1         Organization, Standing and Qualification .  The Corporation is duly organized, validly existing and in good standing under the laws of the State of California.  The Corporation has full corporate power and authority to own and lease its properties and to carry on its business as now conducted.  The Corporation is not conducting business as a foreign

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corporation in any other state.

3.2         Capitalization .  Schedule 3.2 sets forth, as of the Closing Date, the authorized and outstanding capital stock of the Corporation, the name, addresses and social security numbers or taxpayer identification numbers of the record and beneficial owners thereof, and the number of shares so owned, and wire transfer instructions for each Shareholder relating to the bank account to which the portion of the Purchase Price payable to each of them on the Closing Date should be sent.  On the Closing Date, all of the issued and outstanding shares of the capital stock of the Corporation were owned of record and beneficially by the Shareholders, as set forth in Schedule 3.2, and were free and clear of all liens, security interests, encumbrances, charges or claims of every kind (collectively, “ Liens ”).  Each share of the capital stock of the Corporation is duly and validly authorized and issued, fully paid and nonassessable, and was not issued in violation of any preemptive rights of any past or present shareholder of the Corporation.  No option, warrant, call, conversion right, preemptive right, right of first offer or refusal or commitment of any kind (including any of the foregoing created in connection with any indebtedness of the Corporation) exists which obligates the Corporation to issue any of its authorized but unissued capital stock or other equity interest, or which obligates any Shareholder to transfer any of the Corporation’s Stock to any Person.  Schedule 1.3(a) sets forth a complete and accurate description of the Funded Debt.  For purposes of this Agreement, “ Person ” shall be deemed to mean an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity, including a Governmental Authority (as such term is defined in Section 3.14(c) herein).

3.3         All Stock Being Acquired .  The Corporation’s Stock being acquired by Neff hereunder constitutes all of the outstanding capital stock of the Corporation.

3.4         Authority for Agreement .  The Corporation and the Shareholders have full right, power and authority to enter into this Agreement and to perform its, his or her obligations hereunder.  The execution and delivery of this Agreement by the Corporation has been duly authorized by its Board of Directors.  This Agreement has been duly and validly executed and delivered by the Corporation and the Shareholders and, subject to the due authorization, execution and delivery by Neff, constitutes the legal, valid and binding obligation of the Corporation and the Shareholders enforceable against the Corporation and the Shareholders in accordance with its terms.

3.5         No Breach or Default .  Except as disclosed on Schedule 3.5, the execution and delivery by the Corporation and the Shareholders of this Agreement, and the consummation by the Shareholders of the transactions contemplated hereby, do not and will not:

(a)           result in the breach of any of the terms or conditions of, or constitute a default under, or allow for the acceleration or termination of, or in any manner release any party from any obligation under, or require any consent under, or result in the vesting of any right of payment or other right, or any lien, claim, or encumbrance on the Corporation’s Stock or the assets of the Corporation under, any mortgage, lease, note, bond, indenture, or material contract, agreement, license or other instrument or obligation of any kind or nature to which the Corporation or the Shareholders are a party, or by which the Corporation, the

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Shareholders or any of its or their assets, is or may be bound or affected; or

(b)           violate any law or any order, writ, injunction or decree of any court, administrative agency or governmental authority, or require the approval, consent or permission of any Governmental Authority; or

(c)           violate the Articles of Incorporation or Bylaws of the Corporation.

3.6         No Subsidiaries .  The Corporation has no subsidiaries, and there is no Person the equity or securities of which are held by the Corporation.

3.7         Financial Statements .  Schedule 3.7 includes copies of the following consolidated financial statements (“ Financial Statements ”) of the Corporation: balance sheets as of, and statements of income for the fiscal years ended, December 31, 2004 compiled by Mann, Urrutia, Nelson, CPAs & Assoc., LLP (the “ CPA ”) and balance sheets of, and statements of income for the fiscal years ended, December 31, 2005 (December 31, 2005 shall be referred to as the “ Balance Sheet Date ”) reviewed by the CPA, and an unaudited balance sheet as of, and unaudited statements of income for the three-month period ended, March 31, 2006.  The Financial Statements have been prepared in accordance with U.S. GAAP and are true and correct and fairly present (i) the financial position of the Corporation as of the respective dates of the balance sheets included in said statements, and (ii) the results of operations for the respective periods indicated.  The Financial Statements have been prepared consistently with prior periods.  Except to the extent reflected or reserved against in the Corporation’s balance sheet as of the Balance Sheet Date, or as disclosed on Schedule 3.7 or Schedule 3.8, the Corporation had as of the Balance Sheet Date, and has, as of the Closing Date, no liabilities of any nature, whether accrued, absolute, contingent or otherwise, including, without limitation, tax liabilities due.

3.8         Liabilities .  Schedules 3.8(a), (b), (c) and (d), are accurate lists and descriptions of all liabilities of the Corporation required to be described below in the format set forth below.

(a)           Schedule 3.8(a) lists, as of the Closing Date (other than trade payables, which are listed as of the Balance Sheet Date), all indebtedness for money borrowed and all other fixed and uncontested liabilities of any kind, character and description (excluding all real and personal property leasehold interests included in Schedule 3.8(d)) not included in Funded Debt, whether reflected or not reflected on the Financial Statements and whether accrued or absolute, and states as to each such liability the amount of such liability and to whom payable.  From the Balance Sheet Date through the Closing Date, trade payables have been incurred only in the ordinary course of business consistent with comparable prior periods.

(b)           Schedule 3.8(b) lists, as of the Closing Date, all claims, suits and proceedings which are pending against the Corporation, all contingent liabilities and, to the knowledge of the Corporation and the Shareholders, all claims, suits and proceedings threatened or anticipated against the Corporation.  Schedule 3.8(b) includes a summary description of each such liability, including, without limitation, (A) the name of each court, agency, bureau, board or body before which any such claim, suit or proceeding is pending, (B) the date such claim, suit or proceeding was instituted, (C) the parties to such claim, suit or proceeding, (D) a brief

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description of the factual basis alleged to underlie such claim, suit or proceeding, including the date or dates of all material occurrences, and (E) the amount claimed and other relief sought, together with copies of all material documents, reports and other records relating thereto to the extent that they are in the Corporation’s or the Shareholders’ possession or control.

(c)           Schedule 3.8(c) lists, as of the Closing Date and to the extent not otherwise included in Schedule 3.8(a), all liens, claims and encumbrances secured by or otherwise affecting any asset of the Corporation (including any Corporate Property (as defined in Section 3.12(a)), including a description of the nature of such lien, claim or encumbrance, the amount secured if it secures a liability, the nature of the obligation secured, and the party holding such lien, claim or encumbrance.

(d)           Schedule 3.8(d) lists, as of the Closing Date and to the extent not otherwise included in Schedules 3.8(a) and (c), all real and personal property leasehold interests to which the Corporation is a party as lessor or lessee (except for leases relating to Equipment in which the Corporation is the lessor) or, to the knowledge of the Corporation or the Shareholders, affecting or relating to any Corporate Property, and includes a description of the nature and principal terms of such leasehold interest, including, without limitation, the identity of the other party thereto, the term of such leasehold interest (including renewal options), the base rent and any additional rent owing thereunder (including any adjustments thereto), security deposits, rights of first offer or first refusal, purchase options, and restrictions on transfer.  All such leasehold interests (whether or not listed on Schedule 3.8(d)) are in full force and effect and binding on the parties thereto; neither the Corporation nor, to the knowledge of the Shareholders or the knowledge of the Corporation, any other party to any such Lease is in breach of any of the material provisions thereof; and to the knowledge of the Corporation and the knowledge of the Shareholders there exist no defaults or conditions that could lead to a default.

Except as described on Schedules 3.8(a), (b), (c) and (d), neither the Corporation nor any of the Shareholders has made any payment or committed to make any payment since the Balance Sheet Date on or with respect to any of the liabilities or obligations listed on Schedule 3.8(a), (b), (c) and (d) except, in the case of liabilities and obligations listed on Schedule 3.8(a), (c) and (d), periodic payments required to be made under the terms of the agreements or instruments governing such obligations or liabilities, or except as made in the ordinary course of business.

 

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3.9         Rental Asset Listing; Personal Property .

(a)           Schedule 1.3(c) and the Rental Asset Listing collectively list all of the Equipment owned or leased by the Corporation as of the date of this Agreement for lease or rent to customers, including, with respect to each such piece of Equipment, the initial cost, accumulated depreciation and net book value of such item as of March 31, 2006.  Except as described on Schedule 3.9(a), all of the Corporation’s rental equipment (whether listed on Schedule 1.3(c) and the Rental Asset Listing or not) (i) have been maintained in the ordinary course of business, (ii) are in operable condition, and (iii) are in material compliance with all applicable laws, rules and regulations.  All of the Corporation’s rental equipment (whether listed on Schedule 1.3(c) and the Rental Asset Listing or not) are in rental ready condition consistent with Section 1.4(b) .

(b)           Schedule 3.9(b) lists, as of the Closing Date, substantially all the personal property and fixed assets (other than real estate, and Equipment included on Schedule 1.3(c) or the Rental Asset Listing) of the Corporation, including, without limitation, identification of each vehicle by description and serial number, identification of machinery, equipment and general descriptions of parts, supplies and inventory.  The Excluded Assets are not assets of the Corporation and are not reflected on Schedule 3.9(b) or in any Financial Statements.  Attached to Schedule 3.9(b) are copies of all motor vehicle titles and current registrations.  Except as described on Schedule 3.9(b), all of the Corporation’s vehicles, machinery and equipment necessary for the operation of its business (other than the Equipment listed on Schedule 1.3(c) and the Rental Asset Listing) (collectively, the “ Other Assets ”) (i) have been maintained in the ordinary course of business, (ii) are in operable condition, and (iii) are in material compliance with all applicable laws, rules and regulations.    All leases of fixed assets are in full force and effect and binding upon the parties thereto and  neither the Corporation nor any other party to such leases is in breach of any of the material provisions thereof.

3.10       Permits and Licenses .

Schedule 3.10 is a full and complete list, and includes copies, of all material permits, licenses, titles, fuel permits, zoning and land use approvals and authorizations, including, without limitation, any environmental permits, conditional or special use approvals or zoning variances, occupancy permits, and any other similar documents constituting a material authorization or entitlement required for the ownership or the operation of the business of the Corporation (collectively the “ Governmental Permits ”).  Each such Governmental Permit has been duly obtained, is owned by, issued to, held by or otherwise benefiting the Corporation as of the Closing Date and is valid and held in full force and effect.  Any material conditions to the Governmental Permits and, if applicable, the expiration dates thereof, are also described in Schedule 3.10.  Except as set forth on Schedule 3.10, all of the Governmental Permits enumerated and listed on Schedule 3.10 are adequate for the operation of the business of the Corporation and of each Corporate Property as presently operated.  There are no proceedings pending or, to the knowledge of the Corporation or the knowledge of the Shareholders, threatened which may result in the revocation, cancellation, suspension or adverse modification of any of the same.

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3.11       Certain Receivables .

Schedule 3.11 is an accurate list as of the Closing Date of the accounts and notes receivable of the Corporation from, and advances to, employees, former employees, officers, directors, the Shareholders and Affiliates of the foregoing which have not been repaid.  For purposes of this Agreement, the term “ Affiliate ” means, with respect to any Person, any Person that directly or indirectly through one or more intermediaries controls or has an ownership interest in, or is controlled or owned in whole or in part by, or is under common control or ownership in whole or in part with such Person, and in the case of the Corporation includes directors and officers, in the case of individuals includes the individual’s spouse, father, mother, grandfather, grandmother, brothers, sisters, children and grandchildren and in the case of a trust includes the grantors, trustees and beneficiaries of the trust.

3.12       Real Property .

(a)           A list of each parcel of real property or facility owned or leased (or subleased) as of the Closing Date (collectively, the “ Corporate Properties ”), including the street addresses of the same, is set forth in Schedule 3.12(a), and the Corporation has provided to Neff true, correct and complete copies of all leases and subleases relating to real property leased from third-party landlords pursuant to which the Corporation leases Corporate Property from such third-party landlord.   All leases listed on Schedule 3.12(a) are in full force and effect and binding on the parties thereto; neither the Corporation nor, to the knowledge of the Corporation or the knowledge of the Shareholders, any other party to any such Lease is in breach of any of the material provisions thereof; to the knowledge of the Corporation or the knowledge of the Shareholders, the landlord’s interest in any such Lease has not been assigned to any third party nor has any such interest been mortgaged, pledged or hypothecated; and the Corporation has not assigned any such lease or sublet all or any part of the Corporate Property which is the subject of any such lease.  With regard to any sublease, the Corporation has provided to Neff true, correct and complete copies of each lease related to the property subject to such sublease, and to the knowledge of the Shareholders or the knowledge of the Corporation, all such leases are in full force and effect and binding on the parties thereto, and no party is in breach of any of the material terms thereof.

(b)           Except as otherwise disclosed on Schedule 3.12(b):

(i)            Each Corporate Property is fully licensed, permitted and authorized to carry on its current business under all applicable federal, state and local statutes, orders, approvals, zoning or land use requirements, rules and regulations, and covenants, conditions and restrictions applicable to the Corporate Property, and no Corporate Property or the current use thereof constitutes a non-conforming use or is otherwise subject to any restrictions regarding the operation, renovation or reconstruction thereof.

(ii)           All activities and operations at each Corporate Property are being and have been conducted in compliance in all material respects with the requirements, criteria, standards and conditions set forth in all applicable federal, state and local statutes, orders, approvals, permits, zoning or land use requirements and covenants, conditions,

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restrictions, variances, licenses, rules and regulations.

(iii)          To the knowledge of the Shareholders or the knowledge of the Corporation, there are no circumstances, conditions or reasons which are likely to be the basis for revocation or suspension of any Corporate Property’s material site assessments, permits, licenses, consents, authorizations, zoning or land use permits, variances or approvals relating to such Corporate Property that is leased to the Corporation, and there are no circumstances, conditions or reasons which are likely to be the basis for revocation or suspension of any material site assessment, permits, licenses, consents, authorizations, zoning or land use permits, variances or approvals relating to any Corporate Property.

(c)           No Corporate Property is the subject of, or would be affected by, any pending condemnation or eminent domain proceedings, and, to the knowledge of the Corporation or the knowledge of the Shareholders, no such proceedings are threatened.

(d)           The Corporate Properties include all the real property used by the Corporation in connection with the current business operation of the Corporation which is necessary for the operation of the Business of the Corporation as currently conducted.

3.13       Litigation .  There are no actions, suits, arbitrations, proceedings or investigations pending or, to the knowledge of the Shareholders or the knowledge of the Corporation, threatened against the Corporation, in or before any court, arbitration panel or other tribunal or before or by any Governmental Authority, except actions, suits, proceedings or investigations as disclosed in Schedule 3.13.  Except as set forth on Schedule 3.13, there is no outstanding judgment, order, writ, injunction or decree against the Corporation, the result of which could materially adversely affect the Corporation or its business or any of the Corporate Properties, nor has the Corporation been notified that any such judgment, order, writ, injunction or decree has been requested.

3.14       Contracts and Agreements .

(a)           Schedule 3.14(a) lists, as of the Closing Date, all material contracts and agreements (other than standard rental agreements with customers, leases included with Schedule 3.8(d) and other documents included with Schedule 3.12(a)) to which the Corporation is a party or by which it or any of its property is bound (including, but not limited to, dealership agreements, commission agreements, joint venture or partnership agreements, contracts with any labor organizations, promissory notes, loan agreements, bonds, mortgages, deeds of trust, liens, pledges, conditional sales contracts or other security agreements).  The Corporation has provided Neff with true, complete and correct  copies of all items listed or required to be listed on Schedule 3.14(a).  Except as disclosed on Schedule 3.14(a), all contracts and agreements required to be listed on Schedule 3.14(a) and all rental agreements with customers are in full force and effect and binding upon the parties thereto.  Except as set forth on Schedule 3.14(a), none of such contracts and agreements required to be listed on Schedule 3.14(a) and no rental agreement with any customer requires notice to, or consent or approval of, any third party of the transactions contemplated hereby.  Except as described or cross referenced on Schedule 3.14(a), neither the Corporation nor, to the knowledge of the Shareholders or the knowledge of the Corporation, any other parties to such contracts and agreements is in breach thereof, and none of

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the parties has threatened to breach any of the material provisions thereof or notified the Corporation or the Shareholders of a default thereunder, or exercised any options thereunder.

(b)           With regard to rental agreements with customers, (i) the Corporation has provided Neff with a true, complete and correct copy of the form of rental agreement used by the Corporation in connection with such agreements, (ii) each such rental agreement conforms in all material respects to the form of rental agreement provided to Neff, (iii) attached hereto as Schedule 13.4(b) is a schedule of all rental agreements with customers as of March 31, 2006 setting forth in each case the name of the customer, the equipment subject to the lease, the lease rate and the term of the lease.

(c)           The Corporation is not a party, directly or indirectly, to any prime contract, subcontract, basic ordering agreement, letter agreement, purchase order, delivery order, bid, change order or commitment, in each case, with (a) any Governmental Authority or (b) any prime contractor or subcontractor with respect to performance by the Corporation or any of its subsidiaries as subcontractor of any portion of the obligations of the prime contract with any Governmental Authority.   For purposes of this Agreement the term “ Governmental Authority ” means any government, governmental, statutory, regulatory or administrative authority, agency, body or commission, or any court, tribunal or judicial body, whether federal, state, local or foreign.

(d)           Without limiting the foregoing, the agreements described on Schedule 3.14(d) are not material to the Corporation, and the Corporation is not, directly or indirectly, subject to any material liability pursuant to any of the agreements described on Schedule 3.14(d).

3.15       Insurance .  Schedule 3.15 is a complete list and includes copies, as of the Closing Date, of all insurance policies in effect on the Closing Date or, with respect to “occurrence” policies that were in effect, carried by the Corporation in respect of the Corporate Properties or any other property used by the Corporation and Schedule 3.15 specifies, for each policy, the name of the insurer, the type of risks insured, the deductible and limits of coverage, and the annual premium therefore.  During the last two years, there has been no lapse in any material insurance coverage of the Corporation.  For each insurer providing coverage for any of the contingent or other liabilities, except to the extent otherwise set forth in Schedule 3.8(b), each such insurer, if required, has been properly and timely notified of such liability, no reservation of rights letters have been received by the Corporation and the insurer has assumed defense of each suit or legal proceeding.

3.16       Personnel .  Schedule 3.16 is a complete list, as of the Closing Date, of all officers, directors and employees (by type or classification) of the Corporation and their respective rates of compensation, including (i) the portions thereof attributable to bonuses, (ii) any other salary, bonus, stock option, equity participation, or other compensation arrangement made with or promised to any of them, and (iii) copies of all employment agreements with non-union officers, directors and employees.  Schedule 3.16 shall also list the driver’s license number for each driver of the Corporation’s motor vehicles who is required to have a commercial, chauffeur’s, or other special class of drivers license in order to operate commercial or heavy

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vehicles used in any of the Corporation’s business.

3.17       Benefit Plans and Union Contracts .

(a)           Schedule 3.17(a) is a complete list as of the Closing Date, and includes complete copies (or, in the case of oral arrangements, descriptions), of all “employee benefit plans” (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)) (whether or not subject to ERISA) and any other plans, policies, programs, practices, agreements, understandings or arrangements (written or oral) providing compensation or other benefits to any current or former director, officer, employee or independent contractor (or to any dependent or beneficiary thereof) of the Corporation or any ERISA Affiliate (as defined below), which are currently, or were within the past six years, maintained, sponsored or contributed to by the Corporation or any ERISA Affiliate, or under which the Corporation or any ERISA Affiliate has any obligation or liability, whether actual or contingent, including without limitation, all employment, retention, severance and change in control agreements, any agreements containing “golden parachute” provisions, stock purchase, stock option, stock appreciation, phantom stock, restricted stock or other stock-based compensation, incentive, bonus, retirement, welfare benefit, vacation, holiday, cafeteria, medical, disability and deferred compensation plans, policies, programs, practices, agreements, understandings or arrangements (each, a “ Benefit Plan ”), together with complete copies of such Benefit Plans, any summaries and summary plan descriptions thereof (including any summary of material modifications), any trust agreements, insurance contracts or other funding vehicles related thereto, and classifications of employees covered thereby as of the Closing Date. For purposes of this Section 3.17, “ ERISA Affiliate ” shall mean any entity (whether or not incorporated) other than the Corporation that, together with the Corporation, is considered under common control and treated as one employer under Section 414(b), (c), (m) or (o) of the Code. Except for the Benefit Plans described on Schedule 3.17(a), the Corporation has no other pension, retirement, welfare, profit sharing, deferred compensation, stock option, employee stock purchase or other employee benefit plans or arrangements with any party.  All Benefit Plans are fully funded and have been operated in compliance with all applicable federal, state and local statutes, ordinances and regulations, including ERISA and the Code. With respect to the Benefit Plans, no event has occurred and, to the Corporation’s or the Shareholder’s knowledge, there exists no condition or set of circumstances in connection with which the Corporation could be subject to any material liability (other than for routine benefit liabilities) under the terms of, or with respect to, such Benefit Plans, ERISA, the Code or any other applicable laws, rules and regulations. All such plans that are intended to qualify under Section 401(a) of the Code have been determined by the Internal Revenue Service to be so qualified, and copies of such determination letters are included as part of Schedule 3.17(a).  Except as disclosed on Schedule 3.17(a), all reports and other documents required to be filed with any governmental agency or distributed to plan participants or beneficiaries (including, but not limited to, annual reports (Form 5500 series), actuarial reports or other financial statements, audits or tax returns) have been timely filed or distributed, and copies thereof are included as part of Schedule 3.17(a).  All Benefit Plans have been in all material respects operated in accordance with the terms and provisions of the plan documents and all related documents and policies. No “reportable event” (within the meaning of Section 4043 of the Code) and no nonexempt “prohibited transaction” (within the meaning of Section 4975 of the Code) that could reasonably be expected to result in liability to the Corporation has occurred with respect to any Benefit Plan, and the

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Corporation has not otherwise incurred any liability for excise tax or penalty due to the Internal Revenue Service or U.S. Department of Labor nor any liability to the Pension Benefit Guaranty Corporation for any Benefit Plan, nor has the Corporation, nor any party-in-interest or disqualified Person, engaged in any transaction or other activity which would give rise to such liability. The Corporation has not at any time sponsored, contributed or been required to contribute to, and the Corporation does not otherwise have any liability (whether absolute or contingent) with respect to: (i) any plan subject to Section 412 of the Code, Section 302 of ERISA or Title IV of ERISA, including, without limitation, any “multiemployer plan” (within the meaning of Sections 3(37) or 4001(a)(3) of ERISA) or any “single-employer plan” (within the meaning of Section 4001(a)(15) of ERISA), (ii) any deferred compensation, excess benefit or other non-qualified retirement plan, program or other arrangement, or (iii) any plan, program or other arrangement that provides or promises to provide post-employment or post-retirement medical, disability or life insurance benefits (except as required by applicable laws, rules and regulations).  As of and including the Closing Date, the Corporation shall have made all contributions required to be made by it up to and including the Closing Date with respect to Benefit Plans.  All notices, filings and disclosures required by ERISA or the Code (including notices under Section 4980B of the Code) have been timely made with respect to each Benefit Plan.  The Corporation does not have any material liability, whether absolute or contingent, including any obligations under the Benefit Plans, with respect to any misclassification of a person performing services for the Corporation as an independent contractor rather than as an employee.

(b)           Schedule 3.17(b) is a complete list, as of the Closing Date, and includes complete copies of all union contracts and agreements between the Corporation and any collective bargaining group.  None of such agreements will expire or otherwise terminate within two years of the Closing Date.  The Corporation is in compliance in all material respects with all applicable federal and state laws respecting employment and employment practices, terms and conditions of employment, wages and hours, and nondiscrimination in employment, and is not engaged in any unfair labor practice.  There is no charge pending or, to the Corporation’s or the Shareholder’s knowledge, threatened, against the Corporation be